I live in a state with income tax, and if I lived in this same house in Austin (as if I could afford such a house in Austin) my total, overall tax bill in Texas would probably be $20k per year higher than I pay now.
It's a misleading claim every time it's made.
The people of Texas need to pay for things somehow; they must contribute tax revenue roughly equal to government expenses. If it's not personal income tax, then it's some other tax.
I prefer income tax when it's progressive (higher rates for higher earnings), because it helps equal out the sacrifice: 10% of $10,000 income is much more of a sacrifice than 10% of $1,000,000 income.
It's hard to see how any other tax is preferable. Why would I prefer sales tax?
High property tax on the other hand, is helpful in two ways:
1. It directly tax the rich who hold more property.
2. It keeps housing prices lower.
Property tax is a wealth tax for one (very significant) kind of wealth.
This feels like if you're a normal person who happens to own a painting that becomes super desirable and worth millions. If you sell it then tax away, but otherwise it's literally just the same painting you've always had.
(And when you die, the capital gains base resets, which is the real travesty -- the heirs pay the loan with some of the capital at zero capital gains tax cost, and start borrowing again with the same strategy whenever they need to.)
How so though? If you're not selling or collateralizing something, you're not gaining any money from possessing it (unless you're counting the spreadsheet number going up as gains by itself).
> And when you die, the capital gains base resets
Yeah, this seems pretty ludicrous. I can understand why inheritance wouldn't cause a taxable event (e.g. you inherit the painting), but it seems pretty wild to allow that while also resetting the basis.
I could be missing something, but I don't know of a super reasonable defense for this part (other than potentially disincentivizing inter-generational hoarding of assets? Honestly not sure)
You aren’t gaining money, but you’re gaining wealth. And the compounding effects are exaggerated if you don’t pay tax until you sell.
For certain asset classes, especially liquid assets like shares/stocks this is dead simple. The value is easily and accurately determinable. If you don’t have the money to pay the tax, you sell assets to make the money. Property, especially residential, is basically on the same level. Ah, but what if investors don’t have the cash and are forced to sell their properties? God forbid these leeches stop treating housing as speculative assets and sell their portfolios onto owner-occupiers.
For other assets, yeah, I don’t know. But I don’t have a single iota of sympathy for millionaires/billionaires who may struggle to pay tax because their wealth isn’t generated via personal income.
True, but only in a philosophical sense. It's an issue of pricing, and pricing securities assets to original purchase value is a falsehood.
People are very happy when their stock price increases dramatically, or their home value increases; they don't say 'well, those aren't my assets; all I have is the $100 price I bought it at X years ago.' People are happy when it's securities for which they only have future options to buy.
i used to knee jerk think that raising property taxes to the market rate was a great equalizer. in california that bill got killed, but actually i'm more informed now and i don't think it's that easy.
rich people find a way, always.
It wasn’t that way when mortgages were 2-4% —- getting a mortgage is harder and requires a large down payment. It’s more of a commitment. Rent will always be more.
>So people can't be buying for the purpose of making money off renting it out, or for the purpose of saving money by not paying rent.
They can and they did.
> People must be buying for the purpose of making money from the price going up in the future.
It does that too, and for many boomers who bought in the 60s-80s, it went up about 10x for them.
> Property tax prevents it from going up in the future too much, thus it will prevent prices from getting so high.
Look up “California Prop 13”. People who buy basically get a freeze on tax rates at the price they paid for the house. If you bought in 1978, you’d pay the property tax based on the 1975 assessed value, and it can only go up 2% per year up to 1% of that assessed value MAX. That means if you bought a house back then for $100k, the max tax is $1k. Now your neighbor moved out and cashes in on their lottery ticket-like winnings, selling their home right next door for the $2m properties on that street are now worth. Guess how much the new owner pays in taxes? $20k. Even though the house paying $1k could sell tomorrow for the same $2m, they paid a ridiculously low property tax for decades, and the new owners of the exact same property will pay $20k each time property tax season rolls along. This garbage law is a big part of why owning in the Bay Area is so hard for folks trying to get their first home. Meanwhile, tons of owners rent their paid-off cheap tax home for ridiculous market rates. $5-7k/mo for a clapped out 60s POS is very typical. The folks who really played their cards right and have multiple properties for which there paying 1/10th or so of what their property tax SHOULD be then renting those all out while they live like kings are the real winners in this scenario, as are all the businesses that enjoy the same anti-competitive benefits. Ever wonder how all those crappy taquerias in San Jose stay open after all these decades while newer much better restaurants struggle and go under in a year? It’s this. Ever wonder how much tax Disney pays on all their property? It’s criminally low. Yet this issue is such a political third rail because all the boomer voters love love love their sweet sweet 90%+ tax discount, they’ll do anything to keep it. Another fun fact is this benefit can be passed down within the family, and with some clever lawyers, be passed between companies as well (IIRC the trick is to sell a property in 3 parts so no part exceeds 50% of tbe whole). Yay, loopholes. This is also a big part of why we have some schools that are surrounded by $2m+ houses and yet the school is way under-funded: those old neighborhoods don’t pay jack for property tax.
