Reply #5: How about a 6.4% tax on land values? [View All]

[dcfirefighter]

I only want to raise $1T, i want to eliminate the payroll tax.

Though we could auction the many rights (corporate welfare rights) that teh US government gives away as favors to the priveleged and raise enough to eliminate the deficit, and should, that is not my focus.

According to the Federal Reserve (pdf), there's $31 Trillion in Real Estate. Simplifying here a bit, but a 3.2% tax on real estate would raise $2T.

Actually, such a tax would be rather harmful, you could expect many buildings would be allowed to crumble, and few people would build new ones at such a severe property tax: carpenters, laborers, masons, plumbers, electricians, and related construction trades would be unemployed by the millions. What if we didn't tax buildings, but rather only the non-building portion of real estate value?

Unfortunately, the Fed doesn't separate such values. But, I know that less than 15% of the US is 'built up areas', that is cities, towns, and suburbs. Of course those areas are where the value is, but, in those areas, land values might represent 25-50% of realestate. In nonbuilt areas, land represents nearly 100% of real estate. I feel confident that land represents well over half of all real estate value in the US, but to be conservative, i'll use 50%.

This would require a land value tax of 6.4% right?

well not exactly. See, at a tax like that, people aren't as willing to pay the seller as much - the value is there, and the buyer is paying it, it's just going to the government rather than the mortgage company. Even this isn't exactly true: if such a tax replaced payroll taxes and income taxes, property values would likely grow overal, and certainly shift into cities as the speculative value of vacant lots downtown disappears, and the sprawl pressures are relieved inward and upward rather than outward. So let's just leave it at 6.4%

median household income = $43,318
payroll tax employees share = $3,314
payroll tax employers share = $3,314 (this adds to the cost of employment, and therefore reduces employment, and therefore average wages)
median home value = about $150,000
land value of median home, estimated = $50,000
tax on land value of median home = $3,200

Not much of a change, huh? Not at first, it is after all a revenue neutral proposal.
#1 eliminating the payroll tax would very nearly eliminate unemployment. With low unemployment, wages would rise.
#2 The tax can be avoided by building relatively more house on less land - small lots rather than big ones, duplexes rather than single family homes, condoes & rowhouses instead of detatched homes.
#3 The tax inherently falls on landOWNERS, not tenants: those families below median are much more likely to be renters - they see an increase in wages while their rent likely stays the same. Such a tax .
#4 Families well above the median are likely to own multiple properties (while others own none) and will see their tax rise. Furthermore, most million dollar houses are actually half million dollar houses on half million dollar lots.
#5 Most real estate, and most real estate value, is owned by business entities.