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I know that people living in comunities cooperate with each other when it comes to expenses to maintain the comunity.

From what I understand, taxing property is a practice that started since before recorded history.

Wikipedia - History of property tax:

"Taxation has existed since the existence of civilization. Originally before the presence of monetary system, taxes were mostly paid as a percentage of crops raised.."

The difference between then and now is that governments in the past have always taxed property (land for example) according to what it was producing. If your land was producing apples, you'd be required to give some apples to the government. From what I know people were never required to give pears or diamonds if their land was producing apples.
Now we have to pay money if we own a house, a car or other things even if those things do not produce money (meaning they do not bring any income to the owner)

Can someone please explain how I could make sense of this? What would be a logical explanation (other than "because we need it")

Possible explanations and the reasons why I have a hard time making sense of them:

  • If you sell your house with a profit, then your house "produces" money.

    • The question that should follow would be: "Why not wait until I sell it? Why charge tax every year?"
  • You could rent part of your house.

    • If that is the case, wouldn't an "income tax" make more sense? (We would avoid charging people that do not have enough to sustain themselves)
  • People need government services (schools, roads..). People also need houses. That means people have to pay for those services according to the value of the house. (This argument was brought by one of the commentators below)

    • This sounds a bit like an "Association" type of logical fallacy. What am I missing?
  • A nice house is a good indication that the owner is rich.

    • Not necessarily. Maybe the owner just spent his last penny (and maybe his health) to buy, build or renovate that house.
  • (In the US) Homeowners have to pay (practically under threat of eviction) for the public schools because they benefit from everyone being educated

    • The argument implies that:
      1 - Somehow the homeowners benefit from other people's kids' education more than the kids themselves and their families. (Homeowners pay, students don't)
      2 - Public education is more important than the rights to ownership.

If a location is needed for the question to be complete, please pick a country of your choosing (out of the 99% of the countries where the governments charge money for owning property / assets), although the United States law is what made me ask this question.

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    This really seems like more of a question for History and would be much too broad for here. Why don't you just ask "What is the justification/arguments for property taxes in the US?" since that seems to be the real question you've been trying to ask – divibisan Jun 7 at 18:46
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    @divibisan I'll try to scrap the history part. Does it really have to be about a specific country? The way I see it it's a matter of concept that is similar in most of the world – Alex Doe Jun 7 at 19:14
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    "If your land was producing apples, you'd be required to give some apples to the government." A citation for this claim would be a large improvement. – jpmc26 Jun 8 at 13:49
  • Your question would benefit from clarifying whether by property you mean a house / apartment / land, or property in general. I'm quite sure it's the former but I see from some comments that this is not 100% clear. – SantiBailors Jun 8 at 16:07
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    You added "car and other things" to your question, so it's not about real estate property only. However, at least where I live and in the few countries I know of, there is no property tax on cars, and (as far as I know and I might be wrong) property tax only exists on real estate. That's why I had assumed you were talking about real estate property and your question made a lot of sense to me in that form, exactly because I think that owning things per se is usually not taxed so I am curious about why real estate is an exception. – SantiBailors Jun 9 at 8:12

13 Answers 13

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Firstly, I think there is some flawed logic in the OP's premise that, historically, the purpose of taxation was to tax the production of something. When a person earns a salary, they are not producing money - money is being given to them in exchange for their labor/expertise. Money is only 'produced' by a central bank or national mint, so by the OP's logic, we should be taxing the bank/mint, as they are the ones that are 'producing' the money. The OP's objection would also apply to taxing someone's income. A tax on income is really a tax on a transaction.

Regarding property, I think Denis de Bernardy's answer is very good. However, there is something else worth mentioning, in terms of the 'justification' for taxing property:

A house, in particular, isn't just an isolated entity - it is usually part of a town, city (or other jurisdiction), where it (or, more precisely, the people living there) will often be benefiting from shared infrastructure and services. Those need to be paid for somehow, so it seems logical that one possible way to pay those 'shared costs' is by taxing the owner/occupants based on the value of the property.

Examples of such shared services might be roads, sewer system, electrical power infrastructure, fire department, police/security, courts/judicial system, town/city management services, legislative bodies to make laws and decide policy, etc.

