patrick.net

Bellingham Bob says

too much bullshit. We're done here.

You think it's "bullshit" only because you never even read what Henry George wrote. As appealing as the unicorn idea of "land value" (separate from improvement) is, he eventually realized that the two are not separable, and had to draw artificial lines defining Georgist "land" as land plus all improvements that last beyond the improver's life (good luck tracking whether the men sold the house to the men who sold you the house is still alive). Even George himself admitted that his scheme in effect is a way of transferring all land ownership to the state in a "more quiet" way.

marcus says

If so, it would require people who chose less profitable uses to sell, give up their location and disrupt their lives or business ?

zoning limits would drive the highest-and-best use.

Would it only be when the owner sells to someone who wants to use the land more profitably that the govt collects the higher tax on the land?

whatever works best. There can be a continuum of policies with this.

And if so, what would prevent government corruption and waste of those rents and ever increasing rents ? Why would that not just make the government in essence the greedy monopolistic landowner?

Reality or whatever his name was was mining this vein. My response is a shrug and "people get the government they deserve".

LVT has the signal benefit of working best at the most local of granularities. Of course, local government is also the worst government, so there's that.

But local governments would in fact be in competition with each other in attracting wealth-creating business, and punishing wealth-taking rent-seekers. So Reality's "oh noes Pol Pot is coming!" is really just bullshit red-baiting.

t is only the last couple hundred years that it really went crazy here in the US

I just discovered this recently:

http://en.wikipedia.org/wiki/Frontier_Thesis

which lays out what I'd read and thought about.

They have in many developed countries, making it a moot point if people now own the land, only getting okay returns without the expected kind of growth potential of the past.

It's not just the returns though, it is the rent losses and the inefficiencies of income taxes vs. land taxes. It's easy to hide income, it's impossible to hide land titles!

Maybe new energy sources, or modes of transportation could change that.

Dubious. California should have a beach tax. How many miles of developed coastline do we have? 500? An acre is 200' on a side so that's 13,200 acres of beachfront property. Each acre is worth what, $5M? That's $66B of land value right there, a 3% tax level would yield $2B. And that's just the first 200' from the shoreline.

The land value of California is simply immense. And the rich own most of it, and they've also invested well in the institutional defenses of intergenerational wealth to hide all this in plain sight, and also via Prop 13 tether Grannie's 3B tract home in Visalia to their million (and even billion) dollar real estate empires.

Bellingham Bob says

LVT has the signal benefit of working best at the most local of granularities. Of course, local government is also the worst government, so there's that.

But local governments would in fact be in competition with each other in attracting wealth-creating business, and punishing wealth-taking rent-seekers. So Reality's "oh noes Pol Pot is coming!" is really just bullshit red-baiting.

However, Georgist Single Tax is meant to replace income tax and payroll tax at the federal level! If some localities decide to experiment with their own Georgist Single Tax, they will find out the infeasibility soon enough . . . just like Arden found out and kept it to a level that is comparable to property tax in most other towns in this country.

The real danger of Georgist Single Tax is that theory providing another excuse to a new source of tax revenue at the federal level.

California should have a beach tax. How many miles of developed coastline do we have? 500? An acre is 200' on a side so that's 13,200 acres of beachfront property. Each acre is worth what, $5M? That's $66B of land value right there, a 3% tax level would yield $2B. And that's just the first 200' from the shoreline.

In other words, you are talking about additional tax generation . . . nothing to do with Henry George's core purpose of Single Tax: getting rid of other taxes. It's silly to expect the land value to stay the same $5mil if you raise the carry cost by $150,000 a year. Look up what towns and cities with 3% property tax look like. They are almost all run-down high crime cities. $150k would be about the value of the entire property (house+land) in those cities/towns.

Nomograph says

mere bowel movement?

looks like I got out of that thread just in time . . . I've had "Reality" on ignore for a while now but if he's going to take on Georgism directly I was game for an honest discussion of its benefits/problems.

But IME people invested in the current system are far from desiring an honest discussion about this stuff. That's Rothbard's thing too. If you can read the rebuttals I gave above and still think Rothbard was a straight-shooter on this topic, man.

