How Un-American! Unequal Taxation Without Representation

(Why Florida Has No Money - Part 2)
My neighbor will pay only $400 in property tax for her house this year, while I will pay about ten times that for a nearly identical house.

Today is July 4, and I’m celebrating not only my country’s independence, but I’m also thanking God that I was born in the United States of America, where I can I vent my dislike of how the government is run without worrying about military troops coming to my home in the middle of the night to quietly take me away, never to be heard from again. If I feel like it, I can even go to the state capitol to protest by carrying a sign and walking up and down the sidewalk; and yet I am comforted to know that the government will do nothing to me in retaliation.

This great country of America was founded on July 4 in 1776 by intelligent citizens of England, Germany, France, Spain, Portugal, Africa, and other countries who were fed up with unequal taxation without representation. Bloody battles were fought over many years for the right to govern these United States. So, why is it that after all that fuss, we are back to square one?

Have you gotten your Florida property tax bill for next year? How do you feel about it?

I bought my house last year and despite the homestead deduction which I now qualify for, I’m still paying about ten times what the neighbor across the street is paying, who has a house nearly identical to mine in size, shape, number of rooms and bathrooms, year built, and type of construction. I will pay about $4000 in property taxes next year. She will pay about $400.

Last fall when I volunteered for the Democratic party to assist with the Barack Obama for President campaign, I complained to my fellow Democrats that the property tax system here in Florida is extremely unfair. I gave my own house as an example.

Their response: “People who bought their houses years ago have paid into the system for several years. You’re reaping the benefits of what they paid for in roads, schools, and libraries, but didn’t pay anything into it. You’re paying a higher rate because you’re making up for lost time.”

“But, I paid into the system in another state. It’s not like I wasn’t paying my share,” was my response.

“But, you live here, now,” they said.

I retreated, unprepared for that particular argument.

I was able to look up my neighbor’s property tax records online, thanks to the United States government’s public information act (only in America!); a well-oiled and organized property tax department, who keep good records; and the magic of the internet (otherwise, I’d be downtown scuffling through dusty file cabinets). The neighbor purchased her home in 1989 and is currently paying taxes on a valuation of about $18,000 (after exemptions), even though she could easily sell the home for about $200,000, even in today’s economy. While her taxes will rise by approximately 3 percent each year (as will mine), there will always be a huge disparity between our tax bills.

I did the math – just how much more in taxes will I pay over twenty years than my neighbor has paid, even including the ten years I didn’t own my home?

Two Nearly Identical Houses – Two Very Different Tax Bills

Both tax bills will increase by about 3% each year with today's current tax system.

Tax years	Taxes on House bought in 1989	Taxes on House bought in 2008
1989 – 2007	About $3000 total	(different owner) $0
2009	$391	$3700 with the homestead exemption
2010	$403	$3811
2011	$415	$3925
2012	$428	$4043
2013	$441	$4164
2014	$454	$4289
2015	$467	$4418
2016	$481	$4551
2017	$496	$4687
2018	$511	$4972
TOTAL paid over 20 years	$7867	$51,049

Within 20 years, my neighbor will have paid a total of about $8000 in property taxes, about what I'll pay every 2 years. Within 20 years, I'll have paid over six times more than my neighbor, even including the ten years I did not own my house. Hmmm. That’s enough to make me think about moving to another state.

See Part 1: Why Florida Has No Money - Florida's Unequal Tax System.

Why Florida Has No Money --Florida’s Unequal Tax System -- Part 1

Ranked as the fourth largest state by population of about 18 million people with a combined income of about $288 billion (See Source A at bottom), one would assume that the State of Florida would be rolling in tax dollars.

This is not the case as our Florida legislature convenes once again to attempt to scrounge up money to pay for essential services. Faced with a budget shortfall of $6.1 billion and unable to meet their planned $73.7 billion budget, the Florida legislature is considering proposing a higher tax on vehicles and cigarettes to bring in more revenue. (See Sun Sentinel article dated 4/17/09.)

