Please review my article on the subject:
2) how would the system address ability to pay: businesses that have a bad year and no money in the current system do not pay income taxes, but in the new system they would be required to pay taxes even when they have no ability to pay. that would seem to raise the risk of starting a new business and thereby reduce competition in some markets and allow price-gouging in some markets.
3) how would the land of giant farms be valued and what portion of the existing tax base would go there (and thereby be passed to anybody who eats)--the answer here would affect the distributive effect of the new system
We live now in a climate of opinion where the taxation of wealth as such, rather than income or expenditure, is basically considered wrong by most people. That was not true in the nineteenth century when Henry George wrote. The issue that he was addressing is -- shall we tax wealth that is created by man or shall we tax personal wealth that is generated by land rents? But, the problem we are dealing with now is the perception that the taxation of wealth is wrong, no matter how that wealth is generated.
I believe that a considerable factor in the whole so-called revolt against property taxes in the United States in the 1970's came from the taxation of unrealized capital gains, particularly homeowners1 unrealized capital gains. I think that Americans consider such taxation inequitable, harsh and entirely illegitimate with respect to owner-occupied housing. The size of the unrealized capital gains in the 1970's was really vast. I have made some estimates of the size of the increase in the value of existing unsold, unchanged, unaltered owner-occupied non-farm houses between 1969 and 1979. The total estimated increase in market value of owner-occupied housing (including land) between 1969 and 1979 was about $1,500 billion from roughly $650 billion to $2.2 trillion. Of that $1,500 billion increase, about $600 billion, about forty percent of the increase, was in the form of unrealized capital gains. More than 25 percent of the market value of owner-occupied housing, as of 1979, consisted of unrealized capital gains, of houses many of which people had lived in for many years and had no intention of ever selling. The very rapid run up in property values is fairly obviously associated with inflation, with the income tax preferences attached to owner occupied housing, and with the fact that, until 1979. there were negative real rates of interest on home mortgages.
But this by itself should not have caused negative reactions by taxpayers: taxpayers are concerned with actual tax bills, not the way in which they are calculated. Why should there have been large increases in tax bills? If property values were increasing very rapidly, much more rapidly than income, even more rapidly than rate of inflation in general, effective tax should have declined and actual tax liabilities for many property owners might not have increased very much at all. Tax liabilities might in some cases have actually increased by less than earned income.
In reality what happened was that many local governments were cheating. They used the increase in market values during this period, in many cases, to expand local government expenditure at rapid rates. Moreover, the situation was aggravated in those states where the property tax assessment system was reformed, with revaluations because of changes in state law and court decisions. This happened in the state of Massachusetts, where there were numerous increases in assessed values in many parts of the state during the 60's and 70's because there were revaluations going on even as market values rose rapidly. Local governments took advantage of this. They cut their tax rates by substantially less than assessed property values rose and expanded local government expenditures.
This happened spectacularly in California, where house values are higher than anywhere else in the country. So property tax bills in dollar terms rose very rapidly for many owners of existing unchanged property. Voters considered this illegitimate. In close to half the states, during the years between 1970 and 1980. voters through referenda or through legislatures put effective property limits on tax levies as well as on tax rates. Legislatures also enacted a variety of other kinds of tax preference arrangements, for farm land, for the elderly and for other purposes. I view much of this as a strong reaction against the notion that it is legitimate to tax wealth, if that wealth is in the form of unrealized capital gains.
Or would there be no big change to the situation today anyway?