Edit:

I have rewritten the answer to be more general, as a few commenters seemed to be taking issue with the specific details of the example that I had chosen (USA).

Some commenters also pointed out that it is not the 'house' that is using the shared services, but the people living there. Of course, that is true; however, people tend to live in houses and so there is a strong correlation between the two. Besides, some of the 'shared services' I mentioned would be needed, even if the house were sitting empty, such as roads for access, fire department, police/security.

I also want to make it clear that the purpose of my answer is not to advocate for taxing based on property value, but simply to describe a possible justification that could be used for doing so. Of course, there are other ways that costs for shared services can be distributed, such as utility bills or taxing income.

Also, some of the comments seemed to be based on disagreement with the principle of taxing property to pay for shared services. Again, I am not advocating this form of taxation and such disagreements don't change the fact that shared services can be used as a possible justification.

  • Comments are not for extended discussion; this conversation has been moved to chat. – Philipp Jun 18 at 18:32
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There are two issues with your question. The first is that you're approaching this from a wrong angle. The question is not how or whether a property tax is justifiable or justified, but rather how or whether its modern variation came into existence with any kind of sensible rational. The second is that your idea of there being some kind of barter system is misguided.

With respect to the barter system thing, that only exists in economists' wet dreams. David Graeber in Debt the first 5000 years makes a rather interesting case that the sequence whereby barter preceded currency and then debt instruments is fantasy. Rather, the actual sequence was that debt instruments preceded both and that barter and currency (in equal measures to a large degree) then came in as units to settle those debts. And there is ample evidence that early currency instruments were basically fiat and really just records of IOUs.

As to the first problem, historically, authorities have taxed just about anything they could creatively tax, with the main two drivers for doing so being a) whether they could come up with a metric by which they'd tax it (and check it's being paid) and b) whether they'd end up with a revolt on their hands if they tried it.

In agrarian societies like the early Roman empire, at a superficial level there wasn't much to sensibly tax beyond wealth for owners (aka land) and labor for peasants (think serfdom). The metric for the latter was simple: a certain amount of time per year. For the former, it was more complex and revolved, as you suggest in your question, around how "well" the land was developed. But only to the extent that land that produced something deemed valuable was seen as worth more than land that didn't. And this was actually a debt obligation in principle, even though it may have looked like it took the form of barter in practice.

There is more, because the above is somewhat superficial. Then, and later, there were plenty of other very creative taxes -- some progressive, most regressive. Think public urinal tax (by an emperor after which the French sometimes call their urinals), salt tax (salt was a necessity until refrigeration), hearth tax, window tax, glass tax, brick tax, wallpaper tax, you name it. The guiding principle in each case was: if a tax assessor can easily count it, then you can tax it. It's only in the modern era that taxing flows, as in profits, income, and consumption, came about. Before that, taxing wealth was the rule.

And it's also worth noting that, in the past as now, there were "emergency" taxes that sometimes became routine. Charles I of England, for instance, worked around not wanting to call Parliament to get it to raise taxes by all sorts of measures -- some legal, some not (he was time limited for customs, but levied them anyway and merchants paid out of habit). The most colorful ones might be his declaring a state of emergency (there was none) to levy naval vessels from coastal communities (you'd pay the price of a boat if you couldn't provide one) and extending the levy to non-coastal communities (a first at the time); or unearthing a by then long forgotten tax on living outside of city walls. He even won court battles as he pushed this through. The English were so pissed at him that it triggered the English Civil War.

Anyway, back to your question:

Can someone please explain how I could make sense of this? What would be a logical explanation (other than "because we need it")

The simple answer is: because, then as now, you can readily tax it.