I have followed this thread with interest. A few months back Troy (B. Bob) and I had a similar back-and-forth (though I was less firm in my position because it wasn't really something I had thought about). I left the thread with an appreciation for a different perspective, which is about all I can ask for.

So Troy presents some interesting ideas and perspectives, and does a pretty good job of advocating for them (and would be even more effective if he were less dismissive), however...one of the basic assertions is that landlords don't add (much) value. They just buy land with a building on it and rent it out...wait for it to increase in value.

I get the concept, but it doesn't jibe with what I have observed during my life. Certainly it happens that a landlord buys land, rents it out, and sits on his duff profiting all the while from the creeping improvement around him. But in my experience it happens the other way more often.

An example:

The office I sit in now used to be an old taxi dispatch and repair depot from the 50s or something. It is located in a rather run down industrial section north east of downtown Denver. The developer bought the site, kept what he could keep of the structure, and renovated the whole building. He built a new building (mixed retail, offices, residential) behind it, and just got done renovating a freight warehouse on the the same site. The neighbors? A rail yard, the city bus garage / repair facility, and a concrete factory. The improvements that will make the land more valuable? Nothing to speak of. The landlord/developer is the force behind all of it.

http://www.taxibyzeppelin.com/

This is the most concrete (and referenceable) example I have, though I have many others.

Is it possible that this "buy property and wait for the neighborhood to increase in value" strategy doesn't really play out in most communities? Could it be a coastal / ultra-high land value thing?

Also, in the cases where I have seen the landlord benefit from the improvements around him...it has typically been from what other individuals have done, not some public improvement / investment.

Again, it's an interesting and appealing concept/theory, but the "hook" doesn't hold up in my experience.

swebb says

.one of the basic assertions is that landlords don't add (much) value.

Landlords just own land. It's the building owner/managers that add the value.

Often these hats are worn by the same entity.

And it is the source of much confusion. Georgism would basically like to remove one of these hats, that's all.

Well, the profits that come from wearing one of them at least.

There are a multitude of issues with community collection of ground rent, leasing vs. owning, etc. I don't pretend to have any answers to these things.

I just look at what we have now and see a very clear cause of some of the poverty around today. Henry George saw the same thing 150 years ago in California's pioneer time, which is why his book is called "Progress and Poverty".

It's the flows that are the problem now. Maybe a trillion from land (tenants to landowners or bankers). A trillion to the military machine. $600B via the trade deficit. A trillion in rents being taken in the health sector.

These rent-captures are why the top 1% is collecting so much of the national income today, and why a $5T+ total government expense is only employing twenty million people or so.

http://research.stlouisfed.org/fred2/series/USGOVT

The land issue isn't that big a deal in the scheme of things, just one more thing we could fix but will not. And like the other fundamental flaws, not fixing it means the system will remain unbalanced and eventually unsustainable.

Phew. Typing more words doesn't make you any less wrong.

Reality says

tatupu70 says

"Land value is inseparable from improvement"

Funny. My property tax bill seems to do a pretty good job separating them...

That's just arbitrary bureaucratic assignment. I'm sure you are aware that many towns are taxing houses at a higher value than the houses are worth. Don't tell me you believe that tax bill value instead of market clearing price.

It is not in the least bit arbitrary. You may not like it, but that doesn't make it "arbitrary".

Improvement values are based on very specific calculations. It is called "mass appraisal" and is done in most states. It is a formula based on characteristics such as square footage, construction materials and quality, number of rooms, bedrooms, bathrooms, age, etc. etc. I've been to professional conferences and heard presentations/papers on the subject of "what formula is best, most consistent, fair, etc.".

CA Prop 13 created an exception that only resets the value (mass appraisal is automatically recalculated periodically) when there is a transfer of ownership. This results in long time owners having suppressed property valuations, and new buyers often pay many times more.

Georgism simply recognizes that the earth / land is more permanent than we are; that we all take resources from it (water, food, fuel), and in exchange rather than "owning" the land and mineral rights, we "rent" them form the rest of society. It reduces "rent seeking" and therefore would lower rents. It also has been proposed along with a complete removal of "income" taxes, since income tax takes from the work of your hands and mind - things that are eminently more "yours" than a piece of land you happened to squat on first.

