tor

Tax Hamster Wheel

112 posts in this topic

Would you choose to execute three million puppies or give a cat a saucer of milk to resolve the current deficit?

Give the cat some milk.

Share this post


Link to post
Share on other sites

Give the cat some milk.

Bad choice. Neither option solves the problem.

Share this post


Link to post
Share on other sites

Bad choice. Neither option solves the problem.

Damn, I was going to go for the cat/saucer/milk option too!

Share this post


Link to post
Share on other sites

From an economic perspective it is better to have progressive taxation anyway. Same with strong welfare. The lower paid people tend to spend most of what they earn, this means it all ends up back out in the economy. We are far from a paradox of thrift in this country so the argument could be run the other way maybe for Australia but certainly in general a regressive taxation system tends to have wealth concentrated amoung the few and this is not even good for business or anyone really.

Isn't a land tax regressive? I understand progressive vs regressive as basically being the percentage of income that is used to pay tax.

So PAYG for 60K pa is ~12K, for 240K pa is 84K, for 550K is 230K; 20%, 35% and 42% respectively which would be progressive.

Whereas a flat land tax could only be the same if the house of the 550K person was 10 times more expensive than the 60K persons house. I could be wrong but I think there are more people in the 10 times income than there are 10 times the house. ergo a regressive tax yes?

If you factor in welfare the difference would be even more stark as the person on 60K pays no effective tax if they have kids and, I believe, lower income groups tend to have more children. Whereas to qualify for welfare on housing costs you can't even own a house can you?

Share this post


Link to post
Share on other sites

I consider reducing the net worth of one person by 1% instead of reducing the net worth of 1 billion persons by 100% fairer.

You think it is fair to take money from those that produce stuff, and give this money to others so they can buy the stuff the first person produces, so that we can paper over the fact that we live in a banana republic?

I'm not averse to taxing wealth, but to tax rich people more to pay off deficits that the country has driven is just plain weird to me. The people that should pay for the current circus are those that were irresponsible, not those that continued to do productive stuff.

The child earned this money under the protection of police that stops other children stealing his earnings and healthcare that is provided in case he has an accident during his work. People's earnings are not entirely based on their own aptitude but also the society they live in.

And the other child received the same services, but pays nothing for them.

Edited by gibber_blot

Share this post


Link to post
Share on other sites

From an economic perspective it is better to have progressive taxation anyway. Same with strong welfare. The lower paid people tend to spend most of what they earn, this means it all ends up back out in the economy.

I believe this is a fallacy. Higher paid people tend to save a larger proportion of their income, which ends up back out in the economy too, as it is lent out. Furthermore, savings is just future spending. Not many people save with the intent of dying rich. Those that do still have their benefactors spending for them. The benefit of savings over spending is that it decreases the shock of financial crises. I don't think we should provide a tax system that prefers one over the other.

Share this post


Link to post
Share on other sites

Isn't a land tax regressive?

Land tax is proportional (i.e. neither progressive or regressive).

Whereas a flat land tax could only be the same if the house of the 550K person was 10 times more expensive than the 60K persons house. I could be wrong but I think there are more people in the 10 times income than there are 10 times the house. ergo a regressive tax yes?

Land tax is a wealth tax, not an income tax.. The terms progressive, regressive, and proportional are respective to the base of the tax; e.g. income in the case of income tax, land value in the case of land tax.

You may claim that a land tax is regressive with respect to incomes -- I'm not sure at all. But I would doubt it. The poor of society tend to own no land. I'd wager the upper middle class own the most land proportional to their income.

Share this post


Link to post
Share on other sites

Land tax is proportional (i.e. neither progressive or regressive).

Land tax is a wealth tax, not an income tax.. The terms progressive, regressive, and proportional are respective to the base of the tax; e.g. income in the case of income tax, land value in the case of land tax.

You may claim that a land tax is regressive with respect to incomes -- I'm not sure at all. But I would doubt it. The poor of society tend to own no land. I'd wager the upper middle class own the most land proportional to their income.

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?

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.

If I have remembered that correctly you would need that 20% to own 50% of the land. I somewhat doubt this is the case.

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.

Granted the complete removal is extreme but by taking it to a simple extreme it shows quite clearly that a land tax penalises the poor and rewards the rich. Which is the reason regressive taxes are considered bad right?

To avoid this happening some complexity would be involved such as a cut-off of value levels etc. Which is basically just welfare as we have under the current model. Why change the current model to another one which requires the same balancing act. It would make more sense to use the current model and make the balancing act "fairer" (if one thought the current one was wrong).

If I acted purely in self interest I would be all for the land tax idea, the financial year just finished and so I have been working out my taxes. I cannot see how a land tax could possibly hit the same number given the price of my house (my tax works out to just over a third the cost of my house). Therefore I would be much better off.

But it would not be fair and equitable as for ever $10 I paid less in tax 10 people earning less than me would have to pay an extra dollar assuming the government wanted to have the same tax income numbers.

Share this post


Link to post
Share on other sites

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?

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.

If I have remembered that correctly you would need that 20% to own 50% of the land. I somewhat doubt this is the case.

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.

Granted the complete removal is extreme but by taking it to a simple extreme it shows quite clearly that a land tax penalises the poor and rewards the rich. Which is the reason regressive taxes are considered bad right?

To avoid this happening some complexity would be involved such as a cut-off of value levels etc. Which is basically just welfare as we have under the current model. Why change the current model to another one which requires the same balancing act. It would make more sense to use the current model and make the balancing act "fairer" (if one thought the current one was wrong).

If I acted purely in self interest I would be all for the land tax idea, the financial year just finished and so I have been working out my taxes. I cannot see how a land tax could possibly hit the same number given the price of my house (my tax works out to just over a third the cost of my house). Therefore I would be much better off.

