Economics, Politics, Social Commentary and occasionally Superstring Theory.

Friday, December 03, 2004

Property Taxes Inspiring 'Revolt'

CSM has a story about rising state property taxes and their impact on low-income retirees. Personally, my knee-jerk reaction to people who complain about taxes is just tell them to quit whining and go live in Uganda if they think the tax rate here is too high. Go ahead, see what kind of government your lower tax rate gets you iin Uganda.

However, this should not discount the argument that tax revenues are spent inefficiently. Of course they are. But, like any undertaking the size of the U.S. government, inefficiency is to be expected. Inefficiency isn't a reason for abandonment. If so, we should all be bailing out of our HMO's (20% spent on administration) in favor of government-run Medicare/Medicaid (3% spent on administration.)

Property taxes are a regressive tax that looks like a progressive tax. In most states, it's based on the valuation of the property. Because of the housing boom, valuations have been rising at double digit rates. But that doesn't mean people are getting a double digit increase in accompanying income. Normally, taxes based on value are progressive because they go up as revenue goes up. But there's no income stream tied to home ownership, it's largely a fixed asset. So, people are paying more taxes but not seeing any (real) value accuring out of it.

My advice?

Sell now! It's called a "bubble" for a reason. When interest rates start rising, housing prices will start falling, and then you won't have an opportunity to recapture some of that excess property tax. Sell now, while prices are still inflated.

State governments need to reform their property tax systems to deal with a bubble-prone market (remember the S & L's?) Instead of basing the tax on valuation, I would like to see one based on square footage. That way, people wouldn't get hit with a wildly fluctuating tax bill every year. They'd know if their taxes were going up because they'd know if they added anything to their house. You'd still have governments able to change how much they taxed per a square foot. At the very least, this would provide some needed stability in an uncertain system.


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