Another Way to Soak The Rich?

Will Truman

Will Truman is the Editor-in-Chief of Ordinary Times. He is also on Twitter.

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118 Responses

  1. Oscar Gordon says:

    It would depend on how luxury is defined. Is it value, or square footage, or amenities, etc.Report

  2. Marchmaine says:

    The house is a dollar, its the land/location that’s valuable… which is why he’s referring to local sales and not really evaluating the “house”. Which is fine, but we already have a theory for that, Georgism or a Land Value Tax. Or is there some other “new” wrinkle that he’s adding to solve to LVT puzzle?

    There are certainly things to like about a Georgist taxation scheme, but there are some significant challenges that distort the tax as we move from City to suburb to exurb to country… and likewise as people/resources move from City … Country. There’s a reason why it seems to work pretty gosh darn well in places like Hong Kong and Singapore, but in order for it to work in the US it would have to have lots of local carve-outs, local protections, and would likely end-up so prone to special interests that it wouldn’t begin to do what we wanted it to do. (What is it we want it to do? Tax middle class wealth disproportionate to total wealth? Force land into commercial markets? Encourage localities to upscale to increase revenues? Prevent windfall land wealth? or other?)Report

    • Road Scholar in reply to Marchmaine says:

      Marchmaine,

      Which is fine, but we already have a theory for that, Georgism or a Land Value Tax. Or is there some other “new” wrinkle that he’s adding to solve [the] LVT puzzle?

      This. Georgist theory is sound but at heart it’s centered around production. Furthermore, like his intellectual predecessors in the Classic tradition George operated firmly within an agrarian context.

      So he only really considered land as a factor of production. So within that paradigm the concern voiced by Mr. Cain below, about taxing an asset that produces no income stream, wasn’t relevant. To be clear, land used for housing isn’t exempt from Georgist analysis per se, but owner-occupied housing is decidedly clunky compared to investor-owned rental housing. Ultimately the same logic holds but it’s more vulnerable to fairness objections.Report

      • Marchmaine in reply to Road Scholar says:

        Agreed, though I’ll add that modern Georgists have moved well beyond agrarian production and into an urban finance model… which I think accounts for the biggest problem with Georgist/LVT policies – they assume that the maximum production value of the land is the right “use” of the land… and the taxation schemes are designed to maximize those values – sometimes by penalizing hoarding, which we might praise as good; but also by penalizing home ownership as less optimal than either “other” people upgrading your less productive home or a strong pressure into more productive uses of the property, usually commercial. Some of that goes on already, of course, but adopting Georgist schemes would potentially put a thumb on the scale in favor of maximizing productive value.

        In cities where all the land is boughten up already, it sorta works as the loop is closed and many of the operating principles are already in action (eg Singapore/Hong Kong), but it would be fairly disruptive to introduce into this system.

        If I wanted to modernize the Georgist assumptions, I’d tell us to think of land as a subscription service. We don’t own the land, we’re just subscribing to it… and as long as you can pay the subscription, you can keep using it; but if others are willing to pay more for it, and the real owners decide to increase the subscription, you have no recourse but to abandon the service… there’s no payoff, you just get your deposit back.

        In purely financial terms (and if you’re thinking like a state) its a phenomenally efficient arrangement.Report

  3. Saul Degraw says:

    Isn’t this basically why Republicans liked the cap on the mortgage interest deduction? It was a way of sticking it to upper-middle class liberal voters.

    I’m mixed here. I don’t think taxing a mansion in Pacific Heights is a bad idea but I wouldn’t want to tax the couple that goes for a 2-bedroom, 2-bath (or even 1-bedroom, 1-bath) apartment in a major but expensive city like Los Angeles, San Francisco, New York, Portland, etc. This seems more like a red-state rural sneer at those “damned liberal elites” than anything else for making consumption choices differently than they would.

    Elephant undies are showing here. This seems like geographic discrimination that will punish middle-class or upper-middle class professionals in blue states and cities but not those in say Tennessee* or Texas or Atlanta.

    I admit to self-interest here. I’m looking into property purchasing in SF right now and we will probably spend north of a million because SF is SF. Why should I pay a tax that can be avoided by a business person with a much larger house but equal or greater income just because they work in a red-state with much fewer people. That seems like it is mainly designed to say “Suck it libtards!!!”Report

    • Jaybird in reply to Saul Degraw says:

      The only goods worth having are positional.

      If you buy a house worth a million dollars, should we compare that to the median homeowner in the United States? (Or, jeez, The World?)

      Should we compare it only to California?

      Only to San Francisco?

      How sympathetic do you expect people to be to the “don’t compare me to Idaho… compare me to Nob Hill!” argument?Report

      • Jaybird in reply to Jaybird says:

        I suppose another point that I see hiding in the argument that people in San Francisco shouldn’t be compared to people living in flyover is the whole implied “you people are not my peers” thing.

