The NFL and prosperous cities
All these cities had long pursued progressive political agendas with pride. But the problem with redistributive policies at the local level is that the donor classes might move out as fast as beneficiary classes move in—or, as the population figures cited earlier show, even faster. Robin Hood may seem a heroic figure, but once his rich victims flee Nottingham, even that city’s poor might question his effectiveness.
San Francisco and Boston were rescued from their folly by statewide tax revolts. California’s Prop 13, passed in 1978, capped property taxes in that state at 1%—which slashed San Francisco’s rate by almost two-thirds. Massachusetts followed suit in 1980 with Prop 2½, which mandated that municipalities could not increase their total property tax receipts by more than 2.5% annually. New York City taxpayers did not revolt, but state legislators rationalized the Big Apple’s chaotic property tax system in 1981; it now enjoys property tax rates that average about one-third of those in its surrounding suburbs (though its other taxes are certainly punishing).
While no single factor explains any city’s destiny, it is not a mere coincidence that Boston, New York and San Francisco reversed their declines at the exact moment they became favorable environments for private investment in residential and business capital.
It has to do with the fact that
Every time a city raises the tax rate on residential and business property, its owners suffer a capital loss (which economists refer to as “tax capitalization”). In effect, tax hikes are incremental expropriations; owners flee not just because of short-term wealth losses but in fear of future damage to their property rights. Tax caps not only improve the immediate cash flow on investments in real property but—perhaps more important—secure it against further expropriations.
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