Author Topic: In what ways do you disagree with MMM's approach?  (Read 39814 times)

spartana

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Re: In what ways do you disagree with MMM's approach?
« Reply #350 on: July 15, 2020, 08:31:32 AM »
I think the issue of racism and sexism is that while the opportunities are out there for people, often times an employer will not hire someone based on race or sex or any number of other "isms". Even those who are on totally equal footing in terms of training, education, skills, etc can find a much harder time both getting a job, higher pay, and advancing then others - often younger white males. That doesn't mean they can't get a good job, or can't FIRE by following MMM principles, it just means it might not come as easily to non-whites or women or older people or disabled. I worked in a physically demanding blue collar/military career and even with my skills, education and training I believe I'd likely be passed over for similar jobs than a guy. Even one with less ability.

There may well be racist and sexist employers, but my point is that their existence doesn't change the steps an individual person would take to reach FIRE. Unless I suppose you decided to sue your employer and use the settlement to retire. But otherwise, if you work for a company that underpays you because they're racist versus just shitty cheap assholes, the end result is the same for a person that wants to FIRE - they still need to either find a way to increase their income (through finding a better job, starting a business, etc) or find a way to lower their expenses, and invest the difference.

Not to say we shouldn't try to make changes to improve society and deal with "-ist" employers, but I just think in the context of FIRE specifically, those things are just generally not super relevant since it's an individual activity versus something dependent on society at large.
I agree. I think MMM writes for "the average younger person" and doesn't make assumptions about their specific situations. And he probably assumes (rightly imho) that each person will adjust the message to their own personal situation. Telling the masses to ride a bike or that it is OK to have no or one kid isn't doing much for a disabled person or a single parent of 5 but they may still glean some useful info. I do think he acknowledges specific situations but generally in passing rather then writing a blog post about it.

Just Joe

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Re: In what ways do you disagree with MMM's approach?
« Reply #351 on: July 15, 2020, 08:36:04 AM »
For the reasons above and many others, I think many middle- and lower-income folks would benefit from a more balanced approach that dispenses tips for both reducing their expenses and increasing their income (while not succumbing to lifestyle inflation). I've benefitted so much from tips on other FIRE blogs for using the gig economy, continued education, real estate, and other amazing resources to try and set myself up for better earning in the present and future. I'm privileged enough to still have many ways to reduce my expenses, but plenty of people aren't in the same boat...especially if they have a large family, chronic health issues, or are socioeconomically disadvantaged.

For me that is what the forum has provided - two way discussion on many topics - some social, some financial, some foam all the way.

MMM's blog simply laid out the basic framework. The forum IMHO multiplies the value of the blog b/c we have access to the expertise of the group collective.

oldmachines

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Re: In what ways do you disagree with MMM's approach?
« Reply #352 on: July 15, 2020, 08:53:29 AM »
When they start taxing wealth instead of income, raise capital gains tax to the same rate as income and tax unrealized capital gains does the simple math still work? I'm already hearing mention of it in California.


Herd immunity is a real thing, however, it works at the expense of a significant portion of the population. Survivor bias in full effect on that one.


If you are going to listen to the majority of scientists when it comes to climate change, why not when it comes to a pandemic?

RWD

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Re: In what ways do you disagree with MMM's approach?
« Reply #353 on: July 15, 2020, 08:57:52 AM »
When they start taxing wealth instead of income, raise capital gains tax to the same rate as income and tax unrealized capital gains does the simple math still work? I'm already hearing mention of it in California.
Because increasing the taxes on the rich worked so well in 2012...
https://www.illinoispolicy.org/californias-fair-tax-hike-spurred-taxpayer-exodus-hurt-middle-class-and-went-mostly-to-pensions/

Imma

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Re: In what ways do you disagree with MMM's approach?
« Reply #354 on: July 15, 2020, 09:07:51 AM »
When they start taxing wealth instead of income, raise capital gains tax to the same rate as income and tax unrealized capital gains does the simple math still work? I'm already hearing mention of it in California.


Herd immunity is a real thing, however, it works at the expense of a significant portion of the population. Survivor bias in full effect on that one.


If you are going to listen to the majority of scientists when it comes to climate change, why not when it comes to a pandemic?

In my country we already tax wealth. It just means that you have to include the wealth tax with your spending or subtract the % from the 4% rule. You can still withdraw 4% from your portfolio but you have to reserve a portion of that money to pay the tax. So either way you need to have more money invested for the same amount of spending.

However, in many cases taxing wealth means that they can tax labour at a lower rate so when you're still working or have a side hustle that's an advantage.

sixwings

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Re: In what ways do you disagree with MMM's approach?
« Reply #355 on: July 15, 2020, 09:23:24 AM »
Wealth tax also depends on the definition of "wealthy". I would hope that people like 1-2M in assets will get hit much from something like that. I would expect it should be targeted at the actual very wealthy.

nereo

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Re: In what ways do you disagree with MMM's approach?
« Reply #356 on: July 15, 2020, 09:45:17 AM »
Wealth tax also depends on the definition of "wealthy". I would hope that people like 1-2M in assets will get hit much from something like that. I would expect it should be targeted at the actual very wealthy.

It's not quite accurate to say we do not tax wealth in this country - wealth is taxed (albeit a very favorable rate) via capital gains (CG) taxes.  Estates are also taxed should they exceed $11.9MM (double if held jointly).  Hopefully a wealth tax would be progressive, as is our income tax.  This could be better accomplished simply by re-visiting the capitol gains taxes.  Many countries and some States tax capital gains the same as income (and STCG is typically treated this way as well).

sherr

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Re: In what ways do you disagree with MMM's approach?
« Reply #357 on: July 15, 2020, 09:54:21 AM »
It's not quite accurate to say we do not tax wealth in this country - wealth is taxed (albeit a very favorable rate) via capital gains (CG) taxes.  Estates are also taxed should they exceed $11.9MM (double if held jointly).  Hopefully a wealth tax would be progressive, as is our income tax.  This could be better accomplished simply by re-visiting the capitol gains taxes.  Many countries and some States tax capital gains the same as income (and STCG is typically treated this way as well).

Capital Gains is not really a wealth tax, because you are only taxed on the portion that you choose to realize as income (by selling). A wealth tax would tax you based on how much you own, not how much you realize as income.

