Lower-Income Americans Get Cheated on Property Taxes(nytimes.com)
nytimes.com
Lower-Income Americans Get Cheated on Property Taxes
https://www.nytimes.com/2021/04/03/opinion/sunday/property-taxes-housing-assessment-inequality.html
67 comments
This seems tangential to the NYT article, which is specifically calling out differences in the assessed values of the same type of assets as a function of their actual market value. Particularly they’re comparing houses that are often assessed by the same government entity under what are supposed to be uniformly applied standards. The consistent under assessment of high value homes versus the simultaneous over assessment of low value homes, across a number of different geographical locales would seem to point to some kind of systemic issue. I don’t think we should so quickly dismiss it. And anecdotally, in my area, I see a lot more police patrols in the pricier neighborhoods than the cheaper ones. In most middle class neighborhoods you have speed bumps in the road, the higher end ones get regular police presence to deter speeding so they don’t need to put up with such aesthetic blemishes.
The justification for taxing real property taxes but not chattels is that real property is scarce and capable of producing positive externalities. Taxing it is one way to insure that it is put to efficient use.
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It gets worse than this.
At least in Illinois, the way property taxes work is, you add up the cost of all the functions of local government. You offset those costs with non-tax revenue, like permit fees. Whatever's left is the levy, and it's divided through the assessed value of all the property in the area to work out the tax rate.
Which means that as areas become economically troubled, their tax rates can go up; the same basic services need to be payed more and more from property taxes on residents because there's less and less permit revenue from investment. As property taxes increase, the value of homes drops; people have a fixed amount they can spend on housing. Fewer residents, less investment, vicious cycle.
At least in Illinois, the way property taxes work is, you add up the cost of all the functions of local government. You offset those costs with non-tax revenue, like permit fees. Whatever's left is the levy, and it's divided through the assessed value of all the property in the area to work out the tax rate.
Which means that as areas become economically troubled, their tax rates can go up; the same basic services need to be payed more and more from property taxes on residents because there's less and less permit revenue from investment. As property taxes increase, the value of homes drops; people have a fixed amount they can spend on housing. Fewer residents, less investment, vicious cycle.
Is it any different anywhere else? Non federal government’s outgoing cash flow has to from somewhere, and it’s going to come from various sources such as property taxes, fees, tolls, income tax, business and occupation taxes, debt, etc. Exactly how the burden is allocated depends on the political power of the various groups of payers.
In Illinois’ case, the taxes especially go up in an economically distressed area because they local and state governments are heavily indebted so there’s less room for local governments to cut expenses. As I understand they try to remedy this by increasing various sales taxes and tried for marginal income tax rates last year, but didn’t succeed.
In Illinois’ case, the taxes especially go up in an economically distressed area because they local and state governments are heavily indebted so there’s less room for local governments to cut expenses. As I understand they try to remedy this by increasing various sales taxes and tried for marginal income tax rates last year, but didn’t succeed.
I doubt that it is different elsewhere; it's a phenomenon of how property taxes generally work, not something uniquely bad about Illinois. I just don't want to write that it works this way everywhere and have someone tag me with a comment about some weird levy formula Kansas uses.
Wait until you hear about California's Prop 13...
For the uninitiated https://www.taxfairnessproject.org/
But honestly if you're happy living in California ignorance is bliss on this one
But honestly if you're happy living in California ignorance is bliss on this one
Why are they talking about homeowners but not about shopping malls and office buildings? The whole point of Proposition 13 was to lock in taxation on commercial real estate which is rarely sold.
It's even worse than that. You can create a holding company for the building, then just sell the company. Since there's no sale of the property itself, the property taxes are locked in forever at a low rate.
Don't you have to pay tax if you use company property for personal use? I do not know American taxation system, but it would be reasonable to assume so.
In California, property doesn't get reassessments unless it's sold. If the owning corporation never sells the land it's taxed based on purchase price forever.
This how we have private golf courses in the middle of Los Angeles and dilapidated shacks adjacent to Google's global HQ.
This how we have private golf courses in the middle of Los Angeles and dilapidated shacks adjacent to Google's global HQ.
