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Could The USA ask property owners to pick up the slack in revenue?
Old 09-27-2011, 01:21 PM   #1
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Could The USA ask property owners to pick up the slack in revenue?

As I see the euro troubles unfold I start to wonder when the government here both state and fed will just impose a big tax on home owners to fix our monetary woes? Anybody else feel this comming down the Pike?
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Old 09-27-2011, 01:28 PM   #2
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Old 09-27-2011, 01:28 PM   #3
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As I see the euro troubles unfold I start to wonder when the government here both state and fed will just impose a big tax on home owners to fix our monetary woes? Anybody else feel this comming down the Pike?
Well, they could try, but I doubt the House will bite on that..........
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Old 09-27-2011, 01:54 PM   #4
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As I see the euro troubles unfold I start to wonder when the government here both state and fed will just impose a big tax on home owners to fix our monetary woes? Anybody else feel this comming down the Pike?
I doubt it. Homeownership is sacred here. Our government (to varying degrees at the local, state and federal level) does everything it can to increase the homeownership rate. Subsidized mortgages, down payment assistance, mortgage interest deduction, real estate tax deduction, various first time home buyer tax credits, non-taxation of forgiven mortgage indebtedness, generous capital gains exclusions upon sale of homes. And many more programs and policies.

They could raise tens or hundreds of billions of dollars by eliminating some or all of these policies without placing any new taxes on homes.

From a political perspective, I would guess they would reduce or eliminate some of the existing policies and expenditures before passing a new tax.
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Old 09-27-2011, 01:58 PM   #5
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They could raise tens or hundreds of billions of dollars by eliminating some or all of these policies without placing any new taxes on homes.
Exactly.

It's easier just to remove the interest deduction and retain revenue in that manner.

Of course, the burden would fall on those that don't own their home (e.g. younger, and probably still wor*ing), but that's another discussion.
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Old 09-27-2011, 02:08 PM   #6
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Most states are running deficits to varying degrees, so I fully expect property taxes to go up or state and local services to go down. Up to the electorate which way that goes. It's property tax, sales tax or income tax - probably all three so none looks too severe alone (politics 101).

For those who don't think property taxes will increase, how do you see state and local gubmints getting their budgets somewhat balanced? All spending cuts - knowing that unfunded pension liabilities are part of spending?

Property taxes aren't a federal matter to my knowledge.

At some point the mortgage deduction may have to give, I've certainly heard more talk about lately. It may not be the home ownership incentive the housing and mortgage industries would like us to believe. I've read there's never been a mortgage deduction in Canada but home ownership there has been just as robust as the USA (maybe some of our Canadian readers could confirm?).
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Old 09-27-2011, 02:09 PM   #7
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No. I can see many ways of dealing with the problems (any of which would disproportionately hit the middle/working class, IMO) -- but slapping a huge "property tax" on homeowners isn't one of them.

I believe the feds would need a Constitutional amendment for a "national property tax" anyway. At most they could phase out the mortgage interest deduction (which I think is a good idea anyway, since it is a market distortion).
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Old 09-27-2011, 02:58 PM   #8
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As I see the euro troubles unfold I start to wonder when the government here both state and fed will just impose a big tax on home owners to fix our monetary woes? Anybody else feel this comming down the Pike?
The state and federal government will be looking for backs to strap with the unfunded pensions, and other entitlements. It's gonna be a big game of tag. Most people and companies are positioning themselves so as to not be "it".
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Old 09-27-2011, 03:00 PM   #9
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Most people and companies are positioning themselves so as to not be "it".
Yep, this.

I see more and more means-tested goodies in the future based on income, so I am positioning myself to be as asset-rich and income-poor as I can comfortably exist as I get closer to retirement.
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Old 09-27-2011, 03:02 PM   #10
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As I see the euro troubles unfold I start to wonder when the government here both state and fed will just impose a big tax on home owners to fix our monetary woes? Anybody else feel this comming down the Pike?
Not likely, IMHO, but if it happens, you'll definitely feel it coming up your "pike"...
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Old 09-27-2011, 03:06 PM   #11
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I see more and more means-tested goodies in the future based on income, so I am positioning myself to be as asset-rich and income-poor as I can comfortably exist as I get closer to retirement.
Me too. And I can't see much downside...
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Old 09-27-2011, 03:28 PM   #12
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Me too. And I can't see much downside...
Other than the obvious tactic of owning your home (although that results in property taxes), give me some ideas here. How are you positioning yourself to show low income yet live nicely by owning assets?

Whenever this subject comes up, I fail to see many opportunities to live well without showing much income in our traditional suburban, middle class lifestyle.
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Old 09-27-2011, 03:39 PM   #13
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Other than the obvious tactic of owning your home (although that results in property taxes), give me some ideas here. How are you positioning yourself to show low income yet live nicely by owning assets?

Whenever this subject comes up, I fail to see many opportunities to live well without showing much income in our traditional suburban, middle class lifestyle.
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Old 09-27-2011, 03:43 PM   #14
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Other than the obvious tactic of owning your home (although that results in property taxes), give me some ideas here. How are you positioning yourself to show low income yet live nicely by owning assets?

Whenever this subject comes up, I fail to see many opportunities to live well without showing much income in our traditional suburban, middle class lifestyle.
It's not that hard if you live fairly simply (I'm not talking austerity here) and have a paid off home and no other debt. If you have the 800-pound health insurance gorilla off your back it's even easier.

For another thing, I think taking taxable income now is underrated in some situations. We've been conditioned to defer taxes, mostly for good reason. But if -- *if* -- we see both (a) higher taxes in the future and (b) more means-tested benefits based on taxable income, then maybe paying taxes today to accumulate already-taxed wealth (not income when drawn down) would provide enough of a revenue stream without spiking your AGI.

