Property Tax Payments Research Articles

Design and implementation of a voluntary collective earthquake insurance policy to cover low-income homeowners in a developing country

Understanding and evaluating disaster risk due to natural hazard events such as earthquakes creates powerful incentives for countries to develop planning options and tools to reduce potential damages. The use of models for earthquake risk evaluation allows obtaining outputs such as the loss exceedance curve, the expected annual loss and the probable maximum loss, which are probabilistic metrics useful for risk analyses, for designing strategies for risk reduction and mitigation, for emergency response strategies and for risk financing. This article presents, based on probabilistic risk models, the design and implementation of a risk transfer instrument to cover the private buildings of the city of Manizales, Colombia. This voluntary collective instrument provides financial protection to both, the estate tax payers and the low-income homeowners through a cross-subsidy strategy; besides, it promotes not only the insurance culture but also the solidarity of the community. The city administration and the insurance industry are promoting this program using the mechanism of the property tax payment. This collective insurance helps the government to access key resources for low-income householders recovery and improve disaster risk management at local level.

An Analysis of Default Risk in the Home Equity Conversion Mortgage (HECM) Program

While reverse mortgages are intended as a tool to enable financial security for older homeowners, in 2014, nearly 12 percent of reverse mortgage borrowers in the federally insured Home Equity Conversion Mortgage (HECM) program were in default on their property taxes or homeowners insurance. Unlike the traditional mortgage market, there were no risk-based underwriting guidelines for HECMs through 2014. In response to the relatively high default rate, a variety of policy responses were implemented, including establishing underwriting guidelines. However, there is a lack of data and analysis to inform such criteria. Our analysis follows 30,000 seniors counseled for reverse mortgages between 2006 and 2011. The data includes comprehensive financial and credit report attributes, not typically available in analyses of reverse mortgage borrowers. Using a bivariate probit model that accounts for selection, we estimate the likelihood of tax and insurance default. Financial characteristics that increase default risk include the percentage of funds withdrawn in the first month of the loan, a lower credit score, higher property tax to income ratio, low or no unused revolving credit, and a history of being past due on mortgage payments or having a tax lien on the property. Our estimate of the elasticity of default with respect to credit scores is similar to that for closed-end home equity loans, but higher than that for HELOCs. We simulate the effects of alternative underwriting criteria and policy changes on the probability of take-up and default. Reductions in the default rate with a minimal effect on participation can be achieved by requiring that participants with low credit scores set aside some of their HECM funds for future property tax and insurance payments, a form of escrowing.

The choice of the personal income tax base

Starting with Vickrey (1945) and Mirrlees (1971), the optimal tax literature has studied the design of a personal income tax. The assumed ideal would be to tax earnings ability. Earnings ability is unobservable for tax purposes, however. Past papers have focused instead on designing a tax on labor income.Existing tax bases, though, depend on a broader range of information about each individual than just labor income. In principle, this supplementary information can help in designing a tax that has more attractive distributional properties, by more closely approximating an ability tax. The objective of this paper is to lay out theoretically and estimate empirically how to make best use of available information about each individual in addition to earnings, in a setting where the first-best tax would be an ability tax. The theory lays out an equity/efficiency trade off when choosing the tax base. In the empirical work, we find the tax base that is best on equity grounds alone.We find that the choice to tax couples based on their joint income, and the inclusion of dividends, interest income, and dependents' deduction in the tax base in roughly their current form can be rationalized simply based on their value in better approximating an ability tax, without any need for supplementary motivations for these provisions. However, the inclusion of mortgage and property tax payments in the list of itemized deductions cannot be defended on these grounds.

