Aaron Wiener (who, by the way, is admirably filling Lydia DePillis’ shoes) has a fascinating piece on all the tax revenue the DC government is essentially forfeiting by deferring real estate assessments until properties are sold, and his Fermi estimate of $300 million seems pretty credible to me. Commendably, he also grapples with the political economy of the system in his follow-up post:
Former D.C. Council candidate Paul Zukerberg complains on Twitter that higher assessments would force out longterm residents, because currently higher assessments kick in only after a property sells. But again, underassessment is a pretty blunt and awkward tool to help low-income homeowners. The Council has considered legislation to limit property taxes for low-income residents and seniors. If the aim is to help a certain class of homeowners, then help that class of homeowners directly. But underassessing properties—and particularly office and apartment buildings—isn’t a great way to do it.
Unfortunately, as the system stands right now, though, the political economy problem does exist. There are many of DC homeowners who, essentially, were the working-class people who bought houses in tough neighborhoods because it’s where they could afford housing 15 or more years ago are now sitting on what are basically uncashed lottery tickets; uncashed because the corollary to cashing in is moving out, somewhere likely far away from work and friends and family and community and DC amenities like guaranteed public preschool. These homeowners bought homes for reasons likely both financial and spiritual and communal, and not as a speculation investment in urban core land, and therefore it truly is unfair to punish them by what would essentially be all-but-forcing sale by making still-working-class individuals pay taxes on what’s now an upper-middle-class property.
There is an idea, though, that could square this circle – replacing a property tax with a progressive land tax! One under-commented-upon facet of the current system is that a property tax taxes your property, which is both your land and the house on it. That’s kind of weird and doesn’t really address the political economy questions at the heart of rationales for taxes like that. Instead, DC (and other cities) should tax the underlying land, and tax it a progressive rate, such that an individual owner pays not merely a flat percentage of assessed value but an increasing rate as value of the total portfolio increases, which means that consolidated developers who own the most valuable (and large) parcels of downtown land would pay a larger share and smaller homeowners, even those who stumbled into a vast increase in the underlying fundamental value of their land, wouldn’t get screwed. The trick with this system would be to find a way to prevent a developer who owned 20 buildings from creating 20 shell companies, but there should be ways around that. Even without that particular feature, though, a progressive land tax would be a vast improvement over the status quo.