Truth in Taxation is a Big Fat Joke

The lack of political backbone when it comes to the need to raise the revenue (i.e. taxes) required to cover expenses is all too common in American government

Sep 15, 2023

Local governments and school districts are finalizing fiscal year 2023-24 budgets and tax rates in my neck of the woods right now. And it makes me want to puke.

My stomach turns not because the votes are occurring, but because so many folks flat out are unwilling to tell the whole truth about taxes. This isn’t just a local problem, either. Very few politicians at any level — local, state, federal — have the courage to be fully honest about revenue requirements and impacts. It’s no wonder people worldwide now see government institutions as the leading purveyor of false or misleading information (here's my post on that sad fact). My fervent prayer for you, dear readers, is simply this: Be strong enough to be honest and treat people like adults.

Here's the simple but apparently hard truth. Running the government requires streams of revenue to pay for ongoing services and capital costs. Full stop. Here's another simple but depressingly hard truth: Few are willing to admit that, or they would like you to believe it's the other guy who should be contributing to those revenue streams.

Call me naive, but is it really that hard to get up on your hind legs and tell the freaking truth about the basic business of governing? Apparently, it is. Or maybe it’s just easier to shade the truth or hope no one understands the numbers anyway. Either way, we’ve got a massive truth deficit and it’s impacting our actual deficit (on the federal level, see below) and our ability to govern effectively at the local level.

Let's start with local tax rate deception — as well as an example of folks doing it right, in true GGF spirit — and work our way up the food chain to state and federal obfuscation and pandering on taxes. We’ll also share what I think is a great idea to explain federal spending at the end.

Local

Let’s start with a disclaimer: These budgets are complicated, with multiple revenue streams. There are property taxes, sales taxes, hotel occupancy taxes, franchise fees, service charges, program revenues, capital leases and fines and forfeitures, just to name a few. Did I mention the budgets for water, wastewater, stormwater and other utilities? It’s a lot. I get it.

In Texas, where I live, the state government requires taxing entities to post what are called Truth in Taxation notices. The goal is to help the public understand what’s going on with tax rates. Here’s what one looks like (thanks to my former employer for providing this):

But wait, there’s more! Here’s page 2:

second page of a property tax notice for a city

While that’s way more than I think the average citizen can digest, I must give Texas state politicians some due. These notices used to be exquisitely bad. In fact, one year we actually paid to place an ad in the newspaper next to the required notice — which said taxes were going up — to explain that taxes really weren’t going up. I am not making this up.

Still, I think most folks struggle to understand the explanation of the No-New-Revenue Tax Rate in this notice. That said, I truly believe the most relevant property tax rate information is included in the table at the bottom of page 2. That is, what does the owner of an average value home pay in property taxes this year compared to last year.

Many cities don’t like to share that information. They’d rather tell citizens only about how much the tax rate is going down. They love to brag, “We’ve lowered the tax rate for the past X years!” While that’s technically true, it doesn’t tell the whole story. There’s an inverse relationship between property values and tax rates. So, while the property tax rate is indeed going down, many property owners actually pay more because their appraised values have gone up — in some cases, way up. That’s typically because economic growth (a good thing IMO) is driving up demand for real estate.

But the cowardly won’t tell their citizens that. They won’t explain there’s a price to pay for the new police officers, firefighters and fire stations (boy are they expensive to build, equip and maintain!) parks maintenance crews, fleet mechanics and all the rest required to maintain quality of life in a growing community. They want people to think they’ve “lowered taxes” and declare themselves heroic for such fiscal fortitude.

Some cities are downright smarmy on this point. I watched a City Council meeting where the Mayor asked the Finance Director if the City had again “lowered” taxes. She said they had. “We did it again, huh?” he offered in mock humility.

Later in that meeting, during the public hearing, a citizen spoke and lavished praise on the City Council for “lowering taxes.” He said, and I quote, “I’m so proud of you for lowering taxes and returning the money to where it belongs. Honestly, all of you belong on Capitol Hill, not here.”

This is where I threw up a little bit in my mouth.

To find out if this city was actually lowering tax payments, I turned to its budget book. Buried on page 113 of a 366-page budget document (beautifully designed, I might add; even slick, one might say, with lots of impressive charts and graphs), we get to the actual impact. The tax bill for the average value home is going up $30 this year.

WHY NOT JUST 🤬 SAY THAT!?!?!?!

Here’s a snippet of what the media reported about this city’s budget.

Notable increases include:
Community services will increase by 16.5%
Parks and recreation will spend 21.3% more
Library services cost will be up 23.4%
Facility maintenance costs will increase by 120.7%

I look at those percentages and think, “My god, what a great job by the City to deliver so much more this year for a mere $30 property tax increase!” Seriously. Is it really that hard to be honest? Yet, I see it happen year after year in lots of cities that I believe are truly well run and yet … they just can’t bring themselves to tell the whole truth on taxes. Maddening.

