Comment by wahern
19 hours ago
> The government has incentives to inflate their estimates of the value of unimproved land
In fact, the opposite is the case. In the few US cities--historically and present--with an LVT, the political pressure was and is to consistently undervalue the land. Because the quickest way for your administration to get voted out of office is for your tax assessors to be hard-asses about applying the LVT formula, let alone inflate assessments. As the article highlights, one of the problems with LVT is that your assessment can rise preciptiously through no "fault" of your own, which engenders a strong sense of insecurity wrt your property. That has tax-payer revolt written all over it.
Yet underassessing has its own problems--it erodes legitimacy of the government. Prior to Prop 13 property assessors were consistently underassessing the property of senior citizen homeowners. But this engendered a sense of capriciousness that was felt most acutely by, ironically, senior citizen homeowners.
None of which is to say LVT could never work, but it requires a tremendous shift in the political culture. The legitimacy of the existing property tax structure and its relationship to our conception of property rights is baked into our political culture; shifting to a new system will necessarily be incredibly difficult and destabilizing.
>As the article highlights, one of the problems with LVT is that your assessment can rise preciptiously through no "fault" of your own, which engenders a strong sense of insecurity wrt your property. That has tax-payer revolt written all over it.
Isn't that an issue with all property tax regimes that don't have the prop 13 carveout, regardless of whether it's LVT or not?
Yes, and in fact underassessment and smoothing assessment increases over time is the norm, AFAIU, for the current system(s), both de jure and de facto, depending on locality. But pathological underassessment and related political issues are a much bigger problem with LVT. The swings can be much bigger (especially from the perspective of a property owner that hasn't done anything), which means managing underassessment to keep taxpayers from revolting requires more discretion, something governments have difficulty doing while maintaining a sense of fairness. Even theoretical application of LVT requires significant individualized assessments which in practice require much greater discretion. Also, LVT is intended to displace most if not all other forms of taxation, so managing the stability of your budget in light of the need to smooth out assessments becomes more problematic relative to the status quo.
Some localities have tried mixed schemes, e.g. only applying LVT to commercial zones. Businesses are savvier and are more comfortable engaging with government on assessments as well as forecasting and managing swings in assessments. But that cuts both ways; in at least one municipality I studied (a town in the southwest, IIRC), this engagement turned into straight-up corruption.
Same as for current property tax assessments. Outside of CA/prop 13-land, my experience was that assessments could be for as little as half the market value (remember, in 2007 the market was bananas and didn't reflect a well-grounded worth) and almost never more than market value.
The dirty secret is that assessments don’t matter overall - just proportionally.
The county or city or whatever has a tax budget of $500 million, and divides it by whatever percentage your house’s assessment is of the assessed whole, and allocates it to you. My property taxes vary without assessment variations, and have gone down on years my assessment has gone up.
Barring anything weird like prop 13.
A lot of people seem to think that the property tax is set at a certain percentage, and if property values rise, the government just dances around in a fountain of dollar bills.
Everywhere I've looked, it's as you say: the local government sets a budget first, then that year's property tax rate is set at a level which brings in that much money.
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