Subject: Real Estate and Fair Tax Comment: I was sitting across the table from a fellow Realtor the other day when he said, "Fairfax will kill Real Estate." I love nothing more than an argument I know I can win. "How do you figure that?" I asked. He started with some nonsense about home ownership tax incentives being lost. People buy homes when they can afford them. Homeownership, and building equity are the incentives. Renters become homeowners when they can afford to. Income tax incentives help people afford mortgages, because the interest portion is made in before tax dollars. If the whole paycheck is not taxed, they can afford more. Prices will therefore go up. Higher paychecks means more investment or more consumption. Those who consume more will pay the tax. Those who invest will eventually either buy more expensive homes or invest in financial markets, which helps companies expand, which creates jobs, which creates a better Real Estate Market. I win. Next? "What about investment Real Estate, these 1031 Exchanges, and people who overpay for investment property to complete their trades? The market is going crazy. People buy buildings with no return just to postpone tax." I have to be honest some of the urgency will go away. This money will still however be reinvested along with all they are paying facilitators and accountants, if not in Real Estate in Financial Markets. It will not just sit in the bank. Although money never sits in the bank, the bank invests in real estate loans, and Financial Markets . There is more incentives to invest when the income earned is tax free. It is a higher return, plan and simple. Sure you will have the flexibility to divest real estate and peruse other investments if you want diversification, but if fair tax passes real estate will appreciate so don't sell everything. When Clients ask me about this crazy real estate market and where I think it is going from here, I tell them we've had the biggest boom in history and well usually large booms end badly. Real Estate prices are driven by job markets and interest rates. When people are working and can qualify for loans, they buy houses. Everyone wants to be a homeowner. Real Estate markets don't go down because people want them to. They go down because job markets dry up and people move away when they can't find work. Jobs are created when companies expand and let's face it, the tax environment is a huge factor in where companies choose to locate themselves. Sure it is not the only factor, or no one would be here in Silicon Valley, but high taxes are the reason many successful silicon valley companies have left. Many keep an office here, but move their large plant to a more favorable tax environment. If Fair tax passed we would have the largest economic boom in US history. First you would have billions of dollars of capital come in from overseas, because High Net Worth Europeans would perceive the US as the best Tax Haven. The strongest Real Estate Markets in the world, for high end Real Estate are in countries with the most favorable tax laws for High Net worth Immigrant Retirees. London, (no income tax on foreign source income for none UK Domiciliaries) Zurich, Switzerland (prenegotiated low income taxes for high net worth immigrants regardless of how much money they make), Hong Kong, 10% income tax, Monaco, zero income tax.These are the most expensive cities in the world, where apartments sell for $1000 to $2000 dollars per square foot. These are major cities with very favorable tax laws. Fair Tax would make US Major cities favorable to these tax havens by a mile. America will become the most favorable country in the world for any business to be located. Right now we legislate complicated tax purkes for specific industries to locate in the US and they do, but this will bring in the masses at zero compliance cost. The repeal of the 14th Amendment will remove the fear of these tax incentives going away so companies would come with the intent to stay. There are many successful people and companies in high tax jurisdictions, but it is despite the taxation. Under fair tax there are still taxes. They are just fair. You know what they are going in and you can make an informed decision. People come to me and ask what is the best way to shelter all my income from tax with real estate? What is the most tax benificial Real Estate investment? The US government gives tax credits for the purchase and renovation of low income housing. Purchasing a large apartment building and guaranteeing the Government you will fill it section 8 tenants could offset all of your tax liability for fifteen years. Guess what Section 8 buildings do to neigborhood values? Granted these people need a place to live. The government would have to figure another way. If Fairtax passed most of these buildings would get converted to moderate income housing and that really brings up the neighborhood values and brings down the crime rate in those ares. What about retirees who already paid there taxes? Most of them have some investment income and currently pay some tax. A good economy helps them too and don't think it doesn't |