On Property Taxes
Fri Jun 1 00:00:00 2018
Real Property taxes are the only tax that doesn't require that the government be nosy. It is necessary for the government to know who owns property (and I mean real property here, rather than personal property) in order to resolve disputes.
If I claim I own your house, to resolve the dispute, the court will need to have a definitive record, or be able to get one easily, as to who owns the house. Since ownership is what determines whether an access is lawful or trespass, these sorts of disputes will depend on the court knowing who owns the property.
This is also true of personal property of course, but these don't need a central registry as much, since personal property is movable.
A tax on property just requires a central registry of property ownership, which we already have, and a collection mechanism, which we also already have. The government only needs to know what the tax parcels are, and how much each is taxed. The government does not need to know who paid the tax, where the money came from, or anything else. All the government needs to do is know what the tax parcels are and whether the tax was paid.
In principle, the government doesn't even need to know who owns a given tax parcel unless there's a dispute, but there are other advantages to a central ownership registry, and I would expect that keeping the tax authorities from accessing it would be impossible in any case.
Title on real estate is fundamentally based on force. You have title to your property because you can defend it. Defending it personally is both difficult and inefficient, so people band together to defend each others property. Why should I respect your claim on real estate? One reason is that you will respect mine, another, and stronger reason is that you will help me defend mine.
Like many things in modern life, we have replaced the personal obligation with a money obligation. Contracts aren't generally enforced by requiring specific performance, rather we merely assess a monetary penalty. In medieval times, the personal requirement of a landholder to show up and bring a particular amount of men was gradually replaced with scutage, a money payment to avoid personal service. The superior lord would then use this money to hire men as needed.
A tax on property is simply a replacement for a requirement to show up personally, and as it turns out, a much more efficient way to do things. This assumes that you have an obligation in the first place. One might reject that obligation, but then why should I, or anyone else, respect or defend your title? In other words, suppose I acceed to your notion, and agree that you have no obligations. Why then should I not, alone or in concert with others, simply take by conquest your land? Your objections that I "shouldn't do that", or "I have no right to", have no meaning. All titles eventually root in "by right of conquest", and while there is somethign to be said for sanctifying a chain of title by time, there isn't some magical period after which acquiring title by right of conquest is not legitimate. There will of course be a period wherein there are two claimants to a land title, but eventually the one not in possession will fade away.
I am not personally strong enough to defend my property against all comers, but I am willing to band with others, and defend their titles if they will defend mine. I will accept an obligation to act in that defense. So, how might I meet my obligation? It could be met personally, but, again, the modern way is to meet it with a money payment.
A money payment will have to be paid in some manner, and it will have to be apportioned somehow. Since the money payment is ultimately, for the defense of property, making the payment be proportional to the amount of property to be defended is reasonable. How then do we assess the "amount of property"? Any number of ways are possible, but we live in an age where money is available and land is alienable, so a simple measurement of what would the property sell for, in the usual imaginary arms-length transaction between a willing seller and willing buyer.
Some specific suggestions as to how to assess property. Someone will need to put an actual dollar figure on property. This can be done in several ways, which fall into three categories: the government assigns a value, the property owner assigns a value, or a third party assigns a value. A third party here is a party not connected to either the owner or the government. A professional assessor hired by the government is not a third party for this purpose.
In some sense, the value assigned is meaningless. If a government wants to raise (say) one million dollars in taxes, and the tax base is assessed at a total of one hundred million, the government simply sets the tax rate at one percent. If the government wanted two million, it can simply set the tax rate at two percent. So, by itself, an assigned value has no connection to reality, rather it serves to apportion the tax among the taxpayers. It would be the exact same result if the government assigned points to property and taxed a hundred dollars per point. This could even easily be a workable system, with a point schedule. One point per bedroom, one point per bathroom above one, one point per garage stall, one point per full quarter acre. A point system would probably be more sophisticated, but would be entirely workable, and serves to illustrate the point that the government will have a budget it wants to meet, and will collect that taxes by adjusting the rate if needed, and an "assesssed value" is really a finely tunes set of points, rather than a value as such.
It would be useful to connect the value to reality in some manner. One way is to make the assessments a binding offer to buy or sell. If the government makes the assessment, this should be a binding offer to purchase the property at that price. Similarly, if the owner makes the assessment, this should be a binding offer to sell. A third party making an assessment would also be a binding offer to buy. Taxes then would be paid based on the highest assessment on record.
Any system can be gamed and corrupted. If the government is setting an assessment, and is compelled to make an assessment a binding offer to buy, the government can, as noted above, just set the tax rate as it needs and make very low assessments. If, for example, a house would sell for $100000, the government could just assess it at $50000 and double the tax rate. Since no-one would sell for $50000, this doesn't put any limitation on the government to make reasonably assessments. I don't see any solution to this other than fixing the tax rate, which removes any flexibility, and wouldn't last in any case. Eventually the government would remove the restriction, or get around it by creating additional tax authorities.
An assessment by the owner also has an incentive to understate the value of the property, since that would reduce the owner's relative tax burden. If the government would be the only entity that could buy at the owner's stated value, then politically connected owners would be able to understate their assessment, confident that the government wouldn't actually buy out their property.
A third party assessment has less of an incentive to under or overstate the value of a property, however, the could be an incentive to harass a property owner by making a high assessment to drive up their property tax bills. This can be mitigated or eliminated by requiring that a third party assessment have the full amount of the assessment put in escrow to be effective. Interest on this amount should go to the government.
more to come...
Posted in / econ
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