A Flat Tax Isn't Simpler, Right?

[retire@40]

I didn't have to think very long to come up with some big negatives.

The distortion of the real estate market by this system would be extreme. If people are taxed on the value of their house and other real estate exclusively, they will go to some pretty extreme lengths to reduce their property ownership. I can see people in places with no shortage of space living in those little pods that the Japanese use for travelling.

I suspect that you would see an awful lot of real estate become government owned as people try to ditch their tax liability.

Businesses would contract their property use to reduce their tax liability. A sit-down restaurant would become a luxury only the very wealthy would indulge in. Most fast food places would become kiosks.

Millionaires would stop building fancy houses. The ultra-high end RV, plane, and yacht markets might explode depending on whether they were categorized as "real estate" for tax purposes.

People may want to reduce their property ownership to pay less tax, but what is wrong with that? People do that now anyway. Why don't you live in a $50 million home right now under the current tax system? What's that? Because the cost of maintaining it is so high? People will always tend to purchase as much as they can afford. It happens with motor vehicles. It happens with homes. You want to live in a pod. Be my guest. Most people will not. Many millionaires will still want to live in luxury.

The government will not want to keep any real estate foreclosed upon due to unpaid real estate taxes. It will be sold at auction to recover at least those unpaid taxes plus interest and penalties so no tax revenues are lost.

By the way, since people have to live somewhere, you won't see many people "ditching" their home due to non-payment of taxes since they will still need to pay the tax in the next home they live in.

Businesses will always seek the most tax-efficient method to operate. Why wouldn't they look for ways to reduce their tax liability? They do it now with loopholes and creative accounting. The NRET would make any property ownership by a business cleaner and more transparent to tax.

Yes, any home including any RV, yacht, etc with a kitchen and bath that one may live in would be included in the NRET. Most of these type vehicles are very expensive, so the value would approximate a land-based home. The reason people would live in an RV or yacht is because they want to, not because they would do it strictly to save on taxes.

 

[retire@40]

In Texas, if you fence your property, and keep a couple of [-]goats[/-] horses, you pay the "agricultural" property tax rate.

I don't see that as a negative. If an area is conducive to agriculture and it's justified, more power to them. I can't see this happening in parts of Manhattan.

 

[retire@40]

Goodbye McMansions!

Any change will be so bitterly opposed by those who pay more, so I'm sure change is impossible.

I'm no economist, but with everyone paying something into the system and with much less possible tax evasion than we have today under our current tax system, my gut feeling is that even those in the top tax brackets would be pleased to see their overall tax decrease under a national real estate tax.

It would be very interesting to have a real economist crunch the numbers under this plan.

Change is ALWAYS possible

 

[retire@40]

I like the idea. Thanks for bringing it up.

Why wouldn't cash, gold, art, stocks, etc., be "property"? I.e., why not a wealth tax that includes all tangible assets? 0.5% of Gates' or Buffett's ~$50B wealth tax/yr would $250M. Somebody with $5M assets tax would be $25K. Somebody that's in net debt would be $0.

Thanks. I like the idea too.

The goal under the national real estate tax is simplicity, efficiency, and transparency.

You don't want to worry about taxing items other than real estate because those other items you mentioned (cash, gold, art) are too easy to hide, less static (meaning you may have $100K in cash today but spend it tomorrow), and in some cases more difficult to value (such as art). Also, where would you stop? After taxing cash, gold, art, and stocks, do you then move to your furniture, tools, paper clips in your drawer? It would not be practical to go beyond taxing real estate.

 

[retire@40]

Oh, don't stop there. Tax the intangible assets, too.

Like I said, this is what would happen if you went beyond my original proposal to tax only real estate.

 

[BOBOT]

Why tax income at all? Simpler by far to tax consumption. There are economic implications, of course, but I think the positive could outweigh the negative.

Anybody familiar with the so-called Fair Tax plan ? I'm not advocating, just think it's an interesting idea. Not sure about the "pre-bate" thing, though.

 

[Independent]

Why tax income at all? Simpler by far to tax consumption. There are economic implications, of course, but I think the positive could outweigh the negative.

Anybody familiar with the so-called Fair Tax plan ? I'm not advocating, just think it's an interesting idea. Not sure about the "pre-bate" thing, though.

I've got a couple observations.

1) A simple income tax with an unlimited traditional IRA has the same economic incidence as a national sales tax (e.g. "Fair Tax").

2) Countries that have tried broad-based sales taxes with rates over 10% have found so many compliance problems that they switched to VAT. The economics are the same, but they find the VAT more enforceable.

 

[Alan]

Why tax income at all? Simpler by far to tax consumption. There are economic implications, of course, but I think the positive could outweigh the negative.

Anybody familiar with the so-called Fair Tax plan ? I'm not advocating, just think it's an interesting idea. Not sure about the "pre-bate" thing, though.

