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First, of course tax increase is a market value depreciation. But only half of the housing is apartments, another half is commercial real estate.

It is less than perfectly clear to me why that matters.

The problem is that if you raise real estate taxes on your residential owner-occupiers, a number of them becomes insolvent (because this tax is discounted in the market value).

Therefore, if you have a lot of homeowners, raising taxes on residential real estate will be electorally difficult.

If you fail to tax residential real estate, you weaken the defence against real estate bubbles.

Therefore, lots of homeowners makes your real estate market harder to defend from bubbles.

The logic is broadly similar for corporate real estate, but fewer people are involved, so you lose fewer direct votes.

But second, real estate tax transfers money from economic rent payments to the demand of goods and services.

No.

Inasmuch as taxes crowd out amortisations, they don't matter to demand. Taxes destroy money, amortisation destroys money - either way, the money is destroyed.

Inasmuch as taxes crowd out interest payments, you reduce banker income, which ceteris paribus reduces demand.

Which is a feature, not a bug, because bankers' demand profile tends to be undesirable (a notably higher fraction of their spending goes to renting politicians and buying pundits than is normal for a citizen of a democratic country). And you can always compensate for the lost demand by spending on more productive things.

Why would "revenue-neutral" become such a keyword?

Because if you take more home in taxes than previously, then ceteris paribus people will have a harder time meeting predetermined financial commitments like debt servicing. People take out debt based on the current tax regime, meaning that if you have high private debts, raising taxes becomes harder. Homeownership promotes private debt, because people have to take out mortgages.

So widespread homeownership increases resistance to tax increases.

And land tax is not a "tax" really. It is a return of public wealth to the public.

All taxes are under a fiat currency.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 4th, 2011 at 05:24:36 PM EST
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