This is an article about homeowners. Simply because gas stations and golf courses also get a big stupid tax cut doesn't mean anything goes for residential investors.
It's the standard pattern of corporate activism, dividing people into groups and encouraging them battle one another. The outraged people demand more oppression on the other group to level the playing field, and invent justifications like how it would be economically sensible to make longtime residents move out of their family homes by raising the taxes to reflect an imagined paper asset valuation - in other words even if you own your home outright, you still shouldn't be able to escape the economic treadmill (the crab bucket mentality in action). The people in the crosshairs then have to fight back to keep what they have, while the corporations escape most scrutiny. When the conflict boils over to the point where a law might be passed, the corporations pay off the politicians to grant them an exception, and continue unhindered.
Heck, our whole system is set up this way. For example why is it even taken as some given that property taxes need to continually go up in the first place?! The setup has been made big enough such that most people won't work to understand the whole thing to critique it, instead giving up to focus on the individual actors they most strongly perceive. The overall situation becomes "nobody's fault" and just the way things are - oppression by construction while us plebs fight over scraps.
Heck, our whole system is set up this way. For example why is it even taken as some given that property taxes need to continually go up in the first place?! The setup has been made big enough such that most people won't work to understand the whole thing to critique it, instead giving up to focus on the individual actors they most strongly perceive. The overall situation becomes "nobody's fault" and just the way things are - oppression by construction while us plebs fight over scraps.
> Heck, our whole system is set up this way. For example why is it even taken as some given that property taxes need to continually go up in the first place?!
How do you propose governments address rising materials and labor costs? It’s obvious some geographical areas are more desirable than others, causing prices to rise. How could a government pay employees sufficiently so that employees can then pay for increased land/rent costs without raising taxes?
How do you propose governments address rising materials and labor costs? It’s obvious some geographical areas are more desirable than others, causing prices to rise. How could a government pay employees sufficiently so that employees can then pay for increased land/rent costs without raising taxes?
I'm obviously questioning the "wisdom" of why those also need to be increasing, especially as much as they do (the "treadmill" I alluded to). But I guess you'd rather force ideas into small boxes so you can jump on them - the familiar pattern that I went on to describe in the next sentence.
I won't convince anyone about the larger topic in a comment thread, so I'll just point out that we're living in the most productive time in history and yet we're still churning as hard as ever.
I won't convince anyone about the larger topic in a comment thread, so I'll just point out that we're living in the most productive time in history and yet we're still churning as hard as ever.
That was the point, wasn't it, real estate investment companies dodging taxes with a bone thrown to Grandma.
The Howard Jarvis Taxpayers Foundation - the primary lobby group behind prop 13 - sold it to voters almost entirely on the basis of not kicking grandma out of her home.
Since then they've lobbied to slash California state pensions on the basis of balancing the budget. If Grandma was a teacher she can go f*k herself, apparently.
Since then they've lobbied to slash California state pensions on the basis of balancing the budget. If Grandma was a teacher she can go f*k herself, apparently.
It would be fun if we got some federal law which invalidated this landed gentry legislation.
> Their average assessed value before the sale was $151,585.
I don't know quite how to analyze this data. But an average is an oversimplification of a series of years during which the properties' values were changing. What if they started at 200k at the beginning and then eventually sold for 100k at the end? Not necessarily unreasonable or unfair that they were assessed higher than 100k in that case. And because of differences among the properties it might at least be sane to do a median of each property's average-over-years.
NYT is probably right that there's an issue but '07 to '16 is probably not the best time period to sample.
I don't know quite how to analyze this data. But an average is an oversimplification of a series of years during which the properties' values were changing. What if they started at 200k at the beginning and then eventually sold for 100k at the end? Not necessarily unreasonable or unfair that they were assessed higher than 100k in that case. And because of differences among the properties it might at least be sane to do a median of each property's average-over-years.
NYT is probably right that there's an issue but '07 to '16 is probably not the best time period to sample.
