If we want to boost government revenue, then renters should pay more taxes. With more renters paying more taxes, we can better fight for equality and help all people. The more people who can pitch into pay taxes, the stronger our economy.
Every winter and spring, millions of homeowners across America pay their property taxes. In California, homeowners have to fork over roughly 1.24% 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 and come up with the down payment, have to pay extra taxes while renters don’t? Let’s explore and discuss, shall we?
Why Renters Should Pay More Taxes: We Are All Equal
So why is it that renters don’t have to pay a renters tax while homeowners have to pay property tax?
The clearest reason 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. Then there’s the term “master bedroom.” You get the idea.
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.
Related: Why The Housing Market Won’t Crash Any Time Soon
Everybody Needs To Pay More Tax
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 it’s now 2021, 11 years after I initially wrote this post and the project has been scrapped! But of course, not before wasting at last a billion dollars of tax-payer’s money.
Some renters argue that homeowners got it good already with the mortgage interest deduction of $750,000 (was $1,000,000). In other words, if my interest rate is 5%, I can reduce my taxable income by $37,500. Well I say $750,000 is not enough!
The figure is totally arbitrary, and should be raised by at least double to $1,500,000. 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 Between Renters And Homeowners
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. Renters should pay more taxes for better 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. We know President Biden wants to raise the top marginal income tax rate, increase the top capital gains tax rate, and remove the stepped-up basis. This stinks for higher income earners working exhausting hours.
The mindset of always raising other people’s taxes is embedded in America. However, in the long run, raising rents ends up hurting renters. Rents will simply 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.
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Related: Property Taxes By State: We Must Learn To Embrace Ever Higher Property Taxes
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.
Susan D Kane says
It’s really great that you were able to save up for a 20% downpayment. I commend your fiscal discipline. As it happens, most people in expensive real estate markets get their downpayments from inherited wealth – from their parents, their grandparents or similar. Maybe not most people YOU personally know – but most people. The idea that the average earner (not a high income couple living with their parents) in a high cost of living location can save 150K to buy a house during their 20s and 30s is frankly laughable. Real estate costs in those locations have FAR, far outpaced salaries, which explains why every Boomer alive in America believes they are a real estate investing genius. As with most things, the fact that our economy and our history is insanely unfair to those who do not come from wealth does NOT MEAN that YOU didn’t work hard. You did work hard. So did a lot of other people who didn’t get a downpayment from a family member. The real question is – why is any normal person still living in the SF Bay area? California is full of beautiful, less expensive places to live. We should have a national program to help middle income people move into lower cost of living places. That will revitalize a lot of our smaller cities and towns and get housing costs into check in expensive cities. The pandemic started this process – let’s hope it continues.
Financial Samurai says
Regarding the San Francisco Bay area, the main reason is due to income. You can be a 22 or 23-year-old college graduate who makes $120,000 your first year. Pay is that good, and by the time you’re 30 years old, you’re probably making over $300,000 a year. Add two of these type of people, and you can see how affording property is feasible.
R Bell says
Every landlord worth their salt includes their property taxes within the overall calculation of what to charge renters,,,renters ALREADY pay the property taxes for the place they’re renting from. Your ludicrous argument totally ignores this and is basically asking for them to pay a separate tax on top of the taxes they’re already indirectly paying while the landlord STILL profits off them. Awful.
Overall, not a high quality post compared to some of your other, better ideas.
It’s all local supply and demand for the rental market. Taxes inform rent prices. If taxes change, sometimes the renters pay for it, and sometimes the local rent market is so tight that landlords know they can’t increase the rent without risking an empty unit.
No need for a law, sheesh. You must be trolling.
Renters face an annual rent increase from their landlord. The landlord claims it’s cause their taxes increased, so the place that burden on the tenants instead by raising their rent. Taxes should not be the tenants burden. It’s cost of business for the landlord, and can be used as a tax write off (or a percentage of it anyways). This forces tenants to move every year cause of rent increases, or move in with family. A way to offset this is to due a multi-year lease which could limit rent increases, but a landlord would have to be willing to accept anything longer than a 12 month lease.