Cut the What? How?

Photo by TAIS

I'm not sure I really understand Chuck Schumer's obsession with the "50 percent" concept, but most of his ideas seem pretty good. This one, though, I don't get:

REDUCE PROPERTY TAXES THAT FUND EDUCATION BY 50%
* Encourage localities to cut property taxes that fund education by 50% over ten years by freezing them now.
* If unforeseen circumstances arise, restore the highest income tax bracket to mid 1990s levels before taking away the property tax reduction.

I, too, would like to see primary and secondary education become less reliant on property taxes as a means of financing schools. There are a lot or problems with property taxes and relying on them at all is mostly an archaic holdover from long past days and few if any of the rationales for reliance on property taxes still exist. That said, encourage localities to do this how? And how do you make up that 50 percent funding shortfall? The question could be answered easily -- "cut property taxes by 50 percent and replace the money with a new Value Added Tax" or something -- but it really does need to be answered. Clearly, the political difficulty in reducing reliance on property taxes isn't that it's hard to cut them, it's that it's hard to raise the missing revenue through some other new tax.

Comments

Seems clear the missing revenue would be made up by reversing the past 10 years of reductions in top income-tax bracket. All you have to do is recognize that, in this context, a shortfall in school funding resulting from a reduction in school taxes is an "unforeseen circumstance." For a politician talking about taxes, that's pretty straightforward, no?

Posted by lemuel pitkin | January 29, 2007 5:36 PM

How do the Feds play a role here? Most education spending is either state or local -- IIRC the average school governance body gets ca. 7% of its operating budget from the Feds....no way is that going to close the gap -- not if trebled, or even quadrupled.

It's no great cost to him to exhort communities, unless he proposes to pay them, too.

Posted by Davis X. Machina | January 29, 2007 5:47 PM

The bubble is bursting. It will get worse.

Posted by bob mcmanus | January 29, 2007 5:59 PM

The problem with this is that most states (certainly mine) limit the ways local government can tax. It would require an act of the legislature to allow a local government to use some variant on a sales tax or value added tax. While bills to do this have been presented to our solons, none have ever come close to passing. So, the problem is that the more progressive taxation schemes all require the concurrence of another level of government, which jealously guards its funding source.

Posted by Eric | January 29, 2007 6:21 PM

For some people, of course, the whole point of reducing the percentage of property taxes that goes to education is to reduce public school funding. It's like No Child Left Behind; for some, the fact that it was (and is) unfunded wasn't an error, it was the point. Underfunding public education damages the quality of that education which creates political support for school vouchers. That's why so many "school choice" advocates (like Jeb Bush) pushed so hard for No Child Left Behind.

Posted by Freddie | January 29, 2007 7:14 PM

So, this is what? Prop. 13 on a massive scale? Because that worked so well the first time.

Posted by James F. Elliott | January 29, 2007 7:40 PM

Jeez, did I go to sleep and wake up in another century? Since when is it any of Chuck Schumer's business what we want to spend on schools in Mason County?

Our (Washington) state constitution already requires the state to fully fund the operating expenses of schools- an obligation the state has notably failed to fulfill, ever. The last thing we need locally is to have our ability to tax ourselves replaced by empty and unfulfilled promises from grandstanding politicians.

Nor am I the least bit interested in having our ability to build or repair schools taken over by a Federal agency. Just think how much fun that would have been over the past 6 years!

As for Chuck Schumer's Ronald Reagan impression, no thank you. This is the old Prop 87, IIRC, and we get all the California we want here when Californians move north to enjoy the benefits of the ability to tax ourselves for adequate services.

Young people! Practice your supersensitive bullsh*t detector apparatus on stuff like this. When a self-described "conservative" uses demagogic pandering to attack education by transferring local control to the Federal government, you can figure something is not adding up. In fact, in this case, you now know you can ignore anything written by or about Chuck Schumer (except, possibly, some proof that he never said that) and spend your time doing something that might actually be worth spending your time on.

Sometimes, thinking really hard about something makes you dumber instead of smarter. If it's really that important, somebody will remind you of it later.

