WEBVTT 00:00:00.000 --> 00:00:01.780 You know that feeling, right? When that envelope 00:00:01.780 --> 00:00:04.099 arrives in the mail, that annual property tax 00:00:04.099 --> 00:00:07.000 bill. Oh, yeah. And there's that little sigh 00:00:07.000 --> 00:00:09.140 you let out because you know it's this huge, 00:00:09.240 --> 00:00:11.800 unavoidable chunk of your budget. You pay it, 00:00:11.820 --> 00:00:14.019 of course. You have to. But I think what we're 00:00:14.019 --> 00:00:16.600 going to dig into today is that beneath that 00:00:16.600 --> 00:00:21.820 number on the page is a reality that is, well, 00:00:22.079 --> 00:00:25.640 it's just... incredibly complex and really, really 00:00:25.640 --> 00:00:27.760 different all over the world. It is. It's probably 00:00:27.760 --> 00:00:30.980 the single most important and yet I'd say the 00:00:30.980 --> 00:00:33.799 least understood mechanism for local finance 00:00:33.799 --> 00:00:36.280 anywhere. Right. What looks like this really 00:00:36.280 --> 00:00:39.320 simple charge on your home's value is actually 00:00:39.320 --> 00:00:42.960 this tangled web of, you know, history, powerful 00:00:42.960 --> 00:00:45.479 economic tools and some really different legal 00:00:45.479 --> 00:00:47.619 ideas depending on where you live. OK, so let's 00:00:47.619 --> 00:00:49.829 try and unpack that. Our mission for this deep 00:00:49.829 --> 00:00:52.289 dive is to get way beyond that annual bill. We're 00:00:52.289 --> 00:00:54.369 going to explore what property tax actually is 00:00:54.369 --> 00:00:56.729 historically, legally, what it does in practice. 00:00:56.810 --> 00:00:59.329 And we've got a whole stack of sources here that 00:00:59.329 --> 00:01:01.549 show just how differently everyone approaches 00:01:01.549 --> 00:01:03.929 this idea of taxing the ground beneath our feet. 00:01:04.049 --> 00:01:07.379 And just to, you know, set the stage. The core 00:01:07.379 --> 00:01:09.379 definition we're working with is that property 00:01:09.379 --> 00:01:12.599 tax is an ad valorem tax. Ad valorem. Latin, 00:01:12.739 --> 00:01:15.280 right. Latin, yes. It just means based on value. 00:01:15.420 --> 00:01:18.480 That is the absolute foundation for almost every 00:01:18.480 --> 00:01:21.120 system we're going to talk about. And crucially, 00:01:21.120 --> 00:01:23.540 it's not just one government taking a slice. 00:01:24.079 --> 00:01:26.200 It's really important to remember that you can 00:01:26.200 --> 00:01:28.859 have multiple jurisdictions, national, state, 00:01:28.980 --> 00:01:32.280 county, city. All of them can tax the very same 00:01:32.280 --> 00:01:34.980 property at the same time. And the language they 00:01:34.980 --> 00:01:36.980 use can get pretty specific. I mean, we keep 00:01:36.980 --> 00:01:39.379 seeing this term millage or mill rate. Before 00:01:39.379 --> 00:01:41.650 we even get to the math. What exactly is a mill? 00:01:41.810 --> 00:01:44.269 So a mill comes from the Latin word millesimum. 00:01:44.310 --> 00:01:46.950 A thousandth. Exactly. A thousandth part. So 00:01:46.950 --> 00:01:49.549 one mill is simply one thousandth of a dollar 00:01:49.549 --> 00:01:52.010 or a euro or whatever currency you're using. 00:01:52.250 --> 00:01:54.790 The mill rate is just the tax you pay for every 00:01:54.790 --> 00:01:57.049 thousand dollars of your property's value. It's 00:01:57.049 --> 00:01:58.689 a system designed to make these calculations 00:01:58.689 --> 00:02:01.870 manageable at the local level. OK, that helps 00:02:01.870 --> 00:02:03.409 cut through the jargon. So let's walk through 00:02:03.409 --> 00:02:06.250 it. How does that mill rate turn into the bill 00:02:06.250 --> 00:02:07.909 that I get? Can you give us the hard numbers? 00:02:08.400 --> 00:02:10.879 Sure. Let's use a really clear example. Imagine 00:02:10.879 --> 00:02:13.419 your home is officially assessed, and assessment 00:02:13.419 --> 00:02:15.960 is the key word here. It's not always the same 00:02:15.960 --> 00:02:19.879 as market value at, say, $50 ,000. And your town 00:02:19.879 --> 00:02:23.539 sets a mill rate of 20 mills. To get your tax 00:02:23.539 --> 00:02:26.020 bill, you take the assessed value, the $50 ,000, 00:02:26.240 --> 00:02:28.919 you multiply it by the mill rate, which is 20, 00:02:29.080 --> 00:02:30.740 and then you just divide that whole thing by 00:02:30.740 --> 00:02:34.240 1 ,000. So 50 ,000 times 20, that's a million? 00:02:34.620 --> 00:02:36.240 Divide that by 1 ,000. And there you go. Your 00:02:36.240 --> 00:02:39.080 property tax bill is $1 ,000 for the year. $1 00:02:39.080 --> 00:02:42.180 ,000. Okay. It's a simple formula, but the key 00:02:42.180 --> 00:02:44.699 things for you, the listener, to remember are, 00:02:44.780 --> 00:02:47.520 one, it's based on that assessed value, and two, 00:02:47.819 --> 00:02:50.340 that 20 mils might actually be a combination 00:02:50.340 --> 00:02:53.099 of rates from the city, the county, the school 00:02:53.099 --> 00:02:55.289 district, all bundled together. Now, when we 00:02:55.289 --> 00:02:57.710 say property, our sources show that tax authorities 00:02:57.710 --> 00:03:00.370 break this down into four broad types. Can we 00:03:00.370 --> 00:03:02.009 quickly define those? Because we're really only 00:03:02.009 --> 00:03:04.229 focusing on two of them for this deep dive. Right. 00:03:04.289 --> 00:03:06.409 So legally, we're looking at four things. There's 00:03:06.409 --> 00:03:09.050 land. There are improvements to land. There's 00:03:09.050 --> 00:03:12.430 personal property. And finally, intangible property. 00:03:12.919 --> 00:03:15.539 Okay, walk me through those. Land is, well, it's 00:03:15.539 --> 00:03:17.819 the bird itself. Pretty simple. Yeah. Improvements 00:03:17.819 --> 00:03:19.960 are all the man -made things stuck to the land 00:03:19.960 --> 00:03:22.060 that don't move. So buildings, driveways, that 00:03:22.060 --> 00:03:24.580 kind of thing. Got it. Personal property is the 00:03:24.580 --> 00:03:26.680 movable stuff. You know, machinery, equipment, 00:03:26.879 --> 00:03:29.039 sometimes even farm animals, though that's often 00:03:29.039 --> 00:03:32.060 handled differently now. And intangible property 00:03:32.060 --> 00:03:36.419 is non -physical stuff, stocks, patents. That's 00:03:36.419 --> 00:03:39.300 almost never part of a general property tax today. 00:03:39.500 --> 00:03:41.699 And we're mostly focusing on what's called real 00:03:41.699 --> 00:03:44.590 property. The land plus the improvements, because 00:03:44.590 --> 00:03:47.169 let's be honest, that's where the money is. Precisely. 00:03:47.449 --> 00:03:50.050 That combination is what most people think of 00:03:50.050 --> 00:03:51.610 as property. And it's what we'll be focusing 00:03:51.610 --> 00:03:54.750 on as we travel the globe. OK, so we've got the 00:03:54.750 --> 00:03:56.750 baseline. We know what it is, how the mill rate 00:03:56.750 --> 00:03:59.750 works. Let's lay out the road ahead because we 00:03:59.750 --> 00:04:01.729 are covering a lot of ground. We're starting 00:04:01.729 --> 00:04:04.250 with these foundational policy ideas. Then we're 00:04:04.250 --> 00:04:05.509 going to jump around the world to look at some 00:04:05.509 --> 00:04:07.849 really different systems from Canada's transaction 00:04:07.849 --> 00:04:10.849 heavy model to what Hong Kong does. Before we 00:04:10.849 --> 00:04:14.090 end with the, frankly, surprising history and 00:04:14.090 --> 00:04:16.250 some of the really deep philosophical criticisms. 