Paul L. Caron

Tuesday, May 19, 2020

Hayashi & Kleiman: Local Governments Need More Revenue. Try Progressive Property Taxes.

Washington Post op-ed:  Local Governments Need More Revenue. Try Progressive Property Taxes., by Andrew Hayashi (Virginia) & Ariel Jurow Kleiman (San Diego):

Local governments are cash-strapped. Even if Congress agrees to give them financial support, it probably won’t be enough. Localities must raise revenue using the fiscal tools available to them — but without overburdening struggling households. The answer is a progressive property tax. The tax could feature rates that increase with property values, income-based tax relief or deferral of payment. Many states provide such deferrals to senior citizens and the disabled, and this could be extended to those eligible for unemployment benefits.

Not only is a progressive property tax fair, but it can help stabilize household finances. Homeowners are far from being universally wealthy; more than 15 percent earn less than half of their area’s median income. Since tax rates would fall with home prices during a recession, households would have more to spend on the goods and services that keep people employed. Our research shows that cutting property taxes in a recession increases spending and reduces mortgage defaults [Countercyclical Property Taxes, reviewed by Sloan Speck (Colorado) here].

Raising property taxes for those who can afford it is better than the alternatives. Increases in sales taxes reduce economy-sustaining consumer spending, and if localities can’t raise revenue from taxes they may turn to fines, fees and charges, which raise less revenue and often disparately impact vulnerable populations.

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Whenever I read a headline like this, it begs the question, based on what? What are local governments already spending their budgets on?

And leaving aside the issue of the massive self-inflicted tax revenue drain local governments caused to happen via their shutdown orders, aren't property taxes already progressive?

Where I live, my annual assessment is based on the price I bought my home for. And the wealthier the homebuyer, the higher their property taxes are.

How are they not progressive when that formula generally holds true?

Posted by: MM | May 20, 2020 6:12:55 PM

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