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    The historical context you provide is valuable. But the comment on the modern reasons for taxes is simplistic and cynical. Taxes bring value to citizens and many of them have a correlation with the value they bring to you. Not sure about your location, but where I live, in exchange for property tax I get street cleaning and maintenance, street trees, lighting, parking, garbage removal, parks maintenance, etc. – Sam Jun 8 at 5:11
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    @Sam: There are plenty of ways to rationalize why that tax exists ex post, of course, and the other answers provide those reasons. But to my mind, that's more reminiscent of the Oslo Syndrome and the truth of the matter is that modern reason for the tax is simply because you can tax it. Where I live I get all those services too, and it's paid for through a county-level corporate tax, a range of national-level taxes, and redistribution of resulting bounty across the county and country. There are no local (as in municipal level) taxes. – Denis de Bernardy Jun 8 at 5:20
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    @AlexDoe: More like, there is no logic other than just because we can, as in voters aren't up in arms over it. Such taxes aren't needed in theory or (see my earlier comment) in practice. If voters seem ok with seeing such taxes get levied, then why not do so... In the case of the US, there's the additional twist that it's a strictly local tax to fund local public infrastructure and local public services -- which allows to have e.g. school segregation in all but name. (Which some think is good; and others don't.) – Denis de Bernardy Jun 8 at 19:27
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    @Sam No, taxes doesn't add value, they causes deadweight losses which reduce propserity of a society.. – d-b Jun 9 at 16:43
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    @DenisdeBernardy You mean the Stockholm syndrome. – d-b Jun 9 at 16:46
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You're paying for the government to defend your property (among other things.)

One of the services that most governments provide is that of stopping invading armies and marauding gangs of criminals from marching in and taking your property away.

That is to your benefit, and your benefit is proportional to the value of that defended property.

As such, you pay a fee for these services rendered.

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    While this explains what one may get for the money, it doesn't explain why it's paid for by tax as opposed to, say, a security fee and why that tax should be calculated based on wealth as opposed to income. – cbeleites supports Monica Jun 8 at 13:43
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    @cbeleites Calling it a "tax" or a "security fee" seems to be a distinction without a difference. – David Richerby Jun 8 at 17:23
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    @DavidRicherby: at least over here (Germany) there is a substantial legal difference: a fee always has to go to paying exactly the specified service. A tax goes into a big pot together with other taxes, and then various services are paid out of that pot. I.e., the security fee could not be raised in order to plug some hole in, say, the preschool budget. With a tax, that would be perfectly possible. – cbeleites supports Monica Jun 8 at 17:27
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    In the US, property taxes go to cities and towns, the army is provided by the federal government. I doubt my town's police department could do much to fend off an invading army. – Barmar Jun 8 at 19:47
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    @Barmar The federal government is responsible for defending against an invading army but who defends you (and your property) from a gang determined to invade your neighborhood? First defense is your local police department, probably followed quickly by the state police. – doneal24 Jun 8 at 21:47
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In the late 1980s in the UK, the Conservative government decided that they would break the traditional connection between property rental value and local taxation. Instead of people paying tax according to the value of their property, each person would pay a flat rate in return for the services provided in that district. It would be called the "community charge" (but soon became known as the "Poll Tax"), and each adult would pay the same.

The result was widespread public disorder and the Prime Minister (Margaret Thatcher) was removed by her own party. It was a massively unpopular taxation system.

It was also difficult and costly to collect, as people had to register for the tax. Whereas a house is a fixed structure, people tend to move around. It was an administrative nightmare to keep track.

It was unpopular because it meant that a millionaire in a mansion would pay the same as a single parent in two room apartment. The principle of progressive taxation is that one pays in proportion to your ability to pay, not in proportion to what you receive.

The logic behind taxing property is the strong correlation between the value of one's property and the ability to pay tax. People who are rich tend to buy valuable property. People who are poor tend to live in lower value housing. If you are taxing residents of a district, and you want to assess their ability to pay a tax, using the value of their home is a relatively simple way to do it.

The result was a return to a property tax, with every house being assessed and put into a band. Taxes would then be raised according to the band your house was in. So a person with the money to live in a mansion would pay more.

The political logic is that people are much happier to pay progressive taxes that take more money from those who are most able to pay.

