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When Assets (Such as Real Estate) Become Liabilities

Discussion in 'Real Estate & Other Investments' started by Scorpio, Dec 30, 2016.

  1. Scorpio

    Scorpio Скорпион Founding Member Board Elder Site Mgr Site Supporter ++

    Mar 25, 2010
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    When Assets (Such as Real Estate) Become Liabilities
    December 27, 2016

    It will be the middle class that accepted the notion that "real estate is the foundation of family wealth" that will be stripmined by higher taxes on immobile assets such as real estate.

    Correspondent Joel M. submitted an article that struck me as a harbinger of the future: In Greece, Property Is Debt:

    "At law courts throughout Greece, people are lining up to file papers renouncing their inheritance. Not necessarily because some feckless uncle left them with a pile of debt at the end of his revels; they are turning their backs on what used to be a pillar of Greece’s economy and society: real estate.

    Growing personal debt, declining incomes and ever higher taxes as Greece’s depression grinds on have turned property and the dream of easy money into dread of a catastrophic burden.

    After many years in which only very valuable properties were taxed, many Greeks went from paying almost no taxes on real estate to not having enough money to pay.

    In 2010, property taxes accounted for 0.26 percent of gross domestic product, while this year they are around 2 percent, according to state budget figures. 'Suddenly, the state treated the Greeks as if they were rich, at the precise moment that they ceased to be rich.'

    Among the many disruptions of the past few years, this one shows how traditional conceptions — and a sense of security — can be shattered. With a history full of wars, bankruptcies and rampant inflation, Greeks had always seen land as a haven.

    But it is private debt — at 222 billion euros last year — that may prove an even greater danger. This shows in government revenues. With the unified tax, ownership of every kind of property is now subject to taxation.

    It will be very difficult for the Greeks to get out from under this mountain of debt. Delinquent loans, which at the end of June made up 31.7 percent of all housing loans, were a mere 5.3 percent of the total in 2008."

    The self-reinforcing dynamics in this narrative profoundly reverse time-honored concepts of value: assets that once held or gained value now carry high costs of ownership and lose value.

    1. Governments desperate for tax revenues raise property taxes, which add costs that eventually depress sales and future price appreciation.

    2. High debt levels and high property taxes trigger foreclosures and forced sales that further depress the market with high inventories of unsold/unrented homes.

    3. As sales decline, appreciation can no longer be counted on to enrich owners. Instead, owners fear declines in value and higher taxes. This further depresses sales.

    4. High debt levels become even more burdensome as property values fall.

    5. Rather than offer a means of building and protecting wealth, real estate becomes a liability that destroys wealth via payment of taxes and declines in value.

    While it can be argued that Greece is a unique situation--a cumbersome, costly bureaucracy of land transfer coupled with soaring taxes--perhaps Greece is simply early to the party.


    Governments everywhere are facing fast-rising pension and healthcare costs, and the need for more tax revenues will skyrocket once the global recession trims income, payroll, business and sales taxes.

    Additional taxes on assets that can't flee the country--i.e. real estate--become extremely attractive.

    Once an asset class shifts from being a means of wealth preservation and appreciation to a financial risk and burden, a self-reinforcing feedback loop reduces demand and increases supply, pushing prices lower--a decline that then causes more people to sell before prices drop further.

    The nightmare scenario for recent buyers is a sharp tax increase that crushes the market value of their home, putting them underwater, i.e. their mortgage is greater than the value of their home. Faced with ever-increasing property taxes and further erosion of value, what's the advantage of holding onto the property?

    Anecdotally, stories of owners destroying buildings to lower their property tax appraisal emerged in America's Great Depression, as owners desperate to lower their property taxes destroyed their assets (buildings on the land) as the only available means of keeping their property.

    Which asset class attracts new taxes will be different from nation to nation, but we can anticipate that governments will go after assets that are currently considered safe and that can't flee to low-tax havens.

    Mobile capital can flee to safer, lower tax climes, and the super-wealthy can buy legislative tax breaks on their wealth. It will be the middle class that accepted the notion that "real estate is the foundation of family wealth" that will be stripmined by higher taxes on immobile assets such as real estate.

    This essay was drawn from Musings Report 45. The Musings Reports are sent exclusively to major patrons and contributors ($5/month or $50 annually) every weekend.

    Join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

    Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print). For more, please visit the OTM essentials website.

    REO 54 and Irons like this.
  2. Irons

    Irons Deep Sixed Site Supporter Mother Lode

    Mar 30, 2010
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    Property tax is ongoing robbery and you the owner is a sitting duck.
    It is the #1 way the elite keep you the dirty peasant in your place.

    Trying to improve your lot in life is fine, owning a lake house or cabin in the woods is great.
    Just be prepared to be kicked in the balls repeatedly by useless scum communist party members for the rest of your life.


    GOLDZILLA Harvurd Koleej Jeenyus Midas Member

    Apr 1, 2010
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    I tore down a building on my property just to cut my taxes in half.
  4. searcher

    searcher Mother Lode Found Site Supporter ++ Mother Lode

    Mar 31, 2010
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    I doubt if this goes anywhere.

