4 ms·

As this Vox article explains[1], if rent is taxed but imputed rent is not, then a homeowner would pay no tax, but if he and his neighbor decided to rent their h

by yonran 7y ago

As this Vox article explains[1], if rent is taxed but imputed rent is not, then a homeowner would pay no tax, but if he and his neighbor decided to rent their house to each other (with zero net change in income after rent), then he would pay the tax as a landlord. The decision to exclude imputed rent in US Income Taxes was apparently a decision of the Treasury in designing the first Form 1040 for 1913 despite economists’ arguments for including it in the tax[2]. In US income taxes, the inequality exists to this day. Owner-occupiers get to keep their rental income without paying taxes that landlords would have to pay (though landlords get to deduct maintenance), in effect taxing poorer renters at a higher rate than wealthier homeowners. When someone buys a house instead of renting, he gets an implicit tax deduction on the imputed rent that renters+landlords aren’t allowed to take. So if we were to design a tax on hoarding scarce land, logically we would want to avoid the mistake that the US Treasury made in 1914, and include vacant landowners, rentiers, and homeowners in the same bucket. A normal property tax according to value gets this right by treating them all the same. [1]: https://www.vox.com/2016/4/15/11432676/imputed-rent-taxation https://www.vox.com/2016/4/15/11432676/imputed-rent-taxation [2]: Lawrence Zelenak, “The Early Income Tax and the Imputed Rental Income of Homeowners” https://doi.org/10.1017/9781108377157.008 https://doi.org/10.1017/9781108377157.008

TeMPOraL 7y ago
I'm going to read the references you linked more carefully, but after skimming, I already have questions: > if he and his neighbor decided to rent their house to each other (with zero net change in income after rent), then he would pay the tax as a landlord If I sold something to you only to immediately buy it back, we'd both pay a tax on the transaction. But this kind of transaction makes no sense anyway, why would anyone want to do it? The Vox article gives an example of a cross-city house rent, but that's essentially tax evasion scenario. Is it worth trying to fight it by just making everyone obligated to pay the tax? > If you own a home in the United States, it really pays to live in it rather than to use it as an income-generating asset that helps you afford to rent to live somewhere else. This may be the core philosophical difference, and I may be wrong about this, but: isn't this situation good? Shouldn't people be encouraged to own a home and actually live in it? > In my capacity as landlord, I allow myself to live rent-free in my own home rather than explicitly charging myself rent that would be taxed as income. I've heard this line of thinking before, and it always sounded to me like ridiculous mental gymnastics. Should I pay tax on my phone, or dishwasher, or clothes, or every other thing I own, just because I'm theoretically renting it to myself for free? > So if we were to design a tax on hoarding scarce land, logically we would want to avoid the mistake that the US Treasury made in 1914, and include vacant landowners, rentiers, and homeowners in the same bucket. A normal property tax according to value gets this right by treating them all the same. Again, this probably just betrays how little I know on the topic, but: couldn't we just tax land and housing separately?
- yonran 7y ago
  I think the differences are that 1) Equipment can be produced competitively, driving down the profit on an equipment rental business, whereas in certain cities the housing is not allowed to be produced in great numbers, and 2) For a business, the depreciable capital expenses are tax deductible, while land is never depreciated or amortized (since land lasts forever). These factors reduce the profit and income tax for an equipment rental business. On the other hand, where housing is expensive, a large fraction of the rent is payment for the land, which the business cannot deduct. > Again, this probably just betrays how little I know on the topic, but: couldn't we just tax land and housing separately? Yes, my point in this thread was that individual taxes on vacant, rental, and imputed rental property are more complicated than a tax on the land value (except that Proposition 13 prevents us from increasing property value taxes).

by yonran 7y ago

TeMPOraL 7y ago

I'm going to read the references you linked more carefully, but after skimming, I already have questions: > if he and his neighbor decided to rent their house to each other (with zero net change in income after rent), then he would pay the tax as a landlord If I sold something to you only to immediately buy it back, we'd both pay a tax on the transaction. But this kind of transaction makes no sense anyway, why would anyone want to do it? The Vox article gives an example of a cross-city house rent, but that's essentially tax evasion scenario. Is it worth trying to fight it by just making everyone obligated to pay the tax? > If you own a home in the United States, it really pays to live in it rather than to use it as an income-generating asset that helps you afford to rent to live somewhere else. This may be the core philosophical difference, and I may be wrong about this, but: isn't this situation good? Shouldn't people be encouraged to own a home and actually live in it? > In my capacity as landlord, I allow myself to live rent-free in my own home rather than explicitly charging myself rent that would be taxed as income. I've heard this line of thinking before, and it always sounded to me like ridiculous mental gymnastics. Should I pay tax on my phone, or dishwasher, or clothes, or every other thing I own, just because I'm theoretically renting it to myself for free? > So if we were to design a tax on hoarding scarce land, logically we would want to avoid the mistake that the US Treasury made in 1914, and include vacant landowners, rentiers, and homeowners in the same bucket. A normal property tax according to value gets this right by treating them all the same. Again, this probably just betrays how little I know on the topic, but: couldn't we just tax land and housing separately?

yonran 7y ago
I think the differences are that 1) Equipment can be produced competitively, driving down the profit on an equipment rental business, whereas in certain cities the housing is not allowed to be produced in great numbers, and 2) For a business, the depreciable capital expenses are tax deductible, while land is never depreciated or amortized (since land lasts forever). These factors reduce the profit and income tax for an equipment rental business. On the other hand, where housing is expensive, a large fraction of the rent is payment for the land, which the business cannot deduct. > Again, this probably just betrays how little I know on the topic, but: couldn't we just tax land and housing separately? Yes, my point in this thread was that individual taxes on vacant, rental, and imputed rental property are more complicated than a tax on the land value (except that Proposition 13 prevents us from increasing property value taxes).