6 ms·

Housing is capital

by Marazan 7y ago

Housing is capital

rayiner 7y ago
But not the kind of capital people usually think about when railing about billionaires and wealth taxes.
- js2 7y ago
  Housing is already taxed. In the U.S., property taxes are about 17% of government revenue. https://www.economist.com/finance-and-economics/2013/06/29/levying-the-land https://www.economist.com/finance-and-economics/2013/06/29/l...
  - dcolkitt 7y ago
    True. But housing is also tax-privileged in other ways. Most notable is the mortgage interest on federal income tax. More subtle is the fact that the value of the imputed rent from owning your own home is not taxed. I.e. if you rent your home to someone else, you pay income tax on the rent you collect. But if you "rent to yourself" by owning your own home, you don't pay tax on this implicit form of income.
    - AnimalMuppet 7y ago
      I hate the "implicit income" viewpoint. If I own my own house, I do so because I already paid for it. That cost me more at that time than the person who's renting pays in rent. So why should my owning my house be considered "implicit income" because I don't have to pay rent? It should be considered money I've prepaid. And then there are similar situations. If I've paid off my car, is it implicit income because I don't have a car payment? If I don't own a cell phone, do I have implicit income on the amount of a cell plan? For that matter, the homeless have lots of implicit income. That's not a useful way of analyzing their circumstances, though. I feel like the "implicit income" idea has an unstated assumption: The "normal" situation is for you to be paying out every dime you receive, and if you don't, that part you don't spend is "income". I absolutely reject that view. The world is not entitled to my spending.
      - hundt 7y ago
        I don't think that's the assumption that it's based on. It's more like, when you own an asset, you get to benefit from the consumption of that asset. You did not "prepay" for the consumption of that asset. You paid to own the asset, which entitles you to consume it while you own it, but the value you get from consuming it is not deducted from the resale value of the asset. Example: you buy a house in 2010 for $500,000 that would cost you $4,000 a month to rent. In 2012 you sell it for $500,000. During those two years you received $96,000 of value from owning the house. You are now $96,000 richer than if you had rented the house instead of buying it (minus expenses associated with the house, and opportunity costs of having your money tied up in the house). It's true that the same reasoning applies to other assets. I would assume, but don't know, that the reason people don't talk about imputed income for other assets is that the amounts are just much smaller in most cases.
        AnimalMuppet 7y ago
        Well, dcolkitt was talking about imputed income in the context of tax advantages. I assumed (perhaps wrongly) that the subtext was that people who own houses should be taxed on the "imputed income" as if it were real income. That raised my hackles - perhaps wrongly. Still... there's something funny in the "imputed income" accounting. Let's say I buy a house for $500,000. I live in it. I don't pay rent, though the house would rent for $4000/month. Or, let's say I buy the same house, but don't live in it. I live somewhere else instead, paying $4000/month in rent. But I also rent out the house I own, receiving $4000/month in rent for that house. My net is $0... except that I probably pay taxes on the $4000/month I receive. But if dcolkitt's point is not that should have to pay taxes on the "imputed income" of owning my house, then the "imputed income" is exactly offset by the "imputed foregone income" - I could have rented out the house, but I didn't.
        hundt 7y ago
        I think your example actually helps make the case for imputed income, because whether you happen to live in the same house you own has huge tax consequences, which doesn't seem optimal. Without imputed income you are incentivized to live in the house that you own, even if it is worth less to you than what you could rent it for, because that way you don't have to pay taxes on that consumption value. If you had to pay taxes on the imputed $4k a month then you would prefer to rent it out to someone who actually values it at $4k a month, and move yourself to a house that is better suited to you.
    - sokoloff 7y ago