What You Need to Know About Reverse Mortgages

On Joe Greene's 84th birthday, he had only US$22,000 remaining in his retirement savings. He was happy to still be living in his own home and taking care of himself, but he worried about how he would cover his ongoing expenses. His house needed a new roof and a paint job. His wife of many years had passed on 5 years before. He wanted to stay in his home as long as possible. A friend suggested he might benefit from a mortgage. He was able to arrange one. He contacted two lenders through the mortgage site www.nrmlaonline.org. This is the National Reverse Mortgage Lenders Association. Click on the Locate A Lender box on the top right. Joe met with a counselor to complete the required counseling. Counselors are found on the Department of Housing and Urban Development (HUD) site, www.hud.gov. Put reverse mortgages into the search box on the site. The lender agreed to a mortgage of US$200,000. Joe spent US$40,000 on home repairs. The remaining $160,000 he leftuntouched to provide for his future needs. He thought he might live another 10 years as both his parents had lived into their 90s. The remaining money would allow him to draw US$16,000 a year to supplement his social security and small pension. The original mortgage that Joe and his wife had used to buy their home had been paid offlong ago. If it had not, proceeds of the mortgage would be used to pay offin full any existing mortgage and any outstanding home equity line. The mortgage must have the first claim on the house. During the life of the mortgage, Joe continues to own and hold title to his home. He pays the property taxes and makes home repairs. The terms of the mortgage require him to stay current on his property tax payments. There are no interest or principal payments on the mortgage. Interest accrues until the home owner moves, sells, or passes on. Joe would make payments to the federal insurance agency that guarantees that the bank will be repaid. There are up-front closing costs and fees. These might total 3% of the house value. These fees may make a mortgage unattractive, depending on how much one wants to borrow against a house. Borrowing a small amount relative to the house value may make the mortgage unattractive. In this case, a home equity line would be more attractive. Joe had no heirs. At his death, he planned to give his remaining estate to his local senior center and town library. At his death, his home would be sold. The bank would be repaid the principal and accrued interest on the loan. If the selling price of the house was less than what they owed the bank, the Federal Housing Administration (FHA) would pay the bank the shortfall. The insurance premium that Joe had paid went to provide insurance to cover any shortfall. Joe cannot be forced to sell his home to pay offthe mortgage, even if the mortgage balance grows to exceed the value of the property. An FHA-insured mortgage need not be repaid until the borrower moves, sells, or dies. When the loan is due and payable, even if the loan exceeds the value of the property, the borrower (or the heirs) will owe no more than the value of the property gained from a sale. If the sale of the home produces more than the loan amount, the excess goes to Joe's estate. A SECOND CASE In another case, Stephanie and John Hanlon were able to use a mortgage to improve their quality of life. They had both been widowed in their 50s and married each other in their 60s. They wanted to start their marriage in a fresh home without any memories. They bought a home together using a 7% fixed rate, 15-year mortgage. All was good until their investment portfolio declined in the 2008 market correction. John had some margin debt on his portfolio. He was forced to sell some bond holdings to pay offthe margin debt, which came due when his stocks declined. …

Liquidity Problems and Early Payment Default among Subprime Mortgages

Abstract We compare the twelve-month default probability among subprime borrowers differing only in the number of months before their first lump-sum property tax payment, after which time they may be exposed to reduced liquidity. We show that borrowers with an earlier property tax bill—within three months of origination—have 2% to 6% higher first-year default rates than borrowers facing their first property tax bill ten to twelve months after origination. Lump-sum property tax payments appear to produce a persistent state of low liquidity, the length of which raises the likelihood of default. These results are about one-third the effect size of a transition from 10% positive to 20% negative equity found in the literature. This paper provides causal evidence that liquidity constraints are important predictors of mortgage default.

PROPERTY VALUE ASSESSMENT GROWTH LIMITS AND REDISTRIBUTION OF PROPERTY TAX PAYMENTS: EVIDENCE FROM MICHIGAN

We examine the change in the distribution of property tax payments resulting from Michigan’s imposition of a property tax assessment growth cap in 1994. The cap restricts growth in property value for tax purposes to the infl ation rate, for those maintaining continuous ownership. Upon sale, however, the tax base is adjusted to refl ect market value. Using data from a survey conducted in 2008, we fi nd that long-time homeowners enjoy an average reduction in effective tax rates (relative to new homeowners) of 19 percent. The cap also appears to have reduced effective property tax rates for older homeowners, and for those with higher incomes.

Who Pays? Who Decides?

(2001). Who Pays? Who Decides? Public Performance & Management Review: Vol. 25, No. 2, pp. 229-230.

The Effects of the Flat Tax Reform Proposal an the U.S. Housing Market

This paper analyzes the effects of the Armey-Shelby tax reform proposal among the flat tax proposals on new owner-occupied housing market in USA on the basis of partial equilibrium. The effects in the short- and long-run are examined based on the Kenneth T. Rosen's regression result focusing on the effects of the user costs on home ownership. The Armey-Shelby plan would cause housing price in the short run to decrease with unchanged quantity because of nondeductibility of mortgage interest and property tax payments in the short-run. But the plan would cause housing market in the long run to be more activated, that is, increase in housing quantity and decrease in housing price, through lower interest rate caused by untaxed savings and investments that mean tax neutrality against savings and investments.

Opposites Attract: The Effect of the Federal Income Tax Code on Community Composition

If houses in two homogeneous but dissimilar communities are reorganized as a single heterogeneous community, property tax payments are shifted from owners of small houses to owners of large houses. We consider three aspects of the federal income tax code which causes this shifting to raise aggregate property values in the heterogeneous community. First, the property tax is deductible and the tax rate structure is progressive. Second, some families do not itemize. Third, the restriction on saving in tax-deferring assets suggests the use of different interest rates to capitalize future property taxes. Because of these aspects, heterogeneous communities are established provided the different family types desire similar levels of public service.

