I want you to picture a specific document. It's
probably sitting in a fireproof box or some deep
drawer somewhere in your house. It's got a heavy
seal, maybe some, you know, archaic font on it.
And your signature is right there at the bottom.
And it says in no uncertain terms that you are
the owner of your home. Right. The deed. The
deed. And for most of us. That piece of paper,
that's the finish line. It is the tangible proof
of the American dream or really the universal
dream of just having security. It's the ultimate
psychological anchor. We view that deed as absolute.
It's the concept of fee simple ownership, which
is, you know, the highest form of ownership known
to law. Right. Fee simple. But today we are going
to sort of pull back the curtain on that idea.
We're going to talk about the invisible string
that's attached to that deed. The one that never
gets cut. Exactly. The one financial obligation
that never, ever ends even after the mortgage
is dead and buried. We are talking about the
bill that comes in the mail once or twice a year.
The one that, if you ignore it long enough, proves
that you might not be the owner after all. Ah,
yes. We are doing a deep dive into property tax.
And it is arguably the oldest, and I would say
certainly the most controversial, relationship
between a citizen and a state. And you are so
right to frame it. as a challenge to the very
concept of ownership. It feels that way. Well,
the central tension we are going to explore today
is exactly that. Do you actually own your home
if the government can take it away from you because
you missed a payment to the local council? It's
a terrifying thought when you really sit with
it. I mean, you can have zero debt to any private
lender, a bank, whatever, but you still have
this perpetual lien held by the state. Precisely.
But before we get too existential... And don't
worry, we will definitely get to the renter of
your own home argument later. Oh, we're going
there. We have to. But first, we need to understand
that this isn't just about the annoyance of writing
a check. This is a deep dive into the engine
room of civilization. That's a great way to put
it. Property tax is the fuel for the things we
completely take for granted. You know, schools,
police, fire departments, roads. And as we were
looking through the sources for this dive, what
really struck me was just how wildly different
nations are in deciding what a piece of land
is actually worth. It's chaotic. It really is.
So here's our mission for this session. We are
not just skimming the surface. We're going to
unpack the actual mechanism, the black box of
assessment that determines your bill. The math
behind the madness. Yes. And then we're going
to hop in a time machine, go all the way back
to 6000 BCE to see how the Sumerians handled
this without spreadsheets. I'm excited for that
part. Me too. Then we're going on a global tour
to see who pays what, why a renter in London
pays the tax while the owner skates, and why
the lack of Property tax in China is actually
causing this massive economic crisis. And finally,
we will confront the dark side. We'll look at
these equity theft cases, specifically a really
harrowing story out of Michigan that went all
the way to the Supreme Court asking if the government
is stealing from its citizens under the guise
of taxation. It's an incredible story. So let's
unpack this. Section one, the mechanics. What
exactly is this beast? Because when I look at
my tax bill, it feels like a distinct species
of financial pain compared to, say, income tax
or sales tax. It is distinct. And you're right
to feel that way. At its core, property tax is
what economists call an ad valorem tax. Ad valorem.
OK, let's translate that. It just means according
to value. But that's the rub, isn't it? Value
is subjective. My income tax is math. I made
X dollars. I owe Y percent. The math is, you
know, it's absolute. Right. It's based on a transaction
that actually happened. Yes. But property tax
is an opinion. The assessor thinks my house is
worth X. That is the fundamental friction point.
That's where all the appeals come from, all the
anger. It is a tax on an unrealized gain. You
haven't sold the house. You haven't realized
that money. I haven't seen a penny of it. But
the state is taxing you on the asset's theoretical
market price. And the scope of this is usually
something called real property. Let's define
that clearly because... Real property sounds
redundant. Like what? There's fake property?
Well, in the legal sense, real property or real
estate is the combination of the land itself,
the dirt, plus what they call the improvements.
