Tuesday, February 17, 2009

Taxes, taxes everywhere....

Well, not so much anymore. Here's the triple whammy facing states -

* Sales tax - Sales tax revenues are obviously directly tied to sales. They are the most basic consumption tax - buy a $500 grill vs. a $100 grill and you pay more tax. Buy a $1,000 flat screen and you owe $82.50 in tax, etc, etc. Well, some really connected sales tax experts are indicating that sales tax revenues are not just down, they are off the charts. States have already taken several stabs at cutting their budgets to catch up with falling revenues. I just don't think anyone is being honest with themselves as to how rapid sales tax revenues might be declining.

"Throughout the country, states are reporting historic weakness. One Midwestern state reported two months of double-digit declines, which just three months ago would have been "unthinkable." A small southern state reports that never before has an entire year fall below the prior year; they are currently down 5.7% for the year, and have to go back 35 years to find similar monthly weakness. Calling the holiday season one "large discretionary item," our contact in a large Midatlantic state reports that that item "imploded like never before" in his forty years of data. "Holiday receipts will make you say: OMG," he promised, even if you're too old to talk that way."

* Property Tax - I think we've covered this in various posts, but here's the deal - property taxes are a local issue, but as homeownership declines in the US and an increasing amount of commercial real estate comes off the tax roles, local governments are going to need help. They're going to turn to the states for help. I also pity the fools that reassessed every property in the US in the last couple of years - get ready for massive assessment appeals and tax rate increases.

* Auto Sales - I don't think this stuns anyone - auto sales have also fallen off a cliff. However, I'm not sure everyone connects the dots between an 8% sales tax rate and what a 40% decline in $35,000 cars means for the states.

"January's 9.5 million rate (for autos plus light trucks) is one of the lowest in history, but its earlier rivals were at times when the U.S. population was considerably lower than it is today.
January's rate translates into 31.1 units per 1,000 people, which is 3.5 standard deviations below the mean, and well below November 1970's 36.1, a dismal performance created not by economic weakness, but by a two-month strike at GM. It's also worse than the lowest levels of the 1973-75 and 1981-82 recessions (40.8 and 38.3 respectively). It comes after a 17-year period when there was basically no auto recession. But the contraction has hit suddenly and hard: sales were 50.3 per 1,000 in February 2008."

Source: SafeHaven

********************************************************************
In a related story:

As commissioner David Stern warned at All-Star Weekend, the NBA is bracing to have the salary cap (and luxury-tax threshold) go down this summer for the first time ever. The picture might be even gloomier in 2010.

With season-ticket renewals expected to plunge because of the weakness of the economy, some league executives expect the cap to fall significantly, which could have serious ramifications for a number of teams.

Cheers!

2 comments:

Anonymous said...

I wonder if the mortgage principle writedown amount is going to be public knowledge by house? Say for example you live in a town or neighborhood where they built a new subdivison and sold the houses to a bunch of people for $400,000- each. Now in many cases there were 4 types of buyers.

1) The regular family who wanted a nice home, had good jobs and were forced to pay $400,000- for a $250,000- home becuase of B & C & D, but can cover the mortgage and taxes anyway.
B) The buyer who was way overextended and tried to buy a home but got in over his head by over-reaching on the home, and/or started with an ARM thinking it would work out in the end due to some property appreciation, and or better job prospects in the future.
C) The speculator who bought regardless of the price, thinking they could always rent out the house until it appreciated to an amount where they could "Flip it" for a tidy profit.
D) The scum bag shill buyer working in conjunction with a scumbag lender working with a scum bag builder who dummied a payroll history for the sole intent of turning a house that didn't need to be built, to skim some fees, knowing that the buyer would only stay in the house until they were kicked out.

The question is, when B, C, D, have their mortgages written down by as much as 50%, will that information be made available to A, so that his property taxes will be reassessed not on what he may have paid for his house, nor even what the neighbors paid. But instead for what the federal government has determined the house to be worth at this time?

Tax assessors have available and mortgage filings make it known what houses sell for. Will we all have the reverse information available to us for the writedowns?

The reality is, that towns could of course raise the rate if they have to roll back values, but I don't think it will be as easy as that.

People often times don't mind some bracket creep in their property taxes, because they see it as their property increasing in value, and eventually they will recover some segment of that tax increase when and if they sell the house. If however the values have plumeted, and the assessment goes up, there will be a whole new dynamic in town and school budgets across the country.

The Artful Blogger said...

I think your question is a good one and unfortunately I don't think we'll ever know who gets a bailout and who doesn't. This is part of the problem - when we're all not playing on the same field it's hard to create a sense of common purpose.

Property taxes might be the next great battleground. If a town received $7k in taxes for a house in 2007, but the house sells for 1/2 it's 2007 assessment - there are either two options for the town, accept the new price as the value and take $3.5k in taxes or double the tax rate to hold the line (how many local politicians will survive a 100% tax hike?).