It has always seemed to me that property taxes are a completely incorrect idea; far more onerous than, for instance, the estate tax. Have there been any serious efforts to get rid of them?
The reasons are best described in the article below, but in summary, we all pay to defend and enhance your property (by supporting the police, roads, local services, etc). It's fairer for property owners to take a larger share of this burden since they alone get the benefits from it, like the ability to sit in the garden and enjoy the view or the increased value of the property when the government builds a road to it. Land taxes also raise revenue without deterring productive work (unlike, say, income tax).
http://stumblingandmumbling.typepad.com/stumbling_and_mumbli...
To answer your direct question, since property owners are overrepresented (they vote more often and are far more likely to be politicians), yes of course they've tried to get rid of progressive property taxes. eg. This in Nevada:
The naivete, here, is of course, that the wealthy don't have more resources to protect themselves against property taxes or reduce their burden, or deal with enforcement, or mitigate corruption by the state.
In reality though, there is no "rules scheme" you can construct that will be as progressive as you want. You'll tack on more rules to tweak it to satisfy your conscience that you're not hurting the poor. The wealthy will hack this and find a loophole, and even if they don't, the burden isn't so terrible for them. Slight infraction by the poor will be come down upon disproportionately by the government (because the cost of enforcement against the poor is lower because of lowered risk of having it fought in the courts) and 'an example must be set'.
Although your property tax was designed to be 'progessive', it instead, wound up being a barrier that is difficult to surmount. It is naive to think that the state will be this hyper-logical ultra-fair machination. It's not, and it never will be.
Instead of socially engineering through the state, everyone would have been far better off if you helped the poor by reaching into your own pocket. But, of course if one is selfish, that's not going to happen - and it's far easier instead to project one's own selfishness onto other people, extrapolate onto all of society and use the state to run your charity for you.
So land tax is fair and progressive (the more land you own, the more tax you pay).
Did you even read the WaPo article? Do you not see how the existence of a property tax has come around to hurt exactly the most vulnerable population (and in this case, through no directed malice) I promise you, people living in Palisades (the richest part of DC) are not worried about property tax liens because they can pay people to deal with paying the taxes (either legally, say hiring an admin, or extralegally). It's not progressive because the bureaucracy and the hammer of the state causes a greater fundamental inconvenience to those of less means than to those of greater means.
As to the hammer, do you think the DC government would have sent "armed US marshals" to recover the house if it were in the Palisades? Why or why not?
Many countries have land taxes which work reasonably well. There can be some proscribed formula (based on a regression on nearby property). Or they can do valuations. There'll always be problems, but it's not more evil than many other taxes (unless they enforce it by stealing property).
Maybe the government will send in SWAT teams to collect unpaid land tax bills from poor people, and a friendly note to rich people; but that's not because it's a land tax. How do you think they treat unpaid parking tickets?
The advantage of taxing the use or consumption of a scare resource (land) instead of income should be obvious. If Bill Gates wants a mansion, he's making it harder for normal people to buy a home. If Bill Gates makes a billion dollars selling some operation system, he's presumably creating jobs, and making a lot of people happy (since they can get on the internet without buying an expensive Mac, or having to figure out how to configure their modem using Linux). (Note - some rich people make their money by being parasites, but capitalism works because this usually isn't the case).
Finally, there's the stabilising effect that a land tax has. Property is a huge investment, driven by unsophisticated retail investors (who may be putting most of their life's savings into a single home), prone to stupid fluctuations, which can destroy the lives of normal people when it does something funny. Taxing it helps keep it a little rational (as the taxes will encourage people to avoid it when it starts heating up).
What happens if they refuse to pay the tax, then? As an agent of the state, how do you make them pay? You might send them some letters with warnings. Of course then they might continue to shirk the law. You can ratchet up the tax, by charging interest. Ok, but that's a number. They still refuse to pay. How do you make them pay?
2. your logic is questionable:
>Property is a huge investment, driven by unsophisticated retail investors (who may be putting most of their life's savings into a single home), prone to stupid fluctuations, which can destroy the lives of normal people when it does something funny. Taxing it helps keep it a little rational (as the taxes will encourage people to avoid it when it starts heating up).
Having children is a huge investment, driven by unsophisticated people, prone to stupid fluctuations, which can destroy the lives of normal people when it does something funny. Taxing childbirth helps keep it a little rational (as the taxes will encourage people to avoid sex when it starts heating up)
Does that sound like reasonable public policy?
And aside from the policy ethics I strongly doubt your model that property taxation is a significant 'tempering agent'. If you're going to call the buyer an 'unsophisticated retail investor', it's unlikely to presume that they will have a 'sophisticated' concept of property taxation, either, especially when the government can change its parameters at will.
Finally, if you're going to argue that property taxation is supposed to be a detterent for people who you are codedly calling 'unsophisticated' (whether or accurate or not, that reads to me as 'poor people') to 'rash' purchases, well, thank you for demonstrating my point that it's tax with regressive outcomes.