        These are people that you shouldn’t be compared to positionally but, out of curiosity, do you feel that your preferred government policies ought to apply to them?

        Because if you have things set up so that the answers to these questions both happen to be in your favor, that’s a heck of a trick.Report

      • Mike Schilling in reply to Jaybird says:

        Why do people think that things being more expensive here makes us richer? That’s not how it works.Report

        • Jaybird in reply to Mike Schilling says:

          So the important thing is to establish that it’s not fair to compare you to, say, someone who lives in Flint because that’s not a fair comparison. We have to compare you to someone who lives two minutes from the Financial District and we have to compare *THEM* to someone who lives in Bloomfield Hills and anything else is apples and oranges?Report

          • Mike Schilling in reply to Jaybird says:

            My brother lives in Flint. (Really, he does.) I make more money, but his house cost a hell of a lot less; pretty sure mine cost more years of salary than his. In that respect I am comparatively worse off.

            But my tap water isn’t full of poison, so there’s that.Report

            • Aaron David in reply to Mike Schilling says:

              But are his hills on fire?Report

            • Jaybird in reply to Mike Schilling says:

              Maybe we should use that sort of thing when we talk about income inequality.

              “Hey, you might think that I’m in the top percentile of the country, but you have no idea how expensive takeout is here!”

              Maybe we can make inequality evaporate and all it’ll take is applying the concept to those who lean left.Report

              • Mike Schilling in reply to Jaybird says:

                Right, adjusting nominal incomes to reflect the cost of living is crazy talk.Report

              • Jaybird in reply to Mike Schilling says:

                Dude. We should do that for “Privilege”.

                “Sure, I’m going to a small liberal arts college for my bachelor’s… but, seriously, I’m representative of 70% of the country! My monthly stipend is representative of only 3% of people like me!”Report

              • Mike Schilling in reply to Jaybird says:

                “Sure, I’m married, have 2 kids and a mortgage, and work full-time, but in real life I’m an evil liberal elitist.”Report

              • Jaybird in reply to Mike Schilling says:

                I’m not saying “evil”. I’m saying “privileged” and, more than that, ahead of a hell of a lot of people in the department of positional goods.

                You recognize this problem when Republicans talk about “inequality”. You should recognize it here too.Report

              • Mike Schilling in reply to Jaybird says:

                No doubt that I have lots more that I would receive in some purely merit-based system. This allows me to live in comfort even though housing is idiotically expensive. But, and this is the point I’ve been trying to make, I’d live better if housing weren’t idiotically expensive. Yes, I have a house worth stupid amount of money, but that stupid amount of money came out of my pocket.Report

              • Jaybird in reply to Mike Schilling says:

                The response that you made choices to do the things that you did to get you where you are is one that shows up a lot in the “privilege” discussion, yes.Report

              • Mike Schilling in reply to Jaybird says:

                Now you’ve lost me.Report

              • Jaybird in reply to Mike Schilling says:

                We’re in a discussion about position and, like all discussions about position, people only see the people in front of them and they don’t see anybody behind them.Report

              • Mike Schilling in reply to Jaybird says:

                I see that I had to pay a lot of money for something that’s overly expensive and that that doesn’t make me better off than if I hadn’t had to pay that much. I feel this point has not been contradicted.Report

              • Jaybird in reply to Mike Schilling says:

                I had to pay a lot of money for something that’s overly expensive and that that doesn’t make me better off than if I hadn’t had to pay that much.

                How much has your home appreciated since you bought it?Report

              • Mike Schilling in reply to Jaybird says:

                Not all that much, alas, especially given that it’s been 17 years now. Less than if I’d put the money in an index fund.

                Also, if your house is where you live and selling one means you have to buy another one to live in, general area-wide appreciation does not make you better off until you move away.Report

              • Having reached a certain age, and spent my whole life saving so that I could retire while I was still young enough to enjoy it, my problem looks like this. 30 years ago I took a pay cut in order to move here, and was able to buy a house of about the same size we were selling for considerably less. We paid the mortgage off early in order to control what we paid for housing, and that was part of the retirement plan. (Also worked out well when I was on the wrong side of a corporate acquisition, at least compared to colleagues who were suddenly, “Oh, sh*t, how am I going to make the mortgage payments?”)

                Then something over two million other people discovered it was a terrific place to live and work and now my modest house is worth stupid amounts of money. Personally, I resent suggestions that we should pay a much higher cost of housing to the government because of something we didn’t do, or that we should be chased out to some place less desirable.

                What’s next, they’re going to tax me on the balance in my IRA?Report

              • Personally, I resent suggestions that we should pay a much higher cost of housing to the government because of something we didn’t do, or that we should be chased out to some place less desirable.