00:04:16.750 --> 00:04:18.930 this whole idea. And this is where it gets so 00:04:18.930 --> 00:04:21.410 interesting. You start to see that property tax 00:04:21.410 --> 00:04:24.490 isn't just about raising money. It becomes this 00:04:24.490 --> 00:04:27.550 powerful tool for, well, for social engineering 00:04:27.550 --> 00:04:30.329 and economic policy. All right. Jumping into 00:04:30.329 --> 00:04:33.389 section one. The foundations of property tax 00:04:33.389 --> 00:04:35.790 are what are we actually taxing? The first thing 00:04:35.790 --> 00:04:37.470 that just jumps out from the sources is that 00:04:37.470 --> 00:04:39.829 to achieve those social goals you mentioned, 00:04:40.009 --> 00:04:42.990 authorities almost never tax everything the same. 00:04:43.170 --> 00:04:45.430 Classification is everything. That's exactly 00:04:45.430 --> 00:04:47.529 right. Property is almost never taxed uniformly. 00:04:47.829 --> 00:04:50.430 It's classified by how it's used. Residential, 00:04:50.430 --> 00:04:53.550 commercial, industrial, vacant land. And each 00:04:53.550 --> 00:04:55.490 of those categories is often taxed at a very 00:04:55.490 --> 00:04:57.410 different rate. And that's not random. No, not 00:04:57.410 --> 00:04:59.790 at all. It's a conscious policy choice about 00:04:59.790 --> 00:05:02.930 who or what kind of economic activity should 00:05:02.930 --> 00:05:05.089 be carrying more of the weight for funding city 00:05:05.089 --> 00:05:08.569 services. So a city could decide, for example, 00:05:08.689 --> 00:05:12.050 that big office buildings get more benefit from, 00:05:12.110 --> 00:05:14.550 say, the subway system. So they should pay a 00:05:14.550 --> 00:05:17.360 higher rate than a single family home. It's a 00:05:17.360 --> 00:05:19.779 way to shift the load around. Exactly. And once 00:05:19.779 --> 00:05:21.540 you have that classification system, you can 00:05:21.540 --> 00:05:23.819 use the tax to do more than just raise money. 00:05:23.959 --> 00:05:26.680 You can actually try to influence behavior. And 00:05:26.680 --> 00:05:28.920 the most striking example of that is the vacancy 00:05:28.920 --> 00:05:31.639 tax. Which sounds like a direct shot at a problem 00:05:31.639 --> 00:05:34.319 we see everywhere, right? Housing shortages in 00:05:34.319 --> 00:05:36.800 big cities. But at the same time, you have investors 00:05:36.800 --> 00:05:39.379 just sitting on empty apartments, treating them 00:05:39.379 --> 00:05:42.100 like a stock instead of a home. It is a direct 00:05:42.100 --> 00:05:44.240 response to that market failure. If you're an 00:05:44.240 --> 00:05:45.759 owner and you're just sitting on a perfectly 00:05:45.759 --> 00:05:48.279 good habitable apartment and keeping it empty, 00:05:48.420 --> 00:05:51.360 the government can use property tax to give you 00:05:51.360 --> 00:05:54.220 a very strong financial nudge to get that unit 00:05:54.220 --> 00:05:56.620 onto the market, either for rent or for sale. 00:05:56.939 --> 00:05:59.160 And we've got two really interesting specific 00:05:59.160 --> 00:06:01.560 examples of this in our sources, right? One from 00:06:01.560 --> 00:06:03.800 the Middle East, one from Europe. First up. In 00:06:03.800 --> 00:06:06.579 Israel, the government just flat out imposes 00:06:06.579 --> 00:06:09.720 double the property tax rate on vacant apartments 00:06:09.720 --> 00:06:12.439 compared to occupied ones. Double. That's a huge 00:06:12.439 --> 00:06:15.000 penalty. It's a massive financial deterrent. 00:06:15.019 --> 00:06:17.459 It really forces the owner to do the math. Is 00:06:17.459 --> 00:06:20.100 it worth paying twice the tax just to keep this 00:06:20.100 --> 00:06:22.740 place empty? Or should I just rent it out and 00:06:22.740 --> 00:06:25.199 get that housing supply back online? And then 00:06:25.199 --> 00:06:26.899 there's France, where they did something similar 00:06:26.899 --> 00:06:29.240 and the sources say it actually worked. Yeah, 00:06:29.300 --> 00:06:31.399 the French experience is a really strong case 00:06:31.399 --> 00:06:34.360 study. brought in their vacant property tax, 00:06:34.600 --> 00:06:38.019 they actually measured a 13 % drop in the vacancy 00:06:38.019 --> 00:06:40.920 rate in the areas they targeted. So this isn't 00:06:40.920 --> 00:06:43.879 just a theory. This is using a tax system that's 00:06:43.879 --> 00:06:47.519 centuries old to solve a very modern urban housing 00:06:47.519 --> 00:06:50.120 problem. What's also fascinating is how the legal 00:06:50.120 --> 00:06:52.759 definition of the tax changes things. When we 00:06:52.759 --> 00:06:55.240 talk about a general property tax, we mean it's 00:06:55.240 --> 00:06:57.379 based on fair market value. But there's this 00:06:57.379 --> 00:06:59.600 really important legal distinction with another 00:06:59.600 --> 00:07:03.310 kind of charge. The special assessment tax. This 00:07:03.310 --> 00:07:05.529 distinction is so important because this is where 00:07:05.529 --> 00:07:07.930 a lot of the confusion and frankly, the anger 00:07:07.930 --> 00:07:10.970 from homeowners comes from. They get a bill that 00:07:10.970 --> 00:07:13.329 looks like a property tax bill, but it's for 00:07:13.329 --> 00:07:15.470 something completely different. So how are they 00:07:15.470 --> 00:07:17.509 different legally? Yeah. I mean, if it's all 00:07:17.509 --> 00:07:20.449 on my bill, what's the justification? A special 00:07:20.449 --> 00:07:23.529 assessment tax is only levied because of a specific 00:07:23.529 --> 00:07:27.350 localized improvement or benefit to your property. 00:07:27.790 --> 00:07:30.769 Its legal justification is that benefit, not 00:07:30.769 --> 00:07:33.649 your home's overall market value. The government 00:07:33.649 --> 00:07:36.170 has to show that it's demonstrably making your 00:07:36.170 --> 00:07:38.730 property better or more useful. Can you give 00:07:38.730 --> 00:07:41.089 me a real world example? Sure. Let's say the 00:07:41.089 --> 00:07:43.910 city decides to install a brand new sewer line 00:07:43.910 --> 00:07:46.910 on your block or put in new sidewalks and streetlights 00:07:46.910 --> 00:07:49.709 that directly serve your house. You'd pay a special 00:07:49.709 --> 00:07:52.399 assessment tax for that. Oh, OK. That tax pays 00:07:52.399 --> 00:07:55.040 for that specific project. It's totally separate 00:07:55.040 --> 00:07:58.420 from the general Avaloran property tax that funds 00:07:58.420 --> 00:08:00.339 the police, the fire department, the schools 00:08:00.339 --> 00:08:02.779 and everything else. OK, so the general property 00:08:02.779 --> 00:08:05.439 tax pays for the fire department that serves 00:08:05.439 --> 00:08:08.319 the whole town. That's a collective good. But 00:08:08.319 --> 00:08:10.439 the special assessment pays the brand new sidewalk 00:08:10.439 --> 00:08:12.660 right in front of my house. That's a targeted 00:08:12.660 --> 00:08:15.470 improvement just for my block. Precisely. One 00:08:15.470 --> 00:08:17.269 is for the collective good. The other is for 00:08:17.269 --> 00:08:20.449 a specific measurable benefit to your specific 00:08:20.449 --> 00:08:23.209 piece of land. They're justified on completely 00:08:23.209 --> 00:08:25.230 different legal grounds. And finally, for this 00:08:25.230 --> 00:08:27.470 section, to really get what property tax is, 00:08:27.550 --> 00:08:29.850 we should probably contrast it with two other 00:08:29.850 --> 00:08:32.629 big ideas mentioned in the sources, the rent 00:08:32.629 --> 00:08:36.049 tax and the land value tax. The rent tax is probably 00:08:36.049 --> 00:08:38.529 the easiest one to understand. It's a tax based 00:08:38.529 --> 00:08:42.090 purely on rental income or what the imputed rent 00:08:42.090 --> 00:08:44.490 might be. You're taxing the money the property 00:08:44.490 --> 00:08:47.230 makes, not the value of the property itself. 