Posted by serial catowner | January 29, 2007 7:48 PM

James simply cutting property tax rates and moving school funding to the state's general fund wouldn't be Prop 13 all over. First of all you would as Matt notes need to raise other taxes to offset the revenue lost.

Also, Prop 13 is a mess because it focused on how property values are assesed rather than tax rates; it created an unfair way of setting values for tax purposes that resulted in bizzare situatiosn like Warren Buffet owning two houses of nearly identical value in Laguna Beach with vastly different tax bills. A straight forward cutting of peoperty tax rates by 50% would be fairly applied to everyone.

Posted by Eric | January 29, 2007 7:49 PM

I think Mr. Schumer may just be playing to his upstate constituency. Property taxes have been drawing a lot of complaints hereabouts for a while. Gov. Spitzer is also promising relief, along with other wondrous things. I find the logic elusive, but that could be just me.

Posted by George | January 29, 2007 8:05 PM

Taxes on wealth (including property taxes) are, on the whole, pretty progressive...so why cut them? What am I missing?

As for the link between schools and property taxes, that is problematic...but not in California, where the Supreme Court ruled it unconstitutional. Unfortunately, severing that link was a major factor in support for Prop. 13; in effect, people who were perfectly willing to pay property taxes to support schools in their own community weren't willing to pay property taxes to support schools statewide.

Eric: the inequity is one reason Prop. 13 was a mess; another is the fact that it impoverished local government, and yet another is that it makes it nearly impossible to raise property taxes no matter how necessary it is. Prop. 13 is bad from every single conceivable perspective except that of someone who a) owns a whole lot of property, and b) is rich enough to insulate him/herself from the effects of eviscerating local government.

Posted by Tom Hilton | January 29, 2007 8:13 PM

Tom,

How is Prop 13 bad if you're a homeowner on a fixed income, with a house you bought for $100,000 that's now worth $1 million? You'd be paying $2,000 a year in taxes instead of $20,000, and you'd be worse off? Please, enlighten me.

Posted by too many steves | January 29, 2007 8:25 PM

The more I think about it, the more I like the property tax.

The math is pretty simple. To deal with global warming we need to reduce energy use, and one of the best ways to do that is to have people live closer together. The Baby Boomers are the lump in the demographics, so we get more bang for our buck if we persuade them.

The property tax is a direct nudge to the aging to choose a smaller dwellng closer to town. As a Boomer myself, I would like to see publicly developed condos in town that the elderly could buy with low mortgage payments, possibly just deeding the property back to the developing agency on demise.

A major problem as you age is that your working lifespan becomes much less than what is needed to pay off a mortgage.

And, conversely, I have no desire to burden young people with another regressive tax like the sales tax or VAT. If not actually progressive, the real estate tax is at least even-handed when applied fairly, more than can be said for most of our taxes today.

Kinda breathtaking how Schumer manages in one or two sentences to be everything I'm against.

Posted by serial catowner | January 29, 2007 8:35 PM

Prop 13 is bad socially because it distorts the market by giving a huge government subsidy to people who keep land off the market. Because so much of what we do depends on markets functioning, it's a bad thing to distort a market by creating a large constituency, selected largely on the basis of how much land they own, whose only interest is preserving their own subsidy.

Basically, all of human history demonstrates that this is a bad idea. Try 'landed aristocracy' as your search term.

Posted by serial catowner | January 29, 2007 8:41 PM

I thought I covered thisin the third comment. This is politics, not policy.

As the housing bubble bursts, assessments will markedly lad revaluations, and people stuck with arms or other unusal financing schemes are going to be real unhappy the devaluation in any case. So people with a million dollar mortgage on a 500k house are going to be hit with a million dollar property tax and scream FOR SOMEBODY TO DO SOMETHING.

This is a very good sign that when the Reagan/Bush/Greenspan/Bernanke bill comes due the Democrats are gonna fold and cut services first.

Posted by bob mcmanus | January 29, 2007 8:44 PM

We all just need to home school and pray that Jesus will provide for us. Presto! No need for any schools at all. See how easy that was!