Bellingham Bob says

And it is the source of much confusion. Georgism would basically like to remove one of these hats, that's all.

Well, the profits that come from wearing one of them at least.

Yeah, I understand that. Maybe I wasn't explicit enough, but in my example I was trying to show that, under a LVT scheme, the developer could end up paying higher taxes because of the improvements he made. The land he currently owns (or would rent (?) under LVT scheme) is certainly more valuable now because of his investment. Is the rail yard making his land more valuable, the cement factory? He did it, and to be taxed for it seems...unfair? Maybe it's not the normal way of things, but it's not a contrived example.

Similarly, the cement factory and bus repair depot also have "enjoyed" land value increases because of his work (not their own, not the governments)...but they don't want it. I'm guessing they'd be miffed to have to pay higher taxes because of the improvements that they don't enjoy. Hell, now they might have to move their business and sell their land, or rent their land out to someone who values the local improvements. (prop 13, anyone?)

It doesn't always happen the way it does in California, I guess. Buying in a ghetto that gets gentrified, especially "overnight", may be a rare occurrence. Developing a land use policy around it may not make sense for "everyone".

I do tend to agree that land seems to be different than other property (for the reasons Churchill enumerated), so it seems reasonable to at least have a conversation about how to fairly address the differences.

Nomograph says

Sure, just as soon as you show me a successful example of a society governed by ideology.

Not sure what ideology you are talking about. I merely posited that:

1. Giving individual freedom of choice is a good thing; therefore:

2. Competition among counter-parties (to the individual's whatever needs) is better than monopoly.

I did not advocate any form of government at all. If you want to argue that slavery (ie. not giving individual any choice, but ordering him around) is a superior form of social organization, please come out with it.

Your little ideology might sound all neat-o and stuff, but like all ideologies it falls flat on it's face in the sunlight of reality. Reality doesn't care about neat-o stuff at all.

Once again, if you want to advocate the ideology of slavery, please be honest with it.

Bellingham Bob says

But IME people invested in the current system are far from desiring an honest discussion about this stuff. That's Rothbard's thing too. If you can read the rebuttals I gave above and still think Rothbard was a straight-shooter on this topic, man.

You did not really give rebuttals. You gave a couple links that are rather poorly written in terms of basic economic logic, as I explained in detail in my previous posts.

pkowen says

Improvement values are based on very specific calculations. It is called "mass appraisal" and is done in most states. It is a formula based on characteristics such as square footage, construction materials and quality, number of rooms, bedrooms, bathrooms, age, etc. etc. I've been to professional conferences and heard presentations/papers on the subject of "what formula is best, most consistent, fair, etc.".

Perhaps we have different definitions of the word "arbitrary." As we have witnessed in the last few years, real estate price can go up and down by significant amount in a short time span. How exactly do any of those bureaucratic formulae calculate structure value without actual transaction on structure (as separate from land under them)? Just because the bureaucracy assign a tax assessment value doesn't mean it has any relevance to the actual market clearing price for the item . . . just like excise tax on motor vehicles.

Comes to think of it, if those fancy "professional" formulae are so accurate, why don't we have them decide the price of a head of lettuce? a chicken? a piece of 2x4 wood? or a sheet of 4x8 dry wall? Why have market place with changing prices for these products at all? If the fancy formulae can't even reliably tell us the price for the most basic construction material, how can they accurrately tell us the far more complex result of putting thousands of those component pieces together with varying degrees of craftsmanship?

pkowen says

CA Prop 13 created an exception that only resets the value (mass appraisal is automatically recalculated periodically) when there is a transfer of ownership. This results in long time owners having suppressed property valuations, and new buyers often pay many times more.

That's because the government can get away with taxing new owners more as they are on the rising income phase of their lives, so it does. It would be erroneous to think that somehow tax is artificially suppressed on a few long term owners; most residents in an established residential area benefit from Prop-13. Prop-13 is simply a way of getting away with taxing new owners more than can be born by people who already live in an area. If you want to talk about "rent-seeking," monopolistic government bureaucrats are the ultimate Rent seekers. It is only fair to assume that they charge as much as they can get away with (individual benevalence among young and inexperienced bureaucrats not withstanding).

