Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Detroit wants to be the first big American city to tax land value

economist.com

Post reply on HN
Print view View original

771–780 of 910 posts

Re: Detroit wants to be the first big American city to tax land value

#771

Post by mywittyname »

ab_goat wrote: post #258
chrisweekly wrote: post #179

Earlier quoted context omitted.

I'm a homeowner in MA interested to hear more.

I come from Western Massachusetts, which is characterized by smaller populations and lower budgetary allocations. The most significant budget item in most municipalities here is education, followed by road maintenance, which is often extremely costly. In Massachusetts, the basic cost estimate for repaving a standard road is approximately $1 million per mile, and this investment typically only lasts about a decade bef…

I built a new house on a newly built road in a semi-urban area. The parcel of land that I bought on the road came with an agreement to pay back the 30 year bond the city took out for the construction of the road and related infrastructure. This amounted to about ~$4MM (in addition to village & city property taxes), so it's a hefty fee even thought its divided among 50 other households.

After I moved here, the people in the village decided to drastically hike income taxes to pay for improvements of other village roads. People saw 50 nice new houses being built and decided those people are responsible for paying for everything the village needs.

This is what will happen all over the USA. People want their infrastructure, but they will find ways to make anyone else pay for it.

Re: Detroit wants to be the first big American city to tax land value

#772

Post by [deleted] »

ejstronge wrote: post #735
BariumBlue wrote: post #725

Earlier quoted context omitted.

Property tax: The more of your money you invest into your property, the more you pay for taxes (punishing investment) Land value tax: Your tax is unchanged on how much you invest in your properties. A rundown parking lot pays the same amount of tax as the next door skyscraper (encouraging development of limited, high value land, and punishing lazy speculation). Land value tax is a simple, elegant way to incentivize m…

> Property tax: The more of your money you invest into your property, the more you pay for taxes (punishing investment) > Land value tax: Your tax is unchanged on how much you invest in your properties. A rundown parking lot pays the same amount of tax as the next door skyscraper (encouraging development of limited, high value land, and punishing lazy speculation). The problem with this analysis of a land value tax i…

[deleted]

Re: Detroit wants to be the first big American city to tax land value

#773

Post by etothepii »

dfxm12 wrote: post #716
pmontra wrote: post #613

Earlier quoted context omitted.

If you want to tax properties, why not taxing both the land and what is build upon it? And wardrobes, tables, books or computers (every year) but that's another story.

Don't threaten me with a good time :) Cheekiness aside, you'll find the overlap of people who support both a land value tax and a wealth tax to almost be a circle.

I do not support Wealth taxes. I would heartily support a land value tax.

Though popularised by George it was first rigourously analysed by Adam Smith in the Wealth of Nations.

We are, ultimately, all tenants of our sovereign. Our sovereign protects us from enemies both foreign and domestic. They do not protect our incomes, or our assets but by and large most societies do agree that it is a matter of fact that can be arbitrated in a dispute as to who owns which piece of land.

Re: Detroit wants to be the first big American city to tax land value

#774

Post by cultureswitch »

leoedin wrote: post #576
Kbelicius wrote: post #557

Earlier quoted context omitted.

> For example, if I am "child free" I will now oppose the building of schools and playgrounds on the basis that they make my LVT go up with no benefit to me. It would raise the value of your land.

I think the problem is, for many people, the value of their land is kind of irrelevant. If you are using land by living on it, and want to live on it because it's near your friends, family, community, place of work etc, then the value of that land to someone else doesn't really matter. Maybe when you die and pass it to your kids, it would be great if it was valuable. But in the mean time (which for most people is man…

> I think the problem is, for many people, the value of their land is kind of irrelevant.

Well that's a problem with those people if they think their most valuable capital asset is irrelevant.

It is relevant, because without LVT, the tax code is literally encouraging inefficient use of land. Housing prices consistently rising five times faster than salaries is a huge problem, and it is caused by inefficient land use.

Re: Detroit wants to be the first big American city to tax land value

#775

Post by chriswarbo »

Draiken wrote: post #695
screye wrote: post #652

Earlier quoted context omitted.

It isn't an extra tax. It is a rebalancing tax. The rich have nothing to do with this. It is purely about how much land you sit on and where. That's it. > Basically you're asking for normal people to work, get raises forever Nope, it mostly incentivizes real estate hoarders to start making productive use of there land. It allows normal people to buy houses because this system inventivizes the increase of supply. > la…

> It isn't an extra tax. It is a rebalancing tax. The rich have nothing to do with this. So effectively normal people that don't own empty land will not pay this or pay an equivalent of the previous taxes? > If your lad value tax increases enough to be unpayable, then your house has likely appreciated 3x+. I guess you could try to argue that but I still feel like that's going to hurt folks. Imagine a scenario where I…

> companies will just turn their empty plots into useless parking lots (or some other loophole they will find) to say it's "valuable"

Skipping past your other points, I just wanted to reply to this sentence, since it seems to show a deep confusion/misunderstanding (perhaps on my behalf!).

