Charles Hughes Smith - Inflation Is Rampant in Tuition, Healthcare and Property Taxes

The following is an excellent article from Of Two Minds

Inflation Is Rampant in Tuition, Healthcare and Property Taxes
  (December 1, 2010)

A number of big-ticket household expenses are skyrocketing: tuition, property
taxes and healthcare.

Here is my simple definition of rampant inflation: you're paying a lot more money for the
same item/service but the quality/quantity is the same or lower--and your income
is stagnant/declining. We are constantly told that inflation is near-zero, but
the basket of goods selected for measurement seems not to include healthcare/ health
insurance, college tuition or property taxes.

These costs are skyrocketing, and they are non-trivial expenses, running into
the tens of thousands of dollars per year.
I have addressed the difference in scale of expenses for the wealthy and the
"middle class" before. For instance, $10,000 per year for healthcare insurance
is a massive percentage of the after-tax income of a household earning $60,000
a year, while it is a modest percentage roughly equivalent to the sums spent eating out
and traveling for a household earning $160,000 a year.

The same scale differences are present in all measures of inflation. Onions
might well have declined over the past year, which means that the $30 I spent annually
on onions declined to $29--a grand savings of $1.

Even a 10% decline in natural gas costs would only yield a modest $50 reduction in
costs for my household. Let's say another household consumes a lot more natural gas,
and their savings would total $200 a year.

Compare these modest reductions due to deflation with the thousands of dollars
in increases in big-ticket items like tuition, property taxes and healthcare.

Take property taxes. Nationally, according to the Census Bureau report on state and local tax revenues, total
property taxes in the U.S. rose from $225 billion in 1998 to $476 billion in 2009--
an increase of 111% over a time period that
saw costs rise 32% (i.e. Bureau of Labor Statistics calculated
inflation from 1998 to 2009 at 32%).

So nationally, property taxes rose at a rate that was triple that of inflation.

My own property taxes rose 25% from 2004 to 2010, while inflation in that period
was officially 16%. So my property taxes rose at a rate that was 50% ahead of
inflation. This is for property in California, supposedly protected from increases
above 1% per annum by Proposition 13. (Local voters can approve additional
parcel taxes, and they regularly do when presented with "save our schools, libraries,
etc." tax increases.)

These increases amount to several thousand dollars a year. Medical insurance (stripped-down
basic coverage from Kaiser) and our property taxes take a huge
percentage of our after-income tax income. Whatever items now cost less than a
few years ago are essentially trivial in cost over a decade
(how many TVs am I going to buy every decade?), while the increases in healthcare
and property taxes amount to several thousand dollars a year. Together, those
increases above the "official" low rate of inflation add up to $50,000 over a decade.

Here is a typical example of how property taxes have doubled
in the San Francisco Bay Area (this is not our house, but one picked from zillow.com):

A modest house valued at $270,000 in 2004 paid $5,090 in property taxes.
(Please note California is a "low tax state," according to those anxious to
raise all state taxes.)

The house was sold in July 2005 for $725,000 (near the top of the bubble)
and property taxes promptly jumped to $10,977. By 2010, taxes had climbed to
$12,193: a grand a month.

The utility value of the house remained unchanged. There was still the
same number of rooms and square footage. The owners received no "hedonic"
improvements; they're just paying $12,000 annually in property taxes instead of $5,000.

Tuition to the public universities and colleges in California has skyrocketed.
Tuition to attend the University of California system was $1,820 annually in the
1990-91 school year; the tuition for the 2011-12 academic year is $12,151.

According to the BLS inflation calculator, $1 in 1990 equals $1.67 in 2010.
If UC tuition had matched inflation, then tuition should now be about $3,040
a year, not $12,000. Tuition has quadrupled, even when adjusted for inflation.

The State University system has also seen tuition jump:

So while clothing and electronics may have declined by a few hundred dollars
a year per household, tuition for a four-year university now costs
$40,000 more--and that's not counting student fee increases. So while a laptop
might be a few hundred bucks less, and clothing might be a little less, it costs
$50,000 more to send your child to a state university. That is not "low inflation."

As for healthcare--if you buy your own healthcare insurance as a business
owner or self-employed worker, then you know
the drill--huge annual increases, year after year, recession or not.
Our household medical insurance costs have doubled in a few years, and that's for
stripped-down coverage (no dental, eyewear, drug coverage, etc.) and higher deductibles
on every category.

Add the thousands of dollars more per year for property taxes and health
insurance, and you are talking sums of money which are orders of magnitude
greater than the modest reductions in expenses for other items as measured
by the Central State. Most households are reaping extremely modest savings
on clothing, electronics, and the other items which are a bit cheaper, while
the increases in healthcare, property taxes and education are running in the
thousands of dollars annually.

I may have saved a few dollars on onions and shirts, but we are paying $5,000
more per year for property taxes and healthcare insurance. If these costs
were increasing at the official low rate of inflation (1.1% per annum), then
they would be registering increases of a few hundred dollars every decade,
not thousands of dollars more every few years.

"Low inflation" doesn't add up when you consider the tens of thousands of
dollars in increases stacking up in tuition, taxes and healthcare. I have
addressed some of these issues before:

Does Healthcare Reform Address Rising Inequality?
(September 17, 2010)

Wall Street's "Recovery" Leaves Main Street Mugged in the Gutter
(November 17, 2010)