Oh Wilbur...

[hyten1]

adesigar, was wonder where exactly can you buy property for 500k and rent for 3k/mo in souther ca. i would like to know, and probably invest there

 

 

That's a nice screed, but people have been trying to explain that what you call "high" effective tax rates are caused by a very high purchase price relative to revenue, which is causing property taxes (which are a function of market values) to be a very high percentage of income. 

 

I already know what they "have been trying to explain". 

 

Do you really?

 

Firstly property taxes vary by state from like 0.5% to 2.3%.

 

Secondly in my neighborhood (in south California) homes are selling for 500,000 and they rent for 3000/mo. If someone choses to be dumb and buy a Million dollar property with 40k in rent per year that's the problem.

 

Finally please don't turn future threads into whines about taxes like you have a tendency to do.

[ERICOPOLY]

Check out this house for $1.3m.

 

http://www.realtor.com/realestateandhomes-detail/4457-Nueces-Dr_Santa-Barbara_CA_93110_M22077-65755

 

 

Must be a rich bastard that owns it and we should take all his money.  The fucker doesn't deserve to have it while the rest of us are suffering in much nicer and bigger homes pretty much anywhere else in the country that can be had for like 1/3 the price.

[ERICOPOLY]

The most incredibly bizarre part of this discussion is that...

 

property taxes are regressive!!!!

 

Yet you are claiming that it's a rich person's whine.

 

Usually people rebuff the idea of a national sales tax because it is regressive, they say it unfairly targets the poor.

 

Well...  well...  well....

 

Thinking at it's finest you guys.

 

How come you always have to dismiss arguments and points on the very mature grounds that rich people are just whiners?

 

[ERICOPOLY]

I bet if you thought I was a poor disabled elderly person and I was here saying I was losing my house because I couldn't pay the property tax...  then you'd just say "what a rich old whiner!". 

 

[rb]

Eric,

 

I've been reading this for a while and I'm wondering if you are building up to a bigger point. Aside from the fact that in your opinion taxes are too high, are you getting somewhere? If the federal government (income) or municipalities (property) should lower taxes do you have a view on what services to cut? Are there some specific and glaring inefficiencies in the system that you would like to address in order to lower costs?

 

If there are inefficiencies to be made how would you like the savings to be distributed?

 

Thanks,

rb

[ERICOPOLY]

Eric,

 

I've been reading this for a while and I'm wondering if you are building up to a bigger point. Aside from the fact that in your opinion taxes are too high, are you getting somewhere? If the federal government (income) or municipalities (property) should lower taxes do you have a view on what services to cut? Are there some specific and glaring inefficiencies in the system that you would like to address in order to lower costs?

 

If there are inefficiencies to be made how would you like the savings to be distributed?

 

Thanks,

rb

 

My attitude towards taxation is shaped by Australia.  I have a dual citizenship between Australia and the US.

 

The Australian society feels more fair overall.  Yet they have no gift tax and no inheritance tax.

 

Your primary residence is exempt from property tax (so you don't lose your home if you run low on savings).  The US system makes elderly folks insecure because most elderly don't have a lot of cash to survive a situation where property taxes rise sharply and thus property taxes could quickly double on them and make their savings look inadequate.

 

They have a dividend franking system (no double tax on dividends).

They have a capital gains tax that is 1/2 of their income tax rate.

 

So it looks like the system is designed for THE RICH ASSHOLES, but it's a fairer society.

 

Riddle me that.

[KJP]

I bet if you thought I was a poor disabled elderly person and I was here saying I was losing my house because I couldn't pay the property tax...  then you'd just say "what a rich old whiner!".

 

In the hypothetical you started with, I'd suggest renting rather than buying. 

 

You also started with the hypothetical of an investment property, which should, I think, be judged by the standards of an investment, which includes considering the after-tax yield you are going to get from it before investing.

 

If you're actually concerned about something else -- such as the effect that rising property values and property taxes can have on long-time homeowners -- then that's a different issue that can be addressed, at least in part, through tweaks in the property tax system, e.g., homestead exemptions.  I'm sure you know that -- and I'm sure you know you're constantly shifting the basis of your position, which makes it difficult to have a coherent discussion -- but I'll do you the courtesy of not calling you an idiot or a moron, like you have done elsewhere in this thread. 

