Property taxes

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Last Thursday, Tim Callan and I presented our views on the property tax. This attracted some media attention in the Times, RTE, and Independent (2, 3). The papers are here and here.

Higher taxes are unavoidable. Property taxes are less bad for economic growth than are higher income taxes. It therefore makes sense to replace the stamp duty with a property tax. There are two snags to this.

First, a property tax is regressive. Poorer people would pay a greater share of their income in tax. This can be repaired, either in the design of the property tax itself (e.g., income-dependent exemptions or a non-linear tax) or through changes in income taxes and benefits.

Second, a property tax should be based on the value of a house. The Revenue does not know this value, and building up the required data will take a few years at least. The government may be tempted to introduce a flat tax instead, or use self-assessment. A flat tax is very regressive. Self-assessment without proper sanctions rewards dishonesty. It is feasible, however, to introduce a property tax based on assessed values, and assess the value using simple rules (e.g., county and size).

A property tax would hit people who are income-poor but property-rich. It would act as an incentive to mobilise their wealth.

(family matters delayed this post)

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56 Responses to “Property taxes”

  1. Joseph Ryan Says:

    @Richard Tol.
    re:Second, a property tax should be based on the value of a house. The Revenue does not know this value.

    How about insurance value?
    Most people insure their houses at the reinstatement cost. In fact if you ahve a mortgage, the bank will oblige you to insure. There would be some anomalies but the insured value would be a good starting point. Get the information from the insurance companies, assign property tax based on this value and allow an appeal.

  2. Kiwi Peter Says:

    In New Zealand it was mooted earlier in 2010 that we would have a property tax, around 0.5%. It would have been based on the land value only, not the home. It would have been collected thru the local council rates so easy to impliment & collect.
    Land over a certain size would be exempt if it was farmland.
    Taxing on the land only would incentivise people to use the land more efficiently if say it was empty. At least building a house gives positive GDP.
    Taxes were also to drop to compensate for the land tax.
    The tax did not eventuate, but we had a 2.5% increase in VAT plus tax cuts.

    PS Good luck with negociating your bailout, if you are going to.

  3. hoganmahew Says:

    I really don’t like valuation taxes. Why would you bother to improve your house (increase the energy efficiency, for example) if you are going to have to pay extra for it every year? If you keep your house in good order, upgrade it, you end up paying more than your neighbour in his tumbledown shack.

    Equally, though, an area tax, even by country or town, would be unfair as it would take no account of the differences in wealth. There are plenty of big worthless houses in the countryside which could not be sold for enough to move into smaller houses in the towns (even if one would wish to do so).

    Finally, what is hoped to be achieved by property tax? Is it to pay for local services? Surely some sort of rates or local income tax would be more appropriate?

    What about a sales tax on houses? Flat-rate 2.5%, no exceptions. Seller pays…

  4. Kiwi Peter Says:

    Hogan – Tax the land only, unless you are by a cliff you won’t be able to move/lose it! So you can upgrade your house, the land value stays the same. Empty land becomes a burden so people will have to use it more efficiently or sell it.
    Land taxes do lower land value but should have the effect to use the land more efficiently.

  5. Brian Flanagan Says:

    How about a window-based tax as was used in the UK and France?

    This would be very easy to assess and verify. For example, a typical semi with 10 windows would pay €600 based on a tax of €60 per window A small cottage with only 4 windows would pay €240 in contrast to €1,800 payable by a large mansion with 30 windows.

    Rules about income exemptions, upper limits and the exclusion of skylights, slit windows and windowed doors would prevent “daylight robbery”.

  6. hoganmahew Says:

    @Kiwi Peter
    It would be a good/better idea to tax land. Unfortunately, I think, despite an agricultural exemption, that it would be politically difficult. It is going to be hard enough to tax buildings without trying to get people to buy in to a taxing of the ground under their feet!

  7. Kevin Lyda Says:

    First, I have a question for economists. My understanding is that for a market to function properly people need to have good information on the value of the things they are buying or investing in. Am I correct in that understanding?