If you search this site you'll find plenty of discussions on this proposal.

As to a national real estate tax, I'm sure it would quickly get very complex and plenty of folks would find innovative ways of reducing their taxes, keeping the current army of tax accountants in full employment.

This year I visited a lot of old historic towns in the UK and plenty of those old houses had some of their windows bricked up - this was in response to the "Window Tax" of the 18th and 19th centuries.

 

[Texas Proud]

In response to the national RE tax....

First, (and this is from memory of 30 years ago... so who knows)... I think it is unconstitutional...


And if it is not, it will never pass... the highest cost property are more 'blue state' than red... (NY, New England, Washington DC, Cali...) The coasts would have to pay a lot higher tax then the midwest or south... politically, it is a non-starter...

Also, would you have an ag rate If not, then you are going to kill off a lot of ranchers and farmers... heck, ranchers today are selling cattle for less than it costs to feed them here in Texas...

 

[samclem]

I'm really surprised nobody has ever talked about scrapping the entire tax code as it relates to individuals and implementing a national real estate tax.

This would be the best rationale for building one of those groovy earth-sheltered homes. Live in your 2000 sq feet of underground comfort, only a two-room tin shack at ground level for the appraiser to see.

"Yep, it ain't much, but we get by. Sorry to ask you to leave, but we have to dump out the chamberpot now."

 

[retire@40]

As to a national real estate tax, I'm sure it would quickly get very complex and plenty of folks would find innovative ways of reducing their taxes, keeping the current army of tax accountants in full employment.

This year I visited a lot of old historic towns in the UK and plenty of those old houses had some of their windows bricked up - this was in response to the "Window Tax" of the 18th and 19th centuries.

Could you list some examples of how a national real estate tax could get very complex?

Regarding your example of the window tax, Chief Justice John Marshall once said, "The power to tax is the power to destroy." People don't necessarily need a lot of windows in their home, but they always do need a place to live.

 

[retire@40]

In response to the national RE tax....

First, (and this is from memory of 30 years ago... so who knows)... I think it is unconstitutional...


And if it is not, it will never pass... the highest cost property are more 'blue state' than red... (NY, New England, Washington DC, Cali...) The coasts would have to pay a lot higher tax then the midwest or south... politically, it is a non-starter...

Also, would you have an ag rate If not, then you are going to kill off a lot of ranchers and farmers... heck, ranchers today are selling cattle for less than it costs to feed them here in Texas...

If property taxes are constitutional locally, then I'm not sure why they would not be constitutional from a national perspective, but it would be nice to see a good source to back up that claim either way.

There is a reason the highest cost properties are in on the coasts. It's because people want to live there more than in the middle of the country. So for the luxury of being near the beach, better paying jobs, etc, there would be a higher tax due to the higher demand for those properties.

I mentioned in my original post that the government could have "tax-free" zones. Farmland could be at a reduced or tax-free rate.

 

[retire@40]

This would be the best rationale for building one of those groovy earth-sheltered homes. Live in your 2000 sq feet of underground comfort, only a two-room tin shack at ground level for the appraiser to see.

"Yep, it ain't much, but we get by. Sorry to ask you to leave, but we have to dump out the chamberpot now."

LOL!!! Think of all the open land that would create! Although getting flood insurance might be tougher.

 

[Texas Proud]

If property taxes are constitutional locally, then I'm not sure why they would not be constitutional from a national perspective, but it would be nice to see a good source to back up that claim either way.

There is a reason the highest cost properties are in on the coasts. It's because people want to live there more than in the middle of the country. So for the luxury of being near the beach, better paying jobs, etc, there would be a higher tax due to the higher demand for those properties.

I mentioned in my original post that the government could have "tax-free" zones. Farmland could be at a reduced or tax-free rate.

Because States work under their state constitution and the Federal gvmt works under the US Constitution...

Here is the langugae that allows taxes:

"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."


Oh... found what I was looking for, from Wiki, including the comment:

"Article I, Section 9, Clause 4:

No Capitation, or other direct, Tax shall be laid, unless in proportion to the Census or Enumeration herein before directed to be taken.
​

This clause basically refers to a tax on property, such as a tax based on the value of land,[2] as well as a capitation."


So, until there is an amendment to our Constitution, there will not be a federal property tax....

 

[harley]

So, until there is an amendment to our Constitution, there will not be a federal property tax....

Good one!...Wait, were you serious? You think they actually pay any attention to the words on the paper if it gets in the way of "progress"?

 

[Animorph]

An RE tax can drain the "wealth" of someone with no income, and whose "wealth" is totally tied up in their house. Especially if federal and state taxes are being collected. My MIL would probably have to sell her house.

The state RE taxes are not particularly simple. They have waivers or freezes for seniors, assessed values with constrained growth versus market values, and procedures for challenging the estimated value of your house. Heck, it costs a few hundred to have someone come over to assess your house for a sale or a loan, so valuation is not going to be very simple. Maybe the tax guy would have to visit your house each year? I'm sure it can be screwed up even more than that.

