The biggest problem with the property tax has always been that it doesn’t take into account a property owner’s ability to pay.
A home that greatly appreciates in value from the time it was purchased can put a homeowner in the position of not being able to afford to continue living there if the taxes increase proportionally.
That’s the bright side of a proposal advanced Monday by a bloc of Chicago aldermen hoping to temper Mayor Rahm Emanuel’s expected $500 million-plus property tax hike ask with a rebate for lower-income homeowners.
It’s the second such rebate plan now endorsed by different groups of aldermen who say they want to limit the impact of the property tax on “working families,” not to mention limit the political hit to themselves.
The new plan, offered by the City Council’s Progressive Caucus on the eve of Emanuel’s budget unveiling, would tie the rebate to a homeowner’s income, as did a similar plan previously offered by Ald. Proco Joe Moreno (1st).
The big problem with paying a rebate is that the property tax increase would no longer produce as much revenue as the mayor is seeking. That would force him to either ask for a bigger tax increase to produce the same net yield or, as the aldermen suggest, find the extra revenue elsewhere.
Either way, paying a rebate would result in higher income homeowners and owners of commercial property such as office buildings and shopping centers subsidizing those who receive it.
With a rebate based on income, we could have a situation where next-door neighbors with identical homes could see one getting money back from the city while the other doesn’t.
The plan offered by new Ald. Carlos Ramirez-Rosa (35th) and endorsed by the Progressive Caucus would set that bar at 400 percent of the federal poverty level, which comes out to about $97,000 for a family of four. The income limit would vary by family size, said Rosa, who calls his proposal an “opening salvo.”
City homeowners earning below that mark would get the rebate regardless of the value of their home while those who earn more would not. The homeowner would have to apply for the rebate and presumably provide proof of income, requiring a new level of bureaucracy.
A rebate would allow the City Council to avoid the complication of going to Springfield to win approval of an increase in the homeowner’s exemption, an alternative means of blunting the tax hike that had been floated by Emanuel.
Changing the homeowner’s exemption would require a change in state law, adding yet another complication to the political standoff between Republican Gov. Bruce Rauner and the Democrat-controlled Legislature. It is believed the city can do the rebate on its own, having tried a similar plan under Mayor Richard M. Daley.
It’s a little understood feature of the property tax system in Cook County that it already is designed to gouge commercial property owners for the benefit of homeowners.
By law, residential property in Cook County is assessed at 10 percent of market value compared to 25 percent of market value for commercial properties.
That means if everything is assessed properly the commercial property owner is going to pay 2.5 times more in taxes per market value than the homeowner.
That’s not spin. That’s the cold, hard math, which is why you’ve heard the business community screaming about the potential impact of an increase in the homeowner’s exemption. That would have directly shifted even more of the tax burden to them.
Of course, many of those commercial property owners hire politically connected lawyers to win assessment reductions, which makes the whole system notoriously uneven.
The Progressive Caucus proposes to deal with those inequities with an alternative minimum property tax for property owners in the central business district, which is nice idea that strikes me as completely unworkable.
If it takes a rebate to win approval for his budget, then Emanuel will probably find a way to do it.