The Immorality of Property/Asset Taxes

[Hazir]

Renewed by whom and when? Every election? And if you're in the minority, if and how is your opinion regarded? You say government services and prices, and I agree there's a legitimate viewpoint there, but then the government enforces its decisions, even if you disagree. Emminent domain is a perfect example of the government being able to force a service and then receive its due despite any protests of the individual. Who agreed to the social contract that enabled that clause, and why am I then held to that clause despite disagreeing with it?



As in, taxes are put through public votes or initiatives? Interesting idea, but thats not how it functions here. And then there's the fundamental issue of "well, I voted no" - just because a specific system is in place doesn't mean that people accept the outcomes of that system.

Inaction is also a choice, and since we are dealing with societies there will always be minority points of view that are not honored. Legitimate action of the government does not imply that we can all get from government that we want or that government should not do anything we disapprove of. It just implies that government does perform - at least - those functions we expect it to perform.

People who really don't agree with the way they are governed have several options; one of those options is using their feet and removes themselves from the society that allows a type of government they don't want to be subjected to.

[wiggin]

Wig, if the real goal is land development, then there's no reason to levy property taxes on small houses. It's not like they can be used for something more productive, particularly in a residential area.

Actually, not true. Single family homes are a pretty unproductive use of land; it makes far more sense from a 'bang for your buck' of a scarce resource to build multiple family dwellings (e.g. apartment buildings, high rises, whatever) rather than single family homes. It also reduces urban sprawl with all of its attendant issues.

I don't think property taxes should be levied on the value of the improved property as they currently are; that's where most of the issues and distortions come in. I think they should be taxed on the value of the underlying unimproved land (which would be higher depending on various factors such as location, natural resources, etc.). Such land value taxes were discussed in the Wealth of Nations and have since then gained significant currency among economists as efficient and providing the correct incentives for land development.

[Loki]

Building codes wouldn't allow you to build that in most places.

[wiggin]

Building codes wouldn't allow you to build that in most places.

I assume you actually mean zoning rules (building codes deal with things like the number of exits, electrical wiring, etc.). I don't disagree that you'll have problems due to shortsighted restrictions on land use enacted by local governments. But that does nothing to negate the underlying logic and efficiency of land value taxation; it just means that in our current system it results in suboptimal outcomes because of other factors.

[GGT]

Actually, not true. Single family homes are a pretty unproductive use of land; it makes far more sense from a 'bang for your buck' of a scarce resource to build multiple family dwellings (e.g. apartment buildings, high rises, whatever) rather than single family homes. It also reduces urban sprawl with all of its attendant issues.

I don't think property taxes should be levied on the value of the improved property as they currently are; that's where most of the issues and distortions come in. I think they should be taxed on the value of the underlying unimproved land (which would be higher depending on various factors such as location, natural resources, etc.). Such land value taxes were discussed in the Wealth of Nations and have since then gained significant currency among economists as efficient and providing the correct incentives for land development.

Well, that was written a long time ago....and modern economies may have outgrown the 'currency' of classic economic theories. If anything, political and behavioral economic theories should be added to the stew.

Taxable Improvements in previous decades meant built-in closets, indoor water pumps/taps and stairways, summer kitchens, number of glass windows. Modern Improvements mean wood-burning fireplaces, number of toilets/bathrooms, attached garages, outbuildings, and amenities like swimming pools. You can see how they're related....by the money needed to have those things, plus township funds needed to support or protect those things.

<For those who can't -- having enough clothing to need more than pegs or trunks + the luxury of stairs vs loft ladders + separate kitchen stoves + indoor 'plumbing' + window ventilation meant a degree of wealth. Plus the need for some police force and/or fire force. Same today, where the improvements reflect a certain degree of wealth, but come with the need for public sewerage and water, police and fire protections.>

[Loki]

I assume you actually mean zoning rules (building codes deal with things like the number of exits, electrical wiring, etc.). I don't disagree that you'll have problems due to shortsighted restrictions on land use enacted by local governments. But that does nothing to negate the underlying logic and efficiency of land value taxation; it just means that in our current system it results in suboptimal outcomes because of other factors.

Seems rather odd that the same local governments responsible for zoning rules (sorry about that) are the ones who levy exorbitant property taxes on houses that cannot be replaced by any other structure...Let's be honest: the main reason for property taxes is that they're easy to collect and can net huge amounts of money to local governments.

