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Why does the US left accept the real estate tax?

July 2, 2017

It’s odd, I think, that the real estate tax escapes major public criticism from the left. Real estate, after all, is the only significant form of wealth held by the middle and lower classes yet it alone is somehow singled out for taxation. Stocks, bonds, gold, and other assets held almost entirely by the upper class are untouched by wealth taxation. This is extraordinarily regressive and especially unconscionable given the home is a basic necessity.

Let’s compare two families who put their life holdings into the purchase of their home, one $5,000 down for a $100,000 unit with the remainder financed and the other $500,000 down on a $1,000,000 home. If the tax rate is 1.5 percent of home value, then the effective wealth tax rate for the first family is 30 percent (tax of $1,500 / $5,000 wealth) while for the second, it’s only 3 percent ($15,000 / $500,000). The wealthier the family, the lower the effective wealth tax.

A far more equitable tax would be on total wealth with an allowance for basic housing. In the example, a wealth tax rate of 3.27 percent would yield the same total tax revenue (total tax revenue of $16,500 / total wealth of $505,000 = 3.27%) and the poorer family’s tax bill would drop from $1,500 to $163 (3.27% x $5,000). It would drop even further if the tax rate were progressive and had a basic housing allowance.

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2 Comments
  1. You make a compelling argument criticizing the left for not opposing taxes on real estate. However you don’t take into consideration that homeowners, usually of the middle class, get their mortgage payments as a deduction from their income taxes. This suggests to me that middle class left intellectual homeowners are privileged over lower classes who are usually renters. If I am correct, then the left intellectuals are encouraged to keep quiet about their privileged position over the majority of people in the working class.

    I would like to see you expand on this argument by including data on the net gain by class that are imposed by both property and income taxes.

  2. You make a good point Ron. The co-option of leaders from the left has been a huge problem for a very long time. It’s a key tool of oligarchic power. The interest deduction is just a small part of it. Those in the upper middle class also have stock and bond portfolios they’d not like see taxed.

    It’s part self-interest but I think it’s also a matter of being co-opted by the basic ideological world-picture which sees taxation of wealth (except somehow real estate) as something bordering on theft. Many (probably most) workers have been taught to think in this way as well.

    As far as the net effect of taxes on class, while I don’t have specific data, I do discuss in my book a rather counter-intuitive fact about taxation that is widely missed. It’s that only the general population incurs a cost from taxation. The oligarchy (I don’t like the term capitalist or capitalism) doesn’t incur a tax burden because it, not the state, sits at the top of the hierarchical pyramid. Whatever the state spends flows to the oligarchic class as profit. If the oligarchy is assessed a tax on this spending, it’s really just a monetary policy action removing the money the state put into circulation. It’s a net wash. The position of the oligarchy and its ability to spend on its motives – luxury and wealth defense – are completely unchanged.

    Jim

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