    Regardless Mr. Tol is saying that the Revenue will have a hard time assessing value. If the Revenue – a government department with an expertise in financial matters – is having a hard time assessing value how were residential property purchasers supposed to assess value?

    An answer to that question when discussing mortgage cramdowns would seem to be relevant.

    As for property tax I think it would be a better idea than stamp duty. Stamp duty seemed to encourage poor decisions by government and was an incentive for the property boom. A property tax would act as a brake on property booms. It wouldn’t stop them of course but it might limit them.

    I’d support it as long as the last stamp duty tax counted towards the balance of the property taxes owed. To combat the regressive nature of the tax I think excluding a portion of the value of the house from property tax would be a good idea and then making a sliding scale from there would be a good idea. Obviously it’s a lot more complicated than that, but there should be something to counteract the regressive nature of the tax.

    @Joseph: Assessing based on insurance value – I thought insurance value also factored in the mortgage cost. With negative equity that would mean a property tax based on such values would mean such property owners would be punished by both the market and the tax code. Not only is it unfair I suspect it would lead to more defaults – and we’ll have enough already.

  8. Richard Tol Says:

    @Kevin
    The issue is not that it is difficult to assess the value of a house. Rather, the Revenue would have to assess the value of all houses. That is a big job.

  9. Joseph Says:

    HOw about a property tax based on how badly into negative equity you are!!

    Or mortgage still left to pay off!!

    Or the amount I shell out to my lender every month!!

    Obviously lower for the worse the position….. would suit me. And I didn’t buy property at the worst (peak) time because I wanted to speculate. I bought it because I wanted to provide my family with a home when I moved back here. I remember thinking at the time, that I could buy a mansion back in France for what I am paying for this tiny 2 up 2 down!!

    Now they want to tax me on it? I’m leaving.

  10. Joseph Ryan Says:

    @Kevin.
    Insurance is designed to cover the cost of a loss. I.e rebuild cost. You may have thought I meant mortgage protection insurnace value which would reduce in value.
    The “insurance value” should always equate to cost of rebuilding the home.

    @Kiwi
    In the long term the NZ idea to tax on land values is a very good one. In Ireland right now, the focus is very much on the short term and getting shorter!

  11. Kevin Lyda Says:

    @Richard Tol: Could you answer the question about markets? Don’t markets function best when the buyers and sellers can accurately assess value?

  12. P O'Grady Walshe Says:

    @Joseph: It is currently impossible to determine maket value for the majority of residential property and in the absence (at present) of a certralised and transparent system of reporting property transactions it is likely to remain so.
    The suggestion of using insurance (replacement) values is a good one as it stands up to a greater degree of scrutiny and verification that market value. It is broadly consistent across the country as it ignores site value.

  13. Drumroe Says:

    (family matters delayed this post)

    This post is a traitor to family and the future. If you have your way family matters will only get worse, destroying the fabric of life.

    …and why do taxes need to go up? There is no just courts? The robbers and swindlers are in charge and will not be made to pay restitution; that would pay off this debt that they created?

  14. Drumroe Says:

    There is no debt forgiveness?

  15. Garry Says:

    Silly the way the academics have mislabeled this new tax proposal or bought the line from the kleptocrats.

    Whats proposed it not a property tax, its a tax on home ownership. Theres already a tax on ownership of investment properties.

    Funny there is no tax on the land banks or buildings the developers, NAMA, church, farmers, state agencies etc own?

    Whatever happened to equality?

  16. EWI Says:

    A property tax would hit people who are income-poor but property-rich. It would act as an incentive to mobilise their wealth.

    Pity that we’re in the aftermath of a burst property bubble/bank failure in progress. I was, by the way, moved to read the following from you in the IT:

    “Overvaluations of properties would be “more severe for poorer people”, Mr Tol said.

    “It’s clearly not perfect, but perhaps it’s the only thing we can do.””

  17. Kevin Lyda Says:

    Oh, and Bruce Schneier wrote a post a number of years ago on self-enforcing protocols: http://www.schneier.com/blog/archives/2009/08/self-enforcing.html

    “Here’s a self-enforcing protocol for determining property tax: the homeowner decides the value of the property and calculates the resultant tax, and the government can either accept the tax or buy the home for that price. Sounds unrealistic, but the Greek government implemented exactly that system for the taxation of antiquities. It was the easiest way to motivate people to accurately report the value of antiquities.”

