The Coming Tax Revolt (Reprised)

By Dave Anderson:

I wrote this piece at the end of 2007 before the craziness of the 2008 Democratic Primary cycle, and I think it stands the test of time very well:

I am fairly confident that a Democrat will win the White House and
Democratic majorities in the Senate and the House will be maintained
and most likely expanded in both. However as Stirling Newberry noted
a few days ago, the Democratic Party is running as competent
technocrats without seeking to diametrically upset the dominant
paradigm:

all three top Democrats are proposing
health plans which are to the right of what Mitt Romney signed into law
as the Republican governor of Massachusetts, and to the right of what
Richard Nixon proposed almost 40 years ago as a Republican President,
then it is clear that change is what you have in your pocket, and it
isn't worth much.

As a short term strategy, this probably will work as a 'Not Republican'
is a decent qualification for public office, but as long as we stay
within a mindset of zero-sum gamesmanship, reactionary and exclusionary
politics is a much stronger hand to play as it is easier to assemble a
narrow coalition to protect fixed slices of the pie.

And as an
intermediate term strategy this is a good way to reap a tax revolt
within the next couple of years as the politics of pain will be too
strong and the palliative of short term relief will be tempting; thus
the symptoms of the underlying problems of short term perverse
incentives, decreasing cutting edge productivity, loose credit and
perpetual debt will be address without actually changing the actual
structure of these trends.

I wrote in November that the local politics of housing and taxes will get increasingly nasty as there is a significant concentration of pain.

if
you live in Pittsburgh like I do, the crushed speculator demographic is
minuscule and politically irrelevant. However if you live on the East
Coast, in California or on the Florida coasts, this demographic is
going to be fairly large, and fairly loud because they are in
significant pain

The concentrated dynamic of pain will
produce people seeking anything that can shift some of their costs to
someone else even if the long term trade-offs are remarkably poor as
long as the short term breathing space is created in which a bet for
improvement can be made:

People who are stuck with
mortgages and houses that they can not sell, refinance or service will
be looking for help. They will be looking for refinancing deals,
special breaks, holds on foreclosures, delays on credit reporting, and
most significantly at the local level, assistance on minimizing the
quasi-fixed costs.... and most importantly, constant and downwardly revising re-assessments without concurrent increases in millage rates......

Mish at Global Economic Analysis has flagged an interesting Yahoo article that is describing the start of the tax revolts as highly likely voters are seeking relief on their property taxes.

Falling
home values and rising property taxes in many parts of the country are
generating the loudest complaints about property levies since the
1970s, forcing state and local officials to address the outcry even as
the housing-market slump eats into many sources of their revenue.

Indiana
residents held public protests this summer against a surge in property
taxes and acted on their frustration by ousting the mayor of
Indianapolis. Florida voters will decide next month whether to adopt
massive property-tax cuts, in a debate that has pitted part-time
residents against full-time Floridians....

In Florida, where the
falling housing market has gouged the state's economy, residents are
debating massive property-tax cuts that will be voted on Jan. 29.
Implementing the proposed changes would require amending the state's
constitution. The plan, which strongly favors longtime homeowners over
new buyers and part-time residents, has sparked opposition......

Across
the U.S., concerns about property taxes have reached levels not seen
since the passage of California's Proposition 13 in 1978. That landmark
law capped property taxes at 1% of assessed value and said the base
assessment on a home couldn't increase more than 2% a year until it is
sold. A companion initiative, Proposition 8, allows homeowners to get
assessments temporarily reduced during a weak housing market, until
home prices recover.

The long established and previously protected are
core voters and it is their power and interests that politicians cater
too. Ian Welsh on the French elections noted that Sarzoky was elected
by the death bet crowd --- the costs of their choices would be paid by
others after they die:

the old folks telling the young
folks that the protections the oldsters enjoyed their entire lives; the
easy jobs they enjoyed their entire lives; are being taken away. It's
real easy to vote for tough medicine for someone else, and that's what
just happened in France.

Homes are the primary asset for
most people, and right now homes are under systemic threat as a symptom
of a greater problem. People want to make that pain go away without the
costs of fixing the greater problems, and engaging in a local
government financial death spiral and micro-local education arbitrage
seems like a decent short term fix, so we'll see a full scale tax
revolt in 2010 or no later than 2012 as the last round of housing
bubble junk Option ARM mortgage resets will be hitting in 2010/2011 --- what we are seeing now is just the tip of the iceberg....