There’s been some concern about government insiders demonstrating great skill at choosing investments, at the presumed expense of other investors (not just individuals, but pension funds and other entities on which we depend). At least they’re required to, ex post, report their trades, including those of their spouses. But there must be a better solution.
A lot could be accomplished by reducing the role of government, and government-backed monopolies such as the “Federal” Reserve, in our economy. This would reduce the leverage of gov’t insiders. But every government operation has a lobby behind it, so this will be a challenge to accomplish. And even a legitimate limited government is going to have an impact on the economy.
So I propose that government insiders be required to post all their trades in advance, let’s say at least an hour before executing them. Put them on an easily-accessible public website (insiders.gov might be a good URL) so folks can front-run them. It would create a whole new subindustry of forecasting market moves based on what the insiders are doing.
Of course all kinds of new hustles might develop to get around this.
Posting a trade and then not executing it
Having offshore trusts which they can claim not to control
Telling their friends a day ahead of time what they plan to do
But it would at least be progress. And it might discourage some of the wealthy from getting so directly involved in government.
In a new article (archived copy, also included in this pdf) for the Chicago Council on Global Affairs, Cook County Assessor Fritz Kaegi asks “In a digital economy, how can cities create a more equitable property tax system?” Of course he does not try to define “equitable,” but one infers from the article that it means “funded more by those benefiting from the digitalization of the economy, and less by those who actually perform useful work.” A desirable result, to be sure, but how does he propose to accomplish it? He also seems to assume that government-funded schools are a good thing, or at least that parents shouldn’t be held individually responsible for arranging their own children’s education.
He proposes to get more revenue from the big infotech companies, specifying Apple, Microsoft, Alphabet/Google, Amazon, and Facebook, but by implication the numerous other organizations who have prospered by taking advantage of the internet (as well as their lobbying capabilities to stifle competitors). He doesn’t think that local or state government is equipped to collect much of this revenue. Further, he assumes that a real estate tax to fund “education” can only be implemented at the school district level, and couldn’t be countywide, regionwide, statewide, or in any respect subnational. He concludes that the U S government needs to send large quantities of money to America’s cities, particularly including Chicago and the rest of Cook County.
“The federal government … is best situated to tax incomes generated by activity like digital commerce, virtual meetings, and footloose service providers [and]…will need to build fiscal mechanisms for a digital world that separates economic activity from physical space. ” (Presumably these wealthy and influential companies won’t use their influence to deflect the tax burden to others. )
OK, so Cook County local governments don’t get revenue from this digital economy? What about the 11 (soon to be 12) data centers in Elk Grove Village (archived copy), paying real estate taxes and utility taxes, as well as taxes imposed on persons working to construct and operate them. This report (archived copy) counts 52 data centers regionwide as of February 2021. Both reports note that several kinds of tax favors are provided, without indicating that they’re necessary since the digital economy requires facilities in appropriate locations.
And Amazon and other on-line retailers don’t generate taxes? Those of us who’ve bought something on line in the past couple years have noticed that the e-commerce giants collect and remit state and local sales taxes, typically in excess of 10% here. Last year the BGA counted (archived copy) 36 warehouses in the Chicago area built for Amazon since 2015 (and noted “at least $741 million in taxpayer-funded incentives”). This of course doesn’t count warehouses used by non-Amazon sellers such as Walmart and Target. Again, it’s likely that most or all of these facilities would have been built without subsidies, since warehouses have to be located appropriately with respect to markets, labor supply, transportation, etc.
Kaegi is legitimately concerned about the fragmentation of Cook County’s tax base, noting that “The lower the value of real estate in a community, the higher the effective rate to provide a comparable level of school services. This results in
great disparities.” But that problem isn’t inherent in the real estate tax; it’s inherent in the fragmentary structure of finance, funded largely by local real estate tax. A statewide real estate tax, such as Illinois had until it was replaced by a sales tax in 1933, could reduce or eliminate the disparities. A number of states retain statewide real estate taxes, but the problem of disparities can also be addressed by a tax-base sharing arrangement, as has operated for half a century in Minnesota.
