In a digital economy, how can cities create a more equitable property tax system?

Why brick and mortar taxation hurts equity

Tethering the funding of local services to brick-and-mortar assets is troubling from the point of view of equity and the question of who has the right to the city, because the digital portion of the economy is not similarly taxed. Without additional revenue sources, communities will have to sustain themselves on the taxes derived from the value of local property. Essential services decline, new potential residents look elsewhere, job opportunities fall off, and an already declining tax base suffers further. Freedom of movement will only be possible for those who already enjoy economic prosperity.

Who is hurt the most by high property tax rates

In my jurisdiction of Cook County, for example, the communities with the 20 highest property tax rates exceed the other 110 communities by three to five times, even though the level of education funding per pupil is comparable or less. (See the chart below.) Most of these communities are majority Black, while most of the other Cook County communities are majority white. For communities at the top end of rates, taxes exceed 5 percent of home values versus the effective average in Chicago of under 2 percent. In the assessment universe, this is called “regressivity”: when property owners with more modest homes and businesses have to pay more of their share than more affluent property owners.

Local solutions for more a equitable tax system

While my office does not have jurisdiction over municipal tax levies, I can say that increased federal and state support for school funding will help reduce the tax burden paid by homeowners and local mom-and-pop businesses while also reducing racial disparities in schools and community services. As noted, Illinois provides the lowest level of funding for education of any state in the nation. An increase in federal school funding through Title I of the 1965 Elementary and Secondary Education Act, is the most direct way to decrease property taxes and geographic inequality while investing in education. If we doubled the current $300 million in Title I funding for Chicago’s public schools and passed on the savings to ratepayers, the property tax levy for schools could be reduced by 10 percent.

How states and the federal government can help

What about state or provincial support? A state or province may have drastically different interests or incentives vis-à-vis the city and may not want to put the taxation of income on an equal footing statewide and at a level sufficient for cities to fund education and government services. Moreover, just as transfer pricing strategies can shift incomes and profits away from cities to places where they are not taxed, this dynamic also prevails between states and provinces. Depending on state or provincial support may further inequities by punishing residents of cities where states or provinces are hostile to them.

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Cook County Assessor

Cook County Assessor

We are responsible for setting uniform and accurate values for 1.8 million parcels of Cook County property in a fair, ethical and transparent way.