If you own a home or you’re thinking about buying one, I have some bad news.
Even after you pay off the mortgage, you still don’t own the property. Not fully, anyway.
From a philosophical standpoint, you’re renting the house from the government. That payment comes due in the form of property taxes.
Property taxes are the worst kind of taxes. However…
I’m Happy to Pay Another Kind of Tax
It isn’t income taxes. When you tax people’s work and efforts, they want to work less.
It’s just like taxing their property. You discourage people from wanting to own any.
But when you tax sales, you’re discouraging consumption … and that’s exactly what we want to do.
If you tax something, you get less of it. Less income, less property, and less sales.
I would be happy with income taxes being cut in half and sales taxes being twice as much.
Give me an 18% income tax rate and a 20% sales tax rate—and get rid of property and estate taxes—and I’d be happy as a clam.
Unfortunately, we can’t rewrite the tax code. But there is something we can do…
How to Land a Better Tax Deal
When you are shopping for a house, look at the property taxes.
If it’s higher than other houses, you have to factor that into your decision.
I once owned a rowhouse in New Jersey. When I bought it, the taxes were $6,000 a year. Five years later, they were up to $14,000. I had a tough time selling the house for that reason.
High property taxes reduce the value of your home. In this case, it was substantial—I took a $60,000 loss on that house.
Property taxes are also high in New York, Connecticut, and New Hampshire. They’re high in Texas, too, but there’s no state tax.
Source: Tax Foundation
South Carolina has some of the lowest property taxes in the country. That’s why people move here, even though our income taxes are kind of high.
Whether you’re looking to buy or sell, do your homework now to make sure you don’t get a nasty surprise at the closing.
Jared Dillian is an investment strategist at Mauldin Economics, a former head of ETF trading at Lehman Brothers, and the author of The Awesome Portfolio. Subscribe to his weekly investment newsletter, The 10th Man, and listen to his daily radio program, “The Jared Dillian Show.” You can follow Jared on Twitter @dailydirtnap.