Questions regarding Texas as a low cost low tax mecca (Houston: sales, rental)

[MINresident]

I have always been fascinated by what has been going on in Texas: people and corporations leaving expensive places like New York and California for Texas.

I have a few questions regarding this movement.

1) How does Texas get away with no state income tax? Less services? Higher property and sales taxes?

2) Are people in Texas really better off financially? After all, if salaries are lower than other cities in similar jobs, isn't the lower cost of living balanced out with these lower salaries?

3) Will Texas (Dallas and Houston) always be low cost? Given that significant numbers of people are moving to Dallas and Houston, won't this increase in demand lead to increased housing prices and hasn't it? I mean, who's to say what happened in New York or Los Angeles or Chicago won't happen to Dallas or Houston? If housing increases, it can have a drastic impact on the economy since property taxes would also increase leading to people entrenched in homes they can't afford which means less spending. And then, salaries would have to go up to compensate for this increase in cost of living destroying the cost advantage of Texas. Will this happen in Texas too?

4) Will Texas avoid the urban decay issues that plagued the northern rust belt cities (abandoned and falling apart buildings, random pockets of nothing in the city)? After all, if cities like Dallas and Houston are expanding now, its safe to say that fifty years down the road, they could face the same issues if the buildings, streets etc fall into disrepair...I guess though it all depends on whether jobs stay in these cities and infrastructure is proactively updated.

I hope people will see these questions as me being curious in Texas and not a critique.

[L210]

Our sales tax is not bad, but some people complain about the property taxes. I don't own a house, so I don't notice. Texas also has sin taxes and the lottery. I forgot what the final number was, but we had a projected deficit of $15-27 billion. The legislature balanced the budget by cutting services. Texas has the highest percentage of people without health insurance and we also have a problem with food insecurity. I don't know where we're at now, but last year, we had the 6th highest poverty rate in the nation. Having jobs is nice, but we're also #1 for the percentage of people making minimum wage or less (tied with Mississippi). It's easier to be poor here, but poor is still poor and we have a lot of poor people. Our education system doesn't rank well either in comparison to the rest of the country.

[catman]

The property taxes are a large burden for me. On a house appraised at $155K, they were almost $4K last year.

[Brewzerr68]

As a former Houston homeowner, I can definitely attest to the fact that what you don't pay in the absence of a state income tax, you will make up for tenfold in property taxes. I now live and own a house in Eastern Washington state, where there is also no state income tax, yet my property taxes are a tiny fraction of what they were in Texas. However, "sin" taxes and gas taxes are much higher here, so it's really all relative. No matter where you live you will have to pay something that's higher than where you lived before.

It should also be noted that the larger metro areas of Texas have pretty high insurance rates as well.

[majicdonjuan]

To answer your questions chronologically.

1) Texas gets away with no income tax via a relatively high sales tax, high fees for state services, high property taxes (though this differs significantly based on locality), and low levels of funding for government services. So you guessed correctly.

2) I'd say as a whole, slightly. Though making any amount of money in Texas will certainly go much farther than the same amount in California or New York, wages are generally lower and transportation costs are equally high if not higher. Where you save in Texas is a big part of most people's budget - housing.

3) I'd say its low cost but rising. It's certainly more expensive to live in Texas metros than in other parts of the south and west, such as Mississippi, Oklahoma, Alabama, NM, etc. In rural Texas the costs are much more on par with those states. The cost of land shouldn't be an issue in the immediate future as there's still large swaths of available land within the commute-belts of all of the major metropolitan areas. One thing is for sure, the cost of living here won't be approaching that of the coasts anytime soon.

4)If we continue on the same fiscal path as now, no. There is already significant urban decay in both Houston and Dallas. The infrastructure in both cities is less than stellar. There's streets in both of these cities that have potholes that can swallow a Miata. The water infrastructure is old and has significant leaks. Unless the general patterns of American land use changes and for some reasons cities become signficantly more attractive for redevelopment and investment than they are now (at the expense of the suburbs), it won't take 50 years for urban decay to grip these cities. However, both cities are still growing (though Dallas barely so) and hopefully will continue to do so to stave off elements of decay.

[momof2dfw]

It's all relative. However, here is where the property taxes vs income tax can make a difference. If you are making a very nice salary and can afford a, let's say, $350K house........ you don't have to buy a $350K house and pay the property taxes on that. You can find a very nice house in a good neighborhood w/ good schools for $200K instead. As your income increases you are not required to move up to a bigger or more expensive house. You can CHOOSE to live below your means and not have to pay more in taxes than you would if you are living in a state w/ an income tax every time your income increases.

There are also exemptions in many cities and counties for property taxes. If you are over 65 you get an additional exemption. Disabled, another exemption. If you are over 65 you can choose to freeze your property taxes and once you pass away or sell the house then the county will collect the back taxes off of the proceeds of the sale of your house. There is no reason that someone that is retired, disabled and on a limited budget should suffer from property taxes in Texas if they want to seek this route. There are options.

[expatChicagoan]

Originally Posted by MINresident

2) Are people in Texas really better off financially? After all, if salaries are lower than other cities in similar jobs, isn't the lower cost of living balanced out with these lower salaries?

I don't necessarily agree that salaries are lower here than in other cities. I relocated here slightly over 2 years ago from Chicago, and my salary is the same as I was making in Chicago. Every position at my company pays the same salary whether the position is located in the Chicago office, or the Ft. Worth office.

[hoffdano]

Some salaries may be lower here - but many professionals (such as software developers) make 90% as much as they would in San Jose.

Texas' sales tax burden is not really that high. About 8% in most cities, with a few items exempt (like food staples). Texas property tax rates are higher than in most states, but actual annual tax bills are not especially high compared to California, New Jersey and several other states. 2.5% of $250,000 is $6,250 per year. In California you might pay 1.4% of $500,000 or $7,000 for a comparable home.

Lower housing costs, not taxes, are the single biggest factor affecting the economics of Texas residents. The supply of homes and rental housing is high and likely to remain so for some time, even with continuing population growth.

I'd say Texas is a very good tax location for those in their peak earning years (when income is high). It is not as good for retirees, where the bulk of their tax burden is property taxes (if they own a home).

A comment about city infrastructure. I'm not sure I agree with the earlier comments. The roads in Houston are better than the roads are in most cities of California. I can't say as much about Dallas because I spend less time there. Austin is under-served by its road network. Not enough capacity for the population. But the roads are not crumbling. Texas cities generally have average or better crime rates than other comparable cities, although crime rates can be very neighborhood specific. Urban decay in many northern cities is rooted in loss of jobs and population. As long as Texas is a location of job and business growth, we'll have tax revenues to support the infrastructure.

[ahappyspark]

uh..my 2 cents....good roads in DFW for sure, but car insurance rates and property taxes will get you, very high. Salaries in general are lower than say Cali. 1 more thing, cooling bills are pretty high 6 - 7 months in the year...and winters now need heat close to Thanksgiving - Late January...

[SVTRay]

High cost of living like that seen in California and New York is a result of large government and unions. Even our own financial crisis here in Texas can be traced back to the same fail political thinking of those states. People for some reason think that just because that policy failed California, New York, Cuba, East Berlin etc etc, that it will finally work in Texas or the next state etc etc.