How Cutting Property Taxes Makes You Poor

Aug 22, 2011 Comments Off on How Cutting Property Taxes Makes You Poor by

Tipperary Farmland

 

The Irish have a lot of learning to do about property taxes.  Following the 1903 Land Acts, the new largely Catholic landowners who displaced the largely Protestant absentee landlords, immediately sought to deny their obligation to the people of the nation that had helped them win their fine farms.  The worst fears of the hero of the Land Struggle Michael Davitt, were realised as the newly minted nation of small freeholders turned its back on the landless labourer, the urban dweller and the poor.  Fianna Fail, the Political Party of the small freeholder grown to encompass the developer and land speculator, went on to first reduce, then abolish and then relieve with capital allowances every fiscal obligation on property owners during their years of uninterrupted power.  Town and country planning became an oxymoron as scattered mansions pimpled the hills and rural villages sprouted suburban dead-end appendixes.   Infatuation with the land’s ability to capture an easy slice of others’ productivity led to the culpable ignorance and over weaning confidence of a whole cohort of Irish politicians, bankers and professional class.  Still they sit on their hands – reluctant to take the first steps to redress the damage to economy and society of the ‘free rides and free lunches’ enjoyed by land ownership.  While a Site Value Tax is in the Programme for Government  as demanded by the IMF, ECB and ESFS, the Irish Department of Finance has made no move to undertake the research and preparatory work needed to implement it.  Word has it, the Department has not been given the political instruction to do so. No Fine Gael nor Labour politician has the ‘magairle’ for the popular backlash.  Translation here.

It is hard to credit that the only research currently being undertaken to prepare for a fair property tax is by a tiny underfunded NGO.  You guessed it –  Smart Taxes.

That long introductory rant  introduces Michael Hudson’s brilliant new piece in New Economic Perspectives on how the gradual reduction of US  property taxes has lead to a form of debt slavery for millions of Americans.  How much worse then it is for the Irish…

Untaxing real estate has served mortgage bankers by freeing more rental income (the land’s site value) to be paid as interest. Property taxes have not absorbed anywhere near the rise in debt-leveraged housing and commercial prices. However, this has not lowered the cost of housing for most people. New buyers must pay a price that capitalizes the property’s rental value. Less and less of this payment has taken the form of local property taxes. More and more has been paid to mortgage lenders as interest. So cutting property taxes has simply left more revenue to be capitalized into higher debt-financed prices.  (link to article)

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