 

You're correct that property taxes can be regressive.  And you're correct that property taxes can evolve in ways that hurt some people, particularly the elderly and the disabled.  There's plenty of room for intelligent discussion about an alternative tax system that could be better.  I hope that's where you're going, because it isn't where you started.

[Pelagic]

Eric,

 

I've been reading this for a while and I'm wondering if you are building up to a bigger point. Aside from the fact that in your opinion taxes are too high, are you getting somewhere? If the federal government (income) or municipalities (property) should lower taxes do you have a view on what services to cut? Are there some specific and glaring inefficiencies in the system that you would like to address in order to lower costs?

 

If there are inefficiencies to be made how would you like the savings to be distributed?

 

Thanks,

rb

 

At the local level there are massive inefficiencies that could be easily cured. I pay a lot in property taxes and feel we get very little other than ok schools in return.

 

Let's look at police and fire. Here we have a county wide police district and county wide fire dept. In addition each little fiefdom that calls itself a city likes to have its own fire/police dept as well so theres a couple dozen or so of those running around. The concept of economies of scale doesn't seem to resonate with the smaller districts, it's a matter of pride or something, yet we still have to pay for their toys (they usually end up calling the county anyways).

 

I'm not even going to make the argument for privatizing some local government services, which I do think is possible and could save money, at this point I'd be happy with a degree of accountability between the various levels of local government. Paying salaries and administrative costs of county, city and school board officials and employees can't be the most efficient way to do things.

 

Local governments, much like their larger brethren, will spend as much as you give them. There is an impetus for them to spend all they can or else they will look like they don't need it next year or as a validation for their existence. We as property owners have little choice in the matter, they say the millage rate is X you pay X or lose your home. There's no checkbox where you get to say I'd like to pay for your schools, fire and police but I think I'll go with the private garbage collection service as they provide a better value. In fact there is a strong disincentive for private garbage, schools, security or any number of services to even exist since EVERY property owner is already paying taxes for those things.

 

Sorry, a bit of a rant but looking at the return on investment of property taxes is frustrating, especially considering how much glaring waste there is at the local level here. 

[ERICOPOLY]

You also started with the hypothetical of an investment property, which should, I think, be judged by the standards of an investment, which includes considering the after-tax yield you are going to get from it before investing.

 

That's true of any investment.  People should consider the after-tax yield of a stock before they buy it.  That doesn't mean the tax rate isn't high if the tax rate on stocks is 60%.  Yes, they should consider it.  They should.  Whether or not they consider it doesn't change the reality of what the tax rate is.  I get the feeling that instead of acknowledging that the rate can be high, it's easier for some people to say "well you shouldn't buy the asset".  Fair advice, however it doesn't change the fact that the tax is high. 

 

I'm merely stating that 60% looks very high to me, on that particular asset.  I didn't say "and it looks like a good investment".  And I didn't say "and it's the only investment to choose from".  Or any of that nonsense.  I just merely stated that it looks very high.

 

 

If you're actually concerned about something else

 

I'm concerned about many thousands of things.  But I can't list absolutely everything -- I tend to keep a discussion focused and use an example to illustrate one point at a time.  It's about maintaining signal to noise ratio.

 

 

There's plenty of room for intelligent discussion about an alternative tax system that could be better.  I hope that's where you're going, because it isn't where you started.

 

Right... I was not being intelligent by adding something that amounts to "rich people are whiners" or "if you don't like it then you shouldn't invest".  That kind of stuff is so much more intelligent than a person stating a fact about the amount of taxes can vary significantly for different people based on the particular assets that they hold -- which was an example made to demonstrate that some people are paying way in excess of what we common think of as "an environment of low tax rates". 

[ERICOPOLY]

So... what would I suggest...

 

Swap one regressive tax for another.

 

Ditch property taxes completely for the primary residence, and replace the revenue with sales taxes.

 

The elderly disabled person can economize on his expenses to bring his tax bill down (and he is already doing that if he is running out of money).