00:08:47.529 --> 00:08:49.470 So it shifts it from a wealth tax to an income 00:08:49.470 --> 00:08:51.889 tax. Exactly. A distinction we're going to see 00:08:51.889 --> 00:08:53.629 come to life when we talk about Hong Kong later 00:08:53.629 --> 00:08:56.429 on. And then there's the land value tax or LVT. 00:08:56.590 --> 00:09:00.690 And this is a much bigger and often politically 00:09:00.690 --> 00:09:03.840 charged idea. LVT is a totally different philosophy. 00:09:04.200 --> 00:09:06.320 It says you should only tax the value of the 00:09:06.320 --> 00:09:08.919 bare land itself and you should exclude the value 00:09:08.919 --> 00:09:11.500 of any improvements like buildings or landscaping. 00:09:11.639 --> 00:09:14.659 Because under an LVT system, if I own a prime 00:09:14.659 --> 00:09:17.899 downtown lot, my tax bill is the same, whether 00:09:17.899 --> 00:09:20.000 I leave it as a parking lot or build a 40 -story 00:09:20.000 --> 00:09:22.919 skyscraper on it. Right. Proponents of LVT, who 00:09:22.919 --> 00:09:25.259 are often called Georgists, see it as a way to 00:09:25.259 --> 00:09:27.500 encourage development and kill land speculation. 00:09:28.000 --> 00:09:30.620 It separates the value that comes from the owner's 00:09:30.620 --> 00:09:32.820 investment, the building, from the value that 00:09:32.820 --> 00:09:35.039 comes from society and nature, the location. 00:09:35.500 --> 00:09:38.240 This contrast is really important because a lot 00:09:38.240 --> 00:09:39.980 of the systems we're about to look at kind of 00:09:39.980 --> 00:09:41.820 blur the lines between these different ideas. 00:09:42.179 --> 00:09:44.519 OK, so we've got the basic concepts down. Let's 00:09:44.519 --> 00:09:47.139 start our world tour in Section 2 and see how 00:09:47.139 --> 00:09:49.259 this all plays out in the real world, starting 00:09:49.259 --> 00:09:51.740 right next door in Canada. Canada operates on 00:09:51.740 --> 00:09:54.100 a really sophisticated layered North American 00:09:54.100 --> 00:09:56.700 model. It's fundamentally ad valorem, but it's 00:09:56.700 --> 00:09:58.860 got all these other taxes and fees built in. 00:09:59.379 --> 00:10:02.600 The annual tax bill is complex because it's usually 00:10:02.600 --> 00:10:04.740 made up of three main layers. What are those 00:10:04.740 --> 00:10:07.730 layers? So the calculation starts with the market 00:10:07.730 --> 00:10:10.070 value, which is set by a provincial assessment 00:10:10.070 --> 00:10:12.549 authority. That's your base. Right. Then that 00:10:12.549 --> 00:10:15.289 value is multiplied by the municipal rate that 00:10:15.289 --> 00:10:18.730 funds your local police, fire, parks. Then you 00:10:18.730 --> 00:10:20.629 add an education rate on top of that for the 00:10:20.629 --> 00:10:22.549 schools. And then finally, you might have some 00:10:22.549 --> 00:10:25.309 special taxes for specific projects. And on top 00:10:25.309 --> 00:10:27.669 of all that, how often they reassess your property's 00:10:27.669 --> 00:10:30.929 value can vary wildly from province to province. 00:10:31.190 --> 00:10:34.210 That layering really shows how any budget squeeze 00:10:34.210 --> 00:10:36.759 was. it's for schools or for roads is going to 00:10:36.759 --> 00:10:39.620 show up on your property tax. Yeah. But the source 00:10:39.620 --> 00:10:41.399 material points out this really counterintuitive 00:10:41.399 --> 00:10:43.740 thing about city tax rates. Yes. The Vancouver 00:10:43.740 --> 00:10:46.220 paradox. It's fascinating. Vancouver has some 00:10:46.220 --> 00:10:48.960 of the highest, most insane property values in 00:10:48.960 --> 00:10:51.620 the world. Yeah. But for years, it's had one 00:10:51.620 --> 00:10:54.360 of the lowest property tax rates in Canada as 00:10:54.360 --> 00:10:56.159 a percentage of that value. How is that even 00:10:56.159 --> 00:10:57.879 possible? It seems like it should be the opposite. 00:10:58.379 --> 00:11:00.039 Well, it shows you something really important 00:11:00.039 --> 00:11:03.539 about how this works. High property values don't 00:11:03.539 --> 00:11:06.139 automatically mean high tax rates. Think about 00:11:06.139 --> 00:11:08.960 it. If the city's budget, the actual amount of 00:11:08.960 --> 00:11:11.259 money they need to run things, stays pretty stable, 00:11:11.360 --> 00:11:14.039 but the total value of all the property in the 00:11:14.039 --> 00:11:17.059 city has doubled because of a hot market. Then 00:11:17.059 --> 00:11:18.960 you only need to take a much smaller percentage, 00:11:19.100 --> 00:11:21.799 a smaller slice of that bigger pie, to get the 00:11:21.799 --> 00:11:24.049 same amount of money. You've got it. The budget 00:11:24.049 --> 00:11:26.990 is the constant, and the skyrocketing property 00:11:26.990 --> 00:11:29.509 values are the variable that actually lets them 00:11:29.509 --> 00:11:31.970 lower the rate. And it's not just Vancouver. 00:11:32.250 --> 00:11:34.929 The sources also noted that at one point, Toronto 00:11:34.929 --> 00:11:37.470 had the lowest rate among all the major cities 00:11:37.470 --> 00:11:40.350 in its province, Ontario. So beyond that annual 00:11:40.350 --> 00:11:43.629 tax, Canada also uses another big levy. The land 00:11:43.629 --> 00:11:46.590 transfer tax, or LTT. Yes, and this is a huge 00:11:46.590 --> 00:11:48.909 part of the cost of buying a home there. The 00:11:48.909 --> 00:11:51.450 LTT is a provincial tax you pay when you buy 00:11:51.450 --> 00:11:54.070 a property. So it's a one -time transaction tax, 00:11:54.230 --> 00:11:56.809 not an annual ownership tax. And it's usually 00:11:56.809 --> 00:11:58.850 progressive. The more expensive the house, the 00:11:58.850 --> 00:12:00.850 higher the rate you pay. And this is everywhere 00:12:00.850 --> 00:12:03.649 in Canada except for a couple of provinces. Correct. 00:12:03.789 --> 00:12:06.250 Alberta and Saskatchewan are the big exceptions. 00:12:06.590 --> 00:12:09.809 They generally don't have a provincial LTT, which 00:12:09.809 --> 00:12:12.879 makes buying a home there cheaper up front. But 00:12:12.879 --> 00:12:15.139 the costs can get really, really high in Canada's 00:12:15.139 --> 00:12:17.360 biggest city. Oh, absolutely. In Toronto, they 00:12:17.360 --> 00:12:19.720 have their own additional municipal land transfer 00:12:19.720 --> 00:12:22.759 tax, which gets stacked right on top of the provincial 00:12:22.759 --> 00:12:24.460 ones. So you get hit twice. You get hit twice. 