April 10, 2021

DON'T TAX WHAT YOU DO WANT:

Detroit's Black Wealth TaxTo help close the racial wealth gap, slash Detroit's confiscatory property tax rate.  (Stephen J. K. Walters, April 9, 2021, City Journal)

Vincent Orr is building wealth the old-fashioned way: scrimping, saving, and sweating. A Detroiter and Fiat Chrysler production supervisor, Orr made his first big investment in 2017, when he bought a brick house with a caved-in roof at auction for $2,100. After months of renovations, it was ready for his mother to move in to. In 2019, he paid $1,200 for the place next door for himself and started all over again.

In addition to countless hours of labor, Orr invested $100,000 of his own money for the materials needed to rebuild his little corner of the Motor City. Taking out a loan wasn't really an option. As he told the Wall Street Journal, "cash is king because nobody can deny you. The houses that require a mortgage, a lot of people are reluctant."

It's tempting, therefore, to blame Detroit's disinvestment crisis and long decline on credit markets that have malfunctioned--perhaps due to racial prejudice. But the reality is more complicated. Even if Detroiters had full access to easy, equitable, and abundant credit, the city would still struggle to attract the tsunami of investment it needs to renew and prosper.

To understand why, imagine yourself in Orr's position, with a burning desire to rehab one of Detroit's once-grand properties and the ability to borrow, say, $180,000 (the median home value in Michigan). The good news is that, on a 30-year mortgage at a 3 percent fixed rate (and zero down), your monthly principal and interest payment would total just $758.

But this is Detroit, which has the highest effective property tax rate of any major city in America, at 3.58 percent of market value. If the tax man assesses your house at its full renovation cost, this would add $537 to your monthly mortgage bill, bringing it to $1,295.

Tax consumption, not investment.

Posted by at April 10, 2021 12:00 AM

  

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