California is chasing wealth that has feet(blog.landeconomics.org) |
California is chasing wealth that has feet(blog.landeconomics.org) |
Economist Henry George in the 1800's, pointed out that taxing land, but not the property on it, incentivizes efficient use of land, because holding land for its passive (parasitic) return even when underused, becomes unprofitable when the land is taxed in proportion to the value it can enable.
And in turn, only taxing land, not property, incentivizes increased development, as higher property investment amortizes land tax against higher returns.
Greater investment in housing being just one way land tax, without property tax, incentives greater productive use.
So many things align for higher growth in ways that more evenly benefit everyone. But our relationship with land is over-complicated, and that is both the reason for change, but the reason change is so hard.
Small attempts have failed, but then, for the rich who can hold land and reap growth in value that outpaces the taxes they pay on it, that remains another inefficient/negative-externality, that pays off for them.
We're already way past the point where a creative cocktail of 10 different progressive taxation schemes could feasibly fix the root of the problem, and you feel this especially if you were born after the year 2000. You're more likely to see results if you pick up a red scarf than if you pass a higher wealth tax, sales tax, land tax, consumption tax, estate tax...
In your telling, how does the resulting famine that killed of tens of millions fit in?
In what sense can't it be passed to renters? Esp if all landlords in the market were faced with a new land tax that they had not previously planned for, why would it not be passed on?
Taxes can be passed on when the tax induces a change in supply. Conventional property taxes are partially passed through because the component of the tax that falls on the building. Tax buildings, get less buildings.
Taxes on land do not affect the supply of the land, this implies they are not passed on and the research literature largely agrees with this.
These aren't a universal cost. When rates change, some landlords' costs go up. But some don't. That lets the latter set the marginal price.
If everyone's costs go up the same amount, it's collusion without communication. In an inelastic market like San Francisco's, you'd expect prices to rise.
If they can't be raised, and the costs end up being ruinous to the landlords, they will find other solutions like mass arson. That isn't hyperbole; this was a serious problem in the 1970s: https://en.wikipedia.org/wiki/1970s_South_Bronx_building_fir...
That was obviously not acceptable... but it was predictable.
All legal proposals should be viewed like a chess move. Presume others will respond, and make sure you're ok with that response. In a sense that's also the point of the original article too, a law was passed without adequqtely thinking through what would happen.
In fact it mentions insurance fraud as the cause...
Additionally it certainly wasn't increasing cost but reduced income which is a very different issue
Or the more likely option is they will no longer do investment properties as the return it too low vs the risk.
Landlords who have their entitlements ripped away from them would almost assuredly endorse the use of violence.
Land redistribution (of which this is a form) from the propertied to the propertyless has historically resulted in brutal violence in order to protect the privilege of the propertied.
Essentially taken to the logical conclusion, there will be people competing for more cash to pay their increasing taxes on the same land, it doesn't fundamentally solve the problem. It's such a joke.
You don’t seem to understand how it works or what it does.
If these communists succeed, they will use the very fact that a landlord cannot synthesize money to prove the landlord passed the cost to the tenant and seize the land.
Billionaires are not struggling to meet their expenses. If you raise their taxes, they aren't suddenly unable to afford things. They don't need to change their behavior just to get by. A carbon tax forces average people to drive less, but doesn't affect billionaires at all.
Billionaires live where they want to because they can afford to. They're not going to let themselves be chased from jurisdiction to jurisdiction because of numbers that have zero impact on their daily lives. That's what happens to poor people. If California raises taxes on billionaires, very few will actually leave. They're where they want to be and they can afford to stay there. What's the point of having a really big number in your bank account if you have to move to the middle of nowhere in Alabama to keep it from falling just a little?
Personally, this is why I am fine with higher income or sales taxes.
Old voters like the house they brought 20 years ago for 100k being worth 1.5 million today. They also like not paying taxes on that 1.4m in wealth accumulation.
Not wanting to pay the property taxes associated with a $1.5M home is the problem.
The idiom is "film at 11."
It is possible to just ... stop spending ...
This is mostly slop. Don’t waste your time.
Red states have implemented low income tax with heavy property taxes (think Texas) with great results. and although I'm sure California would just manage to mess it up it's a great idea.
