Sunday, August 8, 2010

Tax Policies Matter

Michigan Expats - Commentary - See All Commentary

By John Galt


I'm trying to find a way to live in Michigan, I really am. Right now, I have a well paying job, but frankly, I want nothing more than to come home to Michigan near my friends and family. With no jobs in Michigan, I know I won't be making much money there. That's okay though because Michigan is so much cheaper to live, I don't need as much money. An $80,000 job in a metropolitan city is equivalent to a $30,000 job in Michigan. Sadly, though, even those jobs are hard to find in Michigan. So on to Plan B.

My new plan is to move back to Michigan and live a low drag, cheap, and fun lifestyle. Houses are cheap and plentiful enough to where a bit of savings precludes needing a mortgage. With no mortgage to worry about, the pressure is off on finding a well paying job.. at least for a while. Then I can explore entrepreneurial opportunities in Michigan without fear of being homeless. Maybe I could even move Up North to Traverse City or Charlevoix and get a place on the Lake, sailing in between business ventures. With my house paid for and a car in tow, live becomes pretty cheap, right? Wrong.

Right now, the thing keeping me from making that jump today is Michigan's property
tax. First of all, I won't even get into the absurdity of the Homestead/Non-Homestead exemption in Michigan. Nor will I vent on the moral hazard of paying for local services with tax revenue obtained largely from non-residents of that district. Instead, I will focus on the property tax rate overall.

Let me start by confessing that I am biased on this subject. I think that property taxes overall are the most burdensome of all taxes because you get hit every year, no matter your income or consumption. This is what retirees fear the most: losing their home to the IRS or the State. At least with other consumption or income taxes, they only take your money when they know you have it. No one is going to lose their home because of a sales tax. However, the best part of the property tax system is that it is locally controlled, which means there is room for a place like Michigan to compete with other states through lower taxes to win people back. Now let's look at the rate. Let's say I get one of those nice homes on Westwood Pkwy in downtown Flint for $150,000 (a bargain by CA or DC standards). At Flint's rate of 62 mills, I am paying nearly 4,700 a year. No matter the home price, that means that roughly every 30 years I will pay enough money in property taxes to re-buy my home (and you thought you owned that house after your 30 year mortgage is up... HA!).

Ultimately, I think this boils down to an identity issue for Michigan. Michigan needs to embrace its cheapness, and facilitate that for it's citizens rather than try to maintain the myriad of social services it could once afford but now struggles to maintain. The best example of a single industry poor state who embraces it's cheapness: Louisiana. As of 2008, the average property taxes in Macomb County, MI are $2,666 a year. In Genesee County, MI it's $1,810 a year. The average property taxes in any one of 37 different parishes in LA (Drum Roll...): less than $200 a year. Unfortunately for me, my family doesn't live in Louisiana.

Michigan needs to accept that its most competitive feature is its most embarrassing: the economic fall from grace that makes everything so cheap now. It needs to encourage out-of-state money to invest in a summer house or vacation rental, cut government services, and make life cheap. That is Michigan's competitive advantage. That is what Metropolitan places like California or New York or Washington can never offer me.

2 comments:

  1. What do you think an appropriate rate would be to encourage home ownership and investment?

    I found an interesting link on property taxes by state: http://www.taxfoundation.org/research/show/25236.html

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  2. What about doing something revolutionary. Something nobody else has tried before. How about really thinking outside of the box... taking a risk.

    Let's completely eliminate the property tax.

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