Bacon's Rebellion

Democracy Thrives in Sunlight

The Coming Assessment Wars

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by

James A. Bacon
in

For a couple of years now, I’ve been predicting the following course of events: (1) a collapse of the housing bubble, followed by (2) a collapse of real estate assessments, (3) higher tax rates to make up the revenue loss, and (4) a revolt of the taxpayers against city councils and boards of supervisors.

There’s no denying the collapse of the housing bubble — it was one of the biggest national stories 0f 2007. I don’t mind patting myself on the back for calling it back in November 2003. It’s taken longer than I thought it would, but it looks like we’re moving to phase 2, the collapse of real estate assessments and increase in tax rates. Peter Galuszka wrote about the budgetary impact of the real estate downturn in Prince William County earlier this month in “Boxed In.”

Now, it seems, trouble is brewing in Loudoun County. Danilo Bogdanovic, a Loudoun County Realtor, blogs in Loudoun Stats how citizens are getting agitated about real estate assessments. Wrote Bogdanovic on December 12:

Everyone we’ve talked to in Loudoun County is upset about their assessed value and most are worried that their 2008 tax assessments will not be in line with their fair market value. The people who are even more upset are those who appealed their tax assessments earlier this year and were completely shot down without a good, if any explanation.

Yes, they’re upset because they’ve lost market value. But why are they really upset? Because 2007 assessed values are up to 30 percent higher than current market values (non-foreclosures or short-sales) and they think that the Tax Assessor doesn’t care. That means that Loudoun County residents are paying up to 30 percent more in taxes than they should.

(At the risk of being picky, I don’t think Bagdanovic has it quite right in that last sentence. One way or the other, Loudoun taxpayers are going to pay close to what they’re paying now — the cost of running the municipal government. If real estate values were properly assessed, revenues would fall so dramatically that the Loudoun Board of Supervisors would have no choice but to raise tax rates to make up the shortfall. But no matter. In either case, homeowners feel like they’re getting hosed.)

If Bagdanovic’s original post was interesting, a follow-up post, dated December 29, was even more so. Todd Kauffman, Loudoun County Assessor, contacted a senior member of the Loudoun Realtor association to object that Bagdanovic has posted misleading information on his blog that constituted a violation of the Realtor Code Of Ethics. Needless to say, Bagdanovic had no intention of backing off.

I have no idea whether Kauffman is right or wrong about the Realtor Code of Ethics, but it clearly looks like local governance practitioners in Loudoun County are getting really worried if one of them is trying to bring a local blogger to heel.

Voters have already thrown out Loudoun’s previous Board of Supervisors, leaving the new Board to clean up the mess. But the incoming Board still needs to run the government, and it needs revenue to do so, and it would seem to have precious few options. Inevitably, the next front in the battle over the size, scope and funding of Loudoun municipal government undoubtedly will focus on the justice or injustice of real estate assessments.

(Hat tip: Ben Martin.)

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28 responses to “The Coming Assessment Wars”

  1. Anonymous Avatar
    Anonymous

    This should be fun to watch, when the new board figures out they need to encourage more building to get their receipts up.

    RH

  2. Ben Martin Avatar
    Ben Martin

    On this point the REALTOR® code of ethics is a bit murky, because it is primarily designed to govern conduct in the context of real estate transactions. Mr. Kaufman is free to file an ethics complaint, but whether or not it would gain any traction with an ethics committee is unclear.

  3. Rtwng Extrmst Avatar
    Rtwng Extrmst

    The whole assessment and property tax rate system in VA communities is a complete farce. The county supervisors in fact do not care. They will play the game and claim they lower taxes by lowering rates when assessments are high, but when the assessments must be lowered to appear reasonably close to actual home values on the market, they will raise the tax rates again claiming they need to in order to “run the government services”. No one is holding their feet to the fire on this.

    What we need is a revamping of the whole system and link taxes to the assessed value on the date of purchase. Then property tax increases and reductions will in fact be real whenever they occur and will be more subject to voter response. Additionally this will work to help stabilize growth and keep neighborhood turnover to a minimum.

