Monday, March 21, 2011

Taxes: Income vs. Property

I read an article last Sunday in the Star Tribune (the one that I got for $1 for a year, and have saved oh-so-much-more in the coupons that have come out of it!) about property taxes paid in Minnesota and this Voss report. In this article, Tice talks about "modest incomes" (between $10,000 and $45,000, which is where my husband and I fall), and how they pay 5% of their income in property taxes. Right away, I thought something was wrong with this article.

First off, property tax is based on the value of your propertyincome tax is based on your income. I don't know if Tice was trying to get his readers to not think about it, but just get up in a tizzy that the "poor" pay more in taxes than those greedy "rich" people or what, but the opinion article, wasn't based on very solid facts. (Which I guess opinion articles don't need to be, but if you're trying to persuade someone to see it your way, it usually helps.)

Of course, the math teacher in me, pulled out my calculator and figured out what percent of our income went to property taxes, to see if this actually held true for us (after all, it is an average). We pay 3.6% of our income in property taxes, much less than the 5% that this Voss report claimed. But I kept reading to see if there was some validity to this article.

It went on to talk about how "middle incomes" (between $45,000 and $65,000) pay 3.5% of their income in property taxes in the metro area, with a state-wide range of anywhere from 1.6% in the southwest corner of the state to 3.8% in southwest Hennepin County. Apparently Minneapolis also carries the "heaviest burden" of paying their income towards property tax. The article ended by posing a question about correcting the inequities in Minnesota's property tax.

If property taxes weren't based on property value, but rather income, then wouldn't that be getting rid of property tax, and adding on another income tax? I understand the economy is tough, and people are loosing their jobs (thus lowering their income, especially if they can't find another job). Property values (which property taxes are based off) have dropped, and some people owe more on their house than what it's worth (making it very difficult to be able to sell). But when people are buying a home, they need to consider what their income is, and how much they are willing to pay, not just for their house, but also in property taxes each year to the government. If you can't afford it (or the burden is too heavy, as this article was saying), then don't buy it. It's more than you can afford. It's how people go in debt & often get stuck there. (That concept applies to much more than just real estate.)

Now, of course, I would say there are some exceptions that can be made, for example, taking out student loans to pay for an education (your goal here is to be able to make more money in the long run). Yes, you need a place to live, but a home that's valued at $90,000, and one that's valued at $250,000 will both suffice. And yes, I'm sure the $250,000 home is much, much nicer than the $90,000 one, but which one can you afford? You can always upgrade later, when you're in a better financial situation.

Anyway, there's my 2-cents on that article. I hope people realized this disparity when they read the article themselves, but from perusing the comments section, it didn't appear too many did. Another article was written in response to Tice's article about how it was misleading. This article by Hamilton & Sheran, hits on my main point about how property taxes are based on property value, but also hits on several other points that Tice made. Such as, that local government aide is there to help reduce the inequalities between property-poor cities and property-rich cities.

1 comment:

  1. Our property value keeps going down but the taxes keep going up. Why? Well, I went to my city council meeting to ask. I was told that When the city doesn't make enough money (through property taxes and state handouts), rather than cutting salaries, benefits, or programs, they hike up the taxes.

    Well, I already knew that. But I wanted them to know that our household income went down (as the cities would have if they hadn't raised the property taxes) and we are forced to spend less. Our needs have not diminished in any way, our income has. I made the mayor stumble over her words when I pointed out that residents have less income now, why should the city be taking more of it. We live within our means-governments (and everybody) should also have to do that.

    that's my two cents.