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Taxation

Tax Limits and the Future of Local Democracy

Property tax limits are state-level laws that place caps on local governments’ tax rates and revenue. These statutory limits, which put pressure on already strapped cities and counties in forty-six states, present an inexorable dilemma for local policymakers. On the one hand, they may cause cuts to vital services, bankruptcy, and reliance on regressive revenue sources. At the same time, however, tax limits may reflect genuine concerns about government profligacy and nonresponsiveness. While much research has focused on the first side of the dilemma — examining the laws’ fiscal consequences — this Article explores the second, probing how tax limits affect the distribution of political power between local voters and policymakers.

The Article makes three contributions. First, it argues that property tax limits have focused too strongly on a tax reduction goal to the exclusion of other potential objectives. It takes tax limits as a political reality and argues that existing limits should be shaped to improve local public control and oversight of government fiscal decisions. Prioritizing public control would increase voter satisfaction and expand opportunities for taxpayer voices to be heard. Second, having identified this additional tax limit objective, the Article evaluates the laws’ potential efficacy in achieving it. To do so, the Article identifies a list of statutory features that enhance or undermine local public control. The Article then surveys property tax limits in all fifty states and is the first to code each statute for features affecting the power of local voters. The survey results demonstrate that tax limits in most states undermine public control by reducing voter power, instead shifting power to governors and state legislatures and prioritizing a pure tax reduction goal. Additionally, although most tax limits can be exceeded with voter approval, there is reason to believe that voter approval may result in policies that do not accurately reflect voters’ true preferences. The Article surveys literature on direct democracy to conclude that softer forms of public engagement such as disclosure requirements or petition referenda may result in more democratically responsive laws.

The Article’s third and final contribution is a menu of policy reforms for state and local actors. Distinct from other commentators who tend to advocate the wholesale embrace or repeal of tax limits, the author suggests reforms that respect the laws’ public appeal while seeking to soften their harsher consequences. Assuming that the state-set limits will persist, mayors, city councils, and state legislatures can use the suggested reform principles to reinvigorate local democracy and, perhaps, address some of the concerns that led to the limits being adopted in the first place.


* Assistant Professor of Law, University of San Diego School of Law.  For helpful comments or conversations on this project at various stages, I thank Ellen Aprill, Heather Field, Victor Fleischer, Dov Fox, Brian Galle, Andy Grewal, Andrew Hammond, Andrew Hayashi, Hayes Holderness, Young Ran (Christine) Kim, Sarah Lawsky, Zachary Liscow, Ajay Mehrotra, Shu-Yi Oei, Philip Postlewaite, Katie Pratt, Theodore Seto, Manoj Viswanathan, and Clint Wallace. Thank you also to participants of the U.C. Irvine Tax Policy Colloquium, Northwestern Pritzker School of Law Advanced Topics in Taxation Colloquium, University of San Diego School of Law Faculty Workshop, U.C. Hastings Tax Concentration Workshop, Loyola Law School Tax Policy Colloquium, Pepperdine Caruso School of Law Tax Policy Workshop, National Tax Association Annual Conference Tax Design Panel, Association of American Law Schools “New Voices in Tax Policy and Public Finance” Panel, and the Junior Tax Scholars Workshop at the University of Colorado.  Lastly, and especially, thank you to the hardworking editors of the Harvard Law Review, whose diligence was matched only by their thoughtfulness.