Property Tax Burdens Fall on the Nation’s Lowest-Income Homeowners

The Center for Municipal Finance at the University of Chicago Harris School of Public Policy has completed a nationwide analysis revealing that property taxes – which generate roughly $500 billion and represent the single largest revenue source for local governments each year – are inequitable, with the burden falling disproportionally on owners of the least valuable homes in most counties, cities, and other taxing jurisdictions across the United States.

The study finds that a property valued in the bottom 10 percent within a particular jurisdiction, pays an effective tax rate that is, on average, more than double that paid by a property in the top 10 percent. This means that on a nationwide basis, the lowest-income homeowners effectively subsidize the tax bills of their higher-income counterparts, fueling inequities across racial, economic, housing, and other divides. For example, properties located in neighborhoods that are 90 to 100 percent black experience assessment levels that are more than 1.5 times the average for their county.

“People wouldn’t tolerate this if the system were easier to understand, like the income tax. Because the way property taxes are calculated is murky to many people, the problem has gone unnoticed for a very long time,” said University of Chicago Harris School of Public Policy professor Christopher Berry, who authored the research. “Our analysis shows, unfortunately, that the problem is pervasive across the country, exists in each state and in the vast majority of counties. It ultimately impacts almost everyone, both homeowners and renters alike.”

Using data from millions of residential real estate transactions between 2007 and 2017, Christopher Berry, the William J. and Alicia Townsend Friedman Professor at Harris Public Policy, developed the nationwide analysis and a new tool, searchable by county and city, which looks at property tax records for communities around the US.

The analysis compares assessed values with sales history and finds that lower-value homes were on average assessed at higher rates than higher-value homes. To see how a particular community compares with others throughout the nation, click here. The tool also provides a visual comparison of a community, county, or state.

Berry’s findings and methodology are available in the paper, Reassessing the Property Tax, and on the Property Tax Fairness website. The analysis is also highlighted in a major BusinessWeek story, published today, detailing how property tax inequities impact residents of Detroit and other communities across the nation.   

Despite the widespread nature of the issue, flaws in how properties are assessed and then taxed largely arise from limitations in the data and methods used by assessors, rather than from their government’s explicit policy choices. Some localities will choose, as an example, to set limits on maximum assessment levels; grant appeals to homeowners, a process typically favoring more affluent taxpayers; or treat condominiums and single-family homes differently in the process. Berry finds though that a primary challenge to more equitable taxation lies in the fact that many important features of a home that are observable to buyers and sellers are not observable to assessors and their models.

“Of course, each place has its own unique story and some of the factors that drive disparities in New York are different from those in Baltimore or St. Louis, Detroit or Miami,” Berry explained. “And while there are inherent limitations to any assessor’s ability to fully redress the problems at the local level, the reality is property taxes in America are regressive and create clear economic and racial disparities. It is a clear example of structural racism, but it is also much more than that. Even in places without significant minority populations, owners of low priced homes are getting a raw deal.”

Earlier analysis by Professor Berry on the topic demonstrated that roughly $2.2 billion was inappropriately shifted from high value to low value properties in Chicago. The resulting media coverage and political fallout from that study ultimately contributed to the election loss of the high-profile and powerful assessor Joseph Berrios. Berry has also studied Detroit where he found evidence of a particularly unfair and regressive system, which has helped stimulate widespread activism for change.

“While the property tax has lots of appealing features in theory, in practice the tax is highly regressive, and this regressivity often violates the law,” Berry concludes. “Policymakers across the country, at all levels of government, should recognize that the most important tax used to fund local governments is unfair as currently administered.”