 

Cures his worries about taxes running him into the ground (you can't spend less to get out from under a property tax).

 

[KJP]

 

Ditch property taxes completely for the primary residence, and replace the revenue with sales taxes.

 

 

I suspect that would shift a substantial amount of the tax burden from the wealthy to the middle class and the poor.  I think that's a relevant consideration when discussing the fairness of a tax system.   

 

In addition, property taxes typically fund local government, while sales taxes typically are collected by states and the federal government.  How would you fund local government, i.e., schools, fire departments, police, etc.?  Instituting a local sales tax would not work because many localities don't have enough sales locally, e.g., primarily residential suburbs.

 

Finally, this would do nothing to help the person in your initial hypo, because she's paying "high" taxes on an investment property, rather than her "primary residence." 

[ERICOPOLY]

 

Ditch property taxes completely for the primary residence, and replace the revenue with sales taxes.

 

 

I suspect that would shift a substantial amount of the tax burden from the wealthy to the middle class and the poor.  I think that's a relevant consideration when discussing the fairness of a tax system.   

 

Really? 

What's the cost of an economy plane ticket versus the cost that Warren Buffett spends on travel.

Yet Warren Buffett's house isn't all that expensive.

Some wealthy are extravagant spenders.  Some aren't.

Some people living in expensive houses aren't wealthy (commonly defined as assets held separate from the primary home).

 

It is common for middle-class people 80 years old in New York to have houses they bought 50 years ago that have appreciated vastly in excess of inflation.  So why is it that you won't stick up for these people?  Because you are afraid that a few millionaires might slip through and that just eats you up inside?

 

 

In addition, property taxes typically fund local government, while sales taxes typically are collected by states and the federal government.  How would you fund local government, i.e., schools, fire departments, police, etc.?  Instituting a local sales tax would not work because many localities don't have enough sales locally, e.g., primarily residential suburbs.

 

Australia has something called "rates" which is static and does not vary with the property value.  It is an occupancy tax that doesn't change if you choose to double the size of your home or if home values soar.  That pays for some of the local services.

 

For how to figure out the rest of it, why don't you spend the time to study how the Australians are managing their local government expenses?  They've not getting it from property taxes, yet the society had fire departments, garbage services, schools, police, etc...

 

 

 

Finally, this would do nothing to help the person in your initial hypo, because she's paying "high" taxes on an investment property, rather than her "primary residence."

 

I stopped short of advocating an outright ban because one of the (potentially) intelligent reasons for having a property tax is to keep people from just buying up all the land and hoarding it like gold.  There is a certain level at which a property tax encourages people to put their land to productive use.  But then again, I don't know if that argument is correct or not -- whether the property has no cash yield or negative cash yield, I would still be motivated to develop it and maximize it's productive use.  Like, a 3% yield is better than a 0% yield just as a 2% yield is better than a -1% yield.

 

 

 

[rb]

My attitude towards taxation is shaped by Australia.  I have a dual citizenship between Australia and the US.

 

The Australian society feels more fair overall.  Yet they have no gift tax and no inheritance tax.

 

Your primary residence is exempt from property tax (so you don't lose your home if you run low on savings).  The US system makes elderly folks insecure because most elderly don't have a lot of cash to survive a situation where property taxes rise sharply and thus property taxes could quickly double on them and make their savings look inadequate.

 

They have a dividend franking system (no double tax on dividends).

They have a capital gains tax that is 1/2 of their income tax rate.

 

So it looks like the system is designed for THE RICH ASSHOLES, but it's a fairer society.

 

Riddle me that.

The inheritance tax in the US is subject to a $5.5 million dollar exemption per deceased and $11 million if both mommy and daddy pass. Only 0.2% of estates in the US are subject to estate tax. This is a rare tax that is applicable only to certain very wealthy families.

 

US has preferential taxation for dividends and capital gains. Not as generous as Australia (mainly because of the dividend tax) but not that far away.

 

Australians do pay property tax. It's called council tax over there. However it is smaller than in the US mainly because public schools are funded by the federal government from general tax revenue not by local governments as in the US.

 

The reason why Australia is fairer is because it has a more progressive tax system then the US.