Highway Accessibility, Location Rents, and the Efficiency of Metropolitan Area Tax Base Sharing

ABSTRACTOne solution that has been proposed for the fiscal disparities in fragmented metropolitan areas is the sharing of taxes generated by commercial and industrial property. A criticism of this proposal is that it distorts the efficient pattern of business locations resulting when an implicit market for business locations is allowed to develop through the independent fiscal behavior of communities and the optimizing location behavior of businesses. Critics recognize that the efficiency argument against sharing a metropolitan area's business tax base must be qualified to the extent that local governments possess location advantages which enable them to extract rents from business firms. This paper presents an empirical analysis which permits a partition of the local property tax payments from industrial firms into accessibility location rents and compensation payments to the community for the negative externalities of industrial development. The empirical analysis suggests that approximately 40 percent of the industrial taxes received by communities in this analysis represents accessibility location rents. It is concluded that these receipts could be redistributed through a metropolitan area tax base sharing program without affecting the efficiency of the implicit market for business locations.

DO HIGH INTEREST RATES ENCOURAGE PROPERTY TAX DELINQUENCY?

When the interest rate rises above the penalty rate on delinquent property taxes, taxpayers have an incentive to delay their property tax payments, using their local governments as cheap credit sources. Property tax delinquency as a percent of the tax levy should rise with increases in the interest rate. We test this proposition using delinquency data for 12 large Indiana counties during 1969-86, and find that a rise in the interest rate causes a significant rise in the delinquency rate. We also find that higher unemployment increases delinquency while higher inflation reduces it.

The Effect of Public Capital on U. S. Manufacturing Activity: 1970 to 1978

The decade of the 1970s has been characterized by a significant deterioration of the nation's public capital stock. From 1970 to 1978 the real value of the total stock of public capital at the regional level (SMSA) has declined, on average, by 41 percent. Likewise, the real value of the stock of sewers and sanitation facilities, highways and roads, and water supply and treatment facilities has declined by 39, 45 and 48 percent.' The size of this decay has caused concern among regional policy makers since such deterioration may have an adverse effect on regional growth. Regional economists have long considered public capital to play an important role in regional economic development. Although public investment does not guarantee that regional growth will occur economists view it as being able to create the necessary foundation for regional economic and social activity. As suggested by Nijkamp, public investment can have both a short and long term effect on regional growth [22]. The short term effect results from the direct effect of public capital on the production activities of private industry. Meade suggests that public capital can be viewed as an input in the production process of private industry that contributes independently to firms' output [21]. However, it is a unique input since firms do not purchase public capital on a per unit basis as they do private capital and labor. Rather, local governments supply public capital to firms in return for a lump sum property tax payment. The political process, in which private industry is assumed not to play a significant role, determines the amount of public capital supplied to private industry. Hence, if firms have no direct control over how much public capital local governments supply to them, then public capital enters the production process as an unpaid, fixed input. As such, public capital has a direct effect on firms' variable costs and profits.2 The favorable effect of public investment on variable costs and profits may induce exiting

Property taxes and urban housing abandonment

This paper formulates and estimates an economic model of landlord housing abandonment, using New York City data. A major focus of the study is to investigate the importance of property taxes in the abandonment decision, as opposed to such factors as the types of buildings or the characteristics of households occupying the neighborhood. There are two major results: first, cities can reduce the rate of abandonment by initiating foreclosure as soon as buildings go into arrears on property tax payments (rather than allowing a grace period), and second, property taxes are an important and significant determinant of abandonment rates. The benefits and costs of a policy whereby cities would systematically reduce property taxes in blighted neighborhoods by lowering assessment levels are also explored.

An empirical analysis of the determinants of intrajurisdictional property tax payment inequities

An empirical analysis of the determinants of intrajurisdictional property tax payment inequities

Federal Tax Regulations and the Housing Demands of Owner Occupants

While economists have been analyzing the demand for housing for decades, researchers have only recently begun to investigate the complex impact of the federal tax treatment of homeownership on the housing market. Several provisions of the federal tax code confer substantial direct benefits to homeowners (Rosen 1979a, 1979b; MacRae and Turner 1981), while substantial indirect benefits are transferred to homeowners, landlords, and housing producers at the expense of renters (White and White 1977). These provisions are: (1) the exclusion of imputed interest on homeowner's equity from federal taxable income, (2) the inclusion of mortgage interest and property tax payments as taxdeductible items, and (3) the favorable treatment of capital gains. From the perspective of the individual household, these provisions result in a potentially lower price of housing services and a high aftertax income if the household is a home-