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    A note: taxing unproductive property can in certain cases be a cause, not a correlate, of property tending to have wealthy owners. Consider a large inherited but not too productive tract of farmland in a formerly rural suburb with new high property taxes to pay for pricier schools favored by real estate businesses. Assuming the land owner doesn't have enough money, (or enough market), to make the taxes, then he must sell land, probably to banks and house builders, or have it seized as forfeiture. Under such policies the poor can't own idle property for long, and small farms "evaporate". – agc Jun 9 at 10:00
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    Sure, there are lots of oddities. But the general logic for the tax is that it is a progressive form of taxation, aimed at residents in a location, that is quite simple to collect. – James K Jun 9 at 13:04
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    @agc, ...squint at it a moment, and causing property that might otherwise be left idle to be put to productive use looks like a desirable/beneficial outcome. – Charles Duffy Jun 10 at 14:58
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    I don't think it's accurate to say taxing in proportion to the ability to pay is "progressive". That word has always meant increasing the proportion of one's means that must go to taxes at higher levels of wealth. The taxes paid on a rich man's five houses is exactly the same as the sum of the taxes five different people paid before they sold the homes to him. Truly progressive taxation would have the rich man pay more than the five less-rich people pay. – Monty Harder Jun 10 at 15:23
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    @CharlesDuffy, I understand the valid enough logic of the argument that productive use of land is preferable to leaving it alone, but have doubts as to the premises. Environmentally, it's questionable -- a capitalist might make a tract of land quite productive, yet obliviously poison the land's neighbors in the process. Ethically it's questionable, because the land might be more valuable undeveloped -- perhaps it serves a greater ecological purpose that some short-sighted developer or banker understands; and it in effect makes ordinary ownership be contingent upon government mandated actions. – agc Jun 10 at 21:49
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Time4Tea's answer explains why property taxes are justified in a modern society with multiple potential alternative forms of taxation, as they pay for various government services that property owners presumably use. However there's an additional justification for property taxes that applies especially in the case of unproductive property, even for unused property that isn't actually using significant government services. Property taxes encourage property be put to productive use. It's harder to justify property you own go to waste if you have to pay taxes on it.

Back when I was high school student I used to walk to school through a field of corn. That may not sound remarkable, but I lived in suburban neighbourhood and went to suburban high school. There weren't any farms anywhere near me, yet across the street from my school, surrounded by houses and a shopping plaza there was a corn field. Some developer had bought it in order to put up townhouses, but for whatever reason waited a number of years to do so. For a few years the property sat unused, overgrown with weeds, serving no useful purpose. Eventually though, because the city actually charged higher taxes on undeveloped land than land being used for farming, the developer started renting it out to a farmer.

A more general example would be that property taxes encourage people who flip homes to rent them out while they wait for the price to appreciate. While many of these house flippers would anyways, that extra bill in the mail encourages those that rather not be landlords to do so as well. Without property taxes there'd be less housing available and more vacant properties sitting unused. In the extreme case of where an owner abandons their property, it allows the local government to seize the property for unpaid taxes. The government can then sell the property to someone who will hopefully put it to productive use.

  • Most people invest money in properties with the intention to get some return on their investment (a place to live, rent it out for money, work it for crops.. etc). As cbeleites' answer points out, there are "side effects" that affect this class of people (the majority). The abandoned properties point you bring is still a great point. Can it be solved without placing a burden on responsible owners? – Alex Doe Jun 9 at 14:36
  • This answer doesn't address the fact that you also need to live somewhere. It's fair enough to talk about "putting to use" property, which you just happen to own in addition to where you live, and the level of taxation on the place where you do live. – Gnudiff Jun 10 at 5:32
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    @Gnudiff My answer is about the particular case of property that isn't being used, as it was something that other answers didn't consider. However I did briefly address the case of property that is being used (eg. lived in) in the first sentence. – Ross Ridge Jun 10 at 6:03
  • I think this is a good answer, but there is perhaps a typo in the first para: "Property encourages that property to be put to productive use"? – Time4Tea Jun 11 at 0:17
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    @Gnudiff it is possible that a jurisdiction could tax only property that people own besides the one they actually live in (or give some benefit to the 'homestead'). That would incentivise property to be used and disincentivise investment ownership. – Time4Tea Jun 11 at 0:20
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I'd like to point out that I indeed think the question how a community (whether village/town, ..., state) collects the money it needs to provide its services to the citizens is to a large extent political. 4 ways come to my mind:

  • collecting fees: a fee is collected to provide a certain (stated) service, good or right.
  • In contrast, taxes are collected without a statement what this tax is going to be used for. The taxes go into the town/.../state budget and taxes together contribute to paying all the spending of that community.
    Taxes are frequently collected on:
    • income
    • wealth
    • purchase or ownership of particular goods/services (VAT, dog tax, salt tax, ...)
    • per capita

Two notes:

  • the boundaries of taxing income vs. wealth may be a bit more blurred than it would seem at the first glance. E.g. IIRC in the Netherlands, wealth is taxed according to the income it could produce.
  • wealth tax is also close to taxing the right to own or operate certain things such as land or a car.