Georgism simply recognizes that the earth / land is more permanent than we are;

Yet, just a few moments later, you were writing about a developer running up the value of his land due to his own improvements (a very accurate assessment, I should add). So it is quite obvious that land value is inseparable from human labor / improvement, contrary to the idealized unicorn idea about "land" as separate from improvements.

that we all take resources from it (water, food, fuel), and in exchange rather than "owning" the land and mineral rights, we "rent" them form the rest of society.

1. If it is renting from the rest of the society, why should the rent be paid to the bureaucrats? instead of say having the benefit paid to the renters through competitive rent reduction? This point was very well understood in the 19th century America: new land was Given to pioneering farmers, instead of being auctioned to them (with proceeds going to the government like today's wireless spectrums), so that farmers would be able to sell farm products to the rest of the society cheaper in the absence of debt to pay the auction proceeds.

2. Any mineral or material that you take from the earth is also made unavailable to others. All material, take for example all iron ore, on this planet is finite. What you take is made unavailable to others. So hold your cell phone in your hand, why do you own it at all? Why do you have private property ownership over any material object at all? Shouldn't you be paying a 100% use value tax on all the material going into your phone? That's the essence of Georgist logic. There is a rebuttal to this logical fallacy, but it requires you to see through the unicorn idea of government bureaucrats representing the society (it's the same as Europeans having to separate paying the Priesthood from paying homage to God before they could come out from under the sway of the monopolistic church).

It reduces "rent seeking" and therefore would lower rents.

That's just completely wrong. Any raise in taxes would raise rent not reducing them. We see that clearly in Prop-13 protected landlords being able to rent to tenants for much lower price than the monthly cost of buying the same house. Rental market is very competitive, but they only compete on the portion of rent that the "landlords" charge, not on the Rent (aka "tax")that their own Landlord the government charges them across board.

There is one scenario where LVT could drive down rent in theory: 100% LVT reducing land rent to zero! so LVT tax is Zero as well. However, that tax-free state of existence probably won't last long before government bureaucrats insist that land has some kind of taxable value even if the transaction value of land is zero as all income from land is taxed at 100%. In any case, both standard Georgist Single-Tax proposal and the bastardized version pushed by people who not even bothering to read him push for the tax on land to go up not to go down, and to go up substantially.

It also has been proposed along with a complete removal of "income" taxes, since income tax takes from the work of your hands and mind - things that are eminently more "yours" than a piece of land you happened to squat on first.

I do not want to come across as legitimizing income tax . . . however, I doubt you'd feel any better if the government takes what you have already owned for a long time instead of taking a cut from your new income. . . especially if you do not have the income means to replace what is to be taken. The "squat" description is silly considering you wrote a few moments later that the developer was increasing his own taxable land value through improvement. Improvement and land are inseparable, which utterly destroys the unicorn idea about land being God-given that started the entire Georgist argument to begin with.

To summarize, Georgism has two fundamental problems:

1. Unlike what many people intuitively feel about the subject, land is not God-given, but intricately intermixed with human effort improving what had been "raw land" (or swamp under water or cliff side before leveling, etc.). It's impossible to separate land value from past improvement even if the house is demolished. Henry George eventually had to re-define Georgist "Land" as "raw land" plus whatever improvements have been made by improvers who have already passed away. Once that point is understood (i.e. read and digested), many wannabe Georgists probably would have second thoughts about the whole Georgist idea.

2. Henry George lived during a time when modern interventionist government was just starting to emerge. People confused "the government" with "the people" or "the society." The rise of even more virulent statist ideologies were soon to follow after Henry George's death. It's a logical fallacy to assume that accruing all economic advantages to the monopolistic government bureaucracy would be beneficial to the society. It is far better off to let Apple and HP own all the material content that go into their electronic devices, and let consumers make choice between them (and among many other competitors), than say requiring all the device makers and owners to pay the government a tax amounting to the entire use value of all the material content . . . despite the fact that all the material and mineral are finite; what you "own" can not be owned by someone else at the same time.

