[tor]

tom, on 05 July 2010 - 06:07 AM, said:

It is not regressive because you are taxing wealth. Wealthy people pay more tax, how can this be regressive?

But I showed that it doesn't tax wealthy people. It only taxes those that own land and, in that significant proportion of the population, it taxes the wealthy less at the expense of the poorer.

Simply because:

• The wealthy have diversified assets and so avoid the tax inadvertently.
  
• Houses prices are not at the multiples that income is

Proportionally the poorer will have the majority of their wealth tied up in real estate (PPOR) as opposed to the wealthy that have other investments.

The only way this is not true is if the 20% earning 50% of income also own 50% of land (by value).

Therefore this tax, as indicated by my logic above and the example of my personal situation, has the same effect as a regressive tax, meaning that the wealthy have a reduced tax burden and the poor have an increased one.

Until someone can show me how a land tax reduces tax for lower income earners I can only say that logically it does the opposite.

tom, on 05 July 2010 - 06:07 AM, said:

I am not the only one who thinks land tax is a more efficient way to tax people. Ken Henry came to the same conclusion as have many economists before him.

I don't mean to sound harsh but if the followers of those economists are saying we should have it because those economists believe it then that is an appeal to authority and renders your opinion null and void as you are a cheerleader and nothing more.

If you do not understand how to explain it then you are working on faith and, while that may be a fine thing for some, it is not how I like to see big changes implemented.

tom, on 05 July 2010 - 06:07 AM, said:

Politically it does not work well especially in a society where asset values have exploded due to government policy.

That is an excuse not a reason. Arguing to the emotive of "other people are dumb" does not make your argument smart.

tom, on 05 July 2010 - 06:07 AM, said:

As far as efficient utilisation of resources go it is important for allocating capital to land which is the best connected. This is the primary reason I am for land tax.

You have changed the topic from regressive / progressive to efficient allocation of capital. You have incidentally not shown how this is a proven case.

I point out again that, if government tax revenue stays the same I would have to buy 10 houses and keep them empty to have the same tax burden. If I did not do this then people earning less than me would pay part of my current tax load.

If I did do this we would be returning to the age of serfdom as anyone in my situation could also buy 10 properties and easily outbid people on lower incomes as the price of the property would be negligible because of the resulting crash in prices as the land tax removed competitors from the market.

A land tax would benefit me financially to the tune of 10 houses instead of one -OR- because I would be paying about 15% of my current tax. Someone has to pick this up, logically it would be mostly people earning less than me.

ergo it is a "regressive" tax in that it taxes the poor more than the wealthy.

Keep in mind I could remove my entire tax payment by investing in anything except land which would make my tax rate zero.

I only see two potential outcomes.

A monopoly on rentals by the wealthy as each wealthy person owns at least 10 houses, this would concentrate all rental prices into approximately 10% of the population.

-OR-

A radical breakdown of the tax system as every wealthy person avoids paying tax by investing in anything except real estate. Followed quickly by no one wanting to own land because of the massive taxes on ownership.

If you can think of a single hypothetical way in which this would not happen please describe it.

[tom]

tor, on 05 July 2010 - 06:51 AM, said:

But I showed that it doesn't tax wealthy people. It only taxes those that own land and, in that significant proportion of the population, it taxes the wealthy less at the expense of the poorer.

Simply because:

• The wealthy have diversified assets and so avoid the tax inadvertently.
  
• Houses prices are not at the multiples that income is

Proportionally the poorer will have the majority of their wealth tied up in real estate (PPOR) as opposed to the wealthy that have other investments.

The only way this is not true is if the 20% earning 50% of income also own 50% of land (by value).

Therefore this tax, as indicated by my logic above and the example of my personal situation, has the same effect as a regressive tax, meaning that the wealthy have a reduced tax burden and the poor have an increased one.

Until someone can show me how a land tax reduces tax for lower income earners I can only say that logically it does the opposite.

Clearly the wealthy own more expensive homes than the less wealthy. Clearly the 30% who do not own homes at all are less wealthy than those who own homes.

I don't think it matters what your personal situation is, clearly in aggregate people with expensive homes are the wealthiest in society. I don't have a problem with that, only that they should pay for the use of the infrastructure and closeness to CBD's etc that their land gives them. Clearly though those with the most expensive houses are going to tend to be the wealthiest in society, are they not?

On your 20% owning 50% of land, they would go pretty close. We know the top 60% of landowners own 100% of the land in terms of numbers. We know 30% of people are investors who own the 30% of land people who rent live on. So 30% own 60%. I reckon it is not a stretch to say it is likely the top 20% own 50% of land if we know the top 30% own 60% of it?

tor, on 05 July 2010 - 06:51 AM, said:

I don't mean to sound harsh but if the followers of those economists are saying we should have it because those economists believe it then that is an appeal to authority and renders your opinion null and void as you are a cheerleader and nothing more.

If you do not understand how to explain it then you are working on faith and, while that may be a fine thing for some, it is not how I like to see big changes implemented.


That is an excuse not a reason. Arguing to the emotive of "other people are dumb" does not make your argument smart.

All my reasons for liking land tax do stem from the way it encourages allocation of resources but also the fairness in allocating the burden of infrastructure among those who benefit from it i.e. those who own the land recieve the benifit of the infrastructure why should they not pay rent on it.

As I have argued before that someone can own a well connected property near the city and do nothing with it while the government builds roads, rail etc around it and simply profit from this capitalisation makes no sense.

tor, on 05 July 2010 - 06:51 AM, said:

You have changed the topic from regressive / progressive to efficient allocation of capital. You have incidentally not shown how this is a proven case.