[Hazir]

Aren't property taxes the way US people are made to believe that they are paying substantially less in taxation than people from other developed countries? How do they work at all (in general) to me they seem outrageously high allways. But then again I am from a country that doesn't even really have a property tax for home-owners.

[ar81]

The logic of property tax is that it makes property not to be improductive. If you have property that is not being used, you better sell it to someone who could use it for a productive business.

[Hazir]

The logic of property tax is that it makes property not to be improductive. If you have property that is not being used, you better sell it to someone who could use it for a productive business.

I tend to think of the house I live in as being in use. Actually, it's not subject to any taxes that I am aware of.

[Loki]

Aren't property taxes the way US people are made to believe that they are paying substantially less in taxation than people from other developed countries? How do they work at all (in general) to me they seem outrageously high allways. But then again I am from a country that doesn't even really have a property tax for home-owners.

This isn't a "belief". Americans spend far less on taxes than people in other Western countries.

http://en.wikipedia.org/wiki/List_of...centage_of_GDP

[GGT]

Zoning and building codes are written within the same groups in power, though. And there's a constant power struggle, and "visionary plan" dispute, between the property owners / elected officials / tax authorities. It spans all property owners/renters, and all branches of government. Local municipalities, states, federal.

I had an interesting convo with the man who came to pick up my riding mower for service. (Small, local shop with bigger John Deere connections.) I asked him how to make my little mower cut grass at a higher level, so I could cut less often, have longer grass less susceptible to drought, saving money and water, etc. He said, "Get some goats or sheep...or buy a new mower with a higher deck".

We got to talking about zoning ordinances, and how certain townships traded rational land-use in exchange for higher property tax revenues....that were built on crazy bubbles. We lamented at the continuing "sprawl" between MD and PA borders. The continued loss of gorgeously green vistas, natural rolling hills, and small family farm land. The appearance of gated golf communities and HOA "neighborhoods" that dictate everything from exterior paint color to fucking flags, and look like mini-Monopoly houses dotting the landscape.

He told me about some new "developments" between Gettysburg and York that have strict grass heights and minimal lawn watering requirements. He rolled his eyes but said hey, it meant more business for his employer, and keeps him employed.

[Hazir]

This isn't a "belief". Americans spend far less on taxes than people in other Western countries.

http://en.wikipedia.org/wiki/List_of...centage_of_GDP

Hardly convincing as taxes aren't specified.

[Flixy]

Aren't property taxes the way US people are made to believe that they are paying substantially less in taxation than people from other developed countries? How do they work at all (in general) to me they seem outrageously high allways. But then again I am from a country that doesn't even really have a property tax for home-owners.

I tend to think of the house I live in as being in use. Actually, it's not subject to any taxes that I am aware of.

We don't? Didn't know that (but I'm not a house owner anyway). Out of curiosity, what are our local (gemeente) taxes tied to? I just know it's included in my rent, and that I get a pass to dump my garbage

Seems rather odd that the same local governments responsible for zoning rules (sorry about that) are the ones who levy exorbitant property taxes on houses that cannot be replaced by any other structure...Let's be honest: the main reason for property taxes is that they're easy to collect and can net huge amounts of money to local governments.

Well, my faith in local government isn't too high anyway, and TBH American politics seems more dysfunctional than average. Also I always found it odd how school funding is linked to local property taxes (unless I'm mistaken about that).

[GGT]

You're not mistaken, Flixy. US property taxes are used as primary source for school funding. Depends on the state and local municipality, but that's the basic gist. Parents "buy" their childrens' educational opportunities by "buying" their housing, and living in certain districts. Better schools are generally found in wealthier areas, with higher property values and....higher property taxes. That's how they attract the best teachers, with the best pay, and offer the best benefits.

[Dreadnaught]

Hmm. I used to firmly believe that all wealth taxes (including those on property, but especially those on plain old money) were wrong - they amount to double taxation, since the government has already taxed the income/capital gains/etc. that made that wealth. What right do they have to take a portion of your wealth that's just sitting there?

Since then, though, I've read up some more on the underlying theory behind some wealth taxes, and I'm less sure. I wouldn't say all taxes are necessarily immoral, but they're definitely bad, all other things being equal. Taxes tend to disincentivize various good behaviors (e.g. income, employment, wealth accumulation, etc.) and raise the price of transactions and goods. So, if you could provide the same (or better) necessary government services with fewer taxes, that would be preferable. Furthermore, at some point the marginal benefit to society from extra government services is offset by the distortionary effect of the tax levied to pay for that service, at which point taxes should not be further raised irrespective of the need for a particular government service.