The building. The building, the garage, the driveway,
the swimming pool, basically the immovable man
-made objects. And this is where it gets super
tricky for businesses, right? I was reading about
the distinction between real property and personal
property. If I'm a homeowner, it's simple. The
sofa is personal property. The living room floor
is real property, but for a factory. Oh, it is
a litigator's dream. I mean, it's a nightmare
for the business owner and the assessor, but
a dream for the lawyers. Ha, I bet. Imagine a
massive automotive factory. You have a robotic
assembly line bolted to the floor. Is that robot
real property? part of the building and therefore
taxable at the higher rate? Or is it equipment?
Or is it personal property equipment, which is
often exempt or taxed at a much, much lower rate?
Billions and I mean billions of dollars in tax
revenue hang on that definition. So if I bolt
it down, the assessor says tax it. If I put it
on wheels, the company says exempt it. That's
essentially the game, yes. And this is why you
see these endless court cases over things like
heavy machinery, telecommunications towers, even
billboards. Is a billboard an improvement to
the land? Or just personal property on the land.
Wow. I never even thought about that. But for
the average listener, you're right. The focus
is the land and the building. Okay. Now, we need
to be really clear about what this isn't because
that helps define it too. This isn't a tax on
rent. Correct. A rent tax or an income tax would
be based on the income flow. An ad valorem property
tax ignores whether you are making a single dollar
from the property. So you could have a giant,
beautiful skyscraper that is 100 % empty, generating
$0 in rent. And you would still owe the property
tax based on that building's theoretical market
value. It's a tax on holding the asset, not on
using it to generate income. Okay. And this is
also distinct from something called a land value
tax, or LVT. The Georgia Stream. The Georgia
Stream, yes. Yeah. Tell us about that. Right.
LVT is a favorite concept of many economists.
The idea is that you only tax the dirt, the land
itself, and you completely ignore the value of
the building on top of it. Why would you do that?
What's the point? The theory is that this encourages
development. It incentivizes you to use the land
for its highest and best use. If you own a vacant
lot in the middle of downtown, you're paying
the same tax as the guy next door with the 50
-story office building. So you're being penalized
for not building something. Exactly. You aren't
penalized for building a nicer apartment complex
or improving your property. The tax is purely
on the locational value of the land itself. But
for the most part, current systems tax both the
dirt and the bricks. Okay, so let's get into
the math that confuses everyone. Millage, or
mills. It sounds like something from a Dickens
novel, but it's the standard unit of measurement
for property tax in the U .S. It does sound archaic,
doesn't it? A mil comes from the Latin word millesimum,
which just means thousandth. So one mil is one
thousandth of a currency unit. Or put more simply,
it's one dollar of tax for every thousand dollars
of assessed value. OK, so a simpler way to think
about it is like a percentage, but moved one
decimal place over. That's a good way to look
at it. So one percent is the same as 10 mils.
So if my mil rate is 20, that's a two percent
tax rate. Exactly. You got it. But here is the
dynamic that people miss, and this is where all
the politics comes in. Your tax bill is a function
of two separate variables. You have the assessed
value, which is what the house is worth. And
you have the millage rate, which is what the
government needs. And crucially, these are set
by two different groups of people. Correct. The
assessor, who is often an independent or elected
official, determines the value. They're supposed
to be objective. Then you have the city council
or the school board or the county commissioners,
the politicians, and they determine the budget.
And that budget sets the millage. Let's play
this out with an example because this is where
the revenue neutrality trap happens. This is
the shell game. It absolutely is. So let's say
I live in a town where every single house is
worth exactly $100 ,000. And the town needs,
say, $1 million to run the schools for the year.
Okay. So if there are 1 ,000 houses at $100 ,000
each, the total tax base is $100 million. Right.
To get $1 million in revenue from that $100 million
base, the rate needs to be 1%, or as we now know,
10 mils. Your bill is $1 ,000. Simple. Simple
enough. But now the housing market goes crazy.
