Would marketable securities (e.g., exchange-traded stocks) be a good candidate for this kind of tax? I guess not, because that would introduce an incentive to own non-marketable securities instead, which would distort the economy and make it less efficient. So do we also need that the taxed asset class has no untaxed substitutes?
Perhaps, with a low enough rate. Taxes will always incent some substitution, especially if they’re large relative to the underlying asset value. It’s quite possible that the additional asset reliability of being traded on a taxed exchange can be recovered by taxation on the assets in the exchange.
Note that land has substitutes too—you can live/work in a less-valuable-to-others space, or in a different jurisdiction, or focus your investments on non-taxable improvements (non-fixture furniture, removable appliances, non-durable landscaping or cleaning services, etc.)
Now I’m confused. Improvements that change the valuation of your property (in the “average of neighbors” case, those that improve the overall neighboorhood) are taxed in this system, right? Non-taxable improvements are those that don’t change the calculated/bidding value.
Substitution to a lower-tax is as much distortion as the same substitution to no-tax. Impacting people’s cost/value decisions about their purchases is a distortion. For both stocks and land, it’s debatable how much distortion is acceptable.
And I’ve gotten kind of lost on which aspects of this we’re talking about—apologies if I’ve responded to a different thing than you intended.
Yes, sorry, if you improve your neighbors’ properties, that increases your tax burden. But that’s usually only a small fraction of the value of the improvement to your property.
Substitution to a lower-tax is as much distortion as the same substitution to no-tax.
Would you claim that this tax reduces urbanization? For some reason, I’m not totally sure one way or the other. I agree that would count as a distortion.
I think this tax is fairly theoretical and un-implementable, so predicting second-order impact is not very helpful. More importantly, the size of the tax is more important than the mechanism of calculation for answering the question of what behavioral impact it will have. If the tax is roughly the same amount as current property taxes, it’ll have roughly the same results.
My guess is that urbanization would slow a little bit with real-estate taxes two or three times higher than today, but probably not stop. over time, differential tax rates will and do shift some people and operations toward lower-tax jurisdictions, but unless it’s egregious, it’s hard to overcome the network effect of being physically near other successful people/businesses.
Would marketable securities (e.g., exchange-traded stocks) be a good candidate for this kind of tax? I guess not, because that would introduce an incentive to own non-marketable securities instead, which would distort the economy and make it less efficient. So do we also need that the taxed asset class has no untaxed substitutes?
Perhaps, with a low enough rate. Taxes will always incent some substitution, especially if they’re large relative to the underlying asset value. It’s quite possible that the additional asset reliability of being traded on a taxed exchange can be recovered by taxation on the assets in the exchange.
Note that land has substitutes too—you can live/work in a less-valuable-to-others space, or in a different jurisdiction, or focus your investments on non-taxable improvements (non-fixture furniture, removable appliances, non-durable landscaping or cleaning services, etc.)
You don’t need to focus on “non-taxable improvements” in this system. No improvements increase your tax burden.
You can live/work in a less valuable space, but this land gets taxed too, so it’s not an *untaxed* substitute.
Now I’m confused. Improvements that change the valuation of your property (in the “average of neighbors” case, those that improve the overall neighboorhood) are taxed in this system, right? Non-taxable improvements are those that don’t change the calculated/bidding value.
Substitution to a lower-tax is as much distortion as the same substitution to no-tax. Impacting people’s cost/value decisions about their purchases is a distortion. For both stocks and land, it’s debatable how much distortion is acceptable.
And I’ve gotten kind of lost on which aspects of this we’re talking about—apologies if I’ve responded to a different thing than you intended.
Yes, sorry, if you improve your neighbors’ properties, that increases your tax burden. But that’s usually only a small fraction of the value of the improvement to your property.
Would you claim that this tax reduces urbanization? For some reason, I’m not totally sure one way or the other. I agree that would count as a distortion.
I think this tax is fairly theoretical and un-implementable, so predicting second-order impact is not very helpful. More importantly, the size of the tax is more important than the mechanism of calculation for answering the question of what behavioral impact it will have. If the tax is roughly the same amount as current property taxes, it’ll have roughly the same results.
My guess is that urbanization would slow a little bit with real-estate taxes two or three times higher than today, but probably not stop. over time, differential tax rates will and do shift some people and operations toward lower-tax jurisdictions, but unless it’s egregious, it’s hard to overcome the network effect of being physically near other successful people/businesses.
I don’t see why it’s unimplementable. Do you mean politically difficult? That shouldn’t detract from our ability to analyze the effects.
This is a concrete way to answer the question “is it distortionary”
I’m imagining a federal tax that’s the same everywhere.
Can you explain why?