I point out again that, if government tax revenue stays the same I would have to buy 10 houses and keep them empty to have the same tax burden. If I did not do this then people earning less than me would pay part of my current tax load.

If I did do this we would be returning to the age of serfdom as anyone in my situation could also buy 10 properties and easily outbid people on lower incomes as the price of the property would be negligible because of the resulting crash in prices as the land tax removed competitors from the market.

A land tax would benefit me financially to the tune of 10 houses instead of one -OR- because I would be paying about 15% of my current tax. Someone has to pick this up, logically it would be mostly people earning less than me.

tor you are one example. As I said it is clear (granted I did not think into this before but thought it was a given) that 30% of the population own 60% of the land.

Don't know how it gets cut beyond that. I imagine the very way land tax is levied now has actually put rich people off owning residential more than they otherwise would be. Our system really favours mum and dad investors over institutional investors and I don't know this is a good thing. Large investors already do not own residential due to the crap yields after taking a 2% hit for land tax.

tor, on 05 July 2010 - 06:51 AM, said:

ergo it is a "regressive" tax in that it taxes the poor more than the wealthy.

Keep in mind I could remove my entire tax payment by investing in anything except land which would make my tax rate zero.

This is a similar straw man argument you are so despondent about. Land tax is only a tax on infrastructure for land. No one says that land tax should pay for all welfare, defence, health etc. It is always in a developed country going to be part of a greater tax regime. I am not against the cutrrent rate of around 2% in most states, it is that PPOR's and mum and dad investors are expempt that puzzles me.

tor, on 05 July 2010 - 06:51 AM, said:

I only see two potential outcomes.

A monopoly on rentals by the wealthy as each wealthy person owns at least 10 houses, this would concentrate all rental prices into approximately 10% of the population.

-OR-

A radical breakdown of the tax system as every wealthy person avoids paying tax by investing in anything except real estate. Followed quickly by no one wanting to own land because of the massive taxes on ownership.

If you can think of a single hypothetical way in which this would not happen please describe it.

It is a tax that makes them pay a fair burden on infrastructure. Of course it reduces the value of land substantially I don't disagre but iot does not make it zero. If you taxed land for everything the government did of course no one would own land but this is not the idea of land tax.

The idea of it is to encourage capitalisation on the right land and make people pay for the benifit they receive. Ultimately infrastructure is funded by income tax and company tax it then is built and increases the value of land which is held in private hands. The companies and individuals who rent that land after paying income tax to have the infrastructure built then pay higher rents! How is that fair. Sure they should pay higher rents but why should it go to the owner rather than the gov? Ultimately this means some income tax relief of course.

A 2% land tax on some residential property would cause a massive crash. Commercial already has a land tax on it anyway so no effect at all there it will purely be in residential where for some reason the government has said infrastructure to resi should be paid in general revenue rather than by those who benefit from it. The system already works on commercial real estate and its not like the rich don't own any of that? They certainly have not left it in droves anyway.

Edit: I should add a 2% land tax in resi would cause a massive crash, I suppose that is why Henry suggests a 1% land tax at first, no doubt to be ramped up to 2% down the line to bring it into line with the land tax people pay if they own millions in property.

The likely effect on value would be seen through the reduction in yield. So on 5% yield a 1% land tax on 50% of the properties worth i.e. land component is about 10% reduction in the value of the land to an investor.

[Bernard L. Madoff]

How and where does high taxes equal infratructure? I suggest you drive a Swiss (avge 16%) or UAE (0%) motorway or check out the port in Hong Kong (max 15%) or Singapore (max 20%).

[tom]

Bernard L. Madoff, on 05 July 2010 - 08:14 AM, said:

How and where does high taxes equal infratructure? I suggest you drive a Swiss (avge 16%) or UAE (0%) motorway or check out the port in Hong Kong (max 15%) or Singapore (max 20%).

It doesn't investment in infrastructure leads to lots of infrastructure. If your economy can invest without taxing its populace because it has either good utilisation of infrastructure or is wealthy from other government pursuits than all the better.

It is land tax that drives the utilisation of infrastructure. Without it their is no drive to develop the right land. With it it forces capitalisation of land sufficiently to match the land value. Units will be built on expensive land and farms on the cheapest land. Basically intense land use should be on the most expensive land.

The places you mention do have land tax it would seem:

Switzerland:

Looking specifically at switzerland it appears they have a property tax of 0.5% but this is on all of an individuals wealth. I don't think this is as good as a land tax as it does not drive investment of the land. i.e. their is no drive to say look I am paying $50,000pa on this multimillion dollar block of land and derive no income from it if I build high rise units I still pay $50,000.00 but receive good yield. You do not want to tax the same on capitalised land as uncapitalised this is part of the beuty of land tax it drives capitalisation of the best connected land.

Hong Kong:

Generate 35% of their state income from taxing land. This allows them to keep income taxes lower than they otherwise would be.

http://www.hkdf.org/...func=show&pr=24

UAE:

Cannot find anything on them as yet...

[tor]

tom, on 05 July 2010 - 08:04 AM, said:

Clearly the wealthy own more expensive homes than the less wealthy. Clearly the 30% who do not own homes at all are less wealthy than those who own homes.

I am not sure about the "clearly", as I pointed out out the magnitude of difference between incomes and house values is disparate. There are more people earning 5 times the average wage than the are people living in houses worth 5 times the average house. Therefore a land tax on value means lower income people have to pay more of the tax burden. Whether this is good or bad for society doesn't matter, it makes it functionally a regressive tax.

tom, on 05 July 2010 - 08:04 AM, said:

I don't think it matters what your personal situation is, clearly in aggregate people with expensive homes are the wealthiest in society. I don't have a problem with that, only that they should pay for the use of the infrastructure and closeness to CBD's etc that their land gives them. Clearly though those with the most expensive houses are going to tend to be the wealthiest in society, are they not?

