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Interesting.
The rental price drop makes sense, although seems a bit handwavey. Although rental prices are set by the market (supply/demand) anyway so I'd imagine they'd have a hard time arbitrarily going up.
The DVD analogy really bugs me though, I need to think about why.
Partially it's because DVDs are a luxury item consumed for enjoyment and places to live are a hard requirement for life to not suck. I don't understand why renters aren't entitled to any "philosophical rewards" despite also being humans who need to live somewhere, who have any number of reasons to not want to buy a home (either voluntary, or involuntary). That part doesn't sound very fair.
There's also the fact that renter FairTax paid >>> homeowner FairTax paid over basically any period. Again, seems quite unfair, although I'll need to think on this more. I don't remember how deadweight losses imposed by taxes work but I'm curious how that plays in this specific scenario.
Let me add a thought experiment: what would be the effect on the housing market were all rental property owners exempted from the portion of income tax derived from renting? Grok suggests three outcomes:
Distorting the market in favor of “necessary” goods usually ends up with those goods costing just as much, other goods costing more, and inequality rising. That’s the primary reason the FairTax has no loopholes for housing, food, or medicine, just a flat pre-calculated rebate that makes governance effectively free for people at or below the poverty line.
Fully agreed.
I think my gut feeling is that this distorts the market in favor of homeowners, although I really need to sit down with some paper and excel and model this to be confident in my assertions (hence why I am bugging you, as you seem quite knowledgeable on the topic).
I'm also deeply supply pilled on housing, so exempting landlords from taxes on rentals doesn't sound like the worst idea right now (although gutting zoning garbage would be much more effective).
I guess my question(s) to you are:
am I off base for assuming/feeling like this tax policy will make people tilt even harder towards ownership vs rental
maybe this is the same question phrased differently but how is this not a huge imputed benefit for home owners? We already give them SO many (tax free appreciation, the fact you get so much leverage at all, frequently able to gain tax benefits from mortgage interest or Smith maneuver HELOCs, tax breaks/credits for Hosie upgrades that improve quality of life subsidized by taxpayers) and now on top of that there is a consumption tax on rent.
I also again want thank you for introducing this idea to me. I've actually been thinking a lot about tax policy recently (lmao) and I'd recommend taking a look at the Mirrlees report if this is a subject of interest to you, it was cool.
Personally, I was thinking of a tax regime along the lines of:
Land value tax (maybe not 100% Georgist, as I think there are some economically optimal but societally sub optimal outcomes in extremely expensive downtown cores)
0% corporate tax
Aggressive marginal income taxes with brackets wayyyyy up into the millions.
Elimination of tax deferral/planning at a HoldCo level with extremely punitive (in Canada, referred to as "Part IV taxes") measures to ensure that all cash not reinvested into businesses is taxed immediately. Galen Weston, a Canadian billionaire, has a private HoldCo that receives more than $100mil in dividends each year from his public operating companies. I want that $100mil either poured back into his operating companies at their level as tangible investments in the company, or taxed at his personal income tax rate before he gets to invest it in whatever else he feels like.
The two outstanding parts to this "model" are:
I need to make sure "Part IV on steroids" doesn't break LP/GP structures and other such things. I am not trying to cripple the finance industry, just ensure everyone pays their fair share and money gets put to the highest and best use.
I wasn't sure how to deal with sales taxes. I generally view them as regressive and kind of silly, and a burden on everyone to file for, etc. seemed "cleaner" to just boil it all down to income tax and then ensure everyone's income was fully reported.
However, FairTax might be converting me. It is actually even cleaner to just delete everything and instead just do sales tax. It's an interesting proposal.
What drew me into the FairTax at first were the end to FICA and the concept of permanent untaxed ownership. Since then, the more I compare it with other revenue collection methods, I haven’t found anything I’d characterize as a poison pill, or even anything I’m having to hold my nose over. I’ve only found more to love about it, practically and philosophically.
I personally haven’t run the numbers, but my parents sold the family home my dad spent his working years buying, and moved into a home they inherited. The math for making the former a rental in walking distance from the University of New Mexico campus, one of the highest occupancy areas of town, wouldn’t work out considering upkeep and repairs, a property management company, property taxes, income taxes, and the accountant they’d have to hire at least the first year to add rent to their income taxes. If the FairTax were enacted, they’d pay a simple 23% out of their renters’ check each month. It would be clean income after that, no profit/loss calculations messing up their Social Security, and no worrying about the next administration making their lives hell for 3% in the polls.
Your question 1, “am I [to assume] this tax policy will make people tilt even harder towards ownership vs rental?” I have a feeling this is so. I’ve always understood home ownership to be a part of the American Dream which (question 2) society is invested in encouraging. In America, every citizen is a nobleman, and his home should be his estate.
The most disordered people I know have been lifelong renters. An “efficiency” apartment is an abomination, a box built to impart pain and despair, but even the townhome apartment one of my best friends had stank of fear and giving up. And with vulture capital buying up complexes, it’s an even worse situation.
But aside from philosophical and psychological ideals, I’m sensitive to structural inequality. There’s a point to be made about giving everyone slack at once, not just one class. My gut says the slack is to be found in ensuring owners of second homes are renting them long-term to families that want to escape apartment life instead of renting them as Vrbos and Airbnbs. It seems abominable to me that hotels are long-stay while houses sit empty three out of seven days a week.
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