00:12:24.580 --> 00:12:28.379 It means buyers in Toronto pay two separate LTTs 00:12:28.379 --> 00:12:31.519 on one purchase, and it can add tens of thousands 00:12:31.519 --> 00:12:34.299 of dollars to your closing costs. It's a huge 00:12:34.299 --> 00:12:37.460 upfront expense. Wow. That sounds like a major 00:12:37.460 --> 00:12:40.059 barrier. But the system does try to help out 00:12:40.059 --> 00:12:42.080 first -time buyers, right? It does. They use 00:12:42.080 --> 00:12:44.779 rebates as a policy tool. So in Ontario, for 00:12:44.779 --> 00:12:46.940 example, first -time homebuyers get a tax credit 00:12:46.940 --> 00:12:50.240 of about $750. But more importantly, there's 00:12:50.240 --> 00:12:52.899 a land transfer tax rebate of up to $4 ,000. 00:12:53.179 --> 00:12:55.120 So if you're buying a home under a certain price, 00:12:55.200 --> 00:12:57.919 I think the source said around $368 ,000, that 00:12:57.919 --> 00:13:00.759 four grand rebate means you pay zero provincial 00:13:00.759 --> 00:13:04.600 LTT. That's a huge incentive. It is. But on the 00:13:04.600 --> 00:13:06.480 other side of the coin, you have British Columbia, 00:13:06.720 --> 00:13:10.039 which has used property tax surcharges as a really 00:13:10.039 --> 00:13:12.740 aggressive tool to try and manage foreign investment 00:13:12.740 --> 00:13:14.759 in its housing market, especially in Vancouver. 00:13:15.100 --> 00:13:17.919 Ah, so this is a clear case of using a tax to 00:13:17.919 --> 00:13:20.120 change behavior. What do they do? So British 00:13:20.120 --> 00:13:22.799 Columbia already has a tiered transfer tax, but 00:13:22.799 --> 00:13:25.059 then they added a special surcharge that only 00:13:25.059 --> 00:13:27.980 targets non -resident foreign homebuyers. It 00:13:27.980 --> 00:13:30.600 started at 15 % and they quickly hiked it to 00:13:30.600 --> 00:13:33.240 20%. 20%. On top of everything else. On top of 00:13:33.240 --> 00:13:35.460 everything else. And the definition of a foreign 00:13:35.460 --> 00:13:38.480 buyer is really broad. It even includes international 00:13:38.480 --> 00:13:41.360 students and temporary foreign workers. It was 00:13:41.360 --> 00:13:44.080 explicitly designed to cool down foreign speculation 00:13:44.080 --> 00:13:46.320 in what was an incredibly overheated market. 00:13:46.639 --> 00:13:49.559 Okay, so from Canada's layered model, let's jump 00:13:49.559 --> 00:13:52.519 over to Germany. The problem there wasn't complexity, 00:13:52.620 --> 00:13:56.039 it was. It was a complete system breakdown that 00:13:56.039 --> 00:13:58.580 forced a massive reform because of a constitutional 00:13:58.580 --> 00:14:01.580 ruling. Right. Germany's property tax brings 00:14:01.580 --> 00:14:05.500 in almost 15 billion euros a year. It's absolutely 00:14:05.500 --> 00:14:08.460 vital for their municipalities. It funds schools, 00:14:08.740 --> 00:14:11.840 libraries, roads, all the local services. It's 00:14:11.840 --> 00:14:13.720 the bedrock of their local government funding. 00:14:13.899 --> 00:14:17.090 But that bedrock was built on, I guess. Quicksand. 00:14:17.149 --> 00:14:19.230 The way they were calculating the tax base was 00:14:19.230 --> 00:14:21.769 so old it was basically meaningless, which led 00:14:21.769 --> 00:14:23.950 to this huge constitutional court challenge in 00:14:23.950 --> 00:14:26.669 2018. The whole system was ruled unconstitutional 00:14:26.669 --> 00:14:29.190 because it violated their version of the Equal 00:14:29.190 --> 00:14:31.769 Protection Clause. The problem was that the tax 00:14:31.769 --> 00:14:34.289 calculations were based on standard property 00:14:34.289 --> 00:14:36.669 values that were decades old. How old are we 00:14:36.669 --> 00:14:38.509 talking? In what was West Germany, they were 00:14:38.509 --> 00:14:41.889 using values from 1964. In what was East Germany, 00:14:42.029 --> 00:14:45.549 they were using values from 1935. 19. 35. You 00:14:45.549 --> 00:14:47.970 can't be serious. Yeah. So they're taxing a modern 00:14:47.970 --> 00:14:50.710 skyscraper based on the value of whatever was 00:14:50.710 --> 00:14:53.370 on that land before World War Two. That's essentially 00:14:53.370 --> 00:14:55.529 what was happening. It was stunning and it created 00:14:55.529 --> 00:14:58.450 massive inequality. You could have two properties 00:14:58.450 --> 00:15:00.710 with wildly different modern values paying the 00:15:00.710 --> 00:15:03.649 exact same tax because their 1935 valuation happened 00:15:03.649 --> 00:15:06.389 to be the same. The court just said this is fundamentally 00:15:06.389 --> 00:15:09.809 unequal and has to stop. So. The court basically 00:15:09.809 --> 00:15:11.950 ordered a complete reboot of the entire system. 00:15:12.070 --> 00:15:14.169 That must be a bureaucratic nightmare. What's 00:15:14.169 --> 00:15:16.870 the timeline? for a change that big. It's a very 00:15:16.870 --> 00:15:19.389 long, very slow transition. The reform officially 00:15:19.389 --> 00:15:22.870 kicked in in 2022. Then every single property 00:15:22.870 --> 00:15:26.230 owner in Germany had until January 2023 to submit 00:15:26.230 --> 00:15:29.070 a massive mandatory reassessment of their property's 00:15:29.070 --> 00:15:31.610 value based on what it was worth on January 1st, 00:15:31.629 --> 00:15:34.509 2022. OK. And here's the kicker. The new taxes 00:15:34.509 --> 00:15:36.750 based on those new values won't actually be charged 00:15:36.750 --> 00:15:40.009 until January 1st, 2025. So from the court ruling 00:15:40.009 --> 00:15:43.549 in 2018 to the new tax bill in 2025. Yeah. That's 00:15:43.549 --> 00:15:45.659 a seven year process. just to get the new rates 00:15:45.659 --> 00:15:47.480 in place. That really shows you the scale of 00:15:47.480 --> 00:15:49.620 this. It really does. And while they were redoing 00:15:49.620 --> 00:15:51.259 the whole thing, they did keep a lot of the important 00:15:51.259 --> 00:15:53.539 exemptions for things like public buildings, 00:15:53.720 --> 00:15:56.360 churches and nonprofits, as long as the property 00:15:56.360 --> 00:15:58.759 is being used for a public good. They also gave 00:15:58.759 --> 00:16:01.080 cities the power to set a higher tax rate on 00:16:01.080 --> 00:16:03.720 undeveloped land to, you know, encourage construction. 00:16:04.080 --> 00:16:06.539 OK, let's pivot south now to France, which has 00:16:06.539 --> 00:16:10.080 this really robust, multi -part approach to taxing 00:16:10.080 --> 00:16:13.039 property. France's main tax is the tax concierge. 00:16:13.450 --> 00:16:15.830 It's a local tax paid by the owner, and it's 00:16:15.830 --> 00:16:17.629 pretty comprehensive. It's broken into three 00:16:17.629 --> 00:16:21.110 parts. The tax on built properties, like houses. 00:16:21.490 --> 00:16:24.990 The tax on unbuilt land, like farms. And then 00:16:24.990 --> 00:16:27.389 a separate tax just for household waste removal. 00:16:27.730 --> 00:16:29.669 So they've got you covered whether you own an 00:16:29.669 --> 00:16:33.110 apartment, a field, or both. But the calculation... 