Thursday, April 28, 2005

Ewww... taxes.

I'm really beginning to like Coyote Blog. Here's an example of why:
Many people have worked hard to pay off their mortgage, thinking they could settle down into their retirement in a paid off house. Unfortunately, they may find that their home has increased in value so much that their property taxes at retirement are actually much higher than their original payment on the house. Take the case of a couple who bought their house in an urban area for $25,000 and find its now worth $375,000 forty years later (this is an average urban price increase over the last 40 years). For simplicity, we will assume the effective tax rate has stayed at $1.50 per $100 for these forty years (though its more likely to have gone up). In 1965, they paid $375 a year in taxes. Today, they have to pay $5,625. In other words, their property taxes today are over 22.5% a year of the original price they paid for the house. Now, this is all fine if the couple strove to work up the corporate ladder and get promotions and grow their income proportionately. But what if they didn't want to? What if they just wanted to buy that house, pay it off, and live modestly selling driftwood sculptures at farmers markets, or whatever. The answer is, because of property taxes, they can't. Likely they will have to sell this house, give up the urban life they wanted, and either move to an urban dump they can afford the property taxes on, or they move out to the country... It is ironic that a tax initially invented for populist reasons to cut back on wealth accumulation hurts the lower income brackets and those trying to step off of the capitalist treadmill the most. In fact, it was the poor in the Great Depression who typically lobbied for laws to put moratoriums on property tax collections.
In other words, property taxes contribute to materialism. The only way to keep your lifestyle is to make sure that you're climbing the financial ladder. Thrift and simplicity won't scale in this environment.

Taxes, Bad!

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