Land Value Tax

[bdeller]

Couldn't think of a less relevant forum than people who live at sea but hey what the hell. This is very interesting

https://astralcodexten.substack.com/p/does-georgism-work-is-land-really

 

[Pertinacious Tom]

Couldn't think of a less relevant forum than people who live at sea but hey what the hell. This is very interesting

https://astralcodexten.substack.com/p/does-georgism-work-is-land-really

Some readers of the book review were understandably skeptical that Georgism actually works in practice, so this week I'm going to empirically assess "the big three" critiques that come up the most often:

1. Land might have been a big deal in 1879, but it just doesn't matter much today
   
2. Landlords will just pass Land Value Tax (LVT) on to tenants, so it won't work
   
3. In real life you can't accurately assess land value separately from improvements, so even if LVT would work in theory, it doesn't work in practice
   

I'd agree with number 1.

I already do pass property taxes and every other cost along to tenants. That's what you do with costs. That's not going to change.

It's easier to assess the value of a vacant lot than one with buildings because buildings require lots of inspections and you still can't know what's hidden inside. In real life, I pay taxes on vacant land and on improved land and the property appraisers somehow figured it out when I put a couple of buildings on vacant land and the taxes went way up. So pretty much everything about point 3 contradicts my real life experiences.

 

[El Borracho]

I already do pass property taxes and every other cost along to tenants. That's what you do with costs. That's not going to change.

Maybe you live in an alternate reality. In the economic reality rents are set by supply and demand. So you will not have a choice in the matter of passing LVT along to tenants. Bookkeeping might be arranged to make appear that you pass it thru, but in reality you will not be able to. It is not permitted to violate the basic supply-demand curve. You would be forced to profit from your improvements alone rather than passively from the land. 

 

[Pertinacious Tom]

Maybe you live in an alternate reality. In the economic reality rents are set by supply and demand. So you will not have a choice in the matter of passing LVT along to tenants.

Sure I would. I pass it along or go out of the business.

The thing about business is, if you can't cover costs, it doesn't work. And despite any attempted window dressing, taxes are a cost.

 

[El Borracho]

Sure I would. I pass it along or go out of the business.

The thing about business is, if you can't cover costs, it doesn't work. And despite any attempted window dressing, taxes are a cost.

What they mean is the burden of the tax is on you, the landlord. Maybe like using gold-plated fasteners in the construction of the rental units. The cost would only burden you as it would make no difference to the tenants.

LVT would certainly be disruptive. Typical landlords making largely passive income from old, inefficient or dilapidated units on expensive land would get hammered. As they should. Capital presently stranded in land investment would seek productive uses. 

 

[El Borracho]

That is always the case. Taxes are paid by the consumer, always.
Whenever a politician stands before you and says "Corporations MUST pay their fair share!" What they are really saying is "We are requiring corporations to collect taxes from the consumer on behalf of the government."

Yet voters fall for it every damn time.

But workers pass their tax expense on to their employers, right? You over simplify to make some point. 

 

[Pertinacious Tom]

What they mean is the burden of the tax is on you, the landlord. Maybe like using gold-plated fasteners in the construction of the rental units. The cost would only burden you as it would make no difference to the tenants.

Right up until the market would no longer support the rent I'd need to cover the tax cost. At that point, despite your assertion to the contrary, I do have a choice: go out of the business.

Capital presently stranded in land investment would seek productive uses. 

Uh huh. When do-gooders want to decide what a better investment would be and use government to enforce their wishes, we've (or at least I've) seen the results in the Kelo thread. As I said over there, Justice Thomas pointed out who "underutilizes" property: poor people, often black. Systematically targeting them serves the public purpose of enhancing the tax base. That's the main lesson of the topic case and this is the legacy of it.

 

[Pertinacious Tom]

• In real life you can't accurately assess land value separately from improvements, so even if LVT would work in theory, it doesn't work in practice
  

In real life, I signed these checks:

Construction was completed in 2018, but not before January 1, so I got a "free ride" on the building for part of the year.

But look what happened in 2019. When your property tax bill goes up by that much because a building was added and then a video game analyst asserts that this just can't happen "in real life" it makes me want to send him the bills. After all, they're not real and that land portion isn't even a cost at all!

 

[kent_island_sailor]

Sure I would. I pass it along or go out of the business.

The thing about business is, if you can't cover costs, it doesn't work. And despite any attempted window dressing, taxes are a cost.

We have "legacy" property taxes in many areas here, so someone that has owned a house for 40 years will pay a fraction of what someone that owns the house next to it pays that has only been in that house for 4 years.

