This sounds terrible for owners and perfect for governments and rich investors.
Governments would love it because it forces people to over-value their property to avoid the risk of their property being snatched from them against their wishes. If you can effectively be evicted from your home just because someone else wants to buy it, there's absolutely no security and you might as well rent, rather than own property.
Rich investors would love it, because they can go around snapping up more properties that happen to be "undervalued" and make quick money of it, in a way that's simply not possible for normal people. Say someone bought a house for $100k, declare its value as such, and then demand increases in the area and 6 months later the market rate is $110k. A property investor could then rock up and demand to buy it for $100k and immediately flip it for 10% profit and then move on to the next target.
This inevitable consequence is that people would be forced to "value" their house at the maximum they think it might be worth in 12 months time or risk losing their home, or even higher to signal that they really don't want to leave their home, all the while paying more tax than they need to because the actual market price for houses would be lower.
Of course, this might also force the purchase prices for housing to be forced higher, so stopping people getting on the property market.
All in all, it sounds like a terrible system for most people.
There would be a tax rate on the value and a different tax rate on the spread (possibly zero if the spread is set by the government)
If someone went as far as putting the money in an escrow account to buy out your asset, you could retroactively increase the declared value. This of course has a price: You need to retroactively pay the tax for a few years and a surcharge for the expenses of your buyer.
This could be repeated, similar to an auction.
I live in a blue area where the tax appraisals deviate from the for-sale listings by hundreds of thousands to millions, 4 million is the highest deviation I've seen thus far.
Thought a fairer system would be for appraisals to raise to the highest listing price, or most recently sold price, automatically.
Other states have systems where tax appraisal is routinely 10% of fair market value, and there's some justification for that that never made sense to me. Typically the published tax rates are then much higher than in states with fair market value appraisals. Tax rates as a % of actual market value tend to be roughly similar across states though.
For rental properties, I'd love to see this happen, it would IMHO significantly drive down prices from the current overvaluation.
I could see X being quite high. What we really want to avoid is just those situations where someone will not take any price to move, and therefore an entire railroad has to be diverted miles around because the path in one spot is blocked.
The only problem I see otherwise is that it's not a progressive tax - 5% of a trailer is much more of a poor person's income than 5% of a mansion is of a rich person's. But for that you can use UBI or something to make any flat tax net-progressive.
Ultimately all this does is accelerate the accumulation of wealth for folks that already have the capital to profit off this system while forcing people out of their property. No thank you.
Then it's vulnerable to malicious buyers putting in fake bids. There is probably a good reason this hasn't been implemented.
Under the proposal, lucrative offers can still lure buyers into selling, but the security of private property is removed. You have to live under constant threat of a whale, e.g. Blackrock, swooping in and offering marginally above (market + e), forcing you to sell.
But you still need somewhere to live. And now you have (market + e) dollars, but the market just got redefined by Blackrock and you cannot afford to buy your neighbors house because it is now priced at (market2 + e) where market < market2.
Blackrock does this sequentially and can manage to legally steal private property from entire cities, just because they had more starting capital.
They can't force you to sell, you have the option of just updating the declared value to the new market price.
But I brought this up initially in the context of patents because I don't think this would actually be a practical or politically palatable way to handle property taxes on owner-occupied housing. But when we're talking about intangible corporate assets like patents most of these problems go away (IMO).
This isn't implicationless. What if you can't afford the taxes on the newly declared price?
A whale could conceivably force people out by offering a price above their ability to afford the taxes. If they don't sell, they get evicted due to tax nonpayment. If they do sell, they get the money but now need to find a new place to live in an appreciated market. Their autonomy is removed by force.
TBH that seems like the easiest issue to solve. For instance, to make an unsolicited bid you have to escrow %20 of the price. If the owner chooses to updated the declared value, you get that back. But if they choose to sell and you walk away (or don't actually have the other %80 to complete the sale) then you forfeit that to the owner. Or you can even disincentivize "malicious" offers more by saying that if the owner chooses to update the declared value then you still forfeit the escrowed cash but it goes to offsetting the increased tax bill for the current owner.
Again, X can move with the market.
How does it do that? Sure the system causes frequent changes of ownership which are undesired but you are forgetting that the "accumulators" are getting taxed based on how much they accumulated which in the long run slows them down. Yes they can bully you in the short term, which is why this isn't done, but in the long run the house will achieve the optimal tax policy and the abuse potential of housing disappears.