00:16:34.220 --> 00:16:36.360 This is one of the most conceptually tricky methods 00:16:36.360 --> 00:16:38.639 we've come across. It is because it doesn't use 00:16:38.639 --> 00:16:41.240 simple market value. For a house, the tax base 00:16:41.240 --> 00:16:43.919 is 50 % of the property's cadastral rental value. 00:16:44.240 --> 00:16:47.440 For unbuilt land, it's 80 % of that value. Whoa, 00:16:47.500 --> 00:16:49.779 hold on. What on earth is cadastral rental value? 00:16:49.879 --> 00:16:51.539 Is that what I could actually rent my house for? 00:16:51.779 --> 00:16:54.379 No, and that is the crucial point. It is the 00:16:54.379 --> 00:16:56.919 theoretical rent the tax authority thinks your 00:16:56.919 --> 00:16:59.159 property could command based on its characteristics 00:16:59.159 --> 00:17:02.080 compared to other similar properties. It's a 00:17:02.080 --> 00:17:04.819 government -determined estimate of... So the 00:17:04.819 --> 00:17:07.380 government dreams up a theoretical rent. And 00:17:07.380 --> 00:17:10.680 then for my house, they only tax half of that 00:17:10.680 --> 00:17:13.519 theoretical number. That's it. And then that 00:17:13.519 --> 00:17:16.359 number gets multiplied by a government revaluation 00:17:16.359 --> 00:17:18.880 coefficient to account for inflation. And then 00:17:18.880 --> 00:17:21.059 that final number is multiplied by the tax rate 00:17:21.059 --> 00:17:23.819 set by your local town. It's got all these bureaucratic 00:17:23.819 --> 00:17:26.380 layers built in. Which I guess means your tax 00:17:26.380 --> 00:17:28.980 bill is a lot less volatile than if it was based 00:17:28.980 --> 00:17:31.559 on the wild swings of the housing market. But 00:17:31.559 --> 00:17:33.200 it also means there's a lot of government input. 00:17:33.299 --> 00:17:36.519 Yes. But the French system is also really notable 00:17:36.519 --> 00:17:39.480 for its long list of exemptions, which are clearly 00:17:39.480 --> 00:17:42.319 designed to achieve specific social goals. Yeah, 00:17:42.319 --> 00:17:43.980 let's list some of those out because they're 00:17:43.980 --> 00:17:46.480 perfect examples of policy choices. So first, 00:17:46.500 --> 00:17:48.859 you have temporary exemptions to encourage certain 00:17:48.859 --> 00:17:51.940 things. For instance, new houses are exempt for 00:17:51.940 --> 00:17:54.799 two years. If you do major energy efficiency 00:17:54.799 --> 00:17:57.839 renovations, you're exempt for five years, a 00:17:57.839 --> 00:18:01.140 clear push for green investment. And new low 00:18:01.140 --> 00:18:03.819 income housing projects can get a 15 year exemption. 00:18:04.079 --> 00:18:06.539 Those line up perfectly with housing and climate 00:18:06.539 --> 00:18:09.640 policy. What about permanent exemptions? The 00:18:09.640 --> 00:18:11.740 permanent ones cover things like state -owned 00:18:11.740 --> 00:18:14.059 property and buildings used for religious worship. 00:18:14.359 --> 00:18:17.220 But the most important one, as a social policy, 00:18:17.440 --> 00:18:20.640 is that owners over the age of 75 with an income 00:18:20.640 --> 00:18:23.220 below a certain level are exempt from the tax 00:18:23.220 --> 00:18:26.420 fonciere for life. It's designed to stop seniors 00:18:26.420 --> 00:18:28.559 on fixed incomes from being taxed out of their 00:18:28.559 --> 00:18:31.339 homes. And just like we saw in Israel, the French 00:18:31.339 --> 00:18:33.700 system goes after empty homes pretty aggressively 00:18:33.700 --> 00:18:36.380 with separate taxes. Oh, yes. They have distinct 00:18:36.380 --> 00:18:39.269 additional taxes. There's one for furnished secondary 00:18:39.269 --> 00:18:41.690 residences. And for properties that are just 00:18:41.690 --> 00:18:43.710 sitting empty, they have two levels. One tax 00:18:43.710 --> 00:18:45.670 for properties in high demand areas that have 00:18:45.670 --> 00:18:48.190 been vacant for at least a year, and another 00:18:48.190 --> 00:18:50.029 one for places that have been empty for more 00:18:50.029 --> 00:18:53.490 than two years. It's a very clear, multi -layered 00:18:53.490 --> 00:18:56.750 attack on passive property ownership. Okay. Moving 00:18:56.750 --> 00:18:59.009 into section three, we're shifting away from 00:18:59.009 --> 00:19:01.509 these traditional ownership models to look at 00:19:01.509 --> 00:19:03.690 systems that are really different, often with 00:19:03.690 --> 00:19:06.670 very clear social goals. Let's start with the 00:19:06.670 --> 00:19:09.650 U .K., which is a real anomaly in the developed 00:19:09.650 --> 00:19:12.410 world. It is because the U .K. is almost unique 00:19:12.410 --> 00:19:16.029 among wealthy OECD countries for not taxing the 00:19:16.029 --> 00:19:18.690 ownership of residential property itself. If 00:19:18.690 --> 00:19:20.750 you own your house, you don't pay an annual tax 00:19:20.750 --> 00:19:23.309 on the value of that asset, which is a massive 00:19:23.309 --> 00:19:25.730 break from that ad valorem principle we started 00:19:25.730 --> 00:19:27.910 with. So instead, they have the council tax. 00:19:28.670 --> 00:19:30.750 And that's paid by the person living in the house, 00:19:30.789 --> 00:19:33.109 not necessarily the owner. Correct. Council tax 00:19:33.109 --> 00:19:35.430 is considered a hybrid. It's part property tax, 00:19:35.589 --> 00:19:38.269 part personal tax. The liability is on the resident. 00:19:38.470 --> 00:19:40.849 The owner only has to pay if the property is 00:19:40.849 --> 00:19:43.450 empty. And even then, there are often discounts. 00:19:43.789 --> 00:19:45.569 And this is where it gets even more complicated. 00:19:45.609 --> 00:19:47.789 The amount you pay isn't a percentage of what 00:19:47.789 --> 00:19:50.269 your house is worth today. It's based on these 00:19:50.269 --> 00:19:53.349 historical value bands. Exactly. Your property 00:19:53.349 --> 00:19:55.529 is put into a council tax band. There are nine 00:19:55.529 --> 00:19:58.230 in England. based on what it was worth on a single 00:19:58.230 --> 00:20:02.490 day back in 1991. Wait, 1991? So if my house's 00:20:02.490 --> 00:20:05.630 value has, say, tripled since 1991, I'm getting 00:20:05.630 --> 00:20:08.630 a huge accidental tax break. Doesn't that completely 00:20:08.630 --> 00:20:12.069 violate the whole based on value idea? It creates 00:20:12.069 --> 00:20:14.349 huge equity problems, yes. It makes the system 00:20:14.349 --> 00:20:16.369 really out of step with the modern market. It's 00:20:16.369 --> 00:20:18.309 a common criticism. And the bands are rigid. 