At least back when rentals were soft, we had the weird circumstance where some houses were renting for less than the property tax on that same house if you bought it, so you ended up with renting being cheaper than getting the house for free

 

[kent_island_sailor]

Couldn't think of a less relevant forum than people who live at sea but hey what the hell. This is very interesting

https://astralcodexten.substack.com/p/does-georgism-work-is-land-really

I am still making my way through this. It is quite interesting, it would seem to be the antidote to actually housing the population vs. making land one more investment for the wealthy to play with. There is probably a catch or two in here somewhere. In the past many of these schemes to change and "simplify" the tax code have, upon close inspection, had enormous loopholes that a Rolls Royce would fit right through

 

[Ventucky Red]

We have "legacy" property taxes in many areas here, so someone that has owned a house for 40 years will pay a fraction of what someone that owns the house next to it pays that has only been in that house for 4 years.

And this is how it should be...  In California, it is called Proposition 13. In my view, someone that has been in a house for the past 40 years is not putting that much of a burden on what property taxes are generally used for.

With the market being what it is these days, the tax rolls have almost tripled in the past ten years, sadly many of those that are the stewards of the revenue are spending it like drunken sailors... 

 

[kent_island_sailor]

And this is how it should be...  In California, it is called Proposition 13. In my view, someone that has been in a house for the past 40 years is not putting that much of a burden on what property taxes are generally used for.

With the market being what it is these days, the tax rolls have almost tripled in the past ten years, sadly many of those that are the stewards of the revenue are spending it like drunken sailors... 

I wasn't saying it was good or bad, but it does produce odd distortions.

 

[Ventucky Red]

I wasn't saying it was good or bad, but it does produce odd distortions.

From your perspective, maybe so.  for me, it has been the norm.

 

[bdeller]

"I'd pass the tax onto my tenants" this is the topic of the next post in the series

https://astralcodexten.substack.com/p/does-georgism-work-part-2-can-landlords

tldr if landlords could charge more rent and still win tenants they'd do it right now

 

[BeSafe]

And this is how it should be...  In California, it is called Proposition 13. In my view, someone that has been in a house for the past 40 years is not putting that much of a burden on what property taxes are generally used for.

Personally, I think property tax should be used to pay for national defense.  I'd like to see a national tax across all real estate classes, expressly for that purpose.

If defending the nation isn't defending the land, I'm not sure what else it really is.

 

[El Borracho]

...despite your assertion to the contrary, I do have a choice: go out of the business.

Maybe economic theory is only concerned with rational actors. 

 

[Pertinacious Tom]

"I'd pass the tax onto my tenants" this is the topic of the next post in the series

https://astralcodexten.substack.com/p/does-georgism-work-part-2-can-landlords

tldr if landlords could charge more rent and still win tenants they'd do it right now

Another assertion that fails the reality test. Several of my rentals are at below market rates right now because the market has shot up and I haven't kept up with it. My choice, I like my tenants and change carries risk. I'll take a lower return instead of more work and more risk.

OTOH, if all of us have another cost to bear, we'll all pass it along or go out of business, because again, the thing about business is, if you can't cover costs, it doesn't work.

Maybe economic theory is only concerned with rational actors. 

Yes, I stupidly majored in business/econ in college and vaguely remember that stuff.

Economists make what one prof called "heroic" assumptions of rationality and they do often work. Often. Then you get to things like buying boats, that really don't make a lot of sense. But my favorite example is the glass artist Chihuly. If something sits in his gallery for a year without selling, the price goes UP! Knowing that this will happen, the market actually reacts to it in advance and people buy up the stuff that didn't sell because the price is about to go up. It's brilliant, should not be possible, and makes economists' heads explode.

 

[Saorsa]

Maybe you live in an alternate reality. In the economic reality rents are set by supply and demand. So you will not have a choice in the matter of passing LVT along to tenants. Bookkeeping might be arranged to make appear that you pass it thru, but in reality you will not be able to. It is not permitted to violate the basic supply-demand curve. You would be forced to profit from your improvements alone rather than passively from the land. 

Your reality seems strange.  Rents are indeed set by supply and demand.  So is the cost of the land and improvements.

Whether an owner decides to become a landlord is set by the same thing.

If you buy a property with a sitting tenant you need to consider what income is possible in the current rental market when agreeing to a price.

 

[BeSafe]

I don't think taxes are why Americans can't afford homes.  In fact, real estate taxes are pretty low compared to the value of the underlying asset.  My actual tax bill - in a high tax state after all the funny math that goes on because 'reasons' - is actually going to end up being 1%, or ~ $350/month.  Again, this is IN a high tax state.

The reason Americans can't afford houses is that American soil - at least in certain areas of the US - is worth more as as a "store of value" for the global economy than a place to live for actual Americans.  Capital appreciation in those areas is detached from reality.

One of the big reasons I'm in favor of a national real estate tax is because if you're some Russian oligarch and you want to shelter your money from bad man Putin, it's going to cost you.  10 Aircraft carriers aren't free Yevgeny - pony up.

America has 18 Million Millionaires - out of a base of ~350,000,000 people.  If your property is worth a million, you're already in the top 5% of Americans.  Congratulations!  You won!  You ARE the elite, whether you feel like it or not.