Posted by steve duncan | January 29, 2007 8:50 PM

Jeez, did I go to sleep and wake up in another century? Since when is it any of Chuck Schumer's business what we want to spend on schools in Mason County?

Probably since the angry letters he gets from constituents on the subject started to increase substantially. Someone upthread mentioned "upstate" NY, but my guess is the gripes are just loud, if not louder, in booming NYC and environs -- where property values have soared in recent years.

And, conversely, I have no desire to burden young people with another regressive tax like the sales tax or VAT. If not actually progressive, the real estate tax is at least even-handed when applied fairly, more than can be said for most of our taxes today.

Some say the property tax is one of the most regressive in existence, as it takes no account of one's income. An 80 year old widow living in a house for 53 years may find herself forced to sell because of booming property values. Somehow it doesn't seem right.

If we must tax property, I'd much rather see us do it at the time of purchase (with, say, a 15% transfer tax). True, most people would have to take out a somewhat larger mortgage (assuming at least part of the tax is passed on to the buyer) but at least they'd be freed of the burden of property taxes when they reached old age (and paid their mortgage off). Such a change would undoubtedly not be revenue neutral, and some losses would have to be made via increases in other taxes.

One of my hobby horses has been trying to get people to support the idea of state-wide taxation. That is, no local tax authorities, only one at the state level. Local government would be funded directly by a straight line, per capita transfer from the state government. This would reduce a lot of our urban blight issues.

Posted by Jasper | January 29, 2007 9:14 PM

As long as local property taxes fund the bulk of school budgets, poor kids get short shrift. I would hope that most liberals want to see more equality in educational opportunity.

Posted by mal | January 29, 2007 9:36 PM

1. Property taxes are a far more stable source of revenue than income/sales taxes because they are far less tied to business cycle fluctuations.

2. Use of income taxes would have a similar regional distortion in terms of school funding if the target is local schools.

Posted by alex | January 29, 2007 10:15 PM

The idea is always to shift the education burden onto the income taxes so that the money can be spread around the state, especially to areas where incomes are very low. The people in the higher income areas are never going to go for it. They would end up paying higher taxes than they pay now but the money won't stay in their school district to educate their children and enhance their property values.

Its asking an enormous sacrifice and no wonder the idea won't sell.

Posted by Katha | January 29, 2007 10:31 PM

Consider this: If I buy a 2 bedroom condo at a price that is cheap for the current market--meaning $250k plus for a small unit in a less desirable part of town--I can expect to pay roughly 20-25 percent of my annual income as property tax. From the rest I would have to pay mortgate, insurance, utilities, food, clothes, transportation, etc.--and save up enough money to ensure I could keep on paying for those things once I retire in another twenty years or so. And insurance in this part of the country because of hurricanes is even more than property taxes.

And if I rent, my landlord will need to pay those rates on his property out of the rent he collects from me and my fellow tenants.

So stop getting teary eyed over education funds not being budgeted and remember that all of us are paying these taxes at a fairly high rate. And even if the real estate market goes bust, those property taxes will stay high.

What's probably needed is to uniformly rollback property taxes to the amounts collected a decade or more. Even just going back five years could probably do the trick.

Posted by kishnevi | January 29, 2007 10:40 PM

This proposal would seem to require Federal funding, and hence Federal control, over local education. I already think the Federal government interferes too much with the states. Whatever happened to federalism?

Posted by MQ | January 29, 2007 11:18 PM

Michigan reduced the local property tax portion of school funding and replaced it statewide funding thru new sales tax in about 2000. The results are a mixed bag.

In that Michigan has the worst economy in the nation growth wise they are already into a fiscal crisis with little revenue growth and outright shrinkage in sales taxes. Of course a lot of places are having trouble funding schools.

One interesting thing was that to get it to pass the state funding for schools had to be made not on a per pupil basis but on the level of funding in each district at the time of passage. In other words the rich disticts get more money per pupil than the poor ones. Pretty much a travestry.

On a side note. There is currently a gigantic tidal wave of acedemic failure going on in our high schools nationwide. It's hard to check out because there is so little talk about it but soon it will be a huge story.

Posted by rapier | January 30, 2007 2:32 AM

Taxes on wealth (including property taxes) are, on the whole, pretty progressive...so why cut them?