Estate taxes are once-in-a-lifetime wealth tax for the super-rich, yes.

nereo

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Re: In what ways do you disagree with MMM's approach?
« Reply #358 on: July 15, 2020, 10:05:20 AM »
It's not quite accurate to say we do not tax wealth in this country - wealth is taxed (albeit a very favorable rate) via capital gains (CG) taxes.  Estates are also taxed should they exceed $11.9MM (double if held jointly).  Hopefully a wealth tax would be progressive, as is our income tax.  This could be better accomplished simply by re-visiting the capitol gains taxes.  Many countries and some States tax capital gains the same as income (and STCG is typically treated this way as well).

Capital Gains is not really a wealth tax, because you are only taxed on the portion that you choose to realize as income (by selling). A wealth tax would tax you based on how much you own, not how much you realize as income.

Estate taxes are once-in-a-lifetime wealth tax for the super-rich, yes.

Mostly but not quite.  CG are taxes levied on monetary gains made from the sale of assets (i.e. wealth - not income). Income is money earned, typically through a job.  A wealth tax could be based on what is owned and not on appreciation of those assets.  That's one method of having a wealth tax. Another is to treat CG the same as earned income, which addresses the 'double-taxation' argument (though some always argue against any taxation, it seems).

Estate taxes are currently carry a very high exemption ($11.9MM), but this is a relatively recent change to our tax code.  Until 1976 there was no exemption;  from 1976 until 2006 the exemption was below $2MM (and was at or below $1MM until 2003).  It's current level is several times higher than in previous decades.

sherr

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Re: In what ways do you disagree with MMM's approach?
« Reply #359 on: July 15, 2020, 10:15:10 AM »
It's not quite accurate to say we do not tax wealth in this country - wealth is taxed (albeit a very favorable rate) via capital gains (CG) taxes.  Estates are also taxed should they exceed $11.9MM (double if held jointly).  Hopefully a wealth tax would be progressive, as is our income tax.  This could be better accomplished simply by re-visiting the capitol gains taxes.  Many countries and some States tax capital gains the same as income (and STCG is typically treated this way as well).

Capital Gains is not really a wealth tax, because you are only taxed on the portion that you choose to realize as income (by selling). A wealth tax would tax you based on how much you own, not how much you realize as income.

Mostly but not quite.  CG are taxes levied on monetary gains made from the sale of assets (i.e. wealth - not income). Income is money earned, typically through a job.  A wealth tax could be based on what is owned and not on appreciation of those assets.  That's one method of having a wealth tax. Another is to treat CG the same as earned income, which addresses the 'double-taxation' argument (though some always argue against any taxation, it seems).

I still disagree. You are falsely equating "income" with "earned income". Capital Gains are a type of "unearned income", even if that's not in the official definition of "unearned income". It's income because it's only based on the part you realize that year, not on all your invested wealth.
« Last Edit: July 15, 2020, 10:21:03 AM by sherr »

nereo

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Re: In what ways do you disagree with MMM's approach?
« Reply #360 on: July 15, 2020, 10:19:22 AM »
It's not quite accurate to say we do not tax wealth in this country - wealth is taxed (albeit a very favorable rate) via capital gains (CG) taxes.  Estates are also taxed should they exceed $11.9MM (double if held jointly).  Hopefully a wealth tax would be progressive, as is our income tax.  This could be better accomplished simply by re-visiting the capitol gains taxes.  Many countries and some States tax capital gains the same as income (and STCG is typically treated this way as well).

Capital Gains is not really a wealth tax, because you are only taxed on the portion that you choose to realize as income (by selling). A wealth tax would tax you based on how much you own, not how much you realize as income.

Mostly but not quite.  CG are taxes levied on monetary gains made from the sale of assets (i.e. wealth - not income). Income is money earned, typically through a job.  A wealth tax could be based on what is owned and not on appreciation of those assets.  That's one method of having a wealth tax. Another is to treat CG the same as earned income, which addresses the 'double-taxation' argument (though some always argue against any taxation, it seems).

I still disagree. You are falsely equating "income" with "earned income". Capital Gains are taxes on "unearned income", but it's still definitely income. And increasing the CG rates doesn't count as a "wealth tax".

I agree that current CG rates are so favorable and non-progressive that they are not a significant tax on wealth, but any CG tax is a wealth tax, however small or ineffectual. If LTCG were taxes at the same rates as ordinary income ("earned income") that would represent a sizable wealth tax.

Imma

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Re: In what ways do you disagree with MMM's approach?
« Reply #361 on: July 15, 2020, 10:58:25 AM »
Wealth tax also depends on the definition of "wealthy". I would hope that people like 1-2M in assets will get hit much from something like that. I would expect it should be targeted at the actual very wealthy.

In my country it starts at around 60k, your residence is exempt, and there's a lower rate for those with less than 150k in wealth and a higher rate for millionaires. Rental properties are taxed but the income is tax free.

There's a reason why moderately wealty people are taxed most: the very rich can easily hide their assets, and people in the lowest wealth categories would rather spend than pay taxes. Mustachian types are the ones you want to target: they'll continue to build wealth even if they are being taxed.

talltexan

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Re: In what ways do you disagree with MMM's approach?
« Reply #362 on: July 15, 2020, 12:29:02 PM »
What's so amazing is that property taxes are so widely accepted when other kinds of wealth taxes are considered lunacy.

nereo

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Re: In what ways do you disagree with MMM's approach?
« Reply #363 on: July 15, 2020, 12:39:44 PM »
What's so amazing is that property taxes are so widely accepted when other kinds of wealth taxes are considered lunacy.

Having lived in a couple different countries I do find that people largely accept the taxes they have (though people complain everywhere) yet they bitterly oppose other kinds of taxes which are common and accepted elsewhere.

As examples, the US does not have a federal sales or 'Value Added' tax.  Most municipalities here tax properties, but none (to my knowledge) tax money held in savings accounts (though we do take Capital Gains).  Many states have annual vehicle taxes, but most other property is exempt.

slappy

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Re: In what ways do you disagree with MMM's approach?
« Reply #364 on: July 15, 2020, 01:48:21 PM »
When they start taxing wealth instead of income, raise capital gains tax to the same rate as income and tax unrealized capital gains does the simple math still work? I'm already hearing mention of it in California.


