On a sweltering summer day in 1861, Confederate General "Stonewall" Jackson met a fierce Union charge with a pulverizing counterpunch that sent a blue tide of troops, sans weapons, fleeing over a grassy ridge in northern Virginia. The escape route of the first Battle of Bull Run passes the modest colonial-style house of state senator Ken Cuccinelli, a Civil War buff so ardent he ponders how Jackson obtained the legendary lemons he sucked in battle. Now Cuccinelli thinks his property is under siege again, not from marauding Rebs or Yanks, but from soaring property taxes. Outrage over the fiscal bayonets aimed at his home and hearth helped push Cuccinelli into politics as an antitax crusader. "I have Stonewall's fervor," he muses. "I hope I have his troop support."

It seems as though nothing can stop the majestic upward march of housing prices--not the feeble economy, not the looming war with Iraq. But homeowner beware! The frothy market masks a big, creeping problem for the 77 million families who've benefited from swelling prices and bank on more of the same. From New York City, where property taxes just jumped 18.5% in a single year, to tony Los Angeles suburbs, where the tax bill often triples when houses change hands--from sprawling cities to sleepy hamlets--property taxes are rising relentlessly. This powerful, largely overlooked trend could turn the housing miracle as sour as Stonewall's lemons.

Property taxes are as American as Main Street. They're the levies that fund your local services, from schools to police to parks. Why are property taxes, a.k.a. real estate taxes, jumping? The answer is simple--and scary. In this strange economy, home prices are thriving while almost everything else is hurting. All other sources of revenue, from state aid to sales tax receipts, are flat or falling. But the pressure to keep spending ratcheting upward is enormous. So local governments are heaping more and more of the burden, indeed, their entire budget increases--which, by the way, are big--on the one strong pillar left standing: America's houses. That means this revolution in municipal finance is targeting your ranch or saltbox.

The rub is that the people who own those pillars and porches aren't seeing their incomes grow anywhere near as fast as their tax bills. "In this weak economy, taxes are rising far faster than people's ability to pay them," says Lewis Goodkin, a Miami-based real estate consultant. The danger: People will sell their houses because they can no longer afford the monthly charges, or pay less for a new abode because taxes are so high. Either way, rising property taxes could prove the weight that tips the seesaw, sending prices on a downward slope.

It isn't happening yet, for a fundamental reason--bargain interest rates. Homeowners pay less than 6% on a 30-year mortgage, the best deal in 40 years. For many Americans, interest payments have fallen even more than property taxes have risen. Hence, the total cost of carrying their house, the holy grail for any homeowner, is often actually falling. But let's look forward. The housing market faces two substantial negatives. First, after gaining almost 20% in value in the past three years, America's houses are extremely expensive. They resemble stocks whose P/Es stand far above their historic averages. From those lofty heights, they have little room for strong appreciation and are extremely vulnerable to more bad news--job losses, say, or worse, rising interest rates.

Second, the rates supporting those sterling prices are already so low that they're unlikely to fall much further. In fact, they're more likely to rise as the economy rebounds. Then, watch out! If that happens, the combination of higher taxes and ballooning interest payments will cause a big increase in the cost of owning a home. "So far, the effect of higher property taxes is getting washed out by falling rates," says Mark Zandi, a housing expert at Economy.com. "But without the counterbalancing effect of low rates, the power of taxes to drive down property values will become very apparent, very quickly."

Property taxes are no sideshow. The numbers are big--so big that, believe it or not, real estate taxes now rival mortgage payments as the largest expense for homeowners. Last year Americans paid $265 billion in interest on their houses. The bill for property taxes was $205 billion, according to a study of IRS records by Economy.com. So for every dollar homeowners pay in mortgage interest, they send 77 cents to the town tax office, compared with 61 cents in 1988. What's especially disturbing is the powerful pattern of increases. Since 1995 property taxes nationwide have jumped 48%, 30 percentage points more than inflation.

The rampage is happening because property taxes are tied not to homeowners' incomes but to the market prices of their houses. The levies are calculated by applying the town's tax rate to the home's "assessed value," a figure based on the municipality's appraisal of what similar homes are selling for. So if towns hold tax rates at the same level, the tax bills rise at the same pace that houses are gaining in value.

That's precisely what's happening. Towns and cities--which desperately need the money--are bagging a huge windfall from the hot real estate market without facing the political heat of raising tax rates. "It's nirvana for politicians," marvels David Brunori, a municipal-government specialist at George Washington University. "Tax rates stay the same, and the politicians keep getting more money every year. They're never subject to the charge that they 'raised taxes.' " What matters, however, isn't the fuzzy rhetoric but the actual increase in dollars homeowners are paying. Pick cases from across the country, and you'll see that the numbers are shocking.

Before we visit those beleaguered homeowners, it's important to understand that the picture varies enormously across America's 18,000 municipalities. People pay vastly different amounts, and face vastly different rates of increase, on houses with identical values--not only in different parts of the country but often in the same neighborhood. The main reason for the patchwork pattern is that many states, and some towns, impose legal limits on property taxes. Most of the restrictions date from the 1970s and early 1980s, when a property-tax rebellion swept the U.S. In 1978, California adopted the granddaddy of limitations, Proposition 13. Its rules are still in force. So are the tough restrictions in two other states that rank among the nation's strongest markets, Florida and Massachusetts. In Florida, for example, assessments can't rise faster than 3% a year; in California the cap on increases is 2%.