If the government decides to lower taxes on income, then in the long run "accumulators" would be the ones losing out from this.
And there was never any requirement that you put the house on the market for the declared tax value. When you don't want to sell, you make the declared tax value twice (or three times) the market value; when you want to sell, you set it to a bit above the market value, and then put it on the market.
Maybe to make the arguments easier you can encode the second one into law. But the basic math ends up the same.
People more able to effectively play the valuation game will arbitrage the people that aren't, which will concentrate assets as the game is played over time and create more market power abuse, which isn't really what we want as a society in at least a residential property market. From a society perspective, we probably want a property market that makes it easy and affordable for the average person to get enough house to form a family and support offspring in a location that doesn't put undue stress on that family (i.e. through long commutes, unsafe streets, etc). I don't see how this tax system gets us to what we probably want and see lots of ways it gets us toward higher prices, market power abuse by sophisticated operators and all the problems that come along with that.
I understand that point; but that's not what GGP said. He explicitly laid out:
1. Government benefiting from "overpricing". But there's no "overpricing" if the tax is set assuming you're going to add a large multiple to the declared value. If the institution setting the pricing assumes that a $100k house is going to be priced at $200k (or $500k), then they can set the tax rate appropriately.
2. Investors performing arbitrage: i.e., someone sets the declared tax value at $100k, market value of house goes up to $110k, investor buys house for $100k and "flips" for a quick 10% profit. But if it's expected that a $100k house is going to be listed for $200k (or $500k), then that problem goes away -- nobody is going to buy a $200k house that hey can only sell for $130k. And nobody's property is going to go up 5x in a single year.
Or alternately, you have people declare it at the market rate of $100k, but then write into law that anyone can sell it for 5x. The math works the same, but people feel less cheated for having to "overvalue" their house. (And people have less sympathy for those who write down a "declared tax value" of $25k on their $100k house.)
What happens if your house goes up 5x in market value, to the point where you either have to sell or can't afford the taxes? Well that already happens, and it's not great, but there's an argument that this is an inefficient allocation of resources. I understand why a 90-yer-old lady wants to live alone in her 4-bedroom family home a few block from downtown, but is that really better for society as a whole?
And if, as a society, we really want to protect that situation, we could always make an exception for a single house that you're currently occupying (as is already done for lots of things -- treating second+ properties different than first properties).
> When you're talking about people's home then obviously this would not be a practical system for many, many reasons
So taking into account the "sell for 5x" factor, other than the "you're forced to sell if you really can't afford it", what makes it not a practical system?
I'm genuinely interested -- this idea has been kicking around my head for some time, and the main thing I like about it is that it makes taxation symmetric. The problem I have with taxation in general is that I recognize that it's necessary, but the way it's normally done, by taxing money moving around (i.e., sales, income, and estate taxes) always seemed kind of arbitrary to me. Since property is depriving society of some potentially shared resource, and taxation is paying society for shared resources, having those be symmetric has a satisfying property to me.
Because the purpose of this isn't really to get money out of owner-occupied housing, but out of industry; and in particular, as the top-level comment in this thread, to make "intellectual property" more rational. If Sony / Disney want to keep copyrights on those 30-year-old titles, they need to keep paying enough to prevent a team of enthusiasts from getting a big enough Kickstarter to buy them up and make them public domain.
This is mostly a thought experiment so there is not an actual detailed implementation plan by the authors. But my sense was that it's not that you actually have to sell immediately but more like someone can offer to buy at $X and then you either have to sell or $X becomes the new declared value for future tax payments.
It makes sense only if you see taxes as a positive good, ignore the concept of ownership, and are pretty loose with the human suffering implications.
Housing is very expensive, but that's due to a failure to build.
Higher property taxes doesn't reduce the cost of ownership or make housing more affordable.
This is like saying we should rise the tax rate on food because people are starving in the street
What a bright boy you are
https://www.statista.com/statistics/187867/public-debt-of-th...
The low maximum property tax rate and systematic failure to tax full value created by Prop 13 is a reason for the failure to build.