- Land owners won't get to "say" how valuable their land is; that's determined by the market, assessors, etc.

- Given the chance, land owners would try to say their land's less valuable; since higher value means a higher tax bill.

- Land value tax is (as the name suggests) based on the value of the land; not what's on it. The tax for an empty lot is the same as a parking lot (or a skyscraper, for that matter).

- If anything, turning an empty lot into a car park may increase the company's tax bill. For example, if a lack of parking bottlenecked the area's economic growth, the new lot would allow more development nearby, increasing the area's land value, and hence increasing the company's tax bill.

- Turning an empty lot into a parking lot has construction costs (I'm assuming our company doesn't care about ongoing maintenance). Since the land value tax is unaffected (or even increased!), the only reason to construct a car park is when its predicted revenue is higher than its construction cost. The predicted revenue of a purposefully-useless parking lot is low, so there's no incentive to pay its construction cost: better to leave the plot empty!

- If the company can't use the land to bring in revenue that (a) pays off any initial capital/construction costs, and (b) exceeds the ongoing costs (including the constant land value tax!), then it should sell the land to avoid having to pay the tax.

- The only ones willing to buy the land off them (and hence take on its tax burden) are those who can make use of that land (either a company able to make a profit despite the tax liability; or people wanting to live there who are fine with paying the tax). In which case, the sale is incentivised and the land is put to better use.

PS: "From the outside" I'm sure there will be loopholes in theory, and in practice in Detroit. However, your example is pointing in the complete opposite direction of all the incentives, which looks "from the inside" like a lack of understanding.

Re: Detroit wants to be the first big American city to tax land value

#776

Post by robertlagrant »

hiAndrewQuinn wrote: post #746
robertlagrant wrote: post #579

Earlier quoted context omitted.

> and be legally bound to sell it to anyone who comes up to them offering that price Why? This just seems to create yet another perverse incentive structure that people have to invest time into understanding (and some into exploiting), rather than adding any actual value. Taxes mean nothing if everyone is too busy figuring out this sort of scheme to do anything valuable.

I'm glad you ask. There's a whole 100-or-so page paper on this form of taxation with enforced sale on the books which explains why this approach is in fact far less perverse than our current system (which might be degenerately modeled as a 0% system, where every good has a forced sale point of $∞.∞∞). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2818494

I'm only a few pages in, and perhaps this paper redeems itself later, but here's my problem:

> To put this problem starkly: allocative efficiency and thus an efficient market economy is impossible in the presence of private ownership.

What the paper's early pages are saying is that study A found that things could be allocated more efficiently, and study B found that sometimes people hold out from selling things now to gain more later, therefore to increase the efficiency of global (literally) allocation of resources, people should be forced to sell things or pay more taxes to keep them.

This seems to have several problems on its face, that might be dealt with later, but still:

- This is all theory. There is no global optimum to observe, no matter how many papers might be written. Only to theorise about.

- This is relative, and time-sensitive. I might value a property at X because at that moment it's worth that much to me. It might change in the future, or depend on how markets are doing. Should I instantly sell because I have an ice cream shop and people are all eating gelato, and I can't afford the tax so I reduce the valuation to a point where some shark can grab the building?

- Perfect is the enemy of good, particularly when perfect is so poorly defined. This can get a lot worse much more easily than it can get a bit better.

Re: Detroit wants to be the first big American city to tax land value

#778

Post by enragedcacti »

ejstronge wrote: post #735
BariumBlue wrote: post #725

Earlier quoted context omitted.

Property tax: The more of your money you invest into your property, the more you pay for taxes (punishing investment) Land value tax: Your tax is unchanged on how much you invest in your properties. A rundown parking lot pays the same amount of tax as the next door skyscraper (encouraging development of limited, high value land, and punishing lazy speculation). Land value tax is a simple, elegant way to incentivize m…

> Property tax: The more of your money you invest into your property, the more you pay for taxes (punishing investment) > Land value tax: Your tax is unchanged on how much you invest in your properties. A rundown parking lot pays the same amount of tax as the next door skyscraper (encouraging development of limited, high value land, and punishing lazy speculation). The problem with this analysis of a land value tax i…

> So I am unclear how the explicit taxation of land value and improvement value that exists currently causes differences in behavior from the land value tax system you outlined.

Land with a skyscraper already on it and land next to a skyscraper have related but not equal market values. Switching from a tax on market value to a tax on land value rewards the the owner who developed their land and punishes the owner who didn't.

