Replies

I'm completely in favor of having a national discussion on FairTax, but I'd be much more in favor of seeing it passed if, instead of recommending that states tack on additional sales taxes, they recommended the states raise revenue from a property tax on land value only.

AFT claims that homeowners will enjoy a ~23% jump in home value. As we have seen from the last few years, more credit, through artificially low interest rates, in the hands of more people has driven property values up, triggering fears of a real estate bubble. This NRST would do quite the same thing. While new construction might drop from ~$200/s.f. to ~$140/s.f., the land prices, which are the only things that appreciate anyway, will fly through the roof.

Since income from land sales isn't taxed, and there's otherwise no holding cost for land, we'll wind up with quite a few valuable lots being held on to, exacerbating sprawl and transportation issues.

With sprawl we spend more and more time commuting, farmers lose their farms to developers, and we all wind up losing in the end.

With a land value tax, we encourage valuable lands to be used, we recover public improvements, and our cities generally grow up rather than out, leaving the hinterlands to the farmers and those who'd rather be alone.

Such a tax reduces our need for foreign oil by condensing population centers, allows us to produce our own foodstuffs, and actually increases the lands available for intensive development, for manufacturing, etc.

Consider this: to open a new factory, you generally need to buy or lease the land from the current landowner. If the landowner must pay an annual tax on the land value, he'll sell for less. In fact, the owner will sell less by approximately the present value of future taxes, so the buyer winds up paying the same, just less in cash, and more in future taxes. This requires less credit, so more credit is available to purchase capital. Because land is less valuable for a purely speculative investment, more land is available for productive use.

I don't think the FairTax recommends anything in regards to how the states raise revenue. It just benefits from the fact that most already have some sort of sales tax collection system in place. I don't think it attempts to influence states in terms of how they collect their own taxes at all.

AFT claims that homeowners will enjoy a ~23% jump in home value. As we have seen from the last few years, more credit, through artificially low interest rates, in the hands of more people has driven property values up, triggering fears of a real estate bubble. This NRST would do quite the same thing. While new construction might drop from ~$200/s.f. to ~$140/s.f., the land prices, which are the only things that appreciate anyway, will fly through the roof.

I enjoyed speculating how the FairTax would effect the housing market, particularly the new construction market. Many of those opposing the FairTax suggested that the fairtax would smother the construction industry because of the increased tax burden... that seems to be the direct opposite effect of what you are pointing out. I think pretty much everyone agreed that there would be an initial increase in value for existing real estate (and used cars as well) but like everything else would eventually find equilibrium. Our discussion was not considering the dynamic you are bringing up... particularly the value of land verses the value of improvements.

I'm not sure I share your favor for property taxes. I recognize they can be used well and have arguably good effects for the community, and I won't argue the dynamics you point out, but I realise that property tax effectively undermines property rights and makes the government effectively the only "owner" of property, and makes all of those who are "legally" owners, effectively renters. I expect I would be vehemently opposed to a federal property tax.