Instead, people want to take Piketty's conclusion, not look at where the r > g comes from, and then go on to fuss about with other things (like forms of wealth distribution, taxes, etc), instead of directly addressing the one thing that causes most of the r > g, which is housing, which does not need massive economic intervention to solve, but something entirely different (relaxing of building laws, etc).
Nitpick: you're probably thinking of directly intervening with the economy through regulations and subsidies, but isn't disrupting the housing market technically going to be a massive economic intervention in practice? As in, kind of by definition?
Also, I'm not sure if it's actually that easy to change the laws surrounding housing in such a way that pushes back against wealth accumulation.
It's hard to actually address Piketty's inequality at all if people think it spawns from something fundamentally different from land/real estate appreciation.
> I'm not sure if it's actually that easy to change the laws surrounding housing
Totally agree, but I don't mean to make any claims about how hard it would be, only that it would actually address the thing in question, whereas other interventions would not.
Of course such taxes wouldn't automatically create housing, but it definitely disincentivizes hoarding it, and allows the state to capture more of the accrued wealth to redistribute it. It makes real estate look like a less enticing holding and would make people less entrenched in defending its value, etc.
Money is power, and the powerful make the regulations.
So maybe regulation is really the positive feedback circuit?
* Federal legislature dogmatically denies a medical usage. * State approves it for medicinal use. * Federal regulators threatens to arrest any doctor perscribing it. * Intended medical gatekeeping loses power
Neither party wanted that laxer level of enforcement (regardless of outcome) but together they did so.
Which itself is a capital feedback loop which requires a not insignificant minimum outlay to enter the market.
Longer version: Many people were abusing interest-only loans and similar financing. It was blamed somewhat deservingly for the 2008 crash, as banks had incentives to sell as much financing as possible and then sell-off the loans in packages to others, offloading the risk. Repackage, resell, repeat. Eventually crash.
Without getting any deeper into the politics of that, Dodd-Frank was the regulation heavy government response, part of which redefines risk levels of loans, making financing, in general, a lot harder and more expensive to get. Simultaneously, it enacted government guaranteed loan programs for lenders and builders that meet certain criteria.
Keep in mind, there was a large army of homebuilders that besides facing a recession, suddenly couldn't sufficiently finance their main product via banks, and needed to find a way to stay in a business that's high-risk, high-capital, slow-cashflow, and low margin.
The only government loan programs that allowed similar sized financing to these builders all basically require some sort of public housing participation, the most profitable and easiest of which to qualify for is mid to large scale apartment complexes that would be contractually obligated to accept tenants receiving public assistance from HUD sponsored / affiliated programs. Some programs are available for mixed use or similar developments, usually with the involvement of local government controlled block grants.
But this has left a sizable gap between small business residential builders and the larger scale required to take on government sponsored projects.
The exceptions to this are generally contractors that have their own sources of capital, or builders that were already big enough to have existing appropriately sized collateral. But it's very applicable, in the context of barriers to business growth, especially capital.
When you pass an apartment construction site, start paying attention to how many of them have signs that include a HUD logo. It's a substantial percentage.
So, progressive taxation, basically?
https://www.economist.com/finance-and-economics/2013/06/29/l...
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.
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).
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.
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 I have a $1M house and a $900k mortgage then I can sell it and only have $100k in cash.
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?
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.
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...
Well the article mentions that:
> Matthew Rognlie, now of Northwestern University, argued that the rise in America’s capital share was accounted for by growing returns to housing, not by the shares and bonds which are held disproportionately by the top 1% of American households.
So it seems that housing is really the positive feedback circuit.