A big company moves to town. Everyone wants to
live here. All the houses double in value. Now
my house is worth $200 ,000. Right. Now, in a
pure, honest world, the town still only needs
$1 million to run the schools. The teachers'
salaries didn't double overnight. So because
the values doubled, the millage rate should be
cut in half. It should drop from 10 mils to 5
mils. It should drop to 5 mils. And your tax
bill should remain exactly the same, $4 ,000.
This is what's called a revenue -neutral adjustment.
But that rarely happens. I have never seen that
happen. Rarely. What usually happens is the council
keeps the rate at 10 mils, or maybe they're feeling
generous so they drop it slightly to 9 mils to
look like heroes. So they can send out a mailer
saying, we cut your tax rate. Exactly. We cut
the millage. But because your assessment doubled,
your tax bill... effectively skyrockets. They
get a massive windfall of revenue without ever
technically voting for a tax hike. They just
rode the wave of assessment increases. That is
the silent tax increase. The politicians can
stand up and say, we didn't raise rates while
the assessor is the one who has to hand out all
the bad news. It creates a very convenient scapegoat
dynamic between the treasurer's office and the
assessor's office. It's brilliant politically.
It's devious. Now, not all dirt is created equal.
We have to talk about class. My house isn't taxed
at the same rate as the shopping mall down the
street or the vacant lot next door. No. And this
is where tax policy becomes social engineering.
Governments group properties into different classes,
residential, commercial, industrial, agricultural
and so on. And they apply different rates or
assessment ratios to each. So like a factory
might pay a higher rate than a family home. Often,
yes. The idea is that commercial and industrial
properties put a greater strain on public services.
More traffic, more water usage, more need for
fire services. But the most interesting lever
they can pull is how they treat vacant land and
vacant properties. You mentioned Israel in the
notes. This is a fascinating example of using
tax as a weapon against hoarding. Right. So Israel
has a chronic long -term housing shortage. especially
in its major cities. So the government looks
at its toolkit, looks at the tax code and says,
how do we force people to actually rent out their
empty apartments? Get that supply onto the market.
Get it onto the market. Their solution was simple.
Classification. If you have an apartment and
it is occupied, you pay the standard residential
rate. If you leave that apartment vacant, the
rate doubles. So they're actively fining you
for inactivity, for not participating. Effectively,
yes. They are making it financially painful to
sit on empty housing supply in the middle of
a housing crisis. France did something very similar
back in 1999. What did they do? They introduced
a specific tax on vacant properties, but only
in cities that had tight housing markets. They
targeted it, and they defined vacancy as being
empty for more than two years. Did it work? The
studies show it did. Vacancy rates in those targeted
cities dropped by about 13%. It proves that property
tax isn't just about revenue, it's a policy lever.
You can use it to incentivize construction or
you can use it to penalize speculation. But there's
a counter argument there, isn't there? I mean,
if I own the property and I'm paying my taxes,
why is it the government's business if I use
it or not? It's a very strong counter argument.
Maybe I'm saving it for my kids to use in a few
years. Maybe I'm renovating it slowly as I can
afford to. Why should I be punished? That is
the core libertarian critique. Why should the
state dictate the utility of your private asset?
But the counter argument, the one the government
would make, is that land is a finite resource,
especially in a city. By hoarding a piece of
that finite resource, you are imposing a cost
on society. You're driving up rents for everyone
else. So the tax is there to compensate for that
negative externality. It's the use it or lose
it philosophy applied to real estate. OK, so
that's the mechanics. Value times millage equals
your bill. But this system didn't just appear
in a vacuum. It is, as you said, ancient. It's
the bedrock of organized society. You simply
cannot have a state, you can't have a civilization,
without a way to fund it. And for most of human
history, land was the only wealth you could see,
measure, and, well, tax. So let's jump into the
time machine, section two. We are going all the
way back to 6 ,000 BCE. Ancient Sumer. We're
in the city -state of Lagash, which is in modern
-day Iraq. And archaeologists found these clay
tablets, literally tax records baked into the
mud. But what's so fascinating isn't just that
they taxed, it's how they managed the logistics
of it. Right, they didn't have computers, they
didn't have a central database they could just
query. They had something much cleverer. A system
called bala. It means rotation. The administrators
realized that trying to tax the entire city at
once was an impossible logistical nightmare.
