An argument that property taxes are intrinsically unjust

December 18, 2012 § 14 Comments

A comment by reader tz2026 got me thinking about taxation in the context of our discussions about usury.  I’ve long had an intuition that there was something not quite right about property taxes.  I’ve on occasion been known to suggest a “mandatory sale” rule: if the property tax assessor values a house at X the property owner should be able to say “OK, you now own it for X” and walk away with the money.

As a provisional exploratory matter, I now think I may be developing an argument that property taxes are intrinsically unjust.

In a profitable loan broadly and colloquially construed, the lender charges the borrower rent for the use of something.  In a case of usury the rent is charged for something which does not actually exist.  Thus usury is unjust: it is a scam, a theft, a something-for-nothing taking from the borrower.

Now the sovereign’s currency has credibility as a medium of exchange precisely because it is the currency that he will accept as payment for taxes.  We engage in all sorts of transactions in the sovereign’s currency.  (Contrary to the popular view, the sovereign’s currency is not mandatory for transactions: non-cash transactions are actually quite commonplace.  But that is something of an aside from the present subject, I think).  Usually – though not always – when a house is sold, it is sold for sovereign currency.

Anyway, the argument goes something like this:

Property taxes are denominated in the sovereign’s currency.  However, the value imputed for the property tax rests on the mere potentiality of selling the property for its assessed value.  There isn’t any actual sale transacted in actual dollars; there is merely a potential sale which does not in fact occur.

If it is intrinsically unjust to charge rent for something which doesn’t actually exist, it is also intrinsically unjust to tax what does not actually exist.


§ 14 Responses to An argument that property taxes are intrinsically unjust

  • tz2026 says:

    The property, as the already exchanged day of your life, your sweat, blood, and tears, or the piece of land, actually exist. Does it have value in and of itself or only as a potential exchange? But if it has value in an exchange, does the exchange need to occur?

    Market rates are based on voluntary exchange, but a tax is involuntary. That said, things like insurance pay based on assessed value, though insurance has the incentive to undervalue while property tax has the opposite.

    It is sophistry to sit there, like the dragon in Revelation, waiting for the birth of the child to consume it.

    The existence of a “PUT”, where you can give the property for the assessed value simply addresses the potential of the abuse of inflated value. If the assessor can inflate values without penalty (or require a complex arbitration), then an unjust premium can be added.

    Two further points. Transaction taxes are potentially the fairest as you can save and conserve as much as you want as long as you don’t trade so you can live off the grid and avoid it completely if you desire. Second, in the cases where value is improved, e.g. consider the building of a levee that prevents flooding and raises the value, I would suggest a lien on the property based on the increased value (which would have an interest rate and be negotiable) so a widow could keep her home indefinitely without worrying but the estate – only if sold – would have to satisfy the lien.

    There is a fine line – the community needs collective action including revenue. But the community can do things that are against the interest of individuals so it would be tyrannical to insist they pay for it. In the instance of a levee (and corresponding levy), there is no way to build 90% of it and have it work, nor to prevent flooding of only those who pay to have their property protected. Either the entire floodplain or none. Either the entire contiguous levee or don’t bother (eminent domain).

  • tz2026 says:

    I should also note you haven’t said if you consider wages – time you give to another – property or income. Today it is treated as income, but the original philosophical position was wages were property. If property taxes are unjust, then social “insurance” (see the Catechism), even when it is not a fraudulent ponzi scheme where the trust fund is embezzled as in the USA, would still be unjust, and worse for the “income” tax which should therefore only apply to rents, interest, and capital gains.

    I consider anything taken out of wages as intrinsically unjust, though one can argue that not all compensation labeled “wages” is actually a wage. Wages, as a participation in sub-creation (parallels procreation in the Theology of the Body) are something sacred and why violations cry to God for justice where other broken economic trade transactions do not.

  • tz2026 says:

    One final note – Sovereigns will insist on taxing things as if the exchange were in the fiat currency, so two people can swap parcels, but the barter transaction will be taxed as if each paid the fiat currency equivalent for it (in the USA). If you exchange a $100 gold coin currently valued at $1600, you will be taxed at $1600. If you cross an international border, you must declare anything over $10k. I’ll let you guess if you take 99 gold coins across if they will be face or commodity exchange value. If you bought a 1oz gold coin for $300 years ago and sell it for $1700 today, the sovereign would insist on paying capital gains tax.

