But not the kind of capital people usually think about when railing about billionaires and wealth taxes.
So, progressive taxation, basically?
https://www.economist.com/finance-and-economics/2013/06/29/l...
More subtle is the fact that the value of the imputed rent from owning your own home is not taxed. I.e. if you rent your home to someone else, you pay income tax on the rent you collect. But if you "rent to yourself" by owning your own home, you don't pay tax on this implicit form of income.
If I own my own house, I do so because I already paid for it. That cost me more at that time than the person who's renting pays in rent. So why should my owning my house be considered "implicit income" because I don't have to pay rent? It should be considered money I've prepaid.
And then there are similar situations. If I've paid off my car, is it implicit income because I don't have a car payment? If I don't own a cell phone, do I have implicit income on the amount of a cell plan?
For that matter, the homeless have lots of implicit income. That's not a useful way of analyzing their circumstances, though.
I feel like the "implicit income" idea has an unstated assumption: The "normal" situation is for you to be paying out every dime you receive, and if you don't, that part you don't spend is "income". I absolutely reject that view. The world is not entitled to my spending.
You did not "prepay" for the consumption of that asset. You paid to own the asset, which entitles you to consume it while you own it, but the value you get from consuming it is not deducted from the resale value of the asset. Example: you buy a house in 2010 for $500,000 that would cost you $4,000 a month to rent. In 2012 you sell it for $500,000. During those two years you received $96,000 of value from owning the house. You are now $96,000 richer than if you had rented the house instead of buying it (minus expenses associated with the house, and opportunity costs of having your money tied up in the house).
It's true that the same reasoning applies to other assets. I would assume, but don't know, that the reason people don't talk about imputed income for other assets is that the amounts are just much smaller in most cases.
Still... there's something funny in the "imputed income" accounting. Let's say I buy a house for $500,000. I live in it. I don't pay rent, though the house would rent for $4000/month.
Or, let's say I buy the same house, but don't live in it. I live somewhere else instead, paying $4000/month in rent. But I also rent out the house I own, receiving $4000/month in rent for that house. My net is $0... except that I probably pay taxes on the $4000/month I receive. But if dcolkitt's point is not that should have to pay taxes on the "imputed income" of owning my house, then the "imputed income" is exactly offset by the "imputed foregone income" - I could have rented out the house, but I didn't.
If you had to pay taxes on the imputed $4k a month then you would prefer to rent it out to someone who actually values it at $4k a month, and move yourself to a house that is better suited to you.
So why change it in the direction you propose? We're back at my initial complaint: This turns into "Saving money rather than spending it deprives us of the tax we would have received, so we'll tax your saving as if you had spent it. Don't own a cell phone? Pay us the taxes that would have been on your monthly bill anyway. Don't own a car? Pay us the registration fee anyway. Walk to work? Pay us the gasoline tax anyway. Don't drink alcohol? Pay us the taxes as if you did. Don't smoke? Pay us the taxes on the cigarettes that you could have smoked. Don't visit national parks? Pay us the entry fees anyway."
Do you see that that's insane? But if it's insane, why isn't "imputed rent" as something taxable insane?
Politicians have been using that method of accounting for years, when describing taxpayer savings.
And it's not quite the same, but the method of tabulating the number of deaths in Puerto Rico after Maria also comes to mind. No "receipts", just statistics of what the numbers should be.
Similarly, rented property has an unlimited deduction on mortgage interest rather than the capped deduction available for owner-occupied housing.
You can easily tell this because a person who owns a home outright pays the same tax as someone who owns a similar home but has a large mortgage. These two people have different levels of wealth but pay the same tax. This is because their consumption is the same.
Is one year of your consumption equivalent to one year of my consumption? Like a car, the longer you use it the higher the likelihood that something expensive goes wrong. But unlike a car, our homes are probably appreciating at close to the same rate.
Yes. That's why both houses cost the same.
The interval technique makes sense to me on goods that are used over time or taxed over time. You can pay for a house all at once, and if you were only paying property tax once I think I would agree with you that the tax is consumption tax. Yet property taxes are annual, so in order for property tax to be a consumption tax we would have to enumerate how much consumption is occurring during that year.
Consider something simpler, like a sofa. We both buy the same sofa with a service life of 10 years. Did we consume the sofa when we bought it? Or do we consume it over its useful life? If I jump on the sofa daily and it lasts for 1 year, I've consumed it in a year. If you barely sit on it and it lasts you 20 years, you've consumed it over 20 years.
Does that make sense? How are you defining consumption?
So while it may not be a satisfying answer, in my experience, self-circular is just sort of the way it is.
Also, the consumed / depreciated value comparison doesn't sit right with me, since for business expenses (tax write-off purposes), it's based on zero value at end of life. Any previously depreciated value recovered at sale has to be (re)taxed; you only get to ultimately deduct true depreciated value, albeit (re-)payment is delayed to year of sale.
Regardless, real property (non-movable) is rarely disposed of for zero value, so "depreciated" value isn't a good estimate for "consumed " value.
If I have a $1M house and a $900k mortgage then I can sell it and only have $100k in cash.
A property tax takes effect without sales occurring, without the property being used, etc. There is no act of consumption to tax, other than simply existing. And before anyone argues that the use of the land is the consumption, that would only make sense if the value of the house wasn't taken into account as part of the property tax.
If property taxes were only levied at the time of sale (e.g. stamp duty in Australia), then it would be fair to call it a consumption tax.
It is still a consumption tax. If you rent the house out to others, presumably you'll pass on the consumption tax (or not, it doesn't matter).
You could just as easily charge the mortgage holder the property tax, and that mortgage holder will then charge the that amount as an extra fee on the mortgage. What does that do to your argument?
Seem to me Property tax is basically a toll. Just like you pay a toll to use a road, you pay a toll to use a house.
It does nothing to my argument. Because the tax incidence would all still be on the consumer of the property.
Just like with a rental property: the cost of the property tax is passed on to the renter.
If you put that money in the bank, you'd only pay taxes on the cap gain, not on the capital itself.
Now with a house, the consumption is living in it, and while you own the house, you pay for that consumption at some rate.
A bigger, more expensive house corresponds to more consumption, and thus you pay more tax on it.
Consumption of a house is basically the product of house value and time, and that's what you pay tax on.
If we believe rich people should pay more taxes (higher percentage), then we have already established a system for this. Why not making local taxes a fraction of income taxes?
Why are lower class people who's only capital is their house taxed on their capital, while rich people who own bonds and stock not get taxed on THEIR capital?
I really think we should bring them back but it's anathema. The usual argument has something to do with a little grandma living on a fixed income who suddenly can't afford taxes on the home she's owned for 40 years. (And not, say, a landlord who owns dozens of buildings, though it benefits him far more)
So while grandma's only paying taxes on a tax-appraised value of $200k for a home worth $1mm on the open market, people who buy today are paying tax on $1mm+ for homes that "should be" (or would be in other states) worth $200k.
"The year before Proposition 13 passed, property taxes comprised over 90 percent of cities’ and counties’ local tax revenue. Today, that share is less than two–thirds."
"Cities’ and counties’ tax revenue per person has declined since Proposition 13. However, looking across all California local governments’ per–person revenue—excluding state and federal funds—revenues increased 36 percent since Proposition 13. In comparison, similar per–person revenues for local governments across the country increased by almost 70 percent over the same period."
Basically the state had to struggle to make up the tax revenue difference via other fees and assessments, and it never caught up to where it was before or to where it is in other states without such a measure.
[1] https://lao.ca.gov/Publications/Report/3497#What_Happened_to...