More Wealth-Tax Madness

By Kevin D. Williamson

Monday, April 15, 2024

 

Andrew W. Kahrl, writing in the New York Times, offers this provocative thesis: “Property taxes, the lifeblood of local governments and school districts, are among the most powerful and stealthy engines of racism and wealth inequality our nation has ever produced.” This calls to mind the judgment of Nobel-laureate economist Milton Friedman, who insisted that the minimum wage was the “most anti-black law on the books.” When it comes to economic policy and racial disparity, unintended consequences matter.

 

So do intended consequences. Kahrl, a scholar of history and African American studies at the University of Virginia, makes a persuasive case that property taxes have been used in ways that both intentionally and unintentionally disfavor black communities, then offers a solution that one might charitably describe as counterintuitive, at the very least: a new, higher property tax. 

 

Let’s unpack. 

 

Assume, arguendo, that all of Kahrl’s basic fact claims are true and based on solid economic analysis. (Without casting any aspersions, I would be curious to know what some hairy-eyeballed econometrician makes of Kahrl’s data and quantitative analysis.) And I’ll (mostly) ignore the rhetorical base-stealing in claims such as his assertion that cities and counties “provide the goods and services that we as a nation have entrusted to local governments,” as though the vector of entrusting hadn’t gone the other way, with the states delegating certain enumerated powers to the national government. Municipalities such as the “Village of Breuckelen” (you know, that weird place across the bridge from Manhattan, first recognized under Dutch law in 1646) preceded the national government (and the nation) by more than a century. U.S. cities are older than we sometimes appreciate: St. Augustine, Florida, was established during the reign of Elizabeth I by the government of the man who tried to marry her and, failing in that, to overthrow her: Philip II of Spain. Santa Fe was founded in 1610, Jersey City in 1630, Albany in 1614, etc. Our history of municipal governance is older than our national government, and “we as a nation” did not create those municipalities for the convenience of the federal government. 

 

One of Kahrl’s conclusions is, “Given the variety and complexity of state and local property tax laws and procedures and how much local governments continue to rely on tax reductions and tax shifting to attract and retain certain people and businesses, we cannot expect them to fix these problems on their own.” This is a very nice way of writing: “If we let these rubes run their own affairs, they might implement policies other than the ones I would prefer.” 

 

It always strikes me as just about damned insane that progressive-leaning critics of American diversity and complexity always settle on progressive nationalism as their solution to racial economic disparities, apparently having failed to notice that the great progressive nationalists in American history typically hated black Americans and worked tirelessly against their interests. The great progressive Theodore Roosevelt was buddy-buddy with Madison Grant, one of the godfathers of pseudoscientific racism and author of The Passing of the Great Race, Adolf Hitler’s personal bible. Woodrow Wilson, the pride of Princeton and the founding father of American progressivism, segregated the federal workforce and screened Birth of a Nation at the White House. The New Deal was the most important housing segregation program ever enacted in the United States, and that program remains the beau idéal of American progressivism today. You’d think our leftist friends would get the message; unhappily, if you think that history started yesterday, those lessons are impossible to learn.

 

So, there is dumb politics afoot. But there is a lot of meat on the bone of Kahrl’s argument, too. Property taxes have in many cases been designed and implemented in actively or effectively racist ways—as indeed have other big pieces of U.S. economic policy on the national and local level, from federal labor laws and the routing of the interstate highway system to the local public schools in Little Rock. (Again: If your conclusion from all that is: More government intervention! Bigger federal intervention! then I think you need to think harder.) Property taxes (along with zoning laws, corrupt banking practices, eminent domain, and many other means) have been used to push black property owners out of the direction of economic development, depriving those owners of the benefits of property appreciation. As Kahrl notes, black property owners were used as revenue farms by white-dominated governments under which black taxpayers often suffered disproportionate tax burdens while receiving very little—often practically nothing—in the way of benefits. As he reports:

 

The city of Boston did not conduct a citywide property reassessment between 1946 and 1977. Over that time, the values of properties in Black neighborhoods increased slowly when compared with the values in white neighborhoods or even fell, which led to property owners’ paying relatively more in taxes than their homes were worth. At the same time, owners of properties in white neighborhoods got an increasingly good tax deal as their neighborhoods increased in value.