                This is actually why I used to oppose property taxes entirely, when I was (ironically) further to the right than I am now.Report

              • pillsy in reply to Michael Cain says:

                This seems to be an argument against any tax policy though.

                Like, if someone else made a different choice and stayed where they were and paid more to keep their higher salary, I’m not sure why they wouldn’t have a right to complain about changes to the income tax code to make it more progressive along similar lines.Report

              • Mike Schilling in reply to pillsy says:

                The difference is that more income makes you better off. A higher valuation of your house does not, until you sell it. we also don’t tax stock appreciation until you sell it and pocket the profit.

                (Well, except for ISOs and AMT*, which in 2000 meant lots of people owning way more money in tax than they’d ever seen. We should not repeat that.)

                * Here’s how that went. Billy has options on his company’s stock at $5. It goes up to $100. Yay! Billy exercises 1000 shares. That’s a profit of $95,000 that’s subject to AMT. Billy holds onto it because he thinks it’s going higher still, Oops, the bubble burst and now it’s $2. Billy really has lost $3K, but owes tax on the $95K. Silly Billy.Report

              • Road Scholar in reply to Mike Schilling says:

                The difference is that more income makes you better off. A higher valuation of your house does not, until you sell it.

                Of course it does, it’s an asset. You’re always better off with more assets than fewer, ceteris paribus, even if it isn’t generating a current income. It’s like someone is automatically putting stupid amounts of money in a savings account for you. If you needed/wanted to you could borrow against it and it’s a hell of a retirement fund.

                If it’s not making you better off then why do people get so worked up over anything that might possibly negatively affect their property values? And doesn’t that concern drive about 90% of the NIMBY stuff that’s behind the opposition to basically anything that might alleviate the housing shortages that are driving the appreciation?Report

              • If houses in the areas I want to live in cost X, I don’t want mine to fall below X, because that limits my ability to relocate. Until I leave the area, I’m no better off if X doubles. Worse off, actually, because my property tax goes up.Report

              • Jaybird in reply to Michael Cain says:

                What’s next, they’re going to tax me on the balance in my IRA?

                Probably.Report

              • Marchmaine in reply to Jaybird says:

                Well, certainly Roth IRA… that’s just a promise that we won’t tax you in the future. I’ve skipped that particular promise.Report

              • Road Scholar in reply to Michael Cain says:

                Personally, I resent suggestions that we should pay a much higher cost of housing to the government because of something we didn’t do, or that we should be chased out to some place less desirable.

                Do you similarly resent all the profit you will enjoy because of something you didn’t do or the large inheritance you will relatively effortlessly leave to your kids?Report

              • pillsy in reply to Jaybird says:

                This is a sharp enough knife that you need to be careful with it.

                Even by the relatively expensive (but not Bay Area expensive!) standards of NJ I get by fine. And you can argue that at least some of the higher costs are due being in a nicer place to live what with NYC and Philly being nearby and having good schools and healthcare availability.

                I’m gonna get kinda screwed by the SALT changes, which only annoys me to the extent that I dislike the idea of paying higher taxes mostly so that people even wealthier than I am can pay lower taxes. And that ceteris paribus a higher net income is less annoying.

                But some folks I know are not in fine financial shape despite having incomes that would support them pretty comfortably in Nebraska. Because housing costs and the like are sufficiently high that they end up living paycheck to paycheck without a lot of their paychecks going to things that can sensibly be called luxuries.Report

              • Jaybird in reply to pillsy says:

                But some folks I know are not in fine financial shape despite having incomes that would support them pretty comfortably in Nebraska. Because housing costs and the like are sufficiently high that they end up living paycheck to paycheck without a lot of their paychecks going to things that can sensibly be called luxuries.

                There are also people in Nebraska living paycheck to paycheck without a lot of their paychecks going to things that can sensibly be called luxuries.

                A whole lotta people in flyover qualify for that.Report

              • Michael Cain in reply to Jaybird says:

                And yet homeownership rates are significantly higher in most flyover states than in the states people regard as “coastal elites”.Report

              • Are you suggesting that home ownership is higher where houses are more affordable?Report

              • Jaybird in reply to Michael Cain says:

                So maybe we shouldn’t measure “privilege” with stuff like mere house ownership. Anybody can afford a $70k house, after all.

                Maybe we should measure it with stuff like “owns million dollar houses”.Report

              • pillsy in reply to Jaybird says:

                Is the goal just redistribution? If so, it’s not clear why we want to particularly focus on expensive houses. The one argument that strikes me as solid is the one about restrictive zoning and economic rents, but I’m not sure we shouldn’t just go for zoning reform.Report

              • Jaybird in reply to pillsy says:

                Redistribution of positional goods doesn’t work.