    Drive to kill school property tax in Pennsylvania headed back to Legislature

    By Marc Levy, The Associated Press

    Posted: 01/03/17, 2:28 PM EST | Updated: 11 hrs ago

    HARRISBURG >> Debate over school property taxes in Pennsylvania is expected to return to the Legislature in 2017.

    Senate supporters say the Nov. 8 election provided the necessary votes to eliminate school property taxes entirely and replace them with other revenue streams.

    That would mean shifting about $14 billion in taxes from property owners, including businesses, to Pennsylvania consumers and workers through sales and personal income taxes.

    An Associated Press analysis of state data found that more than 70 percent of school property taxes were collected by the wealthiest half of school districts in 2014-15.

    Sen. David Argall, R-Schuylkill, will introduce the leading proposal, which would increase the income tax rate by 60 percent and hike the state sales tax rate by 17 percent while applying it to a wider range of goods and services, such as groceries, clothing, basic TV, and funeral services.

    In late 2015, the Senate defeated Argall’s legislation by a 25-24 vote with Lt. Gov. Mike Stack casting the tie-breaker. The vote split both parties and the Pennsylvania School Boards Association opposed it.

    But proponents say a pair of incoming Harrisburg-area senators elected in November are replacing two opponents.

    “We believe that gets us to the magic number of 26,” Argall said.


    Argall said he will reintroduce the bill in the two-year session that began Tuesday. It would allow the collection of school property taxes only to retire current debt, would give districts an inflationary aid increase annually and would require voter approval for school boards seeking a local income tax increase.

    Argall said he has discussed eliminating school property taxes with Democratic Gov. Tom Wolf’s administration, but “the devil is always going to be in the details.”

    Wolf campaigned in 2014 as a proponent of reducing property taxes, in part to narrow the wide disparity between wealthy and poor school districts. The following year, he proposed a $3.2 billion property tax cut designed to provide the most help to higher-poverty, higher-tax school districts, such as Erie, Harrisburg, Johnstown, Reading and Scranton. The plan never got a vote.

    The governor hasn’t endorsed a plan to eliminate property taxes. His office said that while Wolf “could support taking steps towards elimination, the details of such a plan are very important, especially how and whether local communities would contribute directly to school funding.”

    It is unclear whether Argall’s legislation can pass the House.

    A Republican plan the House approved in 2015 was designed to reduce property taxes by about $4 billion. But Democrats said the bill would have helped wealthier, not poorer, districts, and it died in the Senate.


    School property tax collections this fiscal year likely will amount to $13 billion to $14 billion.

    Argall’s legislation would increase the state’s income tax rate to 4.95 percent, from 3.07 percent. That increase would provide an estimated $5 billion, while someone earning $50,000 a year in taxable income would see their state income taxes go from $1,535 to $2,475.

    The remainder needed to make up the difference would come from increasing the state sales tax rate to 7 percent from 6 percent and eliminating exemptions on many transactions, including groceries, clothing, and shoes; legal, accounting and financial services; dry cleaning; funeral services; salon services; basic television services; trash pickup; liquor and beer by the drink; non-prescription drugs; and tickets to sporting events, concerts and other events.


    An Associated Press analysis of state data found that more than 70 percent of school property taxes were collected by the wealthiest half of school districts in 2014-15, the latest data available.

    Of the $12.3 billion collected, nearly $9 billion of that was collected by the 250 school districts that are in the top half of average household income, according to AP’s analysis.

    Districts in the bottom half of household income collected an average of less than $4,500 in property taxes per student. School districts in the top half collected nearly $9,000 per student, or twice as much.

    The disparity is greater at further ends of the income spectrum. School districts in the bottom 10 percent of household income collected about $3,100 in property taxes per student, while school districts in the top 10 percent collected nearly $13,000 per student, or more than four times as much.

    Follow Marc Levy on Twitter at www.twitter.com/timelywriter. His work can be found at http://bigstory.ap.org/author/marc-levy.


    Irons likes this.
  5. Usury

    Usury Gold Chaser Platinum Bling

    Apr 1, 2010
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    I subscribe to the "Rich Dad" philosophy of assets/liabilities. Unless it's generating positive cash-flow for me, it's a liability. PERIOD.

    So the same is true of your car, boat, lawnmower and all your other "stuff" as well....that even includes your PM's.

    Now at the same time, all of the above can be a store of wealth that can be sold to re-coup it if/when needed (and granted some are better at this than others). I do also realize that is therefore the generally accepted definition of an asset. However if we could change everyone's thinking to the idea in my first sentence, we'd all be a lot better off, mostly just buying what we need and investing the rest. It'd sure eliminate a lot of the useless retail glut.
    historyrepete likes this.
  6. andial

    andial Sir Midas Member Site Supporter

    Apr 1, 2010
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    Ya know, i was having a pretty good day before i read that post brother.

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