26 July 2016

The political economy of property taxes

I advocate property tax as a source of revenue due to its simple measurement and implementation. It's also progressive, in that property owners (and indirectly, renters, shoppers, et al. using the property) will pay more for properties that are worth more.

So why do we see such a small share of local and national tax revenues from property taxes compared to income, expense and -- worst of all -- corporate taxes?*

In my opinion, it's because rich people want to avoid taxes on their wealth, so they "help" politicians design and implement those other taxes in ways that sound "fair" on paper, but actually take very little from the rich (as opposed to a lot from the middle classes).**

Bottom line: Follow the money (or lack thereof) if you want to know who the system is really designed for!

* Corporate taxes make no sense in theory (we want to tax people) and they are MUCH easier for corporations with lawyers to avoid/dodge compared to the individual taxpayer.

** I asked several leading scholars of inequality for their opinions on property taxes. They just shook their heads as they agreed with me. Property taxes are totally off the radar of most people -- perhaps because they see themselves as potential "victims" of higher property taxes without considering how much more the wealthy would pay with, say, a 4-5% annual property tax that had no exemptions. (It's no accident that the Vatican is the greatest real estate owner in the world.)


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  2. Agree on ease of measurement and implementation and overall fairness. However, your point on political economy of the land tax deserves a more historical response re: the long transition from feudalism to capitalism and a new form of neo-feudalism of the post-1980 global economy. Even though the bouregois classes overthrew the landed nobility in the 18th-19th century, the landed nobility have surprisingly persistently remained wealthy through property, and have sought to maintain a opacity over land ownership in the last few decades. For some historical perspective, check out the recent hubub over the Duke of Westminsters death: http://www.flassbeck-economics.com/the-duke-of-westminster-feudalism-the-history-of-social-stratification-inequality-and-what-to-do-about-it/

    "Barone and Mocetti show this on the basis of a surprisingly detailed set of tax records left behind by the city of Florence. They find meaningful income persistence across seven centuries. Gregory Clark from Davis in California reached a similar conclusion with regards to Sweden, going back to the 17th Century. "

    "There are about 65 million people in the UK and 60 million acres of land. Yet about two-thirds of the land – 40 million acres – is owned by fewer than 6,000 people. In the 19th century, landowners paid tax on their land. Today, so corrupt is the system of taxation that they actually receive subsidies for it. "

    1. @Albert -- great comment/background. Thanks!


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