So, what happened? Where did all the money go?

It’s simple, really. It was never collected. 

Florida taxes their residents lower than 44 of the 50 states and instead relies on sales tax, corporate income and excise tax, document stamps, and other sources to provide the revenue to run the government.

All individual tax is on property, not income. That's right, no income tax.

In 2006, Florida property was valued at $2.4 trillion and is taxed at 1.7% on average. Using these figures, a measly $40.80 billion should have been collected in 2006. (To wrap your head around it, think of it as $40.80 collected on $2,400).

But wait. It gets worse. Turns out that the $2.4 trillion wasn't completely taxed. Exemptions were applied. According to the Property Tax Administration's 2006-2007 report, “Due to various statutory exemptions and exclusions, the taxable value of Florida’s real property in 2006 was $1.79 trillion, resulting in more than $30.4 billion in property taxes levied by local governments and taxing authorities.” Somewhere, we lost $10.4 billion in taxes. That would have easily made up for our $6.1 billion tax revenue budget shortfall this year.

This may sound great to you. You might think, “Oh, I’m going to move to Florida and get away with paying less tax.” Florida does have more than its share of multi-millionaires who claim Florida as their legal residence for this very reason, including Mr. Anti-tax himself, Rush Limbaugh. (See Wiki.answers.com)

But really, luck really is what determines your tax rate. Nothing more, nothing less.

In Florida, the population is not equally taxed. Some residents pay a great deal more than others, and not because they earn more money or live in nicer homes.

How much you are taxed depends in part on what year you bought your home and applied for the "homestead" valuation cap and exemptions. My investment accountant back in Seattle calls this a "Yankee tax," since it unfairly burdens newcomers to Florida. I like to call it a "stick it to the new guy" tax. It also burdens first time home buyers, even those who have lived in the state of Florida for all of their lives.

What is "homesteading?" In 1995, the voters of Florida passed legislation called “Save Our Homes” which locked in tax rates for residents so that they wouldn’t be taxed out of their homes when property values soared. It sounded like a good idea, capping increases in values at a maximum of 3 percent each year. So, if you bought your home in 2000 for $100,000. You would get a $25,000 deduction off that value and only pay tax on $75,000. And, next year, the property assessor would only be able to increase the taxable value on your home to $103,000, which is 3% of the value, even if the amount you could sell your home for might go up to $120,000.

However, “Save Our Homes” didn’t take into account that some people don’t need saving. In fact, every couple I know over 70 has a pension which pays more than my husband and I make combined. My father has a six figure pension. My mother-in-law makes more than my husband (she is a retired first grade public school teacher), and my next door neighbor, a retired GE employee, makes enough to buy investment apartment rental properties in full on a regular basis (I can only guess that his pension is sky high). These people all began working in the late 1940s and 1950s after World War II when benefits and pay were at an all time high.

So, where does "luck" factor into the equation? Despite good intentions, no legislation has been able to pin down a property assessor's variations in valuing properties.

Example: The homes listed above are both in Orlando, on the same block of Corrine Drive and on the same lot size and type; with the same 3602 gross sq ft and 2488 sq ft of living space. Both were built in 2004. Both owners purchased and lived in their homes since June of 2004 and are homesteaded. (I do not know either owner and apologize for using them as guinea pigs.)

However, one house has an extra bathroom. Can you guess which one? Most people would assume that this owner pays slightly more tax. No, for some odd reason, the opposite is true. The owner of the 2.5 bath house pays about $700 extra in property tax.

A rational person might assume that perhaps the interiors of the homes are different and one is much more posh than the other. That may be, but property appraisers don't get to see the inside of a home. They evaluate their assessments on the outside appearance and tangible descriptions only.

