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Archive for Saturday, June 3, 2006

Renters tax

June 3, 2006

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To the editor:

In recent weeks we have noted the annual "trial balloons" concerning property tax increases. In fact almost all of us will experience a real property tax increase this year because of increased valuations. An actual mill levy increase for the city and county would be a second increase in one year.

I realize that our locally funded needs are increasing. Additionally, our advocated wants are never ending. I also realize that our local law givers do not have a lot of options for raising revenue. Looking at the data, it is clear that property taxes are rising much faster than inflation. How long can we demand that the burden of our city services fall increasingly on the property owner?

Lawrence is unique in that it has a large percentage of properties that are revenue producing. The people renting those properties consume services just like the rest of us. Theoretically, property taxes are passed on to them. In fact, that is not fully the case. Perhaps we should be looking to those renters to pay more of their "fair share" in maintaining the services and amenities our community offers. I know that other jurisdiction with a similar disproportionate number of rental properties have established some form of a "renters tax." Maybe it is time for our law-givers to consider a similar initiative to more equitably distribute the cost of civilization in our fine city.

George Lippencott,

Lawrence

Comments

cowboy 8 years, 6 months ago

where do you think the landlord gets his operating funds from to pay taxes , the renter.

Ragingbear 8 years, 6 months ago

O wonder of George here is a republican?

BrianR 8 years, 6 months ago

How about Toll Roundabouts? There's a money maker...

Bob Forer 8 years, 6 months ago

When are we going to OD on the roundabouts Enough already

just_another_bozo_on_this_bus 8 years, 6 months ago

Enforcer-- it's a letter to the editor. While this may very well be a bad idea, it's not the commission's bad idea.

BrianR 8 years, 6 months ago

"When are we going to OD on the roundabouts Enough already."

When they're gone. SO, to answer your question, is NEVER soon enough?

just_another_bozo_on_this_bus 8 years, 6 months ago

"YOU ARE SO NIEVE BOZO"

I know, enforcer. And I'm so ashamed. I've tried the creams and accupuncture and hypnosis, and nothing seems to work. But all the doctors and such think I'm nuts and tell me there is no such thing as "neive."

What should I do, enforcer?

Godot 8 years, 6 months ago

It really isn't that bad of an idea. Part of the high cost of rent in Lawrence is due to property taxes. Renters should be aware of that.

Landlords could change the way they charge rent: they could show a base rent. that is fixed for a year, and then add a line for property tax that reflects the actual cost; when property tax increases, the renter pays the increase.

Godot 8 years, 6 months ago

For example, you pay $600 per month in rent; $500 is fixed; $100 is property tax. Tax goes up $20, rent stays at $500; tax goes up to $120. No big deal.

just_another_bozo_on_this_bus 8 years, 6 months ago

I think it would be a good idea to require landlords to have a business license, but any fees collected for that would be used to pay for inspections to make sure the place is safe and habitable. The fees would be passed onto the tenants, but at least they would be getting something for the extra money.

Raising property taxes on rental properties just to reduce the property taxes of owner-occupied houses seems like an unfair idea to me.

Jamesaust 8 years, 6 months ago

"Theoretically, property taxes are passed on to them. In fact, that is not fully the case."

Wow. How much more fuzzy can thinking get?

"...property taxes are rising much faster than inflation."

Uh-huh. They're alrising rising faster than the condor population on Santa Catalina. What's your point? Dollars-to-doughnuts, property taxes are rising in lock-step to ... property values.

I would be grateful to the author if he would spell out for the slow kids in the class the precise mechanism by which property taxes do not get paid. I would like to employ a similar method for myself. Hmm....I'm fairly certain the sheriff hasn't been plagued by a rash of delinquent-tax property sales lately.

And, why would the author - or anyone - - be concerned about the private bargained-for allocation between property lessor and property lessee? (I mean, I don't ask you about how much allowance you give your kids, how much you inherited from your deceased parents, or the details of your uncle's loan of 5k to you last Christmas, so why do you think its your business what perfectly legal financial arrangements people make with each other?)

In reality, we have a perfect example of the core flaw of democracy (a/k/a, mob rule) -- the rent-seeking majority votes for itself benefits at the expense of the minority (or attempts to do so).