 

Also btw, local, state, and federal taxation put together is about 24-25% of GDP for US so there's not a lot of gouging on the tax side and not a lot of 60-80% tax going on.

[ERICOPOLY]

I'm curious what percentage of people living in million dollar homes are actually wealthy.

 

They might have put 20% down, which is $200,000. 

 

But these are families.  And they pay the $800,000 mortgage with their incomes.  They have fancy cars that they lease.  They have high-tier income tax rates.  Their kids go to fancy private schools.

 

And they have high student loan payments (medical school/law school).

 

And they pay off their student loans with after-tax dollars despite the fact that every business is allowed to depreciate their capital assets against their revenue.

 

But unlike my concept of what wealth means (independence), they're absoutely fucked if they stop working.  They would soon lose their house, have their cars repo'd, their kids would be uprooted...

 

So these are the rich bastards we're all jealous of?

[ERICOPOLY]

Australians do pay property tax. It's called council tax over there.

 

It doesn't vary based on the value of your home.  It's not what we call a property tax.  I think in Australia it's referred to as "rates" (I've already mentioned it in this thread so yes, I'm aware).

 

The reason why Australia is fairer is because it has a more progressive tax system then the US.

 

I understand they are more progressive, but...  Hah, hah hah hah hah.

 

Like, if I (the resident fat cat banker guy) were to propose that we adopt their tax rates for more "fairness", I'd never hear the end of it from the resident Occupy Wall Street tools.

 

In Australia, the tax rate is 32.5% for people making over $37,000

37% for people making over $80,000

45% for people making over $180,000

 

https://www.google.com/#q=australian+tax+rates

 

And the kicker... you can write off expenses from real estate investing against your regular income.  Without limits!  So if you don't want to be taxed on your high income, you utilize a tactic called "negative gearing", where your rents are less than your expenses.

 

You deduct your excess real estate expenses from your overall income (like the one from your fat cat banker salary).

 

So you translate your high income into deferred capital gains, which you then sell later for a tax rate far below what somebody making over $37,000 is paying.

 

[KJP]

Really?

 

Yes, because sales taxes are more regressive than property taxes.  See here:  http://www.itep.org/whopays/full_report.php

What's the data supporting your view?

 

It is common for middle-class people 80 years old in New York to have houses they bought 50 years ago that have appreciated vastly in excess of inflation.  So why is it that you won't stick up for these people?  Because you are afraid that a few millionaires might slip through and that just eats you up inside?

 

As I stated earlier, there are ways to deal with this issue within the property tax system.  Why not address that, rather than create straw men?  Also, there are tens of millions of people who own no property at all and are among the very poorest and most vulnerable in our society.  Why won't you stand up for them by calling for a wealth tax?  Are they invisible to you, or do you just not care about them?

 

 

For how to figure out the rest of it, why don't you spend the time to study how the Australians are managing their local government expenses? 

 

 

Australia funds police and schools at the federal and state/territory level.  The US funds those activities primarily at the local level.  That is why your proposal does not work in, to use your phrase, "the real world."  Why don't you spend time understanding the differences between Australian and US government.

 

 

I stopped short of advocating an outright ban because one of the (potentially) intelligent reasons for having a property tax is to keep people from just buying up all the land and hoarding it like gold.  There is a certain level at which a property tax encourages people to put their land to productive use.  But then again, I don't know if that argument is correct or not -- whether the property has no cash yield or negative cash yield, I would still be motivated to develop it and maximize it's productive use.  Like, a 3% yield is better than a 0% yield just as a 2% yield is better than a -1% yield.

 

I'm glad you now realize that you've shifted to arguing for something that has nothing to do with the purported unfairness you originally highlighted and have now, wisely, abandoned.

 

 

[ERICOPOLY]

Also, there are tens of millions of people who own no property at all and are among the very poorest and most vulnerable in our society.  Why won't you stand up for them by calling for a wealth tax?  Are they invisible to you, or do you just not care about them?

 

Thing is, hardly anyone who claims to care about the very poor call for a wealth tax.

 

I haven't heard Buffett call for a wealth tax.  So he must not be standing up for them either?

