The vast majority of homeowners believe that the current property tax system is inherently regressive, meaning the middle class heavily subsidizes the rich. Others think it's the most significant annual harassment they have to endure. Rich folks owning expensive homes are not too bothered as the system favors them. It is more or less the opposite of the income tax system, where the top 1% pays 40% of all federal taxes.
Property tax is one of the main reasons why seniors and minorities get uprooted from their neighborhoods. Unfortunately, single-family residence ("SFR") is the most significant investment for most Americans, and the local governments usually control it via their primary revenue tool called property tax.
So, what are some of those middle-class friendly progressive replacement revenue sources?
1. Introduce Million dollar Home Sales Surtax. Since the upscale and expensive homeowners would be a big beneficiary of the phase-out (followed by no property taxes), the million-dollar home sales must carry additional progressive surtaxes. It must not be a one-size-fits-all blanket rate; instead, it must be progressive because of the savings – for example, sale price $1M to $2M @2.00%, $2M to $3M @2.25%, $3M to $5M @2.50%, $5M to $10M @2.75%, $10M+ @3.00%, etc., etc. While eliminating property taxes will make the high-end housing market more liquid, the introduction of sales surtax (coupled with higher short-holding transfer taxes) will gradually de-incentivize gamers, stabilizing this volatile segment.
2. Introduce Higher Transfer Taxes for Gamers and Flippers. At the point of sale, shorter holding periods (say, up to 2 years) must carry much higher transfer taxes, so the traders and flippers are separated from the homeowners. It's a clear moral hazard case when primary homeowners and gamers are treated alike by the local assessors. While gamers are entitled to compete and buy, they must be treated as investors if they sell within the shorter window. Of course, certain consumer exceptions (e.g., job-related relocation, medical emergency, etc.) must be factored in as long as the home's use as primary residence could be proven.
3. Introduce Higher Sales and Transfer Taxes on Income-producing SFRs. In terms of sales and transfer taxes, single-family homes occupied as primary residences must be treated differently from investor purchases for conversion to rentals. At the point of sale, those investors must pay higher sales taxes (add-on sales surtax). During the last recession, many institutions bought and converted millions of single-family homes into rentals creating a whole new "SFR Rental" industry. Unlike people's primary residences, these are income-producing properties and must be treated as such. Even during the years of property tax phase-out, they must be treated as a sub-class of the multi-family, paying higher sales, property, and transfer taxes than the primary residences.
4. Counties must Claim its Share of Taxes from Airbnb. Like Uber, Airbnb has become mainstream competing with the commercial lodging industry, potentially lowering the latter's occupancy rates and, consequently, the government's hotel tax revenues. Under the circumstances, states must make sure that Airbnb collects and returns all taxes to respective states and, in turn, to the originating counties. Given the rising popularity of Airbnb, this tax revenue will grow exponentially in the coming years. This new-found tax revenue will far exceed the lost hotel tax revenue, but it will also generate new taxes in smaller markets where hotels/motels are generally in short supply.
5. Implement Surtax on Luxury Durable Goods. To save $5K to $150K on property taxes at the front-end and capped SALT deductions at the back-end, homeowners would be amenable to the proposed durable goods surtax. Unlike involuntary property taxes, consumption taxes are more humane – families can budget and plan for these expenditures. Since the basic, durable goods impact the middle class, the rate must be lower, say 2 to 3% for the basic, followed by the luxury durable and ultra-luxury durable goods, with progressively higher rates. While counties would be allowed to charge different rates, there must be non-resident tariff provisions, meaning counties with lower rates must collect the differentials from the non-resident purchasers (from the reciprocating counties) with higher rates.
Last but not least, massive savings will be generated from the closure of Assessment offices. In large cities and counties, hundreds of employees work in those offices (Assessor's office, Assessment Review, Data Collection, Mapping, Valuation and Valuation Modeling, Customer Service, Exemptions, Public Relations, and Outreach, Attorneys, etc.). The elimination of those high-paying jobs will save local governments tens of millions in salaries and benefits. Additionally, those offices' closure will save significant sums in rent, utilities, security, maintenance, IT, web, telecom services, etc.
So, it's about time we phase out this mostly unfair and inequitable property tax system and replace it with a series of middle-class friendly progressive consumption taxes, thus freeing homeowners from local government control clutches.
No comments:
Post a Comment