This is the highest scoring high-revenue tax I’ve heard of when estimating scores based on efficiency, rich-targeting, & non-obvious (less visible/less political resistance). It is actually better than regular LVT on these dimensions.
This is a critical issue: the interacción between zoning and LVT is also critical. If you allow a part of a city currently under heigth construction restrictions to build higher, this increases property valúes, and then when the land value embed this situation, taxes increase, even Sharply.
This strikes me as being similar to tax increment financing (TIF). Forgive me for mischaracterizing your paper; I last read it yesterday. Also, I’m not brushed up on TIF. For your model, you assume that improvement value is zero, that land value makes the entirety of the parcel value, which is true for vacant land and markets with fast depreciation.
However, most housing markets I’m familiar with don’t have this occur. It’s hard for me to imagine a building in good condition with no value. Maybe its value is just dwarfed by the increase in the land value beneath it. In my area, some of the oldest houses are the highest value because they are fancy Victorian houses, much nicer than the newer fast-built subdivisions.
In markets where buildings last a long time, if you tear down a building, that building may often have value still. I think the difference between your model and TIF is your model assumes that building value approximates zero, and TIF pays the previous property tax for 30 years or so, and then pays the property tax after that based on the current property value.
Another difference between the two is that you are proposing this city-wide and TIF is on a project by project basis.
I also think TIF gets the city financially involved with the project, which brings some risk to them.
“For your model, you assume that improvement value is zero”
I don’t assume this? Improvement value is not zero, buildings have value, which depreciates over time. I think you’ve misunderstood the thrust of the article.
Makes a ton of sense. How do we get from here to seeing DALT piloted in a city? Accurate assessment of improvements + raising property tax in combo with DALT can be brought up in a city council meeting or what? (I'm a noob)
Already has a conventional property tax that’s decently administered
Has permission to enact this kind of abatement
Then you pass a local ordnance or law and that’s probably about it. You’ll want to bring the assessor into the conversation to make sure they’re assessing improvements/land well, but for DALT the only part that really matters of that split is for new construction, which you can get out of a cost book. The hard part of assessing building value is depreciation, which gets ambiguous the older the building is, but it’s easiest to estimate the younger it is, hence DALT.
Nice work, I've suggested NY 1920's exemptions when people make the obligatory 'LVT? But valuations!' comments so it's good to have a detailed plan.
A question, beyond my paygrade so forgive me if this doesn't make sense but in slower depreciating markets would there be much scope in finessing the 10 year depreciation window? I assume there are contrary incentives re PV and physical depreciation that limit this, but you could additionally counter some of the perverse incentives for less durable buildings with regulations if need be.
I mean you could do a 20-year abatement, you could do a 50-year or 100-year abatement if you want to! It's just the longer the abatement gets, the more you're just approaching a pure Land Value Tax, which is fine of course, you're just now implementing a different policy. You can imagine pure LVT on one side of the scale and DALT on the other, the only purpose of this article is to point out that those first 10 years, especially in fast-depreciating markets, hits a very nice sweet spot.
This is brilliant!
This is the highest scoring high-revenue tax I’ve heard of when estimating scores based on efficiency, rich-targeting, & non-obvious (less visible/less political resistance). It is actually better than regular LVT on these dimensions.
Rank | Tax / intervention
1 Remove step-up basis at death
1 Reclassify carried interest as income
3 Estate / inheritance tax
4 DALT (depreciation-assisted LVT)
5 Land value tax
5 Carbon tax + dividend
5 Severance / resource-rent tax
8 Congestion / road pricing
8 Carbon tax (no rebate)
8 VAT (embedded in price)
8 Mansion / high-value surcharge
8 Corporate income tax
8 Progressive income tax
8 Financial transaction tax
Interesting, what’s your rubric/scoring method?
So Japan could implement a DALT and it would be virtually the same as the ideal pure LVT.
Seems like it!
This is a critical issue: the interacción between zoning and LVT is also critical. If you allow a part of a city currently under heigth construction restrictions to build higher, this increases property valúes, and then when the land value embed this situation, taxes increase, even Sharply.
This strikes me as being similar to tax increment financing (TIF). Forgive me for mischaracterizing your paper; I last read it yesterday. Also, I’m not brushed up on TIF. For your model, you assume that improvement value is zero, that land value makes the entirety of the parcel value, which is true for vacant land and markets with fast depreciation.
However, most housing markets I’m familiar with don’t have this occur. It’s hard for me to imagine a building in good condition with no value. Maybe its value is just dwarfed by the increase in the land value beneath it. In my area, some of the oldest houses are the highest value because they are fancy Victorian houses, much nicer than the newer fast-built subdivisions.
In markets where buildings last a long time, if you tear down a building, that building may often have value still. I think the difference between your model and TIF is your model assumes that building value approximates zero, and TIF pays the previous property tax for 30 years or so, and then pays the property tax after that based on the current property value.
Another difference between the two is that you are proposing this city-wide and TIF is on a project by project basis.
I also think TIF gets the city financially involved with the project, which brings some risk to them.
“For your model, you assume that improvement value is zero”
I don’t assume this? Improvement value is not zero, buildings have value, which depreciates over time. I think you’ve misunderstood the thrust of the article.
Makes a ton of sense. How do we get from here to seeing DALT piloted in a city? Accurate assessment of improvements + raising property tax in combo with DALT can be brought up in a city council meeting or what? (I'm a noob)
Find a city that:
Already has a conventional property tax that’s decently administered
Has permission to enact this kind of abatement
Then you pass a local ordnance or law and that’s probably about it. You’ll want to bring the assessor into the conversation to make sure they’re assessing improvements/land well, but for DALT the only part that really matters of that split is for new construction, which you can get out of a cost book. The hard part of assessing building value is depreciation, which gets ambiguous the older the building is, but it’s easiest to estimate the younger it is, hence DALT.
Nice work, I've suggested NY 1920's exemptions when people make the obligatory 'LVT? But valuations!' comments so it's good to have a detailed plan.
A question, beyond my paygrade so forgive me if this doesn't make sense but in slower depreciating markets would there be much scope in finessing the 10 year depreciation window? I assume there are contrary incentives re PV and physical depreciation that limit this, but you could additionally counter some of the perverse incentives for less durable buildings with regulations if need be.
I mean you could do a 20-year abatement, you could do a 50-year or 100-year abatement if you want to! It's just the longer the abatement gets, the more you're just approaching a pure Land Value Tax, which is fine of course, you're just now implementing a different policy. You can imagine pure LVT on one side of the scale and DALT on the other, the only purpose of this article is to point out that those first 10 years, especially in fast-depreciating markets, hits a very nice sweet spot.
As I was reading this, I kept thinking of different questions and concerns, but you answered them all. Good article. No notes.