[Mises] According to the Case-Shiller index, home prices have increased 44 percent since February 2020. That's just an average, of course, and some markets have seen increases in prices that are far higher. Even in middle-American housing markets, however—where home prices are supposedly more reasonable than on the coasts—prices have soared. In Cleveland, for example, the index is up 40 percent since early 2020. During the same period, the index rose 50 percent in Atlanta and 33 percent in Chicago. This sort of price inflation is not merely a product of the physical supply of housing. Demand for housing has been greatly inflated by nearly fifteen years of historic lows in interest rates, following by immense flows of newly created money during the Covid Panic. As economist Brendan Brown has noted, even as consumer price growth appeared low from 2008 to 2020, the effects of monetary inflation have long been visible in asset price inflation (e.g., home prices).
It is not at all surprising then that property taxes are rising as well. Fortunately for homeowners, though, property taxes have so far not kept up with market prices....
More than one curmudgeonly libertarian has described the residential property tax as "rent you pay to to the government to live in your own house." This isn't wrong. Moreover, residential property taxes can be especially devastating in times of economic stress—much more devastating than income taxes.
For example, as the economy worsens, we can expect unemployment rates to rise, and for real incomes to fall even more than they already have over the past two years. Now, when it comes to income taxes, a falling income generally means a lower income-tax bill. Yet, do our property taxes go down when we lose a job or suffer a pay cut? Almost certainly not. Indeed, if new assessments come on the tail end of an inflationary period, homeowners may be hit with a fresh new increase in property taxes just as employment fortunes are worsening. The next step, of course, may be moving your whole family into your aging parent's basement....
Moreover, a focus on state income taxes as the "worst" state tax can lead some to inappropriately downplay the true costs of property taxes. For example, states with no income tax, such as Texas, like to tout this fact as if a lack of an income tax rendered Texas more or less tax free. This, of course, is not remotely true. Texas has the third-highest property tax burden in the nation, behind only New Jersey and New Hampshire, and only slightly better than Illinois. (New Hampshire doesn't have an income tax either.) This isn't a recommendation for Texas to adopt a income tax, of course. There are indeed benefits that flow from the lack of an income tax. But every government will fight to get tax revenue from somewhere, and property taxes are likely to be a very lucrative source of tax revenue in coming years. It's just yet another growing burden we endure in our age of easy money and price inflation. |