But it would not be fair and equitable as for ever $10 I paid less in tax 10 people earning less than me would have to pay an extra dollar assuming the government wanted to have the same tax income numbers.

Its not just in your best interests tor, it is in societies best interests!

Land tax is even more important than income tax in my opinion as it means individuals who benifit most from society pay more back into it. Land appreciating because of closeness to infrastructure good links and urban planning restrictions should not see the benefit given to the owner but to society afterall it is society that provides the infrastructure. SO expensive well connected land should pay more back in tax. Why should the government not charge rent if the owner is receiving the benefit, otherwise income earners have to pay for it all and many do not see the benefit except in higher rents!

As far as progressive income tax goes it is the same, those on high incomes get the most out of an economy, usually more educated, use more of the infrastructure in their business pursuits etc.

Share this post


Link to post
Share on other sites

Its not just in your best interests tor, it is in societies best interests!

Land tax is even more important than income tax in my opinion as it means individuals who benifit most from society pay more back into it. Land appreciating because of closeness to infrastructure good links and urban planning restrictions should not see the benefit given to the owner but to society afterall it is society that provides the infrastructure. SO expensive well connected land should pay more back in tax. Why should the government not charge rent if the owner is receiving the benefit, otherwise income earners have to pay for it all and many do not see the benefit except in higher rents!

As far as progressive income tax goes it is the same, those on high incomes get the most out of an economy, usually more educated, use more of the infrastructure in their business pursuits etc.

But I just showed it is a regressive tax. By any math I can think of the tax base would be moved from the current high tax payers to the lower ones.

I know it may seem I am on both sides at once here, saying that S3K is being trite when saying increase tax for high income earners and also saying a land tax is a bad idea because it negatively impacts low income earners, but what I am actually saying is that every man and his dog has a radical way to fix things and none of them seem to hold up under scrutiny to being better for society than the current system.

I guess the thing is I see so many people so passionate about the reform they are in love with but none of them seem to be able to show how it would substantially make society any better than small changes to the current system.

Yes I wonder occasionally just what the hell I am lumped with such a big tax number for and what it is used for but I haven't seen any arguments that support me paying more tax (that would require showing how well it is used currently) or why other people should pick up some of it (that would mean I think I deserve more, I am quite happy with my life and don't really mind paying the taxes).

I would like to see a discretionary proportion of my taxes deal where I get to say that 10% of it gets put to this or that but I also realise that this would be a form of taxation without representation which would irk many and stand a decent chance of having a much bigger impact on society than I think is a good idea.

Change is okay but it has to be change which has been thought through.

Share this post


Link to post
Share on other sites

I believe this is a fallacy. Higher paid people tend to save a larger proportion of their income, which ends up back out in the economy too, as it is lent out. Furthermore, savings is just future spending. Not many people save with the intent of dying rich. Those that do still have their benefactors spending for them. The benefit of savings over spending is that it decreases the shock of financial crises. I don't think we should provide a tax system that prefers one over the other.

+1

Prime examples are Switzerland and Hong Kong where income taxes are AT LEAST half ours and loaded with extra allowances and tax free thresholds, also Abu Dhabi or Qatar where its zero.

http://www.lowtax.net/lowtax/html/jswpetx.html#income

http://www.lowtax.net/lowtax/html/hongkong/jhkpetx.html#salaries

When I have been to those places there was evident police, highways, rapid transit, infrastructure etc etc

Share this post


Link to post
Share on other sites

But I just showed it is a regressive tax. By any math I can think of the tax base would be moved from the current high tax payers to the lower ones.

I know it may seem I am on both sides at once here, saying that S3K is being trite when saying increase tax for high income earners and also saying a land tax is a bad idea because it negatively impacts low income earners, but what I am actually saying is that every man and his dog has a radical way to fix things and none of them seem to hold up under scrutiny to being better for society than the current system.

I guess the thing is I see so many people so passionate about the reform they are in love with but none of them seem to be able to show how it would substantially make society any better than small changes to the current system.

Yes I wonder occasionally just what the hell I am lumped with such a big tax number for and what it is used for but I haven't seen any arguments that support me paying more tax (that would require showing how well it is used currently) or why other people should pick up some of it (that would mean I think I deserve more, I am quite happy with my life and don't really mind paying the taxes).

I would like to see a discretionary proportion of my taxes deal where I get to say that 10% of it gets put to this or that but I also realise that this would be a form of taxation without representation which would irk many and stand a decent chance of having a much bigger impact on society than I think is a good idea.

Change is okay but it has to be change which has been thought through.

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

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

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.

Share this post


Link to post
Share on other sites

Wonder why the Swiss don't have such stupid taxes?

I think most developed countries do have land tax, don't know specifically about Switzerland? Australia does have land tax but mum and dad investors and PPOR's are exempt because our government has no balls.

Share this post


Link to post
Share on other sites

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.

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.

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.

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.

Share this post


Link to post
Share on other sites

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?

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.

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.

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.

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.

Share this post


Link to post
Share on other sites

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%).

Share this post


Link to post
Share on other sites

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/pr.asp?func=show&pr=24

UAE:

Cannot find anything on them as yet...

Share this post


Link to post
Share on other sites

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.

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).

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.

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.

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.

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.

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.

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?

Share this post


Link to post
Share on other sites

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.

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.

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.

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.

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.

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.

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.

Share this post


Link to post
Share on other sites

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?

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.

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.

Share this post


Link to post
Share on other sites

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.

Share this post


Link to post
Share on other sites

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.

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.

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.

Edited by gibber_blot

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now