I think this question actually answers itself.

I think Mr. Schumer may just be playing to his upstate constituency.

That's part of it, yeah. Up in, e.g., Monroe County, they hate property taxes. The county sales tax has been hiked repeatedly to avoid having to increase the property tax burden on the richest towns in the county, to the point of where most new retail businesses are locating across the county line (how's that for counterproductive?). Oh, the endless grousing about property taxes by the McMansion occupants out in the town of Perinton, a town that doesn't even fund its own police force, but relies exclusively on the county sheriff paid for by everyone. But at least there isn't higher property tax revenue going to the inner city!

All that said:

my guess is the gripes are just loud, if not louder, in booming NYC and environs -- where property values have soared in recent years.

Yeah, I'd treat this gambit with a little more respect if it didn't come from a multimillionaire who owns a brownstone in Park Slope.

The mention of No Child Left Behind reminds us of the pattern. Extensive property tax "relief" will be pushed first, and somehow nobody will ever get around to making up the shortfall.

Posted by mds | January 30, 2007 10:28 AM

Just how is the federal government going to "encourage" local governments to starve their school systems? By promising maybe to make up the difference sometime in the future with grants that come with unmanageable strings attached? This is pure bs.

Posted by JR | January 30, 2007 10:51 AM

"And how do you make up that 50 percent funding shortfall? "

On multiple occasions in national venues he has stated that the shortfall would be made up by federal funds. I haven't thought about this enough to know if I agree with it or not, but I knew his stance without lifting a finger to find out.

Posted by Njorl | January 30, 2007 11:12 AM

On multiple occasions in national venues he has stated that the shortfall would be made up by federal funds.

Oh, great, in this brave new era of strict PAYGO, that's really gonna fly. "We must raise federal income tax rates to give a tax break to NYC property owners!"

Again, if Phase 1 is somehow achieved, Phase 2 will magically die on the vine, by Senate filibuster if necessary.

Posted by mds | January 30, 2007 11:46 AM

How is Prop 13 bad if you're a homeowner on a fixed income, with a house you bought for $100,000 that's now worth $1 million? You'd be paying $2,000 a year in taxes instead of $20,000, and you'd be worse off? Please, enlighten me.

That kind of sob story was the pretext on which Prop. 13 was sold (when in fact most of the spoils went to large commercial property owners). Response #1: there was a competing proposition on the ballot that would have taken care of this situation without the catastrophic consequences for California. Response #2: I'm not going to shed any tears for anyone who owns a home worth $1 million. They can sell it; they can refinance; they are, in short, not without resources. The fact that their home is worth 10 times what they paid is not a fucking hardship.

But to respond more directly to the question of how Prop 13 is bad for someone like that, it's very simple: the damaging effects of Prop 13 are so far-reaching that only those wealthy enough to insulate themselves from the effects--those who can easily afford private schools and private security forces, who own enough land that they don't need parks, and so on--are really any better off.

Posted by Tom Hilton | January 30, 2007 12:49 PM

Proposition 13 has had horrible results for California over the past two decades. The biggest tragedy, however, is that it could have been avoided if the legislature had been willing to act in a reasonable and timely manner to address the legitimate grievances that gave rise to it. If the legislature had passed a measure providing relief for homeowners (and, despite what Tom Hilton thinks, most Americans do not believe little old ladies should be kicked out of their home because the prices in the neighborhood went up) then Proposition 13 would never have passed. Instead, Jerry Brown fiddled while California burned, and the result was a poorly written multi-billion dollar giveaway to corporate property owners that hamstrung California's finances for decades to come and ushered in the disastrous era of government-by-initiative. This article on Commondreams.org describes the situation:

"The tax revolt of 1978 is often depicted as a rebellion against big government, but it didn't start out that way. Mainly, voters wanted fairer taxes. The inflation of the 1970s had produced rising property valubes. Those, in turn, spiked property taxes.

Because California has a complex system of special local taxing districts, it was hard to coordinate a cut in tax rates to offset the higher property values. Homeowners simply got socked with rising tax bills.

