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The Middle-Class Squeeze
- prostoalex 11y agoA lot of the ails mentioned in the article seem to arise from Western societies' preference on income taxation vs property taxation. Low property taxes force the governments to finance its expenditures mainly through sales and income taxes. The former are optional, the latter happen to penalize those who elect to participate in the workforce (which large property owners can safely sit out).
- bluedevil2k 11y agoProperty taxes are the most regressive form of taxation there is - it actually punishes good investments. If I buy a great house in a down market, when the market rebounds now I'm going to be punished year after year with higher taxes based on the financial "gains" that I haven't even realized yet. With a sales tax, good investments are rewarded by only taxing consumption, which can be avoided for those that wish to take on the risk/reward of investment.
- jMyles 11y agoWell, that of course depends on the system of property value assessment.
- paulpauper 11y agoexactly. it punishes risk takers.
- ppereira 11y agoIncorrect. "Regressive" does not just mean "bad" according to some arbitrary definition of bad. If the poor pay more of a tax than the rich as a percentage of their income or wealth, then the tax is regressive. Otherwise, it is progressive. The word regressive is used to describe the incidence of a tax on a population. A property tax is generally progressive because the poor do not own real property. The rich pay more property tax as a percentage of their income/wealth than the poor. A sales tax is the prototypical example of a regressive tax because the rich consume less (as a percentage of their income) than the poor. Therefore, the rich pay of a lower percentage of their total income to sales taxes than the poor. An income tax with higher marginal tax rates for higher incomes is the classic example of a progressive tax. Since Reagan, income taxes approximate a flat tax more than a progressive one.
- splat 11y ago> A property tax is generally progressive because the poor do not own real property. Won't those taxes still be passed to the poor as higher rent?
- ProAm 11y agoHow does rent control come into play here?
- pash 11y ago> If the poor pay more of a tax than the rich as a percentage of their income or wealth, then the tax is regressive. Otherwise, it is progressive. The word regressive is used to describe the incidence of a tax on a population. Although this is effectively the definition of progressive and regressive taxation today—because that's how the terms are almost always used by the large number of people who have only the most casual understanding of tax policy—it is a perversion of the original and long-standing textbook definition, and of the way in which the terms are still used by some economists. By the original definition, a progressive tax is simply one whose rate of assessment increases ("progresses") with the value subject to taxation [0]. Thus an import duty on bananas is progressive if it taxes them at a rate of 1% ad valorem for the first $1MM's worth, and then at a rate of 2% of their value above $1MM. Note that the original definition and the popular corruption coincide when the thing being taxed is a person's income. (Together with the mistaken association with "progressive" politics, this seems to be the source of the perversion of meaning.) But the two definitions often differ, and the term "progressive" in the context of taxation originally had nothing to do with how the burden of taxation is distributed across society. 0. This is also the definition given in the Wikipedia article, https://en.m.wikipedia.org/wiki/Progressive_tax https://en.m.wikipedia.org/wiki/Progressive_tax (and given by several of the cited sources), although much of the article anyway discusses the burden-of-taxation interpretation.
- tangled 11y agoIn California, property taxes are usually only reassessed on sale. There is also an inflation linked increase, but it's capped at a maximum of 2%. So you can end up with people who have been living in houses for 20 or 30 years who are paying an order of magnitude less in property tax than if they'd just bought the same house today. This also means that if you buy a house in a down market then you're likely to save a lot in terms of property taxes. Disclaimer: I am not a tax adviser etc.
- tw04 11y agoWhich works right up until the point that the amount you spend is only a fraction of your income. Then suddenly your effective tax rate is a fraction of someone who is poor. Consumption tax is 100% broken.
- euroclydon 11y agoProperty taxes also punish retired people. When your wages disappear after retirement, it's a lot more difficult to pay the taxes on your home.
- go1979 11y agoThe recent run up in property prices in most major western cities makes me think the home owning class isn't in too bad of a shape. If you own a house in Vancouver, the Bay area, Toronto, London etc. you basically won the lottery. If you are a young adult, well ... hope your parents help you out? My parents were immigrants and not savvy enough to buy a house. I'm wondering how I can ever afford a 200K down payment on a million dollar house, and if that is in any way a reasonable idea. Taxing income is the wrong approach since people getting income are contributing to society. The lottery winners who happened to own houses in the right place .. I'm not sure what they contributed.
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- sulam 11y ago$200K = $20K / yr over 10 years. An $800K mortgage, depending on interest rates, can easily cost $4000/month, or almost $50K / yr. If you can't afford to save, you can't afford the mortgage.
- douche 11y agoYou could take that downpayment and buy a house outright, cash in hand, in the 99% of the country that isn't completely fucking bonkers.
