A wealth tax would also be beneficial in reducing wasteful stock buybacks. Without any benefits from high stock prices, boards and shareholders will be less inclined to impose those price targets on CEOs, CEOs will be less incentivised to "cheat" on quarter-based performance and the myopic share price performance view of their companies, hence will reduce stock buybacks and returning money to shareholders. That leaves very few options - either reinvest into the company or pay out dividends, and the latter is unfavorable for shareholders compared to the former.
i did recently see something interesting where if you look at buybacks from the Mag7, they basically almost entirely offset vesting employee RSUs. which kind of makes sense, those RSUs have to come from somewhere or they dilute the current shares.
i don't know that people on this website in particular would like the "solution" to that.
I'd like to see both an automatically adjusting dynamic tax on owning more than one property in the same municipal or arbitrarily useful region, as well as dynamically banning the ownership of more than one. Everytime I mention this, I get "blah blah we have a democracy blah blah freedom" etc.. but it's no such a democracy if one particular age-range dor demographic of people owns all the assets and politically protects them from diminishing in value or facing competition. Pending presumably complex implementation details, but a healthy system that prevents generational fiefdoms would probably adjust to severely disincentivise even the possibility of acquiring more than one of the most important finite resources in urban areas.
If a land value tax would fix rich people from parking money in real estate, it would price regular people out of real estate.
I know LVT is the libertarian dream, but in practice it means only the rich can own real estate long-term, in most cities. It also means the rich can drive out the poor by driving up land values around them, to the point where the taxes are too much to afford.
LVT simply wouldn't be a good system, if applied in the real world.
I think you just have a misunderstanding of how taxes work. The person or company that "pays" the tax does not bear the full burden of the tax. That burden is usually widely distributed throughout the economy. In the example of LVT, a landlord would pass on the LVT in the form of increased rents to their tenants. A power company that pays a carbon tax charge more their electricity. An income tax makes it more expensive to give people jobs, so even if the earner pays it, that burden is also bore by the unemployed. Whoever pays the tax, they just pass it on to the rest of the economy.
But that's ok, because taxes can be paired with other methods like cash transfers or social programs that can effectively redistribute wealth. We should try to raise taxes with methods that have good side effects (LVT, carbon taxes), and then redistribute as necessary.
You may be confusing LVT with property transfer tax? LVT is a tax on ownership of land - driving down land value, not up.
In practice it disincentivises investment in land (rent-seeking and speculative land hoarding) while incentivising land development. In cities this manifests as more, cheaper, homes, and lower rents, and is highly progressive.
I say in practice because we have over a century of explicit and implicit LVT implementations in the real world to demonstrate this. Most implementations of LVT have gone down as described. Estonia is a pretty fantastic case study - 90% of property is owner-occupier! And you might find this new study of implicit LVT in the US interesting - LVT correlates with higher earnings and demographic diversity: https://www.sciencedirect.com/science/article/pii/S004727272...
The challenges for LVT are really about how to transition the tax in for areas that are occupied, but severely underdeveloped. If a low-density inner-city area ought to be high-density, the owners are being charged accordingly. Long term, it stimulates development and the new housing surplus (splitting the tax burden of LVT across a much greater number of owners) balances things out. But that's no consolation to the people being told they have to pay tax on their backyard as if it's already a block of flats.
Unfortunately that doesn't really help. It has the effect of eroding the asset value such that it quickly means the owner can't sell.
In other words, if selling removes much of your capital, you then don't gave capital to spend on the next place.
Conversely investors become even more motivated not to ever sell. They can defer the LVT forever, and just use the property as collateral for loans (ie getting liquidity without selling.)
And LVT just becomes an expense built into the cost of rent. The investor never pays it anyway, the tenant ultimately pays it.
A wealth tax would also be beneficial in reducing wasteful stock buybacks. Without any benefits from high stock prices, boards and shareholders will be less inclined to impose those price targets on CEOs, CEOs will be less incentivised to "cheat" on quarter-based performance and the myopic share price performance view of their companies, hence will reduce stock buybacks and returning money to shareholders. That leaves very few options - either reinvest into the company or pay out dividends, and the latter is unfavorable for shareholders compared to the former.
i did recently see something interesting where if you look at buybacks from the Mag7, they basically almost entirely offset vesting employee RSUs. which kind of makes sense, those RSUs have to come from somewhere or they dilute the current shares.
i don't know that people on this website in particular would like the "solution" to that.