Again with the "clearly" when there is a concrete example opposing the "clearly". I am fairly sure I rank in the higher percentiles of income to the order of a magnitude from average wage. Yet my house is not much more than 50% from the median. That is _clearly_ against your clearly and mine is fact, your is hypothetical.

The wealthy people in society are not trying to get rich through capital gains of a single asset, they have their own things going on, most of which (in my experience) are diversified.

And it does matter what my personal situation is because otherwise, without numbers, you are talking hypothetical and I am talking reality. Albeit a reality of one but one real person beats any number of hypotheticals.

The thing to keep very very clear is that an expensive home can only be measured as a percentage of income in this context. In my case my house cost about 2x salary. For many people it would be consider slightly expensive but for me it is not.


You need to show (to keep thing equal, let alone progressive) that the wealthy have real estate ownership which higher as a multiple than their income.

If you cannot show that then the tax becomes regressive obviously. Not clearly. Obviously. It is a simple mathematical fact I think.

(anyone knowing my math is bad here pipe up).

tom, on 05 July 2010 - 08:04 AM, said:

On your 20% owning 50% of land, they would go pretty close. We know the top 60% of landowners own 100% of the land in terms of numbers. We know 30% of people are investors who own the 30% of land people who rent live on. So 30% own 60%. I reckon it is not a stretch to say it is likely the top 20% own 50% of land if we know the top 30% own 60% of it?

Um. How can 60% of landowners own all the land. I assume a typo and you will clarify.

tom, on 05 July 2010 - 08:04 AM, said:

All my reasons for liking land tax do stem from the way it encourages allocation of resources but also the fairness in allocating the burden of infrastructure among those who benefit from it i.e. those who own the land recieve the benifit of the infrastructure why should they not pay rent on it.

As I have argued before that someone can own a well connected property near the city and do nothing with it while the government builds roads, rail etc around it and simply profit from this capitalisation makes no sense.

If those people are paying the high levels of tax why shouldn't the government try to make them happy?

I pay, roughly speaking, 4 times the average income in tax. I would suppose that the government would like me to stay in this country and continue doing the stuff I do. If people like me tended to congregate in housing areas wouldn't you, as a government, want to make me happy?

That is of course a stupid answer (which I suspect is true to a certain level).

More realistically do you not think that what you are describing is happening? Do you see much infrastructure going in for the poorer areas? I don't and I suspect it is because people that pay similar tax rates tend to group together (not through choice just economics) and the government also realises / gets bribed / is friends with / lives in the same area as the areas that receive the infrastructure.

In other words they already paid for it. How many cheap areas full of low income non tax paying people ever got a new train line to boost their prices? Show me a few and I will show you a suburb of rich people that stood to gain from it.

tom, on 05 July 2010 - 08:04 AM, said:

tor you are one example. As I said it is clear (granted I did not think into this before but thought it was a given) that 30% of the population own 60% of the land.

I would genuinely like to see how this is "clear", I also point out you don't have a counter example. If there is only one example and nothing else then that example is probably close to reality.

tom, on 05 July 2010 - 08:04 AM, said:

Don't know how it gets cut beyond that. I imagine the very way land tax is levied now has actually put rich people off owning residential more than they otherwise would be. Our system really favours mum and dad investors over institutional investors and I don't know this is a good thing. Large investors already do not own residential due to the crap yields after taking a 2% hit for land tax.

Oh I don't think the land tax is putting them off. The pretty clear bubble with it's drastic consequences has probably put off the medium range people but the ones with smart advisors have said "residential investment is a job for life as a caretaker unless you hire a caretaker and they cost $X"

Some of the others probably just wondered why if banks would lend cash for an investment and nto do it themselves it could possibly be a good investment.

tom, on 05 July 2010 - 08:04 AM, said:

This is a similar straw man argument you are so despondent about. Land tax is only a tax on infrastructure for land. No one says that land tax should pay for all welfare, defence, health etc. It is always in a developed country going to be part of a greater tax regime. I am not against the cutrrent rate of around 2% in most states, it is that PPOR's and mum and dad investors are expempt that puzzles me.

Oh lord. You see the bit where I said it was the extreme? Yeah. Work out a possible way in which that extreme is not a straight line. If the extreme goes to this point and it is a straight line to that point then therefore any other pont on that line is just a reduction of the extreme.

i.e. If total land tax means high income earners can avoid tax completely / buy all the property in the world find a point where it does not happen a little bit. If you cannot it is punishing the low income earners.

tom, on 05 July 2010 - 08:04 AM, said:

It is a tax that makes them pay a fair burden on infrastructure. Of course it reduces the value of land substantially I don't disagre but iot does not make it zero. If you taxed land for everything the government did of course no one would own land but this is not the idea of land tax.

The idea of it is to encourage capitalisation on the right land and make people pay for the benifit they receive. Ultimately infrastructure is funded by income tax and company tax it then is built and increases the value of land which is held in private hands. The companies and individuals who rent that land after paying income tax to have the infrastructure built then pay higher rents! How is that fair. Sure they should pay higher rents but why should it go to the owner rather than the gov? Ultimately this means some income tax relief of course.

A 2% land tax on some residential property would cause a massive crash. Commercial already has a land tax on it anyway so no effect at all there it will purely be in residential where for some reason the government has said infrastructure to resi should be paid in general revenue rather than by those who benefit from it. The system already works on commercial real estate and its not like the rich don't own any of that? They certainly have not left it in droves anyway.