 

Buffett earns income from two sources:

1)  His $100,000 salary

2)  Roughly 1% of his net worth is in a trading account where it is earning capital gains, interest income and dividends.

 

So like, he's a smart guy.  He knows that raising the tax rate even to 100% just isn't going to make a damn bit of difference to him.  It only raises the tax rate on 1% of his net worth!

 

He knows this of course, but he doesn't go around advocating for a wealth tax, which is really the only way to shake loose his money.

 

Sure he is pledging to give it all way.  He can still do that with what's left and yet ease the tax burden on his poor secretary by advocating for a wealth tax.

 

But maybe, just maybe, he thinks a wealth tax is not a good thing to have.  I just honestly really don't know.

 

But don't make insinuations that a wealth tax is something that people must advocate for in order to have a conscience.

 

Getting pretty tired of this.  I say that 60% is high for a particular asset.  I stand by that point.

 

[ERICOPOLY]

 

I stopped short of advocating an outright ban because one of the (potentially) intelligent reasons for having a property tax is to keep people from just buying up all the land and hoarding it like gold.  There is a certain level at which a property tax encourages people to put their land to productive use.  But then again, I don't know if that argument is correct or not -- whether the property has no cash yield or negative cash yield, I would still be motivated to develop it and maximize it's productive use.  Like, a 3% yield is better than a 0% yield just as a 2% yield is better than a -1% yield.

 

I'm glad you now realize that you've shifted to arguing for something that has nothing to do with the purported unfairness you originally highlighted and have now, wisely, abandoned.

 

Say what?  I've never shifted away from my point that 60% tax rate is high.  Unless you are totally deranged and know you are making shit up just to piss me off, please spend the time to go back and find where I've used the word "fair", or "unfair". 

 

"Unfair" is not a synonym for "High".  Get it straight. 

 

I suggested that property taxes were originally thought up perhaps as  a nudge to get people to put land to a productive use. But then I second guessed that in the same paragraph (which you ignored), because why the hell would anyone be comfortable holding a lot of assets with no yield if they can make a yield by developing them.

 

Now you are probably going to start your next passive aggressive bullshiit post.  At least I identify you outright as somebody who continually puts words in my mouth.  Why can't you just argue with what I'm saying?

 

Why do you have to put spin and innuendo on it?  Are you depressed, did a rich person fire you from your job or something?

 

 

[KJP]

Also, there are tens of millions of people who own no property at all and are among the very poorest and most vulnerable in our society.  Why won't you stand up for them by calling for a wealth tax?  Are they invisible to you, or do you just not care about them?

 

Thing is, hardly anyone who claims to care about the very poor call for a wealth tax.

 

I haven't heard Buffett call for a wealth tax.  So he must not be standing up for them either?

 

Buffett earns income from two sources:

1)  His $100,000 salary

2)  Roughly 1% of his net worth is in a trading account where it is earning capital gains, interest income and dividends.

 

So like, he's a smart guy.  He knows that raising the tax rate even to 100% just isn't going to make a damn bit of difference to him.  It only raises the tax rate on 1% of his net worth!

 

He knows this of course, but he doesn't go around advocating for a wealth tax, which is really the only way to shake loose his money.

 

Sure he is pledging to give it all way.  He can still do that with what's left and yet ease the tax burden on his poor secretary by advocating for a wealth tax.

 

But maybe, just maybe, he thinks a wealth tax is not a good thing to have.  I just honestly really don't know.

 

But don't make insinuations that a wealth tax is something that people must advocate for in order to have a conscience.

 

Getting pretty tired of this.  I say that 60% is high for a particular asset.  I stand by that point.

 

In this thread, you've advocated for:

 

1) giving bondholders a new tax deduction for the effects of inflation;

2) largely abolishing property taxes; and

3) raising sales taxes

 

Those are highly regressive policies that will lower the tax burden on the wealthy and increase the tax burdens on the poor.  That's what you're advocating for.  That may be uncomfortable for you to hear, but that doesn't make it less true.         

[ERICOPOLY]

I dated a girl like this once.

 

Tries to control every conversation with guilt and shame.

 

Doesn't matter what you said, they won't listen.  They will try to make what you said into something that you should feel guilty and ashamed of.

