Posted on 03/27/2003 4:52:22 PM PST by AdamSelene235
On a sweltering summer day in 1861, Confederate General "Stonewall" Jackson met a fierce Union charge with a pulverizing counterpunch that sent a blue tide of troops, sans weapons, fleeing over a grassy ridge in northern Virginia. The escape route of the first Battle of Bull Run passes the modest colonial-style house of state senator Ken Cuccinelli, a Civil War buff so ardent he ponders how Jackson obtained the legendary lemons he sucked in battle. Now Cuccinelli thinks his property is under siege again, not from marauding Rebs or Yanks, but from soaring property taxes. Outrage over the fiscal bayonets aimed at his home and hearth helped push Cuccinelli into politics as an antitax crusader. "I have Stonewall's fervor," he muses. "I hope I have his troop support."
It seems as though nothing can stop the majestic upward march of housing prices--not the feeble economy, not the looming war with Iraq. But homeowner beware! The frothy market masks a big, creeping problem for the 77 million families who've benefited from swelling prices and bank on more of the same. From New York City, where property taxes just jumped 18.5% in a single year, to tony Los Angeles suburbs, where the tax bill often triples when houses change hands--from sprawling cities to sleepy hamlets--property taxes are rising relentlessly. This powerful, largely overlooked trend could turn the housing miracle as sour as Stonewall's lemons.
Ken Cuccinelli: Fairfax County, Virginia
A colonial-style house near the site of the Battle of Bull Run.
Property tax
2000 $2,560
2003 $4,400
Percent increase: 72%
Property taxes are as American as Main Street. They're the levies that fund your local services, from schools to police to parks. Why are property taxes, a.k.a. real estate taxes, jumping? The answer is simple--and scary. In this strange economy, home prices are thriving while almost everything else is hurting. All other sources of revenue, from state aid to sales tax receipts, are flat or falling. But the pressure to keep spending ratcheting upward is enormous. So local governments are heaping more and more of the burden, indeed, their entire budget increases--which, by the way, are big--on the one strong pillar left standing: America's houses. That means this revolution in municipal finance is targeting your ranch or saltbox.
The rub is that the people who own those pillars and porches aren't seeing their incomes grow anywhere near as fast as their tax bills. "In this weak economy, taxes are rising far faster than people's ability to pay them," says Lewis Goodkin, a Miami-based real estate consultant. The danger: People will sell their houses because they can no longer afford the monthly charges, or pay less for a new abode because taxes are so high. Either way, rising property taxes could prove the weight that tips the seesaw, sending prices on a downward slope.
It isn't happening yet, for a fundamental reason--bargain interest rates. Homeowners pay less than 6% on a 30-year mortgage, the best deal in 40 years. For many Americans, interest payments have fallen even more than property taxes have risen. Hence, the total cost of carrying their house, the holy grail for any homeowner, is often actually falling. But let's look forward. The housing market faces two substantial negatives. First, after gaining almost 20% in value in the past three years, America's houses are extremely expensive. They resemble stocks whose P/Es stand far above their historic averages. From those lofty heights, they have little room for strong appreciation and are extremely vulnerable to more bad news--job losses, say, or worse, rising interest rates.
Second, the rates supporting those sterling prices are already so low that they're unlikely to fall much further. In fact, they're more likely to rise as the economy rebounds. Then, watch out! If that happens, the combination of higher taxes and ballooning interest payments will cause a big increase in the cost of owning a home. "So far, the effect of higher property taxes is getting washed out by falling rates," says Mark Zandi, a housing expert at Economy.com. "But without the counterbalancing effect of low rates, the power of taxes to drive down property values will become very apparent, very quickly."
Property taxes are no sideshow. The numbers are big--so big that, believe it or not, real estate taxes now rival mortgage payments as the largest expense for homeowners. Last year Americans paid $265 billion in interest on their houses. The bill for property taxes was $205 billion, according to a study of IRS records by Economy.com. So for every dollar homeowners pay in mortgage interest, they send 77 cents to the town tax office, compared with 61 cents in 1988. What's especially disturbing is the powerful pattern of increases. Since 1995 property taxes nationwide have jumped 48%, 30 percentage points more than inflation.
The rampage is happening because property taxes are tied not to homeowners' incomes but to the market prices of their houses. The levies are calculated by applying the town's tax rate to the home's "assessed value," a figure based on the municipality's appraisal of what similar homes are selling for. So if towns hold tax rates at the same level, the tax bills rise at the same pace that houses are gaining in value.
That's precisely what's happening. Towns and cities--which desperately need the money--are bagging a huge windfall from the hot real estate market without facing the political heat of raising tax rates. "It's nirvana for politicians," marvels David Brunori, a municipal-government specialist at George Washington University. "Tax rates stay the same, and the politicians keep getting more money every year. They're never subject to the charge that they 'raised taxes.' " What matters, however, isn't the fuzzy rhetoric but the actual increase in dollars homeowners are paying. Pick cases from across the country, and you'll see that the numbers are shocking.
Go back to where you had to own property in order to qualify to vote.
Yes, forcing people to pay the government "rent" on property they own is reeeaaal Amerikan. Who is the dip that wrote this and why in the hell do we put up with such oppression?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.