Hudson: Twilight of the Gods

[lektrode]

Re: Hudson: Twilight of the Gods

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this is hudson's point. you can pay that money in taxes, to fund municipal services. if you choose to keep the tax rate lower, however, the home values will rise so that you end up paying the same amount, but in interest, and you thus will underfund your municipal services. the financial industry extracts rents which would otherwise be taxes paying for actual services.

and dont forget the increased taxes on all that income one will need to pay on/for all the above

why i say that (the coming wave of ZIRP-created) INFLATION is the cruelest/most regressive tax of them all

AND WHY I BLAME THE POLITICAL ARISTOCRACY FOR ALL OF IT !!!

[doom&gloom]

Re: Hudson: Twilight of the Gods

I live in the burbs of chicago, and property taxes are really high. About 2.5% of your market value, and given the fire pumped up prices makes paying my property taxes a real burden. Median county home price is roughly 250K, which gives the median tax bill at $6250. Median income is 76K. Loss of a job with a cobra medical payments of 15K will not be sustainable for very long before you have to leave your house, even if you own it!

Additionally the way property taxes are calculated, they do not go down if your property values go down.
I was happy when my taxes when up only $100 this year. Usually this is $400 - $500 a year increase.
This is on top of stagnant wages

I don't blame the teachers. I blame the fire-men and their useful idiot politicians. I know it's not fare to punish the teachers, but I can't pay any more. A few more increases in taxes and years of stagnant wages and I will have to down size, and I do not live in a McMansion. I have a track house in a working class neighborhood. Maybe leave the county if things get tough. Is that what the politcos want? To break up neighborhoods and force down property values because people can't afford the tax?

I have a friend who sold a house in the NW 'burbs and took a roughly $50k loss to get out of it, but his taxes were $12k/yr. In roughly 4 years he is even again. He downsized to a townhome in a different burb with more commercial tax base than where he had been, but his taxes are close to $5k on a townhome no less. Another couple we know out there are paying almost 13K on a house that realistically has not gone up in value in over a decade or more. I always question how they get out of it when the monthly tax nut is over $1k/mo. Thats a damn lot of money to pay in taxes. Of course much of that goes down the rathole of the Forest Preserve District. Whoever would have thought letting a bunch of trees grow could cost so much, huh?

I pity you CB. I suggest you try to get out now while rates are low and there may still be suckers to get you out. A jump in rates and you may never get out.

[jk]

Re: Hudson: Twilight of the Gods

I have a friend who sold a house in the NW 'burbs and took a roughly $50k loss to get out of it, but his taxes were $12k/yr. In roughly 4 years he is even again. He downsized to a townhome in a different burb with more commercial tax base than where he had been, but his taxes are close to $5k on a townhome no less. Another couple we know out there are paying almost 13K on a house that realistically has not gone up in value in over a decade or more. I always question how they get out of it when the monthly tax nut is over $1k/mo. Thats a damn lot of money to pay in taxes. Of course much of that goes down the rathole of the Forest Preserve District. Whoever would have thought letting a bunch of trees grow could cost so much, huh?

I pity you CB. I suggest you try to get out now while rates are low and there may still be suckers to get you out. A jump in rates and you may never get out.

as i pointed out above, the higher the taxes, the lower the property values, the lower the interest expenses. you can pay it in taxes or you can pay it to FIRE. property prices will adjust to make it even out.

[cjppjc]

Re: Hudson: Twilight of the Gods

this is hudson's point. you can pay that money in taxes, to fund municipal services. if you choose to keep the tax rate lower, however, the home values will rise so that you end up paying the same amount, but in interest, and you thus will underfund your municipal services. the financial industry extracts rents which would otherwise be taxes paying for actual services.

The rate is adjusted to reflect how much money is needed to fund the town.

as i pointed out above, the higher the taxes, the lower the property values, the lower the interest expenses. you can pay it in taxes or you can pay it to FIRE. property prices will adjust to make it even out.

Twice you mention interest. This would only be true for new buyers correct? Also, since you have made this statement do you have any supporting data?

[jk]

Re: Hudson: Twilight of the Gods

i just plugged the numbers into a "how much house can you afford?" calculator. the higher the taxes, the lower the home value you can afford at any given income level. then i looked at the payments on the lower/higher loan values to see how much they varied and, indeed, as hudson says, they're roughly equal to the tax variation required to lower/raise the home value.

and, yes, the tax rate, i.e. mil rate, is adjust for "how much money is needed to fund the town," but as you well know, there will be debates in town about what is worth paying for, how quickly or well to repair the streets, whether to build the new high school, whether that school is funded sufficiently to offer more capital intensive courses such as those involving computer or language labs, whether to repair or replace that old bridge [or do neither and wait for it to fall down], whether to pay for repairs out of current taxes or by floating a bond, and so on.

hudson's point is that the "anti-tax" movement succeeds in lowering taxes, lowering municipal service quality, and raising interest expenses for both municipalities and individuals. the money that would otherwise fund better town services is instead extracted by the banks.

you may argue that someone who bought his house more cheaply long ago isn't paying the higher interest payments but: 1. across the population, the argument holds; 2. are you sure that guy hasn't refi'd to extract his equity?

[cjppjc]

Re: Hudson: Twilight of the Gods

I see what you're saying now.

[don]

Re: Hudson: Twilight of the Gods

This theory was just recently put to the test - remember the 'new buyer' incentive plan. A $7,500 tax break was immediately translated into an average $15k buck up in pricing. The prosecution rests . . .

