Property Tax Stability: A Tax System Model of Base and Revenue Dynamics through the Great Recession and Beyond

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.