By Andre Carrel
We complain about taxes, the amount we pay and how governments spend the money. However, we elect the people who make the decisions, and thus the blame for the decisions they make ultimately falls on our shoulders. In the case of taxing property, my unease is not with the idea of taxes; it is with the principle of the levy.
Real estate is an asset. Real estate ownership has a long and less than rosy history. The appellation ‘landlord’ indicates that ownership of land (and the slaves to work it) was what distinguished aristocracy from common folk. To a degree that holds true today, but owning a heavily mortgaged three bedroom/one bathroom residence hardly fits the historic Lord of the Land salutation.
Real estate is the only asset on which we impose an annual tax. Why don’t we impose annual taxes on other assets: art, jewelry, pleasure vehicles, etc.? We do not assess an annual tax on the value of stock market investments, and, as the name ‘Tax-Free Savings Account’ indicates, we even exempt some asset earnings from taxation. Real estate is the only asset we subject to annual taxation.
The market value of residential property, no matter how meticulous the annual valuation process, is nonetheless a speculative value. It bears no relationship to the initial investment made to build a home and no relationship to the cost of any future replacement. By the time the taxes imposed on the basis of this assessment are payable, the property’s stated market value is already out-of-date.
One interesting aspect of assessing residential property on the basis of its market value for the purpose of taxation is that the system ignores any mortgage(s) tied to the property. Ownership of the asset value of a mortgaged home is shared by the title holder and the mortgage lender. For the lender – bank or credit union – the title holder’s debt is an asset. The difference between a mortgaged residential property’s market value and its abiding actual value was made painfully evident by the 2007-2008 global financial crisis.
If a property is mortgaged, the mortgage balance owed is an asset owned by the lender. Thus, if the mortgage owed on a home equals half its market value, the property’s title holder is being taxed not only for the asset he or she owns, but also for debt owed. There would be riots in the streets if governments were to tax people on their outstanding car loans or credit card balances! Why do we allow being taxed on mortgage debt?
What distinguishes property taxes from all other taxes is the ease of collection. Put simply, the process is ‘Give me your money or lose your home.’ A home may be assessed at a $1 million and, come tax sale deadline, if the delinquent tax is just one dollar, out you go! It takes less effort to collect a $10,000 property tax debt than it takes to collect a $5 parking ticket. Is annual property taxation justified by ease of collection?