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

economist.com

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

#871

Post by nostrademons »

msla wrote: post #859
nostrademons wrote: post #743

Earlier quoted context omitted.

Because people choose to build upon it, but the land itself was always there regardless of human action. The arguments for an LVT fall into both economic & moral categories. The economic argument is that the elasticity for land is zero. It's always there, always will be there, and no human action is going to change that (barring things like landfill, which are a literal edge case that doesn't matter much in the grand…

> The land will still be owned, just by different people, regardless of how high it is taxed. That means that the government can raise revenue without curtailing economic activity. And this is a fantasy. Some land is marginal: Taxing it more would reduce the profit anyone could make from it to nothing, leading to empty lots that aren't owned by anyone because the last owners were delinquent on taxes to the point the…

That's why the tax is in proportion to the unimproved value of the land. Marginal land has almost zero value; therefore it will have almost zero tax. The landowner gets to keep rent due from any improvements (like structures) on the land.

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

#872

Post by xyzzy123 »

TapWaterBandit wrote: post #852
xyzzy123 wrote: post #324

Earlier quoted context omitted.

The problem is if the state doesn't see eye to eye with you on the value. This can happen for all sorts of reasons, they might be using a simple algorithm that takes into account nearby values / recent sales as comparables. Those lots might have subtle features which makes them much more valuable than yours. Etc. You get hit twice if over-assessed, first of all because you have to pay more, secondly because the high…

I'm trying to imagine the context where there is a property in an area with high sales pushing the price of land tax up but this property isn't worth a similar amount for being in the same area. If people are buying in an area and that drives up prices because it shows the area is valuable, in what conditions would your land not be worth a similar (ish) value?

You might have a heritage building, you might have some kind of natural feature that needs to be preserved, you might have some kind of issue like site contamination, there are lots of ways. If you're lucky the tax ratings might take them into account, if you're not, they won't.

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

#873

Post by caminante »

mactrey wrote: post #829
bagels wrote: post #566

Earlier quoted context omitted.

The land is nearly free now. You can't build things in Detroit and make a profit, construction costs outweigh sale price or possible rents.

The point is, currently if you build things then you pay higher tax. The current tax structure disincentivizes building things. We don't know what people would build without that disincentive - maybe still nothing, as you are suggesting.

> The point is, currently if you build things then you pay higher tax.

You're missing THE point.

Your comment is too general.

1. You'll only pay higher taxes if your ratio of land/improvements is above a threshold (TBD).

2. The article says that the proposed change would lower taxes for 95+% of the population.

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

#874

Post by hiAndrewQuinn »

robertlagrant wrote: post #776
hiAndrewQuinn wrote: post #746

Earlier quoted context omitted.

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 t…

> 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?

Think at the margin here. You're not saying you should instantly sell because the gelato/ice cream enthusiast ratio has increased slightly. You're saying everyone all at once decided en masse to start eating gelato instead of ice cream. Yes, as an entrepreneur you need to respond to that. That's an enormous and sudden change in not just the long- but even the short-term viability of your endeavor.

Indeed the forced price mechanic improves the short term responsivity of the local economy to such a change, because your scenario suggests a recent total upset in the established order of things. I would rather see you walk away today, from a venture that you realized yesterday was doomed to fail, with an extra $X in your pocket from the shark who bought you out than to see you driven to bankruptcy because you were the last ice cream boy in this mad, gelato crazed new world. Who knows -- maybe you'll start an ice cream stand in a cheaper, more sane part of the world with it.

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

#875

Post by flagrant_taco »

thelastgallon wrote: post #639
flagrant_taco wrote: post #481

Earlier quoted context omitted.

Oh it's definitely not simple, I don't mean to input that. Your examples only really touch on one relevant example though, sewage. Sewage isn't really an issue in rural areas, off grid seltic systems process waste on site and more compelling systems can even compost human waste with very little effort. Modern central sewage system only exist because of dense cities, they weren't needed before that. High speed interne…

Yes! And we can home school kids, hunt and fish and fix our own broken bones like they show in the movies. Just need alcohol for the pain (grow your own moonshine?).

Sure, more people should have the opportunity to gone school their children and hunting, fishing, and foraging is a great way to feed your family with less environmental impact. Knowing how to set a bone is great in an emergency, but I wouldn't recommend leaning only on that if you have other options. Alcohol does work for pain, though be careful with moonshine as poorly stilled liquor can have nasty side effects.

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

#876

Post by eru »

jandrewrogers wrote: post #494
SoftTalker wrote: post #367

Earlier quoted context omitted.

And in fact your mortgage would almost certainly be less than the rent for the same property, since the landlord will be using commercial financing which costs more, and will be paying taxes as a non-resident owner, which are higher. The landlord will also need to buy commercial property and liability insurance, which costs more. Your residential mortgage will be at a lower rate and you will have property tax exempti…

Why do you assume the landlord has a significant mortgage or any mortgage at all? Most landlords have owned the properties for decades. I know quite a few that bought the properties with cash and never had a mortgage. If you buy a place for $1,000,000 at 7%, you can’t compete with someone that owes $100,000 at 2.5% on the same place, which is often the reality.

Whether your landlord owns outright or has a mortgage doesn't make much of a difference for this analysis. That's because even if you own outright, you have opportunity costs of capital.