In other words, if I had $500K in a traditional IRA or 401K and took out $15K a year, that's $15K of AGI to apply to any means testing. But if I had $500K (or even $350K after tax) in a taxable account I'd still have over $10K a year coming in from it... already taxed so it doesn't get included in income calculations.

Now if too many people did this we'd see more asset-based means testing instead of income-based means testing. But right now the focus tends to be on income (except for a few exceptions like Medicaid) and too many people are living hand to mouth to "engineer" this financial position, so I don't know that they'd make it an assets test.

It's like any other decision between taxable or tax-deferred decisions -- do I expect my taxes higher now or higher later? And I consider the prospect of means testing to be similar to "higher taxes later."
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Old 09-27-2011, 04:01 PM   #15
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It's not that hard if you live fairly simply (I'm not talking austerity here) and have a paid off home and no other debt. If you have the 800-pound health insurance gorilla off your back it's even easier.

For another thing, I think taking taxable income now is underrated in some situations. We've been conditioned to defer taxes, mostly for good reason. But if -- *if* -- we see both (a) higher taxes in the future and (b) more means-tested benefits based on taxable income, then maybe paying taxes today to accumulate already-taxed wealth (not income when drawn down) would provide enough of a revenue stream without spiking your AGI.

In other words, if I had $500K in a traditional IRA or 401K and took out $15K a year, that's $15K of AGI to apply to any means testing. But if I had $500K (or even $350K after tax) in a taxable account I'd still have over $10K a year coming in from it... already taxed so it doesn't get included in income calculations.

Now if too many people did this we'd see more asset-based means testing instead of income-based means testing. But right now the focus tends to be on income (except for a few exceptions like Medicaid) and too many people are living hand to mouth to "engineer" this financial position, so I don't know that they'd make it an assets test.

It's like any other decision between taxable or tax-deferred decisions -- do I expect my taxes higher now or higher later? And I consider the prospect of means testing to be similar to "higher taxes later."
Zig.....

You only have two ideas here and one, "living fairly simply" isn't all that appealing if you mean living below typical middle class standards.

The other, "pay taxes now" might make sense. Someone could withdraw from deferred accounts or convert to Roth status now and avoid withdrawals from deferred accounts as ordinary income later. If..... and it's a big if, they believe that future higher taxes and income based means testing are on the horizon to a degree that makes paying the current taxes now worthwhile.

But other than "living fairly simply" and withdrawing from deferred accounts to avoid RMD's later, what ideas do you have?

Here's an example that might represent anyone on this board. How could a couple having these hypothetical income sources more favorably position themselves to not have income that could result in higher costs because of income based means testing?

SS - $30k
Pensions - $30k
Interest, divs, realized CG's from 1M portfolio - $40k
Total taxable income - $100k

If having a $100k income is resulting in significantly higher costs due to income based means testing by our oh-so-fine gov't, how might this couple arrange things to not show that income?

Note I show no IRA withdrawal as income assuming they already converted everything to Roth or just withdrew it to be part of their $1M portfolio as you suggested.

I don't think the opportunities for being "income poor and asset rich" are as readily available as you think. And I think there are costs involved. For example, hiding the $1M portfolio in a jar buried in the back yard would result in no income but would likely be foolish. Turning down your SS or pension would eliminate the income, but gosh, how silly would that be?
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Old 09-27-2011, 04:05 PM   #16
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SS - $30k
Pensions - $30k
If I thought I had a secure $60K income stream without even saving a penny I wouldn't feel a need to play these games. Heck, if I had a $30K pension on top of SS I'd probably be living it up more today and saving less. Somehow I don't think my $8K pension in 2030 (at 65) will go very far...
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Old 09-27-2011, 04:06 PM   #17
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In my area some homeowners already are. Homeowners are becoming acquainted with rules that allow local governments to assess higher rates due to loss of revenue from lower assessed valuations. They are becoming educated on " how did my property taxes not go down, when the value of my house did?"
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Old 09-27-2011, 04:12 PM   #18
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If I thought I had a secure $60K income stream without even saving a penny I wouldn't feel a need to play these games. Heck, if I had a $30K pension on top of SS I'd probably be living it up more today and saving less. Somehow I don't think my $8K pension in 2030 (at 65) will go very far...
Well, you'll likely have at least $30k SS combined with your DW. And with your $8k pension, that's $38k. If the two of you have acumulated a $1M portfolio (you said you were trying to be asset rich) to FIRE on and are earning $40k taxable on that, we're up to $78k.

If $78k is getting you means tested (and failing the "poor guy" test) for some gov't services, what ideas do you have?
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Old 09-27-2011, 04:15 PM   #19
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In my area some homeowners already are. Homeowners are becoming acquainted with rules that allow local governments to assess higher rates due to loss of revenue from lower assessed valuations. They are becoming educated on " how did my property taxes not go down, when the value of my house did?"
Many home owners are confused about this. It's not the value of your home that determines your property tax. It's the value of your home in relation to the other home owners and the amount your oh-so-fine taxing authority has levied on you as a group. Unless your home value goes down more than your neighbors, you're still going to pay the same percentage of the whole nut.

As you say, higher rates are levied to make up for lower assessments. If you want lower property taxes, you must have less gov't and/or fewer services.

I just got my re-assessment letter from the township. My home's assessed valuation (one third of the market value) is down 10.8% from the prior assessment. A phone call to the assessor's office got me the warning to expect 2012 property taxes to be up 4%. Much of that is being driven by the need to increase local gov't employer contributions to pension funds which, in Illinois, are horribly under funded.

Sigh.........
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Old 09-27-2011, 04:22 PM   #20
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If you want lower property taxes, you must have less gov't and/or few services.
...or move.
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