Despite a victory for property rights advocates, taking your stuff is still a lucrative way for governments to fill the gap left by a crumbling tax base.
Late last month, the Michigan Supreme Court struck a blow against grabby municipalities. The case of Rafaeli, LLC v. Oakland County concerned Uri Rafaeli, an 85-year-old retired engineer who fell $8.41 behind in his property taxes in 2011. In 2014, Oakland County foreclosed on Rafaeli’s investment property to recoup their eight bucks, selling the rental home at auction for a cool $24,500 and pocketing the difference. The Court unanimously ruled that Rafaeli (and others like him) are owed the proceeds when their foreclosures are sold for more than the debt they owe. Taking your stuff, according to the ruling, is “unconstitutional taking without just compensation.”
The decision will significantly impact counties throughout Michigan and a dozen other states that allow home equity theft from tax sales. Oakland County alone stands to owe between $40-$50 million for properties seized and sold from 2009 to 2019. Local governments throughout Michigan could be on the hook for $2 billion if they are forced to compensate property owners in a similar manner. Taking your stuff as a punitive measure for tiny debts looks a lot less attractive when the State doesn’t stand to profit from the trouble it takes to evict residents, foreclose, and auction tax delinquent properties to the public. One hopes municipalities will work with residents to make sure nobody gets foreclosed upon for $8.41 again.
Unfortunately, the roots of the problem go deeper, and won’t be fixed by a simple court decision.
Let’s roll the clock back a few years to the days when economists from both sides of the aisle told us that globalism was going to be a big win for all of us. Pulling down barriers to free trade would allow Americans to buy inexpensive goods while raising workers out of poverty around the world. If you doubted this, you were just silly, said economists like Paul Krugman, writing for the New York Times. Not all economists embraced this fashionable yet faith-based ideology, and Krugman himself issued a mea culpa last year. Gaslit by “experts” telling us that we were on the road to prosperity while anyone with eyes could see stores closing and local economies disintegrating, it was clear that many of the loudest economists were lying or crazy.
When the jobs that could support a family were outsourced or restructured away, municipalities learned the hard way that low-wage big-box incomes couldn’t keep local governments afloat, either. As a result, they had to find other ways to keep the lights on at city hall, and that need was satisfied by taking your stuff.
Ever wonder why Georgia is filled with speed traps? It’s because in Georgia, as well as many largely rural jurisdictions around the country, those speeding fines underwrite municipal budgets. For-profit traffic enforcement becomes less about keeping drivers safe from road hazards, and more about replacing lost revenue from outsiders passing through or the poorest residents who can’t always afford to fix their cars right away. In 2018, Georgetown, LA, with fewer than 500 residents, reported collecting almost $500,000 in fines to cover 92% of its general revenue.
Following the 2014 killing of Michael Brown by police in Ferguson, MO, an investigation revealed that dependence on citations and fines as a major source of revenue had exacerbated tensions in the city, since taking your stuff is significantly easier when victims are the least able to defend themselves. Cities may depend on citations for minor violations to keep paying their police, but constant enforcement looking for nitpicky offenses can erode the public’s trust of police officers to the breaking point, and it does so without making a significant dent in the number of crimes committed.
All of which brings us to Rand Paul. Last June, Paul, the libertarian-leaning Republican from Kentucky, introduced a bill that would reform federal civil forfeiture laws. Currently, the government can profit from taking your stuff without filing criminal charges, with the confiscating agency deciding what should be done with it and allowed to keep 100% of the profits, all without your case being heard by a judge. Since challenging the seizure of property can cost more than the property is worth, people may simply give up.
As a free trade advocate, however, Paul seems to want it both ways, starving cities and states of their tax base while simultaneously stopping them from taking your stuff to fill the revenue gap. At some point, we have to admit that when governments can no longer rely on taxes to maintain their standard array of duties and services, something has gone awry. Using equity theft, forfeitures, speed traps, and petty citations to prop up municipalities in the world’s largest economy reeks of desperation, and is one more sign of industrial culture in slow collapse.