Housing Market And Property Taxes Effect

2120 words - 8 pages

During the Great Recession, we have seen property taxes and the housing market bubble decline substantially. During this down turn of housing prices and decrease in taxes we saw a drop in the revenue that is created by property taxes. Property tax helps to pay for a majority of public services but most importantly our K-12th grade education system. It also helps fund parks, police and fire department services as well. During this period of down turn there was not a raise in taxes causing the states to increase spending cuts and to use more federal monies and their rainy day funds. Because of this lack of revenue coming from property tax and housing bubble it caused the local governments budgets to be impacted negatively. By examining how much the property tax actually impacts, versus the other taxes collected in the local government one can see how big of an influenced it plays in our education system and our public services.
One must understand the structural and cyclical deficits that got us into this position and how each of these can affect tax revenue. Structural and cyclical deficit are a component of deficit government spending. Cyclical deficit is a temporary deficit that is linked to the production, trade and activity of business in the economy. It is the upward and downward change of the country’s gross domestic product. For example, during a cyclical deficit we may see low levels of business production activity but high levels of employment in businesses. Because of the lack of production it takes away from the government’s budget and causes a deficit when they try to continue to support public service programs. Unlike cyclical, structural unemployment exist with or without the business cycle. Structural deficit is the imbalance of revenue coming in versus expenditures. This can be seen throughout property taxes and the revenue they create for the local government and the spending that goes out for services. Also, there can be planned structural deficit which is where the government decides to invest in the future of the country. For example, investing in job training, higher education, transportation or infrastructure changes throughout the city are all planned structural deficits. These are all investment that will not show an immediate return causing a structural deficit, but one that is planned.
California is a good example of how cyclical and structural deficit problems can become a financial crisis in local governments. California has throughout it’s time had high economic growth allowing them to get a budget that could expand public service, maintain tax cuts and maintain a high living type of life style. After the Great Recession we see that the downturn of economic production and the use of rainy day funds have crippled the progress they once with keeping a well balanced budget. Because of this, California and other states are facing huge budget gaps that they cannot bring to a close. California has tried to solve its...

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