 

As was the case in other American cities, Boston’s decision most likely derived from the fear that any updates would hasten the exodus of white homeowners and businesses to the suburbs. By the 1960s, assessments on residential properties in Boston’s poor neighborhoods were up to one and a half times as great as their actual values, while assessments in the city’s more affluent neighborhoods were, on average, 40 percent of market value.

 

If it seems impossible to you that the city government would simply not update its property assessments and deprive itself of revenue, consider the fact that in the runup to the 2008-09 financial crisis, the Federal Deposit Insurance Corporation (FDIC) neglected to collect premiums from about 90 percent of the banks it insures because … somebody told them they wouldn’t ever need the money.

 

It is not difficult to find examples of positive injustice—including racially motivated injustice—in the works and deeds of municipal government. But this also is true—and probably more significant—in the case of the national government. Consider the well-known example of Social Security, which for years had a statutory eligibility age well beyond the life expectancy of black men: As the Washington Post notes: “People born in 1960 can start receiving their full Social Security benefits at age 67, but according to the Centers for Disease Control and Prevention, Black men born that year had an average life expectancy of just 61 years.” The original design of Social Security excluded workers in what were at the time black-dominated occupations, such as agricultural laborers and domestic servants. Many other New Deal programs were designed to exclude African Americans or even to penalize them. And when Bull Connor was running things in Birmingham, to whom in Washington were African Americans going to appeal? Sen. James Eastland? Sen. Theodore Bilbo? One wonders why a progressive would believe that a federal government boasting the services of such grotesques as Marjorie Taylor Greene and Lindsey Graham would be a better servant of the interests of economically and politically vulnerable black homeowners than would, say, Mayor Van R. Johnson and his colleagues in Savannah? 

 

But if it’s just about the money—about shifting resources to communities that do not have abundant local wealth—then we have to deal with the fact that Mayor Johnson et al. have much stronger incentives to be responsible with locally collected funds than they do with money trucked in from Washington. The federal government already pays for about 11 percent of local education. And we have people in prison today for education-related federal grant fraud, a relatively common crime. 

 

We settled on local taxes for local government for a good reason. Of course, there are downsides. 

 

Property taxes are especially noisome for middle-class people because they function as a tax on savings and a crude tax on wealth—for people who are not very rich or very poor, it very often is the case that the family home is by far the largest family asset, constituting the majority or the entirety of family savings. In places such as Texas, where there is no state tax on income but relatively high property taxes, the levy is truly cumbrous. And unlike the “net worth” taxes that are collected in a handful of jurisdictions, property taxes in the United States generally take no account of the fact that the asset being taxed may be mortgaged to some large share of its value (or, in some cases, mortgaged to more than 100 percent of its value), meaning that, between taxes and interest payments, families are seeing a big chunk of their money go out the door before it even really has a chance to become accumulated wealth—you know: property.

 

You could make a pretty good case for exempting low-income homeowners from property taxes, and, indeed, some places do make accommodations, though these are more typically aimed at elderly residents on fixed retirement incomes than at younger lower-income families looking to start building equity. But most homeowners in the United States are not low-income. 

 

Indeed, lower-income people have difficulty becoming homeowners at all: With inflation having led to elevated interest rates, high debt-to-income ratios have resulted in more black home-shoppers seeing their mortgage applications rejected, a phenomenon that becomes much more pronounced at lower income levels. As recently as 2019, according to an Urban Institute report, a quarter of black homebuyers had incomes below $50,000 a year; today, that figure is only 15 percent, and not because a lot of higher-income black families are skewing the data. In 2022, 24 percent of black mortgage applicants were rejected, while the denial rate for white applicants was only 11 percent. Black families have lower average incomes than white families, as well as significantly higher debt-to-asset ratios and worse credit profiles. They are also less likely to have bank accounts. In that context, the burden imposed by property taxes can be substantial. 