    Obviously houses with mortgages larger than their real value are an issue here, but barring that issue it would be an interesting method of doing property tax.

  18. Ludwig Heinrich Edler Says:

    Very good points and well presented. Just some comments:

    1) Property taxes need not be regressive (you make allusion to this in the post). Specificially, an ideally designed property tax will be as a proportion of the imputed rental value of the asset, as opposed to the NPV. Since rent value is a (potential or realised) stream of income, a flat x% with a € y exemption threshold guarantees progressivity; as in a function tax_in_€ =x*(r-y) where r = imputed rent value.

    So a house that rents for €2,000 a month subject to an 4% property tax with a €500 exemption limit would pay €60 a month; a more modest dwelling of €1000 a month would only pay €20 a month in property tax.

    Of course, the 4% is just illustrative and might need to go higher or lower.

    Calculating imputed rental values is much easier and much less subject to error than calculating sales prices. The CSO could be easily tasked with the calculation as part of the next round of census or as an indepenent exercise.

  19. Deirdre Says:

    Property tax is morally wrong. I paid for a house out of my NET income, AFTER tax. Now they want me to not own my home at all, but essentially pay rent to the State for it? They can get lost. I’d go to jail before I’d pay this tax.

    They have it in the States. Pretty hefty too. Elderly people get thrown out of their family homes they lived in all their lives ALL THE TIME as they are unable to pay property taxes on them. Classy. One more way we can become more like America, and we all know how much they like taking care of their citizens.

    I normally like this site but endorsing this tax is wrong.

  20. Joseph Says:

    @Kevin Lyda – “the government can either accept the tax or buy the home for that price.”

    I wonder what small army of civil servants would have to be set up to run that one?

    It would also help those who are desperate to sell but are getting offers of 20%+ below current market value at the moment. Value it at 5-10% less and invite the government to come and buy your house from you as it will be the best offer around.

  21. EWI Says:

    @ Joseph

    I wonder what small army of civil servants would have to be set up to run that one?

    There’s already a “small army” of civil and public servants (which grew up around the property part of the economy) and underemployed building professionals (ditto) who are available for such work, if the political initiative is there.

  22. Brendan Quinn Says:

    Land value tax would be best option. Probably should be called land value charge to get across idea that the land use needs to be paid for regardless. This protects property rights but ensures that we understand that with the right to own property comes the responsibility to do something productive with it or to pay for its usual rise in value over time. If land had no value we would be paying the same price it cost in 1508 AD. Land rises in value because the infrastructure that society builds around it makes it rise in value. If land is left idle then it is speculative. An annual charge to local government would encourage land owners to make productive use of land. Agri land is productive so wouldn’t be charged. Farmers could opt in to use land value charge instead of paying income tax for example. Property tax is a tax on capital improvement and a disincentive to increasing value of property. Better to invest money so where else. Why is this not obvious to economists?

  23. Kevin Lyda Says:

    “It would also help those who are desperate to sell but are getting offers of 20%+ below current market value at the moment. Value it at 5-10% less and invite the government to come and buy your house from you as it will be the best offer around.”

    If all the offers are 20%+ below “market value” then your determination of “market value” seems to have problem, doesn’t it? I’m just a computer science major so perhaps I don’t fully understand markets (hence my question to Mr. Tol). Isn’t the definition of “market value” the value that the market will pay for a thing?

  24. Joseph Says:

    @Kevin Lyda

    I take your point. What I meant is that there are the usual vultures out there with cash to burn who will try to press those in difficult situations to part with their assets at below a reasonable valuation. This is how, during recessions in particular, the rich get even richer and the poor get poorer. In the absence of normal buyers I guess there is no market as such though….. so how can the government assess whether you have truly undervalued your house when doing self-assessment for property tax purposes…. beats me.

