Property Taxes Pave the Road to Serfdom

Under the feudal system of the middle ages, a serf was an agricultural laborer who was bound to work on his lord's estate. The lord owned the land, and the laborer had no choice but to live on the lord's property and hand a significant amount of the fruits of his/her labor over to the lord.

A similar, but more subtle, system exists today in counties throughout the United States. Homeowners and owners of farmland are bound to pay property taxes to the County Assessor. And if they don't pay the property taxes, the assessor has the legal right -- which they essentially gave themselves -- to take the property away. The names of the local officials may not be on the deed to your house, but since they have the legal authority to seize it from you, the result is the same.

This seemed reasonable as long as the property taxes were reasonable. But as Americans have had their wages and benefits reduced, the public sector workers, whether they are unionized or not, continue to enjoy the privilege of raising property and other taxes so that their benefits, salaries, and pensions are not reduced. Teachers' unions, SEIU workers, and AFSCME workers make all or much of their income through property tax assessments. And interestingly, all give most of their money to the Democratic Party, who, since they run most urban areas of the U.S. and receive this money, are then largely responsible for the high property taxes forced upon middle class Americans.

The taxpayers, who are the voters and theoretically run the government, are left paying for the privileged few who have managed to work themselves -- or a members of a family -- into positions of political power. And incredibly, this issue of the political control of property taxes is kept hidden from voters: they are just sent an annual bill.

There has been a conscious, nationwide effort to avoid the issue of property tax increases. Federal measures of the cost of living do not include property taxes. Measures of consumer spending do not mention how consumers spend more every year on property taxes. And while everyone knows, and can look up, the national and state income tax rates, the rate they are taxed on their home is not easily found. And even if the rate seems to be fixed, at any time a local auditor can say they have to pay years of back taxes, simply by stating that there was a "mistake" in the assessment of the home's value.

Property taxes are an open doorway to administrative corruption, since the assessors, auditors, and tax appeal boards answer to no one. In reality these assessments are a violation of the due process clause of the Fourteenth Amendment, but they are allowed to go on. At some point their constitutionality should be challenged. The homeowner has no option but to pay the new tax or move away, and potentially lose all the equity in their home.

Politicians do not want the property taxes challenged in regular court. After all, most jurors would let their neighbors off of their property tax burden. Cities stubbornly, and arrogantly, refuse to write property taxes off the books when homes are abandoned. For example, in Detroit someone can buy a house for ten dollars, but they still have to pay the back property taxes. The local pols want their money.

Property taxes are the province of politicians, their campaign contributors, and their families and friends. And human nature being what it is, the elites make sure they themselves often pay much less than the masses who have no power. For example, Chicago Tribune columnist John Kass once wrote how in 1998 how the Hispanic political leader of Chicago, Congressman Luis Gutierrez, only paid $274 a year property taxes on a home valued at $350,000. His neighbor paid $5,000 for the same size home, built by the same builder. Gutierrez was a former chairman of the Committee on Real Estate.

So those who profess to advance the cause of social justice above all things end up taxing the middle class to support themselves and their campaign contributors. Of the 12 largest campaign contributors in the past 23 years, four are public sector unions, who earn their salaries and pensions largely, and often exclusively, through property tax assessments. So this motivates politicians and their media supporters to remain silent about the property tax issue.

And property taxes are not trivial. In 2010 the median real estate tax in the U.S. was $2,043 per year. But the term "median" means that half of the taxes are higher.

Working Americans are fortunate that home values have dropped. This enables them to be able to afford both a mortgage and the home's property taxes. But the long-term trend doesn't look good for working Americans. If property taxes continue to rise, and the incomes of Americans continue to fall, home values will have to fall as well. Supply and demand works both ways; as people earn less they can afford to pay less for homes.

Property taxes went up from 2005 to 2010. This happened during the housing bubble, when home values skyrocketed. But when home values collapsed, the property taxes did not go down in many areas. In fact, in many areas, particularly large urban areas, property taxes continue to rise, while the average American has seen their income drop to where they now earn as much as they did in 1996.

What is sorely needed is a national dialogue on the issue of property taxes, and the fact that taxpayers, who foot the bill, must have some say, not a tax board that is entitled to give themselves pay raises through coercion. This is clearly a violation of every Democratic concept of taxation and self-governance. American property taxpayers -- and renters pay property taxes as well through their rent -- must take back their local governments. A political mechanism must be found to restrain the outrageous behavior of local tax appeal boards.

The situation is set up for greed and corruption: those who raise taxes have no one to answer to but themselves, and they, unlike corporations, can give themselves raises, have conventions in Hawaii, and use employees for chauffeurs and maids, all while extorting the money from local homeowners, who are already suffering from excessive taxation, higher costs of living, and lower incomes. It is a more subtle but real duplicate of the feudal system: a few elites own all the property and demand annual payments or they will seize the land.

The property tax issue in the U.S. today is a clear illustration of what Friedrich Hayek referred to in his book The Road to Serfdom. Today, that road is being paved by property tax bills throughout the entire U.S.

