Taxes: dirty word or fundamental governmental tool? Inevitably, conversations about the role of government flow back to notions of equity in taxation. The underlying truth is that government’s primary source of revenue at all levels is the taxes it collects. And, to local municipalities, the real estate tax is the single most important revenue source. Brent Cebul provides a provocative commentary on the implications of limiting local governments’ revenues streams to a regressive real estate tax, at the expense of minority populations.

Cebul asserts that ‘spacial and economic inequality, gentrification, unequal housing, and yawning gaps in educational opportunities are certainly the product of overtly racist policies.’ There’s some hand-waving there, but there’s also poignant truth. And, that becomes even more apparent as we consider how cities have historically generated revenues and how the government has incentivized, and subsidized, property ownership. Most directly, he suggests ‘Cities’ historical dependence upon property values to fund municipal services has been a structural constant in ensuring iniquitous outcomes.’

Byron Price coined it, but Tip O’Neill made famous the saying that All Politics is Local. In 1932, that was a fiscal truism. Cebul points out that in that year ‘cities harvested 52 percent of all taxes collected.’ Innovation, and expenditure, by government was local. Communities solved for their own, unique, needs. But the New Deal and World War II tipped the playing field toward a centralized federal governmental structure. And, the feds took the chips out of local governments’ stacks.

The federal government’s money grab took the form of the income tax and Cebul points out it is the most progressive, and durable, of income streams. Local government was left the property tax, which at the time was not regressive as a low percentage of Americans owned real property. But that changed with New Deal policies, and a profound shift in governmental participation in the provocation of home ownership.

Urban Renewal was a governmental program that ‘delivered vast federal subsidies paired with eminent domain powers’ to facilitate urban re-development by private interests’ – and thereby shore up declining real estate tax collections. As Cebul notes, that ‘renewal’ typically occurred in communities with the least political power. Implicit and tacit racist policies drove incredible investment. Indeed, Cebul notes that by the mid-60’s the Civil Rights movement had identified urban renewal as ‘a particularly egregious form of racial violence.’

Cebul’s hand-waving could have been brought home here: redlining; deed restrictions based on race/religion; numerous FHA policies; Levittown; the mortgage interest and real estate tax deductions… In short, it is undeniable that the United States government played a central role in incentivizing and subsidizing home ownership among the white population. And that, of course, meant more homes and more property taxes, and an even more substantive concentration of political power to a segregated group.

In the end, Cebul makes the right point: we need to identify a mechanism to give local government more diversity in their revenue stream. And, he’s making his point to Progressives because he believes they must strongly consider the mechanisms to dig out from our long-created hole of inequity. He un-ironically suggests Nixon and his General Revenue Sharing program, as well as Reagan and his suggestion that local governments tax income themselves. While Reagan’s intent was cynical, he may have been onto something. In today’s political climate, ‘new’ taxes – regardless of the benefit they may bring – seem to be a non-starter. In this, Cebul is spot on: we must make government local again, and we need to find mechanisms to provide our local governments with fiscal flexibility, even as we hold their feet to the fire for efficiency and return on investment to the taxpayers.