I think it hurts our credibility to not be fully honest about this. Because when we say, “we’re lowering the tax rate,” what I think people hear is, “we’re lowering taxes,” and that’s just not true. See the quote above from the citizen at the budget public hearing. But those tax bills will show up in a few months, and property owners will see they are paying more. And they’ll tell themselves, “Those 🤬 lied to me.” Don’t be an 🤬.

Refer a friend

The good folks at the City of Freeport, Texas, apparently chose to be straightforward in their budget explanations. Here’s the lede from their local newspaper, The Facts:

After the conclusion of the city’s second public hearing regarding the fiscal year 2023-24 budget, the City Council approved a budget that will see a slight reduction in city property taxes for the owner of an average-valued home.

Here’s more from story, which reflects local government officials being candid about their tax proposal. (And I would guess this isn’t the first budget rodeo for the reporter.)

Following approval of the budget, the council next turned to the proposed tax rate of 53.3 cents per $100 of assessed valuation.
(Finance Director Cathy) Ezell told the council the tax rate is down from the current year’s 60 cents per $100 of assessed valuation.
“Because market values went up, we have to say we’re raising taxes,” Ezell said.
The value of an average home in Freeport increased by 11.74 percent, but a lower tax rate will keep a homeowner’s bill relatively flat, according to numbers from the Brazoria County Tax Assessor’s Office. …
According to the assessor’s office, the average appraised value of an average value home in 2022-23 was $88,993 for which the owner paid $533.96. The average home for the 2023-24 tax year was $99,438 with the owner’s city share of their property tax bill amounting to about $530.

Kudos to you, Freeport! No need to play smoke and mirrors over a freaking $3 a year tax increase!

Pro tip: Be patient with the reporters covering your budget and tax rate. Many of them are morons when it comes to numbers (though not the reporter from The Facts). I know, because I was once a moronic city hall beat reporter who couldn’t multiply nor divide his way out of a wet paper bag. Many of us got into journalism because we are so math challenged. Words, we like. Numbers, not so much. Take the time to walk them through the numbers and let them know there are no stupid questions. Lots of hand holding will likely be required, especially if they are new to covering local government.

In my research for this post, I came across what I believe to be the worst three paragraphs ever written about a local budget. No amount of well-intentioned coddling could have prevented this, I suspect. Here’s the lede from a budget story written just a few days ago (the names have been changed to protect the innocent):

City Finance Director, John Doe, revealed numbers and line items about the proposed city budget on Tuesday. His presentation was fraught with details as smooth and manicured as a golfing green, each element passed by the City Commission in a 7-0 vote.
As reported in The Local News two weeks ago in a pre-budget story, the City has reduced property taxes from .694 per every $100 in evaluation of appraised property value to .664, or three cents on every $100. The City was able to reduce the amount and still keep within the new budget.
Property taxes were first set by the Ellis County Appraisal District.

First, I’m a golfer, and I have no idea how a budget presentation “fraught” with details in any way conjures an image of a golfing green, much less a putting green. Second, I’m not sure what a “pre-budget” story is. Third, appraisal districts set property values, not property taxes. The rest of the story was behind a paywall. While I was understandably curious to see how much worse it could get I could not in good conscience pay to support journalism that godawful.

Of course, there’s lots of great communication about local budgets that happens, too. In fact, I wrote about just that here and here.

State

I write about what I know, so you’re gonna get my perspective on the Texas Legislature and its approach to communicating about budgets and taxes. It’s godawful as well. Unfortunately, I do have to pay for its drivel as a citizen of this otherwise great state.

I referenced the Truth in Taxation notices above, which the Legislature requires cities to publish. Like I said, they used to be downright misleading. Now, I think they’re merely obtuse. But I really don’t blame legislators for doing what they can to get local governments to be fully transparent about the impact of property taxes (See entire section above.)

But state folks also fail to be straightforward with taxpayers. Exhibit A is certain state senator who has maligned school districts (and cities) for years for their “out of control” property taxes. Funding for Texas public schools comes from three main sources: local school district property taxes, state funds, and federal funds. Most funding comes from local property taxes, which are collected by school districts, and state funding. School districts were forced to begin collecting significantly more property taxes in 2010, when the state began to decrease its share of funding. In 2009, the state share was 44 percent. By 2017, it had declined to 34 percent1. The state’s population grew by a little over 3 million people over that time span2. Given that around 19 percent of the Texas population is between 5 and 173, that means 570,000 more students needed teachers, facilities, books, etc. The money had to come from somewhere, and local school districts can’t force the legislature to give them more money.

The aforementioned state senator never seemed to acknowledge the declining state spending on education — something in his bailiwick — instead pointing at cities and school districts for taking advantage of increasing property valuations to “hide” tax rate increases. He wasn’t completely wrong in that criticism (See section above). Yet, it was only when the state had accumulated significant fund balances — i.e., they had collected waaaaaay more revenue than anticipated — and could afford to easily fund “taxpayer relief” did he acknowledge the state had not been doing its job. Yet another profile in cowardice.

