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April 18, 2006

Income and wealth

Two standard measures of a person’s prosperity are income and wealth. Mike Walden explains the difference -– and a concern that arises when a person's wealth grows faster than income.

“Sometimes people use them interchangeably. But obviously ‘income’ translated usually means annual earnings -– that is, the money that you earn, usually for most people, from their jobs,” says Walden, an economist at N.C. State University. “Wealth, on the other hand, is the value of your investments, your assets.

“Now, people certainly are happy when both of those or either one of those go up. But there is one issue that is in the tax area that can cause a concern -- and that is if you have a tax that is levied on your wealth and yet your wealth has gone up faster than your income. … What you will find is that tax is taking more out of your income.

“A very good example of that is property taxes. Property taxes, of course, are a tax on the wealth that most people have in their home. And the fact of the matter is that home values -- residential values -- have been going up a lot -- much faster than income. In fact, here in central North Carolina, I estimate they have gone up twice as fast as income in the last seven years.

“That means that when local county commissioners revaluate property and apply a tax rate to that now higher wealth, that may end up taking a lot more out of your income.”

Posted by deeshore at April 18, 2006 07:56 AM