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Old 10-16-2007, 07:29 PM   #21
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The problem with a real estate tax is it taxes unrealised gains. Your house or other real estate is worth say 5m but in order to pay the tax you have to either borrow on the property, have cash, or sell the asset.
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Old 10-16-2007, 07:32 PM   #22
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Everyone would know what everyone else is paying (that's the transparent part) and there would be no possible way to cheat (that's the fair part).

I don't know where you live, but this is how the local tax system already works in my state and there doesn't appear to be a problem with it. I'm just taking this local system of taxation and making it a federal and even a state one.

Of course, these taxes could be complemented with taxes on fuel, tobacco, and alcohol just as it is being done now, but there would be no more income tax, no fear of personal audits, no paperwork to prepare once a year, and no need to keep receipts for deductible expenses over 3 to 6 years.

Fair, transparent, and now I will add "simple" to the name making it the "FTS Tax."
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Old 10-16-2007, 07:54 PM   #23
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What about long time residents whose homes are relatively suddenly bid sky high. That has certainly happened in my neighborhood. Are you going to tax people regardless of their ability to pay ? Are you going to run them out of their long occupied home ?
Any tax system will have a social effect, including this one.

For those that can't pay their real estate tax now, they are already subject to foreclosure or at least slapped with a tax lien at the local level. What would make it any different for them if this were done on a federal level? People are always moving based on where they can afford to live, even with the current tax system we have today.

In special cases (I can think of elderly on a fixed income as an example), there could be a deferment of taxes until the house is sold or transferred.
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Old 10-16-2007, 08:53 PM   #24
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Retire,
I live in Texas. The property tax on a $300,000 house is about $9,000 a year. In parts of Texas property values have been going up at a rate of 10% per year. Actually it went up all at once in most communities but the tax is limited to a 10% increase per year. That means in 7 years you property tax would double.

So how do you handle the situation of a person that purchases a home for $100,000 and 14 years later it is worth $400,000 and their tax has gone from $3k to $12K. They live on a fixed income and have no way to pay that sort of increase or their salaries did not keep up this with this type of inflation. This is the vary reason the property tax has to be rigged for older people. i.e. over 65 homestead, tax deferment and such. People were being taxed out of their homes, and in fact those that are not eligible for the over 65 benefits have had to move.

By the way, while there is a homestead and over 65 homestead, and disability exemptions and several others, there is no such exemptions for commercial property. i.e. apartments. So once again renters take it in the ear.

Once more could you take the doubling of your federal income tax in say two years with no increase in income?

States that are not 'high property tax' states do not have the problems because the tax does not make up that much of a persons living expense. Once more Texas with no income tax the property tax pays for county, city, ports, school districts, community college districts, special economic zones and on and on. It makes up a large portion of the states taxes.
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Old 10-16-2007, 11:57 PM   #25
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Retire,
I live in Texas. The property tax on a $300,000 house is about $9,000 a year. In parts of Texas property values have been going up at a rate of 10% per year. Actually it went up all at once in most communities but the tax is limited to a 10% increase per year. That means in 7 years you property tax would double.

So how do you handle the situation of a person that purchases a home for $100,000 and 14 years later it is worth $400,000 and their tax has gone from $3k to $12K...Once more could you take the doubling of your federal income tax in say two years with no increase in income?...
You answered part of your own question by saying there is a cap on the amount of annual tax increase you would have.

You are also taking a correct premise to the wrong conclusion. You are incorrectly assuming that real estate tax rates will always be a constant rate. Just because the value of your real estate quadruples does not necessarily mean that your taxes would also quadruple under my tax plan. The federal government would make annual adjustments to the real estate tax rate. So if in year 1, your property assessed at $100,000 is being taxed at say 1.00% or $1,000. 14 years later when it is worth $400,000, I would assume generally ALL real estate values went up dramatically in value (not just your property), so the federal government would adjust the tax rate to say 0.35% making your tax $1,400 which would be about the same tax in inflation-adjusted dollars as it was 14 years prior.

Once again, it is all transparent and one rule with no loopholes would apply to everyone in the country. Fair, simple, easy to understand, no forms to fill out, no receipts to keep, nobody has to ever fear an audit again, nobody escapes being taxed, nobody can cheat, and everyone can make all the money they want tax-free and keep it in the USA since they will not need to "hide" cash overseas. There can be no better system!
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Old 10-17-2007, 07:48 AM   #26
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retire@40: There can be no better system!

Why is this better than NST? Im not saying it is a bad idea, it certainly seems better than our current tax mish-mosh. But what makes it better than NST?

