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The permanent tax revolt
...the fractional assessment of homes was easily the largest single government housing subsidy in the postwar era, and it was among the largest categories of social expenditure of any kind, direct or indirect. Fractional assessment of residential property provided a subsidy that was forty times greater than federal spending for public housing. It was ten times greater than the home mortgage interest deduction. It was five times as costly as more controversial "welfare" programs like Aid to Families with Dependent Children. Although fractional assessment did not show up on official government budgets, on the eve of the tax revolt it was providing more benefits than any other social policy in America except for the twin blockbusters of the federal budget, Social Security and Medicare.
That is from the new book The Permanent Tax Revolt: How the Property Tax Transformed American Politics, by Isaac Martin. The main thesis of this book is overstated, namely that the professionalization of property tax assessments is the root cause of American exceptionalism on tax politics; nonetheless I found this a very informative and stimulating read.
Posted by Tyler Cowen on March 21, 2008 at 06:22 AM in Books, History | Permalink
Comments
I haven't read the book, but it strikes me that there is an absent counter-factual. You can levy a large tax on the fractional value of a house, or a small tax on the full value. The key fact for the home owner is the tax bill, not the math used to derive it. Does the author deal with the probability that if the local authorities raised assessments, homeowners would require them to reduce rates? Or am I missing something obvious?
Posted by: Acad Ronin at Mar 21, 2008 8:22:44 AM
Acad, you are not missing anything; that is in fact the primary thesis that higher assessments meant a strong demand for lower rates and thus a tax revolt.
Posted by: Tyler Cowen at Mar 21, 2008 8:27:37 AM
While I've enjoyed a number of the books Tyler has recommended I think I'll pass on this one.
Posted by: Bernard Yomtov at Mar 21, 2008 10:04:25 AM
In our area, we have both high assessments and high rates (and poor services and a crumbling infra-
structure).
I've been expecting a tax revolt, but instead all I see is disjointed protests that sputter into
nothing. Maybe I'll try to start the revolt myself. You know, "Be the change you want to see in the world".
Posted by: MH at Mar 21, 2008 10:41:05 AM
How do people continue to get a pass on calling reduced taxes a "cost" to government? They very notion is ludicrous.
Posted by: Noah Yetter at Mar 21, 2008 10:51:55 AM
Fractional assessment is actually very complicated and leads to some bizarre outcomes. It is also extremely prone to error. Its practical result was that homeowners paid far less than businesses did on properties of similar value, which is why this is rightly seen as a subsidy, and not "ludicrous" at all.
The prime advantage of full assessment is accuracy and fairness- it's said that fractional assessment was the graveyard of assessor screw-ups. Property owners are usually quite aware of what their real estate is worth, and it becomes far easier for the taxpayer to challenge assessments under full value.
Posted by: perianwyr at Mar 21, 2008 11:08:10 AM
perlanwyr says: Fractional assessment is actually very complicated and leads to some bizarre outcomes. It is also extremely prone to error. Its practical result was that homeowners paid far less than businesses did on properties of similar value, which is why this is rightly seen as a subsidy, and not "ludicrous" at all.
So this means that when any person is taxed at a lower rate than the someone else, that person is being subsidized? So when the top marginal income tax rate in the U.S. was 91% in the 1950s and early 1960s, anyone being taxed at less than 91% was being subsidized? This is a simple, and important, misuse of language.
Posted by: David R. Henderson at Mar 21, 2008 11:37:10 AM
perlanwyr says: Fractional assessment is actually very complicated and leads to some bizarre outcomes. It is also extremely prone to error. Its practical result was that homeowners paid far less than businesses did on properties of similar value, which is why this is rightly seen as a subsidy, and not "ludicrous" at all.
So this means that when any person is taxed at a lower rate than the someone else, that person is being subsidized? So when the top marginal income tax rate in the U.S. was 91% in the 1950s and early 1960s, anyone being taxed at less than 91% was being subsidized? This is a simple, and important, misuse of language.