[c1ue]

Re: Hudson: Twilight of the Gods

Now that Hudson's comments on property taxes affected asset values are being accepted, the next step is to accept his next property statement: that low property taxes also drive up property asset values because it allows rentiers to buy and hold property out of the market because of the low carrying cost.

Thence to the corollary that tying up huge sums of equity into static holding instruments like land also squeezes capital out of the economy, thus in turn increasing the effect of what liquid capital remains.

[Polish_Silver]

Re: Hudson: Twilight of the Gods

The point he was making was that the generous "unfunded" pensions/wages is always blamed rather than the change in property tax law which is what causes the shortfall in the first place.
Without proposition 13 there would have been no bondholders in the first place as there would have been no shortfall in financing in the first place is Hudson's argument.

Most of California's problem is not the bunds, but the pension liabilities. These were not annual budget shortfalls, but over generous benefits. Who in the private sector gets defined benefit, inflation adjusted benefits?

Prop 13 limited only property taxes. The state has income taxes, sales taxes etc. Overall, the taxation level is not especially low. When property prices were going up 10%/year, the state did not reduce the tax rate. It's not obvious to me what the property tax rate should be. Does hudson think the higher the tax rate the better? Hong Kong and Taiwan are kicking our but economically and they have low taxes.

[jk]

Re: Hudson: Twilight of the Gods

Now that Hudson's comments on property taxes affected asset values are being accepted, the next step is to accept his next property statement: that low property taxes also drive up property asset values because it allows rentiers to buy and hold property out of the market because of the low carrying cost.

Thence to the corollary that tying up huge sums of equity into static holding instruments like land also squeezes capital out of the economy, thus in turn increasing the effect of what liquid capital remains.

this doesn't make sense to me. the money used to acquire the real estate asset doesn't disappear. in fact, since much of it is borrowed, it is added to the money supply and conveyed to the seller, who doesn't burn it.

[jk]

Re: Hudson: Twilight of the Gods

Most of California's problem is not the bunds, but the pension liabilities. These were not annual budget shortfalls, but over generous benefits. Who in the private sector gets defined benefit, inflation adjusted benefits?

Prop 13 limited only property taxes. The state has income taxes, sales taxes etc. Overall, the taxation level is not especially low. When property prices were going up 10%/year, the state did not reduce the tax rate. It's not obvious to me what the property tax rate should be. Does hudson think the higher the tax rate the better? Hong Kong and Taiwan are kicking our but economically and they have low taxes.

i can't speak for, or even quote, hudson on these matters, but i have a couple of comments of my own.

re: "who in the private sector gets defined benefit, inflation adjusted pensions?" - it USED TO be the case that this kind of benefit was routinely offered by large industrial employers. why are they now viewed as outrageous? one problem, of course, is inflation, but that was not the responsibility of the kind of workers who used to get these benefits. that was the result of our policy makers/politicians not wanting to face the music and be responsible in their decisions. [as to "who elected them?", do we want to look at voters or donors?] as for "defined benefit," that concept dates to the assumption that there would be continued, ongoing growth in the economy which would allow pension assets to grow as well. and that idea was in vogue before the system was shifted so that ALL growth was allocated to the incomes of the wealthiest.

as for whether property or other taxes should be higher, i think every bridge that falls down for lack of maintenance is testimony to that idea. every asset sale of civic goods to private operators - e.g. chicago parking meters, tollroads - is testimony to the cowardice of our politicians and to the venality of their donors.

[Polish_Silver]

Re: Hudson: Twilight of the Gods

Defined benefits are more unrealistic than outrageous. They worked in the past because oil was cheap and population was growing.
Bridges should be maintained by tolls or fuel taxes, no?

I've nothing against private or public sector toll roads, but that seems to have nothing to do with property taxes. In california, property taxes fund schools. I don't see the connection. Should owning a house be prohibitively expensive ? Should only "commercial" land be taxed (IE taxing apartment renters but not home owners? In most regions, business zones are already taxed more heavily than residential zones.

As for carrying costs, what is the point of "keeping X off the market" ? The carrying costs include maintenance, insurance, taxes, etc. Is there evidence of property sitting idle ?

[jk]

Re: Hudson: Twilight of the Gods

Should owning a house be prohibitively expensive ?

given that you will spend $x/mo to pay for that house, would you rather those dollars go in interest payments to the bank or tax payments to the town?

[Thailandnotes]

Re: Hudson: Twilight of the Gods

"The ground is being prepared for a neoliberal “cure”: cutting back pensions and health care, defaulting on pension promises to labor, and selling off the public sector, letting the new proprietors put up tollbooths on everything from roads to schools." Hudson

I'd say the ground has been plowed, tilled, and raked already.

From an interview with Donald Bartlett...

“You have the current head of AIG, Benmosche, saying earlier this year that people are just going to have to get used to the idea of working until they are 70 or 80. Now, he made that pronouncement from his villa in Dubrovnik in Croatia.

“You’re going to work 'til you're 80? We have a friend who is a job recruiter. And she said, "Look," she said, "if you’re over 50 now, you’re going to have trouble getting a job." She said, "I hate to say it, but I tell people, 'You can't look your age anymore. You really can’t.’" And she’s talking about somebody in their fifties and maybe 60. Eighty? You’ve got to be kidding me.”

[doom&gloom]

Re: Hudson: Twilight of the Gods

All the more reson that if you are not "set", it pays to own your own business so you are not beholden to some other persons idea of an 'ideal' employee.