Actually, even the assessor's office admits that the house at 3961 Corrine Drive with 3.5 bathrooms is valued higher at $380K than the house at 3881 Corrine Drive with only 2.5 bathrooms, which the assessor values for resale at $375K. Resale estimates are called "just values" or "just assessments."

So, why the higher tax? The difference occurs in a line item called "assessed value." This is the amount you pay tax on and it can vary like the wind can shift. For some odd reason, the house with 3.5 baths and a just value of $380K, is only taxed on $311K. For some odd reason, the house with 2.5 baths and a just value of $375K is taxed significantly more at $350K, about $40K higher than the other house. Why the difference? I have absolutely no idea!

This is just one of the many, many odd tax evaluations I hope to uncover over the next few months in this blog. Fortunately, property taxes are public information and the government is required to disclose this information to the public. I think it helps keep them honest.

The Florida Department of Revenue mission statement
“To serve citizens with respect, concern and professionalism;
To make complying with tax and child support laws easy and understandable;
To administer the laws fairly and consistently; and
To provide excellent service efficiently and at the lowest possible cost.”

The Property Tax Administration
2006-2007 Annual Report states:
 “The Property Tax Administration -- ensuring an equitable property tax system”

Source A: Income number based on 2007 census figures: In 2007, the population of Florida was about 18 million, living in about 6 million households. The average medium income was about $48,000 per household, which, when multiplied by 6 million, equals $288 billion total.)

Housing Stimulus Package Treats Symptoms, Not Cure

Although not completely unreasonable, Obama’s housing stimulus package won’t really solve the foreclosure crisis because it addresses the symptoms, not the root of the problem, which is continued predatory lending.

Last summer, my husband and I easily qualified for a loan in order to purchase a home in Florida. We were approved in part because houses are cheap here, and the monthly mortgage payments with insurance and taxes were estimated to be about one quarter of our combined income.

However, due to the large number of foreclosures in Florida, we also had to put up our other house as collateral. We had just moved from Washington State, and were keeping our old home in case things didn't work out and we wanted to move back.

This was my third home loan with Countrywide Home Loans. But, this time, I left the closing table feeling I’d been ripped off. My mortgage payment would be about $200 more per month than what I was quoted when I put the offer in to buy this particular house. The closing costs were also about $7,000 higher than originally quoted several months before when I was first looking into buying a home, in part because the required percentage of down payment was higher. The interest rate had also gone up over the three months I’d been looking.

“Walk away,” some might say. “Find a new lender.”

Too late. I’d lose the chance to buy the perfect house that had taken me months to find as well all my earnest money which I’d put down as a deposit on the house a month earlier.

One of the clever ways Countrywide was able to justify their miscalculation of my monthly payment was to blame it on property tax. It is true that it is difficult to calculate tax since it’s all up to the property appraiser to decide how much your home is worth after you buy your home. New tax levies are also hard to pin down. The mortgage company was off their property tax estimate by about $100 per month, $1200 per year.

The first time you buy a house in Florida, whether you’re a long term resident or have just moved from out of state, can be a real shocker. Property tax on “non-homesteaded” homes is extraordinarily high. A $250,000 home will cost a “virgin” home buyer about $6,000 in taxes per year depending on the county and city where you buy your home. That adds another $500 per month onto your mortgage payment. This can be particularly upsetting when you learn that other homeowners in your neighborhood are only paying $500 a year, not $500 a month, for basically the same house, but that’s another story.

Second, I was told at the 12th hour, literally while signing on the dotted line, that I would have to pay PMI, private mortgage insurance. Unlike home insurance, PMI does me absolutely no good. It basically gives the lender back their money I borrowed if I default on my loan. At an extra $130 per month, this greatly increased my monthly payments. I haven’t had to pay PMI since I bought my first house, many years ago, at a young age and with only a small down payment. This particular extra charge annoyed me because I chose to go with Countrywide over Wachovia because I was given the impression that I would not have to pay PMI if I got my loan through Countrywide. The representative explained that it was in the fine print.

