The Wealth Tax II

As if on cue the Wall Street Journal observes that cities, faced with dwindling revenues and increasing costs, are raising property taxes:

Cities across the nation are raising property taxes, largely citing rising pension and health-care costs for their employees and retirees.

In Pennsylvania, the township of Upper Moreland is bumping up property taxes for residents by 13.6% in 2011. Next door the city of Philadelphia this year increased the tax 9.9%. In New York, Saratoga Springs will collect 4.4% more in property taxes in 2011; Troy will increase taxes by 1.9%.

Property-tax increases aren’t unusual, in part because the taxes are among the main sources of local revenue. But officials say more and larger increases are taking hold. “This year we have seen a dramatic increase in our cities and towns having to increase property taxes” for pensions and other expenses, said Jack Garner, executive director of the Pennsylvania League of Cities and Municipalities.

They include some local examples:

Rolling Meadows, a Chicago suburb, is raising its property taxes next year by 9.8%, on top of a 16% jump in 2010, due to increased police and fire pension costs, said Mayor Ken Nelson. Those increases are the largest in nearly 20 years, he said. The local police and fire pension funds are around 45% funded.

Chris Lee, a firefighter paramedic and president of the city’s pension fund, says the pensions must be paid because they are “promises the city made to us.”

Rolling Meadows has paid less than it should into its pension fund by relying on higher assumed rates of returns than those recommended by the Illinois Department of Insurance, Mr. Lee said. Lower annual contributions mean the fund has trouble staying abreast of ballooning costs, leading in part to the underfunding, Mr. Lee said. The city recently changed to the Department of Insurance’s recommended annual contributions, Mr. Nelson said.

The 70,000-person village of Palatine, near Chicago, recently voted to raise property taxes 3.99%, the most in at least five years. That’s an average increase of $40 per home. “But for the pensions, [the property tax] would not have gone up at all,” said Village Manager Reid Ottesen.

The increase comes after cost-cutting steps in the past two years, including a hiring freeze and not replacing three firefighters and several police officers who retired, said Mr. Ottesen. “There is nothing left to cut if you still want to deliver the services that make you the community you are.”

Rolling Meadows and Palatine are ordinary, middle income suburbs northwest of Chicago. They aren’t where the wealthy live.

Some of these increases will no doubt be grudgingly shouldered by taxpayers but boosting property taxes will result in more defaults and foreclosures than would otherwise have occurred. Expect, too, a rise in demands for exemptions, especially among the elderly, who are frequently on fixed or in the present economic climate diminishing incomes and may be driven from their homes by tax increases. This could have the perverse result in making them more rather than less likely to make demands on government services.

In my view this is the sort of inequality about which we are concerned. The rich and ultra-rich have a much smaller proportion of their wealth in their homes than those at lower income levels. And the ultra-rich are a lot more mobile.