You'd need an army of tax collectors. You would.
So they rotated the burden. They would tax one
specific district or area of the city each month.
That is incredibly sophisticated. I mean, it
smooths out the revenue flow for the government
and it smooths out the administrative workload.
It is the earliest example we have of bureaucratic
efficiency. It's brilliant. Now, if we move forward
a bit to ancient Egypt, the system becomes even
more rigid and frankly more respected. Yeah.
We have to talk about the scribes. The guys with
the papyrus scrolls. In Egypt, literacy was power.
Maybe 1 % of the entire population could read
and write. The scribes were the tax assessors.
And they weren't just low -level clerks. They
were the absolute elite of society. So the taxman
was at the top of the social ladder. Absolutely.
They would go out to the fields and assess the
grain, the cattle, the oil, the beer. Everything
that was produced was taxed. And the enforcement
was brutal, from what I understand. Extremely.
This wasn't a voluntary contribution. If you
couldn't pay your tax, you were brought before
the court. There are records and even paintings
on tomb walls of farmers being beaten for tax
evasion. This was the extraction mechanism that
built the pyramids. So no appeals board. No appeals
board. Your appeal was hoping they'd stop hitting
you. Let's fast forward a few thousand years
to the medieval period. We usually think of kings
just seizing whatever wealth they wanted arbitrarily.
But the sources mention... William the Conqueror
in the 1070s, this feels like a turning point
for data. It is the birth of the surveillance
state. It really is. When William conquers England
in 1066, he needs to know exactly what he just
bought. What did I just win? An inventory. Complete
inventory. So he commissions the Doomsday Book.
Which sounds incredibly apocalyptic. The name
was a metaphor. The judgment of the book was
said to be as final as the last judgment on Judgment
Day, but really it was a database. He sent commissioners
into every single shire in England to record
who owns this land, how many plows are there,
how many cows, how many fish ponds. So before
you can tax, you have to know. Information is
the absolute prerequisite for taxation. Exactly.
You can't tax what you can't see. William effectively
digitized England on parchment so that he could
extract wealth efficiently. The pushback to this
centralized power is really what gives us modern
democracy. King John, 1215, the Magna Carta.
Yes. We think of the Magna Carta as this grand
human rights document, but at its heart, it was
largely a tax revolt. Really? The barons were
sick and tired of the king levying scutage, which
was a tax in lieu of military service, whenever
he felt like it, to fund his wars in France.
They forced him to sign a document saying he
could not raise these kinds of taxes without
the common counsel of the realm. No taxation
without representation starts right there. It's
not just an American idea. It starts right there
in a field at Runnymede. It sets the precedent
that the power to tax requires the consent of
the taxed. And that idea evolves. So by 1689,
after the Glorious Revolution, the king's powers
weakened even further. No taxing without Parliament's
permission. Period. Which brings us perfectly
to the American experiment. So, the pilgrims
land at Plymouth in 1620. They are freezing.
They are starving. Half of them are dying. And
almost immediately, they start writing tax laws.
It was about survival. At first, they tried a
communal system where everything was shared.
It failed miserably. Nobody wanted to work. The
classic tragedy of the commons. Totally. So then
they allocated private plots of land. But they
realized they needed a fort for protection, and
they needed a militia. So the Plymouth Colony
implemented a property tax on land and also on
faculties, which was basically your ability to
earn an income. And the Puritans in Boston, a
few years later, they took it a step further.
They used property tax to fund the church. Which
is so ironic today, since churches are almost
universally tax exempt. For the Puritans, the
church was the state. There was no separation.
They also used property tax to fund the first
public education in America. But there's a detail
in the Boston records that I just love. They
use the tax system as a form of welfare state.
The exemptions for widows, right. I saw that.
