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... rehash, and they arent willing to pay as much for it. Therefore, the full burden of the tax is levied on the landlord at the time of purchase. The money paid to the tax authorities by the landowner is not really a burden because they compensate for the lower price paid. Its because of this complication that the incidence of the tax is hard to assess. The supply of land in some cases is not fixed.
Some land being used for other reasons such as farmland, landfills, etc. can be cleared out for urban use. In this case both landlords and the users of the land share the ad valorem tax burden. The extent to which they share the burden depends on the elasticities of supply and demand. Generally a fixed supply of land is assumed. The traditional view of the tax on structures can be understood by looking at the many uses of capital.
Construction of structures, such as bridges and dams are some of capitols many uses. In the long run, all capital demanded can be obtained at the market price by the construction industry. Its because of this that the supply curve of structures is perfectly horizontal. An abundance of capital is assumed in this case, unlike a fixed supply of land. As seen in Figure 2, Db gives the demand for structures by the tenants before the tax. Sd gives the supply curve.
The equilibrium price, Po, is given by the intersection of Sb with Db. At this price Po, quantity Bo is exchanged. After the tax is implemented, the demand curve shifts to Db. The price that the suppliers of structures receive, Pn, remains the same as before (Pn = Po). The demanders of structures now pay a price, Po, which is higher than the original price.
The amount by which it exceeds the original price is exactly the amount of the tax implemented. The tenants bear the entire burden of the tax. This situation of course assumes that the supply curve is perfectly horizontal. If the price received by the suppliers is not allowed to fall, the tenants will always bear the entire burden of the tax. Because the tax on land is borne by landowners and the tax on structures is borne by tenants, the land part is borne by people in proportion to the rental income they receive and the structures part depends on the amount of housing they consume.
Whether or not the share of income from land ownership rises with income determines the progressiveness of the land part of the tax. It is generally argued that it does, therefore the property tax on land is progressive. Whether or not the proportion of income spent on housing increases or decreases with an increase in income determines the progressiveness of the tax on structures. If income falls, then the tax on structures tends to be regressive. If income rises, then the tax on structures tends to be progressive. There has been widespread argument about which imputed income to use.
Some people use yearly income. Using yearly income shows that the proportion of income spent on housing decreases as yearly income rises, showing that the tax is regressive. Other people chose to use permanent income as a measure and find this a more accurate measure of income. Housing decisions tend to be made based on ones long-run expected income, not a yearly variation. Although both calculations are used, it is safe to say that the amount of income spent on housing is roughly proportional to permanent income.
Therefore, the structures part of the property tax is neither progressive nor regressive, although the general consensus is to use annual income which suggests the tax is regressive. Secondly, the property tax can be looked at as a capital tax. The New View looks at the property tax as a general wealth tax. Under this view, ones assets are taxed both below and above the average rate. Both variations must be analyzed. One can assume under this view that the property tax can be seen as a uniform tax on capital.
Capital is a factor of the economy, therefore the property tax is just a general factor tax. One can assume that the supply of capital is fixed, therefore the full burden of the tax falls on capital. Because of this the owners of capital bear the entire burden. A tax on capital is found to be progressive then because the proportion of income from capital rises with income. This completely contradicts the argument of the traditional view. Without the assumption that the property tax is a uniform tax, one must look at the varying rates that go along with different types of property and varying local jurisdictions.
Rates can be higher than average or lower than average. It is because of this that capital tends to relocate to areas where it faces the lowest rates. When this occurs, the before-tax rate of return in high-tax rate areas increases as capital relocates. This happens until after-tax rates of return equilibrate. Land is immobile, so it does not go through this process. The mobility of factors, organization of production, and the consumers demand function ultimately determine the incidence.
Earlier we assumed that the supply of capital is fixed. However, in the long run, the supply of capital may depend on the tax rate. If we lower this assumption, the supply of capital decreases with the implementation of a property tax. This will decrease the productivity of labor, and the real wage will fall as well.
If the tax causes an increase in the supply of capital, the opposite will occur. The property tax can also been seen as a user fee. Local governments use property taxes to purchase public services such as police protection, education, and public utilities. So the property tax can be seen as just the cost of purchasing public services.
Thus, under this view, the property tax is not a tax at all; but a mere fee charged to pay for public services. Incidence would not apply under this view. It is because of the poor representation of such leaders as Governor Jerry Brown, that this view should not be taken too seriously. Each of these three views can be seen as valid in its own way, even though they differ from one another. If we were to eliminate property taxes altogether and replace them with a national sales tax, the new view would be the most useful because this change affects all communities. On the contrary, if local government lowers its property tax rate and compensates for the decrease in tax revenue by increasing the local sales tax, the traditional view must be used.
Lastly, if mobility for people from community to community is an option, then the user fee view is useful. Many national polls have shown that the property tax is very unpopular among citizens of the United States. Many dislike it even more than the federal income tax. But why do people hate the property tax so much? There are those that argue that too often the property tax is based on an estimated value assessment. They believe the tax is unfair.
The property tax is directly paid by the taxpayer, often quarterly or annually. It therefore comes as a large shock with each payment. Some view the property tax as being regressive, mainly due to the widespread acceptance of the traditional view. There are some property owners who cannot make their tax payments and are therefore forced to sell their property, such as the elderly. Whatever animosities one might have, it is relatively easy to attack the property tax because it is levied locally. Are there ways to improve it?
One way is to improve assessment procedures. Current technology should help this process out tremendously. Uniform tax rates would greatly help out efficiency. Another improvement must be made in equity.
Two people with identical properties that pay different rates seem to violate the horizontal equity definition. On the contrary, if we equalize assessment ratios, we could end up with a whole new set of horizontal equities. Whatever ones argument may be, it can be agreed upon that something must be done to make the system more effective. Proposition 13 - The Tax Cut On June 16, 1978, the Jarvis-Gann initiative, also known as Proposition 13, went into effect.
Unlike many promises to make important changes b...
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Research essay sample on One Can Assume Property Tax
