Transfer Taxes On "Expensive" Homes Is Not The Solution To Chicago's Problems

Transfer Taxes On "Expensive" Homes Is Not The Solution To Chicago's Problems
It's easy to get people to agree to make someone
else pay to solve their problems.

In case you've missed the news over the last few years Chicago has a lot of problems that are going to cost a lot of money to fix. So everyone is trying to figure out where all the money is going to come from. Well, a few aldermen and special interest groups have an answer to that question that could win a lot of popular support since it kicks the can to the other side of the road. Their answer is other people's money. It's a great solution because there is no better way to maintain your grip on power than to give 95% of your constituents a benefit at the expense of 5% of your constituents - or better yet...at the expense of someone else's constituents.

In this case the problems in focus are all the lead water pipes that need to be replaced in the city and the homelessness problem. And the solution these aldermen and special interest groups have come up with is to increase the city's transfer tax on the sale of higher priced real estate. That way most people won't be affected by these taxes - just the small percentage of the population that is buying a property and only if they are buying an expensive property. In other words, the proposal gets popular support without costing the aldermen too many votes. Clever. Right?

The aldermen of wards 29, 32, and 36 are backing a proposal to increase the transfer tax on buyers of homes above $750,000 by 1% to pay for replacing the lead pipes. So that's a whopping $7500 minimum, which looks to me like it would have applied to almost 3000 residential transactions in Chicago over the last 12 months. So that's a pretty good deal. We just arbitrarily pick 3000 people to chip in the money to solve this problem for us and the rest of us get off scot free. And notice that people in the 29th and 32nd ward would be unaffected by this new tax so it's real easy for their aldermen to support this proposal.

Meanwhile, the Chicago Coalition For The Homeless, with support from another group of aldermen, led by Walter Burnett of the 27th ward, is proposing a 1.2% increase in the transfer tax on buyers of homes above $1 MM to pay for increased services. That's an even better proposal because it affects less than 1600 people.

What disturbs me most about all this is the implicit assumption in many of the news stories that this sort of revenue generating trick is OK because it only affects a few people. It's a classic example of the tyranny of the majority problem that the framers of the constitution tried to address by establishing the senate and the electoral college. How would you like to go to dinner with me and a bunch of strangers and at the end of the meal we are going to vote on whether or not you should pay for the entire meal?

If you want to solve these problems (and I assume we do) then we should all contribute to the solution, not just single out some small group to bear the entire burden. A property tax or sales tax increase would be much more fair. And when everyone contributes then everyone has a stake in the solution. It makes for more engaged voters because suddenly they start thinking long and hard about what public programs they want to support. Otherwise they support everything since someone else is going to pay for it.

Fortunately there are some headwinds in the way of these proposals getting to the February ballot. First, there are the procedural hurdles that may delay this to another day. And Rahm Emanuel (he's still mayor) has taken the position that we should not "treat the homeowners as an ATM machine."

#ChicagoRealEstate #ChicagoTransferTaxes

Gary Lucido is the President of Lucid Realty, the Chicago area's full service real estate brokerage that offers home buyer rebates and discount commissions. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.

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