      You also don’t get to claim 3.6% deduction of basis of the improvements (everything but the land) plus other rental related expenses if you live in it which you would if you rented it out. This has the effect of significantly reducing the tax owed on rented property throughout the course of ownership. Similarly, rented property has an unlimited deduction on mortgage interest rather than the capped deduction available for owner-occupied housing.
  - harryh 7y ago
    Property taxes are not wealth taxes, they are consumption taxes. You can easily tell this because a person who owns a home outright pays the same tax as someone who owns a similar home but has a large mortgage. These two people have different levels of wealth but pay the same tax. This is because their consumption is the same.
    - rayiner 7y ago
      Wow this just blew my mind.
      - harryh 7y ago
        Well I will take this small piece of credit in return for all the times your comments have blown my mind. :)
    - shajhansbx 7y ago
      Hmm, I wonder if this is the first good argument for the mortgage interest deduction.
      - harryh 7y ago
        I certainly didn't mean it to be. I think the mortgage deduction is an abomination.
    - Domenic_S 7y ago
      Say you and I each buy a house. Yours is new construction and cost $1mm, mine was built in 1970, never remodeled, and is perhaps located somewhere more expensive and also cost $1mm. Common scenario in the SFBA. Is one year of your consumption equivalent to one year of my consumption? Like a car, the longer you use it the higher the likelihood that something expensive goes wrong. But unlike a car, our homes are probably appreciating at close to the same rate.
      - harryh 7y ago
        Is one year of your consumption equivalent to one year of my consumption? Yes. That's why both houses cost the same.
  - JimboOmega 7y ago
    Except in California we had proposition 13, so that property taxes are severely hamstrung; I wonder how much impact that alone has on the overall analysis given the size of California as part of the US economy. I really think we should bring them back but it's anathema. The usual argument has something to do with a little grandma living on a fixed income who suddenly can't afford taxes on the home she's owned for 40 years. (And not, say, a landlord who owns dozens of buildings, though it benefits him far more)
    - Domenic_S 7y ago
      I'd have to do the math but to me it seems like ridiculous housing prices make up for prop 13, while also pushing the tax burden to those best equipped to handle it (people in the position to afford to buy expensive houses) So while grandma's only paying taxes on a tax-appraised value of $200k for a home worth $1mm on the open market, people who buy today are paying tax on $1mm+ for homes that "should be" (or would be in other states) worth $200k.
      - mdorazio 7y ago
        Not really. See some of the charts here [1]. Key quotes to show the effect: "The year before Proposition 13 passed, property taxes comprised over 90 percent of cities’ and counties’ local tax revenue. Today, that share is less than two–thirds." "Cities’ and counties’ tax revenue per person has declined since Proposition 13. However, looking across all California local governments’ per–person revenue—excluding state and federal funds—revenues increased 36 percent since Proposition 13. In comparison, similar per–person revenues for local governments across the country increased by almost 70 percent over the same period." Basically the state had to struggle to make up the tax revenue difference via other fees and assessments, and it never caught up to where it was before or to where it is in other states without such a measure. [1] https://lao.ca.gov/Publications/Report/3497#What_Happened_to_Local_Government_Revenues_After_Proposition.A013.3F https://lao.ca.gov/Publications/Report/3497#What_Happened_to...
- sokoloff 7y ago
  Exactly. Tax the capital that those other bastards have. My house? Oh, that’s totally different.
  - CharlesColeman 7y ago
    > Exactly. Tax the capital that those other bastards have. My house? Oh, that’s totally different. So, progressive taxation, basically?
    - refurb 7y ago
      No, not taxing someone who saw a $500,000 gain in their house is kind of the opposite of progressive.
- Mikeb85 7y ago
  It's capital in economic terms.
  - taffer 7y ago
    It is a combination of land and capital and it is the land that makes up the scarce part of it.
    - deleted 7y ago
      [deleted]
- beerandt 7y ago
  Which is a big part of the reason that they're not billionaires.
- dorfsmay 7y ago
  And yet many region have taxe based on the value of the house, so a tax on capital, a tax on wealth. Often the only capital middle and lower class have access to.