(Now, actually, I think residential property tax is a horribly regressive tax, and its better to fund government by progressive income taxes, but there needs to be a funding allocation formula that gives local government more of an incentive for development; California has adopted some limits on discretion and consequences for not meeting targets as a stick, but that's not enough to encourage good positive planning.)
Only by indirect argument. IF homeowners were taxed more, they would be more sensitive to housing costs in general, and perhaps more inclined to expanding the housing stock.
Given that the government is funded, this would simply be a punitive tax incentive to motivate policy.
I don't particularly buy the lack of local government incentive. New development is already taxed at substantially higher rates relative to older stock due to prop 13. If expanding the tax base were a major driver of policy, then we would expect to be building already.
Also, a big shift in overall revenue from property tax to income tax. This is less stable source and tends to benefit the investor class over W2 earners.
My point was rather that props through 13 isn't what's driving the cost of housing up in California. In fact it does the opposite.
If Prop 13 were removed, taxes for new home buyers would go down, enabling even higher costs.
Vacant lots are taxed based on their purchase price, so there's no real reason to develop them when the land value keeps on rising while the taxes don't. Commercial zoned buildings aren't affected by prop 13, which leads to more revenue for the cities, hence them preferring commercial development to housing.
All that prop 13 does is favor people who bought real estate decades ago, at the detriment of everyone else.
You can always argue that the proportion should be even higher, but the proportion of income is certainly not lower
For example, one loophole during the ZIRP era was that one could get a very low interest rate loan (<1% APR, so effectively lower than inflation) against appreciated securities and use that money tax free. If the wealthy person passes away and gives the appreciated securities to their heirs, their heirs have a step-up cost basis which is the market value at the time of transfer, so no taxes are ever paid on the appreciation of the stock. The heirs could then turn around and settle the loan, tax free, as their cost basis matches the market value.
https://abcnews.go.com/blogs/business/2012/01/warren-buffett...
This is an anecdote but there's no reason to expect that this doesn't apply to his classmates.
So, yes; given all the rebates and loopholes and shenanigans that the rich and mega-rich can use, the proportion of income is lower.
IF you drop trash on your neighbor's lawn, that is an externality. If you refuse to mow their lawn, that is not an externality, no matter how much they have to pay someone else.
Efficiency is not an inherent good, and Pigouvian taxes on inefficiency are a huge moral hazard. Is it inefficient for a doctor to play with their children instead of work? Who are the decision makers?
I brought it up specifically in this context (and article about patent litigation) because I think it is potentially a good idea in some domains (like patent law) where the overriding consideration should legitimately be economic efficiency. I think it is entirely reasonable to design our intellectual property rights around the idea that the person or firm that can derive the most economic value from any piece of IP is the most desirable owner of that IP.
I was mostly picking at how you invoked externalities, which is a major pet peeve of mine. I feel that between sloppy economics and utilitarianism, the concept of externalities is invoked anytime anyone doesnt get what they want.
I think you’re saying the quiet part out loud. But you’re certainly right that there are many people interested in maximum tax and minimum property rights.
Today, we have this illogical situation where you can sell your property for $X but when the taxman comes, it's all "oh, but my property is only worth $Y!" It doesn't make sense.
When you pay taxes, there is a disconnect between your total income and adjusted income. Is that similarly illogical?
If a Jeff Bezos announces he'd be buying property at irrational prices in your neighborhood just as you are reporting your taxes and then changes his mind afterwards should your tax returns be affected by some oligarch's whims?
The value of anything is nothing more than an opinion. A sale is a temporary agreement of 2 opinions. The "market price" is someone's estimation of prevailing opinion. As the good book says, prevailing opinion can change from "hosanna" to "crucify him" in the span of 2 weeks.
Why shouldn't inland revenue have it's own opinion on prices?
Which is pretty on-point for Posner, who thought that a free market would solve the problem of racism and segregation.
If I had to propose a mechanism, I'd suggest using prediction markets instead.
Of course in the real world there would need to be some way to prevent "predatory" offers (where the "buyer" can't or won't actually close the deal if you accept the offer) but that seems solvable to me. You may have to put down a non-refundable deposit or escrow the sale price, etc.
So it might be better to establish a prediction market for any such asset that settles on the owner of the asset on, say, a quarterly basis. Instead of predicting the value of the asset, it predicts the owner of the asset at a particular price level. Instead of presenting the current owner with a bid directly, ownership transfers and tax payments would be handled exclusively through the market platform.