Yes. If a widow with children couldn't pay her
property tax, the assessors, who are often also
the sheriffs, would not only forgive the tax,
but they would provide her a stipend from the
collected pot to live on. Wow. But it went both
ways. If you were a vandal, if you broke a street
lamp or damaged a public bridge, your property
tax bill would go up to cover the cost of the
repair. That is hyper -local accountability.
You break it, you buy it through your tax bill.
Exactly. But the defining moment for the U .S.
system, the real reason my school is funded by
my property tax and yours by yours, comes down
to the massive philosophical feud between Hamilton
and Jefferson. This is the clash of the titans.
It really is. On one side, you have Alexander
Hamilton, the Federalist. He wanted a strong,
powerful central government. And he believed
the federal government needed to have the power
to levy direct property taxes to fund a national
army and a national debt. And Jefferson, the
agrarian Democrat Republican, hated this idea.
He saw it as a return to the tyranny of King
George. Jefferson wanted revenue to be raised
locally and spent locally. He believed that keeping
the money close to the people was the only way
to preserve democracy and prevent a powerful,
distant government from emerging. And looking
at the U .S. today. Jefferson won that fight.
Decisively. Hamilton actually tried to implement
a federal property tax in 1798. It was a complete
political disaster. It triggered something called
the Fries' Rebellion in Pennsylvania, where farmers
were literally attacking tax assessors. It didn't
go over well. It was a catastrophe for him politically.
And since then, the federal government has largely
stayed out of the property tax game. Today, something
like 97 % of all property tax revenue is collected
by and stays with local governments. Only about
3 % goes to the state level. But that victory,
that Jeffersonian victory, has a really dark
double edge, doesn't it? Because if schools are
funded locally by local property wealth, then
rich towns have rich schools and poor towns have
poor schools. And the inequality is baked in
from the start. Exactly. The Jeffersonian victory
is the direct root cause of the massive educational
and municipal service inequality we see in the
United States. By tethering school funding to
local property wealth, you essentially ensure
that a child's geography is their destiny. It's
a tough pill to swallow. So we see how the U
.S. ended up here. But the rest of the world
handles this in wildly different ways. Let's
start section three, the global tour. And we
have to start with the United Kingdom. Because
their system is a total mind -bender for most
Americans. The council tax. Okay, so in the U
.S., the rule is simple. The owner pays. If I
rent a house to you, I, the landlord, get the
tax bill, and I probably just roll that cost
into your rent. But in the U .K.? In the U .K.,
the occupant pays. The resident. If you were
a renter in a flat in London, you get the council
tax bill. It comes in your name. You pay it directly
to the local authority. The landlord doesn't
see it. That fundamentally changes the psychological
relationship. The renter is now directly funding
the local services they use. It does. It directly
aligns the burden with the user of the services.
You know, trash collection, police, streetlights.
But it completely separates it from the owner
of the asset. And if a property is empty... The
owner then becomes liable for it. Oh, okay. And
it's highly controversial, not least because
the bands, the value brackets they use to calculate
the tax, haven't been updated in England since
1991. Wait, wait. Nineteen. Ninety -one. You're
telling me people are paying tax based on what
their house was worth when Nirvana released Jews?
Never mind. Yes, that's exactly what I'm telling
you. Imagine the distortions that creates. A
neighborhood that was cheap in 1991 might be
incredibly expensive now, but the residents are
still paying a tiny amount of tax. And vice versa.
That's insane. And it gets worse. If you think
that's bad, let's look at Germany. They recently
had a full -blown constitutional crisis over
this exact issue. A crisis? Yes. Until 2018,
West Germany was using property values from 1964.
And East Germany was using values from 1935.
19. 35. You're telling me that in 2017, someone
in Berlin was paying property tax based on a
pre -World War II, pre -Berlin wall valuation.
That is correct. And think about how much neighborhoods
have changed. especially in a city like Berlin.
A wealthy district in 1935 might be a working
class area now, or a rundown area from the Cold
War might be the trendiest, most expensive place
to live. The inequity was absolutely staggering.