It's not now.
>Look up “California Prop 13”
Yeah, I know about it. I'm not arguing in favor of it.
>all the boomer voters love love love their sweet sweet 90%+ tax discount
Wouldn't it still be possible to remove prop 13 for corporations?
Quantity supplied is not fixed in even the short term, landlords choose whether to let vacant units or remove them from the market, e.g., for upgrades that might improve their relative position in the market when re-let but prevent letting them immediately, based on market conditions including adequacy of price.
There's a limit to how high quantity supplied can be in the short term, but underneath that cap it has the usual slope direction of a supply curve.
States without income tax are nearly always states with more regressive tax structures as a whole[0]. States with income tax are typically less regressive. Property tax can target wealth, yes; but states without income tax nearly always rely on sales and excise taxes to bridge the gap, not on property taxes.
0. https://itep.org/whopays/#:~:text=Washington%20State%20is%20....
But who taxes unrealized capital gains?
If you make over $66k, your income tax is 9.3%, going up to 13.3% if you make FANG money.
We have a roughly 10% sales tax.
You'll pay about 1.25-1.5% of your overpriced home's value in property tax annually.
And your car is going to cost you a few $hundred to register every year.
If you're a fan of any specific kind of tax, we've got them all here.
The marginal rate is 9.3% above 66k. If your AGI is $67k your taxes are ~$3000. There is no 13.3% bracket. There is a 12.3% bracket for marginal income above $677k, which fewer than 1% of Californians earn.
A consumption tax would be good. It would affect everyone. It would be easier to levy than an income tax.
Sales taxes are not progressive and therefore unfair. Bezos and the janitor pay the same tax for the same thing (though in fairness, Bezos does buy more things).
A tax almost always ends up curtailing what it taxes.
Taxing property curtails private property ownership, taxing income curtails productivity at the source, taxing expenditures curtails consumption.
Which of these is more sustainable with less compromise to overall economic opportunity?
>in fairness, Bezos does buy more things
Probably not the kind of things or fairness that does him or anyone else as much good with the money compared to what the average person would do.
For example, both Texas and California have 0 miles of high-speed rail. But California has spent $10B for those 0 miles, while Texas has spent $0.
I love this.
If you want to limit property tax, but you don't have really really strict rent control laws (which California does not: some areas--including, notably, San Francisco--do have some minimal mechanisms, but they pale in comparison to the power of prop 13 for property owners) you end up with an extremely unfair tax system...
...which, though, does favor people with more money, and so this actually furthers the narrative of how the people who moved away from California because they wanted to not have so much tax on their income are now realizing they have a lot of assets and want to capitalize on that in California.
Just paying $20k would place the assessed home value after exemptions at >$970k. Standard homestead exemption is $40k, so $1.1M for actual assessed value. But you're saying $20k above whatever you're paying already, I'm guessing you're probably paying close to $20k since you're looking at >$1M homes, so in reality you're looking at like >$1.5M homes. That's an incredibly fancy house, far more than normal. That's more than twice the average price of a house in Plano, a pretty nice place to live if you're gonna live in Texas.
You can take hits on one or more of those requirements to get the price down but it's not apples-to-apples anymore.
I'm just trying to point out the majority of the state doesn't pay well over $20k in property taxes. Only very wealthy people do.
In 2021 the average single family home in Texas was like $260k. Values have gone way up, let's say $320k for example. Minus $40k for homestead, $280k assessed. Living in a city you're going to see like 2% property tax, so $5,600. So your $30-40k tax bill is probably six times the average tax of a house in Texas.