Edit: I should add a 2% land tax in resi would cause a massive crash, I suppose that is why Henry suggests a 1% land tax at first, no doubt to be ramped up to 2% down the line to bring it into line with the land tax people pay if they own millions in property.

The likely effect on value would be seen through the reduction in yield. So on 5% yield a 1% land tax on 50% of the properties worth i.e. land component is about 10% reduction in the value of the land to an investor.

Like I said earlier, you could invest 200K per year into my house in infrastructure and still make a profit out of me. If it was a neighborhood of 6 me's then you could put a million in for 6 of us and come out 200K up front.

Has there _ever_ been an infrastructure build that is even remotely on that order?

Where did I make money again?

[tom]

tor, on 05 July 2010 - 08:59 AM, said:

I am not sure about the "clearly", as I pointed out out the magnitude of difference between incomes and house values is disparate. There are more people earning 5 times the average wage than the are people living in houses worth 5 times the average house. Therefore a land tax on value means lower income people have to pay more of the tax burden. Whether this is good or bad for society doesn't matter, it makes it functionally a regressive tax.


Again with the "clearly" when there is a concrete example opposing the "clearly". I am fairly sure I rank in the higher percentiles of income to the order of a magnitude from average wage. Yet my house is not much more than 50% from the median. That is _clearly_ against your clearly and mine is fact, your is hypothetical.

The wealthy people in society are not trying to get rich through capital gains of a single asset, they have their own things going on, most of which (in my experience) are diversified.

And it does matter what my personal situation is because otherwise, without numbers, you are talking hypothetical and I am talking reality. Albeit a reality of one but one real person beats any number of hypotheticals.

The thing to keep very very clear is that an expensive home can only be measured as a percentage of income in this context. In my case my house cost about 2x salary. For many people it would be consider slightly expensive but for me it is not.


You need to show (to keep thing equal, let alone progressive) that the wealthy have real estate ownership which higher as a multiple than their income.

If you cannot show that then the tax becomes regressive obviously. Not clearly. Obviously. It is a simple mathematical fact I think.

(anyone knowing my math is bad here pipe up).

It is not your math it is your definitions. While you may be less progressive that the income tax model it is still not a regressive tax. While I think we both understand a wealth tax is not normally associated with being regressive or progressive I think it is pretty well a given wealth taxes will tax higher income earners more than lower even if it is a flat rate on wealth.

To say otherwise is to say our highest nett earning individuals do not have the most assets. Now it is possible they tend to own property less frequently but surely you do not argue that high levels of wealth are not associated with high incomes? and if you accept this than high income people own more expensive land than low income people.

I will concede it will be difficult to detirmine which is more progressive the closest I can do is to say in 1997 ABS tells us 500k income units owned investment properties. So at that time 30% of the housing stock (the 1/3 we know rent) was owned by 500k income units.

Nonetheless as far as being regressive it cannot be.

tor, on 05 July 2010 - 08:59 AM, said:

Um. How can 60% of landowners own all the land. I assume a typo and you will clarify.

I made a mistake I took the 1/3 of homeowners who rent out, i.e. 1/3 of homes are rented and meant to say 60% of households own 100% of the properties. oops.

tor, on 05 July 2010 - 08:59 AM, said:

If those people are paying the high levels of tax why shouldn't the government try to make them happy?

I pay, roughly speaking, 4 times the average income in tax. I would suppose that the government would like me to stay in this country and continue doing the stuff I do. If people like me tended to congregate in housing areas wouldn't you, as a government, want to make me happy?

That is of course a stupid answer (which I suspect is true to a certain level).

More realistically do you not think that what you are describing is happening? Do you see much infrastructure going in for the poorer areas? I don't and I suspect it is because people that pay similar tax rates tend to group together (not through choice just economics) and the government also realises / gets bribed / is friends with / lives in the same area as the areas that receive the infrastructure.

In other words they already paid for it. How many cheap areas full of low income non tax paying people ever got a new train line to boost their prices? Show me a few and I will show you a suburb of rich people that stood to gain from it.

Agree the government tends to put in the infrastructure into the richer areas. I have no problem there but wouldn't it be better they actually taxed the beneficiaries of the infrastructure rather than companies and income earners. Sure 60% of income earners own anyway, but why nto tax the actual beneficiaries by the amount they benifit.

Why argue that they should tax based on income because largely it correlates with teh richer areas in stead of just taxing the richer areas directly more for their share of infrastructure. It would seem you argue the same thing yet in an indirect way, i.e. they pay more tax so build em more stuff. What about the person like yourself who owns out from the city and does not get the benifit of the masses of infrastructure and train connections and living on the cities doorstep and yet charge you the same as say a mirror of yourself on your income who lives on a 50hectare block of land in Glebe, which saps masses of infrastructure and amenitiy away from the community and yet is tax exempt. i.e. the gov just keeps building trains and light rails cause it has to for surrounding homes putting up the value of this block and yet the user can use it as their PPOR with no cost at all.

tor, on 05 July 2010 - 08:59 AM, said:

I would genuinely like to see how this is "clear", I also point out you don't have a counter example. If there is only one example and nothing else then that example is probably close to reality.

