Wednesday, December 28, 2016

Massive Property Taxes & Wealth Taxes 
Coming To The Indebted Developed World
"The self-reinforcing dynamics in this narrative profoundly reverse time-honored concepts of value: assets that once held or gained value now carry high costs of ownership and lose value.
1. Governments desperate for tax revenues raise property taxes, which add costs that eventually depress sales and future price appreciation.
2. High debt levels and high property taxes trigger foreclosures and forced sales that further depress the market with high inventories of unsold/unrented homes.
3. As sales decline, appreciation can no longer be counted on to enrich owners. Instead, owners fear declines in value and higher taxes. This further depresses sales.
4. High debt levels become even more burdensome as property values fall.
5. Rather than offer a means of building and protecting wealth, real estate becomes a liability that destroys wealth via payment of taxes and declines in value.
Governments everywhere are facing fast-rising pension and healthcare costs, and the need for more tax revenues will skyrocket once the global recession trims income, payroll, business and sales taxes.
Additional taxes on assets that can't flee the country--i.e. real estate--become extremely attractive. Once an asset class shifts from being a means of wealth preservation and appreciation to a financial risk and burden, a self-reinforcing feedback loop reduces demand and increases supply, pushing prices lower--a decline that then causes more people to sell before prices drop further. The nightmare scenario for recent buyers is a sharp tax increase that crushes the market value of their home, putting them underwater, i.e. their mortgage is greater than the value of their home. Faced with ever-increasing property taxes and further erosion of value, what's the advantage of holding onto the property? Anecdotally, stories of owners destroying buildings to lower their property tax appraisal emerged in America's Great Depression, as owners desperate to lower their property taxes destroyed their assets (buildings on the land) as the only available means of keeping their property."
- Charles Hugh Smith*
link here to the reference

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