So why is private ownership better than "public" ownership (paying a substantial rent/tax to government is "public" ownership) on limited resources? Because limited resources has to be allocated efficiently . . . and the competitive market process is much more efficient in sending the limited resources to where it is most urgently needed than monopolistic bureaucratic political machination. A far better way to contribute to the society than paying additional taxes is to provide a useful service to other members of the society that the recipient value more than the input factors (i.e. you can turn a profit from providing that service). Taxes only get in the way of this efficient market exchange process. e.g. having a $100 annual "material use tax" on the iPad would only cause the cost of using iPad to go up and hinder the public accessibility to the valuable device; after taking out $90 to feed the bureaucracy, the government may well give the remaining $10 to HP's WebOS tablet despite clear consumer choice in favor of iPad.

Bellingham Bob says

I just look at what we have now and see a very clear cause of some of the poverty around today. Henry George saw the same thing 150 years ago in California's pioneer time, which is why his book is called "Progress and Poverty".

Yet, you refuse to read the book, at least not in detail. Otherwise, you would have noticed that even Henry George ran into the problem of separating land from improvement, and had to draw the arbitrary line that improvements lasting beyond the life of the improver is defined as "Land" in Georgism. i.e. good luck trying to figure out whether the person who did improvement and sold the property to the man who sold you the property is still alive! If you find the guy, will you try to keep him "alive" like "Bernie" in order to prevent tax from going up dramatically? LOL. When put that way, I doubt even you would want to call yourself Georgist.

There are a multitude of issues with community collection of ground rent, leasing vs. owning, etc. I don't pretend to have any answers to these things.

The most straightforward way to benefit the community is actually let the landlord pass the benefit of landownership onto tenants via competitive rent pricing. . . just like the private ownership of material without "material use tax" allow manufacturers compete on the price of their bundled goods, bidding prices downward and making goods and services available to consumers. Almost all raw material that go into manufactured goods are finite on this planet and "God-given," just like the abstract concept "land," and they are inseparably intermixed with human labor "improvement" just like typical rentable houses sitting on improved land.

It's the flows that are the problem now. Maybe a trillion from land (tenants to landowners or bankers). A trillion to the military machine. $600B via the trade deficit. A trillion in rents being taken in the health sector.

These rent-captures are why the top 1% is collecting so much of the national income today, and why a $5T+ total government expense is only employing twenty million people or so.

Then why are you advocating even more concentration of wealth into the hands of the same Rend-seeking monopoly that is called the government, owned and controlled by the ultra rich?

If you want to reduce rent-seeking, the proper solution should be reducing tax and licensing/regulatory burdens, so more new entrants can enter the market and bid prices down and make goods and services more readily available to consumers.

Reality says

Then why are you advocating even more concentration of wealth into the hands of the same Rend-seeking monopoly that is called the government, owned and controlled by the ultra rich?
If you want to reduce rent-seeking, the proper solution should be reducing tax and licensing/regulatory burdens, so more new entrants can enter the market and bid prices down and make goods and services more readily available to consumers.

It seems to me that you are confusing two separate issues:

1. The size of government
2. The proper method of collecting taxes

Given that taxes are necessary to fund the government (whatever the size), the question is what is the best way to collect taxes that will facilitate a healthy economy.

I'm not necessarily a true believer in Georgism like Troy/Bob, but I think the idea is interesting. Your main argument appears to be that it's not perfect (it's difficult to separate land and improvements). This may come as a shock, but no tax plan is perfect. Is it better than the alternatives?

tatupu70 says

It seems to me that you are confusing two separate issues:

1. The size of government
2. The proper method of collecting taxes

Given that taxes are necessary to fund the government (whatever the size), the question is what is the best way to collect taxes that will facilitate a healthy economy.

Be honest, are you really talking about holding total tax amount steady or finding another tax revenue? What will you do with all the IRS agents already trained to collect an entirely different form of tax?

Besides, any substantial LVT would crash land value, and reduce LVT tax value dramatically . . . will you really be content with that? as opposed to then having to bureaucratically assign land value without much reference to market price? leading to chaos in the land market place as many plots would be abandoned due to too high tax just like houses in Detroit and Baltimore.