Housing is capital

rayiner 7y ago

But not the kind of capital people usually think about when railing about billionaires and wealth taxes.

js2 7y ago
Housing is already taxed. In the U.S., property taxes are about 17% of government revenue. https://www.economist.com/finance-and-economics/2013/06/29/levying-the-land https://www.economist.com/finance-and-economics/2013/06/29/l...
- dcolkitt 7y ago
  True. But housing is also tax-privileged in other ways. Most notable is the mortgage interest on federal income tax. More subtle is the fact that the value of the imputed rent from owning your own home is not taxed. I.e. if you rent your home to someone else, you pay income tax on the rent you collect. But if you "rent to yourself" by owning your own home, you don't pay tax on this implicit form of income.
  - AnimalMuppet 7y ago
    I hate the "implicit income" viewpoint. If I own my own house, I do so because I already paid for it. That cost me more at that time than the person who's renting pays in rent. So why should my owning my house be considered "implicit income" because I don't have to pay rent? It should be considered money I've prepaid. And then there are similar situations. If I've paid off my car, is it implicit income because I don't have a car payment? If I don't own a cell phone, do I have implicit income on the amount of a cell plan? For that matter, the homeless have lots of implicit income. That's not a useful way of analyzing their circumstances, though. I feel like the "implicit income" idea has an unstated assumption: The "normal" situation is for you to be paying out every dime you receive, and if you don't, that part you don't spend is "income". I absolutely reject that view. The world is not entitled to my spending.
    - hundt 7y ago
      I don't think that's the assumption that it's based on. It's more like, when you own an asset, you get to benefit from the consumption of that asset. You did not "prepay" for the consumption of that asset. You paid to own the asset, which entitles you to consume it while you own it, but the value you get from consuming it is not deducted from the resale value of the asset. Example: you buy a house in 2010 for $500,000 that would cost you $4,000 a month to rent. In 2012 you sell it for $500,000. During those two years you received $96,000 of value from owning the house. You are now $96,000 richer than if you had rented the house instead of buying it (minus expenses associated with the house, and opportunity costs of having your money tied up in the house). It's true that the same reasoning applies to other assets. I would assume, but don't know, that the reason people don't talk about imputed income for other assets is that the amounts are just much smaller in most cases.
      - AnimalMuppet 7y ago
        Well, dcolkitt was talking about imputed income in the context of tax advantages. I assumed (perhaps wrongly) that the subtext was that people who own houses should be taxed on the "imputed income" as if it were real income. That raised my hackles - perhaps wrongly. Still... there's something funny in the "imputed income" accounting. Let's say I buy a house for $500,000. I live in it. I don't pay rent, though the house would rent for $4000/month. Or, let's say I buy the same house, but don't live in it. I live somewhere else instead, paying $4000/month in rent. But I also rent out the house I own, receiving $4000/month in rent for that house. My net is $0... except that I probably pay taxes on the $4000/month I receive. But if dcolkitt's point is not that should have to pay taxes on the "imputed income" of owning my house, then the "imputed income" is exactly offset by the "imputed foregone income" - I could have rented out the house, but I didn't.
        hundt 7y ago
        I think your example actually helps make the case for imputed income, because whether you happen to live in the same house you own has huge tax consequences, which doesn't seem optimal. Without imputed income you are incentivized to live in the house that you own, even if it is worth less to you than what you could rent it for, because that way you don't have to pay taxes on that consumption value. If you had to pay taxes on the imputed $4k a month then you would prefer to rent it out to someone who actually values it at $4k a month, and move yourself to a house that is better suited to you.
  - sokoloff 7y ago
    You also don’t get to claim 3.6% deduction of basis of the improvements (everything but the land) plus other rental related expenses if you live in it which you would if you rented it out. This has the effect of significantly reducing the tax owed on rented property throughout the course of ownership. Similarly, rented property has an unlimited deduction on mortgage interest rather than the capped deduction available for owner-occupied housing.
- harryh 7y ago
  Property taxes are not wealth taxes, they are consumption taxes. You can easily tell this because a person who owns a home outright pays the same tax as someone who owns a similar home but has a large mortgage. These two people have different levels of wealth but pay the same tax. This is because their consumption is the same.
  - rayiner 7y ago
    Wow this just blew my mind.
    - harryh 7y ago
      Well I will take this small piece of credit in return for all the times your comments have blown my mind. :)
  - shajhansbx 7y ago
    Hmm, I wonder if this is the first good argument for the mortgage interest deduction.
    - harryh 7y ago
      I certainly didn't mean it to be. I think the mortgage deduction is an abomination.
  - Domenic_S 7y ago
    Say you and I each buy a house. Yours is new construction and cost $1mm, mine was built in 1970, never remodeled, and is perhaps located somewhere more expensive and also cost $1mm. Common scenario in the SFBA. Is one year of your consumption equivalent to one year of my consumption? Like a car, the longer you use it the higher the likelihood that something expensive goes wrong. But unlike a car, our homes are probably appreciating at close to the same rate.
    - harryh 7y ago
      Is one year of your consumption equivalent to one year of my consumption? Yes. That's why both houses cost the same.
- JimboOmega 7y ago
  Except in California we had proposition 13, so that property taxes are severely hamstrung; I wonder how much impact that alone has on the overall analysis given the size of California as part of the US economy. I really think we should bring them back but it's anathema. The usual argument has something to do with a little grandma living on a fixed income who suddenly can't afford taxes on the home she's owned for 40 years. (And not, say, a landlord who owns dozens of buildings, though it benefits him far more)
  - Domenic_S 7y ago
    I'd have to do the math but to me it seems like ridiculous housing prices make up for prop 13, while also pushing the tax burden to those best equipped to handle it (people in the position to afford to buy expensive houses) So while grandma's only paying taxes on a tax-appraised value of $200k for a home worth $1mm on the open market, people who buy today are paying tax on $1mm+ for homes that "should be" (or would be in other states) worth $200k.
    - mdorazio 7y ago
      Not really. See some of the charts here [1]. Key quotes to show the effect: "The year before Proposition 13 passed, property taxes comprised over 90 percent of cities’ and counties’ local tax revenue. Today, that share is less than two–thirds." "Cities’ and counties’ tax revenue per person has declined since Proposition 13. However, looking across all California local governments’ per–person revenue—excluding state and federal funds—revenues increased 36 percent since Proposition 13. In comparison, similar per–person revenues for local governments across the country increased by almost 70 percent over the same period." Basically the state had to struggle to make up the tax revenue difference via other fees and assessments, and it never caught up to where it was before or to where it is in other states without such a measure. [1] https://lao.ca.gov/Publications/Report/3497#What_Happened_to_Local_Government_Revenues_After_Proposition.A013.3F https://lao.ca.gov/Publications/Report/3497#What_Happened_to...
sokoloff 7y ago
Exactly. Tax the capital that those other bastards have. My house? Oh, that’s totally different.
- CharlesColeman 7y ago
  > Exactly. Tax the capital that those other bastards have. My house? Oh, that’s totally different. So, progressive taxation, basically?
  - refurb 7y ago
    No, not taxing someone who saw a $500,000 gain in their house is kind of the opposite of progressive.
Mikeb85 7y ago
It's capital in economic terms.
- taffer 7y ago
  It is a combination of land and capital and it is the land that makes up the scarce part of it.
  - deleted 7y ago
    [deleted]
beerandt 7y ago
Which is a big part of the reason that they're not billionaires.
dorfsmay 7y ago
And yet many region have taxe based on the value of the house, so a tax on capital, a tax on wealth. Often the only capital middle and lower class have access to.