That means that some taxes are 'better' than others in that they distort the market and disincentivize behavior in less damaging manners. You've all heard me suggest that Pigovian taxes (i.e. taxes on negative externalities like pollution) are particularly good for this, though they have some negative sides as well (unstable revenue streams in particular). I am also somewhat partial to 'user' fees (e.g. tollroads) as a way to match the cost of a service to the users of that service, though they can often be regressive or inefficient and thus require careful design. Lastly, as an alternative to income/payroll/wealth taxation, consumption taxes like VAT tend to be a better alternative. While not ideal (they can get complex and disincentivize consumption), they are better than the alternative, and the regressive effects can be offset by direct cash transfers to the poor.

One form of tax that also happens to seem quite efficient and well-designed is a land value tax. These taxes (which are not how most property taxes are designed) are a clever way to encourage landowners to maximize the income they can get from a piece of land. This means that large, low-yielding tracts of land will be unprofitable, while intensive development yields the most profit. It can thus reduce urban sprawl. There are some downsides - value assessment can be challenging in particular - but overall it's a pretty decent tax when compared to income/payroll taxes. So if property taxes were switched to a LVT system, I would now wholeheartedly support them even if they are somewhat similar to a 'wealth' tax.

More broadly, one can look at property/land as unique compared to other wealth taxes. Land is a scarce commodity, and its use and management is clearly up to the government (given the rights of eminent domain et al) in a final analysis. Inefficient or degrading use of land is in the government's interest to curtail, so appropriately designed property taxes may be able to give a 'nudge' towards the correct course of action.

That being said, I have also re-evaluated my thoughts about wealth taxes in general (IIRC I expressed incredulity at the wealth taxes extant in some European countries). While I still think that the exorbitant tax rates in places like France contribute to capital flight and disincentivize economic activity among the rich, I do think that there can be a place for a modest wealth tax if it can reduce income taxes. Essentially, a modest wealth tax acts like additional inflation on the very rich - they have to invest their assets productively (rather than in low yielding assets like government bonds) if they hope to make a real return. If the tax is low enough, they won't want to move their money overseas, but it will still give the rich an incentive to put their money to work in a more productive (economically) manner. The big issue with modest wealth taxes is valuation (it can be quite challenging to provide an accurate valuation of a household's wealth; far more challenging than its income). That being said, the burden would be fairly small on an aggregate basis, since it would be concentrated on relatively few households. AIUI a federal wealth tax is very tricky from a constitutional perspective, but legal concerns aside I can see a place for a limited wealth tax to take the place of income/payroll/capital gains/etc. taxes on unadulterated 'good' behaviors.


So I still am incredulous at the very high wealth taxes in some countries, and my inner capitalist rebels at the very idea of wealth taxation. But I recognize that wealth taxation is no more ridiculous or seemingly unfair than income taxation, and it may actually be somewhat better from an economic perspective if implemented appropriately.

Income taxation makes more sense because it at least taxes cashflow at semi-consistent rates. And that income is earned in a society supported by the government. If your economic activity yields more, you pay more (and earn more). At the very least, you're taxing someone based on a finite amount of cash they are earning. Property taxes involve the government arbitrarily assigning a value to something you own, then demanding cash regardless of whether you actually earn that kind of cash.

Beyond the arbitrary nature of it, the negative externalities are pretty clear. Areas with lots of people raise property taxes as an easy source of revenue across a large number of people. This disburses people to areas where property taxes are cheaper. The ever-hungry bureaucrats in those places then raise property taxes, which leads to income apartheid and drives people to locales with still-lower property taxes. All it does is ensure that some cities/towns have rich people clustered in them, and some cities/towns have poor people clusters in them.

I'm not even sure I consider land to be finite. Some of the most valuable land in Manhattan was created from landfill. Still, at any given time, there is a finite amount of anything. Taxing something for existing still doesn't make sense to me.

But I can't get myself to agree with your justification of property taxes -- why should government be punishing people for not using land in a way that the government defines as productive? That's yet another arbitrary government diktat. After all, nature conservation is generally seen as a desirable goal -- property taxes make that goal even more difficult and expensive. Hell, the NYC government owns 1,900 square miles of upstate New York specifically as a watershed -- IE the land's value is that nothing is being done to it, thus preserving the purity of the water.