So what happened? Well, the German Constitutional
Court finally stepped in and said, this is ridiculous.
They ruled that it violated the principle of
equality enshrined in their constitution. You
can't treat people so differently based on completely
arbitrary ancient data. So they have to reassess
everything, the entire country. It is a massive,
gargantuan, bureaucratic undertaking. They are
trying to revalue millions and millions of properties
to implement a new, fairer system by 2025. It's
creating chaos and confusion, but it's a necessary
step to restore any kind of fairness to the system.
Now let's talk about the elephant in the room
when it comes to global economics, China. We
often hear this line that China doesn't have
property tax. That is, for the most part, technically
true for residential homeowners. Because remember,
in China, the state officially owns all the land.
Individuals get 70 -year leases on it. Historically,
there has been no annual holding tax on homes.
Which sounds great if you're a homeowner. No
annual bill from the government. It sounds great
until you ask the next logical question. So how
does the local government pay for the subway
and the parks and the schools? Right. How do
they? They've been using a system that the media
calls land finance. The local governments make
almost all their money by selling new 70 -year
leases to real estate developers. They sell the
dirt to pay for the city. But that's a Ponzi
scheme. That's not sustainable. You need to keep
selling more and more land at higher and higher
prices to pay the bills. What happens when you
run out of land or the developers stop buying?
That is exactly what is happening in China right
now. The real estate market has cooled dramatically.
Major developers like Evergrande have gone bankrupt.
Land sales have plummeted. So local governments
are broke. They are suddenly insolvent. They
have billions and billions in debt from building
all that infrastructure. And their primary revenue
stream has just dried up because they don't have
a recurring stable property tax to fall back
on. So the lack of a property tax is actually
a massive destabilizing force for the entire
Chinese economy. It creates a dangerous boom
-bust cycle. They have been talking about introducing
a real property tax for over a decade. But they're
terrified that if they do, it will cause housing
market values to completely collapse. They're
trapped. Wow. Let's pivot to our neighbor to
the north, Canada, Vancouver specifically. We
talked about classification as a policy tool,
but they took it to a, well, some would say xenophobic,
others would say protectionist level. It's the
foreign buyer tax. Vancouver in the 2010s became
what people call the safe deposit box for global
capital. I remember hearing that. Wealthy investors
from abroad were buying up condos, often with
cash, and just leaving them empty. They weren't
living there. They were just parking their money
in a stable asset. And it was driving prices
up so high that locals, nurses, teachers, firefighters
couldn't afford to live in the city they served.
So the government of British Columbia stepped
in and slapped a tax on them. A big one. A 20
% tax on the purchase price if you are a non
-resident foreign buyer. And they added an empty
homes tax on top of that. And the fines for trying
to dodge it are massive, over $100 ,000. What
was the message there? It was a very blunt instrument
designed to send a clear message. Housing in
our city is for people to live in, not for parking
cash. And did it work? The consensus is that
it cooled the very high end of the market, yes.
But it raises that fundamental tension again.
Is a house a home? Or is it an asset class like
stocks or gold? And what right does the government
have to decide? A question with no easy answer.
Now, for the listener who's hearing all this
and just wants to opt out entirely, where are
the no tax zones? Where can I move? If you are
willing to relocate, you do have options. In
the Middle East, Kuwait has no property tax thanks
to its oil wealth. In Africa, Mauritania. Mauritania.
Lovely this time of year, I hear. Or, if you
prefer Europe, there's Malta. The Faroe Islands,
which are part of Denmark but self -governing.
In the Pacific, you have the Cook Islands or
Palo and... Strictly speaking, American Samoa
has no tax on privately held land. So you basically
have to go to the edges of the map to escape
the taxman. Usually, yes. These places tend to
fund themselves through other means like natural
resource wealth, very heavy import tariffs, or
direct subsidies from a larger nation. There's
no free lunch. There never is. Okay, section
four. Valuation and calculation. We've talked
a lot about market value. But looking at the
global landscape, there are other ways to skin
this cat. The biggest alternative, and one that
many economists prefer, is rental value. Places
like Hong Kong, Singapore, and parts of India,
they don't ask, what could you sell this house
for? They ask a different question. They ask,
how much rent could this property generate in
a year? That feels, I don't know, fairer somehow.