Once again, I felt I’d been ripped off. However, what was done was done. I would move on and move into my new home, choosing to cut my losses rather than start over the house hunting process from scratch.

Last fall, a few months after buying my new Florida home, I decided to consolidate my two home loans into one to lower my payment and remove the PMI. Once again, I talked to several lenders. Once again, I picked Countrywide over another because my quoted monthly payments would be lower. However, after receiving the paperwork, I discovered that I had been misquoted my mortgage payment by about $200 per month. Once again, Countrywide blamed it on property tax. However, this time, there was no excuse. The respresentative had all the numbers in front of him: principal, interest, property tax rolls, and insurance bills. A fifth grader could have done better math.

In addition, while reviewing the cryptic paperwork, I discovered that I had been charged points to lower my interest rate from an ungodly 9% down to 7.5%. (The rates on the two loans I was consolidating were between 5% and 6%.) As a former reporter, I’m pretty good at taking accurate notes, and the Countrywide representative used the term “you qualify for a discount,” not “you are buying points.” I had no interest in “buying” down my interest rate. I feel I should qualify for a very low interest rate based on excellent credit and equity alone.

In addition, $10,000 in fees were added to the home loan. Before you assume that I must be borrowing some enormous amount of money or have low equity to be charged 9% interest and $10,000 in fees, I must explain. The amount I would be borrowing was actually LESS than the amount of the original loan on the Washington State house. Plus, I now had MORE equity because I had wisely paid down the WA State loan early.

Only because I had the misquoted payments in writing, was I able to back out of the loan with no penalty. The representative, who’s demeanor had seemed as rosy and pleasant as a sunny day in Florida, turned nasty and defensive when I called him on the carpet. I expected an apology and discounted fees. Instead, he was insulting. I guess he was upset that he would lose his hefty commission.

I told my story to a lawyer friend who’s currently representing a city government in Florida in litigation with a mortgage company. He explained that after Bush deregulated everything, there currently isn’t an agency who oversees lenders to make sure they don’t underestimate monthly mortgage payments. "Unfortunately, in your case," he said, "there’s no one to complain to who will be able to do anything."

Obama’s stimulus package includes financial help for individuals who may lose their homes because they can’t afford to pay their monthly mortgage payments. The plan allows them to refinance their homes at a lower value than what their homes were originally valued at, which results in lower payments. So, if you bought a $300,000 home and still owe $280,000 on it, but it’s now only worth $200,000, you can refinance your loan at $200,000, which results in lower payments. Taxpayers pay the difference, the $80,000 back to the bank. (Update on 2/26/09: Details of how this will actually work are unclear. One local Orlando banker predicts that banks would only receive $6,000 per loan, no matter how much is owed. This has not been confirmed by any reliable news source.)

Other than the obvious, that this plan is unfair to people who are scraping by, taking second jobs, and doing whatever they have to do to make payments on time, it also makes no sense to me. The root of the problem is that the buyer was approved for this loan in the first place. I have to assume that the buyer isn't in trouble because they were out buying a new car, clothes, vacations, and electronics or sending their kids to private schools instead of making loan payments. I also have to assume that the buyer didn't take out a home equity loan which artificially raised the value of their home. And, I have to assume that the banks approved a loan with payments higher than the buyer could realistically afford. Why were banks allowed to do this in the first place?

Who’s watching the lenders to make sure they don’t continue to take advantage of customers by roping them in with the promise of lower costs by misquoting their payments and fees, then surprising them when it comes time to close? Why aren’t fees standardized so that the costs will be about the same between lenders? Who’s watching the fine print? Who even understands the fine print?

To fix the mortgage industry, we must fix mortgage lending practices. Mortgage companies shouldn’t be able to boost interest rates in order to make a profit. If one person can get a 5% interest rate for a primary home loan, shouldn’t everyone?

Fees should be standardized so that a borrower can not only understand what they are paying, but also so that they are the same from lender to lender.