    The sovereign’s currency is not mandatory for transactions in the strict sense, but the sovereign will treat any transaction as having occurred in his currency. That is the evil. There can be no competing currencies.

  • Zippy says:

    A few thoughts:

    I agree with you as a matter of intuition about taxation of transactions. I am somewhat on the fence about taxing wages, again just as a matter of (what may or may not be well formed ) intuition.

    Separately from that I don’t think you’ve defined wages right. Wages aren’t payment for time, they are payment for work. That time is often used as the easiest proxy for work makes it easy to confuse the two.

    I agree that an assessor put doesn’t solve a fundamental fairness problem; but what it does do is prevent wildly overvaluing one man’s property while undervaluing his neighhbor’s. Mostly I brought it up to draw the nonexistence of the transaction upon which the taxation is based into relief.

    Thanks for your thoughts.

  • Skeggy Thorson says:

    I apologize if this comment is off track, however, I do not believe property taxes must be considered as a part of the transaction of acquiring or selling the property. If paying taxes is the duty of a citizen to a rightful sovereign and if duties are measured by whether one can perform the duty (for instance people with club feet can’t be drafted). Basing the taxes on property could be a just way of assessing a particular person’s duty to pay taxes, whether how much or at all. Again, I am sorry if this is either completely wrong or just irrelevant to the topic.

  • Zippy says:

    Skeggy Thorson:

    You and tz2026 raise the perfectly reasonable point that the property underlying the tax is real. But how property taxes function in fact is typically to charge people for profits they have not in fact realized.

    (This is similar to the Alternative Minimum Tax, which at least used to involve charging certain stockholders as if the market price of their shares on an given date counted as income, even though they never actually sold the shares to produce any cash at all let alone a profit, may not have even been eligible to sell shares on the date in question, in some cases that I am personally aware of causing individuals to owe several times their personal net worth in taxes after a fall in share price.)

    Suppose Mom and Pop buy a house in 1962 for $10,000. They live in it for 50 years. By the time 2012 comes around their assessment is $500,000. They are taxed on the basis of that assessment, even though they have no desire to sell their house and have never realized any real estate profit from it: their annual taxes now approach the amount they paid for the house in the first place, and in fact they have in effect re-purchased the house many times over from the government by paying property taxes.

    In California there was and may still be a Proposition that limits the amount of increase of property assessment to at most 2.5% per year. But even that 2.5% addition reflects mere potentiality, not an actuality.

    So you fellas are right that I haven’t fully captured the unreality for which property owners are being taxed. (Heck, that is why it is a preliminary argument). But I’m not quite ready to concede that property taxes are assessed on something actual as opposed to potential.

    Perhaps it is morally licit for the government to charge property taxes based on the original purchase price – reflected in a real transaction – but no more.

    Or perhaps it is morally licit for the government to simply demand transfer of a portion of the property itself each year, independent of assessment, so that after X years the property simply transfers over to government ownership. I’m not sure people would go for such a forthrightly honest scheme though.

    I should also say that I do find tz’s lien proposal interesting, in a thought experiment kind of way, for cases where some public works project actually and directly increases the value of the property.

  • Skeggy Thorson says:

    I apparently did not fully grasp your point originally, though your reply clarified it. Economics was never my strength (if I can be said to have any). Thank you for the reply and sorry for the trouble.

  • Steve Nicoloso says:

    Real estate wouldn’t exist in the first place except by violence, whether actual or the threat thereof. Therefore you only live on “your” real estate at the pleasure of the sovereign, who is and only is sovereign because he is capable of exercising the most violence. (If he has no near competitors, we can expect peace and prosperity.) Therefore, you are in a very real sense “renting” your real estate from the sovereign and therefore it is just that he collect property taxes as a form of rent.

  • Zippy says:

    If all is violence there isn’t much sense talking about justice at all.

  • Steve Nicoloso says:

    Well, I didn’t say all is violence. Violence can be used for good or evil ends as you well know. Justice is getting what you deserve. If you deserve to “own” a plot of land you happen to occupy, then we may hope the sovereign agrees with you and threatens his violence against anyone who might dispute your claim. Again if the sovereign has no near competitors, there is unlikely to be any violence at all. But you do “own” the land for and only as long as the sovereign agrees with you. You therefore “owe” the sovereign some recompense for his trouble in recognizing your claim, which is to say he deserves to collect rent, which is to say that it is just.

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