Comment and analysis on all things Charlotte

Why The Reval Scares SoMeck

Although this should be obvious, I thought I’d spell it all out so that there is no confusion going forward.

First, the property tax is somewhat unique in that it is a tax on wealth — wealth as defined by the taxing authority. Aha, you might say — and some have — the IRS defines your income as well, and taxes you accordingly. Correct. And the income tax taxes that income — a tautology found in the very federal enabling legislation of the tax.

But.

The property tax is an income tax as well. All taxes must be paid out of income. Your wealth — as defined by government — may set your property tax liability, but you still must pay that liability out of your actual income. Now do you see where we are headed?

Actual incomes across South Meck have fallen since the 2008 crash — we don’t know how much, but we know there has been a marked decline. But the reval will show an increase in wealth across the Southern tier — the value of most folks single largest asset, their house — since the 2003 reval. As a result the property tax liabilities in SoMeck will claim a much larger percentage of actual income than was previously the case — perhaps was ever the case.

Put another way, if you are making $100K and pay a 10 percent income tax and get an actual income boost to $125K you are not going to view the additional tax you pay as a tax hike. (So long as the tax rate does not go up.) You have more income out of which you can pay the tax. Not so with the 10 to 15 percent property tax hikes coming for many South Meck residents.

Their incomes have not increased, and may well have fallen, in recent years. As a result an additional $400, $800, or $1200 a year in property tax is going to feel like a massive hit on their incomes. Add in $3 to $4 gas and creeping inflation in food and you begin to understand the fear and upset.

It seems to me that local government officials and boosters are trying to talk themselves out of this reality — that local government just needs to “capture” a tiny slice of what has been a massive run up in wealth, that local taxpayers really won’t feel it or care, that the “vital services” charade will once again carry the day.

The problem is that crazed government spending during the boom years already threw away all that wealth.

7 Responses to “Why The Reval Scares SoMeck”

  • Jan
    30
    2011

    What about incomes since 2003? I would argue incomes are well above 2003 levels for most, if not all people. The average consumer has spent 2+ years deleveraging (paying down) debt, there is more than enough capacity to be able to withstand a 10% increase in property tax. Plus, this is a matter of hierarchy. People are going to pay property tax over any other expenditure, 99% of homeowners want to stay in their homes at all cost, they will do everything possible to meet the increased expense, including shifting their spending habits around yet again to meet the increase.

  • Jan
    30
    2011

    I really don’t know about actual real income since 2003. Maybe there is a good metric out there so we can stop guessing. But the important notion is the percentage bite of the local property tax out of local income.

    My sense is that the bite is going to be larger than it has ever been for folks who didn’t used to give their property taxes a second thought. And as a practical matter you don’t have any choice but to pay it — you can contest it — and many no doubt will — but you still cannot let it lapse. Besides it is moot point for those who escrow — the bank will just hike your mortgage payment $100-150 a month to cover the hike. That is when the REAL screaming will start.

  • Jan
    30
    2011

    Taylor,

    Show me your proof that “the average consumer has spent 2+ years deleveraging (paying down) debt”. Both Census and Federal Reserve data show that consumer/personal/household debt has INCREASED.

    Where’s your contrary data? (hint: “Jim Cramer and Erin Burnett told me” is not the correct answer)

  • Jan
    31
    2011

    Musicmax,
    The Fed tracks two houseold debt metrics. The household debt service ratio is an estimate of the ratio of debt payments to disposable personal income. The financial obligations ratio is a braoder measure that adds automobile lease payments, rental payments on tenant-occupied property, homeowners’ insurance, and property tax payments to the debt service ratio. The data is here:
    Data on http://www.federalreserve.gov/releases/housedebt/
    The amount of income committed to debt servicing and other financial obligations fell steeply again in the third quarter. Both lower interest rates as well as a decline in the levels of outstanding debt are providing budget relief, freeing up consumers’ resources for spending and helping improve their credit quality. The household debt service burden continued to fall in the third quarter, and at 11.9%, was down a full percentage point over the past year. The ratio is down more than 2 percentage points from the peak reached three years earlier.

  • Jan
    31
    2011

    Thanks nc.

  • Jan
    31
    2011

    musicmax –

    please see attached. if you aren’t aware of the massive deleveraging going on in consumer balance sheets…well, now you are.

    http://cr4re.com/charts/charts.html?Delinquency#category=Delinquency&chart=NYFedQ3.jpg

  • Jan
    31
    2011

    Jeff -

    this link shows wage growth from 2001 – current. From a WSJ article. Clearly wages have been growing since ’03, not to mention promotions, etc. People have capacity to pay this increase in my opinion.

    Like I said, and like you also mentioned, it’s a matter of hierarchy, people have no choice but to pay this. You will get your 2% of the population who whines for awhile about it, but 6 months from now we won’t hear about it again, until the next reval.

    People also are going to see, on average, about $1,000 more in their pocket in 2011 due to the Social Security tax being lowered. This alone covers the property tax hike.

    And trust me, I’m in an area that probably will see a 30-40% increase in values, I don’t prefer it, but it’s a reality.

    http://si.wsj.net/public/resources/images/P1-AY991_WAGES_NS_20110110214802.jpg

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