Taxes, Texas and The Unforgiving Laws of Physics

Cause and Efect
Cause and Efect

“It’s not because I don’t like paying taxes,” said Gardner, who attended both meetings. “I have voted for every park, every library, all the school improvements, for light rail, for anything that will make this city better. But now I can’t afford to live here anymore. I’ll protest my appraisal notice, but that’s not enough. Someone needs to step in and address the big picture.” – The Austin Statesman

I feel certain empathy for Gretchen Gardner of Austin, TX. Her taxes are driving her out of what she considers a nice place to live. However, my empathy becomes tempered when she describes how this unfortunate fate came to pass. By her own admission, she voted for parks, libraries, school improvements, and light rail with an uncritical, dogmatic loyalty to what she was sold as a vision of progress. She was never advised that every inch of progress requires a driver. Every load of groceries or pile of books embodies labor and intellectual property. You do not just get schools, parks, libraries and light rail. Someone provides these things. They expect to get paid. Any amount of work you want done requires a requisite amount of energy. This is where life mimics physics.

Now poor Gretchen feels betrayed because she is being forced to personally subsidize all the improvements and the progress she voted for. She was sold a bill of goods. This is obvious because she seems to believe other people should be picking up the tab even though she personally voted for every library, school, park and light rail system the politicians attempt to sell her. She ordered a nine course meal and does not want to pay for any of the dishes that showed up after the Gazpacho. When she ordered the whole, entire smorgasbord, she never stopped to ponder how this was actually going to be financed. The Texas Public Policy Foundation provides the sad, sad, truth.*

In the U.S., most local governments levy taxes on real property, including land, commercial properties, and residential homes. These property tax revenues typically account for the largest source of funds to pay for schools, streets, roads, police, and other services.

In fairness to Gretchen Gardner, there are some substantial drawbacks to relying on property taxes for revenue. It increases the ongoing maintenance costs of home ownership. The old-fashioned American Dream gets harder to obtain and keep. Property taxes are the scourge of people trying to build wealth in tangible assets, rather than through financialization. A steady-state inflation of property taxes over time can be an existential threat to the retirement lifestyles of elderly and disabled individuals. Fixed incomes stay flat, inflated costs exponentially increase. This is a frightening ratchet for many members of society least capable to defend themselves against financial adversity. So Gretchen Gardner isn’t quite as deracinated from terra firma as her initial quote seems to indicate.

However, property taxes have a very positive upside that I wish was more common across all types of public taxation. Property taxes are frequently salient and transparent. Run that through an internet translator that turns Academic Cant into English and you get something close to “You get the bill, Sucka’!” A salient, transparent tax is one where you see where you get an invoice and can read it and weep. Nothing is quietly withheld; nothing is tacked on to a complicated, itemized statement. It’s like the end of the game show where the cheesy host yells. “Show ’em what they win, Dom Pardo!”

This solves one half of the problem with public finances in the United States. People see exactly, right there in black and white, what all those nice amenities such as connector roads, daycare centers, community centers, et al, really cost to build and maintain. User fees are pretty cool in these regards as well. Anything that visible provides Dark Enlightenment. It reminds people that cause leads to effect and that every action triggers an equal and opposite reaction. This, in turn triggers certain anger. Economists Marika Cabral and Caroline Hoxby enlighten us on this topic below.

Because of the manner in which it is normally paid, the property tax is almost certainly the most salient major tax in the U.S. The property tax is also the least popular tax and the only major tax whose revenues have declined as a share of income. We hypothesize that high salience explains the unpopularity of the property tax, the level of the property tax, and prevalence of property tax revolts.

But there still remains an unsolved problem. All these tax revolts happen ex post facto. The obligation has already been incurred, the outlay is already mandatory. Proposition 13 closed a few barn doors, but the horses were already running free. Storming out of the restaurant in protest over the tab still leaves a debt that has to be eaten by someone. If they can’t or won’t catch the angry patron and make them wash dishes and mop floors; that debt turns into a loss. As a whole, governments have lost more than a few $T that way.

So what do? As a check on unrestrained government largesse, we should make as many of our taxes a priori, salient and transparent as possible. Run that through the Academic Cant to English Internet Translator Thingy and you get the Soup Nazi Principle. If you don’t pay for the public service ahead of time, “No Soup For You!” Yes, it’s cold, cruel and insensitive. The Head Richard never ends up being the one who goes bankrupt. If all the public amenities are paid for before the shovel breaks the ground, you never quite get what happened in Jefferson County, Alabama either. A system that charges a published admission price up front isn’t one that easily scams people either.

This is because the people are made to recognize from the beginning both the costs and the benefits of any variation on the venerable Social Contract. They can decide, based on an intelligent knowledge of the costs, how much of that society they should order. That messy debate is happening in Austin, TX. As unpleasant as that makes Gretchen Gardner feel, it is a necessary development if she and the other fine folk want to afford keeping Austin weird. Pensioners in Pritchard, Alabama wish a similar “crisis” had occurred in Mobile. This is simply the Public Policy version Work-Energy Relation from Newtonian Physics. Milton Friedman famously intoned: “There’s no such thing as a free lunch.”

*-The dirty low down.