Since so much will hinge on the valuation of the home (much more than with current county/city prop taxes), won't those valuation estimates (which is all they can be) get very contentious? If a 10% change in that estimate means I pay 10% more in taxes, that is a big deal. And estimating a home value within 10% is not a cut/dried affair.

And the 'rich' people will be able to afford to go to court to contest the assessed value, but not poor people. People will try to make upgrades 'under the radar' - this may lead to fewer inspections and less safety.

Under an NST the value of the item is established n the most efficient way I can imagine - by the fact it was bought/sold. No judgment at all, it is what it is.

NST does require administration to collect the tax (already being done in many states), and it could drive some sales underground, but I don't see it as a slam-dunk that your prop tax proposal is better.

I think the building industry is going to feel like it is being 'picked on'. People will tend to shift their spending to expensive cars, artwork and furnishings in that house rather than the house itself. The NST taxes everything we buy* - no playing favorites.

-ERD50

* yes, this even includes food and medicine, which is a good idea. Else, you have congress getting in and deciding if a candy is 'food', or is a 'health bar' a food or a snack, etc, etc ,etc. Just do the pre-bate, let the rest fall where it falls.
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Old 10-17-2007, 09:05 AM   #27
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The federal government would make annual adjustments to the real estate tax rate.
Yeah that's going to happen !

Out where I live the government at all levels soaks up whatever funding they get and spends it as fast as they can. They never quite have enough no matter how much funding they get. So some justify ever increasing taxes.
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Old 10-17-2007, 09:16 AM   #28
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Why is this better than NST? Im not saying it is a bad idea, it certainly seems better than our current tax mish-mosh. But what makes it better than NST?
NST is prone to cheating. The grocery store owner is going to be trading groceries with his mechanic, there is going to be a lot of "gifting" before and/or after the sale, there are going to be a lot of "secret" cash registers with unreported sales, along with all the other creative ideas people will use to get around that system that I can't even being to imagine.

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And the 'rich' people will be able to afford to go to court to contest the assessed value, but not poor people. People will try to make upgrades 'under the radar' - this may lead to fewer inspections and less safety.
Transparency means that all property values will be made public (as they are now) and people will be able to compare their homes (# of rooms, square footage, etc.) to others in the town so nobody can fall under the radar. People go to city hall to contest assessed values now, they don't need expensive lawyers to do that now in their town.

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Under an NST the value of the item is established n the most efficient way I can imagine - by the fact it was bought/sold. No judgment at all, it is what it is.
I don't follow your logic here. Real estate is bought and sold all the time too. Judgement is used to determine value whether it's real estate or super bowl tickets. Someone could always say "it really isn't worth THAT much," but the market will dictate the value.

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NST does require administration to collect the tax (already being done in many states), and it could drive some sales underground, but I don't see it as a slam-dunk that your prop tax proposal is better.
And don't forget, there will need to be NST police to "audit" the sales tax receipt you will always need to carry out of the store with you. They will need to randomly stop people to verify 1) that the store gave them a receipt, 2) match the receipt to the register, and 3) make sure the store did not undervalue the product you purchase on the receipt to "save you some NST."

If you don't believe this will happen, I can vouch that it happened to me in Italy (they have a VAT) when I was stopped by "La Finanza" (Italian version of IRS) after I came out of a store with a purchase.

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I think the building industry is going to feel like it is being 'picked on'. People will tend to shift their spending to expensive cars, artwork and furnishings in that house rather than the house itself. The NST taxes everything we buy* - no playing favorites.
That is a weak argument. I could counter by saying the retail industry will feel picked on by the NST.

Who is going to put expensive cars and expensive artwork in a crappy house? Those things go hand in hand.

Everyone needs a place to live, so nobody will be picked on since everyone will be paying the tax on real estate.
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Old 10-17-2007, 09:25 AM   #29
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Yeah that's going to happen !

Out where I live the government at all levels soaks up whatever funding they get and spends it as fast as they can. They never quite have enough no matter how much funding they get. So some justify ever increasing taxes.
It does happen now in towns that collect a real estate tax. They adjust their rate per thousand all the time. Actually, it even happens with our current income tax system. Bush lowered the income tax rates, so it does happen.

You are talking about a different issue: Government overspending. This has nothing to do with the system of taxation.
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Old 10-17-2007, 09:48 AM   #30
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It does happen now in towns that collect a real estate tax. They adjust their rate per thousand all the time. Actually, it even happens with our current income tax system. Bush lowered the income tax rates, so it does happen.

You are talking about a different issue: Government overspending. This has nothing to do with the system of taxation.
I'll back you up on that point. My locality uses a formula, the taxes are X, and get divided up based on your assessment.

