Want to soak the rich? Look at the property tax
Monday, July 13, 2015
Crain's Chicago Business
by Greg Hinz
Now, before your blood pressure explodes and grandmas all over town sob that they're going to be thrown into the street, let me stipulate that the property tax is flawed. Among other things, it's complicated, subject to abuse, occasionally arbitrary (when comparable sales are lacking) and, worst of all, based on wealth rather than ability to pay. That explains grandma's cash flow problem.
But the property tax also has some virtues that local pols overlook in their desire to placate voters.
Point one: Property tax levies—the total amount of dollars requested by most Chicago governments, including the city, Cook County and park district—have been frozen for a decade or longer. Combined with rising property values, that explains why the combined tax rate of those governments has dropped from 10.197 percent before tax caps were imposed in the early "90s to 6.08 percent now.
A different computation by Chicago-based watchdog the Civic Federation on the effective tax rate (which incorporates how property is assessed) has similar results. In Chicago proper, the combined rate rose about 20 percent from 1999 to 2012 but is going back down. In comparison, effective tax rates generally have risen far more in suburban Cook County and the collar counties: up 22 percent in Wheaton, 48 percent in Elgin, doubling in Elk Grove Village and nearly tripling in Waukegan. As my colleague Thomas A. Corfman reported July 6, Chicago has the lowest combined tax rate of any jurisdiction in Cook County.
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Point two: Chicago homeowners get an even better deal than suburbanites, thanks to all the commercial development downtown, and because residential property in Cook County is assessed at a lower rate than office towers or factories are.
In fact, the effective tax rate on Chicago commercial property—office buildings, shopping centers and rental apartment buildings—is 265 percent that on houses and condos, according to the Civic Federation. And the disparity from the suburban rates has tended to widen with time. From 2003 to 2012, effective tax rates on homes in Chicago grew the least of 12 Cook County municipalities studied by the federation, and the rates on commercial property grew the most.
Now, there are so many homeowners in Chicago and Cook County that they still pay most of the total property tax bill. But in the city, it's 59 percent. In the rest of the county, it's just under 66 percent.
Keep that in mind when, say, Cook County Board President Toni Preckwinkle proposes to raise the sales tax rather than the property tax. Take a guess which of those two levies tends to hit the fat cats worse. If you said the property tax, you aced this week's tax quiz. And you may have at least a partial explanation why Gov. Bruce Rauner is pushing for a two-year property tax freeze: It would help his business buddies, who disproportionately pay property taxes here.
Despite all that, I'm not necessarily endorsing a tax hike—certainly not without trimming bureaucratic fat first. Moreover, commercial owners here roundly complain that they already are over-property-taxed compared with owners in other large U.S. cities.
What I am saying is this: If you want to help the little guy, property taxes need to be part of the discussion. Really.