More connected to reality. It connects the tax
to the actual... income potential of the asset.
In Hong Kong, property tax is effectively an
income tax on rental yields. It forces the tax
to reflect the economic utility of the building,
not just a speculative bubble price that might
be temporary. But then you have the other European
model, the cadastral value. I know Spain does
this. The valor cadastral, yes. This is an administrative
value assigned by the government, and it is almost
always much, much lower than the actual market
price. So you might buy a villa for, say, $500
,000. But the official valor cadastral for tax
purposes might only be $100 ,000. So your annual
tax is low, which sounds great. It is. But the
trap snaps shut when you go to sell it because
the government knows the cadastral value is fake.
So when you sell that villa for the real market
price, they hit you with the plus -valia tax,
a separate tax on the increase in the value of
the land since you bought it. They get you coming
or going. One way or another, they get their
share. Let's talk about exemptions. Who gets
to ride for free in all these systems? It's a
pretty consistent list across the globe, and
it's basically a laundry list of what a society
values. Government buildings are almost always
exempt. Taxing? City Hall is just moving money
from left pocket to the right. Right. Pointless
accounting. Exactly. Religious institutions.
Almost universally exempt. Mosques, churches,
temples, synagogues. public burial grounds, educational
institutions, scientific institutions. That one
can cause a lot of tension in college towns,
right? If you have a massive university like
Harvard or Yale that owns 60 % of the land in
a small town. It is a huge problem. The university
uses the roads, the police, the fire department,
but it pays zero property tax on its academic
buildings. The local residents who might be struggling
to pay their own bills have to subsidize the
university's massive footprint. So what do the
towns do? It leads to these huge political battles,
where towns try to force universities to make
pilots, which stands for payments in lieu of
taxes. Please, just give us something. Exactly.
They are voluntary contributions, but they are
negotiated under a lot of political pressure.
Help us pay for the services you use, or things
might get difficult for your next expansion plan.
Um, gentle shakedown. Some would call it that,
yes. Germany also has an interesting exemption
for non -profits pursuing charitable purposes.
And Slovakia has one for properties covered by
diplomatic privileges, but only if there's reciprocity.
We won't tax your embassy if you don't tax ours.
Makes sense. Now we have to go to the dark side.
Section 5. We started this whole deep dive asking...
Do you really own your home? And for most of
us, that's a philosophical question. But for
some people, it becomes a legal nightmare. This
is where the renter of your own home argument
stops being theoretical. We need to look at it
through the lens of tax foreclosure. We need
to talk about what happens when you don't pay.
The outline highlights a specific case in Southfield,
Michigan, the Raffaele case. This story, when
I read about it, it made my blood boil. It should.
It's an unbelievable story. So a man named Uriah
Raffaelli, he was an elderly engineer. He bought
a small rental property in Southfield for about
$60 ,000. He paid his property taxes, but one
year he made a mistake. He miscalculated the
interest on a late payment. Okay, so a simple
mistake. How much was the mistake? The initial
error was $8 .41. $8, not $800, $8. $8. He missed
it. He didn't know he'd underpaid. The county
started adding penalties, interest, fees. The
debt grew to about $285. Eventually, the total
delinquent amount hit around $900. Still, $900,
that's a car repair. I can put that on a credit
card. For most people, yes. But because of that
$900 debt, Oakland County in Michigan foreclosed
on his property. They seized the house. And then
they sold it at auction for $24 ,500. Okay, that's
bad. He lost a $60 ,000 investment over a $900
debt. But here is the crucial question. The house
was worth way more than the $900 she owed. Did
they give him the difference back? No. And this
is the critical distinction that listeners need
to understand. If the bank forecloses on your
mortgage, they sell the house, they take what
they are owed, the remaining mortgage balance,
and they are legally required to give you the
change. That surplus is your equity. Right. It's
your money. It's your money. But in Michigan
at the time, and in about a dozen other states,
with tax foreclosure, the government takes the
house, sells it, and keeps the change. They keep
the entire surplus. So Raffaelli lost his $60
,000 property and the county not only got its
$900, but it pocketed an extra $23 ,600 in profit.