You and I agree that dense housing development carries a great deal of benefits. But I don't think that setting high property taxes has any impact on density. After all, I pay some of the highest real estate taxes per square foot than anyone in the US. All it does is economically push me towards the suburbs.

Aren't property taxes the way US people are made to believe that they are paying substantially less in taxation than people from other developed countries? How do they work at all (in general) to me they seem outrageously high allways. But then again I am from a country that doesn't even really have a property tax for home-owners.

Y'all have the VAT, which is a whole other affair.

[wiggin]

Well, that was written a long time ago....and modern economies may have outgrown the 'currency' of classic economic theories. If anything, political and behavioral economic theories should be added to the stew.

Taxable Improvements in previous decades meant built-in closets, indoor water pumps/taps and stairways, summer kitchens, number of glass windows. Modern Improvements mean wood-burning fireplaces, number of toilets/bathrooms, attached garages, outbuildings, and amenities like swimming pools. You can see how they're related....by the money needed to have those things, plus township funds needed to support or protect those things.

<For those who can't -- having enough clothing to need more than pegs or trunks + the luxury of stairs vs loft ladders + separate kitchen stoves + indoor 'plumbing' + window ventilation meant a degree of wealth. Plus the need for some police force and/or fire force. Same today, where the improvements reflect a certain degree of wealth, but come with the need for public sewerage and water, police and fire protections.>

Improvements in this sense mean anything done to the fallow land that increases its economic value. Adam Smith may be from a long time ago, but economists for the last 200+ years have often argued in favor of such taxes as well.

Seems rather odd that the same local governments responsible for zoning rules (sorry about that) are the ones who levy exorbitant property taxes on houses that cannot be replaced by any other structure...Let's be honest: the main reason for property taxes is that they're easy to collect and can net huge amounts of money to local governments.

Are property taxes really easy to collect? Valuation is a significant technical and logistical challenge, and it raises the 'costs' of levying the tax over, say, an income or sales tax. I'm honestly not sure why property taxes have gained such traction in municipalities, but I'm sure it's some combination of historical factors and technical/legal considerations.

Aren't property taxes the way US people are made to believe that they are paying substantially less in taxation than people from other developed countries? How do they work at all (in general) to me they seem outrageously high allways. But then again I am from a country that doesn't even really have a property tax for home-owners.

As Loki pointed out, the US government in general spends (and taxes) overall less as a proportion of GDP than most of the developed world - in many cases MUCH less. Property taxes are probably better than income taxes from a perspective of its distortionary power, so this would be a good thing. They also tend to be mildly progressive, since middle and upper-middle class families have a large chunk of their wealth tied up in their homes, while the poorer chaps don't own property. (The very rich, though, luck out on this one.)


Dread: I apologize in advance, I am going to fisk your post. I just couldn't figure out a way to address it in a more holistic manner.

Income taxation makes more sense because it at least taxes cashflow at semi-consistent rates. And that income is earned in a society supported by the government. If your economic activity yields more, you pay more (and earn more). At the very least, you're taxing someone based on a finite amount of cash they are earning. Property taxes involve the government arbitrarily assigning a value to something you own, then demanding cash regardless of whether you actually earn that kind of cash.

I want to emphasize the distinction between US property taxes and land value taxation here. The point of LVT is that it establishes a 'floor' for the necessary rents you'd need to earn to make the property profitable. That incentivizes intensive development which is a good thing. So I think the whole point of the tax is that they demand cash even if the property doesn't earn that cash. Either you upgrade the property, or you sell. This is a roundabout way of taxing the negative externalities associated with underdevelopment of land, which IMO is far better than taxing the unadulterated economic good of income.

I'm also unsure why a LVT wouldn't tax at consistent rates. The rates would be the same, it's just the valuation that would (gradually) change. There's ways to cushion shocks to the valuation which will both guarantee a more steady revenue stream and keep from throwing property owners out on their asses during bad years.

Beyond the arbitrary nature of it, the negative externalities are pretty clear. Areas with lots of people raise property taxes as an easy source of revenue across a large number of people. This disburses people to areas where property taxes are cheaper. The ever-hungry bureaucrats in those places then raise property taxes, which leads to income apartheid and drives people to locales with still-lower property taxes. All it does is ensure that some cities/towns have rich people clustered in them, and some cities/towns have poor people clusters in them.

