Saturday, March 10, 2012

Fairly applying Mass sales tax to real estate, too.

Here's a graph of current US state and local revenues in this recession compared to recent recessions, from page 8 of which is 'Housing, Monetary Policy, and the Recovery' by Michael E. Feroli, JP Morgan Chase, Ethan S. Harris, Bank of America Merrill Lynch, Amir Sufi, University of Chicago Booth School of Business and NBER, Kenneth D. West, University of Wisconsin and NBER,February 2012

As we can see, state and local tax revenues are plummeting; which is unique in recent recessions.
To maintain Massachusetts civil society, we must currently increase revenues. and one way we could do that is to extend the application of Mass sales tax to land transactions.

It is only fair to tax the sales of the rich as well as the poor.

This could be done simply by clarifying part (g) to specifically tax real estate sales, in addition to the deed excise tax. Indeed, it is not clear to me from the law that real estate sales are currently in fact exempt from Massachusetts sales taxation, so this might be just a policy decision.

This might be expected to generate, at a median price of $293,500, and a count of 34,952 home sales on the MLS in 2011, taxed at 6.25%, yearly revenues of around $641,000,000.

In effect, taxing real estate sales collects some of the location value provided to the seller by the community.

What about also cutting the sales tax?

Expand the scope of the sales tax to include real estate but also cut the sales tax to 2-3%?

How that might work

[2011] “Receipts from the sales tax totaled $4.905 billion,” /0.0625= $78.48billion + ($293,500 * 34,952 = 10.26billion) = $88.74billion * 0.025 =$2.22 billion

So going from sales tax of 6.25% without real estate to 2.5% on everything loses (4.905 -2.219)billion = a loss in state revenues of $2.687 billion in 2011, of $20.5 billion 2011 state revenues collected.

Building a civil society adds value to real estate via location effects.

We can either let our communities erode further, thus futher eroding the value of our real estate's location, or we can act to have a civil society by creating a means to pay for it, and perhaps add more than $18K of value to a median property by having it be in a place you’d like to live.

If sales tax is bad for the rich, how is OK to charge to the poor who never buy homes? we are paying on average about $750/yr. (=4.905b/6.5million pop'n.) a piece in nickels and dimes on every taxable purchase now, which is a logistic nightmare.
A real estate sales tax would be easy to collect - the property isn't going anywhere, and the number and size of the payments to be taxed would make it easier to keep track of.

Why are Mass homes so pricey?

The idea of raising real estate sales taxes in Massachusetts raises ire as well. Many seem to feel threatened by rising home costs, yet do they feel threatened by degrading education, fire and police protection? Perhaps we feel safe in our homes, until costs rise, yet unsafe in our neighborhoods, as if we're unattached to the events beyond our door. Are our homes certain protection from fire, from increasing crime (due to both worsening unemployment and worsening education)? Of course not. Much of the protection we enjoy in our homes is due to the efforts of the community within which our homes lie, including town, state and national communities.

Why is a median Massachusetts home worth about $350K while in Maine the median price is about $175K? It's mostly location. What about location provides so much value? It is that location is location in regards to community: in other words the difference in value between the median house in MA and ME, or between MA and Bosnia or Korea is to a great extent due to the work of communities of people, often through their governments. And that community-provided-value, while it can taken advantage of by an individual's real estate sale, can not be created by an individual acting alone, or a family acting alone. That value is due to the communities' work, and as the representative of the community, the government has a moral claim to some of that community-provided value.

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