Why do you think a wealth tax would reduce stock buybacks? I don't see the relation.
better off taxing people that own more than 1 property and leave people just trying to live alone.
I'd like to see both an automatically adjusting dynamic tax on owning more than one property in the same municipal or arbitrarily useful region, as well as dynamically banning the ownership of more than one. Everytime I mention this, I get "blah blah we have a democracy blah blah freedom" etc.. but it's no such a democracy if one particular age-range dor demographic of people owns all the assets and politically protects them from diminishing in value or facing competition. Pending presumably complex implementation details, but a healthy system that prevents generational fiefdoms would probably adjust to severely disincentivise even the possibility of acquiring more than one of the most important finite resources in urban areas.
If a land value tax would fix rich people from parking money in real estate, it would price regular people out of real estate.
I know LVT is the libertarian dream, but in practice it means only the rich can own real estate long-term, in most cities. It also means the rich can drive out the poor by driving up land values around them, to the point where the taxes are too much to afford.
LVT simply wouldn't be a good system, if applied in the real world.
Well, I (and most economists) disagree.
I think you just have a misunderstanding of how taxes work. The person or company that "pays" the tax does not bear the full burden of the tax. That burden is usually widely distributed throughout the economy. In the example of LVT, a landlord would pass on the LVT in the form of increased rents to their tenants. A power company that pays a carbon tax charge more their electricity. An income tax makes it more expensive to give people jobs, so even if the earner pays it, that burden is also bore by the unemployed. Whoever pays the tax, they just pass it on to the rest of the economy.
But that's ok, because taxes can be paired with other methods like cash transfers or social programs that can effectively redistribute wealth. We should try to raise taxes with methods that have good side effects (LVT, carbon taxes), and then redistribute as necessary.
You may be confusing LVT with property transfer tax? LVT is a tax on ownership of land - driving down land value, not up.
In practice it disincentivises investment in land (rent-seeking and speculative land hoarding) while incentivising land development. In cities this manifests as more, cheaper, homes, and lower rents, and is highly progressive.
I say in practice because we have over a century of explicit and implicit LVT implementations in the real world to demonstrate this. Most implementations of LVT have gone down as described. Estonia is a pretty fantastic case study - 90% of property is owner-occupier! And you might find this new study of implicit LVT in the US interesting - LVT correlates with higher earnings and demographic diversity: https://www.sciencedirect.com/science/article/pii/S004727272...
The challenges for LVT are really about how to transition the tax in for areas that are occupied, but severely underdeveloped. If a low-density inner-city area ought to be high-density, the owners are being charged accordingly. Long term, it stimulates development and the new housing surplus (splitting the tax burden of LVT across a much greater number of owners) balances things out. But that's no consolation to the people being told they have to pay tax on their backyard as if it's already a block of flats.
What if a first owned property is not taxed, but additional properties are?
LVT can be deferred to the time of sale.
Wealthy people would never sell their houses. Keep them in the family or rent them out.
Anyone who had to move for a job or wanted to downsize their house for retirement years would be screwed, though.
Unfortunately that doesn't really help. It has the effect of eroding the asset value such that it quickly means the owner can't sell.
In other words, if selling removes much of your capital, you then don't gave capital to spend on the next place.
Conversely investors become even more motivated not to ever sell. They can defer the LVT forever, and just use the property as collateral for loans (ie getting liquidity without selling.)
And LVT just becomes an expense built into the cost of rent. The investor never pays it anyway, the tenant ultimately pays it.
How will they use it as collateral if it has no value upon sale?
Similarly, why would the next place be expensive if it couldn't be used as a speculative asset?
The tennant pays now anyway. Of a landlord could charge more rent they would.
Two identical properties, one under mortgage and one that isn’t, have identical rental prices. The costs to the landlord are irrelevant.