Organized Crime

The single most important tax reform of the 1980s was the indexation of the federal income tax to inflation and the reduction of the number of federal income tax brackets from fifteen to three. Prior to that, ordinary middle class workers were pushed up into higher and higher tax brackets by simply receiving cost-of-living pay raises. The result was that a couple of years of cost-of-living raises actually reduced one’s standard of living by diminishing one’s overall take-home pay after taxes, while enriching the state.

Under this corrupt scheme the Fed would print excessive amounts of money, creating price inflation. The inflation led to cost-of-living increases that in turn caused “bracket creep” and higher tax payments. The federal government’s budget became bloated while the taxpayers suffered. Politicians never had to take the heat for voting for tax increases; inflation did it for them. It was truly a form of taxation without representation (not that taxation with representation is any better).

The federal government is no longer capable of plundering the middle class in this particular manner, thanks to income tax indexation. But state and local governments do through the vehicle of property taxation. Every time property values rise, as they did in a major way in the first seven years of the twenty-first century, property tax revenues automatically go up without any politician ever having to vote to raise taxes. Property tax assessments do their dirty work for them.

So when the Fed’s expansionary monetary policy caused the real estate bubble, the extraordinary increases in property values were accompanied by equally extraordinary property tax increases. (After the bubble had burst, local governments were eager to raise property tax rates so as not to lose property tax revenue, which is determined by property value x tax rate).

For example, in Maryland local governments reportedly collected 35 percent more in property tax revenues in 2005 than they did in 2000. It is unlikely that the quality or quantity of government “services” improved by a third or more during that time. Citizens were simply paying over a third more for the same—or worse—“services.”