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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
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