Property tax is not based on consumption or income. However, it is based on the presumed wealth and income of property owners. This leads many to question whether the tax is really just a tax on wealth altogether.
A Tale Of Many Taxes
There are all kinds of taxes. State and local taxes, sales, income and property tax are very different events. Sales taxes are based on consumption and are typically highly regressive. Low-income households pay a higher percentage of their income on sales taxes than higher-income households.
Income taxes are typically progressive, as the higher one’s income, the more income tax one pays.
Property tax, however, is not based on consumption or income. Rather, it is based on the presumed wealth and income of property owners. In effect, property taxes are a tax on wealth. The presumption is if you can afford property, you can afford the taxes.
The fallacy in this assumption is that homeowners’ incomes do not automatically rise along with housing valuations. Consider the 35% increase in the Case-Shiller 20-City Index since 2012. In a four-year period that officially experienced a mere 4% inflation, housing leaped 35%.
Owning your house free and clear (no mortgage) is no guarantee you’ll be able to live there once property taxes are $1,000 per month.
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As Charles Hugh Smith correctly identifies, property taxes can be a major expense even if your salary hasn’t increased. At the same time, property taxes are just another form of your home’s “price of admission”. In other words, you have to account for all the taxes and fees that you charged by all levels government to arrive at an apples-to-apples comparison.
Different governments (state/county/local) will simply create a different mix of taxes to collect what they need in tax revenues. If they don’t have an income tax, they’ll probably have a sales tax, and vice versa. For some governments, all three types of taxes might be high (see California and New York).
So, if your income isn’t increasing, maybe it’s time to truly analyze whether there’s actually a cost of living advantage in another city? Maybe you can swipe through a few possible cities to discover one that has a lower total tax bill than where you currently live — just download the City Versus City cost of living calculator to see if you could save thousands in future taxes if you lived somewhere else…