> If you buy a place for $1,000,000 at 7%, you can’t compete with someone that owes $100,000 at 2.5% on the same place, which is often the reality.

Where does that 2.5% come from?

If mortgages cost more than the rental yield, then your landlord should sell the place and use the proceeds to get into the mortgage business. (If not, your landlord is doing the landlording as a charity, because they are leaving money on the table.)

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

#877

Post by s1artibartfast »

lmm wrote: post #866
s1artibartfast wrote: post #806

Earlier quoted context omitted.

>Nearly every single person will pay less tax on their home under LVT than a property tax, too. How could that possibly be true. The lvt would have to be high enough to replace revenue from all current income taxes, sales taxes, corporate taxes, and current property taxes. It would also be based on land used, so Warren be buffet and someone working at Walmart would have the same tax bill if they both own houses in th…

> It would also be based on land used, so Warren be buffet and someone working at Walmart would have the same tax bill if they both own houses in the same neighborhood. If they both live in the same size house in the same neighbourhood, sure. If a billionaire really wants to live in a closet to spite the taxman, that's fine, although I don't know why they'd bother having the billion. They aren't imposing on the commu…

The point is that money can buy you a lot more than land. A Picasso takes no land. Elons giga factory would pay no land tax because the land vale is zero. It is in the middle of the desert surrounded by employ land that nobody wants.

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

#878

Post by lmm »

s1artibartfast wrote: post #877
lmm wrote: post #866

Earlier quoted context omitted.

> It would also be based on land used, so Warren be buffet and someone working at Walmart would have the same tax bill if they both own houses in the same neighborhood. If they both live in the same size house in the same neighbourhood, sure. If a billionaire really wants to live in a closet to spite the taxman, that's fine, although I don't know why they'd bother having the billion. They aren't imposing on the commu…

The point is that money can buy you a lot more than land. A Picasso takes no land. Elons giga factory would pay no land tax because the land vale is zero. It is in the middle of the desert surrounded by employ land that nobody wants.

> A Picasso takes no land.

Buying stuff that people make enriches those people and spreads the wealth around. It's good to encourage doing that rather than hoarding land. (While you can hoard individual old paintings, if you drive up the price of paintings then new and innovative painters - like Picasso - emerge, and produce new paintings to meet that demand).

> Elons giga factory would pay no land tax because the land vale is zero. It is in the middle of the desert surrounded by employ land that nobody wants.

Which is exactly where we want giant factories being built.

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

#879

Post by AmericanChopper »

lmm wrote: post #868
AmericanChopper wrote: post #578

Earlier quoted context omitted.

You’ve linked to a Wikipedia page that describes dozens of different definitions for what rent is. The category of rent that this thread is broadly discussing is rent in the form of value extracted from capital and land. The much broader term “economic rent” includes things like wage increases negotiated by labor unions, which I presume you’re not objecting to, and certainly isn’t the topic of this thread. Rent seeki…

There's a huge difference between saying that people shouldn't be able to rent out capital they've legitimately earned (by creating value through their own efforts), and saying people shouldn't be able to seek rent from things they didn't create but just squatted on - radio spectrum, land, IP addresses, fraudulent patents...

That's a big revision from your previous comment

>The "owner" of a piece of land does nothing to produce its value, they just take money for nothing because they hold a scarce resource

As soon as anybody owns any piece of land or capital, they are not doing anything to produce any value that is derived from it, they are simply collecting money for controlling a scarce resource. Those two factors of production can create ongoing value without any intervention from their owners, and you either support a persons right to own those resources, and collect some portion of the value they create, or you don't.

Your use of the phrase "legitimately earned" also means nothing in this context, and I presume this is just a weasel word you're using to avoid actually having to clarify any sort of concrete stance. For starters, legitimate according to who? I would further presume that you have some sort of view on who's accumulated their wealth legitimately, and who hasn't. What criteria have you invented for this? Is the use of capital and land something you would consider contributes to "illegitimate earnings"? Because all of that just circles back to "seizing the means of production" (as in land and capital).

Also, what's wrong with unearned capital? If I give somebody a hammer, do you have some sort of moral objection to them deriving income from the increased productivity that would create for them? Because I would suggest that the only thing that matters there is whether I had a legitimate ownership claim to the hammer in the first place.

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

#880

Post by kevincox »

mactrey wrote: post #825
robertlagrant wrote: post #676

Earlier quoted context omitted.

As I understand it, property tax is simple when there's been a recent sale. The complexity comes from a similar issue to land value: no recent sale. In this case it's worse because valuing the land outside of what it's used for is a mess.

But this problem already exists. Many people live in homes for 30+ years and pay property tax on the land + improvement (physical home) value. Why would it be so much harder to hypothetically value the land without a recent sale (required for a LVT) than to hypothetically value the land + improvements without a recent sale (required for property taxes which currently exist in almost every city in America)?

Because their neighbours have sold their houses recently. So using similar sales as a baseline and then factoring in a few differences between those properties and the one that is being assessed is much easier than doing that and then subtracting the built-up value.

Basically all of your data points are the built-up prices. So it is going to be easier to estimate the built-up value than the raw property value. Maybe not much easier, but definitely not harder.

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