The point that you must keep uppermost in mind as you go through this essay (and, really, in my opinion, as you go through life) is that it costs much more to be poor in America than it does to be rich. That's not solely a function of taxation, although taxes substantially contribute to this terrible truth. With that firmly in mind, then, let's begin:
The exact quote is, "[T]he power to tax involves the power to destroy," McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 431 (1819), which means that the taxing power can be destructive, but is not necessarily destructive. The quote is usually remembered with the word "is" substituted for the actual word "involves," making it appear as though any tax is destructive. Necessarily destructive. Always destructive.
That's just silly. Why? Because government can not survive without tax revenue. And we need government. As Madison said in Federalist 51, "If men were angels, no government would be necessary." But, alas, humans are far from angelic. Inasmuch as there can be no viable government without taxes, just as no body can survive without blood in its veins, we must be taxed. Taxes are the lifeblood of the body politic.
Now... what is a tax? A tax is any transfer whereby money goes from your pocket to the government or where money directed toward your pocket is diverted to the government.
Some people argue that there are distinctions between taxes, penalties, and fees. Such people often have something to do with the imposition or collection of taxes, penalties, or fees. But, in truth, fees and penalties are merely two additional types of taxes. Let's start with penalties. We could call these "fines" as well, but let's stick with the fancier, twenty-five cent word.
Penalties, admittedly, may not look like taxes at first blush. They are not imposed generally but only on those persons who are found, pursuant to judicial or, increasingly, administrative action to have exceeded the speed limit, or rolled through a red light while making a right turn, or who have been caught holding a cell phone in a moving car, or who have failed to securely close their garbage cans, or kept their lawns mowed to a certain height... the list is nearly endless, limited only by the imagination, greed, and need of the taxing authority.
Now you may suppose that these penalties are imposed merely to offset the cost of enforcing the statutes or ordinances that give rise to their imposition. And, maybe, in some places, or at some times, this might even be true. But, to the extent that speeding or leaving a garbage can open to rodents is offensive to public safety and order, society---that is, government---would have to assume the cost of enforcement anyway. And it would have to pay for the enforcement of these laws or ordinances with taxes. So it comes down to this: Are the taxes for curbing these various undesirable behaviors to be imposed on the general public or the miscreants whose behavior needs to be curbed in the first place?
And some municipalities can be very creative at squeezing revenue from penalties. They can use penalties to generate, not only the costs of enforcement, but additional revenue besides. As the United States Department of Justice, Civil Rights Division, stated in its "Investigation of the Ferguson [Missouri] Police Department," at p. 9, the City of Ferguson "consistently set maximizing revenue as the priority" for its police department, generating "a significant and increasing amount of revenue from the enforcement of code provisions." Ferguson was hardly the only such municipality in the United States that looked to penalties as a boon to their bottom lines. Any dollar squeezed from a scofflaw is one less that has to be raised by other means. Penalties are taxes.
Fees are taxes, too. One doesn't necessarily get that thrill of moral smugness with fees that one might derive from penalties -- those violators deserve to pay! -- but, golly, don't fees just seem so fair?
I mean, after all, not everyone drives a car, so it just seems fair and reasonable for motorists to pay for license plate fees, and city stickers, and driver's liecense renewals. Right? Especially for those who only take the bus. On the other hand, motorists tend to grumble that the per ride fees paid by those taking public transit should cover more of the actual costs of running a public transportation system... except, of course, on those days when traffic conditions or weather force those motorists onto the trains or buses and they blanch at how much fares have gone up since the last time they had to ride.
Fees are the cockroaches of taxes: Though they may sometimes be hidden, they are pretty much everywhere. Every trade or profession, lawyers included, pays a licensure fee. But doctors don't have to pay the registration fees of lawyers, and lawyers don't have to pay the license fees of barbers. Isn't that fair? One of the causes of the American Revolution was the British Parliament's imposition of the Stamp Tax on public documents -- a fee people still pay today, although not to the British Crown, whenever they sell their homes. (So far as I know, however, no American government has tried to extend its stamp tax to playing cards---not yet---so we still have that advantage over the 1760s version.)
Sometimes fees spring up because governments are trying to pretend they're not raising taxes. I do not refer here to fees going up every year, though they do; rather, I refer to new fees being imposed rather than openly raising a tax. Case in point: The City of Chicago has for years charged a semi-annual fee for water and sewer service. (It also imposes a tax on water and sewer service equivalent to the fee.) Anyway, in the last few years, the City has invented a new fee for residential trash collection. Mind you, the City has been collecting trash from single family homes for a great many years -- but only recently has the City imposed a separate fee for this service. Recently, the City announced that it will convert its semi-annual water/sewer/garbage fee and tax bill into a monthly one. But do not worry, Dear Chicago Taxpayers, the City has promised that it will merely be spreading out the considerable burden of this combined fee and tax -- dividing by 12 instead of by 2 -- and not charging a penny more. For a year, maybe. Then it will be soooo much easier to jack up rates higher, faster, farther -- and all the while insisting that the line on property taxes is being held.
