Supreme Court Justice Oliver Wendell Holmes once said that taxes are what we pay for a civilized society. It’s next to impossible to find a receptive audience for that bromide this month: The last day of February is the deadline to pay property taxes for Memphis and Shelby County.
Holmes’ maxim, carved over the entrance to the Internal Revenue Service headquarters, was a dissenting opinion in a Supreme Court case about whether a government imposition is a tax or a penalty. Few Memphis taxpayers really care since there’s no choice but to pay up.
And yet, while many residents here are focused on property taxes, it’s the overall tax burden that matters more. And when the overall tax burden is considered, Memphis fares well, though this may feel like cold comfort when the bill is due.
photograph courtesy adonis1969 / dreamstime
For many years, the University of Memphis’ Sparks Bureau of Business and Economic Research produced reports that showed that despite conventional wisdom to the contrary, Memphis was not among the top 10 cities in our region with the highest tax burdens. Instead, the list was comprised of eight cities in North Mississippi and two just across the river in Arkansas.
Using those rankings as context, Memphis lost some of its edge this year when city government imposed a 49-cent property tax increase, doubled the passenger-vehicle registration fee (a cleverer and less contentious moniker than Shelby County’s “wheel tax”) to a maximum of $60, and increased the solid-waste fee from $30 to $42 monthly.
Researchers at the University of Memphis considered property taxes, sales taxes, auto-registration renewals, and income taxes to determine overall tal burdens. Auto-renewal costs and income taxes have been the clinchers in Memphis’ favor with a tax burden roughly half of the top ten markets in this region.
Tennessee has the third most regressive tax structure in the U.S., meaning that low- and middle-income families pay a higher share of their incomes in taxes than wealthy families.
Even with the highest city-county property tax rate and this year’s 18.2 percent increase (that cost homeowners of $200,000 houses $250 more a year), Memphis still trails its more tax-burdened neighbors. Despite teeth-gnashing about this year’s tax hike, the rate of 3.1954 cents (per 100 dollars assessment) is still lower than the highest tax rate during the terms of each of the past five Memphis mayors — from Wyeth Chandler to Jim Strickland.
But here’s the thing about taxes: The deciding factor about whether they are too high is whether citizens feel they are getting value for the taxes they pay. Judging from comments on social media and in media outlets, this is clearly up for debate.
Studies show that people are willing to pay more if they can expect better public services they can see and experience in their own lives. It’s a virtuous cycle: Higher-quality services contribute to higher property values, which in turn produce more tax revenues, which are spent as investments in public assets, which increase property values — and the cycle begins all over. Many high-value tax cities are known for investments in better education, better public spaces, better planning, better public transit, active downtowns, and better quality of life.
Nashville reinvented itself by spending on these priorities. Memphians regularly comment that because Nashville’s property tax rate is still only about half of ours, local government there must be better managed — although Nashville raised its property rate by 34 percent in 2020, and last November, increased its sales tax rate, too.
It’s more math than management. The median value of owner-occupied housing in Nashville, according to the Census Bureau, is $383,000 compared to $157,000 in Memphis. That difference alone produces half a billion dollars more in revenues for Nashville’s local government to spend on major projects and programs that have been magnets for population growth.
The challenge for Mayor Young and other Memphis elected officials is to explain the math, the lower tax burden, and specifically how higher taxes improve the lives of the people who pay them. In city council budget hearings that resulted in a tax increase, the debate was largely about how more money was needed for underfunded city services, while too little time was spent explaining how that would improve Memphians’ lives.
After the hearings, City Hall seemed to turn the page. But it’s never too late to explain better how tax dollars can add value to taxpayers’ lives and properties.
The process won’t be easy. Government is roughly a sixth-level interest for most people, following family, job, friends, church, and neighborhoods, and to complicate things, citizens are shaken by problems they see in public agencies — from MATA to Memphis Animal Services, from Memphis-Shelby County Schools to MLGW, and from the convention center hotel to PILOTs.
In a city with high poverty, most of all, it’s worth remembering that the tax system asks the most from those who have the least. That’s because Tennessee has the third most regressive tax structure in the U.S., meaning that low- and middle-income families pay a higher share of their incomes in taxes than wealthy families.
This upside-down tax system allows Tennessee politicians to brag that it’s a “low tax” state, but it dodges the obvious question: low tax for whom? In our state, the families in the lowest 20 percent pay about 13 percent of their income in state and local taxes, and families in the middle pay nine percent. Those in the top one percent pay only four percent of their income in state and local taxes.
In that way, the state tax system is a key contributor to the inequality that is pronounced in our community, leaving Memphis and Shelby County governments to rely heavily on sales taxes, property taxes, and fees, the sources which make the system so regressive in the first place.
In a city with high poverty, most of all, it’s worth remembering that the tax system asks the most from those who have the least. That’s because Tennessee has the third most regressive tax structure in the U.S., meaning that low- and middle-income families pay a higher share of their incomes in taxes than wealthy families.
