How Rising Property Taxes Engender Regressive Taxation

As the old adage goes, two things in life are guaranteed: death and taxes. While it may not be lethal, some Cook County residents are in for a surprise when they open their next property tax bill. Reports indicate that between 2015-2016, the average property tax rate for a Chicago resident increased by 13%, while between 2016-2017, the same residents saw an increase of 10%. Due to ever-growing tax rate hikes, Cook County has witnessed an increased number of appeals, with 360,000 appeals filed in 2015 alone.

According to Robert Ross’s latest research into Chicago’s property tax system, Cook County is not an anomaly;  the property tax conundrum has manifested in counties across the country. Ross, a researcher for the Center for Municipal Finance at the University of Chicago, presents startling findings about the unexpected consequences that emerge when residents appeal their property’s effective taxable value. Typically, residents claim that their county overcharged them. Ross finds that though tax assessment appeals do, on average, tend to reduce taxable values, it is usually only for more valuable properties. Effectively, the appeals system has engendered a regressive property tax system, where lower-value homeowners end up paying more than their neighbors with more valuable homes simply because higher-value homeowners are more willing and able to successfully pursue an appeal.

Ross argues this is not purely a theoretical issue, as some economists suggest, and that Cook County is especially egregious in its overtly regressive tax. Before appeals, lower quartile homes are assessed at ratios 23% higher than their counterparts in the highest quartile; after appeals, the ratio climbs to 24%. To make the disparity more concrete, Ross looks at the actual cash in play by comparing how an identical tax rate affects those in the lowest and highest quartiles of homeownership values. First, if homeowners in the 25^th quartile were charged the same effective rate as the 75^th quartile, they would save roughly $465 per year on their property tax bill. Second, if homeowners in the 75^th quartile were charged at the same rate as the 25^th quartile, they would be charged an additional $1,142 per year in property taxes.

Cook County’s present property tax system showcases not only a pushback against rate hikes, but also the emergence of a more regressive tax system as a consequence of increased pushback. Ross claims that in granting larger reductions to higher value properties, the appeals process has created a decline in “vertical equity” or proportionality in taxation. If that is indeed the case, who is afforded a lower tax rate? According to Ross’s research, the highest tax rates fall on low-income, poorly educated residents in minority areas throughout Cook County. To solve this dilemma, critical and creative policy analysis is required for policymakers to create a more equitable tax system in Chicago and elsewhere.

Article source: Ross, Robert. “Impact of Property Tax Appeals on Vertical Equity in Cook County, IL.” University of Chicago Center for Municipal Finance (2017).

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