  4. Anonymous Avatar
    Anonymous

    FYI…

    http://tinyurl.com/2odj4v

    Perhaps Big Brother in Richmond could provide a “cap” on the amount property taxes can be raised in any given year?

    Anyway, this is far from over. Most “experts” I listen too are saying we are in year 3 of a 5-7 year downturn. It could be longer depending on who you talk to.

    And, once this is over, property values are likely to stay flat a few more years after that.

    What occurred over the past 4-5 years is not likely to happen again for a LONG time…..banks won’t allow it.

  5. Anonymous Avatar
    Anonymous

    The proposed 20 percent “homestead exemption” is only going to stir the pot to an even higher boil. The candidates who have promised it to the voters have left the impression that it will produce an actual 20 percent real estate tax cut. When the voters approve it next November (and it will pass if on the ballot), they will leave the voting booth expecting to see that 20 percent reduction — soon. The reaction when it doesn’t happen will not be pretty. It was a false promise in the old market. Now it really is impossible to accomplish that in an environment where values are flat or dropping.

    The tax rate will rise even faster in any localitt that seeks to allow the 20 percent exemption. But some voters will fall for it…”Hey, we just gave you a 20 percent discount on your assessment — ignore the higher rate!”.

    And of course the argument about the assessment itself will continue. And the pressure to pad the assessments will be even greater.

    The problem of dropping values, of course, is limited to those areas where speculation drove up prices in the first place. Predicting four years ago that a housing bubble would burst is no trick. I predict here and now that it will develop again and burst again in the next 10-15 years. That’s a no brainer. That’s what free markets do — rise and fall. But you won’t see what is happening in Loudoun happen in Chesterfield or Roanoke this time, because their values stayed sane.

  6. Anonymous Avatar
    Anonymous

    RTWNG EXTRMST — that has always struck me as one of the dumbest ideas. Base it on the last sale price? Two families own similar houses side by side, same basic market value, but the family that has owned the house 20 years pays substantially lower taxes than the family that bought their’s two years ago? What is even the least bit fair about that? Assume both have kids in school and it really looks unfair.

    The real estate tax is unfair enough without adding that complication. We really need to rethink the way we fund local government, especially since so many of its costs are for direct services (education, fire and police, parks, libraries) that COULD be directly priced. Whether they should be is another matter.

    The problem isn’t just the tax code. It’s the spending addiction — bad at the state level, but way out of control at the local level. Question, if Virginia went to 35-50 localites, rather than 135 or so, what economies could be achieved?

  7. Anonymous Avatar
    Anonymous

    RTWNG EXTRMST and anon 4:03 are both partly on the right track, or both partly wrong, take your pick.

    My suggestion is that the dollar amount paid should not be allowed to increase by more than 7 to 10% in any one year. That gives existing owners some protection from sudden high taxes caused by a spurt in growth. But, the protection would gradually wane over the ensuing 10 to 14 years, at which point everyone would be back on parity.

    Newcomers would pay a higher proportion of costs for needed new services/infrastreucture, but the oldtimers would eventually have to support them as well.

    Some localities still work on the last sale principle. As anon 4:03 points out it has drawbacks. It does promote seniority in the neighborhood, and therefore stability, but that isn’t always the best thing: it can lead to stagnation.

    But the opposite effect, a sudden increase in the value of your cottage because someone bought the cottae next door and put up a McMansion, can be just as devastating.

    A dollar cap avoids both of those problems, or at least spread out the pain.

  8. Michael_the_Archangel Avatar
    Michael_the_Archangel

    Let’s step out of the box for just a minute – we have all let ourselves be talking into this ‘tax on assessed value’ idea – why? Think about it for a minute, if a house on the north side of town costs $100K and a house on the south side of town costs $500K does it cost the government more money to run a police car to one house than it does the other? Does it cost more for fire departments, street sweepers, jails ANY of the common government services? The answer is no, the cost is (or should be) very close to the same to provide those services to every citizen regardless of how much they paid for their homes. Yet we’ve somehow allowed ourselves to be talked into this idea that if your house costs more, the taxes on it should be higher; it doesn’t make sense when you really stop and look at it.

    Anyone care to explain why it DOES make sense?