  25. Kevin Lyda Says:

    hoganmahewwrites: “I really don’t like valuation taxes. Why would you bother to improve your house (increase the energy efficiency, for example) if you are going to have to pay extra for it every year? If you keep your house in good order, upgrade it, you end up paying more than your neighbour in his tumbledown shack.”

    Good point. I used to live in Long Island, New York. There were elderly people on fixed incomes there who would actually remove improvements on their homes to reduce property tax.

    Taking energy efficiency into account when assessing tax would be an interesting idea. Allowing home improvements to be deducted against tax would also work – it could also reduce some of the black economy.

  26. Ciarán Says:

    Why not just change “the government can either accept the tax or buy the home for that price” to “the government accepts the tax and at such a time that the home-owner sells the house the difference between the sale price & the submitted value year-on-year is taxed at 60% or 70%”.

    If you are not planning to sell you you might think you can get away with it, but the penalty is severe enough that the vast majority of people would try not to take any risks.

    Further, this might help curb price rises in a future bubble (which obviously won’t be for another 30 years – but people are forgetful) because nobody would want to overvalue their house and increase their tax.

    If there was some significant increase in the value of a house that was from external circumstances (like a bye-pass planned close by or a new multi-national deciding to set up in the area) from one tax year to the end of the next you could include those circumstances in an appeal process. They would be fairly easy to work out by looking at the values submitted by home-owners in the area.

  27. ObsessiveMathsFreak Says:

    Higher taxes are unavoidable. Property taxes are less bad for economic growth than are higher income taxes. … First, a property tax is regressive. Poorer people would pay a greater share of their income in tax.

    I think this tells everyone all they need to know about economists’ general perspective on how economies should be run. Trickle-down rules OK. Don’t take money off wealthy people who sit on egregious remunerations. They “promote economic growth”. Take it off people who can’t afford it, because that does … something.

    Once again, I’m going to link to this image of historical US tax band regimes, and note that the most progressive periods of 90% taxation of the highest incomes coincided with the period of the US’ economic ascendancy. Note that the most regressive tax period (25% top rate), came right before the great depression.

    Our society is too top heavy. There are too many people getting paid too much money for doing shockingly little work. This occurs in both the public, private, and quasi-private sectors. Pensions are also a huge part of this.

    Property tax is distracting chaff in the face of the main problem with government revenue: there is a vast amount of—often subsidised—wealth in this country that has been exempted from taxation. Government finances can be sorted out if we simply drop the failed ideologies which lead us into this crisis and adopt strategies which will actually work.

    P.S.

    I’ll end by saying that taking the remuneration money that’s currently sitting around doing nothing and effectively putting it back into circulation will have the effect of increasing the money supply in this country, which the banks have effectively decreased by refusing to lend. Our economy can’t get started again if people have no access to actual cash with which to engage in basic commerce.

  28. Ciarán Says:

    Taking the BEA certs into account when assessing property tax is a must as far as I’m concerned. It would take an expansion of the SEAI & an improvement of the methods of measurement (which are currently based upon rules of thumb rather than scientific measurement – as most BE Assessors can’t afford to invest in the equipment), but this would provide an incentive to become more energy efficient & would provide work for those individuals laid off from the construction sector.

    It is not without its flaws, as the system would have to function in such a way that you couldn’t just get your mate arpund that was a BEA to give you a generous reading.

  29. JeromeK Says:

    Richard

    As a property owner, I agree that a property tax is less damaging than income tax rise.
    It is also less damaging to economic activity than say a Carbon Tax (which would likely be revenue neutral). Re downsides, I am sceptical that a property tax would prevent people from upgrading their homes.
    Improving insulation/heating decisions should be made based on house running costs and a ROI less than 5 years – otherwise do not bother.

    Personally I would suggest a charge based on area/square footage of habitable property.
    The rate per square meter could be set by the local authority based on boroughs or postal codes.
    So somebody in Dublin 6W might pay more than someone in D12 (if the locally-elected councilors so decide).
    I also believe the revenue collected should be used to fund (trimmed-down) local authorities.
    At least then people will know that if their area charges more, they can expect better local services.

    Agricultural land should also be subject a local tax – though at a lower rate.
    This could encourage some of the sedentary land-holders (many of whom became accidental millionaires in the boom) to offload to more progressive younger farmers and this would benefit overall agriculture industry as well.