Bottom line - the "fair share" of property taxes rental property is paid - 100%. Period. Mr. Lippencott, you haven't been cheated out of one dime of money.

bjohanning 8 years, 6 months ago

How about a sales tax and forget property taxes. Many older and fixed income individuals are being forced out of their homes in Douglas county because they have experienced increases in property values and personal property taxes. Lets shift our taxes to those that consume, after all tax is tax. Oh my, I sound like a republican.

ForThePeople 8 years, 6 months ago

And you are just hopeless....Enforcer!!!

Godot 8 years, 6 months ago

Bozo wrote, "I think it would be a good idea to require landlords to have a business license, but any fees collected for that would be used to pay for inspections to make sure the place is safe and habitable. The fees would be passed onto the tenants, but at least they would be getting something for the extra money."

Landlords of single family residences do have to obtain a rental license. This requires paying a fee of $25 per house, and having the Neihborhood Resources Dept inspect the house for safety.

Apartments and houses converted to multi-family occpancy do not have to be licensed, do not have to pay a fee, and are not subject to City inspection.

Godot 8 years, 6 months ago

Jamesaust, I have gone four years now without raising rents because the market won't bear it, even while my taxes and insurance costs have gone up.

Obviously, the only way a property owner benefits from increasing value is if he sells the property. The ones who have no intention or desire to sell are actually hurt by the increase in value. That would include retirees on fixed incomes who may eventually be forced to sell because they can't afford the increase in taxes.

While I don't think there should be a tax that targets renters, I do think they should be fully aware of how much of their rent is going to pay taxes, and they, like homeowners, should feel the pinch when taxes go up.

Confrontation 8 years, 6 months ago

These landlords can raise the rent up to 15% every time the lease is renewed. Every single landlord I've had has chosen to do this for their own financial reasons. I don't feel sorry for these people at all. They overcharge on the initial rent, and then they keep raising the price until they lose their tenant. Then, they all cry and moan about not being able to get their places rented. Maybe if they weren't all such useless jerks, they wouldn't have this problem. The increase in taxes is coming from the renter's pocket.

fletch 8 years, 6 months ago

A fraction of rental charges already goes into the same colelctive tax base as property tax. So, yes, renters are already paying their fair sahre thank you very much. But hey, way to do your homework before complaining to the newspaper.

just_another_bozo_on_this_bus 8 years, 6 months ago

Is there anything preventing you from letting your tenants know what proportion of their rent goes to paying property taxes, Godot?

jayhawks71 8 years, 6 months ago

Everyone watch out. There are more slippery slopes in Lawrence than anywhere on the planet. Where will it end! Oh no the sky is falling the sky is falling! Alarmists sound your sirens! Commence!

(and yeah, if you aren't passing on the cost to the ultimate consumer, the renter, then that is your problem, oh great business mind!)

Godot 8 years, 6 months ago

Bozo wrote: "Is there anything preventing you from letting your tenants know what proportion of their rent goes to paying property taxes, Godot?"

No. I hadn't thought of it. I am re-thinking the situation now, however. It would be like a food label. This much goes for return on investment, this much goes for routine maintenance, this much goes for insurance, and this much goes for taxes. Return on investment, insurance and routine maintenance expenses would be part of the base rent that would be locked in for 12 months; taxes would be a separate part of the rent that would increase or decrease, depending on the actual tax bill.

That way, every Lawrence resident would feel the impact of increased property taxes, and properly attribute the source of their pain.

Residential rentals are not done this way in Lawrence now, but it might be time to introduce a new trend.....

monkeyhawk 8 years, 6 months ago

Godot, would it be acceptable to the city of Lawrence if you rented one of your properties to 10 - 15 of our friends from south of the border, if they were all related? Does the city have a maximum on the number of related people living together?

There would be no rental properties in Lawrence if there was no demand. Some investors feel that Lawrence is not a viable market at this point. If you find a decent unit, the bottom line will usually prohibit cash flow and who wants to wait for that "huge" appreciation at the time of resale? Plus, who keeps slapping up all these monster complexes? Let me guess... could it be the same folks who were instrumental in pushing the "tenant act", while they themselves are exempt mearly by zoning? Why do some small investors have to foot the bill for inspector intrusion while others are allowed to operate freely? In the case of the accommodators of apartment dwellers only, I think a rental tax is a good idea.