 

Kahrl argues that relying on property taxes for things such as education and other local services deepens differences between poorer communities and more affluent ones. And there is something to that, of course: Philadelphia’s public schools are not great, while those in nearby Lower Merion—literally across the street from West Philadelphia—are some of the best in the state and in the country. Spending per student is not dramatically different in the two districts (Philadelphia spends about $23,000 per student, Lower Merion about $27,000 per student, significantly but not radically higher), but that doesn’t capture everything: Some analysts estimate that it costs Philadelphia more per student to provide an adequate education than it does for Lower Merion because educational spending in the city faces socioeconomic headwinds that are less prevalent in the suburbs. What is certain is that Lower Merion can well afford that extra spending on education: Its per capita income is almost three times that of Philadelphia, and the houses being taxed are worth about 3.5 times as much on average. 

 

You can probably imagine where Kahrl’s argument goes from there: The obvious solution is to move funding responsibility away from the municipalities up to a higher level of government—and, since there are big economic differences between the states, the optimum thing would be to shift much of the burden up to the federal government. We have seen progressives make nearly identical arguments about a variety of challenges over the years, and they mostly run into the same problem: democracy. 

 

The United States is a large, complex, diverse country, and, as such, it does not have the same sense of solidarity that one sees in a small, relatively homogeneous country such as Finland (more than 90 percent ethnic Finns) or Denmark (about 85 percent ethnic Danes). If you go to, say, Salt Lake City, you’ll find a lot of people who don’t have children in the public schools and thus are not very excited to pay their school taxes. Go to the suburbs or the exurbs or to rural Utah, and you’ll find people who are very much opposed to paying taxes to support schools in Salt Lake City from which they derive no immediate or obvious benefit. Ask the people of rural northern Colorado to pay for schools in the neighboring state, and they’ll be perplexed. Ask these same people to fund the schools in faraway Philadelphia, and they’re going to be even less keen on it.

 

Maybe you think Americans should be more nationalistic in their thinking, that we should all get very excited by every new variation on the theme of the interstate highway system or the New Deal or other big ideas from the mid-20th century, but Americans—who, maddeningly, go around acting as though they have minds of their own and their own priorities!—aren’t like that. And if people in Utah don’t trust the local powers in Philadelphia to be good stewards of their money—there’s a reason for that. People moved west for a reason. (As Ronald Reagan once observed: If the pilgrims had landed in California, the East Coast would still be wilderness. Not that the West Coast states are any great shakes when it comes to governance today.) We have 50 states for a reason, and the desire to reduce those states to mere administrative divisions of the national government is one of the most destructive—and delusional—currents in American politics. 

 

But there are ways around democracy and democratic energies, and Kahrl has hit upon an ancient one: unite the majority against a despised minority. The great fascistic insight of Occupy Wall Street and the brand of politics associated with it was to in effect ethnize class politics, by which I mean transforming the hated “1 percent” from an economic grouping to a cultural one. If you spent any time at Occupy Wall Street—and I did—it was hard not to hear echoes of the 1930s in the rhetoric, with angry young men (some of them in vintage German army uniforms, no less) talking about “Wall Street” the way George Lincoln Rockwell did, talking about the “1 percent” the way crazies and kooks and bigots have talked about “the Jews” for centuries. I do not mean here to claim that the Occupy nuts or people who practice Kahrl’s brand of isolate-the-minority class politics are the moral equivalents of antisemites—they are not—but that they practice a structurally identical form of politics. 

 

What Kahrl proposes is a “modest”—we’ll come back to that word—wealth tax of 4 percent, i.e., a national property tax to supersede the local ones. That would be a sure election loser, of course, and it would replicate at the national level many of the problems Kahrl identifies at the local level. And so he proposes that the tax be collected only on those with total assets exceeding $50 million. There is your tiny, despised minority that can be overwhelmed at the polls and subsequently pillaged … in theory. He writes:

 

Even a modest 4 percent wealth tax on people whose total assets exceed $50 million could generate upward of $400 billion in additional annual revenue, which should be more than enough to ensure that the needs of every city, county and public school system in America are met. By ensuring that localities have the resources they need, we can counteract the unequal outcomes and rank injustices that our current system generates.