    In return for this significant revenue source,
    local authorities need to be rationalized/merged to take advantage of shared services and cut administration costs.
    In terms of transparency the DOW should then publish comparative metrics of efficiency across all local authorities on an annual basis.

  30. Richard Tol Says:

    @Ciaran
    Self-assessment with punitative taxes on excess sale value is an interesting idea.

    BER certificates should not be used to assess property taxes. Carbon and energy taxes should be used to regulate emissions and energy use.

  31. Richard Tol Says:

    @JeromeK
    Our proposal is a tax on the size of a house (and its location). This creates a (small) incentive to upgrade the house (bar extensions) as the tax/value ratio would fall.

  32. Ciarán Says:

    @Richard
    I wasn’t saying BER certs should be used to assess property tax, just that there should be tax incentives for people who improve their Building Energy Rating, and thus improve the value of their homes.

    Maybe there isn’t a difference though.

  33. MarcusOC Says:

    @ OMF

    You misrepresent Prof Tol through selective quotation in your first point. He very clearly outlines ways in which we can counter the regressive nature of property taxation.

    In reality, the wealthy in Ireland built up large property portfolios. Nothing wrong with that in principle, but if they are not either renting or selling these properties we need to encourage them to do so. It is not ok to just sit on a valuable, potentially productive asset and wait for it to appreciate through other people’s hard work. Martin Wolf’s thoughts on this are informative and if you have time I would strongly recommend the linked podcast.

  34. Hugh Sheehy Says:

    It’s interesting seeing how income is somehow automatically assumed to correlate with wealth as soon as taxation is discussed in Ireland.

    Even Prof Tol’s line says “First, a property tax is regressive. Poorer people would pay a greater share of their income in tax. This can be repaired, either in the design of the property tax itself (e.g., income-dependent exemptions or a non-linear tax) or through changes in income taxes and benefits.”

    If we alter this to say “Increasing tax rates with income is regressive. Poorer people would pay a higher share of their wealth in tax every year. This can be repaired, either in the design of the income tax itself (e.g. wealth-dependent exemptions) or through changes in wealth taxes to reduce dependence on income tax.”

    Why can’t people see that unless you compensate with asset based adjustments, progressive income tax is not “progressive”. It’s merely convenient. I could paraphrase Deirdre (who commented above).

    “Increasing income tax rates are morally wrong. I paid for my skills with training that I acquired on my own time and paid for out of my NET income, AFTER tax. Now they want me to not own my labour at all, but essentially work as a slave to the State? They can get lost. I’d go to jail before I’d pay this tax.”

    Different perspectives view different taxes in very different ways.

    Again, why do we all struggle to see that the primary aim should be to get tax down and not to allow the govt to play favourites.

    Anyway, if you have a property tax then either it should be linked to local service provisions or if it’s a national revenue source then it should be applied to all assets. As currently proposed you’re still open to the scenario where you have the retired billionaire sitting in his downtown flat (potentially rented from a company that he owns) paying less tax on assets than the less wealthy retired couple sitting in their spacious suburban family home. Meantime the asset poor couple who are working hard and saving for a house are hammered by everyone because they have an above average income and are therefore “wealthy”.

  35. Joseph Ryan Says:

    @OMF
    You need to read Lloyd George’s limehouse speech. There may be a danger of regression in the application of property tax. There is definitely an element of regression in not having a property tax at all and deriving income tax from people with less and less income.

  36. Ludwig Heinrich Edler Says:

    @all,

    I think the debate on property tax versus income tax misses a key point:

    Property tax is income tax, if you calculate it as a tax on imputed rental income.

    The idea here is everyone is a landlord – just some landlords rent to themselves.

    So if I am a retired person on a state pension and I live on my own in a 5 br red brick house in Donnybrook, you folks are thinking of my income as being €200 a week. But my income is really €200 a week + the €500 a week I am paying to myself as imputed rent.

    The fact that I am spending that income on a big house I cannot afford to live in only suggests that I am living beyonds my means.

