The American Tax Revolt of 2006
By
William Cate

Taxpayers are like frogs. As long as their government slowly rises taxes, few taxpayers will jump out of the pot. Local governments have abandoned the keep the frogs' happy rule and taxpayers are jumping out of the tax pot in droves across America. The government's motivation is the fact that few government agencies even believe that they have adequate funds to fulfill their mandate. Of course the bureaucrats concept of their mandate is usually at wide variance with the taxpayers understanding of the purpose of the tax. The justification for the rising property taxes is the housing price boom of the past few years.

In Oxford, NH, a local resident buys a tin-roofed hunting cabin with outhouse for $10,000. The outhouse has a terrific view of the mountains and the local tax assessor values the property at $200,000, based solely on its scenic mountain view. On the Nevada side of Lake Tahoe property taxes have risen by 135% in the past four years. This means that a homeowner of a 5,000-square-foot house is now paying $80,000/year in real estate taxes. The fact is Tahoe property values have gone up by about 80% around Lake Tahoe as property taxes have jumped 135%. Tax revolt is the inevitable response to runaway taxation.

In over 20 States, ballot initiatives and taxpayer lawsuits are on the agenda. These efforts reflect both residents' distrust of how their property-tax dollars are being spent and public concerns that include the fact that rising real estate assessments are driving working-class people and older Americans, living on fixed incomes, out of their long held homes in popular towns and cities across America.

Local and state governments are increasingly reliant on property taxes as their primary tax revenue stream. Last year, those governments collected $339 billion, according to the Census Bureau, some $2,750 for every home in America.

South Carolina recently passed a law that caps the increase in property assessments at 3% per year. Many Georgia lawmakers are backing a measure to put a similar 3% cap in that State's constitution. Idaho lawmakers are mulling over eight bills limiting property taxes. In Connecticut, state officials have ordered cities and towns that have seen property tax spikes to calibrate disputed assessments to "comparable" properties, based upon records of recent sales.

Tax caps are not new. In 1978, California's Prop. 13 initiative capped annual tax assessment increases at 2 %/year, until the property is sold. California counties have responded by radically increasing fees, fines, licenses and other local assessments. The result is that a California homeowner can pay more for the fee to repair or improve their home than it will cost to do the work.

The initiative response in San Mateo County, the home to the northern end of the Silicon Valley is to put two measures on the local ballot. One would require that all County agencies post their books weekly to a publicly accessible website. The other measure would subject all fees, fines, licenses and other assessments to majority approval of the voters of San Mateo County.

Property taxes, sales taxes, fees and related assessments are taxes on unrealized gain. The taxpayer lacks an offsetting revenue source to pay the tax, as with State and Federal income tax. Lack of disclosure of the use of funds combined with a lack of voter involvement in the tax decision means that local governments have no incentive to be efficient or responsive. Taxpayers don't see an improvement in local services as they watch their tax bite grow to unmanageable levels.

On the National level, tax policy has followed the frog motto. However, Government spending has been excessive. This excessive spending is a portent of future massive tax increases. I suspect that American voters will be in tax rebellion for most of the 21st Century. It's past due time that the American Middle-class considers the future U.S. economy and plan accordingly.

William Cate is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]