 

Kahrl’s proposed tax is, of course, far from “modest.” If implemented, it would constitute (as far as I can find) the highest rate associated with such a tax anywhere in the world—not that you would have much to choose from. There are very few countries that collect wealth taxes, and many that once did have repealed them, finding that they are difficult or impossible to administer, that they produce relatively little revenue, and that they come with unintended consequences that impose serious economic costs. Among the countries that do impose wealth taxes, the rates tend to be around 1 percent or less and the subsequent revenue contribution tends to be modest: In high-tax Norway, for example, the wealth tax (about 0.85 percent) on assets above the exclusion threshold ($200,000) generated less than 1.5 percent of overall tax revenue. France has a notional wealth tax of just over 2 percent and generates almost no revenue from it—the sum would constitute a literal rounding error in the French budget. The only countries that generate significant revenue from wealth taxes are rich, small, and weird: Switzerland and Luxembourg. In these countries, and particularly in the case of Luxembourg, wealth taxes act a lot like local property taxes in the United States. Switzerland’s tax is a net-worth tax, i.e., levied on assets minus debts. 

 

To get a feel for what a 4 percent wealth tax would mean, consider that the real (meaning inflation-adjusted) long-term return on the U.S. stock market is around 7.5 percent. Taking that as a useful approximation, a 4 percent wealth tax would reduce the return on capital invested in the most common way by more than half. Those with $50 million or more in assets didn’t get that way by being bad with money (except maybe Donald Trump), and you can be sure that their investing behavior would change in response to such a tax. People and institutions with that kind of money often have a lot of choices about how they hold it and how they access it. But, at the same time, many of them don’t: The owner of a modest-sized real-estate business might have $100 million in assets but be ruined by an additional $2 million a year in tax expenses (assuming 4 percent of the $50 million beyond the $50 million exclusion). There are businesses with $100 million in assets that do not make $2 million a year at all, much less $2 million to spare. Never mind that the income produced by those assets is already taxed (at a rate of up to 37 percent) and that many of those asset pools constitute funds that already have been taxed, often more than once, at some other level. 

 

This is classic goose-and-golden-egg stuff. Investment is the source of economic growth—it is the reason our society is so wealthy. A smart policy would encourage investment, to the benefit of all, rather than discourage and distort it, to the detriment of all.

 

What Might Have Been 

 

Here is a thought experiment: Imagine that former Massachusetts Gov. Bill Weld, the last pro-choice Republican politician of any consequence, had been the Republicans’ presidential candidate in 2016. And imagine he told Republicans: “Look, I’m personally pro-choice, but I agree with our friends over at the Federalist Society that Roe v. Wade was bad law and pure judicial activism. Elect me president, and, thanks to my friend the genie here, I can offer you an absolute guarantee that Roe will be overturned by 2022, after which, the issue will be returned to the states. You won’t find me lobbying for abortion restrictions afterward, and you probably will find me lobbying against at least some of them, but Roe will be gone. What do you say?”

 

Sane pro-lifers would have taken the win. 

 

The post-Roe fight over abortion was always going to be a brutal, decades-long slog, but the necessary thing was to get a decision such as Dobbs that allowed the slog to start. For practical politics, it wouldn’t have mattered if getting rid of Roe had been a project carried within sight of the Supreme Court finish line by a figure such as Weld—“The most pro-choice person you’re ever going to meet,” he called himself—or by some old-fashioned anti-abortion stalwart such as Rick Santorum or Marco Rubio, or by a moderate pro-lifer such as Jeb Bush. (Santorum, Rubio, and Bush were Republican primary candidates in 2016; Weld, the 2016 vice presidential nominee on the Libertarian ticket, ran a symbolic Republican primary campaign in 2020.) One of the secrets to success in politics is learning when to take “Yes” for an answer. 

