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Is one year of your consumption equivalent to one year of my consumption? Yes. That's why both houses cost the same.

by harryh 7y ago

Domenic_S 7y ago
That's a circular explanation, but maybe I'm reading it that way because we aren't aligned on what 'consumption' means. For a durable good like a house or a couch I think it would be something like expected service life / interval * over-or-underuse multiplier. The interval technique makes sense to me on goods that are used over time or taxed over time. You can pay for a house all at once, and if you were only paying property tax once I think I would agree with you that the tax is consumption tax. Yet property taxes are annual, so in order for property tax to be a consumption tax we would have to enumerate how much consumption is occurring during that year. Consider something simpler, like a sofa. We both buy the same sofa with a service life of 10 years. Did we consume the sofa when we bought it? Or do we consume it over its useful life? If I jump on the sofa daily and it lasts for 1 year, I've consumed it in a year. If you barely sit on it and it lasts you 20 years, you've consumed it over 20 years. Does that make sense? How are you defining consumption?
- beerandt 7y ago
  I believe that in most jurisdictions, the "guts" of property tax millage formulas is based on a 10-year interval (or maybe more accurately, 1/10 of the assessed value). However, that's always seemed arbitrary to me, as: 1) it's never "paid-off" and 2) millage rates are set in conjunction with this known value. So while it may not be a satisfying answer, in my experience, self-circular is just sort of the way it is. Also, the consumed / depreciated value comparison doesn't sit right with me, since for business expenses (tax write-off purposes), it's based on zero value at end of life. Any previously depreciated value recovered at sale has to be (re)taxed; you only get to ultimately deduct true depreciated value, albeit (re-)payment is delayed to year of sale. Regardless, real property (non-movable) is rarely disposed of for zero value, so "depreciated" value isn't a good estimate for "consumed " value.

Is one year of your consumption equivalent to one year of my consumption? Yes. That's why both houses cost the same.

by 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.

That's a circular explanation, but maybe I'm reading it that way because we aren't aligned on what 'consumption' means. For a durable good like a house or a couch I think it would be something like expected service life / interval * over-or-underuse multiplier. The interval technique makes sense to me on goods that are used over time or taxed over time. You can pay for a house all at once, and if you were only paying property tax once I think I would agree with you that the tax is consumption tax. Yet property taxes are annual, so in order for property tax to be a consumption tax we would have to enumerate how much consumption is occurring during that year. Consider something simpler, like a sofa. We both buy the same sofa with a service life of 10 years. Did we consume the sofa when we bought it? Or do we consume it over its useful life? If I jump on the sofa daily and it lasts for 1 year, I've consumed it in a year. If you barely sit on it and it lasts you 20 years, you've consumed it over 20 years. Does that make sense? How are you defining consumption?

beerandt 7y ago
I believe that in most jurisdictions, the "guts" of property tax millage formulas is based on a 10-year interval (or maybe more accurately, 1/10 of the assessed value). However, that's always seemed arbitrary to me, as: 1) it's never "paid-off" and 2) millage rates are set in conjunction with this known value. So while it may not be a satisfying answer, in my experience, self-circular is just sort of the way it is. Also, the consumed / depreciated value comparison doesn't sit right with me, since for business expenses (tax write-off purposes), it's based on zero value at end of life. Any previously depreciated value recovered at sale has to be (re)taxed; you only get to ultimately deduct true depreciated value, albeit (re-)payment is delayed to year of sale. Regardless, real property (non-movable) is rarely disposed of for zero value, so "depreciated" value isn't a good estimate for "consumed " value.