Now, comparing different countries/legal or tax systems, the same or very similar tasks are often paid for by fees in one but taxes in another. Some examples:

  • A US-based answer tells us that property taxes are collected to pay for roads etc. Where I live, if a town builds or renovates a road usually a fee is collected from the owners of the adjacent ground to pay for that particular road. We also have taxes on land, but those are much lower compared to what I've heard about the US property taxes.

  • Where I live, health care is mostly paid for by (obligatory) fees. Some other countries nearby don't separate health care from other governmental services and use taxes instead of fees.


Some thoughts that go into what to tax:

  • @DenisdeBarnardy already pointed out that efficient tax collection also needs suffienctly easy ways to assess the amount and actual payment
    (There have been some proposals to reform the German property tax recently that have been critizised in that the assessment of taxes due would be so much work that the tax would hardly be a net gain)

  • If there's neither income nor wealth, it's difficult (expensive, inefficient) to actually collect the tax. Similarly, purchasing a good or service is an indication that there happens to be money right here, so from collectin efficiency point of view, a good opportunity for a tax.


Why tax wealth

  • As I understand the discussion, property tax is usually discussed as wealth tax. On a closer look, I'd group it as tax on particular assets, though.

    Taxes on particular classes of assets are often following a logic that combines:

    • on the one hand particular services are related to that asset (e.g. dogs create an additional burden on city cleaning; cars need roads)
    • therefore (or for further reasons) there is a political decision to disincentivize this asset.
      (IIRC Italy has taxes on foreign assets)
    • On the other hand, the exact costs this asset caused may be rather expensive to calculate.
    • Thus, a "roughly fair" (i.e. not too upsetting to not too many citizens) but easy to administer tax may be far more efficient (best case it may even be cheaper for the citizen).
  • maybe the prime political argument to tax wealth (as opposed to certain classes of assets that usually are very valuable) is to counteract wealth concentration, or related to that argument

  • that neither taxing income but not wealth nor taxing wealth but not income would be good implementations of the principle that each citizen should contribute to the community tasks according to their ability.

  • Wealth tax disincentivizes assets that do not produce income. If that's the political goal, wealth tax is the way to go.

  • In case of a system like the Dutch wealth tax which argues the income that wealth could produce, one may argue that replacing some income tax by an easy-to-calculate wealth tax can save a lot of burocratic hassle (and may make some part income tax fraud a non-issue).

  • Wealth tax differs from a collection of asset taxes in that asset taxes are due also if there's debt offsetting the wealth (i.e. the wealth actually isn't there).


Some difficulties with wealth tax:

  • OTOH, at least the German variety of wealth tax was the tax that required most administration, so not very efficient in terms of net revenue vs. costs to the community to collect. Estimates in the 1990s said that the total costs for collecting the wealth tax (including tax administration, tax payers costs for declaration etc. and enforcement costs) were around 1/3 of the collected tax*.
    This particular point is much easier for certain asset classes. Of course, also wealth tax may be subject to fewer and easier rules, but there are limits here as the respective tax law is required to not be too unjust/unfair:

  • Collection of German wealth tax was discontinued after the federal consitutional court ruled that it can only be constitutional if all types of assets are subject to the same wealth tax. This can be quite difficult and thus costly to achieve.
    Again, taxes per asset class are not or less subject to this problem.

  • Another side effect of wealth tax is that certain types of business may be pushed into insolvency by a wealth tax. Compare a freelancer who's working mostly with their brain (which is valuable, but not considered taxable wealth) and who has almost all sales being profit vs. a farmer who will easily need to be in the million €s for machinery, property and stock to produce a similar income.

* There are newer proposals who calculate much better tax revenue : cost ratio, but the ones that I've seen so far still suffer from the fact that e.g. claims to the governmental pension plan are excluded from taxation (these claims are notoriously difficult to compare to capital assets) whereas a business owner's pension savings (whether investments or business assets) would be subject to the full proposed wealth tax.