If you can show me a citation indicating that property tax keeps housing prices 'rational', I'd give it a second thought.
OK, in extreme circumstances then seizing the land, selling it, then giving any residual (after taxes are paid) back might be necessary. The problem in this thread is, the residual didn't get given back, and it doesn't seem they followed due process.
> Having children is a huge investment, driven by unsophisticated people, prone to stupid fluctuations, which can destroy the lives of normal people when it does something funny
There's no "child bubble", in which people all want to have children when the price of children goes up. I don't follow the analogy. Wait ... you mean it's a financial risk? Good point, maybe children should be taxed, but since having children isn't always voluntary, and there's no way you can stop a person who can't afford the tax from having a kid (at least, no ethical way), then it's' probably not such a great idea.
> And aside from the policy ethics I strongly doubt your model that property taxation is a significant 'tempering agent'.
It just makes sense. As you've asked, I can find some economists who think it's a good idea. Here's some review - http://www.enhr2011.com/sites/default/files/Paper-Haffner%20...
One of the things it cites:
http://search.oecd.org/officialdocuments/displaydocumentpdf/...
Basically, yes a tax on value reduces volatility. Maybe. It's a credible idea, though it would be nice to have some more research. Transaction taxes are not such a great idea. Tax breaks on houses increase volatility.
And it's not a tax with regressive outcomes. Really poor people rent. I'm just saying "unsophisticated" to mean "people who don't trade for a living". Most people who invest in housing aren't professional real estate investors.
For instance, if I had 5 acres in the middle of nowhere, I might be expected to chip in to a fund to keep a fire on my land from spreading to adjacent BLM property. However, my acreage is likely to be taxed more or less based on the quality of the view, or another similarly cosmetic factor in land value. Why not just calculate my share of the public fire suppression expenses based on area? Assuming, of course, that sufficiently many of my neighbors feel compelled to intervene in cases of wildfire.
remember:
> there is no "rules scheme" you can construct that will be as progressive as you want.
What you propose may be 'fair'[0], in the context of providing services*. But that is not the goal of progressivism, which is redistribution of wealth and creation of an more outcomes-equal society (a concept I'm personally not opposed to, if the state doesn't do it).
[0]but even fair in your example isn't quite correct. Because area is not proportional to fire risk. Let's say I live in the valley, where a stream runs through, the vegetation is green, and the area never gets hit by lightning. And my rich neighbors a mile away are on the mesa, which has a great view, but is brown and always dry, and up high, so lightning hits there regularly? Should area be a fair assessor of fire risk? Is it fair to have me subsidize the fire protection of the rich people who live closer to where fires happen? (this is a simplified description of the very real LA county fire system where rich people live out on the hills where there are far more brushfires)
I can think of a few solutions* to your counterexample though, and that's the point. There's no reason to expect a solution to be fair in all cases, or perfectly fair in any. I'd only argue that there is often, or perhaps always, a more equitable and direct way to provide for common services than property taxes.
*I choose the BLM as a neighbor purposefully. The rich people in your example would almost certainly prefer to fund their own municipal utility than settle for the type of response I would expect the state or county to provide.
And the unfairness will always over time become skewed towards the wealthy and powerful (municipal authority:'well obviously we are authorized to make exceptions like X as precedented by our rules system in code ZZZ, subparagraph Q; if we give an advantage to corporation Y by implementing change T, it may not necessarily be in the spirit of total fairness - but we will create jobs! and thus it will be in the public interest'). If fairness is your dominant value, the only perfectly fair and sustainable solution is zero. If progressive redistribution is your dominant value, you will wind up with a lot of difficulty over the 'how much is enough' question, and the implementation will almost always find a way to be anti-progressive.
Would you at least agree that things don't have to be quite so complicated once you get out of the city?
disclosure: I am an ordinary, average, white, property owner, not Amish (Atheist, actually).
The notion that we can be isolated within a nation and refuse to take collective responsibility is a dream that has never had much foundation in reality.
(Note that property owners would NOT take a larger share of the burden; as with council tax, responsibility for payment would fall to tenants, to the greatest extent that market forces will permit. For council tax, that is currently "tenant pays all of it". No reason to assume a land value tax would be different.)
eg you buy a laptop, you have to pay the government a tax each year to keep it.
Why just apply it to houses? May as well just prohibit people from owning property.
Personally, I think such taxes are a massive disincentive for people to do well. As soon as you have enough money to buy a house, you are penalised for it.
Luckily in the UK, we don't have property tax, although we do have other taxes just as disgusting and unfair - stamp duty, inheritance tax, council tax.
You were required to declare your chairs and desks and tables, calculators, paper and pens, books, bicycles, cameras and computers, and everything and look up its market value and then pay the usual tax just as if it were real estate. You were required to do it every single year. And it's still the law for property above an exempt amount, but no longer applies to every paperclip like it used to.