                So no.Report

              • pillsy in reply to Jaybird says:

                Well, there you go then. Why tax people who choose to invest heavily in this particular good more than others?Report

              • Jaybird in reply to pillsy says:

                Because it’s wealth that is created ex niliho.Report

              • pillsy in reply to Jaybird says:

                There certainly are. And while people out here in Jersey in that situation maybe have a little more flexibility, the basic line of argument you’re constructing can be turned into a, “Well, if things suck so bad why don’t you just move?” argument, which, well, proves more than I’m comfortable proving.

                Not that this really applies to most of us who are in a position to really feel the bite of the SALT changes. But it’s an argument that needs a limiting principle that I don’t see.Report

              • Jaybird in reply to pillsy says:

                Is “we should tax the people who are better off than me, but not people who are more or less where I am” a limiting principle?

                Because we mock Republicans for that sort of thing.Report

              • pillsy in reply to Jaybird says:

                I’m not sure how you got that from what I’m saying.Report

              • Jaybird in reply to pillsy says:

                We’re talking about increasing taxation on million dollar homes.

                And the people who own million dollar homes are humblebragging that they’re really not *THAT* much better off than the people who live in flyover and it’s unfair to target them just because they happen to have bought a million dollar house.Report

              • pillsy in reply to Jaybird says:

                Right but the argument applies similarly to people living in rental units.

                Referring to local costs of living isn’t wrong. It’s not the whole story, but it isn’t wrong either.

                “You’re in the top quintile even by the standards of your state,” is a more solid argument than, “You’d be in the top quintile if you were living in Mississippi.”Report

              • Jaybird in reply to pillsy says:

                Is “you’re in the top quintile of the country” an appropriate thing to say if we’re talking about taxes or not?Report

              • Michael Cain in reply to Jaybird says:

                At current rates of appreciation, in another decade I will quite possibly own a million-dollar house. For which I paid $147,000 many years ago. If I had purchased $147,000 worth of AAPL or MSFT or BRK.A back then, and was sitting on a hundred million dollars worth of stock, no one would be suggesting that I should pay until I sold it. Why is the house in which I live, which is so much less liquid than stock, being treated in a discriminatory fashion?Report

              • Jaybird in reply to Michael Cain says:

                Are you trying to get me to agree that stocks that skyrocket need to be taxed differently?Report

              • Michael Cain in reply to Jaybird says:

                Broadly speaking, across a bunch of comments, I’m trying to get you to agree that without extraordinary care, the luxury house tax will turn into a tax on oldsters. From a pragmatic point of view that’s always a tough sell — the oldsters vote, they have time to be activists, etc.Report

              • Jaybird in reply to Michael Cain says:

                Perhaps eventually… but in the short run, it’ll be sold as a tax on San Francisco, Portland, and Brooklyn. It’ll do fairly well and the loudest people against the tax will be the people in the top quartile (but not the top 2-3%) who will argue that we need to tax “The Rich” but not “The Well Off”.

                And people who own million dollar homes won’t be able to effectively argue that they’re jus’ folks like those shitkickers in Nebraska. Sure, maybe they are. But they won’t be able to argue it effectively.Report

              • Because it always has been?Report

              • So, I buy a house where they’re expensive. I put, say 10% down, and I’m immediately taxed at 100% of the full price, plus luxury tax. I’m paying interest on the 90% that remains, but the amount of that I can deduct is capped.

                I sell it at a modest profit, which I’m again taxed on, and move to someplace cheaper. I can now put 50% down, so my mortgage is less, my property tax is lower, and I have no luxury tax. Better off in all ways.

                Tell me why a tax that hits me when I’m less able to pay it is a good idea?Report

              • pillsy in reply to Mike Schilling says:

                One reason (and the original article sort of circles around it but doesn’t quite get there) is that it will mean people will be less likely to build big single-family houses in areas that are extremely desirable to live in, allowing more people to live there.

                Pretty Rube Goldbergish thoughReport

              • Jaybird in reply to Mike Schilling says:

                For the record, I agree that you shouldn’t be taxed on the stuff you still owe the bank.

                Edit: And could probably be talked into making distinctions between solo homes and second/third/fourth/etc homes.Report

              • pillsy in reply to Jaybird says:

                That’s how property tax works now…?Report

              • Jaybird in reply to pillsy says:

                Hey, I said “making distinctions” not “keeping everything identical”.

                If someone buys a house for $X and it’s worth $2X tomorrow, I’m not seeing the argument for why that second $X ought to be sacrosanct.Report

    • I admit to self-interest here. I’m looking into property purchasing in SF right now and we will probably spend north of a million because SF is SF. Why should I pay a tax that can be avoided by a business person with a much larger house but equal or greater income just because they work in a red-state with much fewer people. That seems like it is mainly designed to say “Suck it libtards!!!”