  • Wealth tax disincentivizes assets that do not produce income . Do you know of any reason why anyone would want to disincentivize assets that do not produce income? – Alex Doe Jun 10 at 13:38
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    @AlexDoe, why would you want inner-city land to be used for, say, single-family homes when it could much more productively be a condominium project, an office park, etc? Especially in a city -- cost of providing infrastructure (roads, transit, water, sewer, etc) scales largely with surface area covered, so unproductive/sprawly developments are much more costly to the community, as they return less to the tax base but still incur the fixed square-milage-based costs. – Charles Duffy Jun 10 at 15:02
  • @CharlesDuffy - That is indeed one scenario where the disincentivising idea makes sense. Following that logic I think we get to the system where undeveloped lots are taxed more than the developed ones. In much of the world's big cities though, I believe, the bigger the building the higher the tax is – Alex Doe Jun 10 at 23:08
  • The higher the tax is as a dollar amount, certainly. As a percentage of inflow, not so much -- someone making substantial income from a property and paying higher taxes generally comes off well ahead of someone making far less income and paying lesser-but-still-substantial tax. There's more than one factor at play -- one is encouraging property to be put to use; another (as should be utterly obvious) is revenue generation. Achieving both goals is a balance policy can be, and often is, tuned towards. – Charles Duffy Jun 11 at 1:21
  • Honestly, I wouldn't expect anything else to be seriously argued by someone operating in good faith rather than playing reductio ad absurdum games. After all, if larger developments paid less as a fixed dollar amount (rather than as a percentage), they wouldn't actually be achieving the cost-offsetting goals argued above. – Charles Duffy Jun 11 at 1:27
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Property in the form of real estate is the best thing there is to tax, especially if you levy the tax on the undeveloped value of the land. Land can’t be concealed from the taxman. It can’t be moved offshore. The person paying the tax didn’t create the land from the sweat of their brow, and nor did the person they acquired it from (except in very limited circumstances like Dutch polders); they are using part of the common heritage of mankind and it’s reasonable to charge them for it. And unlike most taxes, it doesn’t reduce economic activity by disincentivising the activity that’s being taxed, except in extreme cases where the owner chooses to forfeit the land rather than paying the tax.

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    "it doesn’t reduce economic activity by disincentivising the activity that’s being taxed" If the tax is based on the improved land value it could disincentivise anyone actually building on the land, or cause people to actively tear down houses to lower the assessed property value. The activity being taxed becomes anything that makes the land valuable as opposed to worthless. Improved value property tax is often accused of preventing improvements and the resulting businesses and services being built and used on land to avoid increasing the assessment value and taxes. – Vality Jun 10 at 16:52
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    @Vality Yes, which is why I said “if you levy the tax on the undeveloped value of the land”. – Mike Scott Jun 10 at 17:06
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Tax, generally is taxation on an asset or an income. Many assets, especially in a modern world can be hard to track. Actual bricks and mortar property is usefully hard to move around, unlike say the sales that a multi-national corporation can make and then move around through its various branches, on-shore and off-shore, because of its large and opaque financial structure.

Its also justified say, on say a residential house, by the rough calculation that the larger a house is the more the people who live there will use local civic services: roads, schools, health clinics and the like. Buildings, on the other hand, which are used as the sites of businesses are judged differently as being profit centres and are also judged as using a larger proportion of services - for example an educated work-force for which they do not pay directly for, and so are taxed as such.

2

In the US, the most common forms of taxation are:

  1. Taxes on income and investments.
  2. Sales/use taxes.
  3. Property taxes.
  4. Business taxes.

Number 1 and 4 are generally levied by the federal and state governments, #2 is usually states (but some large cities, e.g. NYC, also have sales taxes). Cities and towns usually use #3, property taxes.

I think the logic is related to the types of services that local municipalities provide: police protection, fire departments, local infrastructure (often called "public works"), and public schools. Some of these directly protect property -- a fire would destroy your home, and police investigate crimes against property like burglaries, trespassing, etc. Good schools and public works make homes in the town more valuable.

Since the value of town services is closely tied to the value of your home, it's not unreasonable to make your share of the tax burden proportional to the home's value.