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There is a neighborhood in my area that uses insanely high taxes to redline itself. $325k house in my metro area generally carries a tax of $4500 per year. The "redline district," we'll call it, charges $11k per year for the same valuation. That is $930 a month in real estate tax. A desirable neighborhood firmly surrounded by minority communities. The message is clear.
That seems like a terribly inefficient way of achieving exclusivity, if that’s the goal. If the neighborhood is indeed more desirable, wouldn’t the higher value of the houses themselves (which would also result in higher prop taxes anyway) serve the same function? In fact, the artificially high property tax must have a depressive effect on the house values in that neighborhood. I can’t think of why relatively well off people would voluntarily move into such a neighborhood. If anything, the high tax rate sounds punitive toward those who live there.
>>That seems like a terribly inefficient way of achieving exclusivity, if that’s the goal.
It's not a goal, it's a secondary consequence that happens often enough to be commented upon.
>>If the neighborhood is indeed more desirable, wouldn’t the higher value of the houses themselves (which would also result in higher prop taxes anyway) serve the same function?
Yes and no. Some people can save enough money to purchase a house from a middle class job or making it big in short-term/seasonal high-risk, high-reward activities (e.g. professional gambling, oil drilling, undersea welding, etc.) if there is only a large (but not untenable) one-time cost. However a property tax is a subscription fee on the basis of an invented metric that is as elastic as what the tax assessor can get away with. Paying thousands of dollars every year for the "privilege" of living in your own property would make doing the kinds of jobs that were adequate for purchaser, insufficient or unsustainable for a resident. The result, at best, is being house rich and cash poor.
>>In fact, the artificially high property tax must have a depressive effect on the house values in that neighborhood.
Sometimes they do, sometimes they don't. High property taxes can be seen as a form of economic signaling in areas like Manhattan or Beverly Hills. They can also be a result of local politics run amok. The former creates self-sustaining bubbles that will take a long time to (but will eventually) burst. The second will cause residential flight to lower cost areas as is currently happening with San Franciscans moving to Austin at first sight of a downturn.
>>I can’t think of why relatively well off people would voluntarily move into such a neighborhood. If anything, the high tax rate sounds punitive toward those who live there.
It's not that people want to move to higher property tax areas because they want higher taxes. These areas tend to be much safer and family-friendly, have better schools and amenities, are (in some cases) closer to one's workplace, and look aesthetically pleasing. A property tax, just like purchase price, is one factor in the equation of "is it worth it?". It's just not the factor, punitiveness notwithstanding.
It's not a goal, it's a secondary consequence that happens often enough to be commented upon.
>>If the neighborhood is indeed more desirable, wouldn’t the higher value of the houses themselves (which would also result in higher prop taxes anyway) serve the same function?
Yes and no. Some people can save enough money to purchase a house from a middle class job or making it big in short-term/seasonal high-risk, high-reward activities (e.g. professional gambling, oil drilling, undersea welding, etc.) if there is only a large (but not untenable) one-time cost. However a property tax is a subscription fee on the basis of an invented metric that is as elastic as what the tax assessor can get away with. Paying thousands of dollars every year for the "privilege" of living in your own property would make doing the kinds of jobs that were adequate for purchaser, insufficient or unsustainable for a resident. The result, at best, is being house rich and cash poor.
>>In fact, the artificially high property tax must have a depressive effect on the house values in that neighborhood.
Sometimes they do, sometimes they don't. High property taxes can be seen as a form of economic signaling in areas like Manhattan or Beverly Hills. They can also be a result of local politics run amok. The former creates self-sustaining bubbles that will take a long time to (but will eventually) burst. The second will cause residential flight to lower cost areas as is currently happening with San Franciscans moving to Austin at first sight of a downturn.
>>I can’t think of why relatively well off people would voluntarily move into such a neighborhood. If anything, the high tax rate sounds punitive toward those who live there.
It's not that people want to move to higher property tax areas because they want higher taxes. These areas tend to be much safer and family-friendly, have better schools and amenities, are (in some cases) closer to one's workplace, and look aesthetically pleasing. A property tax, just like purchase price, is one factor in the equation of "is it worth it?". It's just not the factor, punitiveness notwithstanding.
