Monday, August 26, 2019

Housing Affordability, Part 14

Here is my latest post at Mercatus: "Because of Housing, All Taxes on Capital Tend to Be Regressive".  Here is the conclusion.  Go to the link for the details.

 (T)he income tax code, as it exists, has regressive effects regarding housing affordability.Given those effects, it is inaccurate to treat capital taxation in general as a progressive tax. Corporate taxation, in general, creates a regressive rent subsidy. A different tax regime that focused on property taxation rather than generalized capital taxation could plausibly produce public revenue in a way that would be more progressive than a tax code that taxes capital income more generally. This should cast doubt on common presumptions about how and why to change the tax code.


  1. Very interesting. Property taxes are probably the way to go. I do not see much traction on this score.

  2. I fully support more property taxes over other taxes.
    I flatly don't believe that more supply, and hence more homes built, means the rents increase. With rents decreasing where there is less construction.

    Where supply is elastic (meaning there are few obstacles to new supply), renters effectively pay the property tax and rents increase. Where supply is inelastic (meaning there are many obstacles to new supply), owners effectively pay the property tax and home prices decrease.

    1. I think I didn't write clearly. Where supply is inelastic, rents and supply are relatively unaffected by raising property taxes. Where supply is elastic, rents reflect marginal costs, so the tax falls on the consumer as it would in other markets.


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