...
That said, this is all getting pretty complex.
Y’all underestimate the number of people with enough money to screw someone (or everyone) over just because they can.
Like when someone made a phoney valuation for a web site at $44B.
That can easily be maliciously abused too, using it to drive someone's taxes up until they're forced to sell.
But patents are intangibles. They have no transaction cost.
This might work for intangibles.
1. There are races of cheap cars in UK, the prices of cars are kept low because everyone has to declare car value and anyone can buy it at said price (this is intended to keep the prices low).
2. I do not remember where I read about it, but some medieval town near the river used this system for collecting taxes, any passing ship would be taxed on declared value, but tax collector had the right to buy cargo for declared price.
A refinement would be that the government agency / tax office also needs to submit an appraisal value, with the catch that they are required to purchase the property for that value if the owner wishes to sell. This balances incentives on all sides to submit realistic values. The final appraisal value would then be the average of the owner and the government appraisal value.
Reminds me of Folkrace, a Scandinavian form of motorsport where they use a similar system to enforce cost caps.
I'm sure this is a typo and you meant Le Mans but please leave it as it is. :D
I don't see the problem. Sell the house, use the remaining cash to buy a smaller house. The whole point of the inheritance tax is that you're not entitled to the whole amount of the inheritance.
I agree and in cases where sentimental value is a real concern I think there are obvious problems with this sort of system. But I also think there are a lot of domains where this isn't really a concern such as patents.
> The classic example is the poor person who inherits a nice house but can't pay the inheritance tax (and/or subsequent propery taxes), and is thus forced to sell the house in order to pay the taxman.
This is an entirely separate issue but this also seems entirely solvable in our current system of inheritance tax. You should just inherit the original cost basis along with the asset. So if you don't want to sell your inherited house you don't have to. But if you do then your taxes should be paid based on the original cost basis.
Definitely true, but on the other hand, "sentimental value" seems to be the root cause of most societal housing problems. I don't want to speak with certainty, but I do wonder if society would achieve overall better outcomes if we shifted our mindset a bit.
That's a very weird idea but maybe it would work.
The fees are fixed, but the effect is pretty similar to what you describe.
In some jurisdictions you get a discount on the fees if you declare that you are open to licence out your patent. Then everyone can use your invention without having to ask for permission,as long as they pay the license fee.
EDIT: I looked it up, in Germany (§ 23 PatG) the patent office can set the licence fees that others have to pay, so you can't play games by just setting the fee to a trillion euros.
The max yearly fee is $7,400? It can be a lot or absolutely nothing depending on a specific patent.
> In some jurisdictions you get a discount on the fees if you declare that you are open to license out your patent.
Would it really ever be worth the effort just to save a few thousand per year at most?
3,700 if you're a non profit or < 500 employees.
§24 PatG offers a compulsory licensing scheme, but it requires not only that the would-be licensee made an effort to find an agreement with the licensor, but also that such a compulsory license is in the public interest.
Since the public interest doesn't seem well-defined in PatG, you'd have to check older cases to see how that turns out, but I'm not sure if even "doing so reduces bandwidth use on the internet" is enough: you still have the option of using another codec and compensate the worse compression by going for lower resolution video, for example. 4K video is not a human right ;-)
(and "we hog internet resources" is the last thing Netflix et al want to say out loud anyway: ISPs are eager enough as-is to try to get them to pay up for access to their customers.)
> They declare a high price they're happy to walk with and then continue trolling people with their patent
They can if they want but by declaring a high price they are also then obligated to pay a lot of taxes. So the system disincentivizes both under and over estimating the value of patents. It also incentivizes property going to the highest value use. So if I can do something more valuable with your patent than you are able to do (for whatever reason) I can afford to pay for it more than you can afford to pay the tax.
The other thing you can say about that is that it's guaranteed to assess property at values that are too high. You buy things when their market price is less than the amount you'd be willing to sell them for. This is a scheme to simultaneously tax the market value of the property and the gains from trade that made someone willing to buy it at all.
