If someone has a lot of wealth stored in land that has been significantly improved, they could bear a larger tax burden than they would be paying under an unimproved land value tax.
I’m not sure why this is considered a weakness, other than the effect is has on incentives; it is easier to offset that effect on incentives than it is to eliminate it.
For example, tax land at its improved value, and allow the cost of any improvements to be deducted against up to half the tax on the land for the entity that made the improvement.
Improved value can be easily determined by market means; either enforce that the owner can always sell at appraised value, or enforce that any buyer can buy at appraised value. I prefer the option where the current owner determines if they will sell, but I can see an argument for letting the current owner determine the value on which they will be taxed, instead.
I think I disagree with the principle that it’s easier to offset tax incentives than to eliminate them. But I wouldn’t take the other 100% of the time either.
For example, tax land at its improved value, and allow the cost of any improvements to be deducted against up to half the tax on the land for the entity that made the improvement.
If the tax is ever above twice the rate of returns on US Treasury bonds, no property-tax-payer will ever buy US treasury bonds. Instead, they’d buy a huge chunk of marble for a counter-top and hide it under wood. Then they deduct half the cost of the marble, and the rate of return on this risk-free investment is half the value of the property tax.
Plus, if you can only deduct half, then improvements are dis-incentivized.
Suffice it to say that there are epicycles that negate the specific problems that you were pointing at. They almost certainly invoke problems that I’m not capable of identifying.
Actually it’s worse—you’d have to require people to file transactions that reduce the value of their house. Otherwise you could just sell the marble right after you’ve written it off to lower your tax burden. But these transactions are easy to hide, and even if their not hidden, they might be hard to adjudicate in some circumstances, and clever people will look for the hardest-to-adjudicate cases.
If someone has a lot of wealth stored in land that has been significantly improved, they could bear a larger tax burden than they would be paying under an unimproved land value tax.
I’m not sure why this is considered a weakness, other than the effect is has on incentives; it is easier to offset that effect on incentives than it is to eliminate it.
For example, tax land at its improved value, and allow the cost of any improvements to be deducted against up to half the tax on the land for the entity that made the improvement.
Improved value can be easily determined by market means; either enforce that the owner can always sell at appraised value, or enforce that any buyer can buy at appraised value. I prefer the option where the current owner determines if they will sell, but I can see an argument for letting the current owner determine the value on which they will be taxed, instead.
I think I disagree with the principle that it’s easier to offset tax incentives than to eliminate them. But I wouldn’t take the other 100% of the time either.
If the tax is ever above twice the rate of returns on US Treasury bonds, no property-tax-payer will ever buy US treasury bonds. Instead, they’d buy a huge chunk of marble for a counter-top and hide it under wood. Then they deduct half the cost of the marble, and the rate of return on this risk-free investment is half the value of the property tax.
Plus, if you can only deduct half, then improvements are dis-incentivized.
Treasury bonds pay back their principal; deducted improvements would not be added to basis price at the time of sale.
I don’t know all these words.
Suffice it to say that there are epicycles that negate the specific problems that you were pointing at. They almost certainly invoke problems that I’m not capable of identifying.
Actually it’s worse—you’d have to require people to file transactions that reduce the value of their house. Otherwise you could just sell the marble right after you’ve written it off to lower your tax burden. But these transactions are easy to hide, and even if their not hidden, they might be hard to adjudicate in some circumstances, and clever people will look for the hardest-to-adjudicate cases.