 

But Republicans did not nominate a quirky New England liberal aristocrat in 2016, or Rubio or Bush or Santorum—they nominated quondam gameshow host and aspiring caudillo Donald Trump, whose position on abortion and Roe was in 2016, approximately: “Tell me what to say, and I’ll say it.” Leonard Leo of the Federalist Society produced a list of acceptable judges, and Trump did something he almost never does: He held up his end of the deal. Trump occasionally likes to take sole credit for Dobbs, a decision written by a George W. Bush appointee and made possible by a 50-year campaign of argumentation, persuasion, and Mitch McConnell’s old-fashioned brass-knuckles politics. But Trump being Trump, he is also desperately seeking a way to claim credit for Roe’s demise while avoiding the inevitable blowback for it. 

 

From the pro-life point of view, there isn’t all that much wrong with Trump’s newly described abortion policy as a policy—for a presidential candidate or for his administration. What is toxic about Trump’s abortion policy isn’t the policy—to the extent it is a policy—but Trump himself, and his cowardly, wheedling, amoral form of politics. Trump has a unique ability to take a basically good policy and twist it into something grotesque. 

 

“Roe is history, and now the ball is no longer in my court” is probably the right policy for a Republican president, though of course as effective head of the Republican Party, he’d better be able to answer some uncomfortable questions about the actual state-level policy fights playing out in places such as Florida and Arizona. In principle, a pro-choice president committed to nominating textualist/originalist judges is just as good as a pro-life president committed to nominating them. In fact, there isn’t a very strong relationship between a president’s pro-life cred and his eye for the kind of judges conservatives like: George H. W. Bush gave us both Clarence Thomas and David Souter; George W. Bush, being a bit better advised, gave us Samuel Alito and John Roberts; Trump, who has no principled position on abortion or anything else, gave us Brett Kavanaugh, Neil Gorsuch, and Amy Coney Barrett. 

 

Some pro-lifers still aren’t ready to take “Yes” for an answer. Students for Life President Kristan Hawkins, the Tracy Flick of anti-abortion politics, demands that, if elected, Trump name only committed pro-lifers to Cabinet positions at Justice, Health and Human Services, Education, the FDA, the EPA, and every other agency. That is, of course, both madness and asininity. There are things that reformers would like to see fixed at EPA and Education and the rest, and it doesn’t matter very much whether the people who get that done have the right view of abortion. There are many well-intentioned pro-choice people, and if one of them can help get the EPA’s foot off the neck of the American energy industry, then, by all means, I’ll try to change that person’s mind about abortion after we pop the cork on the champagne and get those drills spinning. 

 

Donald Trump shouldn’t be elected in November, but not because he is weak on abortion. It’s the reverse: He is weak on abortion for the same reason he is, was, and always has been, unfit for the office: because he is a man whose only saving graces are the laziness and stupidity that prevented him from becoming the full-blown amoral tyrant he aspires to be. 

 

But if some future president were to say, “Dobbs has returned the issue to the states, and, as a federal question, I am content to leave it at that,” then it wouldn’t be the worst policy or the worst politics. It might even be the right position.

 

Words about Words

 

I do hate weaselly, question-begging formulations in journalism. From the Wall Street Journal: 

 

In 2021, New York enacted a law authorizing nuisance suits against gun makers that fail to impose reasonable controls to prevent criminal misuse of its products. A federal appeals court is set to rule on a challenge to New York’s efforts.

 

Gun makers in the United States sell their wares exclusively to federally licensed businesses (or to police or military customers under very strict federal regulation). These federally licensed retailers resell those wares exclusively to customers whose purchases are individually approved by the FBI or, in some cases, to those who are exempt from background checks because they hold firearms-carry permits that are issued after extensive background checks. Which is to say, there are at least two levels of federal regulation and supervision between a firearms manufacturer and an individual consumer. There is an entire federal agency dedicated to enforcing these rules. If all that together does not constitute “reasonable control” over the sale (and resale!) of their products, then “reasonable control” is a phrase without meaning. 

 

Which of course it is—that’s the point. 

 

In Conclusion 

 

Most days, I am basically an Eisenhower Republican. When I have to visit a DMV, I leave ready to join a militia. Today is tax day, so I’ll be feeling a little more anarcho-capitalist than usual. When you buy a gun, you have to fill out a form for the background check, and one of the questions is: “Have you renounced your U.S. citizenship?” And I always think to myself: “Not yet. Not yet.”