There is an abundance of evidence that budget problems from the federal government down to cities and townships are caused by excessive spending. Despite that, some statist pundits still try to tell us that we are under-taxed. The Houston Chronicle adds to that chorus. It has an article that tries to blame the city’s budget problems on tax cuts during Mayor Bill White’s years in office from 2003 to 2009:
The city of Houston’s budget crisis that has resulted in 747 employees getting pink slips last month and likely will close pools and community centers did not happen overnight. It has been brewing for the better part of a decade, the result of, among other things, spending more while taxing less, borrowing to pay bills, raiding its piggy bank and channeling ever more payroll dollars into funds for retirees. … The city cut its tax rate five times in six White budgets. The cuts reduced the tax rate nearly 2.5 percent. That would translate today to about $20 million a year.
A look at Houston’s finances over the past few years rapidly puts the undertaxation myth to sleep. Here is a rundown of the city’s revenue increases over the past few years:
FY 2008: +6.8 percent
FY 2009: +4.5 percent
FY 2010: -5.5 percent
FY 2011: +4.3 percent (estimated)
FY 2012: +7.7 percent (budgeted)
The city has a good track record of accurate budgeting, so the +7.7 percent figure for 2012 is very likely going to materialize. This means that with the exception of 2010 and the bottom of a bad recession, the city is seeing revenue increases far and above the salary advancements that regular Americans (normally) get. It is hard to take seriously any claim that the city has a revenue problem.
The average annual revenue increase is 3.6 percent, including the one single year of a revenue decline. Revenues are up even in the subcategory of general property taxes, which is where the aforementioned tax cuts took place. The increase is not as fast as total revenues, but 2.5 percent per year is good, especially when a recession is combined with a housing crisis and shaky real estate values.
What tax-me-more agitators do not realize is that tax cuts in one area, such as on property, has positive spill-over effects on other economic activities, also taxed by the state. A good example is the sales tax: when people have more money in their pockets because less goes toward property taxes, they increase their consumer expenses. Instead of buying a $100 TV they buy a $200 TV. Instead of $60 sneakers they go for $80 sneakers. Etc. All of this results in more sales tax revenues for the state, which again can be seen in the city’s budgets: sales tax revenues are expected to increase by 4.7 percent for FY2011 and 5.7 percent for FY2012.
To further drive home the point that Houston consumers are spending more as a result of lower property taxes, let us compare the actual revenue loss on property taxes vs. the revenue gain from the sales tax. In FY2011 and FY 2012 property tax revenues are estimated to fall by a total of $51 million. During the same period of time sales tax revenues are expected to go up by $50 million.
It is very unlikely that the city would have seen any uptick in sales tax revenues if it had not relieved property owners of some of their tax burden.
Other revenue categories indicate that the Houston economy is doing well. License and permit fees are up 22 percent over the past two years. When people want to start or expand businesses they need to file licensing and permitting applications with the city. A growth in revenues from such applications indicates that businesses have confidence in the future in Houston.
Part of what drives the choice of where to locate a business is – yes – property taxes. Again, the lower property taxes benefit the city budget.
Houston’s problem is not that taxpayers aren’t surrendering enough of their hard-earned money to the city. Its problem is instead one of excessive spending. In the FY2012 budget alone the city is planning a six-percent spending hike.
How many families can afford to grow their spending by six percent in one year? How many families grow their spending by six percent in one year and then, when their checkbooks run into the red, blame their employers for not paying them enough? Not many. We know how to be fiscally responsible. It is only fair that we expect nothing less of our elected officials than of ourselves. A first step is for them to acknowledge that government has a spending problem, not a revenue problem.