00:20:18.470 --> 00:20:20.569 On top of that, the amount you pay depends on 00:20:20.569 --> 00:20:22.410 how many people live there. If it's just one 00:20:22.410 --> 00:20:25.329 person, you get a 25 % discount. The UK also 00:20:25.329 --> 00:20:27.900 relies heavily on a transaction tax, right? the 00:20:27.900 --> 00:20:31.480 Stamp Duty Land Tax, or SDLT. SDLT is a big one. 00:20:31.619 --> 00:20:34.259 It's a progressive tax you pay when you buy property 00:20:34.259 --> 00:20:36.519 in England and Northern Ireland, and they really 00:20:36.519 --> 00:20:38.960 use it as a housing policy tool. For a regular 00:20:38.960 --> 00:20:41.039 UK resident buying their main home, the first 00:20:41.039 --> 00:20:44.680 £250 ,000 of the price is tax -free. And for 00:20:44.680 --> 00:20:46.359 first -time buyers, it's even better. They pay 00:20:46.359 --> 00:20:50.480 0 % up to £425 ,000. It's clearly designed to 00:20:50.480 --> 00:20:52.339 help people get on the property ladder. And just 00:20:52.339 --> 00:20:54.819 like we saw in Canada, they use this tax to discourage 00:20:54.819 --> 00:20:57.569 foreign investors. They do. Don't UK residents 00:20:57.569 --> 00:21:00.650 have to pay a 2 % surcharge on the SDLT on top 00:21:00.650 --> 00:21:03.390 of all the other rates? It's a theme we see over 00:21:03.390 --> 00:21:06.230 and over. If a market gets too hot because of 00:21:06.230 --> 00:21:09.190 foreign money, transaction taxes are the go -to 00:21:09.190 --> 00:21:11.589 tool to try and cool it down. OK, so from the 00:21:11.589 --> 00:21:14.130 UK taxing the resident, let's go halfway around 00:21:14.130 --> 00:21:16.650 the world to Hong Kong, which offers... Maybe 00:21:16.650 --> 00:21:18.670 the clearest, most fundamental difference of 00:21:18.670 --> 00:21:21.130 all the systems we've looked at. Yeah. Hong Kong's 00:21:21.130 --> 00:21:23.750 property tax is just flat out not ad valorem. 00:21:23.890 --> 00:21:26.250 It's a pure income tax. This is the critical 00:21:26.250 --> 00:21:28.970 distinction. The tax is not on the value of the 00:21:28.970 --> 00:21:32.089 asset. Owners only have to pay property tax if 00:21:32.089 --> 00:21:34.190 they receive consideration, which just means 00:21:34.190 --> 00:21:37.269 rental income during the tax year. So if I own 00:21:37.269 --> 00:21:39.170 a multimillion dollar apartment in Hong Kong 00:21:39.170 --> 00:21:41.829 and I live in it myself, I pay zero property 00:21:41.829 --> 00:21:44.329 tax. Absolutely correct. Because you're not deriving 00:21:44.329 --> 00:21:46.720 any income from it. The wealth that's tied up 00:21:46.720 --> 00:21:48.920 in that asset is untouched by this particular 00:21:48.920 --> 00:21:51.480 tax. So how do they calculate the tax then? It's 00:21:51.480 --> 00:21:53.400 computed on what they call the net assessable 00:21:53.400 --> 00:21:55.859 value, which is 80 % of the assessable value. 00:21:56.140 --> 00:21:58.440 And the assessable value is basically your total 00:21:58.440 --> 00:22:01.640 rental income minus any unrecoverable rent and 00:22:01.640 --> 00:22:03.920 minus any local rates you paid as the owner. 00:22:04.059 --> 00:22:07.059 It's purely a tax on revenue. That's a huge difference. 00:22:07.140 --> 00:22:10.079 It shifts the entire tax burden away from just 00:22:10.079 --> 00:22:13.119 owning wealth to actually generating income from 00:22:13.119 --> 00:22:16.140 that wealth. It's the ultimate contrast to, say, 00:22:16.240 --> 00:22:18.539 the German or Canadian systems. Now let's look 00:22:18.539 --> 00:22:21.640 at Chile, which uses its property tax for something 00:22:21.640 --> 00:22:24.980 else entirely, explicit social redistribution. 00:22:25.180 --> 00:22:28.359 They basically nationalize the tax base to spread 00:22:28.359 --> 00:22:30.740 wealth between different towns. Chile's system, 00:22:30.859 --> 00:22:33.740 the territorial tax, is paid quarterly. It's 00:22:33.740 --> 00:22:36.000 based on a low percentage, maybe one or two percent 00:22:36.000 --> 00:22:38.859 of the property's physical value. And that fiscal 00:22:38.859 --> 00:22:41.359 value is set by their IRS based on things like 00:22:41.359 --> 00:22:43.740 construction materials and age. And it's usually 00:22:43.740 --> 00:22:46.059 much lower than the actual market value. So the 00:22:46.059 --> 00:22:48.420 tax burden is already pretty light. But the sources 00:22:48.420 --> 00:22:50.500 point to these really powerful exemptions designed 00:22:50.500 --> 00:22:53.539 for social equity. The exemptions are key. Residential 00:22:53.539 --> 00:22:56.200 properties valued below about U .S. $40 ,000 00:22:56.200 --> 00:22:59.420 are completely exempt. And for homes valued above 00:22:59.420 --> 00:23:02.359 that, you only pay tax on the amount that exceeds 00:23:02.359 --> 00:23:05.579 that $40 ,000 threshold. It's designed to protect 00:23:05.579 --> 00:23:08.200 lower value homes and only tax the higher end 00:23:08.200 --> 00:23:09.839 of the market. So it's very progressive at the 00:23:09.839 --> 00:23:11.980 collection point. But the really unique part 00:23:11.980 --> 00:23:13.980 is what happens to the money after it's collected. 00:23:14.160 --> 00:23:16.220 It doesn't just stay in the wealthy town where 00:23:16.220 --> 00:23:18.819 it was raised. This is the social mechanism that 00:23:18.819 --> 00:23:21.210 sets Chile apart. While the money initially goes 00:23:21.210 --> 00:23:23.849 to the local municipality, they have to contribute 00:23:23.849 --> 00:23:26.470 a big chunk of it to a common municipal fund. 00:23:26.789 --> 00:23:29.210 This national fund is then redistributed back 00:23:29.210 --> 00:23:31.789 out to all the municipalities based on need bin, 00:23:31.890 --> 00:23:34.049 things like the poverty rate and how much infrastructure 00:23:34.049 --> 00:23:36.569 they need. So it basically nationalizes the local 00:23:36.569 --> 00:23:40.390 tax base. Money from a rich coastal suburb could 00:23:40.390 --> 00:23:43.089 end up paying for a school or a clinic in a poor 00:23:43.089 --> 00:23:45.950 rural town. That's precisely the goal. It's a 00:23:45.950 --> 00:23:48.549 powerful example of using property tax not just 00:23:48.549 --> 00:23:50.630 to raise money, but as a deliberate tool for 00:23:50.630 --> 00:23:53.269 national wealth equalization and to fight regional 00:23:53.269 --> 00:23:55.769 inequality. And finally, in this section, let's 00:23:55.769 --> 00:23:59.230 touch on Italy and the, well, the pretty confusing 00:23:59.230 --> 00:24:02.049 history of its local tax structure. Before 2020, 00:24:02.329 --> 00:24:05.450 Italy's system was called the Imposta Unica Cominale, 00:24:05.529 --> 00:24:09.339 or IUC. Now, despite the name Unica, which means 00:24:09.339 --> 00:24:12.099 single, it was actually this awkward combination 00:24:12.099 --> 00:24:15.460 of three totally separate taxes all bundled together. 00:24:15.559 --> 00:24:18.039 It was a real headache for homeowners. To make 00:24:18.039 --> 00:24:20.119 it clear, the IEC was kind of like having three 00:24:20.119 --> 00:24:22.240 different faucets all flowing into the same sink. 00:24:22.740 --> 00:24:24.980 What were those three components? The three were 00:24:24.980 --> 00:24:28.769 the IMU, the TASI, and the TARI. The IMU was 00:24:28.769 --> 00:24:31.410 the basic ownership tax on buildings and land. 00:24:31.650 --> 00:24:34.309 The TASI was a tax for indivisible services, 00:24:34.509 --> 00:24:36.150 things like streetlights and road maintenance 00:24:36.150 --> 00:24:38.490 that benefit everyone. And the TARI was just 00:24:38.490 --> 00:24:41.390 the tax for garbage collection. So IMU paid for 00:24:41.390 --> 00:24:43.650 owning the property, TASI paid for the general 00:24:43.650 --> 00:24:45.890 upkeep of the town, and TARI paid to take out 00:24:45.890 --> 00:24:48.339 the trash. A single name for three different 00:24:48.339 --> 00:24:51.059 calculations. Exactly. It was a mess. So in 2020, 00:24:51.240 --> 00:24:53.019 they finally got rid of Tassie and rolled it 00:24:53.019 --> 00:24:55.180 into the new IMU, which simplified things a bit. 00:24:55.500 --> 00:24:58.240 Today's IMU rates are usually between 0 .4 % 00:24:58.240 --> 00:25:00.980 and 0 .8 % of the property's cadastral value. 