A Tale of two ZIPs

A child is born in well-to-do town that’s a suburb of somewhere. The curving streets lined with oak trees and white picket fences are dotted with well-to-do houses that pay property taxes. The well-to-do community that comprises these houses easily fund their local schools: after school-tutoring, sports of every type, the arts, are all available to ensure these students succeed. The children grow-up to be fully prepared for attendance at well-to-do universities, at which they do well. Their success provides them with a comfortable life in an even more well-to-do town that’s a suburb of somewhere.

Another child is born in sub-standard area: either urban or rural. The streets have a pox of potholes flanked by utility poles or crumbling concrete are dotted with boarded-up bungalows or rusted-through silos that fail to command much property tax at all. The sub-standard community that comprises these places struggle to find funds for much of anything. As a result, they have sub-standard schools. These sub-standard schools must make difficult choices: do they pay sub-standard wages and keep the art classes? Do they increase class sizes or do they jettison AP classes? These sub-optimal optimization problems yield sub-standard educations. Sub-standard educations yield students with sub-standard standardized test scores. The well-to-do universities are interested only in the outliers from here, and forsake the rest. Their lack of success binds them to the economic condition of their sub-standard area: either urban or rural.

Rinse. Lather. Repeat.

On average, those children from the above-average funded suburb receive an above-average education which opens the doors to above-average opportunities at above average institutions which gives them an above-average job that pays above-average wages.

On average, those children from the below-average area receive a below-average education and thus accept below-average jobs at below-average wages.

These cycles continue in parallel, but the macroeconomic picture changes too. Over the long-run, wages stay relatively flat for those below the average income, while inflation cruises along higher. Wages at the top continue to outpace inflation as the top of the economic strata reap the benefits. What goes up just goes up. What goes down drowns.

A Genetic Lottery

Remember, these are children. They have done nothing. They have made no poor choices. They didn’t apply themselves more. They simply were born in two different places that both decided to fund education via property tax. They were born in two different ZIP codes.

This isn’t a fair system. It’s a system that accelerates economic inequality. It’s a system bereft with the vestiges of red-lining, the decline of Coal Country, and the dynasties from which we fought for independence. The engine that keeps this crushing wheel turning is funding education via property tax. The more localized the funding, the worse the results.

Death & Taxes

The Tax Code carries with it a lot of built-in assumptions and goals: promoting home-ownership, tobacco cessation, promoting saving for retirement. Taxes shape our society in explicit and implicit ways. Millions of people make their decisions based on tax-implications everyday. Generally speaking, we tax things we disapprove of and we encourage via the tax-break.

The property tax is just the opposite. The property tax punishes you for owning your home. Ever year it functions as a super-capital-gains tax on your unrealized gains of housing. For those on fixed-incomes, the relentless collection of property tax can pull the house you just spent 30 years paying off out from under you.

We give tax breaks to things people need such as groceries, gasoline to get to work, school supplies for teachers. We should apply this same principle to housing.

A New Property Tax Paradigm: A Proposal

Property tax should be collected only on housing units that are not one’s primary residence. If you live there full-time, you pay no property tax. If you rent it to someone else, you pay property tax. If you rent a room, you pay a tiny tax. If it’s a vacation home, you pay taxes.

With this system we stop taxing people on their housing (a need), and instead shift the burden to eat into profits (which are by definition an excess). Property taxes are still collected from businesses, apartment buildings, factories, parking lots, and everywhere else. The only missing revenue comes from those primary residences, and can be made-up for by a litany of options: gambling taxes, alcohol tax, marijuana tax, corporate tax, top 0.1% income tax, increasing fines for speeding, drunk-driving, any of the social ills. A clever solution would be to increase property taxes on out-of-state private equity firms that own property. This would have the added benefit of encouraging them to liquidate their holdings and create relief in the housing market.

A simple system by which every tax payer must declare their primary residence on their return and then list all other properties they own would suffice to prevent cheating by the rich. If a couple in filing jointly, but claim 2 different residences, well are they really that joint?

Further, education should be funded by property tax on a state-level. Not hyper-local.

Government that Helps or Government that Hurts: a Choice

The property tax system we currently utilize is fundamentally unjust. It usurps the American Dream by pre-determining children’s success based on a birth-place lottery. It flies in the face of our collective notion that reward follows hard work. It cuts the straps off young people’s boots before they’ve begun to walk. We have the power to change the tax code to better align with our values, we just need to find the will.