Re: Land tax -- appraisals, the worst tax mechanism (Re: RoyL, Lysander - LVT question.
- From: "Andy F." <never.mind@xxxxxxxxx>
- Date: Wed, 19 Mar 2008 14:22:40 -0000
"RogerDodger" <none@xxxxxxxxxxxx> wrote in message
news:ud41u3d37cg9kedaq5b4lr5abflnpoiumc@xxxxxxxxxx
On Tue, 11 Mar 2008 17:24:20 GMT, royls@xxxxxxxxx wrote:
On Mon, 10 Mar 2008 21:53:01 -0500, Les Cargill <lcargill@xxxxxxxxxx>
wrote:
Roy, has anybody done a good study of costs of administration of an LVT
versus say, the IRS?
Sure, there's tons of data -- just compare today's proprety tax
systems to other taxes: income, payroll, sales, etc.
Any appraisal-based tax system -- real estate property tax being by
far the biggest -- involves an appraiser valuing each unique property
separately, with the property owner having many arguments to contest
the appraisal, and the right to appeal it up through a tax appeals
system all the way to and through the courts.
Very little common sense is needed to divine this is a *hugely* more
costly administratively than any other tax -- payroll tax, income tax,
sales tax, etc.
And any Georgist who is interested in facts can verify this common
sense intuition in just a couple minutes (though I never saw one who
bothered).
For instance:
~~quote~~
The Massachusetts Appellate Tax Board (ATB) ... hears and decides
cases on appeal from any state or local taxing authority.
Ninety percent of the petitions filed at the Board are appeals of
local property taxes.
The remaining cases are appeals by taxpayers regarding all state
taxes, including the income tax, sales and use taxes, the bank excise
tax, the corporate excise tax, and others.
http://en.wikipedia.org/wiki/Massachusetts_Appellate_Tax_Board
~~~~~~
Property taxes in Mass. produce about 28% of state and local revenue,
let's say 30%.
Yet property tax appeals account for *nine times* the number of
appeals from all other kinds of taxes combined -- 10% of appeals come
from all the other taxes that produce 70+% of tax revenue..
Those capable of arithmetic can deduce from this that property taxes
result in *21 times* as many appeals per $1 of tax collected as all
other taxes.
That doesn't tell you anything about the total costs.income and sales taxes
cause major administrative costs for businesses and for the tax authorities,
even if they don't get anywhere near an appeals court.
It's very little different from running an ordinary property tax
system,
Well yes -- see above. Only worse -- see below.
but you don't have to value improvements,
Obviously false.
Under the common system where the rental value of a whole improved lot
is taxed, you just value the whole thing -- that's *relatively* simple
-- though complex enough to result in 21X more appeals per each $ of
tax collected than all other taxes combined, of course.
However, to tax *just the land* one must value the whole lot, then
value the improvements on them separately, and then subtract their
value to get the value of the land as a residual.
Nonsense. You just have to look at the price of a comparable vacant lot.
This is because in developed urban areas with the highest land prices
and the great bulk of land value, land is almost *never* owned or sold
without improvements, and even more rarely than that sold without
leases, cross-leases, easements etc, on it, which have the effect of
improvements and change market price.
Nonsense.Any time a building is demolished ( and this happens all the time
everywhere in the world) the building clearly has no value. So the property
value at that point is all land.
Valuing just improvements entails "cost segregation analysis" which is
very costly to taxpayers, hugely complex, and generally impenetrable
to tax assessors.
For example, the value of each *component* in a building, the total
of which is used to determine its total value, may be determined by:
cost, or depreciated cost, or replacement cost, or expected revenue
allocable to it -- (which of course is extremely subjective and
arguable) or obsolescence, or the depreciation category it is
allocated to ... etc., etc. All of which both the appraiser and the
taxpayer can argue about all the way up to and through the courts.
Are we getting an idea of where that 21x appeals per revenue dollar
comes from?
And that's without going through the separate step of valuing the land
itself.
Land values are extremely volatile -- much more so than building
valuations.
