Discounting taxes
Samson is having trouble with this post , about why you can't "save money" by moving to a place with lower property taxes. Let us picture three homes, identical in every respect. (This is a thought experiment, OK?) Each is priced at $100,000. Now the property tax fairy descends on the area, placing a tax of $1000 per year on home B, and $10,000 per year on home C, while ignoring home A. Furthermore, assume that there are no benefits from the higher taxes, such as better schools: the tax fairy just whisks the money off to fairy-land. The market of potential owners is, on average, planning to occupy their next home for ten years. The present value of the tax payments on home B for a ten-year period, discounting at 5%, is roughly -$7500, and that on home C roughly -$75,000. (Should we discount in perpetuity? Maybe, but that doesn't really change the outcome of our exercise.) If all three homes (aside from taxes) are identical to me, I will pay $100,000 for ho...