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ABSTRACT
American local government property tax collections have remained surprisingly stable during the Great Recession of 2007 - 2009 and its aftermath, even as the value of housing, a major component of that tax base, has fallen precipitously. This puzzle can be understood within the context of the overall property tax system, a system differing from that used for other major taxes in that it is taxpayer passive and administered with significant lags and budget adjustments. Behavior of the finances of cities with populations over 150,000 over the 1999-2011 period is examined within the Slemrod tax system concept, particularly employing a three component model of property tax assessing, taxing, and collecting. The model reported in this paper breaks new theoretical ground by linking the three elements of the property tax system, highlighting the structural uniqueness of the property tax, utilizing actual tax base data, and, by using data that extends through 2011, providing a more complete investigation of how lags shaped the system response to the housing market collapse. Each element contributes to the stability pattern, although recent behavior of the delinquency rate (the third component) found in this article suggests some future interruption of the prior stability.
1. INTRODUCTION
Why did revenue from the local property tax remain relatively stable during the Great Recession, despite the substantial decline in the value of hous- ing, a major component of the tax base, in many parts of the country? Local income and sales tax revenues fell during the recession, so what about the property tax system makes this tax different? Does the overall stability mask special problems that will emerge before the economy has fully recovered from the recession shocks? Those questions will be addressed here, but a full understanding requires some discussion of the significance of the tax and of the way in which the property tax system differs from that of other major American taxes.
2. PROPERTY TAXATION IN THE UNITED STATES
Property tax revenues continue as a critical foundation for finance of local governments in the United States. The 2007 Census of Governments shows that local governments received 71.69% of their tax revenue from the property tax, a collection total that was more than six times the collections from any other...