      This is how property taxes work right now, in every state (and blue states more than red, generally). When you buy a house, you are spending on (at least) two different things, size and location. Two equally sized houses, one in San Francisco and one in Fresno, already pay significantly different tax rates. It’s a product of progressive taxing sensibilities, location being a valuable real estate commodity, and how much wealthier you have to be to buy a house in one place versus the other (as well as the wealth you have stored in it, once you’ve purchased it).Report

      • Oscar Gordon in reply to Will Truman says:

        Or, you know, regular folks will get annoyed at having their non-luxury home qualify as luxury because of the price tag and they’ll no longer be willing to pay outrageous prices for an urban shack in the right location.Report

        • …they’ll no longer be willing to pay outrageous prices for an urban shack in the right location.

          This is a really interesting point. What if the inhabitants of these safe little enclaves were forced into a sort of financial migration and dispersed outward into their cities and surrounding areas? They could open some cool little artisan bakeries in blue collar areas and teach the rabble about scones and cronuts.

          Seriously though, there’s something to be said for this. One of the complaints from both the Right and from inside the Left has been that a lot of upper-middle class liberals talk a good game and then place themselves safely in certain areas to avoid having to actually be surrounded by the people they claim to be so interested in helping. It’s possible they actually could improve those areas by sharing their progressive ideas over backyard fences, through PTA memberships, running for local governments, more volunteer work, etc.Report

          • Marchmaine in reply to Mike Dwyer says:

            This is a really interesting point. What if the inhabitants of these safe little enclaves were forced into a sort of financial migration and dispersed outward into their cities and surrounding areas? They could open some cool little artisan bakeries in blue collar areas and teach the rabble about scones and cronuts.

            I’d like to introduce you to RufusF… he has some thoughts on this as well.Report

        • fillyjonk in reply to Oscar Gordon says:

          Gentrification. That’s what I’d fear. I could see the northward creep of Dallas raising our home values here, and eventually our taxes would creep up, too. The house I’m in was a fixer-upper and I doubt I could find a suitable house now for what I paid for it. And if I sold it and (God forbid, I said I’d never do it again) moved into an apartment to economize, the jerk I sold it to would likely just knock it down and build new. Or rent it out at an exorbitant price to college kids.

          I’d have less problem with starting with “let’s tax second and third homes, but have a homestead exemption* for people who own one place and live in it”

          (*We have a homestead exemption where you pay less property tax on your house if it’s a “homeowner dwelling,” I think that’s a way to maybe soak the slumlords a little? I know lots of people with rental property but by golly that’s not something I’d want to do – way too much confrontation, way too much being called on in the middle of the night to fix stuff)

          I dunno. I suspect many luxury taxes would cause the rich – who have the means and the lawyers – to just offshore a lot of stuff, or something, and those of us who are doing slightly better than most of the schmoes in our towns (but aren’t taking Caribbean cruises or buying whatever new product Apple is trotting out because it’s New and Apple) would be the ones winding up bearing the brunt. I see how the temptation to tax real estate comes in there, ‘cos it’s unlikely you could shift your primary dwelling to the Dry Tortugas or somewhere, but….

          One thing the recent economy has taught me is that the middle class folks (and sometimes even working-class) seem to be the ones who wind up taking it in the teeth, no matter what the politicians say.Report

        • Is that location still where the jobs are? Because if the alternative is another half-hour each way to work, people will.Report

      • Nevermoor in reply to Will Truman says:

        Sure. But my high CA property tax rates pay for my roads and schools, and are set in an environment where everyone’s location is similar-enough that a $1-2M house means “simple family home”

        That said, as with any proposed federal revenue generation, the two key questions are (1) what do we want the revenue for; and (2) are we raising the revenue in a smart or fair way.

        I personally hate the GOP SALT tax increase because it utterly fails #1 (the purpose was to give money to rich people) and largely fails #2 (SALT seems pretty clearly a punish of states that tax, rather than a logical way to engage in progressive taxation). Heck, even within CA, Prop 13 means you pay dramatically lower relative property taxes over time, so a richer family that hasn’t moved in 20 years does better than a young family.

        This revenue system at issue in this thread might be a better proxy for wealth, but it’s still a pretty crappy one. So the question is why pick this proxy? The use of the revenue could still, however, cause me to support the plan despite my personal interests.Report

        • Will Truman in reply to Nevermoor says:

          But my high CA property tax rates pay for my roads and schools, and are set in an environment where everyone’s location is similar-enough that a $1-2M house means “simple family home”

          This is true of local property taxes, but less true of federal. Big Difference between San Francisco and Redding.

          That said, I am sympathetic to the view that as a general local government should be property, state government should be sales, and federal government should be income. The main argument against is that it’s generous to wealthy areas at the expense of the poor, as we see when local property taxes pay for schools.Report

      • Saul Degraw in reply to Will Truman says:

        I think NeverMoor has a good point. We know what local property taxes go to. But the comments here are still strong on the resentiments of the rural class.Report

    • Mike Dwyer in reply to Saul Degraw says:

      This is why I am not a fan of progressive taxation in general. You always have someone complaining about how they were taxed unfairly. In this case, as Jaybird points out below, you don’t get some sort of fancy-pants exemption because your very expensive house in San Francisco is just the norm for that neighborhood.