Herd immunity is a real thing, however, it works at the expense of a significant portion of the population. Survivor bias in full effect on that one.


If you are going to listen to the majority of scientists when it comes to climate change, why not when it comes to a pandemic?

How exactly would you tax unrealized capital gains?

sherr

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Re: In what ways do you disagree with MMM's approach?
« Reply #365 on: July 15, 2020, 02:25:57 PM »
How exactly would you tax unrealized capital gains?

How does the government tax the unrealized appreciation on your house? They estimate it.

Actually taxing unrealized gains on many things would be far easier. House prices are hugely individually variable. One share of a particular stock has a market-set value at any given point of time. A stock wealth tax would be as easy as saying "take the value of your shares at market close on Dec 31."

You could either base the tax on total investment value or just on Gains, but either way it's just as easy to calculate.
« Last Edit: July 15, 2020, 02:33:47 PM by sherr »

nereo

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Re: In what ways do you disagree with MMM's approach?
« Reply #366 on: July 15, 2020, 02:37:24 PM »
How exactly would you tax unrealized capital gains?

How does the government tax the unrealized appreciation on your house? They estimate it.

Actually taxing unrealized gains on many things would be far easier. House prices are hugely individually variable. One share of a particular stock has a market-set value at any given point of time. A stock wealth tax would be as easy as saying "take the value of your shares at market close on Dec 31."

You could either base the tax on total investment value or just on Gains, but either way it's just as easy to calculate.

So would you tax the gains again upon sale, or would you simply shift capital gains to an annual reporting? 
If the former, how will you address the Ďdouble-taxationí issue?
If the latter, what problem is this meant to solve, and how does it solve it?

sherr

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Re: In what ways do you disagree with MMM's approach?
« Reply #367 on: July 15, 2020, 03:13:28 PM »
How exactly would you tax unrealized capital gains?

How does the government tax the unrealized appreciation on your house? They estimate it.

Actually taxing unrealized gains on many things would be far easier. House prices are hugely individually variable. One share of a particular stock has a market-set value at any given point of time. A stock wealth tax would be as easy as saying "take the value of your shares at market close on Dec 31."

You could either base the tax on total investment value or just on Gains, but either way it's just as easy to calculate.

So would you tax the gains again upon sale, or would you simply shift capital gains to an annual reporting? 
If the former, how will you address the Ďdouble-taxationí issue?
If the latter, what problem is this meant to solve, and how does it solve it?

Are you asking me to propose a full tax reform plan? I don't have one ready for you.

My point was simply that the idea of a wealth tax is neither impractical nor really that onerous. If they can tax you on the value of your house every year then why not stocks?

iris lily

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Re: In what ways do you disagree with MMM's approach?
« Reply #368 on: July 15, 2020, 06:00:38 PM »
How exactly would you tax unrealized capital gains?

How does the government tax the unrealized appreciation on your house? They estimate it.

Actually taxing unrealized gains on many things would be far easier. House prices are hugely individually variable. One share of a particular stock has a market-set value at any given point of time. A stock wealth tax would be as easy as saying "take the value of your shares at market close on Dec 31."

You could either base the tax on total investment value or just on Gains, but either way it's just as easy to calculate.

So would you tax the gains again upon sale, or would you simply shift capital gains to an annual reporting? 
If the former, how will you address the Ďdouble-taxationí issue?
If the latter, what problem is this meant to solve, and how does it solve it?

Are you asking me to propose a full tax reform plan? I don't have one ready for you.

My point was simply that the idea of a wealth tax is neither impractical nor really that onerous. If they can tax you on the value of your house every year then why not stocks?

Well, The quick rejoinder to that question is: the taxing authority for my real estate makes and keeps records about my real estate. They donít count on me to report what I own and the value of it, , they know that I own it, approximate size, how many bathrooms and etc.and They have their own system of assigning value to all of those things.

That would not be the case for other assets I own.

« Last Edit: July 16, 2020, 05:55:52 AM by iris lily »

nereo

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Re: In what ways do you disagree with MMM's approach?
« Reply #369 on: July 15, 2020, 07:25:50 PM »
How exactly would you tax unrealized capital gains?

How does the government tax the unrealized appreciation on your house? They estimate it.

Actually taxing unrealized gains on many things would be far easier. House prices are hugely individually variable. One share of a particular stock has a market-set value at any given point of time. A stock wealth tax would be as easy as saying "take the value of your shares at market close on Dec 31."

You could either base the tax on total investment value or just on Gains, but either way it's just as easy to calculate.

So would you tax the gains again upon sale, or would you simply shift capital gains to an annual reporting? 
If the former, how will you address the Ďdouble-taxationí issue?
If the latter, what problem is this meant to solve, and how does it solve it?

Are you asking me to propose a full tax reform plan? I don't have one ready for you.

My point was simply that the idea of a wealth tax is neither impractical nor really that onerous. If they can tax you on the value of your house every year then why not stocks?

No, Iím not asking for a full tax reform plan, but since you suggested taxing unrealized gains I was curious how you believe that should work.  There are two divergent ways of taxing unrealized gains, and both have their own inherent problems.
Ultimately if your goal is to tax wealth instead of (or in addition to) taxing income, levying taxes on unrealized gains is not going to probably not an effective way of accomplishing this aim.

mjdh1957

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Re: In what ways do you disagree with MMM's approach?
« Reply #370 on: July 16, 2020, 01:35:21 AM »
Ireland in effect has taxes on unrealised investment gains. Investment funds have an 'exit tax' which is currently 41% on gains made when you sell, but it is also levied every eight years whether you sell or not.

https://www.irishlife.ie/sites/retail/files/bline-content/exit_tax.pdf

talltexan

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Re: In what ways do you disagree with MMM's approach?
« Reply #371 on: July 16, 2020, 05:59:33 AM »
I suppose the estate tax counts as a tax on unrealized gains.

