It's The Taxes, Stupid - Property Taxes

There are fairly straightforward reasons for this most recent market crash, or any market crash for that matter. What amazes me is the obsession by our elites with macro-economic policy, the care and feeding of banks, and all the other Keynesian knob twiddling at the expense of the obvious: we tax too much and we spend too much.

All the talking heads have focused on the sub-prime mortgage collapse as the main cause of our current economic crisis, and while that has been a factor, it is far from being the only factor, or even the most important one. For example, the overall inflation of home values strikes me as being just as important.

Home values have skyrocketed for twenty years, but why? The simple answer is government intervention. I offer as Exhibit A the annual ritual of state, county and city governments reassessing the value of our homes, their motivation for doing so, and a process that can only be described as skullduggery.

Reviewing the HCAD (Harris County Appraisal District) database available to me, I found that there is virtually no rhyme or reason to appraisal values. From 2002 through 2006, they went up every year by a minimum of 5%. In 2006, appraisals went down slightly. In 2007, they skyrocketed to the maximum of 10%. In 2008, they went up another 10%.

Since I've been tracking it these past five years, it is apparent that HCAD would lower a property owner's re-appraised value by a minimum of 50% just for the asking and without any proof of the homeowner’s claim. I have challenged the assessment on my home two years in a row, and beat the total appraised value down by over 35%, while my neighborhood has gone up an average of 20%.

A review of the HCAD database reveals that in my neighborhood and several others that I scanned, the vast majority of homeowners did not protest their evaluation. I'm fairly certain this is the rule with most homeowners across the country. While I'm in no position to psychoanalyze my neighbors as to their passivity in the face of these tax increases, I can speculate on a few causes:

- We've been sold a bill of goods that skyrocketing home values are a net financial gain to the average homeowner, even with skyrocketing property taxes. This bill of goods was sold by politicians of both parties, Wall Street and the real estate community. All three stood to financially gain from such a perception, and they did, in ballooning taxes, broker fees and real estate commissions.

- People trust government, particularly when it comes to spending on education. Sounds naive, but it's true. So when Harris County says they've got to build umpteen more schools and improve umpteen more, folks generally buy in. This has been the norm since the end of World War II. And of course, your property taxes are only a piece of the education pie. No Child Left Behind pumps countless additional billions into a thoroughly corrupt and failing education system, with no end of expenditures in sight.

The ever-ballooning property tax base resulted in an orgy of school building, school expansion and school remodeling. After all, they had to spend that extra booty on something. Schools that are less than twenty years old are routinely torn down and replaced. Schools are larded down with state of the art computers, audio/visual equipment and pricey furniture and appointments. The new schools being built have monstrous stadiums and concert halls, big enough to rival those of many universities, and in the present environment, cost has been no object.

So the pattern has been a) to ride an irrational market for tax monies they didn’t deserve; b) throw in wildly inflated appraisals, even during a down market; c) rig the system so that only those who took the time to fight the authorities got any relief, and d) spend all the money.

With this mentality, is it any wonder, then, that brokers took these appraisals at face value in fashioning and reselling derivative packages of mortgages? Local taxing authorities across the country were milking property owners like cows, and property owners - by and large - let them get away with it. Technically, homeowners were validating that the inflated home values perpetuated by tax and spend government apparatchiks were for real. And if they were for real, their mortgages were ever more secure, and derivatives packages were ever more secure too.

Using Property Tax assessments as a microcosm of everything that's wrong with our tax policies, I've been amazed by the lack of scrutiny of our government official's decisions, but equally amazed by their lack of discretion. As keepers of the public trust, it was incumbent on our elected officials and government employees to make fair assessments of property value. Instead, they jacked up values across the board, and then fought to hold onto their ill-gotten gains, one homeowner at a time. In point of fact, they had every reason in the world to jack up the values of all homes, since this meant a larger tax base, more power, more job security, more money for them and their cronies, in short: more of everything.

This reveals the essential dishonesty of our government officials. More to the point, the skyrocketing price of homes should have been viewed for what it was: inflation. Had our fearless leaders viewed it from that perspective, they'd have seen it for the liability it is, not the asset they so desired it to be.

So, what has it cost us? If you estimate that 100 million homes were all overvalued by at least 25% in the past 15 years, with the average price of a home at $125 thousand, that adds up to a capital loss to homeowners of over $3 trillion dollars. At a .015% tax rate on the valuation of all homes, the authorities are taking $187 billion in property taxes every year that they don't deserve, but have already spent, now and for years to come.

That's almost a thousand dollars per household, and that ain't chump change.