- some Kendrick guy
1. If wealth was only motivated by taxes and was going to leave, it would've left already. Fact is, billionaires don't want to live in Tennessee;
2. Nobody is doing the right thing to tackle any of this, including California.
The article mentions California has land and that's the key point. Unfortunately, California homeowners have been coopted into voting against their own interests to raise property values. If the house you bought in SF in 1975 for $80,000 is now worth $3M, you still only own 1 housing unit's worth of wealth. And that housing cost is an input into everything you need to buy because all the workers required for those things have to be paid high enough to pay those exorbitant rents.
Let me repeat that: high housing costs are an input into everything that you buy.
So what needs to happen? We need to stop treating housing as a speculative asset. It's simply stealing from the next generation. Worse, it's diverting investment capital from productive output because land has become the asset with the best tax treatment, highest returns and most government protections. So what does this look like?
1. Some form of land value tax. The higher the value goes, the higher the taxes go. You raise the rent and your land value taxes go up because it's more valuable;
2. Punitively tax land hoarding including second homes. We could give discounted rates to primary residences of state residents. Nobody else should get a discount. This would mean repealing Prop 13 and that's never going to happen. As an example of this, I'll bring up Prop 19. In CA you can inherit a preferential property tax rate. Prop 19 proposed to limit this to only one property could inherit this preferential rate and it barely passed (51% IIRC). Do we think that 49% of California voters have multiple properties that have property tax rates set 40+ years ago? Of course they don't. It's an example of how people vote against their own interests;
3. Part of what sold Prop 13 originally was the idea of pushing seniors out of their homes with property taxes. Well, that gave Disneyland a tax rate that was set in the 1960s. California should do what Texas does: you can defer your property taxes until you die if you're a senior but there's no capped property tax rates like incumbent SF residents have and no inherited preferential property tax rates;
4. Wind back the preferential collateralization of property for mortgage debt over time. Residential property lending now dominates bank lending and earnings. It's significantly harder to get finance for any form of productive output;
5. Wind back over time preferential tax treatment for home ownership.
Do I think any of this will happen? No.
Oh, one of the worst things to do is transaction taxes, often called stamp duty. This is where you pay a percentage of the value on purchase. This really hurts mobility. I guess it's fine if it's only on the luxury end of the market (CA's is at $5M+?) but it's not a good idea regardless.
The other part of this is to provide social housing like Vienna. The government should be a significant supplier of affordable quality housing.
ROFL what? I'd bet the author a lot of money that costs WILL roll downhill, the source matters not.
People can also sell their land/homes and move. It's less liquid than other assets, but less doesn't mean people won't sell/leave.
I would be surprised if most land consumption taxes (whether structured as property or land) would not get directly passed through to the beneficial consumers of that land quite quickly, or for their privilege to consume that land to be terminated/non-renewed at the expiration.
This is to once again mistake net worth for money. Net worth is not real. It is not a good measure of the money someone may be able to realise. They do not have hundreds of billions. There is nothing to tax until they sell some shares.
Purely an accounting artifact. We can pass a wealth tax tomorrow and it’ll suddenly be taxable.
Net worth is real money, and is usually a very accurate measure of what people can realize. There are a few outliers who own so much that they’d move the market if they sold it all. Selling 2% to cover taxes? Not going to move the market very much.
Good way to find out it this is the case: take it away. Not real, right? Why would they mind?
Forced liquidation hurts more than the sticker price, but with billionaire taxes, that's a feature, not a bug.
You’d think they’d jump over each other to lend money against such a stable, secure asset right?
Except they’ll say “sorry, this isn’t allowed. IRS treats borrowing against an untaxed retirement account as an early withdrawal, even if the asset itself stays untouched.”
Turns out the government fully understands the concepts of stocks, gains, unrealized net worth and more, and has laws on the books to make sure you are being taxed appropriately for them.
Meanwhile billionaires have convinced you – through their machinery of media, influencers, politicians and more – that this exact same reasoning absolutely cannot be applied to their own wealth. Because it’s “paper money”. It doesn’t exist. There’s nothing to tax. Just cannot be done, or it’ll bend the laws of spacetime.
But even in California's case this doesn't feel like anything anybody would object to. Given how much California Billionaires liquidate using loans on their wealth, I bet, they could do a middle class tax cut too to offset it a little bit too.
I am little baffled as to why the politicos haven't latched on to this whole-heartedly. You can still proudly say you're taxing Billionaire wealth. Because you are! Just more sensibly.
If you have 100B to your name even if it's post IPO stock in a possibly ponzi company that's your current wealth and you can easily convert a staggering portion of it into material realized wealth depending on several factors.
If I use cash to buy 1B dollars in Microsoft shares today, am I not worth a Billion dollars...?