      My idea for really taxing luxury items is to put some kind of fee on things like elite soccer clubs, tennis lessons, traveling baseball teams, etc. My brother-in-law lives just outside of DC and the amount of money that gets spent in his area related to youth sports is staggering. (And SCOTUS-nominee Kavanaugh is in that group).Report

      • Nevermoor in reply to Mike Dwyer says:

        As a huge fan of progressive taxation, this seems backwards to me.

        You should tax either (a) things you want people to stop doing; or (b) things so fundamental to earning/having money you know people will still do them.

        Kids sports, even at prices you don’t like, seem a terrible fit for either theory. Theory 1 should be things like cigarettes or pollution. Theory 2 should be things like “earning money,” “spending money,” or “having money.”Report

      • I don’t get how deducting your state and local taxes and mortgage is fancy-pants — everyone gets to do that. Capping that to punish states who aren’t going to vote for you anyway is bare-knuckle politics, not standing on principle.Report

        • But Mike, we’re not talking about whole states. We’re talking about very specific zipcodes, like the ones that Saul wants to live in.Report

          • We’re talking about just about anything within commuting distance of the Bay Area. Where I live isn’t what I would call fancy, but property tax alone is above the total SALT cap. And it’s much less expensive that SF or Silicon Valley, because it’s neither prestigious nor especially convenient to the high-paying jobs.

            I’d guess something similar occurs near LA, but I don’t know this for a fact.Report

            • I also live in a high-priced area by KY standards. My zipcode has the highest average income in the state. So we paid an extra $25K just for where we live, but it was a trade off for certain things we wanted. When tax time comes, I guess I don’t understand the complaints. It was a choice.Report

              • It was a choice when we bought, and then the rules got changed because we didn’t vote Republican. Most people at least got bribed with some tax breaks in return for huge cuts for the 1% and permanent, ruinous deficits. I got an add-insult-to-injury tax hike.Report

  4. Michael Cain says:

    Just because I feel obligated to put my two cents worth in today… IANAE, but generally believe that taxes on wealth are a bad idea, taxes on illiquid wealth an even worse idea, and taxes on illiquid wealth that can’t be used to generate income still worse. There’s a long list of commercial activities that I am forbidden from conducting from my house…

    Personally I’d prefer to see a progressive consumption tax, defined in a way that could be paid annually and didn’t require merchants to collect it. Our current income and investment reporting arrangements already come close to supporting that.Report

    • Nevermoor in reply to Michael Cain says:

      My understanding of the message from economists is that a well-executed VAT would be far better than our current federal taxation system. The question is whether the same is true of any VAT system we could actually get, which I suspect would fall well-short of being “well-executed.”Report

      • Michael Cain in reply to Nevermoor says:

        Have they got a way to make it progressive? Short of having everyone turn in all their receipts and issuing refunds?Report

        • One thing I’ve heard proposed:

          You declare savings at the end of the year, subtract that (and any other exclusions) and whatever else you have you spent. From there you give rebates.

          Doesn’t work for the unbanked, however.Report

          • Heck, I’ve suggested something like that — almost all of the information necessary to convert the current income tax system into a consumption tax is already reported to the IRS. It also has the advantage, from my perspective, of making it much clearer what a terrific deal people whose income is from capital gains are getting: they pay a lower tax when purchasing the same goods. Different rates for income and capital gains would disappear quickly.

            At the risk of being snide, the unbanked in general (a) aren’t saving enough to make a difference and (b) in a progressive system aren’t going to be paying much in consumption taxes.Report

            • The issue with the unbanked is not so much that we can’t assess how much they owe in taxes, which as you say we can write off. It’s that they are due for a refund, and we can’t find out how much that is. I suppose you could just assume zero in savings and give them a refund based on that, though then you have to worry about people being intentionally unbanked. You could maybe tackle that with an income threshold, though?

              I’m not sure why any of this is preferable to income taxes, though, or what we could more easily turn income taxes into (by incorporating capital gains or whatever).Report

    • Road Scholar in reply to Michael Cain says:

      So housing isn’t a form of consumption? I mean, it sure seems like it is if you’re renting, I’m not sure why it should be viewed differently if you own.

      But you’re backing into an interesting point here. The whole point of production, of anything, including housing, is consumption. So why do some consider it more virtuous to tax consumption rather than production? How it better, or even really different, to tax money coming out of my pocket rather than going in? Or for that matter, just sitting in my pocket? What if it’s a magic pocket where the money inside it increases without effort?Report

  5. George Turner says:

    I can’t think of a better way to cause the real estate market to implode, so lets go for a repeat of 2007!Report

  6. James K says:

    I don’t think its a good idea to give governments a financial incentive to keep the housing market inflated. They already have enough incentives to avoid doing what needs to be done, I’d rather we don’t make it worse.Report

  7. Oscar Gordon says:

    In all this discussion about the potential for a Luxury real estate tax to creep down because of inflated housing markets, we’ve all seem to have forgotten something.

