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RES327: Real Estate Economics

In 200-250 words, List two basic taxing philosophies in the United States. Discuss current and proposed real property tax reforms. Do you think that the real property tax is regressive and a burden on lower-income people?

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According to the textbook, the two basic taxing philosophies are 1) the ability to pay and 2) taxes shouldbe paid according to the benefits received from the government [CITATION Den \l 1033 ]. The rationalbehind the ability-to-pay taxation is grounded on the principle that taxes should be imposed according tothe taxpayer’s ability to pay. In other words, the tax rate increases as a percentage along with income.The rationale behind benefits received taxation is grounded on the principle of tax fairness, peopleshould be taxed based on the benefits they receive from the government and a “donor who receives atangible benefit from making a charitable contribution must subtract the value of that benefit from theamount claimed as an income tax deduction [ CITATION Kag18 \l 1033 ].”On December 22, 2017, President Trump signed the “Tax Cuts and Job Act” into law, bringing reform tothe tax code. The act lowered tax rates but keeps the seven income tax brackets, which will return in2026.

The plan also doubles the standard deduction, which some argue that it could hurt the taxpreparation industry and decrease charitable contributions. Many in the real estate industry, such as theNational Association of Realtors, fear that taxpayers will move to take the standard deduction eliminating the personal exemptions and most itemized deductions [ CITATION The19 \l 1033 ]. Forhomeowners, it would mean that the first $750,000 of the loan, mortgage interest paid would no longerbe deducted which include home equity line of credit. This could cause an adverse effect on the realestate market by slowing down home purchases by “1-3% in 2019 as low inventories continue to spurprice gains [ CITATION The19 \l 1033 ].”Real property tax is somewhat regressive because it is a tax applied equivalently across the board to alltax payers regardless of their income bracket and based on the percentage of the value of the asset. Forexample, two homeowners living in the same county with the same assessed value would pay the sameamount of property tax regardless of their income. However, the theory is that lower-income earners

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