  9. Anonymous Avatar
    Anonymous

    Michael:

    I think you are more correct than either of the two I mentioned previously. My comments above wer based ont he idea that GIVEN we have this assessment problem, there ought to be a better way.

    You are correct: the idea that a home should be taxed on its value is preposterous. The only reason for this is the tenuous (over time) idea that the owner of an expwnsive home ought to be able to affrd to pay more. Or, even worse, that since he has something that is worth more, he has a larger risk at stake, and therefore we, as a community, can extort more from him.

    I think the bottom line of those rationales is the same, and equally divorced from reality when it comes time to pay the bills.

    Now, when it comes to the cost of providing services, we get onto very slippery ground. The cost of some services depends on the distance from the place where the services live, like fire protection. But, in the case of fire protection, the VALUE of the service also declines with distance.

    EMR thinks there is a true locational cost for the locus of services provided. Undoubtedly, that is true, but just what it is, or how it should be calculated, remains a mystery.

    So your contention that what a person should pay for services is unrelated to how much he paid for his home probably is not entirely correct. A home with less valuable fire protection, as a result of distance from the station, is probably worth less. And as far as THAT service is concerned, should probably pay less.

    Some people on this blog think everyone should pay full cost for every service they recieve. You seem to think that no matter what the service costs (in that location) the bill should be the same.

    I think, that by the time we do all the accounting necessary to bill everybody for every service individually, we might ALMOST as well average the costs, as you suggest.

    Probably, there are some services that are worth paying more for, depending on the quality of the service.

    But, at some level, local government services are like Dominion Power services: they cost waht they cost, and if we wish to have them, we need to figure out how to pay the bill.

    When I pay my property taxes, the money comes out of my wallet, not my property. The money that goes into my wallet depends on cash flow, not on what I own.

    We ought to forget about taxing property, and ONLY tax cash flow, because that is all the money there is.

    Soome people think this is wrong. Youwant to encourage people to make money, so instead of taxing them to do what you want, you ought to tax what you don’t want: like pollution, or smoking.

    The obvious problem is that now you are in the values business. If you just tax cash flow, you do not have to care if the money came from or what it was spent on. If it came form gambling, drugs, or illegall immigrant labor: you still get a cut.

    Now the situation with property is reversed: rather than assuming that people with property might have cash flow (probably, but not always true), you can just focus on the cash flow.

    Now, after the taxes are paid, those who (had a lot of cash) will still have something left to buy property with. Rather that taxing and penalizing income, a tax ONLY on cash flow would encourage thrift: once you own something, it’s yours. If it produces cash flow, then we get a cut.

    The problem with that is, that it requires strong property rights. Othrwise you might invest in something you thought would provide cash flow, only to have it taken away for other purposes: before it turns to cash. On the other hand, with strong property rights, wierd ideas like conservation easements would not exist. Those that really want conservation would understand that the best way to have conservation land would be to go buy it.

    Then, no one can tell you what to do with it, and they can’t tax you out of it.

    The down side of all this is that with NO taxes on property, eventually a few peopple will have essentially ALL of it, and therefore all of the means of generating cash flow.

    That is why we have variable taxes based on value.

    Is the system out of whack? Probably. Is it entirely wrong? Probably not.

    That is why I think a cap on the percentae change in dollars billed makes sense. It sets up a buffer of to to 20 years in which time property can change hands as required, but not under duress.

    RH

  10. Larry Gross Avatar
    Larry Gross

    ya’ll are going about this way to logically.

    In many counties, schools are 60-80% of the budget.

    It costs about 10K per kid to school them with roughly 3-5k of that amount paid by the locality.

    Now look at the property “value” of the home of many folks with kids and see if they actually pay in property taxes anywhere near the actual cost of educating their kid or kids.

    Suffice to say, if you could education out of the local budget that property taxes could be done differently.

    But let’s be honest… we do the same deal with more expensive “point a to point b” cars and income also…. the more well off get to pay higher taxes.

  11. Anonymous Avatar
    Anonymous

    “Now look at the property “value” of the home of many folks with kids and see if they actually pay in property taxes anywhere near the actual cost of educating their kid or kids.”