Posted by: David R. Henderson at Mar 21, 2008 11:37:47 AM
"So when the top marginal income tax rate in the U.S. was 91% in the 1950s and early 1960s, anyone being taxed at less than 91% was being subsidized? "
In fact yes, they were and are. Today, the top 5% of earners pay over 50% of all income taxes. Unless you can show that they consume over 50% of the resources for which their taxes pay, this absolutely means that they subsidize the tax burden of the remaining 95%.
Posted by: djg at Mar 21, 2008 12:24:27 PM
Business maybe being penalized, for owning property. But it take bizarre logic to come to the conclusion that tax paying homeowners are being subsidized.
Posted by: Joe at Mar 21, 2008 2:21:23 PM
That's like considering a punch in the face instead of a kick in the balls a "reward," isn't it?
Unless funds are being taken from the government's giant, Scrooge McDuck-style cash silo and handed over to homeowners, where is the subsidy? Or are we rewriting words like "subsidy" so that we can use language to make things sound like they are other things--when they aren't?
Posted by: Jacob Oost at Mar 22, 2008 12:05:39 AM
So you guys would call it a subsidy if we go out for Big Macs and I give you $2 so we can each pay $4, but you would not call it a subsidy if we went out for Big Macs and I paid $6 of the bill while you paid $2?
Taxation is a kick in the balls in return for a kiss on the cheek. It actually is a reward to get a kiss on the cheek for only a slap in the face.
argue that if we go out for two Big Macs, I pay $6 and you pay $2, I am not subsidizing your lunch? You would only call it a "subsidy" if I give you $2 and then we each pay $4
Posted by: Noumenon at Mar 22, 2008 12:55:27 AM
Guh, I thought I deleted that last paragraph at the end there.
Posted by: Noumenon at Mar 22, 2008 12:57:07 AM
It is a subsidy only if funds from the higher property tax are being used to benefit the lower property tax taxee.
You could make the argument that the essential government services from which everybody benefits (law enforcement, enforcement of contracts, monetary policy, military defense, etc.) have already been covered by other taxes, and that property taxes just pay for the socialist stuff.
I'm not saying that *I'm* making that argument.
High time we brought the flat negative income tax into play.........
Posted by: Jacob Oost at Mar 22, 2008 2:24:05 AM
"ts practical result was that homeowners paid far less than businesses did on properties of similar value, which is why this is rightly seen as a subsidy, and not "ludicrous" at all."
I have no idea about fractional assessment, but I know what a subsidy is. It is only a subsidy if something is being subsidized. My home value (that value added over what it would be in its natural state) is a boon to the government, not a cost to them. If I am being subsidized, in reality-based meaning and not politician-speak, then that means I'm using services at the expense of the business. I doubt that. I only drive a small car on the roads, for which I overpay gas taxes, not a truck.
What is the basis? Value, while traditionally accepted, is completely arbitrary. Why should an individual pay the same rate as a business based on the arbitrary of property value? A homeowner's residence does not provide cash flow, so there is no "ability to pay" the tax assessed. From that standpoint a business should be charged more taxes. Does a homeowner use more governmnent services? I doubt it.
In fact, the libertarian in me says we are probably both being overcharged for the miniscule services we get for the money. We are both subsidizing government bureaucracy.
Posted by: Andrew at Mar 22, 2008 7:09:59 AM
Calling reduced taxes a "subsidy" is like claiming that if a burglar steals your TV and your stereo but only steals my TV he has given me a free stereo.
Posted by: George Weinberg at Mar 22, 2008 1:36:13 PM
George, a burglar doesn't do anything for you in return. If your dad took the stuff, and pawned it to pay the rent, that would be more like it. What you're getting from the subsidy is stereo-financed rent, not the stereo itself.
Now you, as a taxpayer, don't feel you're getting anything worthwhile out of the government. But you, as a kid, would probably complain about losing your TV and stereo more than you would appreciate having the rent paid, too. The rent's still more important even if it doesn't feel that way.
Posted by: Noumenon at Mar 24, 2008 9:44:59 AM
