Comment by surfmike
7 hours ago
I think land-value taxation, with a cap on properties based on income (and wealth) for your first home, is the way.
I do think there is something special about the idea of home, and that home ownership should be encouraged. It brings people stability. People shouldn't be pushed out just because others have more income than them.
At the same time, we do need property taxes. In California, rate increases are capped, so older owners often pay pennies compared to new homeowners. Harmonize the taxes, while capping it.
Why should there be a cap? If you're so rich as to own some property, why do you need protection from paying a reasonable rate of tax?
Consider my neighborhood in Chicago. It has gentrified rapidly over the past couple decades. But it wasn't always so wealthy. My retireee neighbor probably bought her house for no more than about $100,000, but now the market rate for a house like hers is more like $500,000. With that comes about $20,000 per year in property taxes.
That might be reasonable for the wealthier families who are moving into the neighborhood and driving up the land values. But it's pushing her into poverty.
> But it's pushing her into poverty.
No, its pushing her into a cash flow problem. Its not poverty; she has substantial wealth, but its all in the house.
There are mechanisms, of course, to access that wealth without moving, including ones specifically geared toward income-limited house-rich retirees.
Now, those end up creating a debt that must be resolved before transferring the house, including via estate, so living on the value of the home reduces its utility as a vehicle for generational wealth, but...unless you want to reproduce California’s system which makes it much harder for people to become homeowners while rewarding those who already have, eapecially the wealthiest, making the rich richer and what would be the comfirtable middle class anywhere else in the country poor, that’s the way it works (and your exact scenario was the major sales pitch that was used to sell the California system; its maybe understadable how people without 50 years of California’s example fell for it then, but...)
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What poverty--she owns a house worth $500k. I think deferral schemes where certain individuals can pay taxes upon sale of the home (with fair interest) should be fine to avoid forcing anyone into a reverse mortgage.
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$20k on $500k is 4% annually, which is really high. I'm not seeing any Chicago neighborhoods that are this high (looks like a max of maybe 2%) but perhaps I'm missing something about how Chicago works?
Why can’t she pay from her retirement accounts? 20K/yr isn’t all that much considering today’s cost of living. The stock market has skyrocketed in the last decade and change.
I also don’t buy 20K of property tax on a 500K home, that’s a 4% tax which seems unlikely in Chicago.
Something isn’t right. Poor financial planning maybe?
You don’t need to be rich to own. Some people are lucky to buy a home where/when it’s cheap. Imagine the value (and taxes) outpacing your income. Like an elderly person with fixed income.
Either it's really valuable, and they can borrow money to pay taxes, or it's not and taxes are low. But people shouldn't be allowed to freeload on the work others do to make the property valuable.
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Well you might need to if the property taxes can spike like crazy, which is the point some people may be making. You could budget a mortgage but with taxes as a substantial wild card, it can blow up your budget.
Because a cap or exclusion or credit for your primary home lets people who can just barely afford it to purchase their own home. And that's a good thing.
I'm not sure it is. If you can just barely afford a home, that also suggests that you don't have enough financial cushion to deal with all the little surprises that come with homeownership. Worse, you might be ill-positioned to weather a something like a recession. Recessions are nasty things and have a tendency to cause people to lose their jobs and become underwater on their home loans in rapid succession.
Now, apartments can suck too. Especially in places like the USA where we have a landlord cartel actively pushing up prices, and a professional landlord president who shut down an antitrust investigation into said cartel shortly after entering office.
I certainly can't say I have all the answers here; right now housing sucks every way you look at it. But I do believe quite firmly that this idea that going very deeply into debt and securing it with the actual roof over your head is somehow good for a person's financial security is an idea that mostly serves the interests of people who earn a commission on convincing people to get into that situation.
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Why not just subsidize this directly then?
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Likely because of legacy homeowners who bought their $2m home 50 years ago for $25k and are now retired. They don’t have the income to pay those taxes even though their non-liquid net worth is way high
People are arguing about this but just making the cap income-dependent seems an easy fix.
Maybe you’re referring to someone who owns multiple properties… But I think if someone owns the house they live in, there should be a cap once they reach a certain age. My Mom is retired and owns her home, but she still effectively pays rent on the property. She has a fixed income and the property tax comes in around 16% of her monthly income.
That doesn’t seem too bad, until you see all of her other costs have gone up dramatically because inflation has been high post pandemic. She only has so much money to spend every month, and if her property taxes kept going up too, she’d eventually be unable to afford to live in her house. She only owns her home because she was worried about being secure later in life and prioritized it above things like vacations or cars.
For a lot of folks as they age, even if they’re frugal, it’s not easy to survive. If you live for 20-30 years after retirement you’re likely to have your buying power cut by half if not more.
With that said, if someone’s home is worth more than say 10x the average price in your area, or your assets are $10+ million[1], I think there’s room for increased taxation. My primary point was simply being a property isn’t necessarily the right measure to determine a reasonable tax rate.
[1] The number obviously depends on where someone lives. Living in New York or SF, $10 million dollars of assets would be an extremely comfortable life but most likely not a lavish lifestyle. But… $10 million dollars in rural Mississippi is going to have you living an extremely lavish lifestyle.
If property taxes are increasing, the value of the home and the wealth of the resident are increasing far in excess of the home.
The only fair thing to do is to allow some portion of the taxes into a lien that is paid out when the he is sold.
It's extremely unfair to reward excess wealth to the wealthy people of a community, while everyone else is struggling just to find a place to live.
Not only is it unfair, but it skews financial incentives and results in very poor politics for improving the unfair housing situation.
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You may not always be that rich, and having to liquidate your only house to pay the taxes is and should be an unpopular opinion.
lol caps prevent "unreasonable" rates of tax
Get rid of the fixed mortgage rate. Owners will sell when they can't afford the mortgage rate; the new owner will pay property taxes at the current rate.
Apart from the US, there aren't may other countries that allow fixed rate mortgages, and not a 30-year fixed.
Land value taxation is the worst idea ever. I already don’t like the idea of property taxes, where you have to pay for a piece of land you own. The ideal should be that unless you’re making use of public services you can live a free life. You should not have to pay just to exist. I’d much rather that income is taxed for the higher tax brackets more.