    That’s not the right way to look at it. Education is an investment in the future. You have to look at the whole system over a full life cycle to make sense of it. Does a home over the course of it’s lifetime pay enough tax to educate the kids that grow up in it? (It won’t have kids in it all the time.) Does an educated citizen pay enough taxes over his lifetime to educate a child?

    Of course property taxes don’t support 100% of school expenses. They are not intended to. The rest comes from income taxes, paid to the state and then redistributed (badly maybe) to the localities.

    Your statement that prperty value of people with kids is not enough to pay the bills is irrelevant and mean sprited.

    The more well off do pay higher taxes: they have gained more from the system, and they have more to protect. It’s called pay for what you get. At some level, it seems fair enough. At some higher level it is confiscatory and counterproductive.

    RH

  12. Larry Gross Avatar
    Larry Gross

    It’s not mean-spirited to recognize where money is spent and what opportunities exist to .. say..not spend that money.

    You won’t find a bigger supporter of education than I nor will you find a bigger critic than how wantonly wasteful we are in expending money on education for the wrong purposes .. and which, at the same time, fight against performance standards and accountability.

    Inefficient and ineffective spending of money intended as an “investment” is where we go wrong.

    When we recognize just how expensive education is – relative to other services – and that if we believe those expenditures are indeed necessary – then a reduction in property values and, in turn, a resulting undermining of a principal way that we fund education… means .. what?

    Well it means, we have to raise taxes .. if we are to maintain at least level funding of schools.

    We might decide that property taxes are no longer where we should focus and instead do it on income and/or sales taxes… as a more fair, egalitarian sharing of the burden.

    and finally…. all the more reason for each of us to be clear and consistent with regard to recognizing the difference between a “subsidy” and an “investment”.

  13. Michael_the_Archangel Avatar
    Michael_the_Archangel

    Interesting ideas and discussion – at least the concept of taxing on assessment is recognized and flawed. Don’t get me started on the educational system – in this country public education is pathetic, at best. On the other hand, the majority of private education is still churning out students who can read, write and do math. The public educational system needs to be severely overhauled and basically done away with. I’m all for vouchers and all for plowing under the ‘education warehouses’ that we now call K-12. I’ll stop before I start raving.

    Thanks for the discussion.

  14. Anonymous Avatar
    Anonymous

    I thought it was worth-while to pay for public schools before I had children. Needless to say, I feel that way today & will tomorrow after my kids are through with public schools. Education is important.

    But I also believe that our public schools are generally not managed well. They spent too much money on overhead and will put millions into programs that don’t necessarily produce millions of dollars worth of results.

    The other issue that needs to be addressed is the impact of illegal immigration on the costs of running public schools. A vastly disproportionate sum of scarce tax dollars is spent to educate these children. The solution is not to turn them away, but for government at all levels to go after the businesses that hire people who are unlawfully here in the US. Strict laws and strict enforcement will reduce the size of the problem.

    Assuming we ever get a handle on illegal immigration, there could well be room for guest workers (protected guest workers), but any such plan must also recover the full incremental cost of educating guest workers’ children from the employers.

    TMT

  15. Larry Gross Avatar
    Larry Gross

    I agree. But if you did not have a single immigrant, the basic of the finances are still the same.

    I’m not opposed to kids being prepared for college nor for kids that are gifted to have programs to allow them to achieve their potential unless the opportunity and access to these programs is affected by kids economic circumstances.

    Further, not every kid is going to become a PhD nor get an MBA but if not, they ARE going to still have to make a decent living and be able to pay for their own needs and their kids needs and there are plenty of jobs for those folks also – that do require them to be able to read and write in a world where technology IS the job…

    and so I want to see the schools do three things:

    1. – accept the reality that they (like any other enterprise) will NEVER have enough money to do everything they think they could do and to accept the reality that they need to prioritize limited funds.

    2. – That their mission is to FIRST produced an educated workforce – the keyword – workforce.

    It’s not good enough that they send off 25% or more of their grads off to college if 25% or more.. don’t even have the minimal education they need to get enough of a job that allows them to support their families, buy health care and take care of their own kids.

