Vail Daily letter: Eliminate targeted taxes
November 30, 2016
Local government could make housing more affordable in Eagle County if they would merely eliminate targeted taxes that significantly increase the cost of housing. To collect more revenue, local governments initiated targeted taxes on real estate in the 1990s. As the targeted taxes increased, housing became unaffordable for local workers.
A targeted tax is a tax that a few people pay once in awhile. Targeted taxes have to be huge to collect a significant amount of revenue. Examples are a property transfer tax of 1 to 2 percent in some places in Eagle County. Huge sewer and water hook-up fees that increase the purchase price of new residential construction about $45,000 are another example.
Instead of charging huge hook up fees to a few new homes, the Eagle River Water and Sanitation District would collect the same amount of money by merely increasing everyone’s monthly bill about $10.20, which is palatable. The targeted taxes on real estate are not palatable and are significant factor in making housing unaffordable.
Our leaders need to start thinking out of the box. A better solution is a small increase in a sales tax that could be used to fund local needs such as schools, fire and police stations that could be built by the county and leased for $1. With a sales tax, tourists will now pay more for the infrastructure sized for peak tourist load. This is a logical first step to make housing affordable to all.
We need to return to no targeted taxes on housing, to when employers could pay lower wages because their employees could afford housing with lower wages. High wages is a factor that shifts jobs overseas or to areas such as Texas that do not have targeted taxes on real estate.
High home prices are destroying America. Voters need to recall politicians who will not eliminate targeted taxes or propose more taxes on real estate.
The below are examples of salaries required to pay a mortgage’s principal, interest, tax and insurance payment. They are based on a standard 28 percent of your income for the house payment and a 20 percent down payment on the median-home sale price for different cities and on a 30-year loan at 3.49 to 3.76 percent interest rate. These figures substantiate that a husband and wife could purchase a home in Eagle County if targeted taxes are eliminated.
• Home price of $140,000 in Pittsburgh requires a salary of $31,962.
• Home price of $230,500 in Dallas (no targeted taxes) requires a salary of $53,824.
• Home price of $327,000 in Sacramento requires a salary of $64,747.
• Home price of $386,800 in Denver requires a salary of $70,741.
• Home price of $422,100 in Seattle requires a salary of $81,773.
• Home price of $536,700 In Los Angeles requires a salary of $100,147.
Loans with less than a 20 percent down payment will incur mortgage insurance, which would significantly increase the salary required to pay Private Mortgage Insurance.
If interest rates increase just 2 percent, the salary required must increase by about 160 percent.
A Real Estate Transfer Tax is the worst of all targeted tax because it also significantly increases closing costs.