Replace income tax with property taxes?

Great Debates
21

But it just doesn’t work like that. If you raise your rents above the going market price just to cover your costs, you’ll end up shooting yourself in the foot. What happens is that you increase the chances that your property will sit idle for a couple of months. At, say, $800 - $1000 a month, that’s a huge hole that you now have to dig yourself out of simply because you wanted to recoup an extra $25 -$50 per month per unit in taxes or other expenses.

People definitely shop around for apartments and if you aren’t competitive you’ll go broke fast.

Indeed this does happen, but that in turn triggers a buyer’s market for rental properties. Investors can now buy property at bargain prices and can then afford to offer lower prices to their renters and still make a profit.

Again, these are just my observations. I know almost nothing about economics.

22

Lemme get this straight…

Under this plan, I can just sell my condo and not pay taxes anymore?

Well, one thing is for sure, the housing market would crash.

23

Debaser, you’re right.

Plus, it would raise the bar of the cost of owning your own home DRAMATICALLY, undoing most of the progress made in recent decades in regards to poorer Americans and home ownership. And since home ownership is the foundation for many other credit-based advantages in this country, we would effectively be locking people out of those as well.

We need to make it more affordable to own homes, not less. Transferring the heavy weight of funding the federal government to property taxes would make the system less progressive, and thus put more of a burden on the poor, those who need the least amount of burden so that they might have the chance to travel up the economic ladder.

Kirk

24

Yeah, I think a national property tax would be pretty crappy, for reasons already mentioned. Tell you what, you want something convenient, nigh impossible to cheat on, fair, implicitly regressive, that eliminates the need for a bloated beaurocracy? It’s called a “National Sales Tax”.

Jeff

25

D’oh, that should’ve read “progressive”, not “regressive”. My kingdom for an editor!

Jeff

26

Your definition of exclusive is unusual. Your cite says 68%, but I’ll accept that as substantial.

The problems you cite are the same ones we have in Texas, the problem is local funding of education that the public (or media?) wishes to be uniform state-wide. If all of the education funding were from state-wide property taxes, this problem would disappear. Therefore, this is not a valid argument against federal property taxes, as I stated before.

27

Actually, a national sales tax would be regressive, because it would fall heavily on the poor, at least as heavily as on the rich, if not more so. The poor tend to save very little and spend almost all of what they earn, so they would be paying a large national sales tax as compared to their income, whereas many of them currently pay nothing or little in income taxes.

The rich, by contrast, save far more, and spend only a much smaller share of their income, and thus only a smaller share of their income would be taxed.

Therefore a national sales tax would, as a percentage of income, weigh heavier on the poor than on the rich. That is extremely regressive, and IMO, highly immoral.

A poor person who makes $10,000 a year, and spends $9,000 of it, not including a national sales tax of, say, 10%. They would be paying a tax of $900, or 9% of their income.

This person would not be paying an income tax, it should be noted, under the current system, so they are actually having their ability to afford to live hampered markedly.

Now lets look at a hypothetical rich person who makes $450,000 a year, but only spends $300,000 of it, investing or whatnot the rest. They’d pay a tax of $30,000, or 6.7% of their income. Under the current system, this person would be paying somewhere around $150,000. So they get a nice, massive tax cut, while the tax burden is being shifted harshly to the poor, who are those least able to pay it.

A “progressive” tax is not one in which those who spend/make more pay more, but one where those who make more pay increasinly higher rates on the income they make, the more the make, the higher the percentage they pay on the income. Thus a national sales tax is NOT progressive in any sense. At best it is proporitional, but given the different spending habits of different economic classes, it is in fact regressive.

Kirk

28

Ah, yes, but the “going market price” will definitely go up. Everybody will be affected by the new property tax and will need to raise rents to cover. Renters will be able to afford it because they now have more take-home pay. The poor in federal housing projects will be unaffected because their rent will not increase (no taxes there).

29

Not necessarily. Rents will go up and the cost of building a house will go down (this is debatable and I have, admittedly, not thought this through completely - it will partially depend on the ratio of materials to labor in the cost of building a home). People generally don’t buy a house because it’s cheaper to own anyway.

30

By raising the costs of housing across the board, you will make it harder for the working poor to be able to afford to move out of decrepit government housing and into livable environs. You’ll be trapping more people in worse housing. You’ll also be making it harder for the upwardly mobile working and middle classes to move into better apartments or buy their houses, because over time those housing costs will be higher.

31

Uh, doesn’t home ownership contribute to urban sprawl?

Also, I don’t call a 7% increase after elimination of income taxes to be DRAMATIC increase in the cost of home ownership.

