The true test of who owns something is what happens to it when you stop making payments. If you stop making payments on your mortgage, the house reverts to its rightful owner, the bank. In the event that the mortgage is paid off and the resident actually has physical possession of the deed, he still has to pay property taxes. If he stops paying those the property will be seized by its rightful and true owner which is the state government. In truth, a deed carrying "homeowner" actually owns nothing. In fact, quite the opposite. Homeownership actually means a person has signed up for a lifetime debt (annual taxes) which can never be paid off. For my modest house in central Texas, that's $5k per year. If I live another 30 years that's $150k of guaranteed income to the state. Call me crazy, but $150k should buy a modest house outright (at least in Texas). So government basically wants me to buy it a home in exchange for letting me live in my own home for the rest of my life. And of course, taxes will go up with inflation so that's $150k minimum and probably more like 200k before it's all over. That's a disgusting racket no matter how you slice it.
If I buy a car then it is mine. I no longer have to pay anyone to keep it (ignoring the annual safety check and registration fees). But I can never own my house outright. There will always be some feudal government lord demanding annual tribute for me to live in his house on his land. The hypocrisy of GW Bush and his "home ownership society" was amazing to watch. Yeah, I know that property taxes are collected by the state and not the federal government but at some point government is government. When the states begin to go bankrupt it is certain that they will be seeking federal bailouts. You can slice it and you can dice it but it all ends up in the same stew pot in the end.
Mish points out that real estate taxes are especially onerous to people who are not working, particularly the elderly living on a fixed income such as social security. When folks find themselves in this position they learn to cut costs to live within their means. We've all heard of the joke about old people eating dog food because that's all they could afford. But property taxes are very difficult to cut and they just seem to go up each year. The only thing many older folks can do is sell the house which they worked their whole lives to buy and go live in something smaller (or increasingly, on the street). It is very difficult to get by without paying some form of property tax. You might as well call it a living tax because most people will have to pay it as long as they are living.
Government does need to raise taxes to provide reasonable minimum services but these taxes should be collected through consumption taxes (sales taxes). That allows old people who do not have a job or a fat government pension to continue living in their homes. It's also a way for people to vote on how big their government should be. If government just hands you a property tax bill each year and demands payment under threat of taking your house from you then how do you tell government it is too big? How do you tell them they are trying to force you to consume "services" that you don't want? How do you tell it that it is gluttonous and wasteful? The only options are to contest your taxes (which only works if you hire a lawyer anymore) or to move away. In other words, there is no feedback loop built into the system. This is how government is allowed to run wild. However, if the taxes were built into the consumption of nonessential goods and services then when the people decide to cut back then it sets a clear signal to government that it must cut back as well.
Under the system of consumption-only taxation government revenues must be "smoothed". That means government must save money when tax revenue increases above the mean in a strong economy so that the excess can be used in a weak economy. But over time, the government must right size itself to what the people are willing to pay. Just forcing additional useless services upon us which are performed by people who will end up with big pensions that the rest of us won't get is a scam.
Now if you think the people of North Dakota are making a big mistake in trying to move property tax over to consumption items, think again. In fact, I predicted that this beggar thy neighboring state behavior would begin to happen as state economies failed to recover. I wrote:
"We are now in a very unique time here in the US. This will likely turn into a big state vs. state struggle for survival. The states with the best overall tax revenues will win and they will only win by stealing the best jobs and workers from neighboring states. The way they will generate more overall taxes is to cut individual taxes and to make it up in volume. That means that states will have to engage in beggar thy neighbor policies, providing all manner of long term incentives to attract businesses and workers."
To quickly recap, all future value comes from the labor of people. Leaders of the smart states understand this and so they are taking on policies to attract people (taxable headcount). Leaders of dying states have not woken up to this fact yet and they are trying to maintain the status quo even as people flee for the borders. Conversely, in Utah they are trying to make gold and silver coins legal tender again. Do you think they are doing this for the Hell of it? Of course not! They are doing it to attract and retain the best working population because only prosperous workers can pay taxes. The North Dakota move may sound like a tax reduction effort but it's not. It's a move back toward honesty and decency and it is really being done in order to attract the best and brightest workers from other states which have not figured out the beggar thy neighbor game yet. I expect to see states all over the union offer better and better deals as time goes on just like used car salesmen do when customers become scarce. They know (or will quickly figure out) that they have to compete for your presence because governments have no money except that which they can fleece from their subjects.
Signs of winning states in this battle over you:
- Intelligent government spending cutbacks, avoidance of punitive cutbacks (i.e. cutting important stuff first and leaving the fat intact in order to punish tax payers for dissenting)
- More freedoms, especially of the constitutional variety (right to carry firearms, open carry, etc.)
- Demilitarization of police forces. Remove the Gestapo uniforms, jackboots, and storm trooper gear and remake their police into "helpful citizens with badges" again like it used to be.
- Shoving the far left and the far right into a hole. Moving away from dem vs. GOP because that is just a trap used by corrupt governments to divide and conquer unsuspecting citizens.
- Honest and transparent government accounting. Adherence to a strictly balanced budget. Avoidance of debt. Elimination of off balance sheet budget tricks.
- Return to honest money, perhaps even state currency backed by commodities like gold and silver.
- Actively courting business from other states through means of lower taxes and less union control. For example, Caterpillar is located in Illinois and its CEO is being actively pursued by other states who are trying to convince him (and all those fat corporate jobs that will come with him) to flee the recent Illinois tax hikes by moving into their states where taxes are lower. Tangental note: if we ever allow one world government there will no longer be any ability to vote with your feet like this.
- Perpetually declaring a crisis in order to try to scare the people into agreeing to ridiculous crap.
- Ignoring the exodus of educated productive people, business owners, etc. who have given up trying to change the system and have decided to vote with their feet.
- Insisting on keeping a level of government that can no longer be afforded given the ongoing collapse of the global debt Ponzi. Inability to make quick, intelligent, accurate cuts in headcount and spending.
- Lack of political will to rein in ridiculous pension abuses. I'm very sorry but no government employee has ever contributed enough to society that the private sector should pay him $50k or more each year in pension benefits (including salary, medical benefits, everything).
- Allowing politics to drive financial decisions.
- Adding more laws, restricting freedoms, creating more claims on people's wealth in order to make up for all the people who are leaving.