Services provided by other government levels, such as health care, military, welfare, are not so closely aligned with property. In this case, we use income and purchases as a proxy for wealth, and tax those transaction.

  • I agree that paying for basic needs for the smooth functioning of the community makes sense. The schools that take 90% of the tax are not basic need. Paying to improve them and then paying more because they are improved seems like a never ending upward spiraling cycle. Is it good for the community to have schools? Yes, but it is about as basic of a need as the healthcare. Following your logic, the home owners will soon have to pay for everyone else's healthcare and then pay more for living in a healthier community. – Alex Doe Jun 8 at 21:16
  • We don't expect local municipalities to provide healthcare services. – Barmar Jun 8 at 21:17
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    @AlexDoe An ongoing issue with property taxes going largely to the school system is the inequity of having property owners who have no children or who send their kids to public school or who homeschool pay the same rate as the family with many kids in the public school system. I would say that schools are a basic need (even though we homeschooled our child) but is there a fair system to fund public schools? – doneal24 Jun 8 at 21:54
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    Probably not -- the way to make only families with children in school pay is with private schools. Schools are considered a public good -- an educated population benefits society as a whole. And your property values go up even if you don't have children in school. – Barmar Jun 8 at 22:00
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    Renters still pay in -- a little less directly, surely, but no landlord is going to fail to pass through such a readily-anticipated direct cost. – Charles Duffy Jun 10 at 21:36
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Property, in terms of physical possessions, is a very simple gauge of wealth.

Rich people tend to have expensive houses and expensive cars.

Average people tend to have modest houses and modest cars.

Property taxes are a simple way to get rich people to pay more.

  • Dont wealth taxes cause that rather than gauge it though? A poor person with good saving discipline could in theory eventually own a nice house, but charging them a high yearly fee for it means they cannot ever have such a property. – Vality Jun 10 at 22:13
  • You can carry that to a lot of extremes, but the simple fact is - wealthier people tend to own more of the things that higher property taxes are levied on. – tj1000 Jun 11 at 15:06
2

Many good answers, I would just like to add that while most countries have property tax, a number of them (especially here in Europe), have tax exemption for a place of residence where the person actually lives, exemption usually subject to upper limit on size.

The question is actually a hot topic in Latvia at the moment, because Latvia does not have a provision for tax exemption for the abode, and the property taxes have skyrocketed in the past 3-5 years, forcing a number of (specifically elderly people who do not have high earnings) to sell their homes.

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    This is a good point in differentiating between the abode/homestead and investment properties. – Time4Tea Jun 11 at 0:26
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Many useful answers - but I didn’t see anyone making this point (I might have glossed over it):

To live somewhere, you either rent, or you own the property yourself. The fact that you are “paying rent to yourself” when you own the property gives you an invisible income (invisible in the sense that there is no formal entry in your bookkeeping, usually).

This concept is known as imputed rent.

You usually don’t get a credit for paying rent, but you get taxed for collecting rent. By not charging yourself rent, you are avoiding a taxable income. The rental income is of course offset by some expenses associated with owning a house (upkeep, local taxes) but if it wasn’t profitable there would be very few landlords...

In general any asset is capable of generating income. This is the justification used by some countries for charging an asset tax (typically about 1% of total “wealth”) - this in effect punishes people for sitting on a large pile of money without putting it to work in the economy.

Of course the justification for the taxation is well explained by many other answers - but the premise “it doesn’t generate income” is, in my opinion, false.

As an aside, I have a farm with multiple buildings on it. I actually rent part of the property out “to my business” which is conducted in some of the buildings. By doing this I can better shield myself from business-related liabilities (it’s an LLC), and what is an expense for my business reduces its profit while increasing my income. Tax-wise, that nets me zero (since business profit is added to my personal income as I am a sole proprietor). That makes the “paying yourself rent” argument a bit more visible, perhaps.