A coutner example is any wealthy person who owns more than one home? They would tend to be higher income people surely? Could you argue against this with your one example of yourself, i.e. higher income people have a higher tendance to own land? I think your disagreement is on the rate of progression not that it is actually regressive after reading this post of yours, i.e. do you agree that it is progressive, just less progressive than our current income model cause if this is what you mean I would probably agree. That it is regressive I wount not. That it is a regression from the current model sure.

tor, on 05 July 2010 - 08:59 AM, said:

Oh I don't think the land tax is putting them off. The pretty clear bubble with it's drastic consequences has probably put off the medium range people but the ones with smart advisors have said "residential investment is a job for life as a caretaker unless you hire a caretaker and they cost $X"

Some of the others probably just wondered why if banks would lend cash for an investment and nto do it themselves it could possibly be a good investment.

No one who is wealthy owns masses of residential RE because it has a 2% land tax on it when you own over 1million of land. WIth a yield of 5%, this leaves them with 3% yield. Even sommersofties buy in different states to avoid this because residential RE does not work as an investment if you are payign teh 2% land tax. Commercial and Industrial has it priced in hence the 8 to 10% yields.

tor, on 05 July 2010 - 08:59 AM, said:

Oh lord. You see the bit where I said it was the extreme? Yeah. Work out a possible way in which that extreme is not a straight line. If the extreme goes to this point and it is a straight line to that point then therefore any other pont on that line is just a reduction of the extreme.

i.e. If total land tax means high income earners can avoid tax completely / buy all the property in the world find a point where it does not happen a little bit. If you cannot it is punishing the low income earners.

OK so you were demonstrated which is more progressive by taking it to the extreme. No worries perhaps you are right it is not as progressive as teh current income tax regime but I am sure it si progressive.

tor, on 05 July 2010 - 08:59 AM, said:

Like I said earlier, you could invest 200K per year into my house in infrastructure and still make a profit out of me. If it was a neighborhood of 6 me's then you could put a million in for 6 of us and come out 200K up front.

Has there _ever_ been an infrastructure build that is even remotely on that order?

Where did I make money again?

This is the whole problem. Say there is you and tor2. tor2 owns a house in Double Bay on a 3000sq.m block. tor 2 has a mass of infrastructure and amenity from being this close to the city who probably does use a fair chunk of that 200k per annum or at least the opportunity cost of using his block in such a limited way, i.e. one household this close to the city is costing a lot per annum, maybe not 200k but quite a lot more than your own block in suburbia costs the government in infrastructure. Land value tends to reflect a blocks amenity the very reason land tax is a neat way to tax that amenity. i.e. you get taxed to pay for the infrastructure you take.



Now all of thsi is not even why I like the bloody thing.

Of course that is to drive investment of high value land which is currently used as PPOR's but shoudl be carved up or further capitalised. It si to use the infrastructure we have more efficiently. We talk about urban consolidation but the answer was never to just stop new development. We needed a market mechanism to drive thsi investment and land tax is it. YOu will not want to own that double bay block if it is user pays, or maybe you will but that fine cause you are payign for it anyway.

[tor]

tom, on 05 July 2010 - 12:46 PM, said:

i.e. do you agree that it is progressive, just less progressive than our current income model cause if this is what you mean I would probably agree...

...OK so you were demonstrated which is more progressive by taking it to the extreme. No worries perhaps you are right it is not as progressive as teh current income tax regime but I am sure it si progressive...

That sounds fair enough. A less progressive tax seems like a bad idea to me. It may be more "fair" on the surface and I am sure that it could be marketed to the people it negatively impacts if they don't think it through but moving the tax load from the higher income people to the lower income doesn't seem particularly good really.

The ability to avoid the tax completely means it has to be small enough that no one cares in which case why bother?

tom, on 05 July 2010 - 12:46 PM, said:

This is the whole problem. Say there is you and tor2. tor2 owns a house in Double Bay on a 3000sq.m block. tor 2 has a mass of infrastructure and amenity from being this close to the city who probably does use a fair chunk of that 200k per annum or at least the opportunity cost of using his block in such a limited way, i.e. one household this close to the city is costing a lot per annum, maybe not 200k but quite a lot more than your own block in suburbia costs the government in infrastructure. Land value tends to reflect a blocks amenity the very reason land tax is a neat way to tax that amenity. i.e. you get taxed to pay for the infrastructure you take.

Like I say, on the surface it seems fairer. However you have given me a tax exemption by using less infrastructure and someone else is going to have pick up that missing revenue. I wonder what the difference in infrastructure costs are, I wouldn't be surprised if I cost more for a lot of stuff.

This is actually the thing I find most amusing about the proponents of land tax. They tend to be the people that are going to have to pay more tax. If one of them said "I think the current system is unfair because you, tor, are paying too much tax and the rest of us would rather pick up the load for you" it would at least show they have thought through the basics of the deal. I doubt they would get much support at that point. Simply because I reckon that when the math is done there are more people on X multiples of average tax than there are people with the same X multiples of real estate.

tom, on 05 July 2010 - 12:46 PM, said:

Now all of thsi is not even why I like the bloody thing.

Of course that is to drive investment of high value land which is currently used as PPOR's but shoudl be carved up or further capitalised. It si to use the infrastructure we have more efficiently. We talk about urban consolidation but the answer was never to just stop new development. We needed a market mechanism to drive thsi investment and land tax is it. YOu will not want to own that double bay block if it is user pays, or maybe you will but that fine cause you are payign for it anyway.

Like I say if we switch 100% to land tax from income tax I would have to buy 10 times the value of my current house to have the same tax burden. If the double bay block is worth less than ten times my current house then a land tax means I can have it and a tax reduction. For any percentage switch from income tax to land tax just change the 10 times bit accordingly.

No matter what level of replacement you choose there will be an income level above which benefits and below which loses out.

It might be a "fairer" way of allocating houses to people but it is going to cost the populace a lot for that fairness.