00:25:01.259 --> 00:25:03.720 And like France, primary residences are often 00:25:03.720 --> 00:25:06.180 exempt, right? That's right. Your main home is 00:25:06.180 --> 00:25:09.279 usually exempt from IMU, as is agricultural land 00:25:09.279 --> 00:25:12.069 that's actively being farmed. But one really 00:25:12.069 --> 00:25:14.410 interesting thing, given our global topic, is 00:25:14.410 --> 00:25:17.569 that Italy also has a special wealth tax, the 00:25:17.569 --> 00:25:20.670 LVIE, that's levied specifically on Italian residents 00:25:20.670 --> 00:25:23.250 who own real estate abroad. So they're trying 00:25:23.250 --> 00:25:26.190 to stop capital flight. Exactly. It's an aggressive 00:25:26.190 --> 00:25:28.910 attempt to capture and tax the global assets 00:25:28.910 --> 00:25:31.690 of their citizens. So wealthy Italians can't 00:25:31.690 --> 00:25:34.009 just buy property elsewhere to avoid paying tax 00:25:34.009 --> 00:25:36.900 at home. That trick around the world really shows 00:25:36.900 --> 00:25:40.339 that property tax isn't one single thing. It's 00:25:40.339 --> 00:25:43.400 this incredibly flexible machine. Now let's take 00:25:43.400 --> 00:25:45.400 a step back in Section 4 and look at the history 00:25:45.400 --> 00:25:47.339 and the biggest criticisms. It's important to 00:25:47.339 --> 00:25:49.240 know that this all didn't start with market value, 00:25:49.380 --> 00:25:52.559 did it? It started with, what, crops. Oh, absolutely. 00:25:52.779 --> 00:25:54.900 Before you had widespread currency, tax was just 00:25:54.900 --> 00:25:57.140 a physical slice of what you produced. We've 00:25:57.140 --> 00:25:59.180 got records from the ancient city -state of Lagash 00:25:59.180 --> 00:26:02.579 in modern Iraq from around 6000 BCE. They had 00:26:02.579 --> 00:26:05.539 a system called bala, which means rotation. To 00:26:05.539 --> 00:26:09.119 make the job of tax collection manageable, because 00:26:09.119 --> 00:26:11.220 you had to physically go and count everything, 00:26:11.559 --> 00:26:13.779 they would just tax a different part of the city 00:26:13.779 --> 00:26:15.880 each month. It was a rotating burden, so the 00:26:15.880 --> 00:26:18.079 whole city paid over the course of a year. But 00:26:18.079 --> 00:26:21.019 no single area got crushed by constant collection. 00:26:21.390 --> 00:26:23.730 And systems like in ancient Egypt started to 00:26:23.730 --> 00:26:26.970 move away from just area and towards potential 00:26:26.970 --> 00:26:30.769 output, towards value. Yeah. Ancient Egypt taxed 00:26:30.769 --> 00:26:34.029 the value of grain, cattle, oil and the land 00:26:34.029 --> 00:26:35.869 itself. And they had a professional class of 00:26:35.869 --> 00:26:38.490 tax assessors, scribes who are highly respected. 00:26:38.670 --> 00:26:41.029 They kept these detailed records of who owned 00:26:41.029 --> 00:26:42.829 what and they would check crop yields. If you 00:26:42.829 --> 00:26:44.730 couldn't pay, you went to court. So it was a 00:26:44.730 --> 00:26:47.750 slow shift from taxing area to taxing value or 00:26:47.750 --> 00:26:50.420 income. OK, let's fast forward to the American 00:26:50.420 --> 00:26:53.480 colonial period. Property tax became the foundational 00:26:53.480 --> 00:26:56.680 tool for building communities. In the 13 colonies, 00:26:56.819 --> 00:26:58.900 it was used to fund the most essential services. 00:26:59.220 --> 00:27:01.759 The Puritans in Boston, for example, use it to 00:27:01.759 --> 00:27:03.440 pay for the church and for religious education. 00:27:03.559 --> 00:27:05.700 And everybody had to pay. It didn't matter what 00:27:05.700 --> 00:27:08.319 your own religion was. It was seen as a civic 00:27:08.319 --> 00:27:11.700 duty. And they also built in this measure of 00:27:11.700 --> 00:27:14.839 social compassion, but also social control that 00:27:14.839 --> 00:27:16.720 we don't really think about with taxes today. 00:27:16.839 --> 00:27:19.420 Not at all. The sources note that the assessors 00:27:19.420 --> 00:27:22.140 would explicitly consider your social situation. 00:27:22.640 --> 00:27:25.319 A widow with kids was often not only forgiven 00:27:25.319 --> 00:27:27.819 her taxes for the year, but she might actually 00:27:27.819 --> 00:27:30.099 receive a monthly payment from the town treasury. 00:27:30.339 --> 00:27:33.000 A kind of guaranteed income funded by property 00:27:33.000 --> 00:27:36.079 tax. Exactly. But on the other hand, there were 00:27:36.079 --> 00:27:38.940 clear punishments. If you destroyed public property, 00:27:39.000 --> 00:27:41.839 like you damaged a road, you had to pay for the 00:27:41.839 --> 00:27:44.420 repairs through a direct increase in your property 00:27:44.420 --> 00:27:47.230 tax. It was a very transparent tool. for both 00:27:47.230 --> 00:27:51.990 welfare and local justice. Now, after 1776, in 00:27:51.990 --> 00:27:54.490 the early United States, property tax became 00:27:54.490 --> 00:27:56.829 the center of this huge political fight between 00:27:56.829 --> 00:27:59.690 two of the founders, Alexander Hamilton and Thomas 00:27:59.690 --> 00:28:01.970 Jefferson. And this fight really sealed the fate 00:28:01.970 --> 00:28:05.009 of property tax as a local thing in the US. Hamilton, 00:28:05.309 --> 00:28:07.589 who wanted a strong central government, argued 00:28:07.589 --> 00:28:10.589 for a high national property tax to give the 00:28:10.589 --> 00:28:12.630 new federal government more power and more money. 00:28:12.990 --> 00:28:15.349 Jefferson, who was all about states' rights and 00:28:15.349 --> 00:28:17.940 local control, wanted that revenue to be raised 00:28:17.940 --> 00:28:20.740 locally. He saw property tax as the most democratic 00:28:20.740 --> 00:28:23.200 way for communities to fund themselves. And Hamilton 00:28:23.200 --> 00:28:25.220 actually got his national property tax for a 00:28:25.220 --> 00:28:27.220 little while, right? But it was a total failure. 