“[W]e must continue to push for local-school funding that is not rooted in local land values,” writes Kaegi. Actually, if an effective disparity-reduction arrangement is in place, the opposite might be true. I have previously posted a table and map illustrating that, if taxes were based on land value rather than land+improvement value, the burden on homeowners in communities of low income and color would be lessened. And of course if the burden of sales taxes could be replaced by a tax on land value, the benefit to moderate-income households would be enhanced.
So we have an Assessor, running for re-election, who doesn’t believe the taxes he helps calculate are a good way to fund local services. I had hoped for better (but didn’t really expect it), as the quality of assessment seems to have improved during his tenure. He does have one announced primary opponent.
We have a new report from Cook County Treasurer Maria Pappas, subtitled “2020 Cook County property tax analysis: A heavier burden for businesses, Black and Latino suburban property owners.” It’s got more detail than I recall seeing published before, including two decades of total real estate tax revenue countywide and by triad, and (for the past two years only) median taxes per parcel for residential and commercial, by municipality and township (and limited data for Chicago wards) as well as a fun list of the ten highest residential and commercial tax bills for each township. The extra load Cook County’s current classification system places on commercial property is noted.
All of this data for individual parcels has been available on the Treasurer’s web site for some time, but it wasn’t assembled for convenient use.
It’s likely impossible to discuss the real estate tax system (let alone the complete scope of public revenue) in a way which can hold the attention even of people who find themselves heavily burdened by the way government is funded and operated. And Pappas’ office got this information out quickly, as the taxes have only recently been calculated and won’t be due until October 1. All the same, there are problems which one hopes will be fixed next time this is done (and one certainly hopes there will be a next time, soon.)
Noting the continuing rise in revenues, the report asserts that “[t]he bigger tax burden is not being shared equally.” What could this mean? What would be equal? Should we fund government by a poll tax, which is the only way to get everyone to pay the same amount? Perhaps the writer means “equitably,” a desirable thing tho difficult to agree on. It’s then observed that “Property owners in many south suburbs continue to pay far more in taxes than landowners in other parts of the county.” I will set aside the fact that “property” and “land” aren’t the same thing, and assume that the writer may have meant “real estate taxes are higher in many south suburbs than in other parts of the county,” which is sufficiently cautious that it must be true.
But in fact the amount of real estate tax paid by a median homeowner is much lower, less than $4,000/year in Bloom and Thornton townships (page 49 of the statistics section of the report), less than any of the north suburban townships (page 56).
That doesn’t mean that the taxes in Bloom and Thornton aren’t a burden for many, because taxes imposed on struggling people are always a burden. And the very high tax rates reduce market values, while increasing the extra burden on renters (who cannot benefit from the “homeowner exemption.”)
The report makes no attempt to separate the value of land from the value of improvements, even tho the assessments provide this breakout for each parcel. There’s no distinction between owner-occupied and renter-occupied homes. The only mention of vacant land is to say that it’s been ignored, as has mixed-use (residential+commercial) property. There’s no mention at all of exempt government-owned land.
It would be helpful to include reference maps, especially of townships. And in an ideal world, the tables would be offered in spreadsheet format.
A D Quig reports in Crains that the City of Chicago’s Housing Commissioner says “everyone who lives in Woodlawn now should be able to stay in Woodlawn.” This can be a challenge as housing costs in the area rise. According to Crains (not corroborated by any press release I can find on web sites of the Department of Housing or the Mayor’s Office), support for housing affordabiity in the area will involve six strategies:
Right of refusal for large apartment building tenants if a landlord seeks to sell his or her building
Helping apartment building owners refinance properties to keep renters in place with affordable rates
Giving grants to long-term homeowners to help with home repairs
Financing the rehab of vacant buildings
Setting guidelines for how city-owned, vacant, residentially zoned land can be developed into affordable or mixed-income housing
Requiring developers that receive city-owned land to meet enhanced local hiring requirements
Details, of course, are yet to be defined, and the whole thing requires action by the City Council. Still, assuming that the program is effectively structured and implemented, what we have is the designation of a privileged class– people who live in Woodlawn– receiving benefits that might otherwise accrue to another privileged class — people who own land in Woodlawn, with a new layer of bureaucracy established (or repurposed) to administer it, including investigating and monitoring the reported income and behavior of the people who are granted permission to live in the area.