How so? It seems like it would lead people to asses things at the "correct" value (eg the value at which you would actually sell the asset). So if you buy an asset for less than it is worth to you then you still have a valuable asset, you just need to pay a tax on that asset. Where this would obviously break down is with personal property that has some sentimental value. It would be unjust for people to either have to sell a treasured family heirloom or else pay an exorbitant tax to avoid selling it, but if restricted to domains where that is not a consideration (like patents or other corporate assets) it seems like a good system to me.
The price you would be willing to sell at is not the same thing as the value of the property. I might only be willing to sell my house for $500k, but that's not the value of my house because there are no buyers at that price. The value is supposed to represent the price at which you could actually find a buyer for, so any listed valuations that people _aren't_ buying the property for are too high.
So say you wouldn't sell your house for less than 500k but similar houses in your area are only selling for 350k. You would probably declare the value at $350k to minimize your taxes. If someone comes along and offers you $400k then you can either:
1. Sell to them, which you won't because 400 < 500
2. Update the declared value to 400k (and payer a higher tax)
It might additionally have the opposite effect of _discouraging_ anybody from attempting to buy your home at the low price, because they'll know it will likely be a waste of their time and you'll just update the number (and then lower it again at some point in the future). In that way it may have the opposite effect of making declared valuations significantly lower than they should be because everybody knows they're fake.
> You would probably declare the value at $350k to minimize your taxes.
Why wouldn't I just declare it to be $1? Everybody would know that's not a serious valuation, so in the best case they don't bother making any offers and I pay zero taxes. In the worst case I receive an offer and simply update the value to be slightly higher than that, which presumably would be close to the valuation an assessment would determine anyway.
You can but them someone will immediately offer to buy it and you would have to raise the declared value until they stopped trying to buy it (ie to the actual market value). Presumably you would also not be allowed to just immediately lower the declared value again after. Or maybe buyers can make "standing" offers that are valid for 1 year so you can't change the declared value while there is an outstanding offer for more than that.
> The whole point of the idea is that you're required to sell it for the listed price
I would phrase it differently. The point is create conditions such that the equilibrium declared value is aligned with the market value. And more generally, to try and ensure assets are allocated to their highest value uses.
However, I actually don't think this is a workable system for owner-occupied housing for all sorts of practical and political reasons. I brought it up in the context of patents because I think it does make sense for intangible, yet hard to value corporate assets like patents. Ideally you want patents and other IP to be owned by whoever can get the most value out of them.
Will they? Making actual offers isn't a free process, if they know I'm not serious about selling and will obviously just bump the price instead, then setting such a low price can deter them from attempting to buy it at all. Effectively it just becomes the "I'm not selling" signal and encourages them to not waste their time. It's also not like they care about the number I'm listing since it's not a price they'll get to pay anyway, they obviously know that if they offer $1 they're going to be turned down.
Additionally, like I mentioned the worst thing that happens is I have to bump the price up when I get an offer, there's still no real disadvantage to putting down $1 as the price. There's no incentive for me to put down a real assessment of value because there's always the chance nobody will try to buy it anyway, and if I get lucky then I don't pay any tax.
> The point is create conditions such that the equilibrium declared value is aligned with the market value. And more generally, to try and ensure assets are allocated to their highest value uses.
Sure, I'm saying your system doesn't work if there's no risk of your thing being bought for the price you declare.
> you would have to raise the declared value until they stopped trying to buy it (ie to the actual market value)
Going back to the original point, that's not market value, that's above market value.
If trolls see that companies are more likely to stand and fight, the cost of trolling goes up and the rewards become much less predictable. Hence, trolls will lose their ability to raise funding to purchase patents and have less troll-surface-area to act upon. This will lead to a vicious (virtuous?) cycle for the troll industry.
Of course, it's a government operation.
One of the competition rules is that you're only allowed to spend $500 on the vehicle. The way it is enforced is that you surrender a pink slip with your entry, and at the end of the event if someone else wants your vehicle for $500+, they can buy it.
Would love to test out the concept :)
While this would pose obvious practical problems as a system for property taxes, it seems like it might actually be a good system for patent taxes. Basically, you should have a to pay a patent tax to hold a patent. You can declare whatever value you want on the patent but have to also be willing to sell the patent at that declared value (or maybe just license it). I haven't thought it through really (just an idle thought) it certainly seems like it would basically destroy the business model of "patent trolls" and curb the practice of major tech players accumulating a huge portfolio of dubious patents as a cudgel they can threaten smaller competitors with.