JayCat_67 8 years, 6 months ago

Also, no one seems to have brought up the point that, since Lawrence's second class citizens... oops, I mean renters end up paying property tax via a landlord, they do not get the break on their income taxes like those who own their home. They also don't receive any tax break for interest paid on a mortgage like a home owner. Also, when a renter does finally decide to move, they have absolutely no equity in the property for which they have been paying. It's either added to the landlord's equity in the property, invested back into the property itself, or pure profit. Just for giggles, it would be fun to see what would happen to Lawrence if all the renters pulled out and went elsewhere. Obviously won't happen, but what if...

Godot 8 years, 6 months ago

All the more reason to scrap our entire tax system and subsitute it with a national sales tax.

jayhawks71 8 years, 6 months ago

I wonder how many landlords (in whatever form they take) will eliminate the part of rent that goes to cover taxes prior to a rental tax being implemented? My guess, purely speculative based on my experience with human greed is none. The rent will remain the same and go into the ROI pot.

JayCat, I really like your point about the income tax issue. I had not thought of that. I suppose that would have to be an issue for the state and fed. That is, rental tax = property tax in status.

Also, given that renters will now be directly paying the property tax, that deduction will no longer be used by the landlord on his or her business or personal tax, depending on the way they have things set up. Right?

Godot, there is something very appealing about your suggestion. Is that from the Libertarian camp? Imagine all of the out-of-work tax preparers though :-). It has always bothered me (at least since the income tax has played a role in my life) that there is an industry built on tax preparation (I even have a close family member whose annual income nearly depends on the system!).

One question though, what is your perpective on sales tax on "necessary" items, such as food and health care? I have a gut dislike for food taxes. And just a talking point. What influence would a national sales tax (obviously going to be larger than what we currently pay to make up for the losses from other taxes eliminated) on spending? Are there any models out there that project what a, say , 15% sales tax would do to the economy? Might it result in less spending on "luxury" items, which would then reduce the tax base and lead to a higher tax (and so on in a vicious cycle)?

jayhawks71 8 years, 6 months ago

Roundabouts... I hear another poor dead horse being beaten. ....

fascism in lawrence ....

the "looney left" ....

all these dead horses.... ....

Godot 8 years, 6 months ago

Jayhawks71, my proposal regarding renters and property tax is not that they pay the taxes directly, but that they have an itemization on their rent to show them where their rent goes. That way they know whether to blame the government or their landlord when their rent increases.

As far as property taxes are concerned, I think this whole system of increasing the value of property every year, while keeping the mill levy relatively stable, stinks. It is a smoke screen, a way for the elected officials to increase taxes while claiming that they are not.

Property values should be based on the purchase price of the property, and should not increase until the property sells again. Budget increases would then require a mill levy increase, rather than just relying on 8 to 10 percent property value increases every year.

Godot 8 years, 6 months ago

Regarding the national sales tax, it would have to be even higher than 15%, more like 25%. The sales tax would totally eliminate payroll taxes, including social security and medicare. Workers would take home every dollar they earn, resulting in an instant pay raise.

Prices would adjust to reflect the lower cost of doing business.

There would be a rebate or refund of sales tax for legal residents up to a certain income level to keep the tax from being regressive.

Visitors to the US would pay the same rate of sales tax as residents, but would not be eligible for the rebate.

As far as the future for accountants, I'm sure they would survive. Tax preparers might not. To be sure, H&R Block would not support this concept

jayhawks71 8 years, 6 months ago

Godot, 25% is rather steep given that would be the national sales tax. On top of that would be state and local sales taxes, so we are looking at 30-35% sales tax. I realize we pay that in income taxes alone now.

I am not sure that prices would reflect the lower cost of doing business and so I wonder how much of a drop there would be. As you said, accountants would survive, so these companies might be able to drop a few of them off the payroll, but I doubt prices would change much (and strongly feel that they wouldn't drop by the 25% that the sales tax would add.)

With that said, how is a national sales tax of that amount not encouraging people to hold on to their money (i.e., make fewer purchases?) It is the psychological aspect of the price that has the effect that I am concerned with. Yes, people will have more money, but when they go to the store and see how much things cost, they will buy less (the whole $19.99 versus 20 dollars advertising ploy has merit in influencing buying behavior). If people buy less, the tax base decreases and then government will point to that and rasie the tax rate... further lowering consumer buying power. Everyone talks of cutting programs but neither of the powers that be does this. In fact, the republicans spend far more than the democrats do while in office.

The pay raise you speak of is mostly smoke and mirrors unless the overall taxes each of us pays decreases.

