Texas makes a big deal about not having income tax. What they don't tell you is how high the property taxes are.
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.
> Texas makes a big deal about not having income tax.
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?
Income tax doesn't really tax the very rich. They earn their money from assets and generally either don't pay taxes at all, or if they do pay taxes, it's based on long term capital gain rate, which is lower.
High property tax on the other hand, is helpful in two ways:
1. It directly tax the rich who hold more property.
The problem with CGT is that it allows people to defer their tax obligations indefinitely while amassing wealth using untaxed “unrealised” gains. This can be a very effective tax-avoidance strategy.
This makes sense kind of, though. If you haven't realized any of your gains, what are you paying the tax with?
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.
Yup, but an unrealised gain is still a gain. A million dollar in shares or paintings or classic cars can be borrowed against, and you don't need to pay taxes on borrowing.
(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're not gaining any money from possessing it.
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.
> This makes sense kind of, though. If you haven't realized any of your gains, what are you paying the tax with?
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.
Capital gains can be considered income depending on how the tax is structured.
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.
Until they do stuff like CA Prop 13 so the folks who have been rich for a while continue to pay very little property taxes, while the burden rests with anyone trying to buy a home in the past 10-20 years.
i'm mostly learning about this just recently, but i still downvoted you because i don't think that's true. property tax, for all intents and purposes, seems to just get passed down to the renters both commercial and residential.
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.
If you look at a property in the Bay Area, it seems mortgages are significantly more expensive than rent. 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. People must be buying for the purpose of making money from the price going up in the future. Property tax prevents it from going up in the future too much, thus it will prevent prices from getting so high.
appreciate the nuance. what about all cash offers though? i understand high interest rates change these equations, but influx of egregious capital from China for example, all-cash offers is a problem no? they break the equation if they need places to store capital. they aren't affected by interest rates and so sit on property and weather any storms.
If the tax rate is high, then property won't be a good investment. They'll be paying high tax on a small value property. The high tax will discourage people from buying property as an investment.
>in the Bay Area, it seems mortgages are significantly more expensive than rent.
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.
Landlords are price takers because supply is fixed in the short to medium term. Demand is what sets prices in the rental market as landlords look to find the tenant that will pay the most for their unit. Because of this property taxes are not passed to tenants, unless you think about second order effects that change the supply of housing available for rent.
> Landlords are price takers because supply is fixed in the short to medium term.
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.
Sure but at least in my area vacancy rate is sub 4%. The structural minimum is 3% so there really aren't any landlords just leaving units vacant. Surely some will choose to sell when taxes increase but rental supply is pretty stable after property taxes are up a solid 50% so that seems to be minor.
> If you make over $66k, your income tax is 9.3%, going up to 13.3% if you make FANG money.
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.
You pay surcharges not included in the base tax rate as income goes up. There's a 1% surcharge over $1M income that's from a passed proposition. I've never hit it, doubt that I will, but it's there.
In the US, you pay state tax and federal tax separately, so those are only the state taxes. If you're paying the maximum marginal rate in CA, you're also paying 37% federal rate and a 3.8% surcharge on investment income on top of that.
You also have to remember that in CA the assessed value of your home (on which your property tax is based) will never go up more than 2% per year. So while the property tax rate may be higher than some other places, if you stay in your home for more than a few years, the actual amount of property tax you pay will quickly be lower than it would be elsewhere.
It's not misleading, it's incomplete. You have to fight to keep your property value reasonable so you're not murdered in taxes. My sub 2000 sqft house in TX was valued at a million dollars. I couldn't sell it for 800k last year. I lost most of the debate with the county. Things have to be paid for but the uncontrollable valuations are just nonsense and have forced people out of their homes.
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).
No tax is fair unless it is insignificant enough to be universally paid willingly and joyfully. Plus every attempt at "progressive" taxation has been circumvented to a reversed outcome.
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.
If you think flat is fair, then yes. If you are coming from California it's quite shocking. People like Elon Musk and his enablers in the media talk about the marginal tax rates in California, but the median Californian owes no or trivial state income taxes. If you transplant that median household to Texas their tax burden is higher, and they are more exposed to housing market shocks than they would be in California where the state constitution limits tax assessment increases to 2% per year.
A property tax isn't a flat tax, as the people who own the highest value assets--and are thereby able to use them to extract the highest rents from other people--are paying higher taxes for that continuing privilege. The reality is that homeowners can feel poor but they are ridiculously richer and more powerful than people at the same income level who are merely renting.
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.
You must have an incredibly fancy house. My property taxes aren't even $20k (far from it, more like $12k) for a 2400sqft 4 bedroom house with a pool with pretty good DART access just down the street from a nice city park.
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.
+1 If OP has a big yard, a well-maintained house, and decent schools nearby, that almost immediately puts you over $1m in Austin. If their house actually has some serious square footage or acreage, $1.5-2m isn't ridiculous.
You can take hits on one or more of those requirements to get the price down but it's not apples-to-apples anymore.
What's the price for a big yard, well-maintained, 2,000+sqft, with decent schools house cost in San Franciso or LA? And not in a suburb far away, but in the city? What are the property taxes on such a place?
Yeah but it seems you're then trying to paint that as a brush for all of Texas. Austin real estate values are stupid. You shouldn't spend that much to live in a house that small in Texas. It's like looking at a large house in actual downtown San Francisco and acting like that's the housing price for all of California.
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?
US democracy and free market capitalism is so extreme that can even choose which government you buy your services from. (Though not at the federal level.)
To be fair, some level of “government-shopping” is also part of the design and purpose of the EU. But it’s harder for ordinary people to take advantage of it because the language barriers and culture differences are larger than in the US.
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.
It's not a part of the design or purpose. It's a part of the current status quo but the EU is a very different construct to the USA both legally and culturally.
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:
"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.
The EU isn’t the result of a single intent by a single group of people at a single moment in time. There’s a constant push and pull between the statists and the market liberals, for example.
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.
Looking at total executive orders is misleading (and dishonest), EO’s historically were often used for very inconsequential things, like declaring some nation a friend or thanking someone for something. Without looking at the actual order it’s hard to know the impact and any given EO. Please try to argue in good faith.
You literally said Obama started the problem with executive orders. How would you judge these in a way that is impartial?
For instance George W Bush signed an executive order establishing the homeland security department. He established Afghanistan as a combat zone via executive order. He declared war on the Taliban via EO. He changed classification rules and military pay based on EO. He removed Congressionally approved union protections via executive order.
The extra heat from this summertime is adding like $100/mo to my bill for a 2,400sqft house for like 3.5 months. This is a hotter than average summer, usually its like $75 or so more a month. So if my two cars cost more than like $350 for registration fees, then yeah I'd be paying more for registration fees than I do on AC. Given the fact others here suggest its several hundred dollars for a single car, then yeah I'd probably be paying way more for car registration fees than what I'm spending cooling my home. How much are motorcycle registration fees? We should probably tack on at least one motorcycle being registered as well.
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.
It's plausible; a $40k new gas-powered car in California would owe about $600 in annual registration fees in San Francisco.
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.)
You know I really don’t care if you believe me or not. I’ll sleep just fine. But since you asked oh so nicely… I had a Corolla and it cost me just under $800, and I’m just over $200/mo in electric
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.