Property Tax Caps: Better Than Nothing?

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There is widespread and bipartisan agreement among Illinois policymakers that the state's property taxes are too high-- and that the solution to the state's fiscal imbalance has to include a tax shift, away from local property taxes and towards some other source. The most obvious candidate for this alternative revenue source is the state's income tax, which is among the lowest in the nation.

But implementing such a tax shift has been a task beyond the abilities of Illinois lawmakers so far. A few years ago, lawmakers have enacted a temporary, stopgap solution for Cook County (which contains Chicago and counts for close to half of all the property value in the state), which puts a 7 percent cap on the amount by which a homeowner's taxable value can grow each year.

Sounds like a tax cut for homeowners, right? But since it's not funded by the state, Cook County has to make up the revenue loss by hiking property tax rates on what's left of the tax base. That means businesses and renters pay more. It also means that Cook County homeowners whose home values aren't increasing by 7 percent a year pay more-- hardly a defensible tax reform strategy.

But there's one arguably good thing about the 7 percent cap: people whose homes are worth a lot more from one year to the next will see a smaller resulting property tax hike than they otherwise would. Of course, the cap gives this break to everyone who's in this boat, from the poorest to the wealthiest. But it does undeniably restrict the impact of the real estate boom on certain homeowners.

It's also undeniable that a tax cap is a pretty blunt instrument for achieving this goal. And you can question whether "tax cuts for every homeowner whose home is worth a lot more" is the right goal to begin with.

So is the 7 percent cap better than nothing? The Illinois Civic Federation thinks so. In a November 27 press release, they recommend extending the temporary cap when it expires next year. To their credit, their release states prominently that the cap "is not a replacement for comprehensive property tax reform," and that in the long run it should be allowed to expire. But for now, they think that "the benefits of the [cap] outweigh its costs in terms of the portion of the tax burden shifted to non-homestead and slowly-appreciating homestead properties."

Anyone who was around for the state tax revolts of the late 1970s and early 1980s (and I wasn't among them) will tell you that short-term legislative inaction in the face of rapidly growing property taxes is a recipe for long-term dumb tax policy solutions. And it's entirely possible that absent the temporary caps that have been in force since 2004, Illinois homeowners would have broken out the pitchforks by now in a way that would make the state's already-abysmal education funding system even worse.

But I think the real outcome has just been that Illinois leaders have been able to avoid dealing with the property tax issue altogether. Newly re-elected governor Rod Blagojevich clearly just wishes the issue would go away. This "not on my watch" mentality is making things easier for those Cook County homeowners who are lucky enough to live in the right neighborhood-- but is making things worse for low-income families who already were coping with one of the most regressive tax systems in the nation.

It's time for Illinois lawmakers to stop treading water and come up with a real property tax swap solution.

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