And what about food sales tax? Is that your "rebate" idea? (oh and how I hate to hear that.... its like when you go to the store and have to mail in the rebate and wait for your money... why can't they just give me the value of the rebate NOW (in that case, they are counting on people not to send it in). Am I now going to have to keep food receipts/sales tax receipts so that I can file for my refund, turning income tax time into sales tax time, with the result being a tax preparation business built on sales tax refunds? Hand R block might support it if they could give loans with huge interest on "sales tax refunds" the same way they do with income tax refunds.

These are just a few of the things on my mind regarding this. I am not opposed to the concept, I am just not yet satisfied with the outcomes. Interesting ideas though. The system HAS to be simplified.

Godot 8 years, 6 months ago

The answers to your questions are here:

www.fairtax.org

jayhawks71 8 years, 6 months ago

kinda scary. the Libertarian's are fighting over something.

No sales tax on used items? Well that will help to solve the recycling of goods (not waste) issue. So, people will be more likely to seek out used goods to avoid the tax. The result will be fewer new items produced, loss of revenue for producers, loss of jobs, more poor, no income, no money to spend, no money going into sales tax.

Even more scary. The points raised here are pretty much the same as what I mentioned above. This guy is a bit more clear though on the issue of how people will still get what they want (addresses that issue of people not buying things) through a black market.

Interesting arguments against fair tax and they make sense. http://www.lewrockwell.com/orig4/cox4.html

jayhawks71 8 years, 6 months ago

Just had to laugh when I read this. Just had a high "duh" factor to it.

Q: Why not just exempt food and medicine from the tax? Wouldn't that be fair and simple?

A: Exempting items by category is neither fair nor simple. Respected economists have shown that the wealthy spend much more on unprepared food, clothing, housing, and medical care than do the poor.

Oh, the rich spend more on things than the poor. Excellent, that has been verified by respected economists. (Respected by whom?) It is much easier to respect people that agree with you :).

jayhawks71 8 years, 6 months ago

Next problem (sigh). A two person household and a one person household get an identical rebate for each kid. However, wouldn't a single parent household spend more on childcare than a two parent household in which the option of one parent staying at home is available? Service providers won't be exempt from the tax, so your one parent home will be at a strong disadvantage (spending more on childcare AND paying the salestax on it!!!) Someone is trying to push marriage, so that marriage ammendment Bush is pushing is even more devastating under this new system.

The 23% tax rate has "been carefully worked out." I wonder what numbers are used? Have they taken into account the changes in the market forces as a result of the change in tax? How can they be so sure of the direction and size of changes? The data they present on the stability of consumption as the tax base are from an economy that has income tax and far lower sales tax than is proposed. Fishy.

And yep, there's still an "IRS" like entitity to deal with the sales tax. Just like Cox says, the abolition of the IRS ain't gonna happen. In addition, all the accountants that Wal-Mart has are going to keep their jobs. Where are the price cuts going to come from when people stop buying new items.

Another thing. The adjectives and adverbs used throughout proclaiming that this group will "do very well" under FairTax. If one group is doing better than another, how is that "fair?" Not that our current system is fair, by any means, but, this one is no more fair.

The fairtax makes the economy more "dynamic" (read: unstable), the very problem I raised previously. The economy will be subject to more radical shifts in BOTH directions (not just "more prosperous" than he states). He says "Exactly how much prices will fall and wages will rise depends on market forces. " The market that was just manipulated, and I would argue, harmed, by this change (people not buying new things or the development of a black market to avoid the tax.).

sigh O well it sounded good when you were talking about it Godot.... depressing.

JayCat_67 8 years, 6 months ago

Wow, didn't realize what a can of worms I was opening... :-)

Godot 8 years, 6 months ago

Monkeyhawk wrote: "Godot, would it be acceptable to the city of Lawrence if you rented one of your properties to 10 - 15 of our friends from south of the border, if they were all related? Does the city have a maximum on the number of related people living together?"

As far as I know, there is no law prohibiting that. I'll bet if it became common, particularly in Oread or East Lawrence, there would soon be an ordinance adressing how many relatives can live together in a rental house.

George Lippencott 8 years, 1 month ago

Wow! 41 comments. One point (250 words limits): I have known a number of landlords to rent at a negative cash flow because of market conditions. At the end of the year tax consequence and property valuation increases make the business profitable. Market conditions drive! In Lawrence there are a lot of vacant rentals. Second point: There is one property tax assessment for a rental property. There may be number of "families" living there. Should not the same tax be paid per family as from a single family property?

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