[urchin]

tor, on 05 July 2010 - 03:55 AM, said:

Bad choice. Neither option solves the problem.

maybe it is a magic cat.

[tom]

tor, on 05 July 2010 - 06:18 PM, said:

Like I say if we switch 100% to land tax from income tax I would have to buy 10 times the value of my current house to have the same tax burden. If the double bay block is worth less than ten times my current house then a land tax means I can have it and a tax reduction. For any percentage switch from income tax to land tax just change the 10 times bit accordingly.

No matter what level of replacement you choose there will be an income level above which benefits and below which loses out.

It might be a "fairer" way of allocating houses to people but it is going to cost the populace a lot for that fairness.

The main taxes I reckon should be axed are not income tax but actually transaction land tax and levies on new construction.

I was reading in the local rag yesterday an add for landcom the WA developer claiming how important the most recent industrial development of land was. It is true industrial development is crucial to employment and prosperity, i.e. the cheaper this land is the general rule is the higher real wages can be in this country. What we seem to forget however that we can strive for the highest real wages we like but if we then have to sink vast sums into a home than they are not really high real wages at all. They just appear to be on the surface, but if you spend half your real wages on a house how are they real?

Anyway so long as renting represents reasonable value I will continue doing that. My concern is that without a bursting of the bubble it is possible over time with the governments stranglehold over residential land release rents will increase in real terms. Developers don't give a stuff about what they develop industrial, commercial or residential but look at the value your can get in either of the former two compared to the third! Industrial and Commercial is sacred in the governments books enough must be provided for business to prosper and yet a completely different approach is taken in residential and it is reflected in prices!

I am not worried about Perth anyway, nor Brisbane nor even Melbourne I think all of those states are heading for a correction anyway with land release ramping up at the worst possible time as far as a correction goes. It is Sydney that worries me however where their is talk of a new urban consolidation plan right from the top when they have never had their building boom while prices have reached a stratospheric level.

[gibber_blot]

tor, on 05 July 2010 - 05:07 AM, said:

The terms may not strictly apply but, if I was correct with my estimates, it would achieve exactly the same thing as a regressive tax correct?

How much land would the bottom 25% of income earners own? If it is 25% or less, then land tax cannot be regressive.

tor, on 05 July 2010 - 05:07 AM, said:

The only way it wouldn't is if the 20% of income earners that get the 50% of income own 50% of the land. The 20% earning 50% is from memory and may be wrong but I suspect it is fairly close.

I think one would find that land tax with respect to income would be progressive up to a certain wage, then regressive the rest of the way up.

tor, on 05 July 2010 - 05:07 AM, said:

As I have shown before in other discussions about land tax where the proposal was a removal of income tax to be replaced by land tax it would put me in the situation where I would have to buy something silly like 10 houses before I hit the same tax load as under the current system. I could not afford to do that now under any loan structure.

That's only because your proportion of land held to income earned is less than the average. An aggregate, the proportion must balance exactly. In my experience. the upper middle class hold a higher proportion of land to income (although I know very few multi-millionaires, so I'm not sure about this), so they would be the one paying the extra tax. The value of the land they hold is increasing while the entire of society builds new infrastructure around them, so it seems reasonable that we should tax this value, rather than tax the people who develop the infrastructure.

This post has been edited by gibber_blot: 06 July 2010 - 03:58 AM

[gibber_blot]

tor, on 05 July 2010 - 06:18 PM, said:

This is actually the thing I find most amusing about the proponents of land tax. They tend to be the people that are going to have to pay more tax. If one of them said "I think the current system is unfair because you, tor, are paying too much tax and the rest of us would rather pick up the load for you" it would at least show they have thought through the basics of the deal. I doubt they would get much support at that point. Simply because I reckon that when the math is done there are more people on X multiples of average tax than there are people with the same X multiples of real estate.

The point of land tax is that it encourages production over speculation. The idea is that everyone who produces more than they consume in land is better off. Everyone who speculates on land more than they produce is worse off, so has to actually do something productive to make a living. This means more people producing (and those already producing are encouraged to produce more), which is beneficial to everyone, except those who did not produce before.

And don't forget the fact that we are importing funds from overseas to Australia just to pay for land speculation. Higher land tax would curb land speculation so we wouldn't need to borrow this amount from overseas.

[Sean]

Bernard L. Madoff, on 04 July 2010 - 08:22 AM, said:

Its Eurosocialism, take a bucket of water from the shallow end of the pool walk to the other end and throw it in the deep end and proclaim that the water level is rising in the deep end whilst jounos photograph and record your musings during the symbolic pour.

Common thoughts amongst folk in the deep end who can't be arsed doing what it takes to get to the shallow end. Views that get more popular based on the public profile of a minority few basking in the shallows that got there through good genes, luck, guile, lies or cheating. Views that totally ignore those that got there through risk, hard work or are rewarded for demanding and/or critical duties in the pool.

Funnily enough, Bill Gates' dad, a prominent Washington lawyer (and I think he stumped up the cash that let Bill buy DOS from the guy who actually wrote it, and then flipped it to IBM on a per copy basis), wrote a book not long ago critiquing that very view, arguing that property laws protect accumulators too much.

This post has been edited by Sean: 08 July 2010 - 12:02 AM

[Bernard L. Madoff]

Have you read Aesop's fable of the ant and grasshopper?

[tor]

Bernard L. Madoff, on 08 July 2010 - 03:35 AM, said:

Have you read Aesop's fable of the ant and grasshopper?

I have and must confess you lost me with the reference. How do you see the connection?