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    Owning a home constitutes a number of associated constant and occasional expenses, which a person who rents is not subject to. Yes, you do not give your money to somebody, but you generally have to spend it on upkeep and unplanned expenses instead. It might be a fraction of rent for everyday needs, depending on the location, but the point about houses is that every larger period of time you have to spend a significant amount (let's say, changing the roof, replacing some load-bearing structures, etc), which can amount to expenses of several years worth of rent. – Gnudiff Jun 10 at 5:45
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    The whole concept smacks very much of reverse thought, if I may say. It feels as if for some reason everybody should be paying rent, and homeowners somehow shirk their "duty". I think its absurdity would be apparent as soon as you tried to logically extend it to other items of property - furniture, for example. – Gnudiff Jun 10 at 10:18
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    But of course however much the tax system incentivises it, no-one can do more than 168 hours per week of unpaid labour for themselves, so this is is probably not a big distortion. – bdsl Jun 10 at 13:11
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    @Floris well, since this is Politics SE, I would just like to note that taxing the property one lives in seems to be a good way to rob a portion of people of their right to life. – Gnudiff Jun 10 at 16:18
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    Many places seem to differentiate in their taxation policy between the 'homestead', where you live, and investment properties, which produce income. The first one is somewhat mandatory (everyone needs somewhere to live); whereas the second is optional. – Time4Tea Jun 11 at 0:34
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Because governments need money, and people need government services

As the title line says, governments need money to function so must acquire it somehow. Taxes are pretty much by definition how governments attain money, at least so long as we've ruled out invading foreign lands and stealing their gold and stuff. And the people need their government in varying (non-trivial) degrees with a number of (non-trivial) things. Water, electricity, sewage, roads and transportation etc. are things that are often covered by a government through its taxes; exactly what level of government depends on the jurisdiction in question. These are all things that tend to not be in individual interests—as individuals we pay a lot more for flush toilets and sewage systems than we reap from them in direct benefits—but are in the general public good—the community as a whole derives more from everyone having a good system for disposing their waste than the community as a whole puts into it.

That's why the government usually implements, regulates, and maintains such systems, and the individual members of the society agree to fund it via taxes. Exactly which taxes and in what amounts are used is dictated by local laws and constitution(s), and is otherwise a negotiation between the government and its peoples. In the US and (most?) every other democracy for example, the taxes are implemented via legislation enacted by elected representatives, or by a direct popular vote—in California, for example, it is currently required by the state constitution to put taxes to a public vote, but it used to be something the legislature could do alone.

So the simple answer to "why do we tax land in such and such ways for such and such reasons" is because the government asked the people to do so, and the people agreed. And they have continued to agree, otherwise they would demand the repeal and reworking of the taxes in some form or another.

Now in the US, the constitution actually prohibits direct taxes by the federal government, unless they are levied in proportion to state population (which makes no accounting on whether some states are richer than others). The 16th amendment has permitted the federal government to levy income taxes without regards to population. This settled an oscillating set of prior precedents from SCOTUS which had at one point ruled income taxes as unconstitutional direct taxes, and then later ruled that they were an indirect tax on a transaction (you give labor in exchange for cash, for example). That's why at the federal level you don't pay non-income related taxes on land (in the US). You just pay things like capital gains taxes, and other forms of gaining wealth/income via land.

However, direct taxes are not prohibited by the states and their municipalities by the US constitution. Individual state constitutions regulate this. In most cases, it is local municipalities like cities or counties that levy direct taxes on land. A large chunk of these tend to go towards paying for education: building and maintaining schools and paying the staff. Most of the rest of what the local governments deal with, like many utilities, are billed directly. Education, however, is a resource that not everyone uses individually and equally, but which everyone benefits from as a whole. That's why we don't bill directly for education (before college, at least): some people have disproportionate need, but everyone has approximately equal benefit as a community.

It fell to the courts ultimately to decide if local municipalities actually could tax land directly to fund such costs. But they did, and it has become almost universal in the US that local municipalities tax your land based on its assessed value, which go to maintain the local government and pay for communal resources like education. Everyone's accustomed to it, most people just accept it as a given and plan accordingly. If the courts had ruled against such taxes, then local governments would have simply found something else to tax until eventually something passed legal muster. You'd have ended up paying the same amount in taxes, some of it would just land on something else. And if they couldn't find something to tax, the local governments would start to collapse, key services that they funded and maintain would collapse, and the people and higher levels of government would be compelled to take action to rectify the situation; such as by rewriting laws or amending constitutions to allow a solution (probably by simply allowing a certain type of tax it had been ruled couldn't be levied).

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