00:28:27.380 --> 00:28:30.680 Why? It was a bureaucratic disaster and it was 00:28:30.680 --> 00:28:33.400 deeply unpopular. The states hated the federal 00:28:33.400 --> 00:28:35.799 government meddling in their local revenue. There 00:28:35.799 --> 00:28:38.539 were protests. People refused to pay. And it 00:28:38.539 --> 00:28:40.539 was repealed pretty quickly and never successfully 00:28:40.539 --> 00:28:43.859 brought back. That failure is why, to this day, 00:28:43.940 --> 00:28:46.480 property tax in the U .S. is almost exclusively 00:28:46.480 --> 00:28:49.599 a local revenue stream. It's what pays for our 00:28:49.599 --> 00:28:52.319 schools, our police, our fire departments. That 00:28:52.319 --> 00:28:55.039 history is fascinating. But the most powerful 00:28:55.039 --> 00:28:58.029 part of this section is the ultimate... fundamental 00:28:58.029 --> 00:29:01.150 criticism of property tax. It asked this really 00:29:01.150 --> 00:29:03.910 deep question about what it even means to own 00:29:03.910 --> 00:29:06.430 something. The criticism basically asks, does 00:29:06.430 --> 00:29:09.009 property tax mean that true absolute ownership 00:29:09.009 --> 00:29:11.670 of your home is just an illusion? That's a pretty 00:29:11.670 --> 00:29:13.940 heavy statement. What's the argument? The argument 00:29:13.940 --> 00:29:16.480 is that property tax proves that property owners 00:29:16.480 --> 00:29:19.160 are really just long term renters and the government 00:29:19.160 --> 00:29:22.240 is the true landlord. And the proof is what happens 00:29:22.240 --> 00:29:24.720 if you don't pay because the government can legally 00:29:24.720 --> 00:29:26.599 kick you out of your home for not paying this 00:29:26.599 --> 00:29:29.140 annual fee. Your ownership is conditional. And 00:29:29.140 --> 00:29:31.859 the consequences for not paying can be incredibly 00:29:31.859 --> 00:29:35.500 extreme. We have this really shocking specific 00:29:35.500 --> 00:29:39.019 story from Southfield, Michigan, that just illustrates 00:29:39.019 --> 00:29:42.359 the brutal reality of this idea. This is a well 00:29:42.359 --> 00:29:44.380 -documented case that really gets to the heart 00:29:44.380 --> 00:29:46.880 of the criticism. A resident fell behind on her 00:29:46.880 --> 00:29:50.480 property taxes by about $900. The town, following 00:29:50.480 --> 00:29:53.000 the law, refused to accept a late payment after 00:29:53.000 --> 00:29:55.259 a certain point. Instead, they confiscated her 00:29:55.259 --> 00:29:58.720 home, which is valued at nearly $300 ,000, and 00:29:58.720 --> 00:30:00.799 sold it to cover the debt. Wait, they took a 00:30:00.799 --> 00:30:04.849 $300 ,000 home over a $900 debt? They did. and 00:30:04.849 --> 00:30:07.109 it highlights the most severe implication for 00:30:07.109 --> 00:30:09.890 property rights. The value of the asset they 00:30:09.890 --> 00:30:12.490 took was wildly out of proportion to the debt 00:30:12.490 --> 00:30:15.190 owed, but the state's right to collect its tax 00:30:15.190 --> 00:30:17.970 and the lien that comes with it was more powerful 00:30:17.970 --> 00:30:20.170 than the individual's claim to her own home. 00:30:20.829 --> 00:30:23.369 Critics say this is definitive proof that your 00:30:23.369 --> 00:30:25.410 ownership is contingent on paying that annual 00:30:25.410 --> 00:30:28.190 fee to the state. It changes how you see the 00:30:28.190 --> 00:30:30.289 whole thing. It really does. It's not just a 00:30:30.289 --> 00:30:33.170 tax. It's the annual renewal fee on your tenancy 00:30:33.170 --> 00:30:35.119 with the government. And just to round out the 00:30:35.119 --> 00:30:37.579 picture, even though this tax is so common, it's 00:30:37.579 --> 00:30:39.440 worth noting there are some surprising places 00:30:39.440 --> 00:30:42.440 that don't have it at all on residential property. 00:30:42.660 --> 00:30:44.900 It's a surprisingly long list for such a fundamental 00:30:44.900 --> 00:30:47.700 tax. Who are the big exceptions? Well, in the 00:30:47.700 --> 00:30:49.700 People's Republic of China, there's no tax on 00:30:49.700 --> 00:30:51.420 homeowners because the government technically 00:30:51.420 --> 00:30:54.900 owns all the land. We also see no property tax 00:30:54.900 --> 00:30:58.359 in places like Kuwait, Malta and Greenland. And 00:30:58.359 --> 00:31:00.519 even inside the U .S. sphere of influence, there 00:31:00.519 --> 00:31:03.980 are some tax free zones. Yes. The U .S. territory 00:31:03.980 --> 00:31:07.359 of American Samoa has no property tax. And even 00:31:07.359 --> 00:31:09.799 in a state like Alaska, only about two dozen 00:31:09.799 --> 00:31:12.480 municipalities actually levy one. But where they 00:31:12.480 --> 00:31:15.420 do, it makes up the vast majority of local revenue, 00:31:15.559 --> 00:31:18.799 which shows you just how effective this tax is 00:31:18.799 --> 00:31:21.619 when it's applied. This has been a really fascinating 00:31:21.619 --> 00:31:24.160 and, I think, exhaustive breakdown. It shows 00:31:24.160 --> 00:31:26.980 property tax is a financial tool. It's a social 00:31:26.980 --> 00:31:29.819 lever and it's a bit of a philosophical hot potato. 00:31:30.000 --> 00:31:32.759 Yeah. Let's try and synthesize the two big takeaways 00:31:32.759 --> 00:31:34.920 from this deep dive. I think the first one is 00:31:34.920 --> 00:31:37.259 that property tax, even though we think of it 00:31:37.259 --> 00:31:40.380 as the simple local thing, is incredibly adaptable. 00:31:40.400 --> 00:31:42.140 We saw systems where it works like an income 00:31:42.140 --> 00:31:44.839 tax, like in Hong Kong. Right. Or a tax on residents, 00:31:44.960 --> 00:31:48.039 like in the UK, or even a national wealth redistribution 00:31:48.039 --> 00:31:50.720 tool, like in Chile. Its application is always 00:31:50.720 --> 00:31:52.980 a policy choice, whether you're trying to equalize 00:31:52.980 --> 00:31:55.559 wealth or just get landlords to rent out empty 00:31:55.559 --> 00:31:57.019 apartments. apartments like in France and Israel. 00:31:57.220 --> 00:31:59.119 And the second big takeaway is that despite all 00:31:59.119 --> 00:32:01.880 that global variety, its core function at the 00:32:01.880 --> 00:32:03.700 local level is still absolutely fundamental. 00:32:04.279 --> 00:32:07.420 It is, for lack of a better term, the cost of 00:32:07.420 --> 00:32:10.660 local civilization. I mean, in the U .S., it's 00:32:10.660 --> 00:32:13.819 the engine that funds 97 percent of local infrastructure, 00:32:14.059 --> 00:32:16.980 police, fire, schools, roads. You just can't 00:32:16.980 --> 00:32:19.519 run a city without it. It is the necessary engine 00:32:19.519 --> 00:32:21.880 of local government. But let's end with that 00:32:21.880 --> 00:32:24.019 really provocative thought that the critics raised, 00:32:24.240 --> 00:32:26.839 building on that example from Michigan, where 00:32:26.839 --> 00:32:31.180 a $900 debt led to losing a $300 ,000 home. If 00:32:31.180 --> 00:32:33.740 failing to pay your property taxes, even a tiny 00:32:33.740 --> 00:32:36.119 amount, can lead to the state taking and selling 00:32:36.119 --> 00:32:38.400 your home, does that mean true absolute property 00:32:38.400 --> 00:32:40.900 ownership is fundamentally an illusion? Are we 00:32:40.900 --> 00:32:43.400 at best just long -term tenants of the state 00:32:43.400 --> 00:32:46.079 paying an annual rent on the land? It's a powerful 00:32:46.079 --> 00:32:48.589 question. And it challenges the very core of 00:32:48.589 --> 00:32:50.650 our ideas about property rights. It really encourages 00:32:50.650 --> 00:32:53.029 us to look seriously at those other ideas we 00:32:53.029 --> 00:32:54.869 mentioned, like Georgism and the land value tax, 00:32:55.130 --> 00:32:57.509 as maybe potential solutions. Understanding the 00:32:57.509 --> 00:32:59.250 history and the philosophy behind that annual 00:32:59.250 --> 00:33:01.269 bill, it really changes everything about how 00:33:01.269 --> 00:33:02.849 you read it next time it shows up in your mailbox.