I have one interpretation but it could come across as mean so I will let you go first

[Bernard L. Madoff]

From a last life:

CLASSIC VERSION:

The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter. The grasshopper thinks he's a fool, and laughs and dances and plays the summer away. Come winter, the ant is warm and well fed. The shivering grasshopper has no food or shelter, so he dies out in the cold.


THE CANADIAN MODERN VERSION:

The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter. The grasshopper thinks he's a fool and laughs, dances and plays the summer away. Come winter, the ant is warm and well fed.

The shivering grasshopper calls a press conference and demands to know why the ant should be allowed to be warm and well fed while others less fortunate like him are cold and starving.

CBC shows up to provide live coverage of the shivering grasshopper, with cuts to a video of the ant in his comfortable warm home with a table filled with food.

Canadians are stunned that in a country of such wealth, this poor grasshopper is allowed to suffer while others have plenty. The NDP, the CAW and the Coalition Against Poverty demonstrate in front of the ant's house. The CBC, interrupting an Inuit cultural festival special from Nunavut with breaking news, broadcasts them singing, "We Shall Overcome."

Exiled Svend Robinson rants in an interview with Pamela Wallin that the ant has gotten rich off the backs of grasshoppers, and calls for an immediate tax hike on the ant to make him pay his "fair share." In response to polls, the Liberal Government drafts the Economic Equity and Grasshopper Anti-Discrimination Act, retroactive to the beginning of the summer.

The ant's taxes are reassessed and he is also fined for failing to hire grasshoppers as helpers. Without enough money to pay both the fine and his newly imposed retroactive taxes, his home is confiscated by the government. The ant moves to the U.S. and starts a successful agribiz company.

The CBC later shows the now fat grasshopper finishing up the last of the ant's food though Spring is still months away, while the Government house he is in (which just happens to be the ant's old house) crumbles around him because he hadn't maintained it.

Inadequate government funding is blamed, and Roy Romanow is appointed to head a commission of enquiry that will cost $10,000,000. The grasshopper is soon dead of a drug overdose, and the Toronto Star blames it on obvious failure of government to address the root causes of despair arising from social inequity.

The abandoned house is taken over by a gang of immigrant spiders who are praised by the government for enriching Canada's multicultural diversity. The spiders promptly terrorize the community.


THE AMERICAN MODERN VERSION:

The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter. The grasshopper thinks he's a fool, and laughs and dances and plays the summer away. Come winter, the shivering grasshopper calls a press conference and demands to know why the ant should be allowed to be warm and well fed while others less fortunate are cold and starving.

CBS, NBC and ABC show up to provide pictures of the shivering grasshopper next to a video of the ant in his comfortable home with a table filled with food.

America is stunned by the sharp contrast. How can this be, that in a country of such wealth, this poor grasshopper is allowed to suffer so?

Kermit, the Frog, appears on Oprah with the grasshopper, and everybody cries when they sing "It's Not Easy Being Green."

Jesse Jackson stages a demonstration in front of the ant's house, where the news stations film the group singing "We Shall Overcome."

Al Gore exclaims in an interview with Peter Jennings that the ant has gotten rich off the back of the grasshopper, and calls for an immediate tax hike on the ant to make him pay his "fair share".

Finally, the EEOC drafts the Economic Equity and Anti-Grasshopper Act, retroactive to the beginning of the summer.

The ant is fined for failing to hire a proportionate number of green bugs and, having nothing left to pay his retroactive taxes, his home is confiscated by the government.

Hillary Clinton gets her old law firm to represent the grasshopper in a defamation suit against the ant, and the case is tried before a panel of federal judges that Bill Clinton appointed from a list of single-parent welfare recipients. The ant loses the case.

The story ends as we see the grasshopper finishing up the last bits of the ant's food while the government house he is in, which just happens to be the ant's old house, crumbles around him because he doesn't maintain it.
The ant has disappeared in the snow.

The grasshopper is found dead in a drug related incident and the house, now abandoned, is taken over by a gang of spiders who terrorize the once-peaceful neighborhood.

[tom]

I cannot see how taxing land based on its value is anything like taxing income. Income is derived from work. Taxing land is really the landowner paying for his share of the surrounding infrastructure. As more infrastructure is built and the value of the land increases, is it not fair the landowner pays for the extra rent received or the extra value wrapped up in this land?

Why should the infrastructure be given for free to the ant? The ant with the largest land holdings with the least improvements has the most to gain? An ant who wants to capitalise on the land and build multiple houses or commercial premises or industrial factories does not mind the land tax as it will be only a small portion of the income generated, and as a result of the tax the lands purchase price is less and he who does the most with the land wins rather than he who has the most land.

It would seem to me the ant is claiming an entitlement to something just because it has always been so. I am sure the ant in the storey built his own tunnel etc the government did not build this for him with his dwelling at the real estate at the end of the tunnel being his. If the governmetn built say the tunnel why should it not charge rent on this tunnel?

You can give me examples of some people who pay enough tax to cover this sure, but how is moving to a user pays system going to be more unfair than the present system? Just because it has always been a government pays and landowner receives situation to date why is changing that to user pays unfair?

It would seem to me to be a perceived entitlement on the ants behalf to something which is not his? Very different to the income generated from work done.

[wulfgar]

tom, on 05 July 2010 - 08:04 AM, said:

A 2% land tax on some residential property would cause a massive crash. Commercial already has a land tax on it anyway so no effect at all there it will purely be in residential where for some reason the government has said infrastructure to resi should be paid in general revenue rather than by those who benefit from it. The system already works on commercial real estate and its not like the rich don't own any of that? They certainly have not left it in droves anyway.

