FED ECONOMISTS BELIEVE IT IS A BENEFIT TO DESTROY PROPERTY VALUES
Illinois Taxpayers Should be Forced to Pay Pensions with the Equity in Their Homes
If you were thinking that things could not get worse for Illinois with the oncoming train wreck of public pensions imploding the state and the two choices for governor that seem to be in competition to see who can create the most spectacular collapse, think again. Politicians in the Land of Lincoln now have cover from the FED to load on more taxes to an already confiscatory property tax regime.
Three economists from the Federal Reserve Bank of Chicago explicitly state in their article that a higher property tax rate would reduce property values and believe that it is a good thing! In the article “How Should the State of Illinois Pay for its Unfunded Pension Liability? The Case for a Statewide Residential Property Tax” by Thomas Haasl, Rick Mattoon and Thomas Walstrum they state that because Illinois residential property owners have benefited the most from past “services” provided by State of Illinois governmental employees that now those employees are entitled to the equity in tax payer’s homes.
The exact statement from the article is either so obtuse or insidious that it deserves to be quoted verbatim: “Standard economic theory predicts that home values go down in response to new property taxes (that is, they are “capitalized” into home values). Current homeowners would not be happy about this, but it would be a good result for the Illinois economy. That’s because the new taxes wouldn’t affect people thinking of moving to Illinois. While they would have to pay higher property taxes, that would be offset by not having to pay as much for their new homes. In addition, current homeowners would not be able to avoid the new tax by selling their homes and moving because home prices should reflect the new tax burden quickly.”
When the term “Taxation Is Theft” is ever mentioned it is immediately shot down by the elite class as a rallying cry for the deplorables, but you can see clearly here that these Mandarins in the FED firmly believe that they can steal the equity in your property and give it to someone else. They advocate for a “Taking” of your house equity to make it more affordable for someone else to buy your house at a discount.
WOW! They have not only solved the pension crisis they have also solved the “Affordable Housing” crisis! A perceptive community organizer would start printing those signs and banners now: “Higher Property Taxes Increase Affordable Housing!”. Time to get marching on a city hall near you.
Now I freely admit that I am a self-taught economist and don’t have the scholarly degrees or extensive research background of the illustrious authors of this article. However, since they are FED economists, did they ever think through what a giant decrease in property values would do to the mortgages that are collateralized by those properties and held by member banks of the Federal Reserve System?
Additionally, I know from experience that there is no basis in reality for the valuations and assessments dreamed up by the Cook County Assessor. But if the property taxes in Illinois are truly based on the value of individual properties, would not a wholesale reduction in property values also reduce all the taxes currently collected for pensions and taxing bodies?
Also, why does all the pain fall on property owners and not renters? If homeowners are using those public “services” don’t the apartment renters also use those same services or arguably in some cases more of those services?
If the pension crisis is ever discussed in Illinois, it is always trotted out that these intrepid and fearless government workers were “Promised” these pensions that continually increase every year along with full health coverage. They even point out that the Illinois state constitution guarantees “membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” Note that the pensions and benefits cannot be diminished or impaired but CAN BE INCREASED. It should now be apparent that the Illinois state constitution enshrines the slavery of non-governmental workers to privileged government workers into its constitution.
Outlays for pension and additional benefits increased from about five (5) percent of total Illinois state spending in the year 2000 to over 20 percent in the year 2015—growing an astounding 10 times faster than overall state spending during the same time period.
So who is benefiting most: the Illinois homeowner or Illinois public sector workers/public sector union bosses? Most importantly, Illinois politicians at all levels of government plus Illinois judges who rule on the constitutionality are also eligible for those same generous pensions and benefits. The Illinois Policy Institute (IPI) https://www.illinoispolicy.org points out the following facts: “Illinois state workers are the highest-paid state workers in the country; median AFSCME worker salaries increased more than 40 percent from 2005 to 2014, to more than $62,800 in 2014 with full health care coverage; AFSCME workers receive Cadillac health care benefits; Most state workers receive free retiree health insurance.” IPI goes on to point out that “During that same period, median private-sector earnings in Illinois remained virtually flat and health care benefits” Let’s also point out that because of Obamacare, both Illinois private sector workers and employers have had to pay more for their own healthcare.
So what can be reasonably predicted from an economic analysis of the extra tax on homeownership prescribed by the Chicago FED experts Haasl, Mattoon and Walstrum? I would agree that property values will definitely decrease along with the balance sheets of banks, Fannie Mae, Freddie Mac, the VA and HUD. Property tax collections will decrease resulting in the need for the 1000s of local government entities in Illinois to raise property tax rates or collapse under mandatory caps on increases. The one sure thing that is shown in all recent Illinois history is that Illinois politicians, teachers unions, American Federation of State, County and Municipal Employees have continued to push for larger benefits despite the fact that all are aware of the financial troubles of the state. This in addition to the FED experts upholding of the security of public sector employees over the success of the state itself proves that what was once the industrial and agricultural powerhouse of the Midwest has succumb to politics and economics of waste.
“The difference between genius and stupidity is that genius has its limits.” Alexandre Dumas
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About the Author: Michael J. Flight
Let your investment dreams take flight with the expert help of Michael Flight, principal investor at Concordia Realty.
Michael has worked for more than 28 years and handled more than $500 million worth of real estate transactions on behalf of his clients at Concordia Realty. Michael began his business in the realm of retail real estate, with Concordia Realty now handling third-party property and asset management services for a variety of commercial real estate investments.
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