- guard-of-terra 11y agoWhy don't retired people "reverse mortgage" their house? They have no use for it after they're dead. If they do, then someone who's going to get that house should foot the taxes.
- paulpauper 11y agoI've heard this argument many times; investment involves risk, potentially 100% of invested capital or more, unlike a paycheck.
- cgio 11y agoI don't know of a paycheque with no risk. Lay-offs are a type of risk, I hope you will agree with me. Given the capital obligations e.g. mortgages paid using the paycheque you can see how the risk is even more than just the unpaid labour. Also labour markets are not liquid.
- fweespeech 11y agoProperty and sales taxes are both the most regressive forms of taxation in practice. The reality is, as much as everyone bitches about income taxes, a progressive tax system [regardless of the exact source, you could do a "progressive sales tax" for instance] is critical to prosperity. Property taxes are in many ways effectively a tax on owning rental property which translates into higher rents [up to the market's willingness to pay, which is quite high given people are spending 50% of their income in some places in rent].
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- venomsnake 11y agoI think that in property taxes we should include not only real estate, but all property. Stocks, shares, securities, art, patents, IP
- djrobstep 11y agoAbsolutely. What would be great is a high land value tax, used to fund a basic income and/or lower income taxes. It would help fix inequality, reward hard work, punish idle land rentiers and punish urban sprawl, all at the same time. What's not to like?
- themartorana 11y agoProperty taxes? I'm not a fan of the idea that the property I "own" is basically just the right to rent it from the government. There's no true land-ownership anymore. Also, as noted above, property taxes can be a huge burden on those retired/on a fixed income. Not to mention, property taxes fluctuate wildly and are incredibly hard to predict and plan for. "Reassessments" happen randomly, seem to be applied haphazardly/unequally (see Philadelphia for a recent example) and can in a few short years move home ownership from affordable to unaffordable for the same person with an unchanging situation. It's hardly a silver bullet. You can never actually pay off a piece of property.
- davidjnelson 11y agoHow about low property taxes for the 65+ crowd on their primary residence?
- guard-of-terra 11y agoHow about taxes paid for them by the bank that takes this residence once they pass away? Can also be a nice buff to pension.
- nradov 11y agoThere's nothing special about land ownership. Property taxes help to ensure that valuable land is used for economically valuable purposes that benefit the rest of society. With low or zero property taxes it becomes too easy for property owners to just let the property sit empty on the hope that the value will rise some day. With high property taxes property owners are effectively forced to either find a way to generate revenue off the property, or sell it to someone who can find a better use.
- douche 11y agoOr you could tax capital gains at the same rate as income. Poor people generally don't have capital to have gains on.
- muhfuhkuh 11y agoThis is never brought up with any kind of seriousness, and the lack of discussion baffles me. I don't understand how we talk about salaries when the top 5% usually do not draw a major salary. They live off capital gains from selling stocks and bonds. It just seems to be a 3rd rail that is untouchable, neither here nor in conservative or liberal blogosphere. It's always about that progressive 1040 taxation. That, or perhaps, instituting a 3% transaction tax for every damn unit of debt or equity sold. Whether its a broker or bot, tax it. But, of course, most of the ruling class wants to talk about "skin in the game" and advocating regressive sales or property tax.
- prostoalex 11y ago> They live off capital gains from selling stocks and bonds. That is also not entirely true. Sales of publicly traded stock by large shareholders is public information, and as an example, Mark Zuckerberg, sold a $2.3 billion chunk of shares in 2012 post-IPO when he became eligible http://www.theguardian.com/technology/2013/dec/19/facebook-mark-zuckerberg-selling-2bn-shares http://www.theguardian.com/technology/2013/dec/19/facebook-m... and has not sold a single share ever since https://finance.yahoo.com/q/it?s=fb https://finance.yahoo.com/q/it?s=fb except for a disposition (charitable contribution). He probably doesn't need to either, there's a long wait before that bank account gets depleted. It does not make sense for 1% to be transacting heavily in the assets they own, and if they're company officers they're frequently sending negative signals by doing that.
- prostoalex 11y agoPeople say that but I've never seen the number that moves the needle much. For one, capital gains are voluntary, and sellers more or less choose when to accrue them (and time them against losses in portfolio to minimize the impact). For two, bulk of the money in the market is paying capital gains tax of 0%, as it belongs to a retirement account, charitable foundation, pension fund, foreign entity, university endowment, trust fund or some other tax-exempt structure. US-affiliated taxable accounts are not the majority in the market (source on this is Ken Fisher's Debunkery http://www.ken-fisher-debunkery.com/ http://www.ken-fisher-debunkery.com/ published in 2011, I'm not sure whether situation changed since then).