The good news is, there was some actual property tax relief. Bad news is, the state Legislature continues to make it increasingly difficult for local governments to raise revenue to fund the services required to maintain quality of life in our growing cities. Our state leaders suffer from the Goldilocks syndrome: they believe the federal government is big and bad, municipalities are small and bad, but somehow state government is juuuuust right.

Now, about that big and bad federal government.

Federal

I’ve saved the worst for last. There’s yet another looming impasse in the U.S. Congress about funding to keep the government functioning past Sept. 30.

I won’t get into the political battle heating up over that one (it’s too depressing, frankly), but I will share bits of a long piece in the Wall Street Journal that describes the problem I’m getting at with this post. The headline: Tax Cuts Are Here to Stay — and So Are Exploding Budget Deficits. The subhead: In recent decades, Republicans and Democrats alike have been reluctant to raise taxes on the overwhelming majority of Americans, or to curb spending.

This chart sums up the problem.

Even a journalism major like me can understand that chart. Spending is higher than revenue, and thus the deficit is growing. Shouldn’t someone do something about that? Isn’t that the height of irresponsibility? Where’s the political backbone to make the hard choices to either raise revenue, cut spending or do a little of both?

Nowhere, apparently. From the article:

“We are at a political equilibrium where both parties compete to pander for middle-class and professional-class votes by promising them endless spending and taxes that can only fall,” said former GOP Senate aide Brian Riedl, now at the conservative Manhattan Institute.
Tax cuts haven’t just benefited the wealthy. The effective tax rate—federal taxes as a share of income—on the middle 60% of the population fell from 19% in 1979 to 14% in 2019, according to the Congressional Budget Office.

There used to be more responsible folks on Capitol Hill. Again, from the article:

Had Congress left 1997’s tax code alone, households would pay an average of nearly $3,200 more, a 4.4% decline in after-tax income, according to the American Enterprise Institute. This year’s deficit would be about 40% lower.
Instead, the deficit this year is projected at over $1.5 trillion, or about 6% of GDP, and is expected to reach 7% by 2033. Federal debt as a share of the economy climbed from 33% in 2001 to 97% in 2022 and is projected to hit 115% in 2033. And that’s assuming the tax cuts expire after 2025.

So what should be done about this? Glad you asked. As you know, I’m a fan of simple when it comes to talking budgets and numbers. We taxpayers should demand a change, but we taxpayers are woefully uninformed. When the debt ceiling debate was happening in January, I came across an article in The Dispatch that laid out the problem.

Americans generally do not know how their tax money is spent. Worse, they think they know: Polls have shown that Americans consistently overestimate foreign aid spending, with the average respondent guessing that the U.S. spends 25 percent or more of its tax revenue on foreign aid. (The correct answer is 1 percent.) American voters also believe that children, working-age adults, and seniors receive the same share of federal spending, whereas the reality is that seniors receive more than half. More recently, a talking point on the right is that the U.S. should balance the budget rather than provide aid to Ukraine. But the U.S. allotted only $50 billion for Ukraine in 2022, compared to a $1.375 trillion deficit the same year.
This lack of understanding has a great impact on the political debate.

Indeed. The author, John Gustavsson, has a terrific solution to the problem: Give taxpayers a receipt. He continues:

When voters don’t understand how their tax money is spent, their fiscal political priorities become misguided. This influences their voting, encouraging them to elect representatives who champion symbolic sending cuts rather than structural reforms. Voters who believe that foreign aid, or Ukraine assistance, or education make up such a great portion of federal spending that the budget could be balanced if they were cut, are very unlikely to support the kind of entitlement spending reforms that will be necessary to balance the budget long-term.
What if the IRS sent back a receipt to each taxpayer, showing how the tax money they personally have paid over the year has been spent? Here’s how it would work. The receipt would show much an individual taxpayer had contributed monthly and annually to each federal spending area. Since the government already knows how much each person has paid in taxes, and how much it spends on different areas, creating this receipt is actually rather straightforward. Suppose a taxpayer has paid $10,000 in federal taxes (including payroll taxes) over the year. This taxpayer’s receipt might look like this:

That, to me, is what good government looks like. That’s innovation worth pursuing. It’s profound in its simplicity. Will our elected heroes in Washington D.C. actually seriously consider such suggestion?

🤬 no.

Yet, I remain optimistic about our ability to govern ourselves despite the above litany of examples of why I shouldn’t feel that way. I truly believe we can turn the tide of cynicism and distrust in local government. If you’re on Team Optimism, I highly recommend checking out SGR’s Servant Leadership Conference coming up January 25-26 in Dallas. (Full disclosure: I do consulting and contract work for SGR.)

Fuller disclosure: The primary reason I love working for SGR is that its values align with my own. So, I’ll leave you today with SGR’s 12 Principles of Servant Leadership. I do so not because I work with them, but because we all could use the reminder of what true leadership is all about. I read it and feel good about what’s possible in local government.