Imma

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Re: In what ways do you disagree with MMM's approach?
« Reply #372 on: July 16, 2020, 07:26:04 AM »
In my country (the Netherlands) we don't tax capital gains, we tax wealth on Jan 1st. They've chosen to do that exactly because taxing unrealized/realized gains is a hassle. So you just pay taxes on whatever you own at that date. It doesn't matter if you own a property or stocks or hold money in cash.

DadJokes

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Re: In what ways do you disagree with MMM's approach?
« Reply #373 on: July 16, 2020, 07:48:49 AM »
In my country (the Netherlands) we don't tax capital gains, we tax wealth on Jan 1st. They've chosen to do that exactly because taxing unrealized/realized gains is a hassle. So you just pay taxes on whatever you own at that date. It doesn't matter if you own a property or stocks or hold money in cash.

How do they determine the value of what you own?

As it relates to stocks, I'm guessing that it would have to either be at cost or at current value. If it's current value, then that is unrealized gains.

Imma

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Re: In what ways do you disagree with MMM's approach?
« Reply #374 on: July 16, 2020, 08:16:59 AM »
In my country (the Netherlands) we don't tax capital gains, we tax wealth on Jan 1st. They've chosen to do that exactly because taxing unrealized/realized gains is a hassle. So you just pay taxes on whatever you own at that date. It doesn't matter if you own a property or stocks or hold money in cash.

How do they determine the value of what you own?

As it relates to stocks, I'm guessing that it would have to either be at cost or at current value. If it's current value, then that is unrealized gains.

- the money in your checking/savings/investment accounts
- minus loans and mortgages (cross checked with information provided by banks/brokers)
- cash, precious metals for investing (gold bars, not gold jewelry)
self-report but if you hide stuff it's fraud
- value of any properties you own except your main residence, value is estimated by the local government or property tax purposes (cross checked with local government and land registry)

talltexan

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Re: In what ways do you disagree with MMM's approach?
« Reply #375 on: July 16, 2020, 09:14:06 AM »
How are business entities valued for this? What about quasi-investable assets like wines or art?

Suppose you're accumulating a balance in a whole life insurance product?

Linea_Norway

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Re: In what ways do you disagree with MMM's approach?
« Reply #376 on: July 16, 2020, 12:33:04 PM »
In my country (the Netherlands) we don't tax capital gains, we tax wealth on Jan 1st. They've chosen to do that exactly because taxing unrealized/realized gains is a hassle. So you just pay taxes on whatever you own at that date. It doesn't matter if you own a property or stocks or hold money in cash.

In Norway we do both, capital gains on selling stocks, about 30%! And wealth on Jan 1rst, about 1%. With 25% reduction when you have invested in stock, rather than cash.

All Norwegian banks and stock brokers report in automatically. You need to self report on anything you buy abroad.
« Last Edit: July 16, 2020, 12:34:37 PM by Linea_Norway »

Imma

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Re: In what ways do you disagree with MMM's approach?
« Reply #377 on: July 16, 2020, 02:01:37 PM »
How are business entities valued for this? What about quasi-investable assets like wines or art?

Suppose you're accumulating a balance in a whole life insurance product?

Whole life insurance doesn't exist where we live. Quasi-investable assets are a matter for tax lawyers. The tax authorities need to prove they are bought as investments and not for personal use. That's nearly impossible for them to do so it's certainly a popular way to hide assets (as are cars, watches, vintage instruments). If you sell them and make a lot of profit there will be more money in your bank account that can easily be taxed. The wealth tax isn't very high so a lot of people don't even bother.

If you own more than 5% of company stock there's a special way to tax that (I could totally explain that, I'm a tax law specialist by trade :)  but it would take a lot of paragraphs - we sort of tax gains there) if you own less than 5% your stock in a company this is just seen as a regular investment. If the company is not publicly traded, valuation can be an issue - in that case the value of the stock is based on the company's balance sheet and sometimes the tax authorities have heated debates about this with the company's accountants and lawyers. But I'm sure that happens in all countries.   

EscapeVelocity2020

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Re: In what ways do you disagree with MMM's approach?
« Reply #378 on: July 16, 2020, 02:23:23 PM »
I realize that this is off topic, but I'm encouraged to see Mustachians thinking so much about US taxes.  It is inevitable that US tax reforms are headed our way and the most simple and effective way to increase taxes would be a wealth tax.  With all the unemployment now and for the foreseeable future, income tax reform will not close the gap with what was already a $1T deficit in 2019.

Also, social security cuts will be coming sooner than expected.

Quote
Because Americans are facing unemployment in record numbers, there are a lot of people not paying payroll taxes right now. That means the SSA is collecting a lot less than expected in taxes and will likely need to take even more from its trust funds to continue paying out current benefits. While nobody knows exactly what this will mean for the future of Social Security, a report from the Bipartisan Policy Center estimates that because of COVID-19, the trust funds could be depleted as soon as 2028.

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Re: In what ways do you disagree with MMM's approach?
« Reply #379 on: July 16, 2020, 09:32:42 PM »
I realize that this is off topic, but I'm encouraged to see Mustachians thinking so much about US taxes.  It is inevitable that US tax reforms are headed our way and the most simple and effective way to increase taxes would be a wealth tax.  With all the unemployment now and for the foreseeable future, income tax reform will not close the gap with what was already a $1T deficit in 2019.

Also, social security cuts will be coming sooner than expected.

Quote
Because Americans are facing unemployment in record numbers, there are a lot of people not paying payroll taxes right now. That means the SSA is collecting a lot less than expected in taxes and will likely need to take even more from its trust funds to continue paying out current benefits. While nobody knows exactly what this will mean for the future of Social Security, a report from the Bipartisan Policy Center estimates that because of COVID-19, the trust funds could be depleted as soon as 2028.

Glad you bring up taxes. A pet peeve of mine is that to the extent FI commentators talk about taxes, they almost always ignore state and local taxes.  Those are a big deal for me; the state and local bite overall is a good third to half of what the Federal part is. We get all excited that we get a break on capital gains at the Federal level, but donít consider that a lot of states give zero preferential treatment to capital gains in paying state income taxes. And itís going to get dramatically more intense soon. Most states canít spend at a deficit. Whereas the Federal government can and does.

Imma

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Re: In what ways do you disagree with MMM's approach?
« Reply #380 on: July 17, 2020, 01:06:21 AM »
I'm always surprised at how high local taxes are in the US and that they only seem to be paid by homeowners as far as I can see and not by renters. To me that sounds quite odd.