In simple terms, if every home in the locality doubled in value in a year, the tax rates would be cut in half automatically by the formula and we would still pay the same amount.

In fact, my propert taxes actually went down this year (!). I didn't analyze it in detail, but I'm pretty sure it is because there were a lot of very high end houses added to the area in the past year. So, this brought my slice of the pie down.

Any increase/decrease in the actual tax amounts collected are controlled by other factors - not the assessed value.

-ERD50
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Old 10-17-2007, 10:12 AM   #31
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Every taxing authority in Texas meets every year and sets their rates. What has happened is that they leave the rate unchanged or lower it a little. As an example there is a story in the Houston paper today about the county lowering taxes $.01 per $1,000 on a $.69 tax rate. That will lower the average person's tax about $12 a year, however their taxes will actually go up as property values have risen 6 to 10%. The same thing happened in California and it lead to Prop 13. Texas does not have referendums, so it is harder to get this type of legislation passed. According to the Tax Assessor in Harris County, Paul Bettencourt, taxes have almost doubled in the last 6 years. The reason the increase in property values with little or no reduction in rates.

Politicians are addicted to cash! It is the way they stay in power, and it does not matter which party or which politician. Most Texas politicians will openly tell you 'I have not rasied your Taxes, or even, I lowered your Taxes' because they lowered slightly or not at all the rate. And, yes this has worked for them for the past 20 years. I see no reason the federal government would be any different.

You may not remember it, but at one time Congress voted on term limits. Almost every congressman voted for it, and it did not pass! How, 1/3 voted for the democratic bill, 1/3 voted for the Republican bill, 1/3 voted for the compromise bill. With 2/3 against each bill. I can see the same when the 'Lower the rate bill' comes up.
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Old 10-17-2007, 01:32 PM   #32
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What some people forget is that for real estate... buildings can be very difficult to value... you can see it all the time where a building is sold for $50 or even $70 million and the tax value is $10 to $15 mill... there are firms who make a great living taking the taxing authorities to court etc. to get the value lowered... So, a RE tax is not as fair as you might think.
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Old 10-17-2007, 01:56 PM   #33
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What some people forget is that for real estate... buildings can be very difficult to value... you can see it all the time where a building is sold for $50 or even $70 million and the tax value is $10 to $15 mill... there are firms who make a great living taking the taxing authorities to court etc. to get the value lowered... So, a RE tax is not as fair as you might think.
There are professional appraisers that value buildings for a living. Maybe they can get the value lowered to the bottom of a range, but I doubt that they can successfully convince the taxing authorities that their $50 million to $70 million building is only worth $10 to $15 million.

The transparent part of real estate taxes would allow everyone else in the city to view the public documents showing the assessed value. If it is way off the mark, then I'm sure people would complain enough to have it adjusted to within a reasonable range.

I know people in my town that compare their assessed values to their neighbors on the same street with similar homes and have been successful in lowering their over-assessed homes to match the neighbor's assessment value. It gets very easy to do this when you can look all this information up online, so there's even no need to make a special trip to the assessor's office in town.
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Old 10-17-2007, 02:31 PM   #34
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OK, your mind is made up. That's clear now. No statement of fact, or what actually happens in states that depend largely on property tax will change your mind, So I will make this my last try.

Needless to say there is a reason why property tax is not brought up as a replacement for the income tax. Yes it is transparent, but it is a regressive tax that taxes unrealized gains. Very few investors could afford the liquid assets to continually pay taxes on unrealized gains. It is easy to liquidate part of a stock port folio or bank account. How does say the owners of the Texas Rangers liquidate 10% of his stadium?

And as you are only dealing with real estate ownership, how about the person that deeds their property to a charity, and rents it back? No federal tax! I can see where large corporations would no longer own real estate and Churches would be the world's landlords.

By the way, those professional appraiser, well lets just say while there is not a 70 million to 10 million drop in values, I have seen large discrepancies in values. Also, large commercial clients have the bucks and the motivation to protest their taxes yearly. Once more google Harris count commercial residential values. You will find that there has been a growing discrepancy in values. Why, well if you own a 100M building and you can get 10% knocked off, you save real money. If you own a 100k house and get the same 10% you can buy lunch. It is not worth the residential owners effort to protest every year.

I ran the MIS department for a Texas county tax assessor, and I hold a California and Texas residential and commercial appraiser certification. So this subject is not new to me.
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Old 10-17-2007, 02:41 PM   #35
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The problem with appraisers is they can be easily influenced. You will be hard pressed to find enough appraisers to actually go out and appraise the property for tax purposes. The assessors offices usually use the appraised value from a recent sell for valuation. Many times the values can be way off from true value, especially in a very heated or cold market. Banks do apply a "hint, hint, wink, wink" type of pressure for the appraisers to come in at a needed value. I used to underwrite appraisals for a mortgage department. It was easy to see when an appraiser was attempting to justify a value. It is very difficult to prove in court that that is what the appraiser was doing. As long as fraud was not provable we had to take the appraisers word for the value.

