This week’s election in Wisconsin showed that the Right is alive and thriving in this politically schizophrenic state.
In Milwaukee County, there have been painful cutbacks in government services, particularly in funding for public transportation and the parks. More cutbacks are certain to come in the near future. A progressive Democratic candidate ran a spirited campaign to fight for better goverment, and she was handily defeated by the Republican incumbent, who promised to hold the line on taxes. There is widespread speculation that the Republican county executive, Scott Walker, will be Wisconsin’s next governor in 2010.
Lowering (or at least not raising) taxes is still a powerful argument for Republicans.
There is a general belief in Milwaukee that property taxes here are extraordinarily high, and that this discourages people from moving here. The story that is told usually follows these lines:
I know of a family, they say, that was seriously considering relocating to Milwaukee. They found a three-bedroom house in a neighborhood they liked for $400,000 (the numbers here are just thrown out for an example — they may not be accurate, and it doesn’t matter) but when they found out that they would be paying $12,000 a year in taxes, they decided not to move to Milwaukee.
Seems like a plausible story. But it doesn’t actually hold any water.
Whoever ultimately decides to buy the $400K home is taking into account the $12K taxes in figuring out what they can afford to pay for housing. Let’s imagine the situation if taxes were cut by 50% in order to lure families to Milwaukee. Also, suppose that the mortgage rate is 6% (to make the math easy). With a reduced tax bill of $6K, the family can afford to carry an additional $100K of mortgage.
From the point of view of the buyer, there is no difference between paying $400K plus $12K/year in taxes and paying $500K plus $6K/year in taxes. So what would you expect to happen in the real estate market? The price of the $400K home would shoot up to half a million, and the buyer would end up with exactly the same house at exactly the same cost (to the buyer) as at the higher tax rate. The only difference is that more of the money would be going to the lender and less of it to the County.
If people aren’t relocating to Milwaukee, it’s probably because they don’t like endless winters. Or maybe it’s because the public school system stinks. But it’s not because of the property taxes.
Missing from the equation: The building of equity when more of the monthly payout goes to the mortgage. In a market with falling prices, this has less/no effect. But in the long term, the less taxes make of your total payout – and the more equity you build – the better.
Right you are. Also left out of the equation is that the mortgage gets paid off in 30 years, but the taxes are forever.
The argument, as I’ve heard it made many times, has always been in terms of the affordability of housing, and I still think it doesn’t hold any water. In terms of housing as a long-term investment, the taxes do matter, though not as much as expectations of how real estate values will change over time.
And what happens to your home value when the roads fall apart, the schools are no good, the cops need bribes just to eat, there are no parks, the garbage doesn’t get picked up, businesses aren’t regulated, …
I’d much rather pay for decent community services than have a piece of paper claiming that my house is worth more.
Exactly. And it does affect the value of your property, as well as your quality of life when you live there. For example, bus routes have been eliminated in Milwaukee County, and whole neighborhoods are now without access to public transit. Doesn’t that have an impact on the desirability of property in that neighborhood to a new owner, and hence on the amount of money a new owner would be willing to pay for the property?
One other thing to consider: interest rates aren’t written in stone. Rates will change, making refinancing possible. Taxes only go in one direction.