Why property taxes always go up

Texas has high property taxes. That's a predictable tradeoff for a state without an income tax. Property taxes are the main funding source for local governments and they have become a pretty significant funding source for state government. If you live in the Austin Independent School District, roughly half of your school district tax is essentially a state property tax that the state uses to fund education.

Is this heavy reliance on property taxes a bad thing? Reasonable people can disagree.

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On one hand, property taxes are on average a progressive form of taxation. People with more expensive homes tend to be wealthier. Indeed, property taxes are the closest thing that exists to the type of wealth tax advocated by the likes of Bernie Sanders.

In theory the property taxes increase along with your property wealth. The problem is that it's not a form of wealth that you can easily access without forfeiting your home. It's not like a stock portfolio, where you can instantly liquidate 1/20th of it if you need some cash.

(That being said, one of the under-appreciated aspects of the HOME zoning reforms is that it makes it easier for some people to monetize parts of their property, either by building another unit on their lot or by simply selling off a chunk of it to someone else to build on it)

It feels particularly unjust if your property taxes are rising and your income is stagnating or falling. If you lose your job, your income tax bill will go down but your property tax bill will still probably go up unless you move to a cheaper home. This is why property taxes can be particularly hard on seniors living on fixed incomes (although in Texas your school taxes are frozen at age 65 & the city and county provide additional homestead exemptions to seniors).

It's the revenue, not the rate

The other thing that prompts confusion about property taxes is that the actual tax rate changes every year. Not everybody is aware of this, of course. Based on my conversations with many-a-normie, some assume that like the income tax or the sales tax, the property tax rate is fixed. They therefore imagine that if their home value decreases, so will their taxes. Similarly, they imagine that if home values across the city are skyrocketing (like they were a few years ago), the city government must be awash in cash. Neither are true.

What I try to stress to people is that the tax rate doesn't really matter. I can assure you that very few, if any, members of City Council could tell you off hand what the rate is.

What happens every year is local governments (cities, counties, school districts etc) craft a budget and THEN set whatever rate is necessary to fund those programs. In recent years they have been sharply restrained by state revenue caps, which strictly limit the amount of property tax revenue local governments can collect each year. Specifically, a city or county can only collect 3.5% more property tax revenue for its operating budget from the same properties that were taxed the year before (in other words, new development is not part of the calculation). It doesn't matter whether property values skyrocket or plummet or stay the same.

Why the taxes always go up

With few exceptions, a local government's costs are going to increase every year. Once in a blue moon you might get a local government that decides to dramatically reduce spending or services, but whatever level of service they leave in place will become more expensive to maintain each year thereafter. For instance, the cost of paying and insuring 1,500 police officers goes up every year. So does the cost of maintaining Zilker Park.

So the only way your property taxes won't go up is if there is so much new development that the city doesn't need more revenue from the previous base of property taxpayers to cover its costs.

As a result, every year we hear about city government raising property taxes again and, without context, that feels really profligate and unfair. Why do they keep raising taxes??

But "raising property taxes" doesn't mean what you likely think it means. With most other tax increases (income, sales, capital gains), the government is committing to a larger share of the population's wealth. But in some cases a property tax "hike" takes a smaller share of your wealth than the previous year.

That's why I find this article in Austin Current somewhat beside the point. The claim in the headline — "Austin's property tax rate reaches highest level in a decade" — simply isn't important. That rate itself doesn't tell you anything about the tax burden. The actual tax rate in Kyle is higher and yet people will move from Austin to Kyle in search of lower property tax bills.

The bottom line is that the cost of government increases every year, just like most other things. Which is why every budget will be the biggest budget ever and every year city government will "raise" property taxes. Sorry.

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