Seems to me that property taxes would be MUCH more progressive. How many poor people own real estate?

32

Uh, doesn’t home ownership contribute to urban sprawl?

Also, I don’t call a 7% increase after elimination of income taxes to be DRAMATIC increase in the cost of home ownership.

Seems to me that property taxes would be MUCH more progressive. How many poor people own real estate?

33

How about the poor in privately owned apartments, who currently pay little in taxes. I’m not sure they’d appreciate the increase in their cost of living.

What about the many large property owners who would pay no taxes (the government, churches, and universities)? How much of the $17 trillion figure is actually taxable real estate?

Wouldn’t this plan drive small business and industry out of cities, where property taxes would be higher? Actually, wouldn’t this pretty much crive everyone out of cities, creating massive sprawl, and of course more cars on the roads.

What about middle-class families whose homes have appreciated greatly in value? I think my parents house in Boston has at least tripled in value since they bought it in 1984. Would they now have to pay three times as much in taxes as they did then? They don’t make three times as much money.

34

Well, as I mentioned in one of the posts above, I am greatly in favor of a national sales tax over income taxes. My thought in generating this thread was that a national property tax may have many of the same advantages without the disadvantages that a high sales tax would entail, such as a powerful incentive to engage in “under-the-table” cash transactions to circumvent the sales tax and possible depression of the economy due to disincentive to make purchases (although that would certainly be a cure to the US’s over-consumerism that we are well known for).

35

Actually, the rate would be closer to 25%, but go to Fairtax.org for details that you need to know about the concept of a national sales tax. The tax is made progressive by including a substantial rebate. Also, the cost of most ordinary goods would decline by a substantial amount due to the significantly lower costs incurred by manufacturers.

The lower income folk would be better off because of the elimination of the highly regressive SS tax, as well.

36

Well, if everyone abandons the city, then I guess property values would decline, wouldn’t they? You can’t have it both ways.

37

Perhaps. But that’s not really something I tend to care about. We’ve got plenty of open land in this country.

7% is a dramatic increase in cost when you’re dealing with an annual charge on property that is often worth more than your annual income. Also, it gives the government the ability to increase revenues simply by declaring property more valuable in their annual appraisals. That happened in University Park and Highland Park, TX, several years back: we all woke up one morning to discover that the County of Dallas had dramatically increased the appraisal of the values of our homes. We had to sue the County to get the massive jumps in appraisal values (and, of course, to stop the skyrocketing property taxes taht the re-appraisals caused).

Income tax is based on a hard and fast income. A person’s income is far less arbitrary than the value of their home, and cannot be readjusted on a governmental whim.

What does that matter? The cost of the tax will be passed on to renters. Poor people who currently pay ZERO in income tax will have their rent increased to pay for property taxes, which is, in effect, taxing them. So their tax burden goes from nothing to whatever the added cost on their rent is. That is regressive. That increases the tax burden on the poor, which IMO is totally immoral.

Kirk

38

Yeah, economically, it would work out. I was thinking more about the social costs of people moving out of cities, such as increased crime and traffic.

39

Or, to put it simply, replacing the income tax with a property tax would change people’s behavior. With an income tax, your tax increases as you earn more, but earning more still gets you more, so it’s worth it. With a property tax, a specific behavior is discouraged. A behavior that is productive. Real estate has generally been a decent investment, but if it carries with it a tax liability equivalent to purchasing the property again every 15 years or less, it won’t be.

Plus, there’s no guarantee that people could afford a high property tax on their home. Thus, most likely, banks will be stuck paying huge taxes for foreclosed properties that they get stuck with.

Basically, taking the $1.1 trillion in tax revenue solely from real estate is going to hugely distort the market, which will have wide-ranging consequences. Far more so than taking it from income.

40

Taxes always change people’s behavior - something politicians rarely seem to consider. I think taking $1.1 trillion from the labor market distorts that market drastically, especially since the labor market also suffers the effects of payroll taxes as well. However, the distortion you speak of to the real estate market would serve to discourage unproductive or trivial use of land, our only truly limited resource. Seems like not too bad a thing.

And to address your other point, it seems to me that most homeowners are in the 15-28% (or higher) tax bracket. Those folks are going to have no problem paying 7% real estate taxes on their home - even those foolish people who have maxed out their ratios and bought the most home their income allows.

Ah, I see one more statement about paying for their home again every 15 years. Most people currently pay 3X for their home every 30 years now if they have a mortgage. Not much of a problem. Also, I currently work one year for free out of every 3 or 4 years. Don’t like that one bit, do you?