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A defense of the property tax

THE TAX WE
LOVE TO HATE

No other tax produces as many tangible services. Yet nobody
has anything good to say about it.

Essay by Mark Brown

One of the last of the great rewrite men at the Chicago papers was a character by the name of Chip Magnus. It was Magnus' job at the Chicago Sun-Times to take telephone calls on deadline from harried young reporters and typewriter-challenged old-timers and turn their ramblings into professional prose. But he became best known for some of his other pursuits, including his trademark, a realistic penguin imitation. Perhaps his most lasting contribution was the creation of the boost and knock lists.

The theory behind these unofficial and constantly updated lists was that somebody who had been getting nothing but bad press belonged on the boost list because he or she was overdue for a favorable story, while somebody who was getting nothing but good press was due for a spot on the knock list.

With only slight modification to his original concept, Magnus would have been hard-pressed to find a better candidate for his boost list than the Illinois property tax. In fact, it seems nobody has anything good to say about the property tax these days.

It has become increasingly fashionable for some politicians — mindful of voter discontent — to observe that, if they had their way, they would do away with the property tax and switch to a "fairer" one. Revenue study commissions spend months dreaming up obscure new taxes that will generate a few million here or there in order to avoid fallout from even the slightest property tax increase. When they do raise the property tax, local officials often try to cover their tracks by blaming it on assessment increases.

But the attacks have created a distorted view of its role in our system of government. Luckily, there are still a few academics out there who are willing to say what needs to be said: The property tax is not inherently evil. When properly administered, it is a fair tax. While income taxes capture income, and sales taxes capture consumption, real estate taxes are a legitimate means of capturing wealth because real estate values are a reasonable measure of wealth.

Indeed, it is such a logical place for government to look for dollars that if we didn't have a property tax in Illinois already, one of those revenue study committees would discover that every other state does and propose enacting one. No other tax produces as many tangible services that affect people in their daily lives. And it is the only major revenue-generator that lends itself to being locally levied and administered, an important element in keeping local government responsive to public demand.

This article isn't intended to praise the property tax, just to defend it. It certainly isn't a perfect tax. (You've heard the old saying: The only good tax is the one that you have to pay and I don't.) Nor is it intended to undermine the movement for some type of tax swap whereby lower property taxes would be traded for higher income or sales taxes. There are valid arguments to be made that property taxes are too high in some places in Illinois and that the state, as a whole, relies too heavily on the property tax. After all, Illinois taxpayers will cough up $12.9 billion in property taxes this year compared to just $8.2 billion in state income taxes.

But it's time for public offices in Illinois to make a more courageous effort to educate the public about the role of the property tax, about the services it provides them and about the trade-offs involved in substituting other taxes.

"If we believe in local government, then we're stuck with the property tax," says former University of Illinois government professor Glenn W. Fisher, author of a new book entitled The Worst Tax? A History of the Property Tax in America. "It's the only tax that can support local government," adds Fisher, whose book traces the evolution of the general property tax — levied on all kinds of property — into today's property tax, which mainly applies to real estate.

Fisher is one of those lonely souls

26 / February 1997 Illinois Issues

willing to defend the property tax. He taught at the Urbana-Champaign campus from 1960 to 1970 and then served as counsel to the Revenue and Finance Committee for the 1970 Illinois Constitutional Convention before moving on to Wichita State University, where he is regents professor of urban affairs emeritus. He says the property tax isn't the worst tax, although he won't say what is.

Fisher believes variations in tax base, along with difficulties in local administration, make income and sales taxes unsuitable as the main revenue source for local governments. Switching from the property tax may make those governments more remote and less responsive, he fears.

Another property tax defender is economist Therese J. McGuire, University of Illinois professor and associate director of the U of I's Institute of Government and Public Affairs. "I think it's a fair tax because I think owners of property get lots of valuable services from the local governments that levy the property tax," she says.