    Your house has two separate values, a land value, and a structure value. Curious as to what they are? Ask your insurance company, they’ll tell you exactly what they are.

    Thus, a luxury tax is not levied against the market value of the home, but against the replacement value of the structure. And while replacement value has gone up over the years, IIRC it typically keeps close pace with inflation, even if land value doesn’t.

    So you look at what the mean replacement value is for an area large enough to capture a full sweep of income brackets, and set the replacement value to be something like 200% (or more, perhaps) of the mean replacement value.Report

    • Road Scholar in reply to Oscar Gordon says:

      Your house has two separate values, a land value, and a structure value. Curious as to what they are? Ask your insurance company, they’ll tell you exactly what they are.

      I have a replacement value policy on my home that’s about 50% greater than what I paid for it. Residential land values are basically nil out here and the actual structure is a depreciating asset. That last fact, that the actual building you call home is a depreciating capital asset, is something easily lost in the midst of a generally rising real estate market. It’s the land that’s appreciating, not the house.Report

      • Oscar Gordon in reply to Road Scholar says:

        The structure can be a depreciating asset, but it isn’t always. If you do nothing to a home except basic maintenance, it will depreciate. Hell, you can perform ‘upgrades’ to a home that’ll depreciate it. But most people do upgrades that cause the asset to appreciate above and beyond the appreciation of the land itself.

        And remember, we are talking about a luxury tax. If you have a 4000 sq ft, 6 bedroom, 4 bath McMansion with a 3 and half car garage and in-ground swimming pool for just you, your spouse, and one kid, you would probably pay the tax, regardless of the land value.Report

        • Road Scholar in reply to Oscar Gordon says:

          If you do nothing to a home except basic maintenance, it will depreciate.

          That’s the key point right there. And, FWIW, my understanding is that the depreciation rate on a house is fairly slow, about 1/3% per year, so not obvious over the short to medium term.

          But most people do upgrades that cause the asset to appreciate above and beyond the appreciation of the land itself.

          But that’s not really appreciation. That’s considered an additional investment that raises the basis for calculating capital gains upon later sale. It’s the equivalent of owning 100 shares of stock and then later purchasing an additional 20 shares. If the share price of the stock didn’t rise in the meantime your portfolio would increase in value by 20%. On the other hand, if you purchased no new shares but the share price rose 20% then your portfolio would again rise by that 20%. Only the latter case is appreciation.

          I own an older home, and to be frank, the wiring is scary. Two-conductor cloth-wrapped cables strung up on insulators in the attic. A breaker box in the basement stairway with a bundle of wires going off into a hole in the wall to… somewhere. Then an old-fashioned fuse panel in a bedroom closet. And I’ve never been able to figure out which fuses/breakers control what. (It’s why I’ve never replaced a flaky light switch in one of the bedrooms.) So would hiring an electrician to rewire the house to modern standards (and a modicum of sanity) be considered maintenance or an upgrade?

          Some things, like an expansion of some sort, are clearly upgrades and others, like painting or replacing worn carpet aren’t, but there’s a lot of stuff in the gray zone to argue about.Report

          • Oscar Gordon in reply to Road Scholar says:

            Assets appreciate because the value is increased through some mechanism. Sometimes it’s as simple as scarcity, or proximity, sometimes it’s because work has been invested. Even your example stocks, when they appreciate, they do so because the corporation has done something to increase it’s value.

            With things that ‘wear out’ (& housing does wear out, although slowly), doing basic upkeep isn’t upgrading. If you replace the Tommy Edison wiring in your house, you aren’t upgrading the wiring, so much as bringing it up to nominal. Now if you (hypothetically) installed superconductive wiring, that would be an upgrade. Similarly with replacing iron pipes with lead solder to the newer PEX pipes (or even just PVC and copper).

            But replacing that builder grade laminate countertop and particle board cabinets with a slab and plywood cabinets, that’s an upgrade, since laminate and particle board are still perfectly acceptable kitchen fixtures.Report

            • Road Scholar in reply to Oscar Gordon says:

              Assets appreciate because the value is increased through some mechanism.
              Agreed. I’m not arguing that appreciation is ex nihilo.

              Sometimes it’s as simple as scarcity, or proximity, sometimes it’s because work has been invested.

              And those are two very different mechanisms. Let’s not muddle them together.

              Even your example stocks, when they appreciate, they do so because the corporation has done something to increase it’s value.