That's property taxes as they are implemented in the US, not how a good LVT system would run. Certainly an intelligent LVT system would be at least statewide (if not federal) and have consistent rates. Also, you could make the same argument about income tax rates (at least for states and a few municipalities), but that doesn't stop people from living in Manhattan. There are offsetting factors to high tax rates, regardless of whether it's income or land being taxed.

I think we're arguing about two different things. You look at the current property tax system and see a mess. I agree. But in this thread, you abstracted that mess into a broader critique on wealth taxes as an institution. While I used to agree in a broad sense with your sentiments, I have now revisited my thinking and realize it's a bit more nuanced. Wealth/property taxes when properly designed need not be clusterfucks, and may indeed be better from an economic perspective than a tax on income or payrolls.

I'm not even sure I consider land to be finite. Some of the most valuable land in Manhattan was created from landfill. Still, at any given time, there is a finite amount of anything. Taxing something for existing still doesn't make sense to me.

Fair enough, but in a general sense land is a relatively finite resource. Economic activity (e.g. income, investing, etc.) is not really finite, at least outside of a Nessus style Malthusian hellscape, and there's no good reason to disincentivize it. There is a good reason to disincentivize 'wasting' a piece of land's potential.

But I can't get myself to agree with your justification of property taxes -- why should government be punishing people for not using land in a way that the government defines as productive? That's yet another arbitrary government diktat. After all, nature conservation is generally seen as a desirable goal -- property taxes make that goal even more difficult and expensive. Hell, the NYC government owns 1,900 square miles of upstate New York specifically as a watershed -- IE the land's value is that nothing is being done to it, thus preserving the purity of the water.

Nature conservation should be done by governments; that's why we have parks. It's a classic problem of the commons, and will not be addressed by LVT. In the private sector, though, the point of land use is to extract the most economic value out of it. The government isn't picking winners here (that's what zoning does, not taxes) - rather, it's just forcing people either to not own land or use it for more economically productive ends. There are any number of ways they can go about doing it, but the point is that holding lots of low-yielding land that could be quite valuable (say, near a city) is to be discouraged. Let's imagine that some private landowner who owns half of Manhattan feels that the best use of the land is to create a bird sanctuary. That's their prerogative, of course, but they'll be paying through the nose in land value taxes for the privilege. I'm not saying that turning half of Manhattan into a bird sanctuary would be bad (hell, Central Park is beautiful, right?), but by selling it to the private sector the government is not planning on subsidizing such economically unproductive use of the land. If the private owners manage to sell tickets to the sanctuary (or bring in donations) enough to cover their taxes, so be it! Good for them, the market has decided that it's what Manhattan really needs.

You and I agree that dense housing development carries a great deal of benefits. But I don't think that setting high property taxes has any impact on density. After all, I pay some of the highest real estate taxes per square foot than anyone in the US. All it does is economically push me towards the suburbs.

Please see my comments above about disparities in local property taxes and the distinction between US style property taxes and classical LVT. The broader point is that a low-density area in commuting distance to Manhattan should have a relatively high land value tax because of its intrinsic value. That means that you wouldn't get low density suburbs built in such places in the first instance, since the tax bill would be prohibitive for such a low-yielding improvement. (Obviously this only works if you have the same tax regime for the entire region.)

[Loki]

Are property taxes really easy to collect? Valuation is a significant technical and logistical challenge, and it raises the 'costs' of levying the tax over, say, an income or sales tax. I'm honestly not sure why property taxes have gained such traction in municipalities, but I'm sure it's some combination of historical factors and technical/legal considerations.

Easy to collect in that they're unavoidable. There are ways to get around income taxes (work off the books). One can reduce consumption to pay less sales tax. Various specific taxes can be avoided by not buying specific products/services. But you can't get around having a house (assuming you already have one). What Adam Smith was writing about was land not being used productively. He wasn't talking about one-family residential buildings.

[wiggin]

Easy to collect in that they're unavoidable. There are ways to get around income taxes (work off the books). One can reduce consumption to pay less sales tax. Various specific taxes can be avoided by not buying specific products/services. But you can't get around having a house (assuming you already have one). What Adam Smith was writing about was land not being used productively. He wasn't talking about one-family residential buildings.