Yes, we are coming to property taxes -- but we need to look one other taxation category first.
I refer, of course, to sales taxes. The State of Illinois Department of Revenue defines the term as follows:
The term “sales tax” actually refers to several tax acts. Sales tax is a combination of “occupation” taxes that are imposed on sellers’ receipts and “use” taxes that are imposed on amounts paid by purchasers. Sellers owe the occupation tax to the department; they reimburse themselves for this liability by collecting use tax from the buyers. “Sales tax” is the combination of all state, local, mass transit, home rule occupation and use, non-home rule occupation and use, park district, county public safety and facilities, county school facility tax, and business district taxes.
As noted, sales taxes are charged by every level of government. Everyone is familiar with sales taxes -- lesser taxes on groceries, higher taxes on every other consumer product. The sales tax added on your receipt when you buy something other than food in a store is really an amalgamation of the State sales tax (6.25%), the county tax (1.75% in Cook County), and any local sales tax. In Chicago the sales tax rate on non-food items is 10.25%.
Some services are subject to a sales tax, too. Take a look at the laundry list of taxes and fees on your cell phone bill some time. Every now and again someone spins the horrible idea of collecting sales tax on other services, besides -- like legal services. What a nightmare scenario: Show me an attorney in private practice who collects 100% of the fees he or she charges and I'll show you the unicorn that lawyer rides to work. But... even if we limit the sales tax to legal fees collected, how do we prove this to the taxing authority (City or State or maybe both)? Will government auditors get to check our books to make sure we've not collected any untaxed revenue? And, by definition, in addition to the amounts charged and collected, won't government auditors have to know who our clients are, as well as who is being asked to pay those bills? That seems like a rather fundamental invasion of attorney-client confidentiality... but what do I know?
But back to sales taxes already on the books: The state charges a number specific sales taxes, like the 38.7 cents the State currently collects on every gallon of gasoline you buy. And most levels of government impose "sin taxes." These are also sales taxes -- special taxes on liquor or cigarettes, for example. I don't know if it is yet politically correct to categorize revenue from taxes on cannabis products as "sin taxes." But the idea is that anyone who does not share these vices can feel that special tingle of superiority at the special burdens imposed on those immoral weaklings who smoke or drink. In general, we are less inclined to object to revenues collected from persons in thrall to these various vices.
Now, all of these taxes are considered regressive, meaning they impact the poor more than the rich. A flannel shirt costs $20 at Costco for the rich man and poor man alike. But the $2 sales tax on that shirt is nothing to the rich person, but a far more appreciable portion of a poor person's overall income. The fee charged by ARDC to renew your law license is the same whether you've made money hand over fist or whether you've made next to nothing. If the two lawyers have been in practice the same length of time, the fee is the same, regardless. (There are exemptions for judges, certain court personnel, or persons on active military service, but you get the point.) The rich person is unlikely to leave her garbage can lids loose or her grass uncut. Her car will have a built-in phone system; the poor person may use a cupholder -- or may not. And if the rich person's car triggers a red light camera or a speed camera, the fine will be a miniscule portion of her net worth, but a significant, and perhaps budget-busting expense for the poor person.
Now we arrive at the property tax.
Property taxes may not be considered as regressive as these other taxes, fees, or penalties for the simple reason that home ownership may be out of the reach of many poor people, especially in large urban areas where the cost of living is highest. But, for those who do own their houses, the property tax is extremely regressive.
Moreover, property taxes are based on an absurd assumption: Every few years the county assessor evaluates your home with a view toward establishing the amount that a willing buyer would pay a willing seller for your property. The annual property tax is calculated according to that valuation. Except that, even in our very mobile society, most homeowners do not sell their homes every year. Often they plan, or hope, to remain in their homes indefinitely, until claimed by death or forced to leave on account of infirmity. Thus, even if the assessor's evaluation of a property's value is in line with what Grandview Homes would pay or what Zillow would estimate, the amount calculated should be irrelevant. For the homeowner who does not plan to leave any increase in the home's value is entirely unrealized to the owner unless and until the owner sells. Nevertheless, the county (for itself, and on behalf of all the myriad of municipalities wherein the specific property is situated) demands a tax equivalent to a sizable percentage of that theoretical sales price. So the homeowners buy their house, perhaps even pay off their mortgage, but still continue to buy their house, over and over again, from the county. Which never owned the house in the first place -- but will wind up owning it, via tax forfeiture, if the homeowners stop paying taxes. And if the county can't get someone else to 'buy the taxes' and foreclose.