I'm a homeowner, our property is maybe worth Ä200k and we pay like Ä750-1000/year for all local taxes combined. Some taxes are hidden, for example in the water bill, so this is an estimate.

LWYRUP

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Re: In what ways do you disagree with MMM's approach?
« Reply #381 on: July 17, 2020, 04:26:06 AM »
I realize that this is off topic, but I'm encouraged to see Mustachians thinking so much about US taxes.  It is inevitable that US tax reforms are headed our way and the most simple and effective way to increase taxes would be a wealth tax.  With all the unemployment now and for the foreseeable future, income tax reform will not close the gap with what was already a $1T deficit in 2019.

Also, social security cuts will be coming sooner than expected.

Quote
Because Americans are facing unemployment in record numbers, there are a lot of people not paying payroll taxes right now. That means the SSA is collecting a lot less than expected in taxes and will likely need to take even more from its trust funds to continue paying out current benefits. While nobody knows exactly what this will mean for the future of Social Security, a report from the Bipartisan Policy Center estimates that because of COVID-19, the trust funds could be depleted as soon as 2028.

Glad you bring up taxes. A pet peeve of mine is that to the extent FI commentators talk about taxes, they almost always ignore state and local taxes.  Those are a big deal for me; the state and local bite overall is a good third to half of what the Federal part is. We get all excited that we get a break on capital gains at the Federal level, but donít consider that a lot of states give zero preferential treatment to capital gains in paying state income taxes. And itís going to get dramatically more intense soon. Most states canít spend at a deficit. Whereas the Federal government can and does.

If you stack together income + property + sales, I pay may state more than I pay the federal government. 

mjdh1957

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Re: In what ways do you disagree with MMM's approach?
« Reply #382 on: July 17, 2020, 04:40:10 AM »
I'm always surprised at how high local taxes are in the US

Me too. In Ireland I pay Ä260 per year local property tax

Adam Zapple

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Re: In what ways do you disagree with MMM's approach?
« Reply #383 on: July 17, 2020, 05:26:05 AM »
I didn't read all of the replies and I am nitpicking here.  I don't know that MMM necessarily considers himself an environmentalist, but several followers of this blog do.  I just don't think that you can call yourself an environmentalist while simultaneously investing in global corporations who push consumerism, create tons of unnecessary waste, carbon emissions and pollution.  I have heard the argument that we are not actually investing in, say, Exxon Mobil, but are purchasing a share from another person and the corporation doesn't recieve this money so it's fine.  This is nonsense.  Our participation in creating a demand for the shares we purchase raises capital and enriches the corporation, its investors, its CEO's etc.  Without the demand for shares, corporations would not exist. 

I recognize this is a highly complex subject.  In some situations, large corporations can actually be beneficial in comparison to several smaller, less efficient companies in terms of waste and pollution etc.  I am also not an all-or-nothing person.  I just don't think we can consider ourselves more virtous than your average consumer who drives an SUV and spends all of their money on lattes instead of investing since we are participants in a market that benefits corporations who destroy the planet.
« Last Edit: July 17, 2020, 05:27:41 AM by Adam Zapple »

Buffaloski Boris

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Re: In what ways do you disagree with MMM's approach?
« Reply #384 on: July 17, 2020, 05:52:33 AM »
I'm always surprised at how high local taxes are in the US and that they only seem to be paid by homeowners as far as I can see and not by renters. To me that sounds quite odd.

I'm a homeowner, our property is maybe worth Ä200k and we pay like Ä750-1000/year for all local taxes combined. Some taxes are hidden, for example in the water bill, so this is an estimate.

Wow.  To pay only $1000 in state and local taxes in a year! Once I enter into retirement, what I pay to state and local governments will be more than I pay the Federal government as I'll no longer be paying into our Federal pension scheme (social security), and will presumably be in a lower or at least not any higher (Federal) marginal income tax bracket.

As for property taxes, renters do not pay those directly in the US, but they pay them indirectly as part of their rent.  My property taxes, which are probably on the lower end, are roughly $4000 a year.  Plus I pay a state income tax (about 5-6% marginal rate), plus I pay state and local sales tax (VAT) of 6%, plus any hidden taxes on gasoline, alcohol, vehicle registration, licenses, property transfer taxes, etc.  And my state is probably on the middle end when it comes to taxes.  States such as NJ/NY/CA typically have much higher taxes.

There is this theme that Europeans pay significantly more in taxes than Americans.  When you add it all together, it's not quite as big of a difference.   

Yet for some reason we in the FI community seem to be more concerned about the economic impact of 0.5% to 1% in investment fees on our portfolio while ignoring the long term impact of upwards of 7-10% marginal state income tax rates that some folks are paying.
« Last Edit: July 17, 2020, 05:56:19 AM by Buffaloski Boris »

talltexan

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Re: In what ways do you disagree with MMM's approach?
« Reply #385 on: July 17, 2020, 06:00:01 AM »
I didn't read all of the replies and I am nitpicking here.  I don't know that MMM necessarily considers himself an environmentalist, but several followers of this blog do.  I just don't think that you can call yourself an environmentalist while simultaneously investing in global corporations who push consumerism, create tons of unnecessary waste, carbon emissions and pollution.  I have heard the argument that we are not actually investing in, say, Exxon Mobil, but are purchasing a share from another person and the corporation doesn't recieve this money so it's fine.  This is nonsense.  Our participation in creating a demand for the shares we purchase raises capital and enriches the corporation, its investors, its CEO's etc.  Without the demand for shares, corporations would not exist. 

I recognize this is a highly complex subject.  In some situations, large corporations can actually be beneficial in comparison to several smaller, less efficient companies in terms of waste and pollution etc.  I am also not an all-or-nothing person.  I just don't think we can consider ourselves more virtous than your average consumer who drives an SUV and spends all of their money on lattes instead of investing since we are participants in a market that benefits corporations who destroy the planet.

If you switch from index funds to active investments, I imagine there's a whole menu of environmentally responsible investment options.

