When you have high taxation and inflation, they add up to taxflation.
Most lawyers don’t understand business, and that is why governments don’t run well. Business is simple, you must “add value” to something and make a profit doing so. Lawyers skip that class and then run for office. When the politicians promise higher wages, what they just said is “we are going to create inflation”. When they increase taxes, they also increase inflation. I call that the worst kind of inflation, taxflation.
Profits = Survival
Lets take an example of a farm store or a small market like the one you find on many city corners. The owner of the store, we’ll call the person “shopkeeper”, needs to buy a box of tomatoes to sell. Shopkeeper needs to make enough money on those tomatoes to pay the worker to get them, sort them and put them on the shelf. Shopkeeper must also pay for someone to collect the money, take it to the bank and pay for the tomatoes that go bad.
When the lawmakers say that shopkeeper must pay worker more, then shopkeeper needs to charge more for the tomato. It’s that simple. If property taxes go up, then the rent on the store goes up. Why? Landlord needs to pay their bill too you know. So even if worker doesn’t get more money, the shopkeeper may need to raise the price of the tomatoes anyway.
With taxes it gets worse. If property taxes go up, the farmer that grows the tomatoes pays more and must charge more. The truck driver has to pay more and has to charge more. The gas station owner has to pay more and charge more. Higher gas prices also mean the truck driver has to charge more yet again. Do you see how this all adds up to less money in your wallet?
Renters Pay Too.
Renters brag to me from time to time they live in a “rent controlled” place. While that all sounds great, the landlord has to either increase income to cover property tax increases or cut the costs of running the place. At some point the landlord can’t cut below zero. Is it fair for the landlord to lose money so a person can live in a rent controlled apartment? What if the landlords only income is from that apartment?
Do you really think the landlord should starve so someone can have fixed rent because someone else said so? That’s garbage economics. Don’t you want to have an opportunity to own property and rent it for a profit? Or any opportunity for that matter? You won’t see any of the big apartment complexes owned by the friends of politicians being rent controlled. It’s only the little landlords trying to use their first home for retirement income.
The fact is that if there is a waiting list of people who would pay more, the cities would be better off letting the landlords charge more. What scares landlords just as much is not being able to get a new tenant. More profits equals more taxes without actually raising taxes. That is Taxflation in reverse. Taxation plus inflation is Taxflation just like inflation plus taxation is taxflation.
The Easy Way To Stop Rent Increases
If you want to beat rent increase, buy a place. It is that simple. As long as you don’t use it like an ATM and take money out as the value goes up, your payment (kinda like rent) stays the same. If you don’t like your landlord, get rid of them and buy a place. I get it sacrifice will be involved, there is no free lunch, but time does reward the patient.
I have owned five homes around the bay area. Even with the market crash in 2006-2009, I was able to hold on, get all my “equity” back and then some. In fact when I sold the houses, I got all of my payments back and then some. That “profit” became my down payment for a nicer home. I effectively lived for free in California since I bought my first home in 1995. All thanks to increasing prices of homes. Don’t complain prices are high, just get in the market. Real Estate isn’t crypto, it’s real.
Renting is Making Them Rich
So many want to live in the perfect neighborhood right now. Our parents forget to tell us they grew up in a two bedroom one bath with four kids way across town. Thankfully my grandfather reminded me of that often. My first home was 2 bedroom 1 bath, 768 square feet just like his. We all need to start somewhere.
The best part of owning is that if you stay put, eventually you pay off the house and you have no payment. I highly recommend that 20-30 years before you plan to retire, you buy a place somewhere you think you might want to stay. No house payment is the secret to a good retirement according to the old men playing chess in the park down the street from my home.
Being a homeowner also helped me to understand taxes and how bad our government is at managing money. Don’t let them convince you taxes and higher minimum wage will make the world a better place. It is smoke and mirrors, and like paying rent, it never stops.
Prop 13 Isn’t the Enemy
Years ago I bought a house, and a neighbor tried to get me to support a school bond. This would mean a tax on top of my property taxes. The neighbor claimed Prop 13 was killing the schools. I did some digging and California’s crazy real estate market turns out to be a gold mine for local communities. Nevada taxes 35% of the market value and cost to rebuild. In California your taxes are set when you buy a home.
Since I had just moved in, I found that I now was paying 10 times more in property taxes than the previous owners. I had no children and neither did the former owners, and the school district just got a 1000% increase in income because I was new to the neighborhood. I started looking around and realized that 40% of the neighborhood had moved in during the previous five years. The National Association of Realtors says that five years is about how long most people stay in a home. Taxation and inflation is part of the taxflation driving home prices up.
Then I started looking at the school districts spending. They had been increasing spending 20% per year for the past 10 years. Somehow they still wanted more. I get 3-5% pay raises every year in my job. Thanks to the internet, my second job as a writer now pays about 1/3 of what it did ten years ago. Prop 13 isn’t the enemy, mismanagement by our school boards and politicians is. That is why California is the leader of the taxflation state economy.