 

And they try, and they try, and they try to get at you and silence you with guilt and shame.

 

It is not healthy.

[ERICOPOLY]

1) giving bondholders a new tax deduction for the effects of inflation;

 

Correct.  I believe the main reason why we have so many deferred tax vehicles (where people hold their bonds) is largely because the only other option is broken.

 

2) largely abolishing property taxes

 

Correct, to be replace with a tax that more aligns the payment of the taxes with the means (so you don't get these mismatches where poor people cannot reduce their tax liability via thrift

 

3) raising sales taxes

 

Correct.  Taxes on what, that's the question.  In California we have a sales tax but there are exemptions for basic necessities and things like electricity rates are subsidized....  basically, there are ways to ensure that the sales tax isn't making diapers a luxury only for the rich.  Most really poor people can only afford basic necessities, so it's not anywhere near as regressive as you may fear.

[KJP]

 

Say what?  I've never shifted away from my point that 60% tax rate is high.  Unless you are totally deranged and know you are making shit up just to piss me off, please spend the time to go back and find where I've used the word "fair", or "unfair". 

 

 

It's right there in post #66:  "So some taxes are in a bubble -- so fucking shoot me for pointing to the unfairness of that"

 

Let's be honest:  You just want to pay less taxes and don't care about much else.  I was foolish for thinking you actually cared about the facts or the issues involved in tax policy, and doubly foolish for thinking that we could have a useful discussion.  Shame on me.  I'm done.

[ERICOPOLY]

 

Say what?  I've never shifted away from my point that 60% tax rate is high.  Unless you are totally deranged and know you are making shit up just to piss me off, please spend the time to go back and find where I've used the word "fair", or "unfair". 

 

 

It's right there in post #66:  "So some taxes are in a bubble -- so fucking shoot me for pointing to the unfairness of that"

 

Let's be honest:  You just want to pay less taxes and don't care about much else.  I was foolish for thinking you actually cared about the facts or the issues involved in tax policy, and doubly foolish for thinking that we could have a useful discussion.  Shame on me.  I'm done.

 

 

Somebody else brought the bubble into the equation.  I pointed out that having taxes go higher merely because of a BUBBLE is unfair.  Like if you buy a home and you think you can afford it, then housing prices double and the property tax starts to eat into your family budget.  That's unfair because the property tax is linked to euphoria, not economic reality.

 

I said that I never said a 60% tax rate is unfair -- but I did call it high.

 

[rb]

Eric,

 

Dude, cmon, the council tax in Australia IS dependent on the value of the property.

 

You quote those tax rates for Australia which I assume you say that they are either high or regressive. But you fail to mention that for those taxes the Aussie blokes get free health care. You start at 37,000. Fail to mention the other brackets 0-18k tax is zero, 18-37k tax is 19%. There is also a progressive low income tax  between 18 at 37k. There's a medicare tax credit of 2% which basically increases those rates by 2. For that they get free universal healthcare and pensions

 

In the US for federal tax you get 0-6k fed tax at 0%, 6-13k@ 10%, 13-50k @ 15%. On top of that they have to pay 7.65% flat (regressive) for social security and medicare. This along with higher property taxes makes the US system more regressive then Australia.

 

Also you bring up Santa Barbara here. A city in which only 40% of homes are owner occupied and 60% are rented. Which is 1: Not representative for the US as a whole and not even for California as a state. And 2: maybe the dynamics there are such that renters do get a good deal and so they choose to rent. Free market and all that. I also don't see why the landlord or the home owner are always entitled to a good deal. Sometimes it's better to sell the place and rent. It seems to be so in Santa Barbara and residents seem to agree.

 

All this being said, if you want to have an honest and constructive discussion I'm down for that. But up to now you seem to be picking unusual cases and leaving out facts to make your protest that taxes seem too high to you for certain assets. I'm not just gonna keep spending time to correct the record with the facts that you conveniently leave out.

 

You've yelled 60% is too high for investment property in Santa Barbara. Ok, we've heard you.

[ERICOPOLY]

Sorry, I'm being drawn in by my old girlfriend again.

 

My therapist said that I need to avoid people like that.