Real Estate Economics

1. Real Estate Economics Chapter 9 Taxation Page 42

2. Ch 9Economic Impact of Real Property Taxes California Taxpayers and Receivers (In Thousands)

3. SOURCES OF GOVERNMENT REVENUE Taxes Borrowing Fees Fines Printing & Minting (Only Federal, not State or Local)

4. Taxes • Levied to produce revenue for the government • Redistributed wealth • Diverts resources from the private sector to government • Elected officials redistribute the resources Page 42

5. PHILOSOPHY OF TAXATION Levied base upon a person’s • Ability to pay • Wealthy bear greater tax burden than the poor • Benefits received • Those who receive the benefits from government services should pay the tax. • “User” tax. Page 42

6. ECONOMIC REALITY Taxing is always a process of give and take Give to some and take from others Taxes are used to shift resources from producers to non-producers per the political decisions of elected officials The tax decisions of elected officials can be confirmed or rejected at the ballot box

7. Tax Ra t e -- Tax Base ( ) Progressive Tax Tax Ra t e Tax Rate Fixed Rate Tax Base Tax Base Regressive Tax Proportional Tax Taxing Classifications

8. Progressive Taxes • Increase in rate as value of the taxable item increases. • Example • 2% on $10,000 to $20,000 • 4% on $20,001 to $50,000

9. Proportional Taxes • The rate remains the same as the value of the taxable item increases. • Example: • 2% on all value, regardless of price.

10. How the Sales Tax is Regressive Regressive taxes: the percentage of tax paid decreases as the income of the taxpayer increases: The percentage of the tax paid increases as the income of the taxpayer decreases.

11. Real property tax • Makes local government tax collection easier. • Real estate is visible • Real estate is immobile • Real estate cannot be hidden from the tax assessor • Property owners tend to pay regularly for fear of losing the property for non-payment. • Property value does not fluctuate widely during phases of the business cycle. • Government budgeting easier due to tax revenue being relatively predictable. Page 42 Page 43

12. County budget procedure • Board of Supervisors sets the expense budget for the county. • Tax collector maintains the tax roles. • Tax assessor appraises the property located within the county for value • Tax collector mails the tax bills and collects the tax revenues. • Taxpayers pay their property tax bill to the County Tax Collector. • Taxes may shift to tenants, customers or buyers via higher rents or higher prices. Page 43

13. How government enhances property values • Redevelopment special areas for urban renewal of obsolete or physically distressed property. • Fire departments providing hazard security • Police departments providing public security • Road & highway repair: • “pot hole” and asphalt re-surfacing. Page 43

14. Capitalized Loss Due to Property Tax Increase Net Income Capitalization Rate = Value Estimate

15. Real Property Tax • Economists believe it is regressive • Certain land usage is encouraged by granting special property tax concessions. • Some uses are discouraged by levying higher real property taxes Page 43

16. Government land-use tools • Zoning • Building • Health & Safety • Open-space ordinances • Parking • Floor area ratio (FAR) • Ordinances

17. Prop 13 • US Supreme Court ruled: IS Constitutional • Creates unequal taxation • Important source of government revenue • A property tax limitation • Sales price x 1% + 2%/year increase Page 43