I'm not necessarily a true believer in Georgism like Troy/Bob, but I think the idea is interesting. Your main argument appears to be that it's not perfect (it's difficult to separate land and improvements). This may come as a shock, but no tax plan is perfect. Is it better than the alternatives?

It's far worse than being imperfect. It's akin to jumping out of the frying pan into the fire itself. Troy/Bob's primary motive has nothing to do with fairness or equitability, but everything to do with the gutteral feeling that his landlord is charging him too much. Heck, he has no qualms about becoming a rent-seeking landlord if only he had the money (I don't think small time landlords really enjoy monopolistic economic Rent, but he does). Talk about amoralistic hypocracy! What I'm trying to point out is that a higher tax on land+house (as any Single Tax to replace other taxes must be) would only drive up rent cost not reducing it. In other words, it would be jumping out of the frying pan into the fire itself!

Just like doctors enjoy a "rent" as licensed practioner, Levvying a special high tax on the income difference between a doctor vs. a minimum wage burger flipper would not reduce the cost of seeing the doctor but only increase it!

Reality says

Besides, any substantial LVT would crash land value

Reality says

What I'm trying to point out is that a higher tax on land+house (as any Single Tax to replace other taxes must be) would only drive up rent cost not reducing it

Which is it?

I'm not sure it would have much effect on rents or home prices. If, as Troy/Bob says, all excess money goes into rents and land values, then it's really the total tax bill that matters. Whether it's income tax or LVT or Fair tax or whatever. It's take home pays that matters.

And you make the same mistake that I see here all the time. Just because Troy would like to profit from the current rules doesn't mean that he wouldn't like them to change. That's not hypocritical.

Reality says

Just like doctors enjoy a "rent" as licensed practioner, Levvying a special high tax on the income difference between a doctor vs. a minimum wage burger flipper would not reduce the cost of seeing the doctor but only increase it!

That's just wrong.

tatupu70 says

Which is it?

Both! Land value would crash as the landlord's after-tax income will decrease after paying the substantial tax . . . and rent will go up as the tenants will have to pay the landlords what will get passed onto the bigger Landlord the government. What do you think a 50% sales tax would do? Merchants would be devastated, and the customers would be paying much more out of pocket. That's what all Taxes do: put a "negative bridge" and "negative railroad" between the two parties.

I'm not sure it would have much effect on rents or home prices. If, as Troy/Bob says, all excess money goes into rents and land values, then it's really the total tax bill that matters. Whether it's income tax or LVT or Fair tax or whatever. It's take home pays that matters.

The assumption is wrong, as usual. Not all excess money go into rents or land values. How else would renters pay for vacations, toys and eventually down payment for houses? Not everyone lives paycheck to paycheck . . . in fact, for the crowd that lives paycheck to paycheck, there's an even stronger rationale for having a landlord when the roof leaks!

LVT as Single Tax would have a huge impact on the value of improvement vs. "land," and the exact impact would depend on how the arbitrary formula is put together in assigning value. It's a fallacy to argue that substantial LVT won't have much of an effect on life and argue that it would be economic positive for producers (as Georgists do) at the same time.

And you make the same mistake that I see here all the time. Just because Troy would like to profit from the current rules doesn't mean that he wouldn't like them to change. That's not hypocritical.

Of course that's hypocritical when he considers what landlords do as immoral. He is not merely making an economic argument against landlords, but also a moral diatribe.

tatupu70 says

Reality says

Just like doctors enjoy a "rent" as licensed practioner, Levvying a special high tax on the income difference between a doctor vs. a minimum wage burger flipper would not reduce the cost of seeing the doctor but only increase it!

That's just wrong.

What's wrong? Is basic economic literacy really that hard to come by nowadays? If sales tax is raised to 50%, do you think merchants would drop price on all merchandise by 50%?

Reality says

Not all excess money go into rents or land values. How else would renters pay for vacations, toys and eventually down payment for houses?

Of course people take vacations and buy toys and save. But the theory is that there is a certain fixed percentage of income that goes towards housing. If you look at housing prices over time-they follow wage inflation pretty closely. Of course it's not exact--but it's a decent rule.

And I see no reason to think that would change just becuase you are shifting where the taxes are coming from.