  37. Liam Delaney Says:

    Richard – at what stage does it become defensible to take public perception of fairness into account when setting such taxes? The efficiency properties of property taxes over income taxes are well-established. But I have never heard serious people in Ireland threatening to engage in civil disobedience if their income tax is raised by the equivalent of what would be taken in by a property tax. I am conscious of not having data to hand in making this argument so I am going to put it as a speculation that property taxes are felt as far more egregious that any other tax that would raise an equivalent amount of revenue. This could be wrong as I haven’t gotten data. But if it were the case, should we take this into account?

  38. ObsessiveMathsFreak Says:

    In reality, the wealthy in Ireland built up large property portfolios. Nothing wrong with that in principle, but if they are not either renting or selling these properties we need to encourage them to do so. It is not ok to just sit on a valuable, potentially productive asset and wait for it to appreciate through other people’s hard work.

    I understand this problem: that landowners and speculators are in essence unproductive parasites on the general economy, profiting from efforts of others, and through no effort of their own. However, I do not see how landing the general population with a property tax solves this issue.

    Ordinary homeowners—who regard their homes as dwellings, not assets—will be forced to pay an effective poll tax whose level is totally outside their control. Everywhere property taxes have been introduced—council taxes in England, property tax in the US—they have risen over the rate of inflation and have been so egregiously levied that they lead to measure such as California’s proposition 13; and that was over 30 years ago.

    And as for land speculation and property bubbles? They continued regardless. Indeed, landlords and owners simply passed on the cost of their property taxes to renters and buyers. Property taxes have proven to be ineffective in controlling property bubbles, land speculation and high rents. Though I accept they can act as a moderator for the worst excesses of these ills, they do not solve or even contain the underlying problem.

    The underlying problem is our entire system of private land ownership. We insist on treating land, positions on the earth, as things which people can own in the same sense as their clothes, food, livestocks, cars, etc. Now, people can certainly have rights and mandates over a place or location; but you need only consider the crows that land on your roof, the slugs in your garden and the neighborhood cats yowl on the walls to see that your “natural property rights” are not so natural as you may think. The “right to roam” debates are the extension of this to human proper, as is the issue of planning permission.

    Take a walk on the streets of central Dublin. Observe the rows and rows of identical Georgian buildings(constructed ~1780). How did these come about? Did individual developers all agree to apply the same design to their construction? No in fact. The development of these houses was centrally planned along with the rest of the city. Areas were zoned, and contracted out to be developed as houses, businesses, etc. There was strict regulation about who could own what land, what the land could be used for, what could be built on it, etc. The center of Dublin is the heritage we have inherited from that system. The only thing we have inherited from Celtic Tiger era private property planning is traffic jams.

    The chaos of a privatized land market—in cities at least—must end, and should be replaced with a centrally planned, rational and carefully regulated system. We don’t need property taxes as much as we simply need to put an end to bulk-property ownership in our towns. (Moan about the Soviets all you like, but remember that was the system practiced by the 1780′s Protestant Ascendancy; hardly the most socialist of groups.) _That’s_ how to deal with property speculators.

    Property tax is just an excuse not to tax higher incomes, and instead to burden the masses with the cost of government.

    I don’t see Property tax as fair, workable or indeed as a solution to anything. It’s a non-issue; chaff to distract us from pursuing real solutions to the problems facing the state. So keep discussing your valuations, or monthly payments, or window taxes. You may as well be discussing how the chairs should be arranged Leinster House.

  39. Geckko Says:

    Two households of pensioners.

    Household 1:
    Owner occupier of €500,000 house

    Household 2:
    Renter of €500,000 house (for €25,000 per annum)
    €500,000 in the bank at 3% per annum (€15,000 per annum)

    Tax liability:
    Household 1: €0
    Household 2: €3,750

    It pays to take your income in the form of imputed rent.

  40. Ludwig Heinrich Edler Says:

    @ Geckko,

    This is my point exactly. Very well put in your concise example of why we need to move to taxing imputed rents in Ireland.

  41. Richard Tol Says:

    @Liam
    The average Irishperson entertains peculiar ideas about property. Should the government accommodate the delusions of the electorate, or gently correct them?