The value may not be exactly convertible agreed so let's just force everyone to book all gains every year, and force sell a net percent of your share.
Not 100B$ of share, but 2% of 100 Million units of stock that you own. Why does this not work?
If I take 2% of your shares why can't it work the same way? I can then pick and sell it over the next year or two however I see fit, in case of govt they can slowly sell back this share to not affect the prices too much.
I am baffled by the fact that we have a tractible quantity and people call it hard to use to measure money.
Paintings, Jewels, etc. are what's truly the hard part of the wealth equation not the stocks, which is over 99% of what a wealthy billionaire owns.
I am not even considering pro or against taxes on billions people make but it's ridiculous to say stocks aren't money? Then what is money really... Currency is also traded, it's value can also go up or down....
Would you rather have 1M dollars in cash or 10B in stock that you can't sell?
Yes. They should be broken up because competition is good for consumers and society. If we had functional anti-trust enforcement Google would not have a near-monopoly on search ads where they own both the ad inventory and the marketplace where you have to buy those placements.
It's only too late if you're timid and wimpy.
"I'm passing this law that is effective the exact millisecond I sign it, tough shit if you don't like it" is tyranny and despotism. But based on your comment I think you know that.
if the voters and legislature have the “bravery” to pass the wealth tax law, it will be aggressively enforced by the FTB
the second-order effects, whatever they may be, would be clearly visible within a couple years.
Absolutely not. 100% you can take it.
Something I've been yelling from the rooftops.
Housing can either be affordable, or it can be an investment that's bought, rented, and sold for the sole purpose of profit. It's not possible for it to be both.
People expect their house to appreciate faster than inflation, but all that does is rob the next generation of home ownership.
This kind of assumes the only reason a house appreciates in value is because people are "treating it as an asset" rather than "the house I bought 30 years ago in the middle of nowhere is now smack dab in the middle of a very desirable area." At that point it's simple supply and demand, not some homeowner being greedy.
> The higher the value goes, the higher the taxes go. You raise the rent and your land value taxes go up because it's more valuable
This makes the fatal assumption that just because a house is worth dramatically more than what you paid for it many years ago that your income must have risen just as dramatically. "Oh well, too bad, sell your house and deal with it." Maybe people kind of like living where they've put down roots and don't want to be punished for something outside of their control? Any proposal that boils down to "pay more or fuck off" is not going to go over very well.
Given the current situation, I do not agree that "we need more taxes", but would welcome your clarifying exactly what you mean.
I would much rather see people keep more of their dollars and use them to 'vote' for the products and services that benefit them most, via their purchases.
https://www.smartcitiesdive.com/news/california-high-speed-r...
Most companies take profit eventually, but if it's possible for a company to decide to never take profit and grow/acquire perpetually without paying any taxes on gross income, that's a problem.
That'd be like individuals being able to deduct living expenses and having uncapped pre-tax 401k contributions.
[1] https://en.wikipedia.org/wiki/Laffer_curve#Income_tax_rate_a...
The straightforward answer is there is no correct ratio. The best tax regime is the one that allows for sufficient funding of necessary and desired services and long-term economic investment while also balancing wealth creation with wealth inequality. That number isn’t fixed and it’s clear that it shouldn’t be evenly borne by the population as a whole.
But for that to happen, land values need to go down. Landlords need to bid less.
Thats an incentive to rent out the property or sell up to somebody who will.
It would apply harsh market discipline on landlords - a demographic that has usually been rather coddled.
There complexity and overhead on sales taxes; more than on an income, retained earnings or wealth taxes.
Also, sales taxes take more percent of wealth away from the lower wealth bracket than from the upper wealth bracket.
At less of an extreme, there are still buyers, but they offer less money so they can still make a profit. So, the property tax basically comes out of land values. The current owners lose money on the property. It's the opposite of the windfall profits that California property owners have gotten from rising land values, taken out of whoever owns the land now.
For the next owner, their mortgage expense is lower, their property tax is higher, and maybe rents and profit margins stay about the same.
Notice that if the demand is there, falling land values doesn't result in lower rents. If your complaint is that the rent is too damn high, higher property taxes won't fix it. Only more housing does that.
I'm a bit skeptical that it would really work out that way. In California, we can have the odd situation where the current owner pays low property taxes, the new owner will pay higher property taxes, and yet property prices get bid up, and whoever buys it has to pay both more property tax and a higher mortgage. But they can still afford it, because there are a lot of rich people out there.