              Sure. But for most investors it’s just riding the train. Unless you’re a really big investor, such that your buy/sell decisions materially affect the valuation, or you’re also a decision-maker in the corporation, your ownership of the stock has absolutely no effect on the price. Someone is doing work there but that someone isn’t you.

              And that’s also true of general housing appreciation. In Georgist parlance it’s called community-generated value, and it’s just unearned income. Worse, it’s often the result of government infrastructure — roads, parks, schools, etc — that are financed through taxes on labor and capital with the landowner as the beneficiary.Report

              • Jaybird in reply to Road Scholar says:

                If you want to see an interesting chart of Bay Area Real Estate trends, you can check this out here.

                This seems to indicate that since the dotcom bubble popped in 2001, the average price of housing has gone up 112%.

                That ain’t people putting in marbletop counters.Report

              • Oscar Gordon in reply to Road Scholar says:

                But is that valuation increase on the structure, or the land?

                Let’s remember the original point, that the value of the structure can depreciate (or appreciate) independent of the land value, especially if you don’t keep the property up.

                That’s why replacement value is useful, because it’s just looking at the cost of replacing that structure today, regardless of any depreciation of the structure. The value of the land that is influenced by location will not have a significant impact on how much it will cost to replace the building should it be lost to fire, or earthquake, or tornado, etc. (unless the location is difficult to access, like a mountaintop home, or on an island without a bridge).Report

              • Road Scholar in reply to Oscar Gordon says:

                Oscar Gordon,

                At this point I’m not sure if we’re actually in disagreement, and if so about what. I had to go back and review the context of your use of replacement value. I’m actually not particularly in favor of this type of luxury tax but I agree that if you were to impose one, using replacement value as the metric to gauge whether something is “luxury” or not is a decent way to go about judging two otherwise identically situated properties.

                Yeah… thinking about it I guess we’re coming at this from opposite directions. Because the structure qua structure doesn’t really capture all the “luxury” either. Consider two identical homes; one in a run of the mill suburb somewhere and the other somewhere like Malibu Beach. Desirability of location certainly factors in to this, no?Report

              • Oscar Gordon in reply to Road Scholar says:

                Oh good, I was starting to worry that I was explaining things really poorly. And I’m not a big fan of this either (luxury is taxed at the POS, after all, and a VAT could capture such luxury much better), but I’m thinking about how it could work without shafting a bunch of the middle class.

                Consider two identical homes; one in a run of the mill suburb somewhere and the other somewhere like Malibu Beach. Desirability of location certainly factors in to this, no?

                Yes, but we have to be very careful how such desirability is weighed when figuring ‘luxury’. Of all the homes in Malibu Beach, how many would be comparable to a run of the mill suburban home? People who are willing to pay that premium for location won’t just build a cottage.

                My house in WA is 1300 sq ft and pretty basic builder house on a postage stamp lot. I’ve added some upgrades (remodeled the kitchen, hickory floors, made the backyard into a lovely patio, etc.), but my insurance company still lists the total replacement value at about $100K (I think, it might be less). The rest of the value is the location. Go up the ridge a bit further, and the lots get bigger, and the view Bellevue and Seattle is commanding. The houses are custom and also get bigger and much more ornate (lots of exterior seating and large west facing windows). Same community, but clearly for the people who don’t balk at dropping 7 figures on a home. The replacement values on those places are going to be considerably higher than mine, regardless of the square footage.

                So while I am certain there are ‘suburban’ homes in premium neighborhoods, I would bet they are not the norm, and they probably get replaced whenever possible with something more fitting.

                About the only thing I would really discount when it came to using replacement value is any cost for features that improve the survivability of a home. Live in a place prone to wildfires, but you spent the money to invest in steel framing and fireproof exteriors and window coverings, the cost of the that will be weighed less. Live in a place prone to flooding, and you made sure your house can be made watertight, or that it can float, that gets discounted. Etc.Report

  8. I think the disconnect here is people thinking a million-dollar home means hot and cold running butlers, vs. those who know it’s quite possibly an older home that needs some work but is located someplace that’s highly desirable, say for only being 10 miles (i.e. an hour) away from work.Report

    • On the one hand, I think this is an example of whose ox is being gored. Making “THE ONE PERCENT” pay their fair share sounds good. But when it comes to making me pay my fair share, well….it’s complicated. Even though I’m better off than a large majority of other Americans, I don’t *feel* rich. Therefore I’m going to make arguments that make me sound like Grover Norquist. On that particular “one hand,” I’d say it’s an opportunity for those who are being targeted to rethink how they talk about others who are supposedly more privileged than they. And maybe many (not all….in fact, by definition not even a majority) of us are actually more privileged than we like to claim.

      On the other hand, you’re right. And Michael Cain is right. This type of luxury tax (assuming how we define luxury and assuming we take account of Oscar’s very good comments) might not be the right move after all.Report