Every winter and spring, millions of homeowners across America pay their property taxes. In California, homeowners have to fork over roughly 1.2% of the assessed value every year to the local government. Put it another way, in 83 years, a homeowner will have paid 100% the value of his or her home in taxes! How sick is that?
It is the American way for all citizens to pay their taxes, except for the many who don’t. We know by now that the often cited “47%” are the elderly or those who make under $20,000 so that’s fine. If you are one of them, just don’t vote to raise taxes on the 53% who already pay 100% of all federal income taxes please! Let’s all pitch in or starve the beast instead.
So why is it that homeowners, many of whom initially struggle to pay their mortgages, have to pay extra taxes while renters don’t? Let’s explore and discuss, shall we?
RENTERS VS HOMEOWNERS: A WRONGLY PERCEIVED CLASS DIFFERENTIAL
The clearest reason why homeowners have to pay property taxes while renters don’t have to pay renter taxes is because the government perceives homeowners as Lords! The word “landlord” makes it very clear that homeowners are considered the superior class. Back in the old days, peasants had to toil in the fields to pay for shelter. They couldn’t even afford regular food, let alone pay extra in taxes to help build schools and maintain roads.
Hundreds of years later, it’s odd that this archaic term and concept still holds true, even though America has grown to become the wealthiest nation in the world. For anybody to equate renter to poverty is just ludicrous. Sure, there are some studies that show that the average net worth for a homeowner is 40X greater than that of a renter ($160,000 vs. $4,000). But overall, many more Americans nowadays rent out of choice, not out of insufficient funds.
SPREAD THE PROPERTY TAX PAIN FOR ALL
With a typical $700,000 home in San Francisco, the homeowner is paying around $8,000 a year to the city to fund schools and maintain public infrastructure projects. That’s $8,000 more than a renter pays, yet both the homeowner and the renter enjoy the same benefits. Clearly, this is unfair.
Just looking at my bill, I see $50 going to the SFUSD (I have no idea what the hell this is), and another $205 going to “teacher’s support”, even though I don’t have kids in public school. Supposedly, a couple thousand of my property tax is going to be used to build a bullet train from San Francisco to LA too. Sweet! I’m really going to be riding that in 2020 when it’s done? No, because we all know the project won’t be done until 2030 at the earliest!
Some renters argue that homeowners got it good already with the mortgage interest deduction of up to $1,100,000. In other words, if my interest rate is 5%, I can reduce my taxable income by $55,000. Well I say $1,100,000 is not enough! The figure is totally arbitrary, and should be raised by at least double to $2,200,000. It takes a lot of work to be able to save up 20% for a downpayment on a house and have 10% left over as a buffer in my 30/30/3 rule. Homeowners therefore deserve a reward for their fiscal discipline, rather than be punished with more taxation.
EQUALITY FOR RENTERS & HOMEOWNERS MAKES EVERYTHING SO EASY
I’m a big believer in equality, and therefore I believe renters should pay a “Renter Tax”. To calculate an equitable way to tax renters, what we do is capitalize the annual rent by a normal risk free rate of say 4%. Say for example you pay $24,000 a year in rent. Divide $24,000 by 4% and you get $600,000. The $600,000 is the basis where you as a renter will pay 1.2% ($7,200) every year to the city, to also pitch in and support the schools and roads.
The Renter Tax proposition is a brilliant way to shore up any budget deficit the city or state may have, while creating a fair scenario for all people. Let’s create an environment where everybody proudly pitches in to ensure a harmoniously great nation for all our children! And most of all, let’s change the perception that renters are lower class citizens and tax renters just as much as homeowners. Equality for all!
If you are a renter, are you sufficiently frustrated yet? The goal of this post is to recreate the frustration homeowners and certain income groups feel for having to pay more taxes. It’s understandable to vote on legislation to spend more of other people’s money for your own benefit. However, in the long run, you just end up hurting yourself because rents will increase to reflect increased expenditure by way of property taxes. If you want more spending, please also agree to pay more taxes as well. It is wrong to raise taxes on one group of people without having to pay more yourself.
Note: In the UK, it is the occupant of the building who pays the property tax, regardless if they are a renter or a homeowner. It’s called the Council Tax, and it’s working just fine over there.
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Updated for 2020. Property tax is going higher, income tax for millions of individuals making over $112,500 is going higher, borrowing rates are going higher, and inflation is going higher. It’s important for everybody to own assets that inflate with inflation over the long term e.g. stocks, real estate. Otherwise, you will get run over by inflation. Related: Property Taxes By State: We Must Learn To Embrace Ever Higher Property Taxes