Only the governor and the Legislature could fix the problem, but then-Governor Jerry Brown dithered. Instead of changing the rules and keeping property taxes within reasonable bounds, Brown opportunistically used the tax windfall to reduce local aid and to bank a huge surplus. Instead of using that surplus for tax relief, he used it to burnish his reputation as a fiscal conservative, in anticipation of a presidential run.

The voters, disgusted with the political deadlock and worried about being taxed out of their homes, approved a radical and badly flawed remedy, Proposition 13. By drastically limiting the property tax and locking in low taxes for property owners as long as they didn't move, Proposition 13 both hamstrung government and worsened tax inequities. New homeowners in small bungalows often pay higher property taxes than millionaires who've lived in their mansions for three decades."

Posted by Josh G. | January 30, 2007 1:11 PM

"Just how is the federal government going to "encourage" local governments to starve their school systems? By promising maybe to make up the difference sometime in the future with grants that come with unmanageable strings attached? This is pure bs."

Posted by: JR

Schumer's stated plan is that the federal program be established first, then states apply for funds while agreeing to cutting their property taxes actively or through attrition. Participation would be dependent upon agreeing to standardized testing, but he proposes that it replace all other federally mandated testing.

I do see some problems. Politically, many people hate the idea of the federal government getting into public education. I happen to like that part. The idea that people can move to where there are better public schools is disgraceful (not to the people, but to our country). If rich people want to spend money to get a better education for their kids, that's fine-send the kids to private school, but everybody should have access to the same free education, and it should be a good one.

There is also the problem that as soon as legislation enters congress, it evolves toward favoring the rich. This even happens in Democratic congresses. The only difference is that Democratic bills start out more progressive than Republican bills.

Another part I don't like is this:
If he's just proposing replacing property taxes with federal taxes, he is not addressing the inequities in public education. He is simply making the federal government the funder of those inequities. The federal government will wind up giving larger subsidies to schools in rich neighborhoods so that wealthier people can get bigger breaks on their property taxes. I haven't seen the whole plan, I've just heard him talk about it, so I don't know if he addresses this.

Posted by Njorl | January 30, 2007 1:33 PM

Prop 13 is still massively popular with California voters. It will probably not be repealed for at least a generation.

Posted by MQ | January 30, 2007 9:28 PM

Jasper on January 29, 2007 09:14 PM:

....my guess is the gripes are just loud, if not louder, in booming NYC and environs -- where property values have soared in recent years.....

Jasper, your guess is wrong. In New York City the property tax on genuine actual homeowners who actually reside in their homes is incredibly low compared to virtually anywhere else. Having an S.O. who recently purchased our living space, I know. Tell someone else what you're paying and they laugh hysterically at how low it is, tell them that the mayor seems to be determined to send out $400 rebates to us on that low amount every year and they'll laugh some more. And don't forget that ultimate regressive tax which keeps many newstands and immigrants in business: LOTTO! Not to mention what the closing costs are in this state and city on a home real estate transaction, add like 7% of the cost!

You would also probably be surprised at how few true "homeowners" there are in New York City. I know I was shocked at the numbers

I really haven't a clue at how our schools are paid for, but it sure as hell isn't property tax on homeowners. I imagine it's one of these, one of the million other taxes paid in this city: including a not piddling city income tax, one of the highest sales taxes around, taxes on corporations up the kazoo, sub taxes on corporate taxes, huge hotel taxes, huge parking taxes, unincorporated business tax, inscrutable city taxes on utility bills, tax on cigarettes going up every day as is the mayor's whim, tax with the fire extinguisher license in your apartment building lobby, fines fines fines fines fines on anything you might do if they catch you doing it (cash flow problem? start having Sanitation write tickets for improper garbage and send out the cops to start writing tickets for the 6 inches from the curb parking rule and get that outdoor cafe owner for having a table six inches from the sidewalk line, shake down a few contractors for improper scaffolding, there's a million ways to get some cash)

I can assure you, Chuck Schumer is not pandering to New York City residents when he talks about lowering property tax on homeowners. Our tax situation is special.

Posted by artappraiser | January 31, 2007 4:21 PM