Buffaloski Boris

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Re: In what ways do you disagree with MMM's approach?
« Reply #386 on: July 17, 2020, 06:03:37 AM »
I realize that this is off topic, but I'm encouraged to see Mustachians thinking so much about US taxes.  It is inevitable that US tax reforms are headed our way and the most simple and effective way to increase taxes would be a wealth tax.  With all the unemployment now and for the foreseeable future, income tax reform will not close the gap with what was already a $1T deficit in 2019.

Also, social security cuts will be coming sooner than expected.

Quote
Because Americans are facing unemployment in record numbers, there are a lot of people not paying payroll taxes right now. That means the SSA is collecting a lot less than expected in taxes and will likely need to take even more from its trust funds to continue paying out current benefits. While nobody knows exactly what this will mean for the future of Social Security, a report from the Bipartisan Policy Center estimates that because of COVID-19, the trust funds could be depleted as soon as 2028.

Glad you bring up taxes. A pet peeve of mine is that to the extent FI commentators talk about taxes, they almost always ignore state and local taxes.  Those are a big deal for me; the state and local bite overall is a good third to half of what the Federal part is. We get all excited that we get a break on capital gains at the Federal level, but donít consider that a lot of states give zero preferential treatment to capital gains in paying state income taxes. And itís going to get dramatically more intense soon. Most states canít spend at a deficit. Whereas the Federal government can and does.

If you stack together income + property + sales, I pay may state more than I pay the federal government.

No doubt.  But that seems to be an almost hands-off topic.  Yeah, I get the taxes are what we pay for services like roads and a fire department, which I happen to be a big fan of.  There is also a whole lot of variance in efficiency and what people pay for those services. Compare the significantly different tax burdens of a state like SD with no state income tax and relatively light property and sales taxes with another state like NJ where the overall tax burden is confiscatory.  If people are dying on the streets of SD cities because of the lack of services, it's missed my notice.  They have schools, fire departments, paved roads, and they even have schools.   

slappy

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Re: In what ways do you disagree with MMM's approach?
« Reply #387 on: July 17, 2020, 06:33:20 AM »
I didn't read all of the replies and I am nitpicking here.  I don't know that MMM necessarily considers himself an environmentalist, but several followers of this blog do.  I just don't think that you can call yourself an environmentalist while simultaneously investing in global corporations who push consumerism, create tons of unnecessary waste, carbon emissions and pollution.  I have heard the argument that we are not actually investing in, say, Exxon Mobil, but are purchasing a share from another person and the corporation doesn't recieve this money so it's fine.  This is nonsense.  Our participation in creating a demand for the shares we purchase raises capital and enriches the corporation, its investors, its CEO's etc.  Without the demand for shares, corporations would not exist. 

I recognize this is a highly complex subject.  In some situations, large corporations can actually be beneficial in comparison to several smaller, less efficient companies in terms of waste and pollution etc.  I am also not an all-or-nothing person.  I just don't think we can consider ourselves more virtous than your average consumer who drives an SUV and spends all of their money on lattes instead of investing since we are participants in a market that benefits corporations who destroy the planet.

If you switch from index funds to active investments, I imagine there's a whole menu of environmentally responsible investment options.

Do they revoke your forum credentials if you switch from index funds, though? /s

slappy

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Re: In what ways do you disagree with MMM's approach?
« Reply #388 on: July 17, 2020, 06:34:04 AM »
I realize that this is off topic, but I'm encouraged to see Mustachians thinking so much about US taxes.  It is inevitable that US tax reforms are headed our way and the most simple and effective way to increase taxes would be a wealth tax.  With all the unemployment now and for the foreseeable future, income tax reform will not close the gap with what was already a $1T deficit in 2019.

Also, social security cuts will be coming sooner than expected.

Quote
Because Americans are facing unemployment in record numbers, there are a lot of people not paying payroll taxes right now. That means the SSA is collecting a lot less than expected in taxes and will likely need to take even more from its trust funds to continue paying out current benefits. While nobody knows exactly what this will mean for the future of Social Security, a report from the Bipartisan Policy Center estimates that because of COVID-19, the trust funds could be depleted as soon as 2028.

Glad you bring up taxes. A pet peeve of mine is that to the extent FI commentators talk about taxes, they almost always ignore state and local taxes.  Those are a big deal for me; the state and local bite overall is a good third to half of what the Federal part is. We get all excited that we get a break on capital gains at the Federal level, but donít consider that a lot of states give zero preferential treatment to capital gains in paying state income taxes. And itís going to get dramatically more intense soon. Most states canít spend at a deficit. Whereas the Federal government can and does.

Aren't they included in overall expenses?

DadJokes

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Re: In what ways do you disagree with MMM's approach?
« Reply #389 on: July 17, 2020, 06:40:28 AM »
I realize that this is off topic, but I'm encouraged to see Mustachians thinking so much about US taxes.  It is inevitable that US tax reforms are headed our way and the most simple and effective way to increase taxes would be a wealth tax.  With all the unemployment now and for the foreseeable future, income tax reform will not close the gap with what was already a $1T deficit in 2019.

Also, social security cuts will be coming sooner than expected.

Quote
Because Americans are facing unemployment in record numbers, there are a lot of people not paying payroll taxes right now. That means the SSA is collecting a lot less than expected in taxes and will likely need to take even more from its trust funds to continue paying out current benefits. While nobody knows exactly what this will mean for the future of Social Security, a report from the Bipartisan Policy Center estimates that because of COVID-19, the trust funds could be depleted as soon as 2028.

Glad you bring up taxes. A pet peeve of mine is that to the extent FI commentators talk about taxes, they almost always ignore state and local taxes.  Those are a big deal for me; the state and local bite overall is a good third to half of what the Federal part is. We get all excited that we get a break on capital gains at the Federal level, but donít consider that a lot of states give zero preferential treatment to capital gains in paying state income taxes. And itís going to get dramatically more intense soon. Most states canít spend at a deficit. Whereas the Federal government can and does.

It's difficult for a FI commentator to talk about local taxes when local taxes are different everywhere.

As for the current situation, we're anticipating about a 30% increase in property taxes going forward. Since we just refinanced our mortgage, our payment will probably end up close to what it was before the refinance.

Feivel2000

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Re: In what ways do you disagree with MMM's approach?
« Reply #390 on: July 17, 2020, 07:47:43 AM »
How exactly would you tax unrealized capital gains?