I agree with most of what you say in a general sense, but the OP seemed to believe that the high tax rate for the neighborhood in question was a deliberate strategy employed by the residents themselves, presumably in order to stand out from surrounding neighborhoods. I found that specific scenario hard to comprehend. But until we get more details from the OP, which isn’t likely, we can only guess at the actual cause of the unusual tax situation.
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In some exclusive, expensive cities around Seattle like Medina, Clyde Hill, Hunt's Point you see the opposite. Tax rates are much lower because against the higher property values the cities are able to collect enough to pay for services. There are some weird downsides though. Some of these cities don't have their own libraries and don't pay into the county library system, so their residents can't checkout books for any library. I guess they can afford to just buy any book they need.
Does that neighborhood also have better schools, police, and fire department? Are you absolutely sure its redlining or are you just assuming that?
Adding to this: similar thing seemingly happens in my town. Our taxes are higher than surrounding towns and of course the people are richer and "nicer". Except take 5 minutes to dig into the metrics and you see how much our police are paid (and it shows in their behavior and how much they care), the schools are better, the services and commercial spaces are better, etc.
bluecalm(6)
Rich people get cheated on income taxes by progressive taxes rates.
It's a great problem to have...
>it’s clear that it would be relatively easy for local governments to address these problems
This source of the author's gall is completely unsupported here. There is no data on what reassessment costs. Maybe leaving sticky assessments in place and adding a universal exemption would work better, like the federal income tax.
Of course, taxing illiquid wealth which a body relies on for shelter is itself problematic, but the author doesn't seem to consider that.
This source of the author's gall is completely unsupported here. There is no data on what reassessment costs. Maybe leaving sticky assessments in place and adding a universal exemption would work better, like the federal income tax.
Of course, taxing illiquid wealth which a body relies on for shelter is itself problematic, but the author doesn't seem to consider that.
A private partnership seems to solve this quickly though in many jurisdictions with OpenDoor, Redfin, Zillow; and that's not counting the old guard, banks and mls. Obviously, even if you take a weighted average of the above, the homeowner should be able to pay for their own assessment.
How illiquid is it given the widespread availability of HELOCs?
A house can't be sold readily. Even if you get in contract ASAP, it's usually 30 days until closing. It's illiquid because 30 days isn't 'readily'. To contrast this with something 'liquid', with a stock you can sell and wire the funds same day if you needed to, 2-3 days if you use ACH instead.
HELOC is a loan and doesn't have anything to do with how liquid the asset is.
HELOC is a loan and doesn't have anything to do with how liquid the asset is.
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Credit has little to do with convertability.
Why not? The argument is that someone sitting on a $2 million house isn’t “really” rich and shouldn’t have to pay taxes on their house. But they are “really” rich and can easily access that wealth. They’d just prefer not to.
"But they are “really” rich and can easily access that wealth. They’d just prefer not to."
Banks have lending limits. You're assuming the $2mm house isn't leveraged to begin with.
Banks have lending limits. You're assuming the $2mm house isn't leveraged to begin with.
If the house was worth $2 million when the owner bought it then they are rich or they’d have never gotten a mortgage. If they are fully leveraged because they’ve already pulled all the equity out—-well where’s that money?
I’m sure you can find some obscure edge case somewhere but by and large people that own things that are worth a lot of money are rich and don’t especially need our sympathy. Let’s save that for all the actual poor people out there that don’t own houses, much less multi-million dollar houses.
I’m sure you can find some obscure edge case somewhere but by and large people that own things that are worth a lot of money are rich and don’t especially need our sympathy. Let’s save that for all the actual poor people out there that don’t own houses, much less multi-million dollar houses.
I don't remember that argument in the article. It talked about race, not what assets imply.
From this perspective, there are massive inequities in tax cost:benefit across asset classes. Some of the most expensive assets pay nothing, and the cheapest pay the most. But I don’t think it goes in the direction the author wants it to.
[1] https://www.nobelprize.org/prizes/economic-sciences/1991/pre...