For many people, especially those who are not wealthy, their home is their most valuable asset. But what happens when a person sells this asset? Are they taxed? If so, how much? A
"I noticed some of my lower-income clients tended to pay some taxes that some of my other clients didn't," said Simon, who practiced law at his
To further probe the question, he downloaded census data for
"I don't think policymakers are, necessarily, deliberately imposing taxes on the poor," Simon said. "The question, then, is why do we have these taxes? One reason is that we want to make sure properties are safe before they are sold. The second is the taxes help collect on bad debt. The tax, in other words, is a way to get people to pay their bills because they can't validly transfer their property until they do."
There are problems with both arguments, Simon said. In the case of ensuring property improvement, the argument goes that the money will be used to improve properties, ensure they are safe for habitation and do not fall into disrepair. The taxes, along with fees for inspectors who examine properties before they sell will help guarantee public safety, is the most commonly given justification. Yet revenues are not earmarked to improve housing stock, to pay inspector salaries or to prevent properties from becoming dilapidated.
"It certainly could be that that poorer communities need the most housing improvements. The problem is, it's hard to prove these improvements are happening and, if they are, that the transfer tax is the reason why," Simon said.
The second argument is that the tax prevents bad debt. Before someone can sell a property, they must pay any outstanding utility bills, fines from the city or other similar debts. The transfer tax ensures that a seller's bad debts are paid before a property can be sold. Yet while cities can condition a sale on the payment of such debt, and some in fact do, that can be done without requiring a tax, Simon wrote.
Questions naturally arise about where such tax money goes. In
The evidence suggests policymakers and lawmakers at local and state levels should examine closely their transfer tax rates and how they are used to ensure people who can least afford to pay such taxes are not unduly burdened by them. Further research would be necessary to make more broad conclusions or to determine if it's a similar problem on the national level, Simon said, but it does raise questions of equity.
"It appears lower-income communities are more likely to impose these taxes, but there doesn't seem to be evidence that lower-income people will be able to pay them," Simon said. "What's worrying about this is it's the municipalities with the lowest incomes imposing these taxes. I don't think it's the state trying to gouge its citizens, but it is affecting the people with the least the most."