STRONG TOWNS
For 100 Years, Low-Income Americans Overpay on Property Taxes, While the Richest Underpay
Seairra Sheppard June 19, 2023
Excerpts
“In this world nothing is certain but death and taxes,” Benjamin Franklin famously wrote in 1789. Another certainty, seemingly, is questionable tax fairness. Dating back to the 1800s, researchers in the U.S. have challenged the property tax system. Over a hundred years ago, they discovered the richest get a “discount” on their taxes, while the poorest are overcharged. Although concerns have been raised throughout the century, this phenomenon still occurs throughout the U.S. today. As The New York Times said in 2021, low-income Americans are getting “cheated” on their property taxes.
In 1873, New York assessors inspected over 800 local property assessors and supervisors. They found what University of Chicago researchers found just a couple of years ago: Because of underassessments, homeowners of high-priced homes pay less than they should in property taxes. And through overassessments, homeowners of low-priced homes pay more than they should. Across the nation, this totals up to billions of dollars that low-income homeowners are overpaying, and billions the richest are saving. In Buncombe County, North Carolina, the richest homeowners saved $46 million because of underassessments in 2021.
“High-income homeowners are being asked to pay only 55% of the taxes that they should based on the sale price of their home,” said Joe Minicozzi, principal of data analytics firm Urban3. “That’s a discount of 45%.”
Urban3 calls this disparity the “Assessment Gap.” Whereby the richest are favored by the property tax system and not paying what they owe. And those who can least afford it are generally overpaying on their property taxes.
“If [the law] was enforced the burden of taxation would fall equally upon all having property liable to assessment; but, as it is now everywhere disregarded, taxation is unequal, unjust, and oppressive,” wrote the New York State Property Assessors James A. Briggs, Sterling G. Hadley, and John S. Fowler after their investigation in 1873.
Truthfully, there are a handful of different reasons why property tax disparities are occurring. Research from the Just Accounting for Health project questions the validity of the math used, how often assessments occur, how the system allows for bias calculations, and how the appeals process favors wealthy homeowners.
In North Carolina, compared to owners of less-expensive homes, owners of more expensive homes are not only more likely to participate in the appeals process, but they are also more likely to be granted a value reduction. This process results in hundreds of millions of dollars of adjustments to residential property value annually.
“We observed countless examples of homes that were granted a lower-assessed value after submitting an appeal, only to be sold the same year for a price that far exceeds the original assessed value,” said Ori Barber, former data analytics researcher with Urban3 for the Just Accounting for Health project. “We cannot rule out the possibility that the appeals process, as currently administered, favors wealthy homeowners and is a factor contributing to the assessment gap.”
For hundreds of years, the entire nation has been burdened with property tax issues. The disparities we face today are nothing new—and it’s not unique to only a few towns or cities. It’s everywhere.
“Should we not strive for a property tax assessment system that produces accurate and equitable valuations the first time—one that does not predicate a fair assessment on a homeowner’s participation in an opaque, time-consuming process?”
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Comment:
True, affluent homeowners are more likely to be aware and take advantage of the appeals process. In Oregon, the reasons for tax burden disparities are much more universal. The greater responsibility falls upon the unfair property tax system fabricated by the adoption of Oregon’s ill-conceived assessment limitations under Measure 50 that took effect in 1995. Property assessments are limited to 3 percent growth annually. Historically, value increases have grown much more rapidly than that.
Over the ensuing years, the gap between taxable and true market assessments continued to widen. However, the tax savings under the M-50 regime have been greater for homeowners whose home values have grown faster than average for the city and have owned their homes for a longer time.
The 2019 LVT study by Northwest Economic Research Center confirms the inequities caused by tax limitations that have accumulated over the past 22 years. Properties in the low value and less affluent neighborhoods of outer southeast Portland are subject to a higher effective tax rate under the current tax system. Higher value properties in the inner northeast neighborhoods whose owners’ home values are growing rapidly pay disproportionally low taxes.
Yes indeed, we should “strive for a property tax assessment system that produces accurate and equitable valuations.” First, a change back to real market assessments will correct the regressive tax burden. Then changing to a split-rate Land Value Tax, with a high effective rate on land and a low rate on improvement value, will put a damper on land price inflation, and result in a significantly more balanced tax rate distribution.
Tom Gihring, Research Director
Common Ground, OR/WA