Six times the average tax bill.
See how that's just not a normal price most people actually pay?
Your comment finally made me realize this.
That’s not an impediment for corporations though. Ireland and Luxembourg have done very well attracting rich companies that can choose whose taxes to pay within the EU.
The USA has the Constitution which at least in theory places hard limits on what the federal government can do, and the Constitution is strongly supported across US culture and society. The Supreme Court for example has recently started returning powers to the states.
The EU's equivalent is the treaties, which begin by saying the goal of the EU is "ever closer union". So the EU's stated goal at the very beginning of its foundational documents is to homogenize the continent's systems of government. Nothing in the EU's institutional philosophy or culture recognizes that it should be limited in scope and that countries should always have local control over some matters. For example the ECJ almost always rules in favor of more EU control, even when the treaties clearly say otherwise. Due to the widespread nature of this cultural mileu amongst the European political class, the EU routinely takes control of policy areas that it was never granted by treaty whilst facing minimal or no resistance.
For example, you talk about government-shopping by companies who set up their HQ in Ireland. The EU hates the possibility of government-shopping because it thinks the entire concept is illegitimate, so they have been attacking Ireland for years to try and force it to stop being so competitive. You can see that culture at work in the language they use:
https://www.europarl.europa.eu/RegData/etudes/ATAG/2022/7335...
"Ireland has been criticised for the way in which its tax system has been used by multinationals to set up aggressive tax planning structures and exploit mismatches and gaps in the international tax framework"
Low taxes are "aggressive" and a "mismatch" which gets "exploited". They think of a country competing against others using low taxes as some sort of hack that needs to be shut down, not a natural part of the competition between jurisdictions. In theory the EU has no control over corporation tax, but in practice the treaties let the EU regulate subsidies, so they redefined subsidy to not just mean direct payments from governments but also just charging lower taxes than France/Germany. And then told Ireland to change.
Now in practice the picture is complicated by the fact that the EU treaties do supposedly limit the EU's powers, because the people who signed them recognized the danger of the EU's unlimited ambition and sought to restrict it. And the US federal government has always grown, often working around or just ignoring the constitution in various ways. But this stuff is all downstream of culture. The Americans have the Republicans and its associated culture, which tries to decentralize government at least sometimes, in some ways. Even in cases like military spending where they don't reduce the size of the federal government they do try to spread it around, hence "porkbelly politics".
Mainland Europe doesn't have many similar parties or cultures. They're all very pro EU "integration" (read: passing control to Brussels). The UK had a smaller equivalent in the form of euroskepticism until they succeeded and Brexit rendered it irrelevant. And now Germany has something a bit like that in the form of the AfD, which despite being constantly smeared as Nazis has a relatively decentralized and conservative manifesto that wouldn't look out of place at a Republican convention. But you can tell how different the cultures are by the reaction: there's a very real and serious discussion in Germany about flat-out banning the AfD despite that it polls at about 20%. Nobody is talking about banning the Republicans.
So in practice I'd argue that the EU doesn't have the same design or purpose with respect to government-shopping as the USA does.
Thatcher was pro-EU (despite the rhetoric) because she saw it as an opportunity both for British exports and to attract businesses. And it did work! Britain practically wrote large sections of the EU free market rules. The massive growth in London’s financial sector since the 1980s is one example of the benefits.
> “the AfD, which despite being constantly smeared as Nazis has a relatively decentralized and conservative manifesto that wouldn't look out of place at a Republican convention”
Honestly, a substantial minority of today’s Republican Party wouldn’t look out of place at a 1930 German National Socialist convention.
At least Germany is having a discussion about whether forces that are against democracy and human rights belong in a democracy. Most Americans, including old-school Republicans, appear to be just closing their eyes and hoping the problem goes away on its own once the nearly 80-year-old populist leader exits the arena.
Texas's electricity rates are about half of those in California, so 3 summer months' AC costs in Dallas could be notably less, especially for a small/single-person residence.
(And, Calfornia's gas costs about 40% more per gallon than in Texas, due to both taxes & other supply-limiting regulations - which one might reasonably consider an extra tax on having a car in California.)
And that's before the fact gas and electricity is routinely 2x more expensive in CA than TX, which energy costs are a large part of the costs of operating a car. If we were to really compare car ownership costs in CA vs TX to the idea of how much I spend on AC, it wouldn't even be close.