> the cost of housing is one-third of Bay Area prices and the absence of a state personal income tax amounts to a 13.3% raise for top earners.
This point always makes me laugh because anyone who lives in affluent TX neighborhoods knows your property tax is _enormous_ and usually makes up for a majority of state income tax you save. They still need to pay for roads and schools, right?
Which is great. A high property tax keeps the price of housing down (what people will pay for a house is cost per month, basically mortgage plus property tax), makes people want to have new housing built so that housing prices don't go up, and promotes a general attitude of anti-NIMBYism. Just the opposite of California with its low property tax and very aristocratic prop 13 problem.
I totally agree and I think property taxes are way more fair and equitable for a society than income taxes. Usually we tax behaviors we want to curb. Income taxes disincentivize people from earning more, whereas property taxes are a consumption tax. In my mind this makes way more sense, and there's good data to suggest property taxes are the best/most efficient way to gain needed revenue for a city but do the least "damage" to economic prosperity
"I totally agree and I think property taxes are way more fair and equitable for a society than income taxes."
Until you retire and no longer can pay the tax and are kicked out of your home.
Logically, it makes more sense to tax people who are actually making money (income and capital gains) since that means they actually have money. Taxing people on a fundamental need (shelter) could potentially increase homelessness, especially if you hit a rough time economically like with the pandemic.
"Income taxes disincentivize people from earning more"
I don't see how flat or even marginal income taxes disincentivize people from making more money.
There's only so far you can downsize. Some of the people being kicked out are lower income and already live in modest homes.
I guess you could also make the argument that you must relocate to cheaper areas, leaving behind your friends and family.
The real question is any if that is "right". Should we force people out of a home that they own or make them move out of the region they lived in, in some case for 30-50 years?
>> I don't see how flat or even marginal income taxes disincentivize people from making more money
When you hit higher tax brackets it gets more difficult to negotiate a raise with your employer, because to get X more money for yourself you need your employer to spend 1.4X more on your salary. Flat tax rates have no such effect.
But as a marginal system only taxes the income above the cutoff at the higher rate, you would still make more money.
For example, you are making $99k and paying 4% (pretty close to many state income taxes) on that with the next bracket at $100k with a 6% rate. You get a raise to $110k which means you are making an additional $10360 after tax and only paying an additional $200 in tax (4% vs 6% on that $10k). I don't see why you need a 40% increase.
Seniors do get a slight property tax discount here in Texas. Still I suppose it does encourage people to downsize when they are empty nesters and no longer need to house a big family. In California you get the opposite problem where people can't afford to move as their needs change since their property tax would no longer be kept low.
There is an exception in CA (it's complicated and only good in some counties) where an older person can transfer their tax basis, once, to a new house for precisely this situation.
Once again young people get the shaft in CA though.
- allow eligible homeowners to transfer their tax assessments anywhere within the state and allow tax assessments to be transferred to a more expensive home with an upward adjustment;
- increase the number of times that persons over 55 years old or with severe disabilities can transfer their tax assessments from one to three;
- require that inherited homes that are not used as principal residences, such as second homes or rentals, be reassessed at market value when transferred; and
- allocate additional revenue or net savings resulting from the ballot measure to wildfire agencies and counties.
Seems like a convoluted system to tax people based on property while still making it means based. What was the reasoning they gave for not just using an income based system, which should more implicitly align with one's means?
Makes gaming the system harder. Once you're rich enough you could only take compensation every other (3rd/5th/etc) year and pay property tax only then. Unlike compensation once the property tax year's gone it's gone, there's no deferring situation (eg, vis a vis deferring comp where the big chunk in later years would still be taxed)
It's not an unusual situation in urban CA for an elderly person to have bought a house currently worth many millions back in the day for <$100k. Downsizing for them means still spending many hundreds of thousands of dollars, far beyond the tax basis of their current home. I think the current system encourages (or at least doesn't disincentivize) older folks with expensive homes to sell and downsize, meaning the tax basis for that same home will increase a whole bunch for the new buyer (since tax basis is recast as the purchase price when sold), ultimately driving more tax revenue.
Most problems and gaming of the tax system comes down to the fact that people are taxed on income and businesses are taxed on profit. Maybe we should tax businesses on income also, but that would be a very different world. Might as well make income taxes illegal and implement a national land tax.
It depends on how far someone is willing to downsize. Many 1500sqft single homes in that region are paying about $8k-9k per year in property tax. I guess you could cut that in half if you live in a row home of about 900 sqft. That can be a big lifestyle change depending on one's hobbies (gardening, keeping a classic car, beekeeping, etc may require more space). Not to mention $4k-5k could still be around or over 10% of a retired persons income, or even working families too (Philadelphia has the highest rate of extreme poverty of any city in the US measured as families of 4 making <$12k per year).