When I bought my last house the appraiser had to go to the extreme to justify the value as low as we were purchasing it for. Two houses on the same street one with the exact same floor plan and one with a similar size sold within the same month. Both houses sold for over 50k more than I paid for my house. Granted my house was in slightly worse shape, but the appraiser would have to make too large of an adjustment if she used my neighbors' houses for the appraisal to be valid. We were lucky in that our house had some minor cosmetic issues and the seller was very motivated. In the end she had to go to a lower quality neighborhood at the edge of the mileage limits to justify the low price we purchased our house for.

Not too mention what do you do for the working poor who happen to have used a low income program to purchase their house. The people are doing their best, but they would probably not be able to afford the large increase in taxes required. So now these working poor will lose their house. With the sales tax at least they working poor would be able to moderate how much taxes they paid by how much money they spent. With the prebate it would at least provide a minimum amount of tax exemption to provide food and clothing for those who need it.
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Old 10-17-2007, 03:31 PM   #36
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Appraisal of commercial property is more art than science. However, I am sure there are some appraisers that might disagree with that. Not all states have full disclousure of sales data so appraising a peace of property relies on the lies data provided by the market. What did the property sell for? What percentage rented? How much rent? How much common space? Offsets for build-out? and more! Large appraisal districts normally do not do individual appraisals unless there is a protest. They do mass appraisal. i.e. a neighborhood or economic district, type building etc. lumped into a value. If the owner does not protest it stands. The appraisal district knows that they may be off so generally they won't fight a 10% reduction. It is not cost effective to appraise all commercial buildings.

(Above is only my opinion. It may be different where you live.)
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Old 10-17-2007, 03:46 PM   #37
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OK, your mind is made up. That's clear now. No statement of fact, or what actually happens in states that depend largely on property tax will change your mind.
Hehehe. Nothing is set in stone and I'm not reading this from a book. I'm making this up as I go along and I want to see what the counter arguments would be to a national real estate tax. I heard some good points, but I still think on a national scale, this would be a good idea, especially if it was the first tax system put in place by Congress and the income tax never existed.

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Needless to say there is a reason why property tax is not brought up as a replacement for the income tax. Yes it is transparent, but it is a regressive tax that taxes unrealized gains. Very few investors could afford the liquid assets to continually pay taxes on unrealized gains.
I think the major reason this tax system would not replace our current system is because Congress would lose a lot of power and there would be almost no more need for tax lobbyists.

A better way to describe it would be a tax on fair market value. You are assuming there is always an unrealized gain. There could be times that there is also an unrealized loss (especially these days).

I don't think there are "very few" people that could afford being taxed on their real estate value, although there will always be "some" that will not be able to afford the tax and I already mentioned in a previous post about deferring the tax, or maybe even making the tax zero for values below a certain amount (like our income tax system currently has).

If this were such a bad tax system, how come Texas is doing it and there are still lots of people living Texas?
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Old 10-17-2007, 03:50 PM   #38
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There are professional appraisers that value buildings for a living. Maybe they can get the value lowered to the bottom of a range, but I doubt that they can successfully convince the taxing authorities that their $50 million to $70 million building is only worth $10 to $15 million.

The transparent part of real estate taxes would allow everyone else in the city to view the public documents showing the assessed value. If it is way off the mark, then I'm sure people would complain enough to have it adjusted to within a reasonable range.

I know people in my town that compare their assessed values to their neighbors on the same street with similar homes and have been successful in lowering their over-assessed homes to match the neighbor's assessment value. It gets very easy to do this when you can look all this information up online, so there's even no need to make a special trip to the assessor's office in town.
Let's just say I work in the RE dept of a major corp and it is very common for this to happen.. we just sold a bldg with the numbers I gave...
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Old 10-17-2007, 03:56 PM   #39
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You obviously do not live in a high property tax state. And if you thin congress will not play with a tax, you are just naive. I don't mean this as an insult, it is just that what politicians do, and no taxs is immune. You already mentioned one way, deferments, then there are exemptions. Do you think the politicians really care about the over 65 crowd or homeowners? No, they represent one of the largest voting blocks. They have to service large contributors, but the have to get the voters to vote for them in then end. Why do you think you are seeing the surge of new programs being touted by both parties?

However, I doubt if we will ever see a major change in the tax system. There are too many people with a vested interest in the status quo.
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