When Taxation Really Is Theft
It’s a popular trope in some circles that “taxation is theft.” Unfortunately, taxes are necessary to fund public services and infrastructure. But in the states colored red in the map above, tax laws allow government to take dramatically more than what it is owed. Taking what is necessary to recover a debt is just, but taking more is theft.
In these states, if a property owner fails to pay or underpays his property taxes, even by just a few dollars, the local government or a private lienholder can eventually take the entire property, along with the owner’s equity (which is usually worth much more than the tax debt). Pacific Legal Foundation found 8,600 homes and more than $780 million in life savings were lost to home equity theft. Unlike with other types of foreclosures, the property owner is left with nothing—regardless of the size of the debt or the value of the property. The Supreme Court recently held that this kind of theft is unconstitutional. That means these states must change their laws or face growing liability for home equity theft.
For tax debts of less than 1% of a property’s value, these laws have allowed officials to take homes that have been in families for generations and even to leave people homeless. A Michigan county took a man’s house over an $8.41 underpayment and sold the property, leaving him with nothing. In that case, the county was so hell-bent on its position that it argued all the way up to the state’s supreme court that it had done nothing wrong. Fortunately, the Michigan Supreme Court found the county’s position unconstitutional. The Supreme Court agrees.
When property values skyrocket, so does the incentive for equity theft. We should not provide incentives for our governments to take people’s homes and life savings.
No matter how a local government tries to justify these laws, tax-and-take schemes that strip people of their hard-earned equity beyond lawful debts are immoral and unconstitutional. In particular, such laws violate the Fifth Amendment to the Constitution, which prohibits the government from taking property without just compensation. This ruling applies to every state, county, and city across the country.
Pacific Legal Foundation is working in courthouses and statehouses across the country to end this egregious practice.
Maine legislature passed LD 101
Nebraska legislature passed LB 727
The Supreme Court held that home equity theft violates the Fifth Amendment