With a building, once you get through all the cost, trouble and
appeals of valuing it you pretty much have its value semi-permanently.
So when property values are mostly attributed to buildings,
reappraisaling only once every few years is fairly equitable. And
that's the norm most everywhere.
But land -- like any item in inelastic supply -- is highly volatile as
to market price. This is because supply doesn't vary with demand
(increasing to mitigate price rises, declining to mitigate price
falls). Thus the *entire* weight of change in demand, up and down,
results in change in price, up and down. Sharp and big.
This is econ 101 and is absolutely unavoidable with items in inelastic
supply. It the other side of the Georgist coin of "land is in totally
inelastic supply, so..."
Thus, if your tax system is focused on *land value tax*, you can't
just appraise its value once every few years like you can buildings.
You have to appraise it *every year*, in light of land price
volatility. Otherwise your tax values are bogus.
And, of course, as each plot of land is unique, you can always argue
about and appeal its appraisal.
I'll skip the cost to the government of lost revenue in years when
land prices sharply fall -- when land prices are rising, you have to
assess them on every lot every year. Costwise, this multiplies both
assessment costs themselves *and* appeals from assessments.
Consider the meltdown of the land tax assessment system in Pittsburgh,
the only decent-sized US city that's ever tried it.
In 2001 its land assessors raised the assessed value of land by 80%
from what it was in 2000. Well, land value is volatile, and that was a
boom economy year -- land value went up a lot!
The result was over 170,000 appealed assessments on the city's 500,000
properties. Of course that was *impossible* to manage.
Many politicians said the assessors had to be systematically wrong.
There were law suits. The courts ordered studies, which took time,
halting tax collection. The studies said the assessment methods were
systematically correct, land values had gone up like that -- *but* of
course, the assessors could be and were wrong in many individual
cases, so all the 170,000+ individual appeals had to continue to be
processed. More than four years later, tens of thousands of them had
not been resolved yet, remaining in litigation.
This fiasco made the Massachusetts property tax assessment appeal cost
of 21x that of all other taxes look like *a free lunch*!
It was impossible. Pittsburgh repealed its land tax.
Oh, yeah, there's nothing simpler or less expensive than imposing a
big land tax! ;-)
than half as much per property to administer, or roughly 1/10 as much
per revenue dollar...
Some people create their own worlds to live in. Let's hope they enjoy
residing there. ;-)
if you recover all the rent.
Remember, it costs
the same amount to value a land parcel whether the tax rate on that
value is 0.01% or 100%.
Although the higher the tax, the more often you have to assess and the
higher the appeals rate. ;-)
If Pittsburgh's land tax rate was higher, it surely could have had a
good deal more than 170,000 appeals.
Another thing that goes up with the tax rate, of course, is land tax
*evasion* by shifting value from land to the buildings on it (and into
other backroom deals, etc.) Remember all that cost segregation
analysis.
Sticking to pro-land tax authorities, Michael Hudson says 50% of land
value is eliminated this way now. Mason Gaffney says more, a huge
amount.
The head of the land tax assessment system in Pittsburgh, George
Donatello, claimed that a big part of the problem leading to all the
assessment appeals was "People in the past kept land values low,
artificially low, because of the way the tax rate was structured."
This all is with only a modest tax penalty on land -- not
confiscation.
How many times have I asked here for the Georgists to say how *their*
appraisal system is going to keep the Hudson/Gaffney/Donatello shift
of land value to other assets from happening??
Well, I've asked several times -- no answers yet that aren't mere
denial and dreamin'.
I just keep reading how the Georgist system will be "very little
different from running an ordinary property tax system" today --
except that the result will be *entirely* different! ;-)
So an appraisal-based tax system, summed up:
* The worst administrative expense per dollar of revenue, *by far*.
Nonsense.
* The worst for evasion and value shifting -- nobody pretends that
income tax, payroll tax, etc. are underassessed by anything like the
Hudson/Gaffney 50%+
When the whole value of the property is taxed - which it is in most places -
shifting value from land to improvements doesn't evade any property tax.
Your 50% figure for tax evasion is totally bogus.
.
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