Skip to content

Property Taxes Rob From the Poor, Give Breaks to the Rich

A new tool looks at regressive assessments highlighting the greater tax burdens for lower-income homeowners.

increasing stacks of coins entering a home

Many homes in Syracuse, N.Y., are modestly priced. It’s still possible to buy a house for less than $100,000. There might be a hidden cost involved in purchasing an inexpensive home, however. People with homes worth, say, $50,000, sometimes pay property tax bills that are higher than their neighbors with houses that are worth more than two or even three times as much.

New York is one of only a handful of states that do not require periodic reassessment of home values that underpin property tax bills. In Syracuse, thousands of homes have not been reassessed for decades. That gives longtime homeowners a massive discount.

That might be a quirk of New York law, but problems like this exist all around the country. In theory, a property tax should be enforced equitably. In most jurisdictions, the property tax is a flat tax so everyone pays the same rate. That means people with more expensive homes should pay more in property taxes. In practice, however, property taxes can create a reverse Robin Hood situation, in which lower-income residents pay more, subsidizing the homes of the wealthy.

97.7%

of all counties have regressive property tax assessments.

Around the country, 97.7 percent of all counties have regressive assessments. The owners of the bottom 10 percent of homes, based on property values, pay a higher share of taxes than the owners of the top 10 percent of homes. In nearly half the country, the lowest-priced homes are assessed at a rate that’s fully 50 percent higher than the highest-priced homes, relative to their true value, according to a new tool developed by the Center for Municipal Finance at the University of Chicago. “This problem of regressivity is really quite pervasive around the country,” said Christopher R. Berry, the center’s Academic Director.

Homes are only reassessed occasionally (on average once every three years, or less), so most people are getting a discount. But because residents only see their own bill, they don’t know that their neighbors — or, more likely, residents of more upscale areas — are getting a much bigger discount. “Poor people end up paying a bigger share,” said Patrick Murphy, Vice President of Public Finance for Arnold Ventures.

$16B
Amount annually collected by states in property taxes (about 1% of their revenues).
$509B
Amount of revenue local government receives from property taxes (about half their general revenue).

Property taxes are levied in every state, but they’re primarily a local tax. In 2017, states collected $16 billion annually in property taxes, or about 1 percent of their revenues, according to the Urban-Brookings Tax Policy Center. At the local level, property taxes accounted for $509 billion, or nearly half of a local government’s own source of general revenues. Property taxes, which are also levied on commercial properties, are collected not only by cities and counties but by other taxing districts, most often school districts.

Economists generally consider the property tax to be a “good tax.” You can’t move property around and, while it may be possible to hide ownership, it’s not possible to hide a house or office building the way individuals and corporations can hide income. The property tax is also stable, which is helpful for local governments. Sales and income taxes fluctuate heavily with the state of the economy, as we’re seeing during the coronavirus pandemic, but property values generally don’t shift as dramatically because changes aren’t reflected until properties are reassessed.

The problem is that many properties aren’t properly assessed. Values are determined not house by house, but by comparing similar properties. This creates a sort of Lake Wobegon problem. In the mythical Lake Wobegon, “all children are above average.” When it comes to property taxes, all houses are assessed based on average neighborhood values. That means neighbors with cheaper houses pay more, while those with nicer homes pay less.

Here’s how that works. Let’s say someone sells a house for $300,000. The local assessor is going to assume that homes in the neighborhood, with the same numbers of bedrooms and baths, are going to be worth roughly the same amount. They don’t know what’s going on inside the homes, however. A neighbor might have installed a marble kitchen and another full bath, so the house might be worth $375,000 on the open market. Someone on the same block, though, might have failed to repair a leaky basement or a leaky roof and is now sitting on a fixer-upper that might be worth $125,000. At their next reassessment both those houses, despite their differences, might be valued at $300,000, based on the recent neighborhood sales.

This can lead to burden-shifting on a massive scale. Berry found that between 2011 and 2015, Cook County, which includes Chicago, shifted $2.2 billion worth of the property tax burden from properties that were undervalued to those that were overvalued. A lot of that came right off the top. He estimated that roughly $800 million was shifted from the top 10 percent of properties, by actual value, to the bottom 90 percent. After Detroit began its first citywide reappraisal in six decades, Berry found that, while average assessments had gone down, most properties in the bottom third in terms of sales price were being assessed well above limits set by the Michigan constitution.

These findings in two major cities caused Berry to wonder how widespread the issue of regression might be. So he developed the new tool, which looks at property tax records for communities containing 96 percent of the nation’s population. The tool, which is easily searchable by county, compares assessed values with sales histories of nearly 40 million homes over the course of a decade. “People wouldn’t tolerate this if it were the income tax,” Berry said, “but because the property tax is so opaque to people, it seems to have gone unnoticed for a very long time.”

Indeed, regressivity in property taxes is not the sort of issue that brings people out into the streets, but its role in racial and economic disparities is unmistakable.

Homeownership is foundational to generational wealth, which is a major reason why the racial wealth gap is so large. A recent study of 118 million homes nationwide found that Black and Hispanic homeowners pay 10 to 13 percent more in property taxes than whites who own similar properties. “One of the big issues is that the law should be applied to everyone the same,” Murphy said. “The property tax is way nerdier (than some other inequitable systems) and it involves a lot of paperwork, but the principle is similar.”

10-13%

more in property taxes are paid by Black and Hispanic homeowners than whites who own similar properties.

Solving the assessment problem is one way to fix regressivity, but beyond that there are several things that could make property taxes not only more fair but progressive. For one thing, people in less expensive homes could be charged lower rates, just as income tax rates are often based on income levels. Many jurisdictions already give property tax breaks to seniors and farmers. They could choose to offer more breaks to more people. They could also make discounts that are already on the books automatic. For instance, most states have homestead exemptions that make roughly the first $8,000 or $10,000 worth of value tax-free, but not everyone knows to apply for that exemption.

Finally, one major reason people in more expensive homes pay less is that they’re more likely to appeal their assessments. Right now, there’s little downside and the owner has a strong incentive to appeal. By appealing the assessment, the owner might get it lowered, but even if the appeal is denied, they’re not going to end up paying more. Finding ways to change the appeals incentives might stop people from assuming they’ll come out ahead, Murphy suggests.

Once people are aware of the discrepancies, they don’t approve of them, even if they benefit. Berry’s work in Chicago underpinned a series of stories from the Chicago Tribune and ProPublica that became a finalist for the Pulitzer Prize. More importantly, the stories helped convince Cook County voters they needed to change assessors. “The wealthiest parts of the city, which were going to have to pay more in taxes, voted, if anything, even more for the reformer,” Berry said. “No one wants to pay taxes, but I don’t think affluent people want to feel like the poor are paying their taxes for them.”