- donw 11y agoI suspect this is why the Texas economy looks to be doing so well right now.
- tcbawo 11y agoGiven the large pension shortfalls we are routinely seeing, the inevitable federal bailout will result in a federal tax liability. In a society where people routinely move, having ones property taxes collected and distributed at the national level might make sense. Of course, it could never grow very large -- you have to rely on local assessors to properly set basis levels.
- nugget 11y agoBasic income will turn rural working class into the new middle class and cause those areas to flourish.
- tomohawk 11y agoNegative income tax is a much better idea.
- tomohawk 11y agoMost of the squeezing seems to come down to cronyism, which is a problem in just about any system. For example, the government pushing of subprime mortgages (at the urging of cronies) over-inflated housing prices, and then when the balloon burst, the cronies won again by having the government take over their debt. The question should primarily be how to restrain cronyism, and thereby provide the best outcome for the most people. Cronyism seeks to restrain trade in a way that is advantageous to only a few politically connected players. A pure socialist system or a pure capitalist system would probably not have these issues, but then these are both unicorns. Cronyism seems to be the primary way a socialist system operates. If you're politically connected, you tend to get best access to the goods and tend to be able use regulations to handicap competitors. This makes sense as in a socialist system, the people running the government are more actively engaged in the economy, and the tendency to reward friends and punish adversaries is hard to fight. In a capitalist system, cronyism can also occur if players collude or if a player obtains a monopoly (or some other type of controlling position). In either case, the system then becomes distorted as players increasingly use coercion instead of mutually beneficial exchange. For example, Apple colluding to keep down the wages of workers.
- ubernostrum 11y agoThe issue, at least with the government, is that you can't win. Whenever you hear people complain about how impossible it is to comply with all the procedures and processes and regulations for getting a government contract to develop some software, it's a safe bet that those procedures and processes and regulations were all put in place by well-intentioned people who wanted to prevent corruption. But as people found more inventive ways of being corrupt, the countermeasures had to grow more complex and invasive, until finally they reached the point where only a handful of companies would actually bother to achieve compliance, guaranteeing them a steady stream of contracts regardless of performance. Which is precisely the result that wasn't supposed to happen. Also, the mixed socialist/capitalist economies of Europe seem to do better, on average, than our much more capitalist-leaning system, largely because they aren't afraid to implement certain programs and regulations that in the US would be screamed down as creeping socialism even when they'd be more effective than what we actually do.
- natrius 11y agoThe problem with our capitalism is our money. Currency is a means for us to socialize debts so we can make trade more efficient. When you give Steve money, you're saying, "my people, Steve has provided me $30 of value, so please reward him in kind." Instead of having to give Steve $30 of value directly in return, we communicate that $30 debt to the rest of society with our money. The problem with our currency is that it forces everyone to honor the debts of every other person on the planet. There are people who destroy our environment, manipulate our politics, and deceive our people in order to earn rewards, and we're all forced to reward them because we can't identify whose socialized debt we're honoring when we reward people in exchange for money. If we always knew whose debts were being honored, any individual could refuse to honor the debts of people they believe are harming society. You could effectively turn off people's money if they're behaving poorly. No one would work for you if they think others won't honor your debts. If you don't honor the debts of polluters, polluters lose their purchasing power and go out of business. Similarly, pharmaceutical price gougers, war profiteers, and harbingers of financial crises would have powerful disincentives. This enforcement mechanism would incentivize socially harmonious behavior without requiring consensus on what socially harmonious behavior is. We'd have a market mechanism for social behavior, which would prevent many of capitalism's failures. We could also prevent wealth accumulation by deciding that recent value transfers are worth more than older value transfers. This is something that people actually believe, but there's no way for our money to express that the work you did twenty years ago doesn't mean as much as the work you do today. A pleasant side effect of codifying this truth is that we could avoid the zero lower bound on interest rates that's making it hard for the world to reach full employment. If unemployment is high, just increase the value of recent work so there's a bigger incentive to put people to work. Instead of paying people based on how much money they have, you'd pay them based on their merit, calculated however you decide as an individual. All we need to implement merit capitalism is a ledger of who has provided value for whom to replace our currencies that obfuscate that data. Blockchains give us the power to build this ledger.
- dwpdwpdwpdwpdwp 11y agoThis might be a bit tangential, but these ideas remind me of the importance of voting with ones dollars (as well as ones time). As an American I find that the freedoms I enjoy to spend my money how I like contribute far more to my sense of participating in a democracy than do my occasional trips to the voting booth. It's the reason I can't bring myself to follow the often repeated financial advice to stick your money in an index a fund and then leave it there; I refuse to vote for the behavior so many of those companies engage in.