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Money that just sits in your bank account does not cause inflation.

Neither wealth creation. Why should government create money to somebodys bank account? That is not the function of money.  Why should rentier accumulate this capital and not the wealth creator?

If you tax the rentier, you make sure that the rent is paid to the tax man rather than the private rentier.

You don't see the difference?

But that does not make the rent go away - the user still has to pay it.

You keep saying this, but i have never said that rents go away. Labour taxes go away.

What it does do is alter the term structure of the rent - from being paid up front in the asset price to being paid over time in taxes.

Less unproductive debt and interest.

Which is helpful in preventing bubbles, but not make the rent any lower in and of itself.

Bubbles and labour taxes (=wealth transfer from the poor to the rich).

But it does not, unless you allow scammy stuff like negative amortisation loans.

It does, if interest is not a return to productive capital.

by kjr63 on Mon Jun 13th, 2011 at 09:19:12 AM EST
[ Parent ]
Why should rentier accumulate this capital and not the wealth creator?

Money != capital.

And there's no reason the rentier should get to keep that money. I'm just pointing out that taking it away from him will not change anything until such time as he might have wanted to spend it. Money only matters when it is used.

When you believe that you can lower labour taxes and raise property taxes, and that these will compensate each other, you are engaging in a version of the loanable funds fallacy. The term structure of payments and the valuation of collateral matters, not just net present value.

If you tax the rentier, you make sure that the rent is paid to the tax man rather than the private rentier.

You don't see the difference?

On the distribution of wealth? Absolutely. On your political culture? Absolutely. On consumer prices? No.

But that does not make the rent go away - the user still has to pay it.

You keep saying this, but i have never said that rents go away. Labour taxes go away.

And as I do not tire of pointing out, your policy proposal is unstable against a tax-cut government. Because asset prices are easier to inflate than deflate, and property taxes are therefore easier to cut than to raise.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 13th, 2011 at 05:17:52 PM EST
[ Parent ]
When you believe that you can lower labour taxes and raise property taxes, and that these will compensate each other, you are engaging in a version of the loanable funds fallacy.

Not really. Property taxes are a subset of capital taxes, and the point of capital taxes is to force money into motion.

This has nothing to do with money being too cheap. The aim of capital taxation is to move money out of the fake lalala casino economy into the productive economy - and you can only do this by making the casino economy so unprofitable that investors are forced to do something useful with their cash.

"Useful" meaning "physically or culturally productive" - i.e. more than a speculative fiction.

Property is a hybrid store of value that has a basic utility value - it provides a roof over your head - and a capital/investment value that can be multiply leveraged.

If you don't tax the capital value, you get a bubble followed by a crash, because the capital value will always be multiply leveraged in various unlikely schemes, and in bubble land, what goes up must come down.

What you shouldn't tax is the basic utility value. And ideally you should also run a housing policy that keeps the utility cost so low that it doesn't start mutating into significant investment capital.

The real reason property taxes don't work like this is because the 0.1% who benefit from vast estates don't want them to. Slapping a fixed 10% annual tax on the largest land + property owners - say from £1.5m upwards - would crash the country estate market and force them to sell their palaces to the state.

Some of these estates are absolutely vast, with literally millions of acres owned by a relatively small number of private landowners.

The UK actually did something similar to this in the 1950s and 60s. The results were bad for the estate owners, but good for everyone else. Shrinking price differentials made the housing market a much more interesting and accessible place.

It's possibly not a coincidence that this period coincided with a massive boom in new housing development.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jun 13th, 2011 at 09:58:29 PM EST
[ Parent ]
That's all obviously true.

It is also completely tangential to my point, which is that you cannot both have a high fraction of owner-occupiers and responsible real estate taxation, because that is unstable against tax-cut populists: The tax-cut populist gets to enjoy the bubble, the responsible party that comes after it gets to clean up the mess. That only works if either (a) the voters understand that the pain they suffer during the cleanup is actually caused by the irresponsible tax-cutters, not the responsible adults who raise real estate taxes. Or (b) the fraction of owner-occupiers (and their dependents) is sufficiently small that you can fuck them over with relative electoral impunity.

I would not bet a lot of money on (a), let alone an election campaign.

Of course, you could get creative and automatically index mortgage principals to some real estate index. That would prevent homeowners from going underwater when the market tanks (and reduce their ability to play the leverage game). But then you'll have your banks running equity risk, and I am not completely sanguine about the implications of that for financial stability.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jun 14th, 2011 at 12:03:36 AM EST
[ Parent ]
In that scheme you'd get controlled equity risk vs uncontrolled explosive equity risk - the latter being the inevitable outcome of the current system, and Not a Good Thing.

So I wouldn't see controlled equity risk as a problem, because any scheme that controls risk is also going to lower volatility. It becomes hugely less likely that the entire economy will implode because of a bubble, and the real risk of going underwater becomes much lower for everyone.

As for the political argument - you can't immediately fix a democratic deficit by moving money around. You need to have decent representation first - as in policy influence at every level, and not just token show-voting every few years - and then you can start on the rest.

Unfortunately with the current system, even if there's an outbreak of something approaching bottom-up democracy, it's soon co-opted into the usual economic tyranny, making power redistribution politically impossible.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Jun 14th, 2011 at 04:30:04 AM EST
[ Parent ]
In that scheme you'd get controlled equity risk vs uncontrolled explosive equity risk

You also get a huge incentive for the financial sector to encourage bubbles (albeit a smaller one for homeowners to participate in them).

As for the political argument - you can't immediately fix a democratic deficit by moving money around.

But my point is that high property taxes requires that property holders are not a politically effective constituency.

In other words, they either have to be a small constituency, or they have to be labouring under a democratic deficit that prevents a large constituency from materially affecting policy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jun 14th, 2011 at 06:49:21 AM EST
[ Parent ]
It's possibly not a coincidence that this period coincided with a massive boom in new housing development.

In Finland happened, after so called "Renter Law" (1919), in the 1920's a massive boom in agriculture and development. Over 100 yrs long extreme poverty in countryside was abolished in only 10 years, simply by dismantling the feudals.

All "social programs" and "birth control education" schemes were waste of time, only thing that was needed was kicking out the parasite (the lords), and liberate people from rents.

by kjr63 on Sat Jun 18th, 2011 at 08:34:41 PM EST
[ Parent ]
...only thing that was needed was kicking out the parasite (the lords), ...

There we goooooo.  Everyone paying attention?

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Sat Jun 18th, 2011 at 08:48:15 PM EST
[ Parent ]
When you believe that you can lower labour taxes and raise property taxes, and that these will compensate each other, you are engaging in a version of the loanable funds fallacy.

They will more than compensate, because increasing wealth creation cannot affect negatively to any payments or valuations now or future.

On consumer prices? No.

Of course prices will not fall, because increasing supply creates increasing demand. Let's put it this way: more value with same price; more wealth, less parasites.

by kjr63 on Sat Jun 18th, 2011 at 08:11:09 PM EST
[ Parent ]
One elaboration:

increasing supply creates increasing demand

To be more precise, income distribution to wealth creators creates increasing demand in a parasite-free economy. With multiplier effect.

by kjr63 on Sat Jun 18th, 2011 at 08:16:31 PM EST
[ Parent ]
They will more than compensate, because increasing wealth creation cannot affect negatively to any payments or valuations now or future.

You are confusing stocks and flows. You cannot use higher income tomorrow to answer margin calls today.

Of course prices will not fall, because increasing supply creates increasing demand.

Say's fallacy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 19th, 2011 at 10:00:24 AM EST
[ Parent ]

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