A lot of taxpayers don't feel that way, of course, which is one of the odd things about the property tax. It pays for schools, libraries and parks and a significant portion of vital municipal services such as police and fire protection, yet taxpayers often question where their money is going. Could it be that they are dissatisfied with their children's education, that the parks are rundown and that they won't walk to the library because of the fear of crime?

Much of the dissatisfaction with the property tax can be traced to the failure of local government to provide the level of service taxpayers expect, and to the way the tax is administered, rather than any inherent unfairness. If the property tax is seen as the price one pays to receive the benefits of living in a given community, angry property taxpayers are saying they're not getting what they paid for. This has been particularly evident over the years in Chicago, where complaints about taxes have been out of proportion to the relatively low property tax burden the city's residents shoulder compared to their suburban counterparts. A major factor in the grousing is the poor state of the Chicago public school system. That situation has spurred many city residents to pay tuition to send their kids to private schools — a kind of double taxation.

There are other reasons the property tax is so disliked.

One of the most obvious is that it is highly visible. Twice a year taxpayers receive a big bill in the mail. For many, it will be the single largest bill they pay all year. Some will have to take money out of their savings to cover the check they must write.

Because of that bill, many homeowners can tell you off the top of their heads what they are paying in property taxes within a few hundred dollars. But the same people have absolutely no idea what all those nickels and dimes from sales taxes added up to in the previous year. And while they might have a rough notion of how much their weekly paychecks are reduced by income taxes, they would probably need to refer to their income tax returns to remember what they paid in total federal or state income taxes the previous year. (The federal government has even managed to fool taxpayers into concentrating not on the total taxes paid when it comes time to fill out that income tax return, but whether they will receive a refund — as if there's something good about the government withholding money that it isn't owed.)

Then there's the secretive, seemingly arbitrary nature of the real estate assessment process. Although professional appraisers can closely estimate the value of real estate, it's still only an estimate. Befuddled homeowners see the published legal notices listing the assessment for each parcel in their community and can't find any rhyme or reason for the difference between the assessed value of their home and their neighbors' homes, whether higher or lower. In some locales homeowners are particularly cynical about the process because they know that the fair market value of their home, as determined by the assessor, is far below what they could actually expect to receive if they sold it.

Strangely enough, it is again the highly visible, open nature of the property tax — a valuable attribute in a democratic society — that contributes to this dissatisfaction. Would the property tax be the most disliked tax if people could check a list in the newspaper to see what their neighbors or the corporations downtown are paying in income taxes or what they are taking in deductions? Keep in mind business pays about half of all property taxes in Illinois, while the corporate income tax accounts for only one-fifth of the state's income tax receipts.

One of the ironies is that while local governments, by law, are open about what everybody is paying in property taxes, they aren't nearly as forthcoming about communicating how they arrive at those numbers.

"The biggest problem is that people don't understand all the idiosyncrasies of the property tax," says former Chicago Comptroller Ronald Picur, another University of Illinois professor. Picur thinks taxpayers get lost between assessments, equalizers, tax rates and multiple taxing districts.

He thinks the first step in restoring public confidence in the Illinois property tax system is to simplify it. He would start by assessing property at its fair market value instead of using a percentage of market value. Differentiating between types of property could still be accomplished by different tax rates for commercial and industrial real estate rather than assessment classifications.

Probably the most serious flaw in the property tax is the toll it takes on property owners, particularly senior citizens, whose real estate values greatly increase while their incomes do not. Sometimes they have to sell the property. Yet McGuire, the economist, is not particularly sympathetic. From the viewpoint of economic efficiency, she finds it sensible that property be sold to someone who can afford to pay the taxes. Politicians can't afford to look at it that way and have enacted numerous property tax relief measures to soften the blow.

Still, the property tax isn't going away any time soon. It generates too much money. It makes too much sense. And, as McGuire says, "If not the property tax, then what?"

Mark Brown is a reporter for the Chicago Sun-Times.

Illinois Issues February 1997 / 27