Under the feudal system of the middle ages, a serf was an agricultural laborer who was bound to work on his lord's estate. The lord owned the land, and the laborer had no choice but to live on the lord's property and hand a significant amount of the fruits of his/her labor over to the lord.

A similar, but more subtle, system exists today in counties throughout the United States. Homeowners and owners of farmland are bound to pay property taxes to the County Assessor. And if they don't pay the property taxes, the assessor has the legal right -- which they essentially gave themselves -- to take the property away. The names of the local officials may not be on the deed to your house, but since they have the legal authority to seize it from you, the result is the same.

This seemed reasonable as long as the property taxes were reasonable. But as Americans have had their wages and benefits reduced, the public sector workers, whether they are unionized or not, continue to enjoy the privilege of raising property and other taxes so that their benefits, salaries, and pensions are not reduced. Teachers' unions, SEIU workers, and AFSCME workers make all or much of their income through property tax assessments. And interestingly, all give most of their money to the Democratic Party, who, since they run most urban areas of the U.S. and receive this money, are then largely responsible for the high property taxes forced upon middle class Americans.

The taxpayers, who are the voters and theoretically run the government, are left paying for the privileged few who have managed to work themselves -- or a members of a family -- into positions of political power. And incredibly, this issue of the political control of property taxes is kept hidden from voters: they are just sent an annual bill.

There has been a conscious, nationwide effort to avoid the issue of property tax increases. Federal measures of the cost of living do not include property taxes. Measures of consumer spending do not mention how consumers spend more every year on property taxes. And while everyone knows, and can look up, the national and state income tax rates, the rate they are taxed on their home is not easily found. And even if the rate seems to be fixed, at any time a local auditor can say they have to pay years of back taxes, simply by stating that there was a "mistake" in the assessment of the home's value.

Property taxes are an open doorway to administrative corruption, since the assessors, auditors, and tax appeal boards answer to no one. In reality these assessments are a violation of the due process clause of the Fourteenth Amendment, but they are allowed to go on. At some point their constitutionality should be challenged. The homeowner has no option but to pay the new tax or move away, and potentially lose all the equity in their home.

Politicians do not want the property taxes challenged in regular court. After all, most jurors would let their neighbors off of their property tax burden. Cities stubbornly, and arrogantly, refuse to write property taxes off the books when homes are abandoned. For example, in Detroit someone can buy a house for ten dollars, but they still have to pay the back property taxes. The local pols want their money.

Property taxes are the province of politicians, their campaign contributors, and their families and friends. And human nature being what it is, the elites make sure they themselves often pay much less than the masses who have no power. For example, Chicago Tribune columnist John Kass once wrote how in 1998 how the Hispanic political leader of Chicago, Congressman Luis Gutierrez, only paid $274 a year property taxes on a home valued at $350,000. His neighbor paid $5,000 for the same size home, built by the same builder. Gutierrez was a former chairman of the Committee on Real Estate.

So those who profess to advance the cause of social justice above all things end up taxing the middle class to support themselves and their campaign contributors. Of the 12 largest campaign contributors in the past 23 years, four are public sector unions, who earn their salaries and pensions largely, and often exclusively, through property tax assessments. So this motivates politicians and their media supporters to remain silent about the property tax issue.

And property taxes are not trivial. In 2010 the median real estate tax in the U.S. was $2,043 per year. But the term "median" means that half of the taxes are higher.

Working Americans are fortunate that home values have dropped. This enables them to be able to afford both a mortgage and the home's property taxes. But the long-term trend doesn't look good for working Americans. If property taxes continue to rise, and the incomes of Americans continue to fall, home values will have to fall as well. Supply and demand works both ways; as people earn less they can afford to pay less for homes.

Property taxes went up from 2005 to 2010. This happened during the housing bubble, when home values skyrocketed. But when home values collapsed, the property taxes did not go down in many areas. In fact, in many areas, particularly large urban areas, property taxes continue to rise, while the average American has seen their income drop to where they now earn as much as they did in 1996.

What is sorely needed is a national dialogue on the issue of property taxes, and the fact that taxpayers, who foot the bill, must have some say, not a tax board that is entitled to give themselves pay raises through coercion. This is clearly a violation of every Democratic concept of taxation and self-governance. American property taxpayers -- and renters pay property taxes as well through their rent -- must take back their local governments. A political mechanism must be found to restrain the outrageous behavior of local tax appeal boards.

The situation is set up for greed and corruption: those who raise taxes have no one to answer to but themselves, and they, unlike corporations, can give themselves raises, have conventions in Hawaii, and use employees for chauffeurs and maids, all while extorting the money from local homeowners, who are already suffering from excessive taxation, higher costs of living, and lower incomes. It is a more subtle but real duplicate of the feudal system: a few elites own all the property and demand annual payments or they will seize the land.

The property tax issue in the U.S. today is a clear illustration of what Friedrich Hayek referred to in his book The Road to Serfdom. Today, that road is being paved by property tax bills throughout the entire U.S.