    Geckko is of course correct that the current system distorts wealth management. Incentivizing people into illiquid assets and taxing transactions (stamp duty) is asking for trouble.

  42. Liam Delaney Says:

    I’ll start a thread on this at some stage Richard but “peculiar ideas” characterise a lot of our behaviour and sometimes it is worth taking them seriously rather than rendering a segment of the population completely alienated and bitter. It would be worth spending some time figuring out what it is that really makes people angry about this tax as it is clearly not just the financial aspect. People have preferences for mechanisms in ways that aren’t accounted for in most economic models. One thing that really is annoying a lot of blog commentors is the perception that they are being picked on relative to renters despite having lived up to some societal norm. “Peculiar” to you but real to them. I will come back with something better on this but don’t write off public annoyance as a factor that can be incorporated or you will miss some ideas here.

  43. hoganmahew Says:

    @Geckko
    :?
    Or to put it another way,
    Income:
    1) 0
    2) 11,250

    Now, you could argue that because the renter has expenses of 25,000 this should be an offset. But you don’t.

    You also talk about pensioners, well, they are largely DIRT exempt, so your tax calculation should be:
    1) 0
    2) 0

    So are you talking about making pensioners largely exempt from property tax too?

    It doesn’t seem all that fair then…

  44. Hugh Sheehy Says:

    @Ludwig
    While you’re probably right and imputed income is probably a better basis, you have to consider the way that the exemptions will be calculated in an Irish political reality. Low (non imputed) income will be grounds for exemption from property tax. However, low assets won’t be grounds for exemption from income tax.

  45. hoganmahew Says:

    @Hugh
    Yeah, in the absence of ‘wealth’ taxes a single asset is being cherry-picked for convenience. When, for example, will we see a tax on horses? Oh, wait, we give them tax breaks, don’t we?

  46. rooneyp Says:

    And how would you deal with Management Charges that local authorities imposed on many of the new home and apartments build over the last 10 years? Many of the new homes are becoming impossible to sell because of this charge alone. Add in property Tax and there is not a hope in hell of them selling. Ordinary working people don’t have the money as it is to spend in the shops so add this to their monthly burden and that is money that will not be spend in the community and more small business will close with more people joining the dole queue.

  47. Hugh Sheehy Says:

    @hogan
    The sheer convenience of property taxation is its primary attraction from the POV of a taxman. After all, the immobility of “immobiliario” is even higher – at least in the medium run – than the immobility of labour. Property taxation is even better than taxing labour on that basis.

    Other types of capital can, and do, run away from high taxation far more effectively – especially if you’re considering moving them away from a wet rainy island in the middle of the Atlantic. Even horses can be led to water elsewhere.

    Now, this isn’t an argument for taxation of less mobile assets, it’s an illustration of the level of damage that taxation must be doing in general. In the long run labour and other easily taxable things are likely to be equally discouraged by high taxes as the stuff that runs away immediately. The short term elasticity and the long term elasticity shouldn’t be confused.

    Unfortunately, the older I get the more Friedman and Bastiat appeal to me. The older I get the more modern society starts to look absolutely Kafkaesque. Tax-codes that are tens of thousands of pages long. Annual tax returns and welfare systems that could only possibly be understood by full time practicioners. Madness.

    I’m ranting. Time to stop. Sure we’ll probably have a property tax that takes a week to read and years to understand.

  48. Robert Browne Says:

    What do I think of this tax? Not much and I for one will not be paying it. Let the sheepeople pay it after all Edward Walsh of Limerick University fame, said recently that if salaried in the south were pegged to those of their Norhern counterparts we would save 7bn a year. Why does Karl not do a thread on that one?

    Would that not be a fairer way of raising revenue than putting another tax on homes. BTW will we get a refund on stamp duty?

    All this tax on water, roofs, etc is just to get the few bob together for the inflated salaries and pensions. This article could have been written in less than 100 words.

  49. Robert Browne Says:

    “salaries in the south”

  50. noel Says:

    It seems to me that we will have one arm of the state putting a floor on property prices – a false floor it might be added lending support to higher property prices, whilst another arm of the state proceeds to tax the owners of said properties based on these inflated values. A Gombeen solution to a Gombeen problem. The time to revolt is coming!