That law is crazy, of course. Real estate is a big expensive immovable item that creates limits on the level of corruption and record keeping headaches so it's the best target for property taxation. Maybe really big vehicles like cars and airplanes and boats could be targets, too, if they have a home base, but even then you can see problems.
And finally, Henry George [0] points out that the ideal property tax to promote investment, limit corruption and cheating, allow fair administration, limit any kind of dead-weight loss [1], and generate reasonable revenue would be a tax on land value only. Buildings, improvements, vehicles, and personal property should be exempt and only the land's location, area, and fixed geology/hydrology/soil conditions should matter.
[0] http://en.wikipedia.org/wiki/Georgism [1] http://en.wikipedia.org/wiki/Excess_burden_of_taxation
* blind investments into endless real estate development projects that have no tenants or structural quality (China, Dubai)
* extremely high prices for anyone entering the real estate market (old European monarchies, where a family might have owned the same real estate for centuries)
* lack of funds for upkeeping and maintaining what's considered a shared property (facades, sidewalks) while maintaining fancy interiors (Eastern Europe)
No. Property tax is primarily a means for localities to raise revenue. If what you were saying were true, then developed land, including primary residences, would have no associated property taxes. It'd be exempt.
Council tax is the UK property tax. It's a very low-rated and regressive tax, but it's a property tax.
"All personal property situated in the commonwealth is subject to tax, unless specifically exempt by law"
http://www.mass.gov/dor/local-officials/municipal-finance-la...
(To ancitipate an obvious rebuttal: yes, I will admit that inheritance tax has probably put people off the idea of dying.)
Inheritance tax is very unfair. If you are rich enough, you'll plan around it and avoid it. But if you're not rich enough, your kids will not only lose their parents, they'll be sent a bill from the government. Which at best is a tad insensitive.
Add to that the fact that the thresholds for inheritance tax haven't been raised properly, so that someone with a 1 bedroom apartment in London will be subject to inheritance tax, it all seems pretty unfair, and perverse for the government to effectively profit from peoples death.
You know that your entire income isn't taxed at the highest bracket's rate, right? So, for example, the highest bracket is 39.6% for income above $400k. If you make $410k, $10k is taxed at 39.6%, and the rest of your income is taxed at a lower rate.
For simplicity sake, consider that first 100K are taxed at 10% and next 100K at 20%. If you made 100K your effective tax had been 10% i.e. you owed 10K to the government, however if you made 200K, even though the first 100K is still taxed at the same rate, your effective rate is 15% because you now owe 30K out of 200K.
Why bother trying harder if the government will take half of anything extra you make?
However, I feel that I'm already paying the government FAR more money than I should be, so I'm simply not bothered about trying to make them more money.
Given a hypothetical luxury good with a price of $500,000 under a current taxation regime, which do you think is more likely in a regime with, say, 50% higher taxes: That the luxury good ceases to be produced, or that its price is lowered to the point where a similar number of people as before could afford it?
To answer your second question is impossible - we don't know the shape of supply and demand curves nor do we know the initial rate of taxes. E.g. if the original taxes had been 1% then it's just going to bump the price a little bit. If the original taxes had been 50% then it ceased to be produced.
But if you want to know the general relation of taxes and supply and demand consider how things are going to progress as you keep raising taxes. Do you seriously believe prices are going to fall as the taxes raise?
What matters is the people who are actually paying the bulk taxes and making investments.
Numbers vary, but it's definitely fewer than 5% and possibly fewer than 1% of households that need to do anything at all to avoid the estate tax. And these are people who have benefited immensely from services provided by the government (if only the services that keeps people from stealing their wealth!) and are really doing quite alright; adjusting the tax code to make them do even better seems unfair.
Secondly I have never heard of anyone who didn't want to make more money because of their tax bracket. I do not believe this phenomenon exists, and even if it did, it wouldn't strike me as all that much of a problem in a population with unemployment as high as our own.
http://www.hmrc.gov.uk/inheritancetax/intro/basics.htm
You can get around it by 'gifting' things to your kids, as long as you then don't die for 7 years after etc etc.
On your last point, it certainly does exist. What I think happens is people like me don't bother trying so hard, because I'll be damned if I'm going to give the government more money. However, people who are already making much more than me, just hire a good accountant to 'make the problem go away' - eg register offshore companies etc etc
Are you seriously saying, that when the UK government had a higher tax rate of 97% in the 60s/70s, you would have been more than happy to do that extra overtime work, and would have gladly received your 3%??? Crazy
Anything over 49% is slavery, and will end up crippling the country rather than raising more tax revenue. Which is why it was absolutely right and proper that the current government reduced the top rate from 50% to 45%.
Here, generally, personal income taxes are replaced with property, sales, and business (franchise) taxes. You pay taxes, as a person, on your vehicle, real property, and per taxable transaction. But, you do not pay it on your income.