That's right. That is state -sanctioned theft.
You are stealing the equity, the life savings
of a citizen. That was exactly the argument that
was made. It's a practice called home equity
theft. The Pacific Legal Foundation, a nonprofit
law firm, took this case all the way to the Michigan
Supreme Court. And they argued it violated the
takings clause of the Constitution. The government
cannot take private property for public use without
just compensation. And the just compensation
here would be paying him back his surplus equity.
Exactly. They argued that the taking wasn't the
house. It was the debt. And the compensation
should be everything above and beyond that debt.
Did they win? They did. In a unanimous decision
in 2020, the Michigan Supreme Court ruled that
the county cannot keep the surplus equity from
a tax foreclosure sale. It was a massive victory
for property rights. But this practice still
exists in other states. It is the ultimate proof
that your ownership is conditional. It's absolutely
terrifying. And it links directly to the broader
issue of gentrification, what some people call
the paradox of prosperity. Right. It's a very
similar mechanism, just slower. You buy a house
in a cheap, maybe rundown. Neighborhood, you
fix it up. Your neighbor sticks theirs up. The
neighborhood gets trendy. Coffee shops open.
Boutiques. The value of your house triples. Which
should be good news. I'm rich. I'm a real estate
genius. On paper, you are rich. In reality, you
are cash poor. Your assessment triples. Your
tax bill triples. And if you're a retiree on
a fixed pension or working class family whose
wages haven't tripled, you literally cannot afford
the tax on the home you own free and clear. You
are priced out of your own living room. You're
being forced out by your own success. Yeah. The
tax system forces you to sell your home and move.
It displaces the very people who built the community
and gave it its character. It's a cruel irony.
It is. And some jurisdictions try to fight this.
We mentioned Spain offers tax relief for residents
over 65. California famously has Proposition
13 from the 1970s, which severely caps how much
your assessment can rise each year, regardless
of what the market does. But Prop 13 has its
own huge controversial side effects. Well, massive
ones. It basically starves local governments
of revenue, and it discourages people from ever
moving. Because if you sell your house and buy
a new one, your tax base resets to the new, much
higher market value. It creates all these weird
distortions. It seems like there is no perfect
system. No. Every single solution seems to create
a new, different kind of problem or distortion.
So where does this all leave us? What does this
all mean? We've gone from soil tablets in ancient
Iraq to the Supreme Court of Michigan. We've
seen taxes used to fund Puritan churches and
to punish empty condos in Vancouver. We have
seen that property tax is so much more than just
a bill. It is the legal and financial definition
of the relationship between the citizen and the
state. It is in many ways the price of admission
to civilization. But I want to leave the listener
with that provocative thought we promised at
the very beginning, the one that gets to the
heart of it. Go for it. We cling to this idea
of ownership. We work our whole lives to pay
off a mortgage so we can hold that deed and say,
this is my land, this is mine. But if you have
to pay the government a fee, a tribute, every
single year for the privilege of staying there,
and if they can take it all away, all of it,
if you miss that fee. Are we all just tenants
of the state, renters with a lifetime lease?
Is the property tax a rent we pay to society
for the roads and the schools and the police?
Or is it proof that true, absolute ownership
is a myth? That at the end of the day, the government
is the final landlord? It's a question that might
keep you up at night. But at least now, when
that bill arrives in the mail, you'll know exactly
the history, the math, and the deep, complicated
politics behind that number. Thanks for taking
the deep dive with us. Until next time.