Predicted Land Value Tax: a better tax than an unimproved land value tax

You're definitely not misunderstanding anything. I guess I was imagining that the highest bid usually wouldn't be less than ~75% of the true property value, and this is fine. But you may be right that the highest bid could be much lower than that, if it's just not worth people's time to bid.

but then the owner would almost never want to sell through the bidding system

I guess I never clarified that I'm imagining this is the only legal way to sell property.

A few ideas:

For any given house, in any given year, there is a 1/1000 chance that the house is given to the highest bidder at the price they've bid, and the government pays the owner double that price as well (so they get triple the price).

Predictors try to predict the what price the property will have when it is next sold. (And maybe the number of years of price history and the number of neighbors has to be increased)

The government supplements long-standing bids (at say 1% a year), so if a property has had a recent inspection (which is tax-encouraged), and you can lower bound its value, you may as well put in a bid early at around that lower bound, in the hopes that it's not much more valuable than that, and by the time the owner want to sell, your bid will be inflated for free.

Do you think any of these are workable?

ETA:

Or I guess the property owner could set the price, and anyone could buy at the listed price. Absent game theory stuff, this price could be way too high, since they're not paying property tax according to this price, which is why I didn't go for this in first place. But if people do this, they'd incur the wrath of their neighbors, whose property taxes would go up. If the social pressure isn't enough, the fear that their neighbors might retaliate by setting their own property prices way too high could encourage people to set more appropriate prices for their property. This might have costs to social cohesion... I guess you could also add a 0.1% tax on the listed value of the property.

ETA:

I'm liking the last possibility more and more. I think the fairest way for a homeowner's association to make sure no one is overinflating the price of their property would be to recruit an independent consultant to estimate the value of everyone's properties, and then require that nobody set the price of their property more than, say, 30% higher than the consultant's estimate. That outcome would, of course, be excellent for the government.

I think that's a feature. We don't want to distort the market valuation or increase actual turnover. We mostly want actual transfers to happen at about the same rate, and for the same reasons, as today - because the buyer values it significantly higher (enough to cover transaction and moving costs) than the current owner.

It _does_ depend on speculators being willing to have open bids that are below the "true market value" (whatever that means) but above the last-sale or current-tax-valuation-system amount. I strongly suspect that this would occur.

This is simply a mechanism to make the market more visible, to let the tax authority get closer to "true" value in the periods when no actual sales occur.

I've only heard some things about it second-hand. But you're right I should probably read more of the literature :)

I'd say it's mostly about efficient taxing, and that fact that it's easier to exploit market forces to get an estimate of the actual value of a property than the "unimproved value" of the property.

I will make sure to press the button before I leave.

This would vindictive, and certainly illegal since it's their property now. I don't think the incentive do this is any more than the incentive to burn down someone's house if they've wronged you, or at least graffiti their house.

For example, instead of planting flowers in the ground in my garden, I would cover the garden with large boxes containing some ground

Or you could just increase the value you set for your property?

(To clarify, we're talking about the bottom proposal in this [LW(p) · GW(p)] comment? In the original proposal, bidders make bids on the property and the owner can choose whether or not to accept the highest one.)

And gradually everyone would learn to do so, unless they want to pay twice the land tax as their neighbors.

People are paying tax based on the price of their own property; they're paying based on a prediction based on the values of their neighbors' properties.

I think I disagree with the principle that it's easier to offset tax incentives than to eliminate them. But I wouldn't take the other 100% of the time either.

For example, tax land at its improved value, and allow the cost of any improvements to be deducted against up to half the tax on the land for the entity that made the improvement.

If the tax is ever above twice the rate of returns on US Treasury bonds, no property-tax-payer will ever buy US treasury bonds. Instead, they'd buy a huge chunk of marble for a counter-top and hide it under wood. Then they deduct half the cost of the marble, and the rate of return on this risk-free investment is half the value of the property tax.

Plus, if you can only deduct half, then improvements are dis-incentivized.

Would I be correct in inferring you are thinking about this largely through a computer science lens, rather than an economic one?

I don't really know what lenses are... but I am a computer scientist.

If a formerly rural area is developed, they *should* be paying taxes as if the land's only value was as rural land, at least until nearby land gets developed too. I don't understand what the industrial facility example is illustrating, unless its the opposite of "local industry collapse". Time discontinuities like the local water supply being contaminated or a local industry collapsing aren't a problem at all, since the value of neighboring properties goes down, so the predicted value of the property probably will as well. If you mean the water supply only to that property becomes contaminated, then if it's not their fault, they can sue, and if it is their fault, their tax burden shouldn't go down.

The bids themselves are just a system by which the market value of every property can be discovered and aggregated.

So if taxes were 101% of the rental value, the price of the land (+ tax liability) would be negative, and all land would default to the government. This would be BAD. If taxes were 99% of the rental value, then I don't think this same problem happens. (Under a normal land tax, that would reduce the incentive to improve the land, but that's what all the machinery in this proposal is to avoid). And of 99% is cutting it too close, because predicted land value will only be a noisy estimate of the true value. So I disagree with the aim being to collect 100% of the land's rental value. I'd say the aim is to collect as much of the land's rental value as possible, while keeping a sufficiently small fraction of land from having negative value (once the tax liability is included). I wouldn't be surprised if this ends up meaning that the government could only collect ~2/3 of the land's rental value.

Yep, I think a far-off starting date would be required. And maybe a modest one-time redistribution of wealth toward people for whom a large fraction of their wealth is in real-estate.

Give up. Taxation isn't about optimality, it's about power and perception. The primary question is "how much can the authority extract without losing the constituency".

I think there's two ways we can approach this.

One is as an interesting problem to look at. It's not necessarily that policy proposals will be adopted, but exploring policies is an interesting exercise, and it may lead to marginally better policies or even Pareto improvements in policy if they were adopted. And following the idea that the purpose of policy exploration is to have ready-at-hand better policies/ideas when a crisis strikes and people are looking for alternatives because the current system isn't working, it seems worth doing this work even if it doesn't seem clear what the path to adoption is.

The second is that you're right, humans often forego "better" solutions for ones that better serve other purposes. For example, is taxing income a good idea? Probably not, but it's relatively easy to do and to understand, so it's a straightforward policy choice. Does this mean we can't consider alternative taxation systems to the one we have, though? I think it doesn't, only that people developing policy must eventually consider things other than economic efficiency if they hope to develop policies that are likely to be adopted.

Why land? This would seem to apply to any transferable asset.

This could work for other assets where

• each asset has a natural peer group (in this case, other properties in the neighborhood) from which to predict the value; or the value can't change so you can just use the market price of the asset itself
• it's hard to hide the asset
• the asset can't be imported/exported, or you don't care if your country loses this asset. For diamonds, needlessly distortionary but not a disaster; for car manufacturing equipment, very bad.

ETA from Wei Dai:

• there are no untaxed substitutes for the asset

You can fix the same problem with a simple insurance contract, though.

Yeah, see

Owners of tax liability would be required to take out insurance to limit their liability if they don’t own the property