Why do we pay property taxes? Yes, all taxes fund government, but why do we use property taxes instead of income tax and sales tax?
Some leftists would explain that the property tax is a way of perpetuating societal inequities from one generation to the next.
Property taxes mostly go to schools, and schools get most of their money from property taxes. The Illinois Constitution requires the state to provide 50 percent of the funding for education; however, the governor and legislature don't budget for it and the courts don't enforce it.
Because schools rely primarily on the property tax, children of more affluent parentsâ€"parents willing and able to pay more in property taxesâ€"go to better funded schools. Better funded schools send more of their graduates to quality colleges and universities. The people that go to quality colleges and universities get the jobs that pay more money, allowing them to become the next generation of more affluent parents.
While the stratification and hierarchy the property tax provides society shouldn't be ignored, the property tax has a mundane benefit compared to the income tax, sales tax and most other taxes.
What is this benefit of the property tax? It's a stable source of income. The economy is cyclical, so when the economy is up, the sales tax and income tax provide the government with more revenue. When the economy is down, they provide less revenue. The property tax makes the taxpayer responsible for absorbing the uncertainties of the economy. The government knows it gets X dollars per $100 of assessed value whether the economy is growing or not.
For local government, this makes some sense. Local government is smaller and has fewer options for dealing with a fluctuating revenue stream. The federal government can just borrow to make up the shortfall. So for local governments, using the property tax makes sense.
But the property tax has problems. One of the problems of the property tax is that it's the least fair tax. With sales tax, everybody can agree that an 8.75 percent tax generates $8.75 on a $100 sale. The income tax is more vague because of accounting and tax breaks, but the property tax is truly arbitrary. The county assessor uses a formula to calculate the assessed value of a home, but the formula can't predict what the home would sell for. The same house could sell for different prices on the same day based on the peculiarities of the seller or buyer. So there is no "right" answer to the question of how much a home costs, or how much it is worth.
To ameliorate the ill will caused by the arbitrary aspects of the property tax, the assessment process includes an appeal system. It allows for corrections of egregious mistakes, but primarily it allows homeowners willing to wheedle the system and get a small reduction in their assessments. (The scandal in the appeals process is that businesses get huge reductions by hiring companies that specialize in reducing property tax assessments. These companies often have a political insider to help deal with the elected officials on the Board of Tax Appeals, where the really big reductions are granted.)
The problem is that the tax rate gets set before the appeals are resolved. So if the appeals process is too generous, the local governmental bodies get screwed. They don't get the money, and they don't find out about it until the last minute.
This should drive you crazy. To address the problems of the property tax, the Cook County Assessor and Board of Tax Appeals has destroyed the one benefit of the property tax: being a stable revenue source.
This leaves communities like Forest Park in the lurch. For example, the Forest Park Public Library thought it had enough property tax revenue to fund its $750,000 budget. After the property tax appeals, the library found it was short some $40,000.
How are taxing bodiesâ€""taxing bodies" is the term for all the governmental units that rely on property taxes, from the Park District to the Metropolitan Water Reclamation Districtâ€"going to respond? They're going to pad future budgets in case the appeals process shortchanges the taxing body. This will increase taxes. To plan for the worst case scenario every tenth year, the taxing bodies will overcharge on taxes the other nine years. Based on the Forest Park Library example, taxing bodies should pad their budgets by about 6 percent to avoid coming up short because of tax appeals.
The property tax sucks. It's not fair. It's not even stable. Am I expecting too much for political leaders to have the perceptiveness to see the problem, the creativity to envision something better, and the courage to make the case for change?