    3. – so when they prioritize – their duty is to serve BOTH interests – college and workforce – basically by meeting the needs of all kids by letting them achieve their respective potentials…

    Unless we want a society where the well-off . basically have little choice but to devote a larger and larger portion of their incomes dedicated to “transferring wealth” to those who cannot adequately take care of all of their needs – we need to recognize that the mandate of education is more than perks for our own kids.

    I think the folks who have the least entanglements involving self-interest with respect to education are those who perhaps never had kids and/or those who have kids but sent them to private school because it is those folks who fork over money without and direct benefits.

    When those kinds of folks pay their annual property taxes, they write checks for thousands and thousands of dollars..the vast majority of which .. in Virginia – goes to the local school.

    Those folks do have a right to ask that their taxes be spend truly – as an investment and not for amenities and perks for some kids while other kids (future adults) needs are not met.

  16. Anonymous Avatar
    Anonymous

    “You won’t find a bigger supporter of education than I nor will you find a bigger critic than how wantonly wasteful we are in expending money on education for the wrong purposes “

    I don’t doubt that, Larry. But to say that the real estate taxes psid by those who have children in the home don’t cover the bills is a red herring. Those real estate taxes were never supposed to pay those particular bills.

    Whether the bills we are paying are the right ones, or a wanton waste, is a different issue.

    ———————————-

    “It’s not mean-spirited to recognize where money is spent and what opportunities exist to .. say..not spend that money.”

    Or spend the same money better. As my illiterate immigrant friend said about the Mexican economy; “What good all that money, it no go round and round?”

    I think that is basically what our argument about environetal widgets is about: not whether the money should be spent or not, but how it can be spent to best effect.

    ———————————-

    “When we recognize just how expensive education is – relative to other services – and that if we believe those expenditures are indeed necessary – then a reduction in property values and, in turn, a resulting undermining of a principal way that we fund education… means .. what?

    Well it means, we have to raise taxes .. if we are to maintain at least level funding of schools.”

    Kind of the same situation as Dominion, Huh? Schools have to be guaranteed a certain amount of income to cover their expenses, no mattter how badly the expenses are designed: like North Anna.

    Then, of course, the BAy is a critical resource, and it need to be protected at all costs.

    There’s the underfunded promises in the state retirement fund, Traffic jams costing us $1089 per person wheter we do anything or not, $5 billion for metro to Tysons (for starters).

    And EVERYBODY has a 100% claim on my wallet, except me.

    So Larry is right. It does come down to priorities, because there is NEVER enough.

    Now, how do you set the priorities for social policies?

    You require that the winners can pay off the losers and still come out ahead.

    In other words, you require that social policies show a profit.

    RH

  17. Larry Gross Avatar
    Larry Gross

    “But to say that the real estate taxes psid by those who have children in the home don’t cover the bills is a red herring. Those real estate taxes were never supposed to pay those particular bills.”

    who says? You see.. you’re dead wrong about this – in Virginia.

    Where else is the gap supposed to be made up?

    The local school budget is, in fact, determined by how much the Fed and State do not cover and the balance becomes the responsibility of the locality and in Virginia, the avenues of revenue are substantially limited to the real estate tax.

    So tell me again, how the locality is supposed to handle the school budget without the real estate tax.

    Your comment that localities in the current tax assessment environment will have no choice but to approve more growth to make up the revenue loss tells me that you, is a tacit admission on your part, that in real estate taxes are the primary way to raise revenues.

    And again, let me emphasize that I do not expect parents to pay the full costs of educating their kids but they should understand that others on fixed incomes can literally be forced out of their homes and forced to sell their land because of increasing real estate taxes necessary for funding schools.

    so tell me again.. why merely recognizing HOW we pay locally for education costs is a “red herring”?

  18. Anonymous Avatar
    Anonymous

    Every locality gets an allocation for education form the state, that comes from income taxes, sales taxes, etc. The real estate tax was never meant to cover all local costs.

    For most localities it only covers about one third of expenses, with the rest coming from other sources. Therefore to say that taxes on a home does not cover its local expenses is meaningless.

    But your statement was that a home with children does not pay enough real estate tax to cover the costs of their education. That is just mean spirited to pickon the homes with children.

    Of course it doesn’t, right now. Educaztion is’nt paid for entirely by real estate taxes, and that is why your argument is a red herring.