  51. Drumroe Says:

    @ Jerome
    “As a property owner,… blah blah blah” … I’ll take HELL level 2 room 1 instead of HELL level 3 room 5.

  52. seafoid Says:

    @ hogan

    FF government has been a disaster for the average horse. You can buy horses now for €100 as the market has collapsed and many horses have been abandoned by their owners . A lot are likely to die of starvation over the winter. I wouldn’t tax them.

    Richard Tol’s objections to a property tax appear to be ideological in nature. All grown up non gombeen states have a property tax.

    His comments about how such a tax would be impossible remind me of an article I read recently stating that it would be impossible to introduce days off for sick leave in Milwaukee.

  53. Robert Browne Says:

    @ seafold

    When we are all grown up, and not a “gombeen state” we can have one too! But don’t ask me to pay for one before then. I don’t like buying pigs in pokes.

  54. Joseph Says:

    @safoid – “FF government has been a disaster for the average horse. You can buy horses now for €100 as the market has collapsed and many horses have been abandoned by their owners . A lot are likely to die of starvation over the winter. I wouldn’t tax them.”

    If I were John the Optimimst, I would be telling you that this is not born out by the stats. Just taking one Tattersalls sale this year at random, The gross (for the same number of actual horses sold) rose by 73 percent in 2010 over 2009.

    NOVEMBER FLAT SALE 2010

    2009 2010

    CATALOGUED 209 219

    OFFERED 165 175

    SOLD 60 36% 60 34%

    AVERAGE 2,344 4,060 +73%

    MEDIAN 1,300 1,600 +23%

    GROSS 140,650 243,600 +73%

    Does John Magnier pay tax on his racehorse winnings? I don’t think Bertie Ahern does either. I think I know where I would start first when it came to ‘taxing horses’.

  55. George Says:

    In the US we have property tax. It is collected by the local government and used to finance local government, so local authorities have a vested interest in it being collected honestly. My understanding is that in Greece the national government collects property tax and keeps the money, so there is much less incentive for honest collection at the local level.

    In the US property tax increases have led to various schemes to cap either the tax of the rate of growth. This in turn has led to various schemes to circumvent the capping schemes. See for example:

    Taxpayers in Revolt by David Beito, the book mostly discusses property tax issues in Chicago during the great depression.

    Proposition 13 (officially named the People’s Initiative to Limit Property Taxation) http://en.wikipedia.org/wiki/California_Proposition_13_%281978%29

    Stub article on US property tax ‘revolts’
    http://en.wikipedia.org/wiki/Tax_revolt

  56. Timothy Says:

    Apart from the fact that every economy must find some sources of general revenue, the core economic rationale for a property tax is to finance the infrastructure and services which any house requires. User charges can cover some of the latter—and Ireland should certainly have water charges, preferably metered ones, but if applied to some services they can have adverse side-effects—bin and recycling charges probably do not reduce actual waste, but they lead to some extremely unsightly waste disposal.

    During the boom years, the abolition of property taxes had adverse effects on the supply of property to the housing market, by reducing the incentives to downsize homes as family sizes shrink. Close to the centre of Dublin, houses that in British cities would have been turned into several flats have only one occupant heating only a part and allowing the rest to deteriorate. In some cases, inherited houses have been left unoccupied, because the owners are too busy, or too indecisive, to rent them out, and during the Celtic Tiger years were able to congratulate themselves on their foresight in not selling them prematurely. This added the upward pressure on prices, and to the apparent need for more building. First-time buyers, and, especially, growing families needing larger accommodation, were forced to live further from the centre, and to waste time and energy in longer commutes.

    The case for the tax is valid whatever the actual use made of the tax revenue. But property taxes have normally been paid to local governments, as in Ireland rates on commercial property still are. In principle this is desirable since greater local control over levels of taxation and public services should increase the democratic accountability of Councils. (Some intergovernmental transfers would still be needed, however, in order to prevent excessive inequality in the supply of public services in different counties.)

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