A land value tax would fix rich people parking money in real estate. A wealth tax or capital gains tax would not.
Would decoupling education funding from local taxes do anything? I'm thinking maybe it decreases the incentive to hold on to a house thus increasing effective mobility/geographic diffusion? Probably a small effect but it seems possible it could have second order effects.
The big difference between holding land vs gold/stock is that land is finite. If the price of gold spikes then people will build more gold mines. That's economic activity. If the price of land goes up then people can't make more so there's no economic activity.
If the price of stocks go up then more companies will IPO which directly funds economic activity (those companies's operations).
Granted, it doesn't as well into the economy as directly as if it were tax'd and then spent improving bridges and whatnot.
From there, hopefully the government uses it wisely in ways that redistribute wealth and stimulate growth, but that is orthogonal to how the money is raised.
*btw, if the money went toward interest on debt, all else being equal, that is money back in to the future economy via reduced tax demand. Of course this won't actually happen and the government will spend every cent it gets and more. So maybe your opposition should be with the government and not LVT?
Of course, this can be gamed via starting a real estate company which buys the secondary residence, claiming that it is for "business purposes", but the basic idea of using taxation to prevent the accumulation of real estate by the wealthiest individuals is present.
I know LVT is the libertarian dream, but in practice it means only the rich can own real estate long-term, in most cities. It also means the rich can drive out the poor by driving up land values around them, to the point where the taxes are too much to afford.
LVT simply wouldn't be a good system, if applied in the real world.
In other words, if selling removes much of your capital, you then don't gave capital to spend on the next place.
Conversely investors become even more motivated not to ever sell. They can defer the LVT forever, and just use the property as collateral for loans (ie getting liquidity without selling.)
And LVT just becomes an expense built into the cost of rent. The investor never pays it anyway, the tenant ultimately pays it.
Two identical properties, one under mortgage and one that isn’t, have identical rental prices. The costs to the landlord are irrelevant.
The cost of a mortgage underpins the rental value. If there are multiple units for rent then there will be a "going rate" and that's certainly a part of the equation. In that sense some landlords get more cream than others, but that's capitalism in action.
There are however other costs that go into rental calculations. Perhaps the building has a supervisor, or rental agent. Perhaps utilities are included. There are typically property rates and taxes. There may be sectional title levies. That's before we talk about insurance, maintainence and so on. For a group of similar dwellings these costs will tend to be similar, and so the floor is set not just by the mortgage, but by including these costs as well.
If a extra cost comes along, which affects all the properties together, then that will just become part of the rental-floor equation. And yes, it's possible for that to be higher than people will pay, but that tends not to be the driving factor. People have to live somewhere and ultimately will pay whatever keeps them off the streets.
Of course people who own their own home will simply have an extra cost burden every year. There's no upside at all, and will result in more people not purchasing, but rather staying on the rental ladder. Indeed making purchase less attractive allows rents to get higher.
This is the problem with all economics. There are butterfly effects all over the place so "simple solutions" tend to have lots of unwelcome consequences. Trying to solve problems with taxes seldom ends well.
Similarly, why would the next place be expensive if it couldn't be used as a speculative asset?
Anyone who had to move for a job or wanted to downsize their house for retirement years would be screwed, though.
So if you eliminate taxes on primary homes, you will cripple the public schools.
I think you just have a misunderstanding of how taxes work. The person or company that "pays" the tax does not bear the full burden of the tax. That burden is usually widely distributed throughout the economy. In the example of LVT, a landlord would pass on the LVT in the form of increased rents to their tenants. A power company that pays a carbon tax charge more their electricity. An income tax makes it more expensive to give people jobs, so even if the earner pays it, that burden is also bore by the unemployed. Whoever pays the tax, they just pass it on to the rest of the economy.
But that's ok, because taxes can be paired with other methods like cash transfers or social programs that can effectively redistribute wealth. We should try to raise taxes with methods that have good side effects (LVT, carbon taxes), and then redistribute as necessary.
The LVT doesn’t work for the fairly simple reason that value is in the eye of the beholder and requires a bureaucracy, tax is paid from income and rich people have power and therefore just put the prices up to recover the extra cost, which they can do because there are fewer jobs than people that want them.
Legal tax incidence != economic tax incidence
Taxation by estate agent is a non-starter in any democracy. Nobody likes real estate people to start with.
- economists have a good idea of how economies have worked _to date_ - they posit new policy to achieve goals - these policies introduce second-order effects that they failed to predict
I mean, Friedman's criticism of Keynes was excellent, and forsooth, his policies made stonks go up. But i don't think there economy is any better for them; i think we are, broadly, worse off.