    But look at the taxes paid over the lifetime of the home and it is a different story. The house I live in once had childrenn in school, but now it hasn’t had for decades. Who is to say that this house hasn’t paid its own way? (I’m one of those who write checks for thousands and thousands and thousands of dollars to support schools for other people’s children.)

    I didn’t say the locals have no choice. I merely pointed out that (frequently) they do count on new growth to get new revenue. They could cut services or raise taxes.

    You are right to say that local taxes have to cover what the FED and State don’t cover, but, given that they DO cover part of it, then it makes no sense to argue that homes with children are not paying their way.

    I agree that the way schools spend money is FUBAR. I just don’t see that making silly arguments about where the money comes from helps much. We tax property, we tax income, we tax sales. We tax them at different levels for different reasons. We can go around and around and point at each one in turn to pick at what is wrong with it, but a reasonable analysis has to look at the whole system at once.

    We tax property so that no one will accumulate all of it, and all of the means f acquiring wealth. We tax income so that people will pay proportionately for the benefits they get from society. We tax sales to get some income from those that get their income off the books.

    Where else are we supposed to get money? Government is like Dominion: they need enough to stay in business, however much that is.

    At the end of the day, you either have more money or you don’t. You either have good priorities or you don’t. But if you have BAD priorities, whether that is in education or environmental widgets, the result is that you have less left over for everything else. And THAT is what hurts the economy.

    RYH

  19. Anonymous Avatar
    Anonymous

    What housing bust?

    From todays WAPO.

    “Homeowners in Maryland should brace for higher property assessments arriving in the mail this week even as the real estate market has softened, with prices falling in some parts of the state.

    Property values for homes and businesses have increased statewide by an average of 33 percent over three years, according to the State Department of Assessments and Taxation, compared with an average increase of 47 percent three years ago.

    In Maryland’s Washington suburbs, assessments increased 51.6 percent over three years in Prince George’s County, second only to a 75 percent surge in Baltimore. Montgomery County assessments rose 16.2 percent, the smallest increase of any jurisdiction in the state. Charles County assessments climbed 41.4 percent, Anne Arundel County 34.9 percent and Howard County 24.2 percent.

    Tax rates set in the spring by local government officials will be applied to the assessments, providing a base of funding for day-to-day county spending.

    Despite the double-digit increases statewide, many Maryland homeowners will qualify for a tax credit that limits property tax increases on primary residences to 10 percent or less each year.”

    Notice that densly populated Montgomery county, with its strict growth controls appreciated much less that the outer suburbs.

    ?????

  20. Anonymous Avatar
    Anonymous

    “they should understand that others on fixed incomes can literally be forced out of their homes and forced to sell their land because of increasing real estate taxes necessary for funding schools.”

    I agree this situation should not be allowed to happen. There needs to be some nexus between real estte taxes and the cash flow that provides the ability to pay. Putting safegurads in to prevent this is possible, AND it has the effect of causing those that want more, to pay for more of what they want.

    RH

  21. Anonymous Avatar
    Anonymous

    I believe that the Maryland situation can be explained by the fact that residential real estate is not reassessed on an annual basis in Maryland. I think reassessments occur on a rolling basis. So we have some people being hit with the impact of major overall increases in real estate value since their last reassessment, but coming in the face of a more recent drop in prices. Ouch!

    TMT

  22. Anonymous Avatar
    Anonymous

    Fauquier only reassesses every four years. The last reassessment just about doubled values, right before the slump hit.

    Still a 51% increase over three years is 17% a year, no matter how you look at it.

    RH

  23. Larry Gross Avatar
    Larry Gross

    what effect did Fauquiers growth policies have on the assessments – relative to surrounding jurisdictions?

  24. Anonymous Avatar
    Anonymous

    I don’t know the answer in general.

    I did do a comparison with Fauquier and Loudoun. Thirty years or so in the past, they had similar population, and similar per capita income, and similar per capita assessed value. In those days they were both rural counties.

    Today the per capita assessed value in Loudoun is around $10,000 more, and the per capita income is around $3000 to $4000 more.

    If I had to guess, the TOTAL assessed value in Loudon is is more than five times as great.