How does the government tax the unrealized appreciation on your house? They estimate it.

Actually taxing unrealized gains on many things would be far easier. House prices are hugely individually variable. One share of a particular stock has a market-set value at any given point of time. A stock wealth tax would be as easy as saying "take the value of your shares at market close on Dec 31."

You could either base the tax on total investment value or just on Gains, but either way it's just as easy to calculate.

So would you tax the gains again upon sale, or would you simply shift capital gains to an annual reporting? 
If the former, how will you address the Ďdouble-taxationí issue?
If the latter, what problem is this meant to solve, and how does it solve it?

Are you asking me to propose a full tax reform plan? I don't have one ready for you.

My point was simply that the idea of a wealth tax is neither impractical nor really that onerous. If they can tax you on the value of your house every year then why not stocks?

Well, The quick rejoinder to that question is: the taxing authority for my real estate makes and keeps records about my real estate. They donít count on me to report what I own and the value of it, , they know that I own it, approximate size, how many bathrooms and etc.and They have their own system of assigning value to all of those things.

That would not be the case for other assets I own.

Government can simply force your bank to withdraw the wealth tax based on the information they have about your stocks, etc. Then you can do your taxes to prove that you paid to much.
For other values like wine, gold, art, etc, tax law can simply force you to state it by yourself. And if a tax audit shows that you didn't followed the law, they can take all your possession and throw you in jail, so that it's not that good of a deal, to not pay the wealth tax...

I don't see the problem...

Buffaloski Boris

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Re: In what ways do you disagree with MMM's approach?
« Reply #391 on: July 17, 2020, 08:38:36 AM »
I realize that this is off topic, but I'm encouraged to see Mustachians thinking so much about US taxes.  It is inevitable that US tax reforms are headed our way and the most simple and effective way to increase taxes would be a wealth tax.  With all the unemployment now and for the foreseeable future, income tax reform will not close the gap with what was already a $1T deficit in 2019.

Also, social security cuts will be coming sooner than expected.

Quote
Because Americans are facing unemployment in record numbers, there are a lot of people not paying payroll taxes right now. That means the SSA is collecting a lot less than expected in taxes and will likely need to take even more from its trust funds to continue paying out current benefits. While nobody knows exactly what this will mean for the future of Social Security, a report from the Bipartisan Policy Center estimates that because of COVID-19, the trust funds could be depleted as soon as 2028.

Glad you bring up taxes. A pet peeve of mine is that to the extent FI commentators talk about taxes, they almost always ignore state and local taxes.  Those are a big deal for me; the state and local bite overall is a good third to half of what the Federal part is. We get all excited that we get a break on capital gains at the Federal level, but donít consider that a lot of states give zero preferential treatment to capital gains in paying state income taxes. And itís going to get dramatically more intense soon. Most states canít spend at a deficit. Whereas the Federal government can and does.

It's difficult for a FI commentator to talk about local taxes when local taxes are different everywhere.

As for the current situation, we're anticipating about a 30% increase in property taxes going forward. Since we just refinanced our mortgage, our payment will probably end up close to what it was before the refinance.

I disagree that FI commentators canít talk about state taxes. There are a lot of common themes like geoarbitrage, appeals of property taxes, owning vehicles through an LLC etc to reduce the overall tax burden. It just seems like itís ďtoo difficultď for them, so they donít. And instead they comment on active versus passive investing to save 1% in fees. Thereís probably some ideological issues as well. I remember one FI commentator waxing on as to how she was proud to pay her relatively high state and local taxes.

slappy

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Re: In what ways do you disagree with MMM's approach?
« Reply #392 on: July 17, 2020, 08:56:30 AM »
I realize that this is off topic, but I'm encouraged to see Mustachians thinking so much about US taxes.  It is inevitable that US tax reforms are headed our way and the most simple and effective way to increase taxes would be a wealth tax.  With all the unemployment now and for the foreseeable future, income tax reform will not close the gap with what was already a $1T deficit in 2019.

Also, social security cuts will be coming sooner than expected.

Quote
Because Americans are facing unemployment in record numbers, there are a lot of people not paying payroll taxes right now. That means the SSA is collecting a lot less than expected in taxes and will likely need to take even more from its trust funds to continue paying out current benefits. While nobody knows exactly what this will mean for the future of Social Security, a report from the Bipartisan Policy Center estimates that because of COVID-19, the trust funds could be depleted as soon as 2028.

Glad you bring up taxes. A pet peeve of mine is that to the extent FI commentators talk about taxes, they almost always ignore state and local taxes.  Those are a big deal for me; the state and local bite overall is a good third to half of what the Federal part is. We get all excited that we get a break on capital gains at the Federal level, but donít consider that a lot of states give zero preferential treatment to capital gains in paying state income taxes. And itís going to get dramatically more intense soon. Most states canít spend at a deficit. Whereas the Federal government can and does.

It's difficult for a FI commentator to talk about local taxes when local taxes are different everywhere.

As for the current situation, we're anticipating about a 30% increase in property taxes going forward. Since we just refinanced our mortgage, our payment will probably end up close to what it was before the refinance.

I disagree that FI commentators canít talk about state taxes. There are a lot of common themes like geoarbitrage, appeals of property taxes, owning vehicles through an LLC etc to reduce the overall tax burden. It just seems like itís ďtoo difficultď for them, so they donít. And instead they comment on active versus passive investing to save 1% in fees. Thereís probably some ideological issues as well. I remember one FI commentator waxing on as to how she was proud to pay her relatively high state and local taxes.

I don't recall that individual, but it seems a lot of people feel that way in my community. I think it has to do with the direct effect that they can see and experience. When you pay high property taxes (as i do, $7k a year), generally you are getting something in return. For example, I live in a safe community with a great school district. I personally don't feel I fit in, but many people love the town and are proud to be here. So they see their taxes are part of that. When you pay federal taxes, you don't necessarily benefit directly, at least not in a way that most people can relate to. They see their federal taxes as going to pay for entitlement programs they may not agree with or things that benefit society as a whole, even though they don't impact my daily life directly.

