Property Taxes Rose by 8%; Did Growth?

Understanding taxes is pretty simple.  When the government takes a dollar away from a citizen, it makes him and society poorer.  When it takes less, the opposite happens.

We have to give it more thought to understand why government pulls in more after cutting tax rates.  There are also different dynamics at play depending upon whether you’re talking about taxes on income, or taxes on property.

In September, the San Antonio City Council raised property taxes.  On paper however, they knocked a few cents off the tax rate and shielded almost 10% more in home values via increased exemptions (set aside for the moment that the state required them to).

When public coffers fill up after income tax rates are cut, it’s usually a sign of good things. 

In the immediate sense, economic activity picks up because people have more in their pockets to spend.  Even moreso if the code is simplified.  We then save more money (AND time) on preparation assistance like Turbo Tax.

It bodes even better for the long-term.

Streamlining the code and/or cutting taxes on productive citizens sends a signal: “this administration plans to take less from you.”  It allows for more planning into the future.  That results in more investing, and risk-taking by entrepreneurs. 

Those are the biggest factors that determine how much prosperity society enjoys.  And when we’re more prosperous, we’re earning more.  And when we’re earning more, we’re paying more taxes, even if rates were lowered. 

It could also be indicative of good things happening on the local level.  The number of households in a jurisdiction could have grown, which would enhance the workforce.  It also might be the result of new-business formation.

Though the population did grow here last year, neither that nor the 1% growth in the “property count” explained the rise in taxes; at 8%, it wasn’t even close.  What then, accounted for the difference? 

Inflation and rising prices.  The cause of those?  Poor monetary policy and the fallout from the domineering pandemic shutdowns, respectively.

The lack of support for a strong, or at least stable dollar, from the White House has been a regrettable feature this entire century.  It makes it more susceptible to weakening, which subsequently means it takes more to buy stuff.

It also sends a signal to investors that they should seek out safer returns. 

Gold has been the traditional hedge.  The sneaker resale market emerged as arguably a new way to preserve value.  Another reliable way has always been housing, and sure enough, almost half of all home sales here last year were to investors. 

Enter local and state governments in the age of the coronavirus. 

As long as federal ‘aid’ was flowing in (CARES, ARPA), they felt little urge to remove their boot from the neck of productive citizens and businesses.  Some of that was home-building labor, and materials caught up in the subsequent supply bottlenecks.

Local politicians were/are either oblivious to econ 101, or have been happy to rake in the excess cash produced by the shortages and inflated values they had a hand in creating.  (The standard retort was “if it saves just one life,” nevermind the horrid tradeoffs they ignored.)

But who doesn’t want to see their wealth increase, right?  The problem in this case (home values) is that it’s not necessarily linked to an increase in earnings.  Therefore, there’s not a corresponding rise in the ability to pay the consequential hike in our property tax bill. 

That’s not a problem with our 401K investments, because the growth in their value isn’t taxable, despite the efforts of some.  The only time those authentic investment assets can be taxed is when they’re sold.  Not so with taxes on our homes.  That bill comes due every year.

It’s reminiscent of a scene from the classic mob movie “Goodfellas”: “lose your job?  Too bad; pay me.  Have an expensive emergency?  So sorry; pay me.  Paid off your mortgage?  Big deal; pay me.”  That’s paraphrasing, but the omitted expletives apply nonetheless. 

In a way, the property tax is the most egregious tax.  After a day of doling out incentives to big businesses, with what they take from you, local representatives roll up in their driveway right next to yours, and look you straight in the face with a pleasant greeting. 

Meanwhile, their actions that day essentially said “Wanna keep being my neighbor?  Pay me!”