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Are Property Taxes a “Wealth Tax” on the (Mostly) Non-Wealthy?

by Charles Hugh Smith, Of Two Minds:

The fallacy in this assumption is that homeowners’ incomes do not automatically rise along with housing valuations.

In my recent entry Dear Homeowner: If You’re Paying $260,000 in Property Taxes Over 20 Years, What Exactly Do You “Own”?, I questioned the consequences of high property taxes. Some readers wondered if I was saying all property taxes should be abolished. The short answer is no–what I was questioning is local government reliance on property taxes to the point that owning a home no longer makes financial sense because the property taxes consume any appreciation other than the transitory “wealth” generated by a housing bubble.

In effect, local tax authorities are capturing all future appreciation for themselves. Note that applies to areas with high property taxes–in excess of $10,000 annually, not locales with annual property taxes of $2,000.

In effect, local tax authorities are capturing all future appreciation for themselves. Note that applies to areas with high property taxes–in excess of $10,000 annually, not locales with annual property taxes of $2,000.

State and local taxes–sales, income and property–tax very different events. Sales taxes are based on consumption, and are typically highly regressive, as low-income households pay a higher percentage of their income on sales taxes than higher-income households.

Income taxes are typically progressive, as the higher one’s income, the more income tax one pays.

Property tax is not based on consumption or income, but on the presumed wealth and income of property owners. In effect, property taxes are a wealth tax: if you can afford a house, you can afford property taxes.

The fallacy in this assumption is that homeowners’ incomes do not automatically rise along with housing valuations. Consider the 35% increase in the Case-Shiller 20-City Index since 2012: in a four-year period that officially experienced a mere 4% inflation, housing leaped 35%.

Meanwhile, real median household incomes rose a paltry 5%. Local tax authorities love housing bubbles because rising valuations justify higher property taxes. But the homeowners’ income needed to pay higher property taxes may well have declined during the bubble due to layoffs, shortened hours, medical emergency, reduced bonus, etc.

Real estate professional EB described the consequences of this mismatch of earnings need to pay property taxes and soaring property taxes:

Read More @ OfTwoMinds.com

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5 comments to Are Property Taxes a “Wealth Tax” on the (Mostly) Non-Wealthy?

  • Craig Escaped Detroit

    I’ve always liked the idea of being your OWN CHURCH. Churches are tax exempt. Of course, you’d have to “jump through” some regulations, but in the end, you’ll never pay property taxes again.

    I also like the idea of some big homeowner’s group, getting together, and making their entire CITY intno a “tax exempt church”. That would be one helluva trend, eh?

    Look at all the churches around the country, and all those acres owned by the really BIG churches (Catholic.)

    Of course, the city would probably dissolve, and your church would have to take over all the infrastructure, police, fire, etc. But that’s just a bigger form of being RESPONSIBLE for your own life and your own living standards.

    People used to do that a long, long time ago.

    • glitter 1

      The apostate church today is,to a great extent,using the 501c3 tax exempt status for these very reasons,which is why you don’t here any great speaking out against “Public Policies”,otherwise their 501c3 will be pulled.

      Yes,property tax is a form of wealth tax/theft of private property,especially those of us who are forced to pay over $10K yearly.That’s why NJ is at the top of the list of states where people are leaving and those that are leaving are the Boomers with their life savings.How stupid are the NJ Democrats who have ruled NJ for my entire life and longer.Another soon to be bankrupted state,just like Illonois(Chicago),California,New York,Michigan(Detroit),all Democratically controlled states.Dah!

      • Craig Escaped Detroit

        Yes glitter, and the conditions since the crash of 08, has got all the local, state and federal governments (and the BANKSTERS) in a jam.

        It’s because with SO many sheeple who lost their homes, and SO many homes NOT “generating” taxes anymore, and SO many foreclosed homes, (and the SHADOW inventory of homes that are NOT foreclosed, but SHOULD be). there is a LARGE amount of TAX FREE, Mortgage Free SQUATTING that is happening, and there is not much can be done about it.

        People are desperate. Jobs are gone. Money is gone, but there are EMPTY houses out there, just waiting for somebody to squat into it, live without paying taxes of bank fees.

        I love it. I support the idea of the squatting movement, as long as it’s houses on the “bank’s books” or government books, and not putting out some genuine owner out of their house.

        The government hates it when somebody finds a way to live FREE from the system of taxation and mortgage slavery.

        Living in a car, truck or van, on the road, has it’s ups and downs. You gotta keep it running, you gotta have plates & insurance or it gets towed away, and the space is really cramped.

        But, there are “Apps” for the smart phones, that point you to all the FREE, overnight camping/parking around the nation. A Walmart parking app too. Tells you the rules, the map locations, etc. There are people out there living the nomad life, going from free place to free place.

        I’ve always liked that idea too. I like the idea of a stepvan, something like a FedEx or UPS truck, plain Jane outside, home inside, solar panels on the roof for some free power, but cannot be seen from the ground level. Low key, under the radar.

        A typical FedEx truck type, can hold enough solar panels on the roof, to generate more than a thousands watts of power (optimum output, etc) Perhaps some extra solar panels, as a slide out awning, would increase your capture rates.

        An old, throw away Satellite TV dish (3ft), covered with MYLAR reflective plastic, makes a SUPER HOT, focused SOLAR oven. The concentration level, would be about 50 suns. Make some kind of simple “tripod”, etc, and you’d cook a can of veggies very quickly. (Wear your sunglasses, or even some welding goggles.)

        There are ways, to survive just about any situation. Maybe not in great comfort, but survival is possible.
        Set up a portable rain barrel, make the roof into a big rain gutter too, some water filters, and you’ve have shelter, hot food, water and electricity.

  • The real question is going to be what happens when the housing bubble (inevitably) collapses? Local governments which are key afloat through these taxes are going to struggle – really struggle.

    • Craig Escaped Detroit

      Yes Sarah, it’s gonna be “interesting” to watch all those levels of government without a big jack-pot of free money to grab.

      It’s gonna take some time for them to down-size to the reality of the situation, and they will be kicking and screaming all the way down. More people will start to squat into empty homes without paying taxes or mortgage payments, and the government will go rabid over that.

      Homeless people don’t pay taxes or generate income. Perhaps the government will turn the homeless into Soylent green for the elites to eat. After all, sheeple are sheeple. Nothing like a good “Leg of Lamb”, eh?

      Of course, if the crash makes 50% of the population to starve to death, the tax base will be the least of our problems.

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