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.
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.