Property Tax Rates Are Higher for the Poor
How can taxes on property be higher for the poor if they do
not even own their homes? It's really very simple, as you will
see. It is also another example of how money is transferred from
the poor and middle class to the wealthy.
A basic principle of economics is that all costs are passed
on to the final consumer of a product or service. It has to be
this way, of course. No one goes into business to lose money,
so the costs have to be fully factored into prices. Providing
real estate rentals is no different than any other business in
this respect. If costs rise for the investor, rents must rise
Let's look at an example. Suppose an investor buys a small
house for $80,000 and rents it out for $600 per month. He is
breaking even and wants to continue to do so (of annually course
most would like to actually have cash flow, but we'll keep it
simple for now). Over the course of a few years his property
taxes are raised from $600 to $1,200 per a tax
calculator and estimator.
What do you think will happen? Will he just choose to start
losing $50 per month, or will he raise the rent to at least $650?
Of course he will do the latter. So who really pays that property
tax? Isn't it clear as can be that renters actually pay all costs
as part of their rent?
Let me clarify this, and address the obvious objection that
they don't pay the taxes directly. Whether they pay "directly"
isn't relevant. If instead of a personal income tax, your employer
paid a large tax on your income and had to pay lower wages to
do that, would you really say that you pay no taxes just because
you didn't write the check? There are many ways to hide who really
Let me clarify this further, since I know I will get further
objections. Imagine if only rental real estate was taxed. The
rates would be very high to generate the revenue needed. Now
nobody pays taxes except property investors, right? Of course,
they might have to triple the rent they charge in order to pay
them, and someone has to pay that rent. Now, if the owners were
still making money or at least breaking even (if not there would
be no investors and no rentals), and the poor renters are paying
three times as much for rent, who is really paying those property
Renters Really Pay The Property Taxes
Now, this isn't shocking. After all, renters live in in rented
properties, and someone has to pay the taxes, right? However,
the tax rates for rental real estate are typically much higher
than for owner-occupied real estate. They are twice as high in
many areas, due to special "homestead" rates for owner
occupied homes, rules that limit how fast taxes can rise for
owner occupied homes, and other special treatments. Where we
live in Colorado, for example, senior citizens pay only 50% of
the normal rate - but only those who own of course. Renters pay
whatever the landlord or investor pays and passes on in rent.
Which people are most likely to be renters? The poor and lower-middle
class naturally. So they get to pay twice the rate for property
taxes while receiving the same services that those taxes provide.
Is this fair? I certainly don't think so.
Of course, communities still have to pay for their schools,
police, roads and more, so if renters didn't get taxed at a higher
rate, the rates on wealthier home owners would have to be raised.
Ironically some of those would be the owners of the rental houses
and apartment buildings - the investors people now think are
paying those higher taxes on their investments. They aren't.
There simply isn't a dollar in property taxes or other costs
that doesn't eventually get passed on to the final consumer:
When renters have to pay more and others get to pay less as
a result, this is effectively a transfer of money from the poor
to the middle class and wealthy home owners. How much are we
talking about? It is hard to compute, but I'll go out on a limb
First, there is about $15 trillion in real estate in the country
as of late 2008. I could not find many of the other relevant
numbers, but I'll guess that no more than 20% of this is rented,
and maybe a third of that is lower-income rentals. That would
mean about a trillion dollars in real estate is rented by those
who are poor to lower middle class.
Conservatively figuring that real estate taxes amount to 1%
of value (it is certainly much higher in many areas) and rental
properties are charged 2%, that amounts to about $10 billion
dollars in excess taxation imposed on those renters.
Unjustly high property tax rates take perhaps $10 billion
from the poor and lower middle class (my own crude estimate based
on wehat data I could find online). Again, if rates were the
same for all, the wealthier residents would have to pay more
in order to have all the public services these taxes support.
So though we can hide how these things work, when we look at
who actually pays in the end, it becomes clear that this is essentially
a transfer of money from the poor to the wealthy.
Read the whole series:
The Redistribution of
Wealth to the Wealthy