The restrictions create two basic classes of taxpayers. Homeowners in states like Texas, New York, and Virginia often watch their tax bills climb in big yearly steps. In California or Florida, taxpayers get a big break, as long as they remain in their houses: Their taxes trail far behind the increases in market value. Sounds great. The problem is that when a resident of San Francisco or Boca Raton sells, the cities reappraise the home at its full value.

Then, wham! Taxes can easily double or triple overnight when the deed changes hands. The new owner is stuck with a bill that often rivals the charges in Virginia or New York (though the impact is cushioned in California because the tax rate is capped at a reasonably low 1%). Hence, even in the states with limitations, the big, sudden tax bite when property is sold exerts strong downward pressure on prices. "What matters most is what the new buyer has to pay, not the break the previous homeowner was getting in the past," says Dominic M. Calabro, president of Florida Tax Watch, a watchdog group for taxpayers in the Sunshine State.

Let's survey the damage in both kinds of markets. Consider Cuccinelli, the Stonewall Jackson fan, who, outside of politics, works as a patent attorney. He bought his four-bedroom colonial on half an acre in Fairfax County, Va., a suburb of Washington, D.C., in 2000. Since then the assessment has shot from $210,000 up to $363,000. His property taxes have vaulted in lockstep with the town's appraisal, from $2,560 a year to $4,400, a 72% increase. "That's 67% more than inflation!" complains Cuccinelli. "What cost in America is rising that fast, except for property taxes?" For New York attorney Joel Marcus, the story is even more alarming. Since 1997, the levy on his four-bedroom, $2.2 million manse in Harrison, N.Y., a wealthy Westchester County suburb, jumped from $24,500 to $38,000. "That's the equivalent of a jump of a point and a half in my mortgage!" marvels Marcus. "So I went to an adjustable mortgage to offset the increase in taxes. If my mortgage rate goes up, I could face trouble."

In states with limitations, it's new buyers who face the sticker shock. In Boca Raton, a well-heeled retiree who bought a waterfront house for $800,000 in the late 1990s pays about $23,000 in taxes-- a bargain, believe it or not, because of the cap on yearly assessments. Now the retiree decides to sell. The purchaser pays $1.6 million, and suddenly the assessment doubles. And taxes jump to $40,000 a year.

Fortunately for Cuccinelli, Marcus, and our sample retiree, the prices of their houses are still rising. But don't be fooled. Their homes would be worth a lot more if property taxes hadn't jumped. It's simple mathema ics. For a warehouse or office building, when the taxes or insurance or maintenance costs take a leap, the building's value declines. The same forces apply to houses. The $1,840 rise in Cuccinelli's taxes will cost him $1,300 after taxes (property taxes are deductible from federal income taxes). According to Zandi, that $1,300 in additional expenses slices the value of his house by a factor of ten, or $13,000.

How about Marcus? We were afraid you'd ask. His $13,500 increase, about $9,500 after taxes, cuts the value of his home by $95,000. And the retiree in sunny Boca? When he sells, the new buyer will shave $120,000 from the price because of the massive tax increase that strikes when the house changes hands.

Of course, higher taxes wouldn't reduce values at all if they generated big improvements in schools, parks, and other services. And in the past that's often happened. "Traditionally towns with the highest property tax increases had the best schools," says Karl Case, an economist at Wellesley College. "That had a big, positive effect on property values." But the picture has changed. Large increases in school spending per pupil, adjusted for inflation, haven't been adequate to boost test scores--yet taxes to fund the spending continue to rise. "The general consensus is that municipalities haven't delivered on the promise to deliver better services," says Bill Ahern of the Tax Foundation, a Washington, D.C., think tank.

To measure the pressure on houses, and why it's likely to keep mounting, let's go back and look at Fairfax County, Va. (pop. 1.1 million), the Washington, D.C., suburb where Cuccinelli lives. Since 2000 the county's spending has jumped 6% a year--the biggest motor is school spending, which acounts for about half the budget--even though inflation and population growth combined are around 4%. During that period receipts from sales taxes, a levy on boats and cars, and state aid have been flat or declining. As a result, the portion of spending covered by property taxes has leaped from 50% to 59% of a far bigger budget.

For the county's homeowners, the scenario is even worse than it looks. Many dot-com and other tech companies in Fairfax either folded or shrank. As a result, residential property taxes have shouldered the burden for virtually all the budget increases. By 2004 taxes on the average house will have risen a projected 57% over 2000 levels. "Increases in property taxes don't give people the ability to pay them in a sour economy," says Cuccinelli. "Families are being ordered to tighten their belts so the government can be comfortable."

The momentum behind the municipal spending spree is so strong that it's likely to keep rolling, whether or not home prices rise. "If house prices flatten or decline, the best bet is that towns start raising the tax rates, so the dollars homeowners pay will keep rising fast," predicts Zandi. Get used to it. Your best investment is taking on a new role: It's now your town's favorite ATM.