Whereas, under a land value tax, the area would now have little vacant land, presumably a lot more housing, probably quite “affordable.”
Of course if you’re the Mayor, you do what you figure is politically feasible and within your power, not what is morally right and economically efficient, but would require persuading a lot of uninformed voters and obtaining cooperation from quite a few other governmental actors.
Reportedly, taxes of 163,036 parcels in Cook County were not paid on time. This comprises 2018 taxes which should have been paid in 2019. and amounts to 8.7% of all parcels in the County. For a dozen south Cook County municipalities, this amounts to 20% or more of total parcels. Counts by municipality are posted separately for south, west, and north Cook. All sources show the percentage of parcels with unpaid taxes within the City of Chicago as 9.9%.
Separately, the reports show that only 7.8% of the delinquent taxes offered for auction in 2018 were bought by investors, which might imply that the remaining parcels are considered worth less than the taxes owed.
Unfortunately the source doesn’t tell us how many of the parcels are vacant, residential, commercial, or other uses, and gives no historical context, so we don’t really know how any of these figures compare to prior years. But regardless, the current numbers are alarming.
Suppose that the real estate tax system was changed, so that improvements would be tax-free while the value of land as vacant would be heavily taxed to make up the difference. For vacant parcels, construction of houses or other structures would not increase the tax. For parcels which contain improvements, taxes likely would be lower than now, and improvements would again be tax free. Just a thought.
Maybe expanding tax-exempt institutions raise land prices?
Crains tells us that a strikingly-designed two flat, less than 30 years old, is worthless. Well, they didn’t say it quite that way, but it was sold for $1.9 million to a buyer who will demolish it. So the $1.9 million was for the land. I don’t know whether any developer of housing or anything else taxable would have paid nearly that much for the site, but the buyer was tax-exempt Illinois Masonic Medical Center. Their exempt status of course made the land more valuable to them. Which raises the interesting question of whether buying land in the path of such an institution’s expansion might be a profitable strategy. Of course, a fair-minded community might decide to tax land used for hospitals at the same rate as land used for housing and other useful things. But we’re not there yet.
Wirepoints recently issued a helpful report showing state and local government pension debt per Chicago household. They estimate the burden at $144,000 per household. This is a big number, but one could suppose that a prosperous household, over decades, could bear such a burden. Some could, but probably not those below poverty level. Take them out of the picture and the per household amount rises to $172,000. Excluding households with incomes below $75,000, or below $200,000, and the per-household amount rises further, to $393,000 and $2,022,000 respectively.
Here’s their chart:
Of course this doesn’t consider land values, nor businesses. If prime Chicago land is worth $1,000/sq ft, that’s 5.38 sq miles. But more typical land value is much less, probably no more than $25/sq ft. (it seems that nobody has tried to estimate citywide values). That would be 112 square miles. Once we subtract land owned by governments, churches and other exempt nonprofits, we might be approaching the total value of all land in Chicago. And that’s just for pensions, not bonded debt, nor needed capital improvements. Real estate buyers know, or certainly should know, about these encumbrances.
Of course money can be raised from business taxes, but that’s hardly a way to grow economic opportunity for Chicagoans. I would consider any tax revenue from “gaming” as a kind of business tax.
The lesson Wirepoints draws from this is that pensions have to be downsized somehow, which required amending the state constitution. And they go further, comparing government salaries to those of the private sector:
So it looks like we’re going to have to confront a large number of people with guns and firehoses and control over our children, who have been getting a lot of money from us for years and may prefer not to moderate their demands.
Tho I don’t know how, this problem will be solved. Maybe MMT will yield a continuing stream of funds to bail us out. Maybe inflation will accelerate such that the fixed 3% compounded pension increase isn’t a burden. Maybe Chicagoans will decide that they just don’t want so many government “services.” Maybe politicians will decide to remove all taxes from productive economic activity, taxing only the value of land and other privileges (such as the private monopoly over street parking fees), which will grow the economy (while reducing the need for emergency services) sufficient to make pensions a non-issue.
