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What Hacker News says
- Unsolicited book recommendation but I saw someone mention "Rethinking the economics of land and housing" recently which serves as a good general primer of the history of and problems with housing. Mainly UK focused but I think it's increasingly the cause of immiseration globally.
- If you're in the U.K., I'd highly recommend reading "Rethinking the economics of land and housing" which outlines the history of several clear policies decisions that _encouraged_ housing as an investment which (along with supply restrictions) are in turn why it outperforms lots of other forms of investment. It's not just the market speaking, it's been shaped through lots of conscious decision making that can be undone.
- > I don't know what that means.
In Henry George’s terminology, he decomposed income into three components based on the three factors of production. Income from competitive labor is called wages, income from competitive capital is called interest, and income from land and other noncompetitive monopolies is called rent. He proposed to tax land and other monopolies heavily, while exempting labor and capital from tax. What I meant is that a progressive income tax has higher rates for people and companies with high profits while exempting capital and labor expenses, which is similar to the Georgist idea of taxing monopolies more heavily than capital and labor.
> You can read the details in "The Flat Tax: Updated Revised Edition"
Thanks for giving the reference to Hall and Rabushka https://www.hoover.org/research/flat-tax. Previously you mentioned making the curve progressive, which is not a flat tax so I just assumed you meant income tax.
In comparison to the current income tax, it seems that Hall and Rabushka do not exclude business interest expenses or personal mortgage interest, but they still do exclude wage expenses. Wages are progressive at the low end (due to the personal allowance) but their tax is not otherwise progressive. And they totally exclude personal capital gains from taxation (such as the sale of your house) (although the current income tax is not very good at taxing capital gains of real estate).
Basically, the point of the flat tax seems to be to eliminate complicated deductions, credits, and depreciation, and they are skeptical of progressivity which they see as “redistribution”.
Note that they themselves admit that their flat income tax should be combined with property taxes: “We believe that taxing housing is properly ceded to local governments under our federal system. Local property taxes capture part of the value of the services of a house.” (from Chapter 5: Q&A)
> Its a harmful distortion of the price system.
I disagree that LVT (tax on scarcity rents) is a harmful distortion on prices. Chapters 1-4 of Rethinking the Economics of Land and Housing is a good book on this topic. https://www.amazon.com/Rethinking-Economics-Land-Housing-Rya... As you note, the whole point of prices is to incentivize capital investment. But the difference with land is that it has a vertical long-term supply curve, so more money in land does not result in the creation of any more land; it’s just a transfer payment to the old owner.
Ownership of natural resources is a major undeserved source of inequality. We see the inequality playing out in San Francisco: residents who happened to own land became rich, whereas residents who did not own land became impoverished, just as Henry George wrote: “it is as though an immense wedge is being driven through the middle. Those above it are elevated, but those below are crushed” https://www.henrygeorge.org/pchp0.htm. It is better for the poor and better capital allocation to “distort” the economy to prevent extreme inequality between rentiers and laborers+capital.
- Like all progressive taxation, the property tax is not solely a fee for government benefits received by the taxpayer. The property tax is a tool to reduce inequality—especially when it is applied to gains in land value. If we did not have property taxes (or when we protect existing landowners regardless of land rent increases under Proposition 13), then increases in land value from increased population would be entirely a zero-sum transfer from the new renters or buyers to the old owner, resulting in greater wealth inequality, since unlike capital the supply of land at a particular location is purely inelastic (see the first 4 chapters of Rethinking the Economics of Land and Housing for more https://www.amazon.com/Rethinking-Economics-Land-Housing-Rya...).
- Now you’re asking normative questions instead of the positive question I responded to above. So I can give my opinion, but of course you are free to disagree.
> That proposition exists as a protection from homeowners being screwed by the government being unfair about the value of their land
According to The Permanent Tax Revolt (https://www.amazon.com/Permanent-Tax-Revolt-Property-Transfo...), Proposition 13 was largely the opposite. Previously, homeowners benefited from informal and corrupt tax assessments that lagged market values. After assessment practices were modernized and standardized, homeowners demanded protection from the market. And while many states created protections (e.g. low-income circuit breakers, elderly exemptions, and homeowner exemptions), California’s Proposition 13 protections (along with the later Proposition 58/193 hereditary privileges) are probably the most regressive among the states.
> does property tax really even make sense? This person PURCHASED the land but still has to owe the government taxes even though they own it?
Yes, a property tax (particularly, on the unearned portion which is the land value) makes sense as a progressive way to enable the fruits of the community to be used to benefit the community. For one thing, a private owner should not reap all the benefits from the economic activity around him that he did not earn. For another thing, private ownership should not last forever because that leads to concentration of wealth; one could similarly ask whether copyright and patents should last forever.
> Secondly, it is really important to think of real estate as an investment more than a physical asset. These people got in the market early and their investment is giving them great returns. I think that is fair.
I disagree. The economic justification for investing in capital is that investors help to make the country more productive. Driving up the price of land does the opposite; investment in land crowds out investment in capital. The value of land comes from the neighborhood’s economic activity and public investments, not from the individual landowner. Now, you could argue that giving the landowner some incentive will encourage more civic-minded engagement, but I think it’s a far cry from justifying giving him 100% of the increase in ground rents.
For a recent book on the moral foundations of land ownership, I recommend Rethinking the Economics of Land and Housing by Josh Ryan-Collins, Toby Lloyd, Laurie Macfarlane (https://www.amazon.com/Rethinking-Economics-Land-Housing-Rya...)
- > You’ll have to summarize any key points from the book, since I don’t own a copy.
The first few chapters of Rethinking the Economics of Land and Housing describe the distinction between competitive capital (whose price signals the economy to create more) and land (which cannot be created) and thus why they should be taxed differently. I think it is mostly based on this essay by Mason Gaffney: “Neo-classical Economics as a Stratagem against Henry George” (http://masongaffney.org/publications/K1Neo-classical_Stratag...)
> You say that property tax is a tool to reduce inequality, but I’m not 100% sure about that. For example, I don’t even know where my property taxes go
Broadly speaking, progressive taxation is all about taxing any income that is above and beyond what the average wage-earner earns from wages and competitive capital, and using it to fund services that are used by everybody. Virtually everyone has their own labor, whereas income from ownership of natural resources and monopolies is concentrated, so taxation of income above and beyond wages and interest reduces inequality.
Increases in land rent are unearned income that are not due to the owner’s wages and do not incentivize the creation of capital, so it is fair game to tax it as part of a progressive income tax system. If we don’t tax it using property taxes, then land value increases only become a windfall to the owner, leading to greater wealth inequality.
> Further, I’m not sure what I’m supposed to do if my home value doubles just because of natural reasons
The subject of this article is California’s ”severe shortage of houses.” What you are supposed to do in response to the price signal is expand the building so that more people can live on your lot.
