Texas Taxes

The Southlake Times Star is reporting Texas has ninth highest property tax burden.

A new national study shows Texas has the ninth highest property taxes in the nation as a percentage of personal income.

For much too long, Texans angry over their property taxes have been dismissed as selfish misers. The conventional wisdom has been that Texas is one of the nation’s lowest tax states and complainers should just be glad they don’t live in Massachusetts. However, the Tax Foundation’s national report on property taxes released earlier this month shows Texas homeowners are being drowned in rising property taxes, forcing some to flee their homes for the safer ground of lower appraised property.

The report documents how property taxes have skyrocketed relative to personal incomes. From 1999 to 2005, property tax appraisals in Texas went up 75 percent, while personal incomes rose only 35 percent. This is the result of rising property appraisals, on which state and local governments have been cashing in rather than rolling back tax rates accordingly. No wonder many Texans are struggling to simply pay their property tax bill.

For example, residents of Houston endure the highest effective property tax rate of any major city in the nation at $2.99 per $100 valuation. While other cities had a much higher statutory rate, they had significant exemptions. As a result, Houston's effective property tax rate is nearly three times that of New York City and more than five times that of Denver.

In addition, Fort Bend, Williamson, and Tarrant counties made the Tax Foundation's dubious list of the 20 counties with the highest median property taxes paid as a percentage of the median home value. The other 20 counties were in New York, New Jersey, Pennsylvania, and Illinois.

Relief is already on the way. Legislation passed in the last special session will reduce the current maximum school property tax rate of $1.50 to $1.33 in 2006 and $1.00 in 2007. Just as importantly, starting in 2007, rollback elections will automatically be required when appraisal creep effectively produces a school property tax increase of more than four cents per $100 valuation.

Now, Gov. Perry’s panel is preparing to unveil recommendations that will go further in relieving property taxes. It’s widely rumored the proposal will include finally placing meaningful restraints on the de facto property tax increases that can be levied by local governments through skyrocketing appraisals.

In addition to adopting the panel’s recommendations for reforming appraisals, the $15 billion surplus lawmakers will have in-hand this session should be used to provide an additional 25-cent tax rate reduction. With a stroke of the pen, Texas taxpayers can be given needed relief.

Other Texas Taxes

Property taxes may be high but Bankrate.com shows Texas has no personal income taxes. Texas does have a huge list of other things that are taxed as shown on this list of Texas Taxes. One of the most interesting ones to me was the Controlled Substances Tax on Marijuana.



Somehow I have a feeling they are not collecting taxes on Marijuana to the full extent of the law. Also on the list of taxes are things like gasoline, coin operated machines, phones, fireworks, hotels, oysters, oil wells, boats, batteries, utilities, cement production, mixed beverages, etc, etc, and sales taxes at the following rate.



Most items on the list amounts to a tax on consumption. If you buy oysters or gasoline, batteries or boats, you are going to get taxed on it in addition to state sales taxes, city sales taxes, and local sales taxes.

Winners and Losers

Those in high income brackets get a break on income taxes, and it seems that property owners take it through the nose regardless of income bracket. Here is the key stat "From 1999 to 2005, property tax appraisals in Texas went up 75 percent, while personal incomes rose only 35 percent." Property taxes went up far faster than personal incomes. Gasoline prices went up faster than incomes, housing prices went up faster than incomes, and for the masses nearly everything went up faster than incomes. This is of course no reflected in a savings rate that is negative for 18 consecutive months.

A Taxing Conundrum

It seems we have a bit of a conundrum here, actually many of them. How does the state lower taxes and maintain services? The problems will vary state by state and taxing body by taxing body.

Heaven help those who have reassessments every 3 or 4 years but whose last assessment happened in June of 2005. Property values are declining but rates will be set based on the tip top of the bubble. That last sentence looks at things from the point of view of the property owner. From the point of view of the taxing bodies, how are they going to cope with falling property values if budgets were set based on the common belief that property values only go up?

The easy answer (and correct answer) is that it is easy to cut spending simply by cutting waste. I happen to agree with that answer. If I had my way I would slash military spending, pull out of Iraq, eliminate Fannie Mae, eliminate the Dept of Homeland Security since every one of those is an unnecessary waste.

Balance the Budget

Yes I realize I just switched gears from state to federal but here is your chance to balance the budget. This web site gives you the opportunity to Balance the Federal Budget. Just use the drop-down menus and pick your spending levels.

I did it almost exactly on the first crack.
I cut Military spending 50%
I cut the war in Iraq 70%
I cut agriculture 70%
I cut commerce and housing 70%
I cut corporate tax breaks 40%
I cut housing tax benefits 40%

Budget Totals
Old budget was $3747.36 billion
($2672.527 billion in spending, $1074.833 billion in tax expenditures and cuts).

New budget is $3333.42 billion
($2348.21 billion in spending, $985.21 billion in tax expenditures and cuts).
You have cut the deficit by $413.94 billion.
Your new deficit is $-12.93 billion.

Notice I only cut 6 programs. There are dozens. Furthermore, the programs I cut (farming and military) probably do not affect that many people. It is amazingly easy to balance the budget (in theory). I did not cut anything 100% nor did I cut many programs.

Back to the State

The Boston Globe is reporting Property tax bills rising across state.

Average hike is 5.3%; Hub much higher.
Massachusetts property owners will again see substantial increases in their property tax bills this year, even as home sales have cooled.

The average tax bill for a single-family home will rise to $4,003 in 2007, 5.3 percent more than last year and up 49 percent from the 2000 tax bills, according to a Globe examination of 298 of the state's 351 cities and towns. Most of the new tax rates go into effect in bills that are going out this week .

Homeowners in Boston, Fall River, and Wayland will see double-digit percentage increases this year, while several communities near Boston will see average increases of 3.6 percent or less, including Brookline, Lincoln, Newton, Salem, and Somerville.

Of the 298 cities and towns examined, the Globe found that 281 of them are increasing their average tax bills in 2007. The increase continues a trend of recent years, when property taxes rose by about 5 percent annually. The biggest recent increase was in 2002, when taxes rose by 6.7 percent.

The average tax bill on a single-family home in Boston will jump 12.3 percent to $3,093 in 2007. That's on top of a 9.6 percent jump between 2005 and 2006.

Communities set property values annually, but every third year the assessing departments use a more comprehensive process that typically includes physical inspections of some homes and takes into account physical improvements.

Tax bills are rising as home values in many areas are declining; this year's assessments reflect values as of Jan. 1, 2006, and were calculated based on 2005 activity, when the real estate market was much more active. Since then, sales of single-family homes in Massachusetts have fallen dramatically.

Governor-elect Deval Patrick made the state's tax situation a major campaign theme, saying he would find ways to help cities and towns reduce property taxes by providing more local aid and allowing communities to raise revenue through such means as local meals taxes.

Great. Let's tax restaurant owners to relieve home owners. Yeah, that's the ticket. Unlike the Federal Government, State Governments require a balanced budget. Heading into a recession it is going to be a huge struggle for people to pay rising property taxes when unemployment rises (and it will), when global wage arbitrage starts affecting more white collar workers (and it will), and when retail stores stop expanding (and they will). Cutting services or raising meal taxes in response will simply put more people out of work.

This post originally appeared in WhiskeyAndGunpowder.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/