 

[samclem]

Maybe the tax guy would have to visit your house each year?

"..and when the taxman comes to the door, Lord, the house looks like a rummage sale."
--John Fogerty, Fortunate Son, 1969

 

[Alan]

Could you list some examples of how a national real estate tax could get very complex?

Regarding your example of the window tax, Chief Justice John Marshall once said, "The power to tax is the power to destroy." People don't necessarily need a lot of windows in their home, but they always do need a place to live.

How many places do they need to live? Would there be a break on a 2nd home either for work or vacation purposes?

Some MPs in England have recently gone to prison for cheating on their property taxes related to the fact that there is a tax break for owning or renting 2nd properties to be able to work in Westminster and back in their constituencies. (many more paid money back and had their wrists slapped)

I am sure that any implementation of a new tax like this will be riddled with deductions, credits, exemptions etc. One thing the government does well is make things complicated.

 

[Texas Proud]

Good one!...Wait, were you serious? You think they actually pay any attention to the words on the paper if it gets in the way of "progress"?

Yep... serious on that one... most of the time they play games, but I doubt either side would try and go against this one... no matter how much 'progress' they think there is....

 

[ChiliPepr]

I like the idea. Thanks for bringing it up.

Why wouldn't cash, gold, art, stocks, etc., be "property"? I.e., why not a wealth tax that includes all tangible assets? 0.5% of Gates' or Buffett's ~$50B wealth tax/yr would $250M. Somebody with $5M assets tax would be $25K. Somebody that's in net debt would be $0.

What about the family that has a small business or a farm worth 2 or 3 million, but only breaks even every year on cash flow?

 

[samclem]

What about the family that has a small business or a farm worth 2 or 3 million, but only breaks even every year on cash flow?

They might not be big supporters of this plan.

Maybe there will be various agricultural rates indexed for soil quality, rainfall, etc. But, the only way to keep things simple is to tax all real estate at the same rate (after all, if we make an exception for farms we'd also need a special rate for pay parking lots, for drive-in theaters, etc) and just go with a standard rate for all real estate based on property values regardless of use. When farms start to go under due to the high taxes, there won't be many buyers and their value will go down (a long way) to a point where the land costs plus the tax will allow farming to be profitable. And, as land is taken out of farming, food prices will go up which will also be a help to those three remaining farmers.

 

[M Paquette]

Maybe there will be various agricultural rates indexed for soil quality, rainfall, etc.

A land tax or real estate tax would be a type of direct tax, and as such falls under Article 1 Section 9 of the US Constitution, which requires that it be apportioned by state population.

I suspect setting up such a rated valuation scheme would run up against some basic issues pretty quickly.

 

[retire@40]

"Article I, Section 9, Clause 4:

No Capitation, or other direct, Tax shall be laid, unless in proportion to the Census or Enumeration herein before directed to be taken.
​

This clause basically refers to a tax on property, such as a tax based on the value of land,[2] as well as a capitation."

So, until there is an amendment to our Constitution, there will not be a federal property tax....

OK, such a radical change in the tax system would require an amendment. Seeing that the 16th amendment has turned into a disaster, perhaps it's time for that change. There are so many people in favor of scrapping the current tax code that there could be enough support for a national real estate tax to take hold.

 

[retire@40]

An RE tax can drain the "wealth" of someone with no income, and whose "wealth" is totally tied up in their house. Especially if federal and state taxes are being collected. My MIL would probably have to sell her house.

The state RE taxes are not particularly simple. They have waivers or freezes for seniors, assessed values with constrained growth versus market values, and procedures for challenging the estimated value of your house. Heck, it costs a few hundred to have someone come over to assess your house for a sale or a loan, so valuation is not going to be very simple. Maybe the tax guy would have to visit your house each year? I'm sure it can be screwed up even more than that.

That's why there could be a very low rate (possibly even a threshhold exemption) on the first few hundred thousand dollars of value.

Yes, there will be challenges to assessed values, but since towns don't have a major problem doing this, the federal government wouldn't either. They may just piggyback off the already existing assessed values established by the towns.

 

[retire@40]

How many places do they need to live? Would there be a break on a 2nd home either for work or vacation purposes?

Some MPs in England have recently gone to prison for cheating on their property taxes related to the fact that there is a tax break for owning or renting 2nd properties to be able to work in Westminster and back in their constituencies. (many more paid money back and had their wrists slapped)

I am sure that any implementation of a new tax like this will be riddled with deductions, credits, exemptions etc. One thing the government does well is make things complicated.

I don't see a need for a break for owning more than one home. Anyone that can afford more than one home does not need a special break.

It's possible that there may be some exemption for the truly poor, but compared to the thousands of loopholes in our current tax system, they would be minimal.