For the rich homeowner, this never-ending purchase may be inconvenient. For the middle class or working poor homeowner, however, for whom home ownership is supposed to be the culmination of the American Dream, the annual, always increasing property tax, based on theoretical resale values, not on what the homeowner actually paid, may be too much to bear. Homeowners exemptions, senior exemptions, and senior freezes are intended to ameliorate the worst hardships, but these are less and less effective as property values rise.
And taxing bodies depend on increasing property values -- if property values go up, assessed values go up with them, and so do the tax bills. And, yet, the taxing bodies can each state that, because they have not increased their tax rate, they have not increased property taxes. It just..... happens. The City of Chicago is about to add an especially insidious wrinkle to this concept: It will shortly enact a property tax increase that will continue forever... indexed to inflation. (Just in time for Christmas: A gift that keeps on taking. What else could we expect from 2020?)
A homeowner who improves her home -- adding a bathroom, finishing a basement, enclosing a porch -- may be increasing her property value. But, because that may increase her property taxes, through an increase in assessed valuation, unless she's planning an immediate sale, the only one who profits from her good stewardship of her property are the taxing authorities.
And while real property values generally have gone up in our lifetimes, they don't always. See, 2007. While we did better in the Chicago area than many people elsewhere (Florida, for example) when the real estate bubble burst, home values here plummeted. It took a decade for property values to recover in some places; in some they haven't recovered yet. During how many of those years did your property taxes go down? Property taxes seem to track property value increases fairly well... but they are not so good at following property value declines.
And yet property values can be impacted by all sorts of outside factors, for good or for ill. Bankers destroying the economy, as happened in 2007, is one example. There are many others. What someone builds across the street, or two blocks over, may enhance your property value (increasing your taxes) or hurt it (eliminating the theoretical increases on which you've been taxed for years). It is fashionable to denigrate NIMBYs. But, if one considers that, for most homeowners, their home, be it ever so humble, is the only hard asset their family has, or is likely to have, it just may be possible to understand the NIMBY phenomenon.
Since property taxes are based on something at least theoretically objective (assessed valuations)---and since this brief survey is not the place to discuss how these can be manipulated---it is perhaps not fair to call property taxes arbitrary. But given the way in which property values can rise or fall, bubble up and burst, or be impacted by factors wholly outside the property owner's control, it is entirely reasonable to consider property taxes capricious.
Nevertheless, most Illinois jurisdictions are more dependent on property tax revenue than an addict is on heroin. And like a drug addict, Illinois municipalities, from cities or villages, to elementary school districts, high school districts, junior college districts, park districts, library districts, mosquito abatement districts -- the list goes on and on -- always need more.
The Illinois income tax was supposed to provide the methadone to curb this addiction and wean local governments off their dependence on property taxes. When Gov. Richard B. Ogilvie proposed the state income tax in 1969, he suggested that it could "help hold the line or even bring about reductions in local property taxes, because a 12 1/2 per cent share of the income tax will be returned directly to cities and counties." It hasn't worked out that way.
I don't want to pick a scab that's barely begun to heal, but, as every Illinois voter heard ad nauseam during the election cycle just past, we have a "flat" tax here in Illinois. Everyone pays the same rate. So the one-percenter with 1,000 times the income of the average taxpayer pays a thousand times more tax.
We did not adopt the propsed "fair" tax amendment in this election cycle. This was supposed to increase the rate charged to rich people -- making it a "progressive" tax, meaning it would impact the rich more than the poor.
Many reasons will be offered for the failure of the measure. Already the most frequently offered excuse is this one: The millions invested in advertising by Gov. Pritzker, from his own funds, to support the tax proposal, were overwhelmed and overcome by the millions invested in counteradvertising by other millionaires and billionaires (including some members of the Pritzker family) against the tax. The people who tout explanations along these lines are likely to be among those most willing and able to sell you on political advertising should you be a candidate for any office in the next election cycle. They may even be correct, at least in part. But I can't help but think that we've had over 100 years of "progressive" income taxes at the federal level -- and example after example of how rich people have managed to avoid paying the higher rates. Why, during the height of the political campaign just past, we learned that President Trump had paid only $750 in federal income taxes, despite his allegedly vast wealth, in the year he was elected. $750. Voters may well have decided that it's harder for the really rich to evade a "flat" tax than a "progressive" one.
I was going to conclude this survey by arguing that no sane person ever volunteered to pay more in taxes. But a lot of us do voluntarily pay additional taxes. Every Illinois lottery ticket is a tax, too. So perhaps it is best to say that no one really likes to pay taxes. But, perhaps, when we talk about reforming taxes, we should consider the entirety of the present tax structure, not just a single type of tax. Some mixture of these various forms of taxes will emerge from any process. But our goal should be to reduce regressive taxation and, hopefully, diminish our dependence on property taxes. Maybe the only way to break the government's addiction to property taxes will be to go cold turkey -- but that would be really tough for all concerned.
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