A higher fee for a person with poor credit, or a higher fee for making a “no-to-low” down payment, should also be standardized across the industry.

Rates and fees should also be locked in for one year at no extra charge, about the time it takes to find that perfect house to buy.

“This will ruin the free market economy. This is socialism!” banks will cry.

No, this is no different than any other major purchase in life. Car dealers have to list fees and prices on the sticker and can woo customers with free oil changes for life. It’s easy to back out of what looks like a bad deal: You don’t have to make a deposit before signing for the car; you aren't locked into a loan for 30 years; and you can easily go to a different dealer to find the same exact silver Chevrolet Cavalier since cars are mass produced. Even utility companies and insurance companies must go before the Florida Legislature to justify price hikes. Credit card lending terms are written on every statement. Why can't mortgage costs be standardized?

Rather than winning over home buying customers by promising lower interest rates, fees, or payments, home mortgage lenders can promise better customer service. Your bank where you have your checking account can offer you convenience in transferring payments between accounts. Independent lenders, such as Countrywide, can offer flexible payment schedules or lower late fees for late payments to woo customers, or maybe throw in a free gift card to Haynes furniture.

There should be no surprises.

Banks are not only to blame. Florida counties and cities need to commit to listing anticipated property tax on homes for sale so you know exactly how much you will have to pay, even before you put an offer in to buy a home.

PMI? What’s the point? What good did PMI do amidst all the foreclosures. That’s one extra fee that should be eliminated entirely.

In addition, the current structure of loans sets borrowers up for failure by amortizing payments. What does that mean? The first few payments you make don't pay off your loan. Instead, they are attributed to interest. In fact, over half of your mortgage payments pay interest for the first 18-1/2 years of a 30 year loan. Crazy? Huh? No wonder so many people owe more than their homes are worth. The only way to pay less interest is to make extra payments earlier than scheduled. Wouldn't it be great if instead of paying $900 towards interest and $100 towards the loan, you paid $300 towards interest and $700 towards the loan each month from day one? After one year, you'd already have paid off $8400!

Obama wants to give an $8,000 tax credit to first time home buyers to help with the cost of buying a home to offset these costs. Too bad it's too late for the rest of us. We were all first time home buyers at one time.

I would prefer that the housing stimulus money be spent on a government regulatory agency that will standardize home loan costs for everyone. That’s the only fair way to spend tax payer money. We are one country. We are one people. We all pay taxes in one way or another. Let’s all reap the benefits of “club membership” of this United States of America.

Walkin’ in a Winter Summerland

Church bells ring,
Are you snoozin’?
Yesterday,
You were boozin’.
It’s really alright,
You’ll be fine tonight,
Walkin’ in a winter summerland.

Gone away,
Are the Sunbirds.
Here today,
Are the snowbirds.
They make the long drive,
Down I-95,
Walking in a winter summerland.

On the beach, we can build sandcastles,
And pretend that these are our dream homes.
He’ll say, “Do you own them?”
We’ll say “No, man.”
We used to but, then the bank foreclosed.

Later on,
We’ll perspire,
As we grill,
By the fire.
It’s sixty at night,
And eighty by light,
Walkin’ in a winter summerland.

On the beach, we can build sandcastles,
And pretend that these are our old homes.
He’ll say, “Are you homestead?”
We’ll say “Yes, man.”
But we’ll still pay ten times the tax you owe.

See the snow, that’s been gustin’?
That’s roach powder, I’ve been dustin’.
The bugs are so grand,
As big as your hand,
Walkin’ in a winter summerland.

We’ll frolic and play,
The tropical way,
Walkin’ in a winter summerland.

Merry “Crist-mas” everybody!

Credit where credit's due: The lyrics above are a rewrite of "Winter Wonderland." Winter Wonderland was written in 1934 by composer Felix Bernard and lyricist Richard B. Smith.