Reduction of Tax Burdens on Real Estate

Report Outline
Dependence on Property Tax During Depression
Extent and Character of Tax Limitation Laws
Opposing Views on Desirability of Tax Limits
Movement to Exempt Property from Taxation
Defects in Existing Real Estate Tax Systems

Dependence on Property Tax During Depression

Drastic Curtailment of Revenues of Local Governments

By tapping new sources of taxable wealth and increasing the rates of existing non-property taxes, state governments have attempted during the depression to correct inequities in their tax systems resulting from the decline in income from property. Local governments, however, have continued to depend on the general property tax for upwards of 90 per cent of their tax revenues. Two significant consequences have attended the failure of local governments to diversify tax sources during the depression. First, local revenues have been drastically reduced. Second, property-owning groups have made organized efforts to relieve the tax burden on real estate through the adoption of constitutional or statutory provisions limiting property tax rates or exempting homesteads from taxation.

Expenditures of local governments in 1935 are estimated at about 20 per cent, or $1,250,000; 000, less than in the peak year of 1930. “The obvious cause of the decline,” according to Lent D. Upson, director of the Detroit Bureau of Municipal Research, “has been the firm reliance of local government for income upon ad valorem taxation.” Upson reports that although assessed values have been reduced since 1929, this reduction has been partly compensated for by an increase in tax rates, the amount of property taxes levied having held “fairly steady throughout the depression.” Thus, the reduced incomes and expenditures of local governments have been the result of unpaid, rather than of lower, taxes. Property tax delinquency reached its peak early in 1934, when more than 20 per cent of total state and local levies for the year 1932–1933 became delinquent.

The curtailment of the revenues of local governments resulting from continued dependence on property taxation has made necessary reductions in services and salaries, payment in scrip or warrants, and in some instances defaults on bonded debt. A further consequence has been an accentuation of the trend toward state centralization because of the inability of local governments to support local services.