You could. But you see, that's really working as an income tax then, but even less efficiently/equitably because you now need a mechanism and oversight to classify people/households as retired/out of work and that classification may not be taking into account the difference between someone making more money in retirement than others might make while working.
For example, if I'm retired and making 5% annually on $5M dollars, that's more income than many working class people. Why should I get a break on property tax? If it's income tax, then it applies to everyone equally and you don't need special exceptions for people who lost their income since it would automatically remove the need to pay the tax (no income to withhold from).
Property taxes are absolutely not more "equitable". Property taxes are like sales taxes, a single person can only consume so much. Similarly large wealthy corporations, or individuals can only buy so much land. And so this kind of tax structure fundamentally burdens the bottom earners of society disproportionately.
A progressive tax system will always be far more equitable.
How do income taxes disincentivize people from earning more? It's always better to make more money than to make less, even if you're paying a percentage of it to the government (or whomever).
Earning more usually involves working harder, longer, and/or taking more risk. Taxes reduces the reward for doing these things, so people are less likely to do them. Everyone would love to earn more if the extra money just drops from the sky, but that is not how the world works.
Somehow my hometown suburbs, and where the rest of my family still lives, still found plenty of motivation for NIMBYism and desiring property value appreciation.
You're confusing "you can grow outward with single-family-homes near indefinitely" with "we want more apartment buildings near our precious houses!" You still get a lot of the same problems, you've just changed the complexion of the traffic problems...
> A high property tax keeps the price of housing down
Have you seen Austin prices recently, it's getting pretty hectic in "core" Austin.
> promotes a general attitude of anti-NIMBYism
This isn't entirely true. In the recent election there was a public transit bill in Austin which would raise prop taxes by 4% I think. Even though it passed there was a hefty amount of opposition to supporting it, and generally anything that deals with raising prop taxes.
Also in my local neighborhood (north central austin) there is plenty of nimbyism regarding planned multifamily construction.
Well, Austin is has been known for decades as the one city in Texas where people with "California" like values can feel at home. They have immigrated en-mass and continue to change the native culture at a rapid rate, I would imagine.
True about keeping housing prices down. Also the money you pay goes to schools and infrastructure. Instead of going towards a big mortgage and interests.
The property tax being double is still cheaper when the housing costs are 1/3 though, right?
I guess if you Prop 13'd your way into a low assessment, then the math doesn't quite work that way, but for someone who bought a Bay Area house recently, then moved to Texas, the net difference is still a tax reduction.
Austin property taxes are 1.8%. SF property taxes are 0.65%.
For it to breakeven, just on property tax, Austin property taxes on a house 1/3 the cost of an SF house would have to be 3*0.65 or 1.95%.
So people in Austin effectively pay less or the same on property tax than people in San Francisco.
I might add, house prices in Austin/Dallas/Houston are often less than 1/3rd the price of houses in the Bay Area for comparable quality. In Austin, median housing price is $365K, and the average sq footage of a house in Austin is about 70% larger than one in SF.
The base CA property tax rate is 1%, so it can never be lower than that. It's nearly always higher since localities can add assorted fees to it (so of course they do).
You might have a long-time owner paying 0.65% due to prop13 slowing the year-to-year increase, but as a new purchaser your CA property tax will always be >1%.
Double how bad it is for the Bay Area then relative to Austin.
Property taxes in Austin (not to mention how cheap Houston, Dallas are) are not even as expensive as the Bay Area. That's not even considering income taxes or no capital gains.
But using your link, at Travis county (2.2267), once again, it'd need to 3.6% to be equivalent levels of absolute tax paid as SF.
It's effectively 2.2267/3.6 (62%). It doesn't matter really how you slice this, because it's not subtle. People in Austin pay way less property tax than people in SF on equivalent housing, even before other taxes (only in SF) are taken into account.
True, the property tax rates are higher in TX. But since house prices are much less, in absolute terms you pay less property tax than CA. Combine this with 0% income tax, your tax load is a lot less in TX than CA.
There aren’t many $1.5M houses in Austin. In Round Rock (home of Dell), the highest price you’ll find is around $800k for a 5600 square ft house with premium upgrades.
Most of those are well over $2M. 1.5M is a tough price point here, because the ones by the water (most of the ones in your link) are really expensive while just a few blocks away the price drops quickly.
This point always makes me laugh because anyone who lives in affluent TX neighborhoods knows your property tax is _enormous_ and usually makes up for a majority of state income tax you save. They still need to pay for roads and schools, right?