But isn't a one-family residential building an unproductive use of land if it's close to a city? I think the logic applies especially to that. It's easy to avoid a high LVT - move into higher density housing, so your share of the LVT is much lower. The ideal of the 'American Dream' involving a house with a picket fence is simply wasteful outside of rural areas.


I realize that suddenly instituting a relatively high LVT on the vast urban sprawl in America would be counterproductive and somewhat unfair. But slowly phasing in higher and higher LVT taxes over decades? I think it would be worth it. We're already seeing some urban cores being revitalized due to a variety of factors, and I don't see why we shouldn't encourage this process further.

[Loki]

But isn't a one-family residential building an unproductive use of land if it's close to a city? I think the logic applies especially to that. It's easy to avoid a high LVT - move into higher density housing, so your share of the LVT is much lower. The ideal of the 'American Dream' involving a house with a picket fence is simply wasteful outside of rural areas.

I could easily make the same argument about a vast majority of national parks.

I realize that suddenly instituting a relatively high LVT on the vast urban sprawl in America would be counterproductive and somewhat unfair. But slowly phasing in higher and higher LVT taxes over decades? I think it would be worth it. We're already seeing some urban cores being revitalized due to a variety of factors, and I don't see why we shouldn't encourage this process further.

This is wishful thinking. Not because it won't get done, but because that is not the main purpose of property taxes. As I already mentioned, the taxes are used to get money from people when other means aren't available. When someone is forced to sell their house because of excessive property taxes, that house is very rarely transformed into anything other than a single-family house. The only thing the tax ends up doing is forcing old, disabled, and unemployed people out of their homes.

[wiggin]

I could easily make the same argument about a vast majority of national parks.

Indeed, national parks should by and large not be near city centers. Oh, all cities need green space, but a large national park? Nope. (Also, it's beside the point since that's not privately held land, and the government doesn't need to incentivize anything, they can directly make the relevant decisions.)

This is wishful thinking. Not because it won't get done, but because that is not the main purpose of property taxes. As I already mentioned, the taxes are used to get money from people when other means aren't available. When someone is forced to sell their house because of excessive property taxes, that house is very rarely transformed into anything other than a single-family house. The only thing the tax ends up doing is forcing old, disabled, and unemployed people out of their homes.

I disagree. Over the long term, there's plenty of opportunity for using incentives to restructure our cities.

[Loki]

Except how frequently is this done? The decision to raise property taxes is very rarely done in tandem with a loosening of zoning laws.

[wiggin]

Except how frequently is this done? The decision to raise property taxes is very rarely done in tandem with a loosening of zoning laws.

*shrugs* So what? It doesn't make the idea of land value taxation a bad one. It makes the idea of onerous zoning rules a bad one. (Also, our property taxes currently tax improvements which is not providing the right incentives.)

[Loki]

If a concept is almost never implemented properly, at some point you have to start blaming the concept.

[ar81]

Zoning and building codes are written within the same groups in power, though. And there's a constant power struggle, and "visionary plan" dispute, between the property owners / elected officials / tax authorities. It spans all property owners/renters, and all branches of government. Local municipalities, states, federal.

I had an interesting convo with the man who came to pick up my riding mower for service. (Small, local shop with bigger John Deere connections.) I asked him how to make my little mower cut grass at a higher level, so I could cut less often, have longer grass less susceptible to drought, saving money and water, etc. He said, "Get some goats or sheep...or buy a new mower with a higher deck".

We got to talking about zoning ordinances, and how certain townships traded rational land-use in exchange for higher property tax revenues....that were built on crazy bubbles. We lamented at the continuing "sprawl" between MD and PA borders. The continued loss of gorgeously green vistas, natural rolling hills, and small family farm land. The appearance of gated golf communities and HOA "neighborhoods" that dictate everything from exterior paint color to fucking flags, and look like mini-Monopoly houses dotting the landscape.

He told me about some new "developments" between Gettysburg and York that have strict grass heights and minimal lawn watering requirements. He rolled his eyes but said hey, it meant more business for his employer, and keeps him employed.

I have noticed that the houses of rich people are surrounded by green, you never see a billionaire house in the middle of a wasteland. Ironically rich cause deforestation near the house of the poor.

[GGT]

Improvements in this sense mean anything done to the fallow land that increases its economic value. Adam Smith may be from a long time ago, but economists for the last 200+ years have often argued in favor of such taxes as well.

