Jane Jacob's Critique of Property Taxes
A podcast listener wrote in with a clarifying question:
I just listened to the most recent episode of "Upzoned," on why we don't want to abolish property taxes. The rationale that we don't want municipalities to be dependent on volatile sources of funds, since we want them to work over the long term makes sense to me.
I've also been exposed to a perspective that is in counterpoint (but not opposition) to this view, in "Dark Age Ahead," by Jane Jacobs, Chapter 5: "Dumbed-Down Taxes." My reading of that chapter is that Jane Jacobs considers it a crippling restriction on the powers of municipalities when they are not able to collect taxes that are most responsive to ability to pay, like income taxes, or most responsive to economic expansion, like sales taxes - that this eventually imposes deterioation. I'm curious to hear from Strong Towns to what how your perspective on municipal tax strategy aligns or compares with Chapter 5 of Dark Age Ahead.
It's a great question and it would be great to have you chime in on this if you have thoughts on this topic in the comments!
Comments
3 comments
Great question! You've reached us when several team members are out on vacation but I've asked Edward Erfurt to weigh in when he's back at his desk with time to provide further comments.
One crucial source of revenue that would be a superior replacement for a property tax is a land value tax. Perhaps you've read about this alternative but it is really worthwhile (although it requires a gargantuan political effort to make the switch and few places have done so).
We wrote an entire e-book about this here: https://actionlab.strongtowns.org/hc/en-us/articles/360053137172-You-Get-What-You-Tax-For-How-a-Land-Value-Tax-Can-Help-Us-Build-Prosperous-Places
We've also outlined the reasons why a property tax can be really problematic in a three-part series: https://www.strongtowns.org/journal/2021/7/27/the-hidden-problems-of-property-taxes
And Connor's piece on property taxes is worth exploring too: https://www.strongtowns.org/journal/2018/6/28/how-property-taxes-shape-our-cities
And to respond to people who are quick to dismiss our financial productivity modelling around property taxes in places where retail taxes are levied (they argue that downtowns might be more productive in terms of property taxes but surely the big box retail and new suburban retail spaces contribute more in retail taxes because they sell more stuff) is unpacked here to explain that it is almost always going to be in the areas with a highly productive land use pattern that the retail and/or property taxes will be significant: https://www.strongtowns.org/journal/2018/2/1/the-surprising-relationship-between-retail-taxand-property-tax
What Jane Jacobs does alert us to is the dumbing down of our relationship between revenues and expenses. This is a reason why Strong Towns puts so much of an emphasis on the value per acre calculations that we use to learn where value is being created in our cities and to identify ways that we can cultivate more value through targetted public spending in areas where many low cost and high return investments will strengthen the prosperity of our communities. When we take this approach, it foregrounds the link between property tax revenue and the modest public investments that we can make to boost property tax revenues and spark a virtuous cycle of continuing investments of public wealth to respond to the generation of private wealth on our streets.
One challenge that cities have shown themselves to be vulnerable to when adopting an overly ambitious revenue generation approach that is focused on raising funds for the general fund through fees without directly tying those fees to the thing they are trying to address (ex. traffic fines should be invested in street design upgrades to change the conditions which are creating the improper driving practices -- most municipalities fund police operations with traffic fines which creates a perverse incentive to make no changes to the trap-like streets that encourage speeding and fine collection revenue generation).
This is the old revenue-through-fines approach. From a Strong Towns perspective, this is a problematic strategy. While it might seem like an easy way to generate revenue, it's actually a sign of a deeper issue.
Relying on fines for revenue is essentially a regressive tax, disproportionately affecting those who can least afford it. It's also a volatile source of income, subject to fluctuations in enforcement and changes in behavior.
More importantly, it's a symptom of a town that is not financially strong. A financially healthy town should be able to generate sufficient revenue through property taxes and other stable sources. If a town is relying heavily on fines, it suggests that its land use and development patterns are not financially productive.
Instead of focusing on generating revenue through fines, towns should focus on creating a built environment that is financially productive and beneficial for the community. This means prioritizing incremental development, mixed-use zoning, and walkability, which can increase property values and, consequently, property tax revenue.
So, in short, while fines can certainly be a part of a town's revenue strategy, they should not be a key source. A town that is overly reliant on fines needs to take a hard look at its financial health and land use practices.
Michel Durand-Wood's post on the Dear Winnipeg blog has a really helpful description of the benefits of property taxes in contrast to the alternatives:
https://www.dearwinnipeg.com/2024/05/31/city-finance-should-not-depend-on-magic/
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