    You can look at it two ways. Take the net present value of ten years worth of additional income plus the $10K assessed value difference.

    Either the Fauquier policies cost each and every citizen something like $17,000 compared to Loudoun(And they did NOT result in lower tax rates, in the end.), or else you can say that Fauquier has a lot more conservation than Loudoun and the conservation is worth $17,000 per person.

    Maybe there is some other way to look at it, but I don’t see it yet. I don’t know what the right answer is. All I’m pointing out is that if you look at the current rhetoric (on either side) and comaper it with 30 years of history, something doesn’t fit.

    I suggest the rhetoric (on both sides) is probably wrong.

    ——————————-

    Then, suppose Fauquier gets a pro growth board, and they go the way of Loudoun (god help us). It is going to cost a LOT more now, so Fauquier will never get the same benefits form the same amount of growth.

    RH

  25. Groveton Avatar
    Groveton

    RH writes:

    Or spend the same money better. As my illiterate immigrant friend said about the Mexican economy; “What good all that money, it no go round and round?”

    Your illiterate Mexican friend ought to apply for a scholarship in Economics. He is ahead of most people in his thinking already.

    The velocity of money is affected by a lot of things – the inheritance tax being one.

    The unequal distribution of wealth (a harbinger of social unrest) is affected by a lot of things – the inheritance tax being one.

    I think there would be plenty of money for education if estates had to pay taxes instead of passing fortunes from one generation to the next.

    Some will say that taxing inheritance is unfair to the person who accumulated the wealth. However, that person is (by definition) dead.

  26. Groveton Avatar
    Groveton

    On another topic –

    There is a growing body of thought that holds that technological advance will guarantee that a smaller percentage of the people generate a larger percentage of the nation’s wealth as time goes on. This is counter to the usual utopian view of technology as a great democratizer. However, the empirical evidence seems to suggest that this utopian view is wrong. Instead, technology may be the great polarizer.

    Larry – if technology is really the great polarizer then the idea of educating people for traditional middle management / middle class jobs may be a great error. Those jobs may not longer exist.

    Larry –

  27. Larry Gross Avatar
    Larry Gross

    re: technology, the middle class and general doom and gloom:

    “American Manufacturing: Alive and Well

    Germany, Japan and Mexico didn’t wipe out U.S. manufacturing—and China and India likely won’t, either.

    Conventional wisdom has it that U.S. manufacturing is dying, choked by high-cost labor, global competition and outsourcing of jobs. But the truth, argues economist Milton Ezrati, is that manufacturing is a vital, thriving and globally competitive part of the American economy. In fact, modern-day manufacturing in America is a success story, a triumph of repeated innovation and, especially, increased labor productivity.

    Ezrati argues that the productivity improvements are so pronounced that they account for far more job losses than do outsourcing jobs and relocating plants overseas.

    Further, he says that without those gains, the country would have lost its global competitive edge by now—taking with it even more jobs and dragging down the standard of living for the entire country.”

    http://www.kiplinger.com/businessresource/recommend/archive/2007/American_Manufacturing_LordAbbett.html

  28. Anonymous Avatar
    Anonymous

    “The unequal distribution of wealth (a harbinger of social unrest) is affected by a lot of things – the inheritance tax being one.”

    Agreed. But does that justify a 100% tax?

    As you say, the velocity of money is affected by a lot of things, not the least of which is ROI.

    Assuming we need an inheritance tax to prevent unequal distribution of wealth, would we think that the usual government ROI is greater than what the heirs would have made if we left them part of their inheritance?

    —————————–

    “There is a growing body of thought that holds that technological advance will guarantee that a smaller percentage of the people generate a larger percentage of the nation’s wealth as time goes on. “

    The guy with a backhoe can put a LOT of ditchdiggers out of work. But he can’t put them ALL out. You still need ditchdiggers to do the cleanup the backhoe can’t do.

    And, the backhoe can dig the ditches cheaper and faster, which means that more jobs are feasible, which means more ditchdiggers for cleanup.

    Plus all the people who operate, sell, move, and repair backhoes, all of whom earn more than the ditchdiggers.

    Following this analogy, the growing body of wisdom looks like it might be correct.

    RH

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