And it was written during the time of rural/ag and urban/city, with not much in between. (Well, except for the wealthier who could have a second summer home, or a beach house on the cape, to escape the grime and crime of urban life...ironically the precursor to modern day ex-urban sprawl.)

Are property taxes really easy to collect? Valuation is a significant technical and logistical challenge, and it raises the 'costs' of levying the tax over, say, an income or sales tax. I'm honestly not sure why property taxes have gained such traction in municipalities, but I'm sure it's some combination of historical factors and technical/legal considerations.

Easy to collect because they're tied to direct local/state spending; budgets for police/firefighters/teachers, road maintenance, etc. If people escrow their taxes, the mortgage company can levy extra fines, threaten foreclosure, ding a credit score, and get the municipal Tax Authority to intervene. If taxes are paid directly to the municipality, they can levy fines and/or put a lien on the title, freeze credit, even garnish wages or get the IRS involved. I think most of it depends on the state and locality.

Valuation wasn't technically difficult at all, during the housing boom. It didn't even 'cost' much in labor, either---they simply used computer models, RE statistics and public realty records, to adjust the valuations and assessments UP. When that didn't produce enough revenue, some municipalities revamped their algorithms altogether, and used 100% valuations and near-100% assessments to figure the property tax liability.

As Loki pointed out, the US government in general spends (and taxes) overall less as a proportion of GDP than most of the developed world - in many cases MUCH less. Property taxes are probably better than income taxes from a perspective of its distortionary power, so this would be a good thing. They also tend to be mildly progressive, since middle and upper-middle class families have a large chunk of their wealth tied up in their homes, while the poorer chaps don't own property. (The very rich, though, luck out on this one.)

It's only been the last couple of decades that property taxes became so distorted, and more regressive....because of investment asset bubbles (CDOs, MBSs) built on mortgage and bubbles (cheap money, secondary mortgage market), built on housing bubbles (higher inventory), built on the assumption that employment/labor/wages could keep up with the whole thing.

I'm also unsure why a LVT wouldn't tax at consistent rates. The rates would be the same, it's just the valuation that would (gradually) change. There's ways to cushion shocks to the valuation which will both guarantee a more steady revenue stream and keep from throwing property owners out on their asses during bad years.

As Loki also pointed out, the scheme forces the elderly (or anyone living on fixed incomes), the unemployed, (plus underemployed, or any dual income family living on one income) to either sell or default. You may disagree from a long-term restructuring of housing, and urban planning or smart land-use --- but that's what happens in reality. It's no longer possible for *millions* of homeowners to pay off a 30 yr mortgage and grow old "in place". If they're not grandfathered or homesteaded into property tax freezes or special relief, they're screwed.

Wealth/property taxes when properly designed need not be clusterfucks, and may indeed be better from an economic perspective than a tax on income or payrolls.

Well, until we find better ways to fund public services (including Education, Police and Fire) plus infrastructure projects, it'll continue to be a clusterfuck. The thing is ---- MOST people's "wealth" is tied directly to their jobs and wages, homes and home values. The upper income and investment classes not so much. That complicates things from a policy standpoint. The rest of your post slides over the economic activity that "sprawl" brought, from construction and building, to service-related jobs involved in a strange closed-loop ecosystem. Strip malls, convenience stores, retail stores, coffee shops, lawn maintenance companies....all "new" business built around homes and a housing bubble. That's why gas price spikes are so destructive to the working class/middle class, whose jobs require driving through the sprawl.

IMO it's not wise to compare any large urban hub (NYC, LA, San Fran, Chicago, Boston, Miami) to the rest of the country. Those places have tons of public transit options for the ex-urban middle class working stiff, as well as the barely-making-by-with-slightly-more-than-minimum wage-service worker. The lines of sprawl and 'unproductive use' aren't that clear in the rest of America.

But isn't a one-family residential building an unproductive use of land if it's close to a city? I think the logic applies especially to that. It's easy to avoid a high LVT - move into higher density housing, so your share of the LVT is much lower. The ideal of the 'American Dream' involving a house with a picket fence is simply wasteful outside of rural areas.

Pretty sure residents in New Jersey, Connecticut, and Long Island would disagree. As would any Chicago worker who commutes from more affordable city edges, or the outer villages with better schools. EDIT: that scheme would also require people already living on postage-stamp land lots, close enough for neighbors to hear or touch each other from the bathroom window, to agree to MORE dense housing and zoning codes...which is anti-thetical to the "value" of their home in the first place.*

I realize that suddenly instituting a relatively high LVT on the vast urban sprawl in America would be counterproductive and somewhat unfair. But slowly phasing in higher and higher LVT taxes over decades? I think it would be worth it. We're already seeing some urban cores being revitalized due to a variety of factors, and I don't see why we shouldn't encourage this process further.

