Happy Tax Day! Have You Checked Your Property Taxes Recently?
(April 17, 2006)
That complaint about income taxes may die in your throat when you consider the taxes paid by our compatriots in Europe. Yes, 50% of Sweden's entire GDP is taxes. We know from our Swedish and Danish friends that the average wage earner kicks in about 50-60% of their income in taxes.
My brother (who's lived in France for many years) explains that while the total tax collected in each E.U. country is similar, each nation taxes different sectors of the economy at varying rates. Thus, businesses are heavily taxed in France, while workers pay comparatively smaller percentages than their colleagues in, say, Germany, where workers pay more and companies pay less (again, in relation to France).
Switzerland, he reports, has a low-tax structure similar to the U.S.--an observation supported by this graph.
(Footnote: Japan's tax rate appears low, but this graph fails to note that Japan has been borrowing 40% of its government expenditures for many years. Their taxes, in other words, only pay for about half of the government services they receive. The rest is borrowed. The U.S. also borrows huge sums to pay for its government, which also distorts the actual "tax burden" picture.)
But property taxes are another story.
While income and other taxes may appear low in the U.S., the housing bubble is raising taxes at an astonishing rate (check Bubbling Property Taxes for more). Since the housing bubble really took off in 2003-2005, and many counties only reassess real estate parcels every five years or so, we can expect property taxes to continue climbing in many communities, even as the housing bubble deflates.
For an example of another pathway to sharply higher property taxes, consider "voter-approved" tax increases. Here's how this works in California, where the basic property tax rate is fixed by Prop 13 at 1% of assessed value.
The local county or city, forecasting a revenue shortfall, promptly closes the city libraries, lays off police officers, slashes music, shop, arts and sports programs in the schools (whatever's left after previous cuts) and cuts back on city park cleaning. (Somehow the City Hall bureaucracy magically remains intact throughout this brutal cost-cutting of popular services.)
But wait--there is a way to get your library, police force, school programs and parks back. It's called a voter-mandated tax increase. With this "severe cutbacks in popular services" blade firmly stuck in our backs, voters approve the next round of tax increases. Want a paramedic in case Grandpa collapses on the sidewalk? Guess what--that'll cost you extra. Want some maintenance of local park trails? Nice--but we need a new tax. Wastewater upgrades? That'll cost you extra, too. Maintenance of school buildings, the local bus system--the list goes on and on.
It makes you wonder where the sales, income taxes and property taxes we already pay go. Essentials like criminal justice, to be sure, but still--look at this list of voter-approved taxes which are currently part of a tax bill I happen to be extremely familar with:
Bottom line: all this brings a nominally 1% property tax rate up to 2.25%. Though the increase in the appraised value of a property is also capped by Prop 13, this property's assessed value has risen by 25% in the past 13 years. 2% a year doesn't sound like much, but it adds up--especially when taxes are increasing by far more than advertised. (BTW this annual property tax bill clocks in at $4,886.)
Do municipal services that citizens want cost money? Of course. But wouldn't it be better to justify a lump-sum higher tax rather than nickel and dime us with 24 additions to our tax bills? And then there's the fairness issue. Is it fair to all property owners that recent buyers are paying two, three or four times more parcel taxes than their neighbors? Clearly, it is not fair. But local government is letting the bubble buyers pay more rather than ruffle the feathers of all property owners by demanding a fairer tax structure.
Bottom line two: a median-priced house in California costs $535,000; a median-priced home in the Bay Area is about $700,000. The property tax bill on a $700,000 home in this town comes to $15,575 annually. Gosh, even to my bubble-jaded eyes, that seems like a lot of dough. Will that tax ever go down? Maybe... many years from now... after a horrendous months-long battle with the assessor's office...if the maxed-out owner hasn't already bailed for a nearby camper-trailer....
Are local governments truly starved for funds? It's hard to tell unless you're an expert. But clearly, property taxes have risen dramatically in much of the nation with very little fanfare. As the housing bubble pops (or deflates, fizzles, collapses, implodes, etc), we can be sure that the battle over property revenues/taxes will only heat up.
For more on the housing bubble and a wide array of other topics, please visit my weblog.
copyright © 2006 Charles Hugh Smith. All rights reserved in all media.
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