I support LVT, but there will be second-order effects. I guess we are doomed to lurch from crisis to crisis, at a higher level than economic boom-and-bust.
As a homeowner, who else bears my tax?
You have the option to pass on such a tax burden, as do any other home/land-owner(s), which is relevant to the conversation.
What point are you making relevant to that?
It seems the goal is maximizing tax revenue, punishing hoarders of land, and pushing for communal living. The exact case I think it is imperative to avoid is removing the elderly (cough, less useful) from their forever home in the guise of progress.
If your cost of living is higher (due to LVT), the minimum wage you will work for is higher. The amount of discretionary spending (someone else's income) or investment you can make is lower. Obviously these effects on an individual level are small, but when aggregated across the entire economy are very large.
In a world of LVT, everyone pays LVT because everyone lives somewhere. You either pay it as an owner or its passed through to you in rent prices. It will be passed onto you in the food you eat (which was grown on land), in the products you use (which were manufactured in a physical place), in the internet services you use (which are run on data centers on physical land), and so on.
In this way, it is much like all other taxes. What is special about LVT, and not other taxes, is that LVT create a disincentive against land speculation (using land as an investment rather than for living or productive use).
So in that way, since LVT just adds to the cost to exploit any resource, it will reduce exploitation of nature.
But more importantly, LVT is in no way incompatible with other regulations or restrictions on land use. i.e. you can have LVT and a law against strip mining.
In practice it disincentivises investment in land (rent-seeking and speculative land hoarding) while incentivising land development. In cities this manifests as more, cheaper, homes, and lower rents, and is highly progressive.
I say in practice because we have over a century of explicit and implicit LVT implementations in the real world to demonstrate this. Most implementations of LVT have gone down as described. Estonia is a pretty fantastic case study - 90% of property is owner-occupier! And you might find this new study of implicit LVT in the US interesting - LVT correlates with higher earnings and demographic diversity: https://www.sciencedirect.com/science/article/pii/S004727272...
The challenges for LVT are really about how to transition the tax in for areas that are occupied, but severely underdeveloped. If a low-density inner-city area ought to be high-density, the owners are being charged accordingly. Long term, it stimulates development and the new housing surplus (splitting the tax burden of LVT across a much greater number of owners) balances things out. But that's no consolation to the people being told they have to pay tax on their backyard as if it's already a block of flats.
This is comment is an exercise in lying with definitions. The N year carrying cost of the land is the same or higher even if the entry cost is lower.
It's like a low down payment loan.
The "value" of the land does not change. Only who captures it does.
This is, of course, the point. The carrying costs properly incentivise appropriate land use and development, and the land value is reduced, freeing up the capital locked into ownership (i.e. thin air) for productive use.
The better developed land also ends up with more properties per unit of land, so the carrying cost of property decreases universally.
Obviously disentangling effects is hard, but there is no evidence that suggests it has the deleterious effects you mention.
LVT: You own the land, you just have to pay these taxes on it every year or we will force you to sell it so we can collect our taxes.
Leaseshold: We own the land, but you can buy a 99-year leasehold, and you can use the land (or sell your leasehold on the open market) as long as you continue to pay the rent. You might also be able to extend your leasehold when it expires, but that is up to the government.
So the expiration part is different, but "taxes" vs "lease rent" is just semantics.
i don't know that people on this website in particular would like the "solution" to that.
Stock buybacks artificially inflate equity value - cash rich companies buyback their stock just to deploy that cash and prop up their equity value. CEOs love this easy trick because it increases their equity holdings' value, and also lets them hit quarterly share price targets which allows them to accrue more equity options. But at the end of the day, this money isn't benefiting the company, so it's just air.
With a wealth tax, the incentive to acquire increasing wealth dampens somewhat. You're only taxed once you cross a certain threshold usually, but once you cross it, the resulting tax hit can be quite sudden and severe. You hold equity but you have to hand over a significant amount of cash immediately, so you'd have to liquidate your holding, which is why a lot of HNWIs hate it.
In fact, it's why there are active strategies (usually involving philanthropy and blind trusts) in Switzerland (which has a global wealth tax) that allow to optimize your wealth just so you stay below the threshold. But at least, that wealth isn't being hoarded and is being actively deployed in other ways.
I also don't think there would be any particularly progressive or otherwise good effects from reducing stock buybacks, but assuming we did think that, we can skip all of the wealth tax second/third order effect theorizing and just use a direct corporate buyback tax, which we did do in the IRA. Stock buybacks have already fallen, but if its effects are not big enough for you, then raise it or reduce exemptions. Not that I think that anything particularly good would come of that.