Some of that revitalization and/or gentrification is because it's too expensive to LIVE and WORK in the big city! The blighted neighborhoods are cheaper because the families with young children moved out (if they could afford that), seeking better schools, lower crime, etc.

*shrugs* So what? It doesn't make the idea of land value taxation a bad one. It makes the idea of onerous zoning rules a bad one. (Also, our property taxes currently tax improvements which is not providing the right incentives.)

I don't know how we're going to overhaul property and/or wealth taxation, when those taxes are used to fund public education, public services, and public infrastructure. It's a political nightmare.

[Dreadnaught]

Dread: I apologize in advance, I am going to fisk your post. I just couldn't figure out a way to address it in a more holistic manner.

I want to emphasize the distinction between US property taxes and land value taxation here. The point of LVT is that it establishes a 'floor' for the necessary rents you'd need to earn to make the property profitable. That incentivizes intensive development which is a good thing. So I think the whole point of the tax is that they demand cash even if the property doesn't earn that cash. Either you upgrade the property, or you sell. This is a roundabout way of taxing the negative externalities associated with underdevelopment of land, which IMO is far better than taxing the unadulterated economic good of income.

I'm also unsure why a LVT wouldn't tax at consistent rates. The rates would be the same, it's just the valuation that would (gradually) change. There's ways to cushion shocks to the valuation which will both guarantee a more steady revenue stream and keep from throwing property owners out on their asses during bad years.


That's property taxes as they are implemented in the US, not how a good LVT system would run. Certainly an intelligent LVT system would be at least statewide (if not federal) and have consistent rates. Also, you could make the same argument about income tax rates (at least for states and a few municipalities), but that doesn't stop people from living in Manhattan. There are offsetting factors to high tax rates, regardless of whether it's income or land being taxed.

I think we're arguing about two different things. You look at the current property tax system and see a mess. I agree. But in this thread, you abstracted that mess into a broader critique on wealth taxes as an institution. While I used to agree in a broad sense with your sentiments, I have now revisited my thinking and realize it's a bit more nuanced. Wealth/property taxes when properly designed need not be clusterfucks, and may indeed be better from an economic perspective than a tax on income or payrolls.

I think where we most disagree is that I think the whole valuation process itself (even of an LVT) is part of what makes wealth taxes arbitrary and immoral. It still reduces the whole taxation process to a series of semi-arbitrary calculations with official imprimatur.

Plus, I think establishing a floor value of the rental/income of the land is equally-to-substantially worse than any other formula. It still involves the government arbitrarily setting the "correct" use and "correct" cashflow for any given parcel of land. And it becomes a lever for the government to get more money, as opposed to actually directing land use through zoning or other means.

NYC's real estate taxes for many apartment buildings are actually designed in a similar way to LVT, and it's been absolutely killer. NYC will value a large apartment building at an earnings multiple of the total potential rental value of all the apartments inside (averaged over the past five years). Even if none of the apartments are being rented, or would ever hit the rental market (many can't legally be rented if the building is a co-operative). This rental value is conjured every year by some bureaucrats.

However, because an owner-occupied apartment building isn't a business venture, this tax rate often involves an amount of cash that far exceeds what the building is raising for capital improvements, staffing, payroll taxes, utility taxes, etc. Over the past decade, the annual property tax increase for large apartment buildings in NYC has been in the low double-digits. How much denser development can you get than a NYC apartment building with a few hundred/thousand units inside, each spending 45% of their housing costs on taxes? I believe any further density should be driven by market forces, not tax bludgeoning based on made-up numbers.

[Aimless]

I've been meaning to ask: why is NYC so keen on promoting home ownership over renting?

[Dreadnaught]

They aren't in particular, what gave you the impression that they are?

[Aimless]

They aren't in particular, what gave you the impression that they are?

That renting comes with far higher taxes! Although, considering how much money that brings in, I suppose it would be more reasonable to say that NYC is keen on people renting

[Loki]

If the NYC government was keen on having people rent, they'd remove most of the rent freeze/control policies, which had a devastating effect on the construction of new apartment buildings.