Reality says

It's a fallacy to argue that substantial LVT won't have much of an effect on life and argue that it would be economic positive for producers (as Georgists do) at the same time.

I think the argument is that it would have a an effect on life--but that it would be a positive one.

I'll get out of the way now. I'm not an expert by any means on this topic.

Reality says

What's wrong? Is basic economic literacy really that hard to come by nowadays? If sales tax is raised to 50%, do you think merchants would drop price on all merchandise by 50%?

No, but you weren't talking about a sales tax.

tatupu70 says

Of course people take vacations and buy toys and save. But the theory is that there is a certain fixed percentage of income that goes towards housing. If you look at housing prices over time-they follow wage inflation pretty closely. Of course it's not exact--but it's a decent rule.

That's certainly not correct. You may be looking at graphs with too coarse granuality. Housing prices are highly dependent on interest rates.

And I see no reason to think that would change just becuase you are shifting where the taxes are coming from.

If you are talking about per centage of income going into housing, that's a function of lending rules. When rules are relaxed, a far higher percentage of income can go into paying for a house, and vice versa.

The majority of homes are owned/mortgaged not rented, therefore the dominant factor in what per centage of income going into housing is dependent on the lending environment. If you are looking at old data or coarse data that give very little space to the last decade, then you would of course see consistency before the past decade as the lending standards had been in place for several decades.

Rent as per centage of income is not at all consistent, either in this country or across different countries.

I think the argument is that it would have a an effect on life--but that it would be a positive one.

Not when the Georgists can't even figure out what "land" is . . . not when they can't even see the consequences on land value their proposed high LVT would have. It's laughable to read someone writing about $5million/acre all long the California coast would retain that high valuation if tax is raised from about $50k/yr to $150k/yr. Open your map, and see for yourself the difference between the towns with 3% property tax rate vs. those with 1% property tax rate. The difference is night and day!

tatupu70 says

No, but you weren't talking about a sales tax.

A substantial LVT is a high sales tax: on the rental service. A substantial tax on the income of the doctor is also a sales tax: on the medical service (which does enjoy some economic Rent in pricing as result of state licensing restricting supply; coupled with government subsidy and insurance, people tend not to shop around as much when they sign up with a doctor vs. house hunting)

Reality says

Perhaps we have different definitions of the word "arbitrary."

Indeed, mine is from a dictionary. Yours is whatever mangled logic it takes to continue your opinionated and confused rants.

Reality says

That's certainly not correct. You may be looking at graphs with too coarse granuality. Housing prices are highly dependent on interest rates.

Actually they are not. If you look at nominal housing prices vs. interest rates, the correlation is very weak to non-existent.

Reality says

A substantial tax on the income of the doctor is also a sales tax: on the medical service

Come on. An income tax is an income tax. A sales tax is a sales tax.

If the government put a tax on every medical procedure or office visit, that would be a sales tax.

pkowen says

Reality says

Perhaps we have different definitions of the word "arbitrary."

Indeed, mine is from a dictionary. Yours is whatever mangled logic it takes to continue your opinionated and confused rants.

No, to me, valuation has to be somewhat reflective of market reality . . . not some number pulled out of some academic's ass because they had a convention somewhere, like in the former Soviet Union.

To me, valuation deviation form market reality is "arbitrary."

tatupu70 says

Actually they are not. If you look at nominal housing prices vs. interest rates, the correlation is very weak to non-existent.

Which time period are you talking about? Are you factoring in real cost of borrowing? (accounting for both inflation and borrower qualification)

tatupu70 says

Come on. An income tax is an income tax. A sales tax is a sales tax.

If the government put a tax on every medical procedure or office visit, that would be a sales tax.

Yes, that's what I meant for the doctor's income from providing licensed medical service over what he'd make if he had gone flipping burgers. The portion of income that enjoys economic Rent. He can go flip burger and generate extra income if he wishes without facing that extra tax.

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Reality says

tatupu70 says

Actually they are not. If you look at nominal housing prices vs. interest rates, the correlation is very weak to non-existent.

Which time period are you talking about? Are you factoring in real cost of borrowing? (accounting for both inflation and borrower qualification)

I'm talking about over 100 years. Nominal housing prices vs. interest rates.

tatupu70 says

I'm talking about over 100 years. Nominal housing prices vs. interest rates.