Dicey

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Re: In what ways do you disagree with MMM's approach?
« Reply #393 on: July 17, 2020, 09:24:52 AM »
I realize that this is off topic, but I'm encouraged to see Mustachians thinking so much about US taxes.  It is inevitable that US tax reforms are headed our way and the most simple and effective way to increase taxes would be a wealth tax.  With all the unemployment now and for the foreseeable future, income tax reform will not close the gap with what was already a $1T deficit in 2019.

Also, social security cuts will be coming sooner than expected.

Quote
Because Americans are facing unemployment in record numbers, there are a lot of people not paying payroll taxes right now. That means the SSA is collecting a lot less than expected in taxes and will likely need to take even more from its trust funds to continue paying out current benefits. While nobody knows exactly what this will mean for the future of Social Security, a report from the Bipartisan Policy Center estimates that because of COVID-19, the trust funds could be depleted as soon as 2028.

Glad you bring up taxes. A pet peeve of mine is that to the extent FI commentators talk about taxes, they almost always ignore state and local taxes.  Those are a big deal for me; the state and local bite overall is a good third to half of what the Federal part is. We get all excited that we get a break on capital gains at the Federal level, but donít consider that a lot of states give zero preferential treatment to capital gains in paying state income taxes. And itís going to get dramatically more intense soon. Most states canít spend at a deficit. Whereas the Federal government can and does.

If you stack together income + property + sales, I pay may state more than I pay the federal government.

Due to a successful house flip in a state that doesn't give a break on capital gains, in 2019 we paid way more to the fine state of CA than we did to the feds. But I hadn't considered the question from @LYWRUP's POV.  If I include property taxes in the state portion, it's at least double. If I include the property taxes on our rentals, the disparity gets even bigger... Oh, shit! I'll have to do a little research.

RWD

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Re: In what ways do you disagree with MMM's approach?
« Reply #394 on: July 17, 2020, 10:10:30 AM »
I didn't read all of the replies [...]
Obviously. This topic was beaten to death back on page 3. Short answer is that your logic that you purchasing shares somehow benefits a company is flawed. Even if a very large group of people boycott a stock all it takes is a few wealthy investors without your anti-consumerist concerns to see the potential earnings and bring it back into line with it's actual value based on the performance of the company. Boycott the products, not the stock.

RWD

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Re: In what ways do you disagree with MMM's approach?
« Reply #395 on: July 17, 2020, 10:12:05 AM »
I'm always surprised at how high local taxes are in the US and that they only seem to be paid by homeowners as far as I can see and not by renters. To me that sounds quite odd.
Why would renters pay property tax? They don't own the property. Though through their rent they are indirectly helping pay the landlord's property tax.

DadJokes

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Re: In what ways do you disagree with MMM's approach?
« Reply #396 on: July 17, 2020, 11:16:35 AM »
I'm always surprised at how high local taxes are in the US and that they only seem to be paid by homeowners as far as I can see and not by renters. To me that sounds quite odd.

I'm a homeowner, our property is maybe worth Ä200k and we pay like Ä750-1000/year for all local taxes combined. Some taxes are hidden, for example in the water bill, so this is an estimate.

The landlords aren't eating the taxes. They pass that expense on to renters in the form of higher rent.

FIPurpose

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Re: In what ways do you disagree with MMM's approach?
« Reply #397 on: July 17, 2020, 11:34:24 AM »
I'm always surprised at how high local taxes are in the US and that they only seem to be paid by homeowners as far as I can see and not by renters. To me that sounds quite odd.

I'm a homeowner, our property is maybe worth Ä200k and we pay like Ä750-1000/year for all local taxes combined. Some taxes are hidden, for example in the water bill, so this is an estimate.

The landlords aren't eating the taxes. They pass that expense on to renters in the form of higher rent.

Landlords can only raise rent in line with market prices. Property taxes are raised 1200 per year, but you can only rent the property for an additional $50 per month, then yes the landlord would have to eat it. There would be a correlation between property taxes and rental prices, but no, there is no economic law that says that all property tax increases can be passed on to the end consumer.

slappy

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Re: In what ways do you disagree with MMM's approach?
« Reply #398 on: July 17, 2020, 11:51:08 AM »
I'm always surprised at how high local taxes are in the US and that they only seem to be paid by homeowners as far as I can see and not by renters. To me that sounds quite odd.

I'm a homeowner, our property is maybe worth Ä200k and we pay like Ä750-1000/year for all local taxes combined. Some taxes are hidden, for example in the water bill, so this is an estimate.

The landlords aren't eating the taxes. They pass that expense on to renters in the form of higher rent.

Landlords can only raise rent in line with market prices. Property taxes are raised 1200 per year, but you can only rent the property for an additional $50 per month, then yes the landlord would have to eat it. There would be a correlation between property taxes and rental prices, but no, there is no economic law that says that all property tax increases can be passed on to the end consumer.

In that situation, wouldn't we eventually end up with a shortage of rentals as landlords find that rental properties are not worth it financially?

FIPurpose

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Re: In what ways do you disagree with MMM's approach?
« Reply #399 on: July 17, 2020, 02:45:46 PM »
I'm always surprised at how high local taxes are in the US and that they only seem to be paid by homeowners as far as I can see and not by renters. To me that sounds quite odd.

I'm a homeowner, our property is maybe worth Ä200k and we pay like Ä750-1000/year for all local taxes combined. Some taxes are hidden, for example in the water bill, so this is an estimate.

The landlords aren't eating the taxes. They pass that expense on to renters in the form of higher rent.

Landlords can only raise rent in line with market prices. Property taxes are raised 1200 per year, but you can only rent the property for an additional $50 per month, then yes the landlord would have to eat it. There would be a correlation between property taxes and rental prices, but no, there is no economic law that says that all property tax increases can be passed on to the end consumer.

In that situation, wouldn't we eventually end up with a shortage of rentals as landlords find that rental properties are not worth it financially?

Could be, then housing prices would drop to the point that more people would buy rather than rent.

At least in the area of the country I'm in, housing prices already make being a landlord a poor investment. Yes, if property taxes go up, and rent stays the same or goes down, then that likely means that home prices are depreciating. (Which would be another way that landlords can "eat it") Usually when property taxes go up, there is some combination of both rent increases and home value depreciation.