Why have so many individuals and businesses left Detroit? Presumably, for all kinds of reasons, including crime and political corruption.
Another important reason is probably property taxes. Property taxes are a major relocation driver, not just for homeowners, but also for businesses. Nationwide, business property taxes are an enormous $229 billion burden that stifles job-creating investments. Some states–including Michigan–not only impose property taxes on land and structures, but also on machinery and equipment. If you’ve got a factory with lots of machines, you have a strong incentive to move to a place that doesn’t tax them.
A study by the Lincoln Institute of Land Policy looked at effective property tax rates in the 50 largest U.S. cities in 2011. Detroit had the highest property tax rates of all 50 cities on homes, apartment buildings, commercial buildings, and industrial buildings.
The chart shows the effective tax rates in Detroit vs. the average of the largest 50 cities. The Detroit tax rates are generally twice as high as the U.S. averages. Detroit needs lots of reforms–property taxes would be a good place to start.
Chris Edwards is the director of tax policy studies at the Cato Institute, and editor of www.DownsizingGovernment.org. Before joining Cato, Edwards was a senior economist on the congressional Joint Economic Committee, a manager with PricewaterhouseCoopers, and an economist with the Tax Foundation.
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