At what price will they sell? At whatever price a buyer who thinks will make it work. And by "work" there are many definitions, from continuing operation at current rents, to building more units on the land so that it generates enough income to pay the tax.
Land value taxes shift tax burden away from productive use of land and on to unproductive uses of land. The people who pay more are land speculators and those with empty lots, and the people who pay less are those productively using the land, which is 99% of homeowners and businesses.
Land's assessed value is based on what you could do with it. If can be rented at a profit, that's something you can do with it, and its potential matters. If it can't, then that is no longer a potential value of it.
That doesn't make lvt a bad idea, it's just that I think there's not enough acknowledgement of the trade-offs and limitations.
If we need revenue to fund useful government programs, great, let's tax Larry. But I don't understand what problem is solved by expropriation qua expropriation.
A wealth tax is not a retroactive law, nor something that targets an individual person. It's a "general law" in your parlance. Think about it.
> If you pass a general law (which could very well have reasonable objections), people have to have a chance to leave.
I don't think so. By what legal authority is that required?
> "I'm passing this law that is effective the exact millisecond I sign it, tough shit if you don't like it" is tyranny and despotism. But based on your comment I think you know that.
No, it's not, and don't be ridiculous. When they passed laws against date-rape, would you have judged it "tyranny and despotism" unless the law was delayed to give the date-rapers time to finish up the date-rapes they'd planned?
There's no justice in giving the wealthy the maximum opportunity to pick and choose the laws that apply to them.
Would the resources have been better spent on a more efficient legal system, then leverage that?
> It is not a good measure of the money someone may be able to realise.
And as such, when you get into the higher ranges, net worth is quite a good indicator.
In the rare cases where contract law makes the transfer impossible legally the government could trivially step in to make it possible
Is it Zuck's networth or salary that makes it possible for him to own his ranch in Hawaii?
And certainly ceejayoz was being a bit glib by suggesting we take all of it, but it would not be remotely insurmountable to tax billionaire wealth.
Oh, are those real now?
This same thing was observed during the Gold Rush in California in the 1800s; extreme wealth also resulted in extreme poverty. And there's a great way to solve this: tax the land and redistribute it equally to everyone. Land can't be moved, it's something that belongs to all of us, and you can't make more of it.
(I'm in agreement with the thesis of the article)
Read somewhere that SF spends roughly 50k$-80k$ per homeless person per year.
Taxing more doesn't solve a massively inefficient system at it's core. Just like US education, we spend more than any country on earth, why is it still bad?
Answering that question with a "if only we had more money" is a really poor argument. The CA tax fundamentals are bad, pooring more cash onto the fire will not fix that.
In addition, there should probably be changes to laws/regulations to address companies that exploit the poorest.
And, many people who are poor have persistent mental/physical disabilities, so part of that spending is because many of these people have it the hardest.
With that said, we could likely fix all of these things and significantly unequal wealth distribution would still result in a lot of poverty.
The SEC exists. As do many other mechanisms by which the government regulates direct and brokered securities trades and sales. You can make the case that some of those controls are poorly/ineffectively implemented, but you can’t claim that it’s not something the government routinely regulates, intervenes in, and sometimes prohibits outright.
It's harder for private companies sure, but who will stand in the way of govts if they said we will sanction your if you buy X or Y company?
This entire argument doesn't really hold IMHO
Because the building is standing right where it is, in the open, lit by the sun every day. If you don't pay your tax, the government can just take it.
This compensates for the several philosophical and moral problems with it, and I've seen several economists declare it the best form of taxation there is.
I don't like property taxes either, and at minimum would rather they were called something else, and preferably replaced with per-service charges where possible.
But either way they exist to pay for things, and not to just degrade the value of your property simply because you worked to own it.
I think a lot of tax authorities also don't really aggressively reassess that regularly without a sale, so it also kind of ends up baked in that if you didn't pay that much for the property, it's only theoretically worth that much.
If a majority stock holder in a company sells all of their stock, the price first the first share sold is likely going to be completely different (and substantially less!) than the last share sold.
Personally my favorite idea for this stuff that I have heard thrown around is to allow people to self value everything. However, that self valuation then becomes a price tag. Let a billionaire's accountants put their own evaluation on their equity in a business. But that becomes a binding offer and some other billionaire could come along and buy them out at that valuation. That creates pricing pressure in both directions, the person is prevented from underpricing their assets due to the threat of another buyer coming in and a person is prevented from overpricing because it increases their taxes. And suddenly all the problems regarding how the government appraises these things disappears.