Estimating demand for owner-occupied housing subject to the income tax

The federal income tax code includes several provisions which benefit homeowners. First, the imputed rent from the ownership of a house is not incorporated into a household’s taxable income. Second, mortgage interest and property tax payments are tax deductible. Finally, capital gains go untaxed if they are reinvested. These provisions reduce the effective price of housing services by reducing the factor prices for land and structure; but they do not reduce the price of operating inputs nor do they necessarily reduce the prices of land and structure proportionately. Thus, they alter the optimum factor input combinations in the production of owner-occupant housing services by influencing relative factor prices. The homeowner tax provisions also increase effective income if the deductions and exclusions are large enough to shift the households into a lower tax bracket. In this case, the household receives an effective income transfer in the amount of income saved by not having to pay taxes at a higher rate. Few attempts at quantifying owner-occupant demand behavior have systematically incorporated federal income tax provisions. None have considered the effects of these provisions on housing service production behavior. Maisel et al. [ 121 conducted a study in which income but not price was adjusted for taxes, while Straszheim [21], using household interview data, made an adjustment to the gross price of housing without adjusting income. In an analysis of the welfare effects of owner-occupant tax benefits, Laidler [l l] acknowledges that taxes alter both price and income, but uses an estimate of price elasticity which does not incorporate income tax provisions. Rosen [ 18, 191, however, has adjusted both price and income for taxes in a recent estimation of housing demand. While Rosen’s work represents a

Decentralization and Citizen Participation in Social Services

Decentralization and Citizen Participation in Social Services

Income Tax Credits to Reduce the Regressivity of State‐Local Tax Systems

AT LEAST FOURTEEN STATES and the District of Columbia currently offer some of their residents refundable credits against personal income taxes designed to reduce the regressivity of their state-local tax systems. This paper reviews existing credit plans and their economic effectiveness, and offers various suggestions for improvement. Credits for sales taxes are discussed in Part II and property tax credits in Part III. These credit plans are an outgrowth of a number of state tax system studies which uniformly demonstrated that state sales and property taxes are most burdensome on that segment of the population least able to pay (1). That is, both sales and property taxes are regressive with respect to current income. This relationship is accepted without reservation for the sales tax since the percentage of family income spent on items subject to the general sales tax has been shown to decrease as income increases. This occurs both because of proportionately higher saving among higher income families and because of the lack of sales taxes on many services which are predominantly purchased by those with higher incomes. Although the residential property tax is regressive with respect to current income, several recent studies have shown it to be approximately proportional to permanent income. This result is explained by the infrequency with which individuals change housing, with the result that many families consume either more or less housing than is justified by their current income (2). Many families with temporarily low income do experience cash flow problems which make property tax payments difficult. For this reason alone, some form of property tax relief for those with low current incomes may be justified (3). In addition, for those with permanently low incomes, the property tax does constitute a major outlay which may not be considered equitable by society. This is particularly true of the elderly poor who may own a home but have insufficient cash income to buy food after paying their taxes. Individuals who rent tend to be worse off in that they do not even own a home as an asset. Both property and sales tax credit plans have been referred to as little negative income taxes, since in most cases the taxpayer is eligible for a refund if his credit is larger than his income tax liability. If a person pays

Taxation and the Relief of Poverty

Last year, poverty was a theme of the American Economic Associa? tion meetings; this year, it is a theme of the Catholic Economic Associa? tion. The relief of poverty is now a national issue. Furthermore, it is already a broadly accepted area of research and discussion for profes? sional Economists. In fact, it is almost a fad! When the Economist opens the door marked he does not just step into a room; he steps into the long, long corridor of income distribution which has many other doors branching out from it. When we pick out the door marked Taxation and Poverty, we find our? selves in a smaller corridor, but still faced with the necessity of opening more doors. The room where I want to end up, the room wherein I want to settle down and chat with you this morning has a plaque on the door saying Possible federal taxation programs for relief of the poor. To get to this chamber for our chat, we had to pass up the door marked social security, the one marked unemployment compensation, the one marked general assistance, the one marked categorical aids, the one marked Office of Economic Opportunity, etc. But along the way to our final room there is a spot where I would like to tarry a bit. The states?those fifty poor, harried, maligned, hard-pressed sovereign units of government?these states have something to say to us. Indiana started something off in 1963. In its state income tax it al? lowed a $6 credit to each person for sales taxes paid on food and drugs. And, for those individuals who have no income tax liability, the state refunded the $6 per person or $30 for a family of five. Thus, it is a positive and negative income tax credit. Colorado and Hawaii have en? acted similar programs; in the latter case the sales tax was even rendered progressive by reducing the size of the credit as income rose. Wisconsin applied the same kind of positive-negative credit to the elderly for their property tax payments, so that again refunds are made to those too poor to have an income tax liability. Our pause to examine these state programs was time well spent; well spent for at least two reasons. First, these state credits suggest that the idea of explicitly using the tax system to relieve the poor is receiving wider and wider support; there are signs of a fairly broad consensus de 107