And when it is solved, those who own land and other privileges will benefit most.
I don’t know that governments are always and inevitably corrupt, but there sure seems to be a lot of corruption going on. It isn’t a new development; maybe it’s worse nowadays or maybe just more visible.
So how can we single taxers say that we want the government to collect all, or nearly all, of the economic rent? Don’t we know that it will be stolen or, at best, wasted?
Not necessarily. Consider the following:
In the U S at least, real estate tax is administered and collected at the local — that is, substate– level. This is where the records and expertise needed to operate a land value tax exist.
Unlike income tax or sales tax, nearly all the data involved in real estate taxation is public information. Most of this data is accessible to everyone with internet access, generally without fee. I can see how much real estate tax my neighbor paid. I cannot see how much income tax they paid. The same goes for sales taxes and most other kinds of taxes. So cheating in real estate tax can be seen. That doesn’t mean it will always be impossible for people to cheat, but it provides a much greater possibility that cheating will be observed and rectified.
Government corruption seems to be a function of government size. A survey earlier this year found that “87% of voters nationwide believe corruption is widespread in the federal government. Solid majorities believe there is also corruption in state (70%) and local (57%) government.” Looked at the other way round, only 13% of us believe the federal government is possibly honest, compared to 30% for states and 43% for localities. I actually believe that one of the local governments to whom I pay taxes is pretty honest and efficient.
State and federal governments might logically collect some of the economic rent. Examples currently include severance taxes and could reasonably include rents for electromagnetic spectrum should our rulers become persuaded to levy and collect them. Existing federal agencies are able to review and evaluate collection efforts.
It’s certainly true here, where owner-occupants (of houses or condos) pay less tax than renters occupying units of the same value, with additional discounts for old people, some military veterans, and some poor old people. Some owners also still benefit from deductability of mortgage interest and/or property tax. So why do renters put up with this discrimination?
I have always thought, and some data seems to confirm, that it’s because homeowners vote, and renters don’t. But according to this interview, the problem is similar, perhaps worse, in Australia. Voting in Australia is compulsory, which apparently means one is fined if one fails to at least show up at the polls (the fine is up to $79AU, less for their Federal elections). They also vote on Saturday, and seem to make a party of it, according to various posts such as here and here.
Of course just showing up doesn’t mean that you vote, nor that you pay much attention to candidates and issues, but the problem of low-information voters isn’t unique to Australia. Maybe there’s something about the worldview of people who rent vs. that of people who own….? Dunno.
U S jurisdictions do often provide some protections for tenants, which can disadvantage landlords, but they wouldn’t affect the status of owner occupants.
Great story by Hal Dardick in today’s Tribune explaining the real reason the Lincoln Yards TIF had to be Rahm’d thru the City Council before the new Mayor took office. The area just barely qualified as a TIF, and pending new assessments were going to rise enough that it would no longer be eligible. According to the story, it’s uncertain whether the new Mayor could have stopped the project, but she settled for what appear to be minor concessions.
Of course, the whole idea behind TIF’s is that money can be pulled from general revenue into giant slush funds, which the Mayor (and others) can manipulate with little oversight. Meanwhile, there’s little left for routine maintenance, replacement of infrastructure and funding of government schools and other services. Which increases the “need” for TIF’s.
Dardick’s article goes into considerable detail, includes a link to a recent report by Lincoln Institute (no relation to Lincoln Yards, afaik). He does say “land” when I think he means “land + improvements.”
One counterfactual that Dardick doesn’t bother with: What would have happened if Joe Berrios was still Assessor? Would he have nudged down some values to keep the area eligible? Or, to look at it the other way, suppose the current Assessor, who appears to be more conscientious, had been in office since 2013. Perhaps the earlier figures would have been higher, so the increase would be less?
We’ll never know, and it shouldn’t matter. In a well-run city, TIF’s wouldn’t be needed, and a well-informed electorate wouldn’t tolerate them.