Edit: I should add a 2% land tax in resi would cause a massive crash, I suppose that is why Henry suggests a 1% land tax at first, no doubt to be ramped up to 2% down the line to bring it into line with the land tax people pay if they own millions in property.

You're barking up the wrong tree Tom. At best the only thing you can tax is the earning capacity of the property. You'd have to figure out the assigned rental and tax that.

Because while governments print money from thin air the face value is misleading.

A 2% tax would be more than $10,000 on the median house. The median income is in reality only 50k per year for all workers.

So you've already instituted at least a 20% annual tax on the income of the single family income, let alone all the other taxes they pay.

Did you work this one out?

Face facts, Henry George conceived of a tax system that belonged in the middle ages when land was the major source of wealth. He was too stiff to notice that capital had become the new wealth long before.

You can only tax that which earns an income, otherwise you'll send the world back into the dark ages. The Roman Empire found that out when it was too late. Small land owning farmers were simply taxed out of existence. They either went Robin Hood or sold themselves into the serfdom of rich magnates that had the clout to escape tax.

The Visigoth army that surrounded Rome in the last days was actually half Roman Robin Hoods. 10,000 of the Roman army deserted to join the Visisgoths in assaulting Rome itself.

They got rid of Rome because nobody could afford its taxes.

This post has been edited by wulfgar: 08 July 2010 - 04:19 AM

[tor]

tom, on 08 July 2010 - 04:15 AM, said:

I cannot see how taxing land based on its value is anything like taxing income. Income is derived from work. Taxing land is really the landowner paying for his share of the surrounding infrastructure. As more infrastructure is built and the value of the land increases, is it not fair the landowner pays for the extra rent received or the extra value wrapped up in this land?

Why should the infrastructure be given for free to the ant? The ant with the largest land holdings with the least improvements has the most to gain? An ant who wants to capitalise on the land and build multiple houses or commercial premises or industrial factories does not mind the land tax as it will be only a small portion of the income generated, and as a result of the tax the lands purchase price is less and he who does the most with the land wins rather than he who has the most land.

It would seem to me the ant is claiming an entitlement to something just because it has always been so. I am sure the ant in the storey built his own tunnel etc the government did not build this for him with his dwelling at the real estate at the end of the tunnel being his. If the governmetn built say the tunnel why should it not charge rent on this tunnel?

You can give me examples of some people who pay enough tax to cover this sure, but how is moving to a user pays system going to be more unfair than the present system? Just because it has always been a government pays and landowner receives situation to date why is changing that to user pays unfair?

It would seem to me to be a perceived entitlement on the ants behalf to something which is not his? Very different to the income generated from work done.

So there would be a different tax for land that has new infrastructure built around it as opposed to land where the existing infrastructure is just maintained and even less if the infrastructure was allowed to slowly fall apart?

[tom]

tor, on 08 July 2010 - 04:56 AM, said:

So there would be a different tax for land that has new infrastructure built around it as opposed to land where the existing infrastructure is just maintained and even less if the infrastructure was allowed to slowly fall apart?

tor, lands value already relates back to its proximity to commercial and industrial land as well as the infrastructure built around it. If the infrastructure is falling apart the value drops.

This is why it has to be on the value of the land.

I agree there will be some land unfairly penalised like water views and the like. It is not perfect but having people pay for that which is not theirs makes more sense than saying to some people you must pay for the surrounding infrastructure but to others you do not have to. This is the current situation in most of our states. Commercial and Industrial pays as well as people with large holdings of residential land. PPOR's and mum and dad (i.e. small time) investors are exempt or pay very little.

[tom]

wulfgar, on 08 July 2010 - 04:18 AM, said:

You're barking up the wrong tree Tom. At best the only thing you can tax is the earning capacity of the property. You'd have to figure out the assigned rental and tax that.

Because while governments print money from thin air the face value is misleading.

A 2% tax would be more than $10,000 on the median house. The median income is in reality only 50k per year for all workers.

So you've already instituted at least a 20% annual tax on the income of the single family income, let alone all the other taxes they pay.

Did you work this one out?

Face facts, Henry George conceived of a tax system that belonged in the middle ages when land was the major source of wealth. He was too stiff to notice that capital had become the new wealth long before.

You can only tax that which earns an income, otherwise you'll send the world back into the dark ages. The Roman Empire found that out when it was too late. Small land owning farmers were simply taxed out of existence. They either went Robin Hood or sold themselves into the serfdom of rich magnates that had the clout to escape tax.

The Visigoth army that surrounded Rome in the last days was actually half Roman Robin Hoods. 10,000 of the Roman army deserted to join the Visisgoths in assaulting Rome itself.

They got rid of Rome because nobody could afford its taxes.

Thats why the values drop in response. Already people who own multiple residential pay the land tax.

The median home value may be $500,000.00 the median land value about half that, or $250,000.00 so the annual tax is $5,000.00 on the median home. If you own 50acres at Glebe and live in a mansion their then you pay no land tax at all on your multi million dollars of land with light rail and the city on your doorstep. Land which would be more efficiently used as commercial, or industrial. Now if a person wants to keep this land, sure they should but should they not pay for this?

The NSW state gov is talking about compulsorily acquiring land to build on in our cities, far better in my opinion there is a market based solution one which places a cost on holding land.

The distinction between taxing land only and improvements is important, because if you tax improvements it does not drive capitalisation and efficient land use. What good is it to build 100 units on your block if your land tax goes up. The idea is expensive land should be capitalised appropriately for its location and access. If it is capitalised appropriately than the land tax should only be a small component of income. We want urban consolidation to increase the productivity of our cities, this is how you achieve it without government compulsory acquisitions.