Saturday, March 17, 2012
The Personal Benefit of Taxation
A good friend from the newspaper days moved away from the area nearly two decades ago, largely owing to the high cost of housing in coastal California. He and his wife settled in Davis, a university town down the road from Sacramento, but we’ve stayed in touch over the years. His most recent e-mail was an eye-opener.
Not all of it, actually, but the part about Davis’s recent parcel tax election. California’s public schools, once the pride of the nation, have been in severe decline for about 30 years now. That decline, however, has not been universal, and Davis is one of the outliers.
In a town of 65,000 people, where the largest employer is the University of California, you might expect the residents to be more supportive of education, and you would be right. The public schools rank among the best in the state, and one of the reasons is that residents have been willing to approve additional taxes to pay for them. In California, where almost everything requires two-thirds approval by the voters, this is by no means an easy undertaking.
Davis recently approved a parcel tax to support local schools (one of several passed over the years), and my friend had an interesting financial take on the whole process.
Houses in Davis command a sales price $100K or more than comparable houses in neighboring communities, he said, and the principal reason is that the schools are so good. People will pay a premium to live where that’s the case, and for those who are already there, it makes voting for a school tax a good personal investment.
My friend notes that if he pays a $500 parcel tax every year for 30 years, he’s out of pocket $15,000 — even less, considering that the taxes are deductible from federal income. If the result after 30 years is that he owns a house worth $100-200K more than it otherwise would have been, he’s come out way ahead any way you look at it.
There’s a lot of chatter among moderate and liberal pundits about the benefit of taxes as an investment in a better society, but this example shows how they can be a good personal investment as well. Simply put, when you invest in your community, you can reap tangible benefits in the form of better property values, lower insurance, etc. And better schools, of course.
The Davis model won’t work everywhere. In a large-city school district, where the operation is so huge that all elements of it are in competition with each other and where the sense of community is not nearly as strong, it’s hard to get any tax approved even if only a majority vote is needed.
Even in the school district where I live, with a population only a bit larger than Davis, taxes have typically fallen victim to forces of geography, race and age. (A significant number of retirees live here, and many of them figure they’ve already paid for their kids’ education and aren’t going to pay for anyone else’s. And if they expect to live out their time in the house they’re now in, they won’t be swayed by the property-value argument.)
A town as well-situated as Davis is on a near-perpetual roll. From the standpoint of personal financial interest, a family with young children would do well to pay the extra money to buy a house there and the extra taxes for the school. If it comes to $120K, that’s half the cost of private school for one kid. And that’s assuming you find a bargain. So does virtue propagate itself.