Re: Detroit wants to be the first big American city to tax land value

#779

Post by red_admiral »

Double_a_92 wrote: post #601
red_admiral wrote: post #561

Earlier quoted context omitted.

Land value tax is an idea by Henry George - the guy who coined the phrase "the rent is too damn high". His idea is among other things that a property tax discourages investment - one way to make money as an investor is to hold a plot of empty land in a desirable city centre location, watch it go up in value, and neither pay tax on any development on it nor bother with messy things such as tenants. Taxing the land val…

I don't understand how that needs a special tax though. Wouldn't the more obvious choice be to just tax all wealth/assets? E.g. where I live it's just assumed that all your assets produce a yield of 4% yearly, and that is taxed as regular income. Makes the tax declaration also a lot easier, since people don't have to list all exact dividends and profits they might have gotten from investments.

As far as I understand, the idea is to incentivise the kind of wealth-creation that is good for society by taxing it less than other kinds. The idea is definitely not to introduce a land tax on top of all the existing taxes.

Historical Georgists were also called "single taxers" because of the idea to abolish all other taxes, but make up for this by a tax on land ownership that leaves the state with the same income stream as before. Apart from being (in their view) socially good, this would also have the advantage that landowners couldn't just move their land to the Cayman Islands to evade the tax.

I don't think modern Georgists are quite that single-minded, but I do get the argument that, for example, VAT is a tax on the poor in the sense that even people whose income is low enough that they're not paying income tax in the usual sense have to pay it every time they buy something (unless it's exempt), but taxing land would truly be a tax on the more affluent only, at least in a country where most poor people rent their accommodation.

Re: Detroit wants to be the first big American city to tax land value

#780

Post by dwallin »

ajsnigrutin wrote: post #607
Double_a_92 wrote: post #601

Earlier quoted context omitted.

I don't understand how that needs a special tax though. Wouldn't the more obvious choice be to just tax all wealth/assets? E.g. where I live it's just assumed that all your assets produce a yield of 4% yearly, and that is taxed as regular income. Makes the tax declaration also a lot easier, since people don't have to list all exact dividends and profits they might have gotten from investments.

The problem is, what if it doesn't produce that much? What if it doesn't produce anything? Imagine someone buying a house somewhere cheap. Then some gentrification, a new microsoft campus built nearby, etc., and the price of the house jumps 10x+. You're on a fixed income, and your taxes are now higher then you can afford. If you have multiple houses, sure, tax the second, third, etc. one (evn though the taxes are the…

This is like looking at an algorithm, thinking of the worse case scenario, running a single step, and deciding that it's not worth it from that alone. This is not a one-and-done rule, and the same dynamics that might push an old lady to move in one situation, might make things much better for her in another, and more importantly, over time might lead to a better situation for her grandchildren when they grow up.

In practice, that grandma is stuck in a city where her children and grandchildren can no longer afford to buy real estate in. Friends and neighbors who rent are priced out and have to move regardless. The local goods and services rise in price and taxes go up, all under the current system. Her support network and community evaporate and soon she finds nothing left but to sell to a corporation, who is the only entity left that can afford the prices her house demands.

The first order effect of a Land Value Tax is that it shifts who pays the biggest burden of taxes. Grandma A who owns a big house in the center of a vibrant city where lots of young families are looking for homes near their jobs might see an increase in her taxes, but the Grandma B who owns a Condo in a larger complex will likely see her taxes drop. Grandma C who lives in a nice well-maintained house way out in the burbs will likely see a drop as well, most of her value is in the nice home she has been tenderly caring for her whole life.

A second order effect of LVT is it creates a suppressive effect on real estate prices. When prices in an area are going up across the board, this is entirely in the value of the land, which means LVT taxes are going to rise correspondingly. This additional tax liability significantly helps counteract a speculative rise in prices, leading to a lower and more stable pricing, and pushing out those who are just looking to speculate on trends. The value that a government creates for its citizens is recaptured and able to be reinvested, instead of going directly in the pockets of land speculators.

The third order effect is that this shifts the incentives around value creation vs value capturing. Perhaps the house next door to Grandma's is currently owned by a deadbeat landlord, Pennybags, who lets the house fall into disrepair, hoping to turn around and sell it as the market rises. Now all of a sudden Pennybag's plan is quickly becoming a bad investment. With LVT his property value is more heavily correlated with the actual quality of the house and less with value of the land. He is finding that despite an increasing demand in the area, his property is actually dropping in price. Meanwhile good ole Grandma has been diligently been taking care of her home, and adding value and the price of her home has actually gone up faster than the rise in taxes. She's able to use to use the increase in value to take out a loan to build an accessory unit she uses to now help her cover her increased taxes, which further increases her property value. Despite all of that, her taxes have not gone up at all!

Post reply on HN