Posted on March 22, 2002

by

Daniel Clark

America needs to take note of the tax controversy that's been roiling Allegheny County, Pennsylvania. By reading the local papers, you might not think of it as a national issue, because you'd get the impression that the whole ruckus is about logistical problems with the county's assessment process. Really, it's about a commonly used method of taxation that is unjust, economically destructive, and, above all else, unconstitutional.

The whole disturbance started with the 2001 property reassessments, which rose unexpectedly sharply for many property owners, and which were riddled with inconsistencies. An unprecedented number of taxpayers filed appeals, and many of them have been successful. The case backlog was such that 2001 appeals were still being heard by the time that properties were assessed again for 2002. What's worse, some people had their successful 2001 appeals immediately reversed by the 2002 assessments, which reasserted the calculations that had just been thrown out from the previous year.

While all parties seem to agree that this year's assessments are more accurate than last year's, they are also 11 percent higher. This has led to a very public political battle between Pittsburgh City Controller Tom Flaherty and Allegheny County Executive Jim Roddey. Flaherty, a Democrat, has positioned himself as the defender of the taxpayers, by trying to block the '02 assessments and keep them at the lower '01 levels. Roddey, a Republican, counters that the assessments that must be used are the most accurate ones. He argues that the reason for the sharp increase is that the property in Allegheny County had been chronically under-assessed until recently, and that the way to prevent the accompanying rise in taxation is to reduce the millage rate, now one of the nation's highest. (The intra-county average is 27.6.)

As a simple matter of pragmatism, Flaherty's approach is clearly more feasible. Roddey is correct, of course, that it is the millage, and not the assessments, that should be altered in order to control the tax burden on property owners. The problem is that he does not control the millage rates. It's the school districts and municipalities within the county that set those rates, and then apply them to the property values determined by the county's assessments. They are not about to turn down a tax hike for which they haven't even had to take the blame.

This is a classic example of baseline budgeting. The recipients of the property tax are already counting on the increase from the reassessments, so any reduction in the amount they expect to receive, even though those receipts haven't yet been realized, is a "cut." The property tax being primarily a school tax, any attempt to relieve the taxpayers is an "education cut," which will be characterized as depriving children of a decent education, taking school lunches out of their mouths, and (gasp) denying them free condoms. Few politicians are willing to face accusations such as these.

Perhaps acknowledging this, Roddey tried to circumvent the whole argument, by initiating public discussions about replacing the property tax with a county wage or sales tax. Flaherty responded by holding a press conference, during which he disclosed a refund that Roddey had received from his city wage tax. He even provided reporters with copies of the check.

His point was that if the property tax were replaced with something else, the "privileged few" like Roddey could exempt themselves. Even if this were assumed to be true about a wage tax -- based on a single, flimsy, and unscrupulously obtained piece of evidence -- how would this argument extend to a sales tax, which treats everyone equally by design? Maybe Flaherty thinks Roddey can prevent cashiers from ringing the tax up on him, by utilizing the time-tested "Don't you know who I am?" loophole.

Mayor Tom Murphy, also a Democrat, scolded Flaherty, and warned that he may have broken as many as three city laws by divulging Roddey's personal tax information. As poorly received as the tactic was, however, it did succeed in squelching any debate about phasing out the property tax.

Even while such discussions were taking place, they missed the point, because they tended to focus on which method of taxation was most logistically convenient for the county to collect. Completely absent was any mention that they very concept of a property tax is grossly unconstitutional.

The Fifth Amendment plainly says that no person shall be deprived of property without due process of law. When local governments stake a claim to 2.76 percent of somebody's house, that's a deprivation of property. There's been no due process, but even if there had been, the tax would still conflict with the final clause of the amendment, which reads, " ... nor shall private property be taken for public use, without just compensation." Funding schools with a property tax is the taking of property for public use. Just compensation would be to give the taxpayers back something equal in value to what has been taken. In short, it would undo the tax.

It might be argued that a property tax does not actually deprive anybody of property, but only takes the monetary equivalent of a small portion of it. Depending on which definition of "property" one applies to the situation, that may appear to be true. One definition of "property" equates it with "possessions." Reading the Fifth Amendment that way, not only would property taxes be unconstitutional, but so would income taxes, since the money being taxed has already been earned by the taxpayer. Another, narrower meaning of "property" encompasses only real estate. If this interpretation is used, the question becomes whether or not property taxes actually deprive people of their own real estate, just because they force them to pay a percentage of its value.

The answer, as many first-hand witnesses can unfortunately attest, is undoubtedly yes. The fact that somebody owns a house assessed at $100,000 does not mean that he has that same amount of money. It doesn't even mean that he has the $ 2,760 that Allegheny County would demand of him. What's more, he'd have to continue paying at least that amount annually. Over the course of ten years, he'd pay over one fourth of the property's value. Eventually, he's likely to reconsider whether he can continue to afford the house he thought he'd already owned.

Imagine what it would be like if sales taxes worked the same way. Instead of being taxed at the time of purchase, you'd be taxed on every item annually, for as long as you owned it. If you owned a household appliance for thirty years, you might end up paying more for it in taxes than you'd paid to buy it in the first place. The day would never come when you could truly be said to own it.

That's the way it already is with home ownership, if you live anyplace that imposes a property tax. Once you have paid an income or sales tax, you are able to take possession of whatever it was that was being taxed. When your house is taxed, though, it is slapped with a never-ending mortgage. That means you don't fully own it yet, and you never will. You can't even feel free to make home improvements, unless you know that you'll be able to afford it when the increased value of your house raises your property tax. Naturally, you'll have already paid for the improvements out of your own pocket, but the fact that you were wealthy enough to do that only proves that you deserve to pay higher taxes. That's what makes the tax "progressive."

Sales taxes cannot be progressive. That's why the federal income tax will not be replaced with a national sales tax in the foreseeable future. The way that legislators in Washington manipulate class resentment, to propose a tax system that treats all taxpayers the same would be considered heretical. Imagine if we switched over to a sales tax tomorrow. Think of the uproar once it became known that Gore campaign poster girl Winifred Skinner was forced to pay the same amount in sales tax that Bill Gates did for buying the same toaster. He will have spent an amount of money so tiny that he'll never even notice it; meanwhile, she might have been forced to choose between Eggos and medicine. Why, it just isn't fair!

But then, Gates would end up paying many times more than Skinner would, because he would buy so many more things. That's exactly why a sales tax is immeasurably more just than income and property taxes are. A sales tax is dependent upon a voluntary action on the part of the taxpayer. If he wants to buy a particular item in a particular place, he agrees to pay the tax. Those people who spend the most shoulder the highest tax burden. Yet they're paying the same percentage, and nobody can raise their tax rate without raising his own as well.

Not only is it more just, but it is also unintrusive. Once you've finished paying a sales tax, you can go home, and the tax collectors will not pursue you. On the other hand, collectors of your "voluntary" income tax are liable to come knocking at your door someday. Worse yet, those who enforce property taxes would be more inclined to pry your door off its hinges and carry it away. For starters, that is.

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