Like I suspected, the granuality is too coarse. The 100yrs also covered very different market conditions, spanning 3 different monetary regimes, with drastically different inflation rates. 10% nominal interest rate is very high if inflation rate is 0, but very low if inflation rate is 10%

A house (+land) is a capitalized asset, just like any other capitalized asset. The valuation is based on discounting future stream of income. (Expected) Real interest provide the discount rate, and tax affects the magnitude of that income stream.

Reality says

tatupu70 says

I'm talking about over 100 years. Nominal housing prices vs. interest rates.

Like I suspected, the granuality is too coarse. The 100yrs also covered very different market conditions, spanning 3 different monetary regimes, with drastically different inflation rates. 10% nominal interest rate is very high if inflation rate is 0, but very low if inflation rate is 10%

Oh, so the correlation only exists under certain conditions then? That's ridiculous. If interest rates affected prices, you'd be able to tell with the r2 value.

tatupu70 says

Oh, so the correlation only exists under certain conditions then? That's ridiculous. If interest rates affected prices, you'd be able to tell with the r2 value.

Have you ever tried to buy a house? Tell me interest rate doesn't affect your decision on price.

Why do you think GSE's like FNM and FRE exist if interest rate has nothing to do with price?

Reality says

Have you ever tried to buy a house? Tell me interest rate doesn't affect your decision on price.
Why do you think GSE's like FNM and FRE exist if interest rate has nothing to do with price?

Hey-the data doesn't lie. Interest rate effects are in the noise. They are drowned out by the effect of the overall economy.

tatupu70 says

Hey-the data doesn't lie. Interest rate effects are in the noise. They are drowned out by the effect of the overall economy.

Yes they do, when you do not look closely at what the real borrowing cost was during those years.

BTW, just to make sure we are on the same page, by "housing price" you do mean price of buying houses (and land below them), right? Not cost of renting a roof over one's head. Rent is not interest-dependent, and I addressed that separately earlier.

Reality says

Yes they do, when you do not look closely at what the real borrowing cost was during those years.

So, do I have this right? Your position is: data be damned. I say it so it is true.

OK--you win.

tatupu70 says

So, do I have this right? Your position is: data be damned. I say it so it is true.

OK--you win.

Not at all. You have to look closely at what the real meaning of the data is, lest you fall for the old saying "there are lies, damned lies, and statistics."

Reality says

as opposed to then having to bureaucratically assign land value without much reference to market price

An elegant solution to finding the "right" land value tax is just to have public bidding on it for every land sale.

Whoever agrees to pay the highest tax gets the land.

Tax hikes for that owner after the auction are limited in a Prop 13 kind of way, say 2% per year, with very strict re-auctioning required upon the death of the owner (none of this perpetual family tax rate bullshit like we have in CA) or every 10 or 20 years in the case of businesses, which don't necessarily die.

This solution was suggested to me by Ingo Bischoff of the Economic Club of San Francisco.

I like it.

tatupu70 says

. If you look at nominal housing prices vs. interest rates, the correlation is very weak to non-existent.

This is on the macro scale, where interest rate policy is used to dampen wage inflation.

Ceteris paribus -- when wages are otherwise flat -- I fail to see how its controversial to assert that "housing prices are dependent on interest rates".

Of course, complicating things is that rising housing prices become a form of income via home equity extraction.

Here's a chart demonstrating the interest rate - price lock of 2000-2004:

http://research.stlouisfed.org/fred2/graph/?g=1Mi

The blue line is 30 year mortgage rate indexed at 100 on 2000/1/1.

The red line is Case Shiller indexed at 100 on 2000/1/1, inverted (down is higher) and renormalized back to 100 by adding 200.

From 2000-2004 you can see home prices tracking lower interest rates directly.

that was the boom. In 2004-2006, I would argue that we saw the bubble, with negative am, liar loans, and all the other stuff pushing people into the market to get the free money that the 2000-2004 people got.

Interest how the CS index has returned to blue line now. I didn't really expect that, but that does add support to my argument, since real wages are still pretty flat compared to 2000.