WEBVTT 00:00:00.000 --> 00:00:02.940 I want to start today by talking about a specific 00:00:02.940 --> 00:00:05.179 piece of mail. It usually shows up once a year, 00:00:05.259 --> 00:00:07.440 right? It's in one of those, you know, generic 00:00:07.440 --> 00:00:10.119 window envelopes. The one you don't want to open. 00:00:10.199 --> 00:00:12.779 The one you absolutely do not want to open. And 00:00:12.779 --> 00:00:14.539 depending on where you live or, you know, what 00:00:14.539 --> 00:00:16.620 the market is doing, opening it either ruins 00:00:16.620 --> 00:00:19.039 your morning or it ruins your entire month. It's 00:00:19.039 --> 00:00:21.820 the property tax bill. The dreaded annual reckoning. 00:00:21.920 --> 00:00:24.679 Right. But here's the thing that I noticed while 00:00:24.679 --> 00:00:26.579 I was going through all this source material 00:00:26.579 --> 00:00:30.440 for this deep dive. We spend... virtually all 00:00:30.440 --> 00:00:33.460 of our energy, all of our outrage, complaining 00:00:33.460 --> 00:00:36.500 about the tax. The rate. The actual check we 00:00:36.500 --> 00:00:38.920 have to write. We argue about the tax rate. We 00:00:38.920 --> 00:00:41.479 argue about the mayor's budget. We argue about 00:00:41.479 --> 00:00:43.619 whether the trash is getting picked up on time 00:00:43.619 --> 00:00:45.359 for what we're paying. It's all the downstream 00:00:45.359 --> 00:00:49.119 effects. Exactly. But we almost never, and I 00:00:49.119 --> 00:00:52.320 mean never, stop to look at the number that actually 00:00:52.320 --> 00:00:54.560 dictates the size of that check in the first 00:00:54.560 --> 00:00:58.320 place. We ignore the value that's assigned to 00:00:58.320 --> 00:01:01.000 the house itself. Which is, I mean, it's a fundamental 00:01:01.000 --> 00:01:04.000 mistake because you're right. The tax rate is 00:01:04.000 --> 00:01:05.959 just a multiplier. It's a variable. It can change 00:01:05.959 --> 00:01:09.260 year to year. The assessment, that specific dollar 00:01:09.260 --> 00:01:12.260 value assigned to your property, that's the bedrock. 00:01:12.420 --> 00:01:15.359 That's the foundation. It is the raw data upon 00:01:15.359 --> 00:01:18.359 which the entire state apparatus is built. If 00:01:18.359 --> 00:01:20.879 that number is wrong, everything that follows 00:01:20.879 --> 00:01:23.799 it is wrong too. But I think the reason we ignore 00:01:23.799 --> 00:01:25.799 it or the reason I've ignored it is because we 00:01:25.799 --> 00:01:29.599 assume it's just... reality. You know, if I asked 00:01:29.599 --> 00:01:31.359 you what my house is worth, I'd probably go look 00:01:31.359 --> 00:01:33.599 on Zillow or I'd look at what my neighbor's house 00:01:33.599 --> 00:01:35.700 just sold for. Right. You look for market signals. 00:01:35.920 --> 00:01:37.900 Yeah. And I just assume the government kind of 00:01:37.900 --> 00:01:41.219 scrapes that same data, runs a program and sends 00:01:41.219 --> 00:01:43.760 me a bill. I really didn't realize there was 00:01:43.760 --> 00:01:47.260 this massive like bureaucratic machinery specifically 00:01:47.260 --> 00:01:49.780 designed just to generate that one number. If 00:01:49.780 --> 00:01:51.459 only you were that simple and that efficient. 00:01:51.620 --> 00:01:53.920 No, that right there is the core misconception 00:01:53.920 --> 00:01:57.230 we have to get past. Market value is what a The 00:01:57.230 --> 00:01:59.909 willing buyer is willing to pay you on a given 00:01:59.909 --> 00:02:03.909 Tuesday. That's it. Assessed value is. It's an 00:02:03.909 --> 00:02:06.950 administrative opinion. That's the best way to 00:02:06.950 --> 00:02:09.169 think about it. It is a judgment call that is 00:02:09.169 --> 00:02:12.770 made by a human being or increasingly an algorithm 00:02:12.770 --> 00:02:16.389 that has to adhere to very specific and often 00:02:16.389 --> 00:02:20.979 very archaic. But it's not just a simple question 00:02:20.979 --> 00:02:23.819 of what is this worth? It is what is this worth 00:02:23.819 --> 00:02:26.099 for the specific purpose of keeping the local 00:02:26.099 --> 00:02:28.520 government funded and running? Yeah. And those 00:02:28.520 --> 00:02:30.740 can be two very different numbers. Administrative 00:02:30.740 --> 00:02:33.060 opinion is a very, very polite way of saying 00:02:33.060 --> 00:02:36.300 a guess. An educated guess you would hope, ideally. 00:02:36.639 --> 00:02:38.419 But yes, at the end of the day, it's an estimate. 00:02:38.520 --> 00:02:40.259 And that really is our mission for this deep 00:02:40.259 --> 00:02:42.750 dive today. We're not here to debate. Tax policy, 00:02:42.949 --> 00:02:44.569 you know, other taxes should be high or low. 00:02:44.710 --> 00:02:46.729 That's a different show. Right. We're going to 00:02:46.729 --> 00:02:49.669 unpack the black box of valuation. We're going 00:02:49.669 --> 00:02:51.250 to try and figure out who these people are with 00:02:51.250 --> 00:02:53.610 the clipboards, why the math is so intentionally 00:02:53.610 --> 00:02:57.110 confusing. And I mean, it is full of some wild 00:02:57.110 --> 00:02:58.909 jargon. Well, we're going to get to that. And 00:02:58.909 --> 00:03:02.849 how this same mechanism of, like you said, guessing 00:03:02.849 --> 00:03:05.889 value applies not just to your front porch, but 00:03:05.889 --> 00:03:08.689 to everything up to and including global corporate 00:03:08.689 --> 00:03:10.930 profit shifting. And it really does feel like 00:03:10.930 --> 00:03:13.280 a black box. The source material you pulled for 00:03:13.280 --> 00:03:16.259 this is this. It's a massive overview of tax 00:03:16.259 --> 00:03:19.620 assessment. It covers everything from like the 00:03:19.620 --> 00:03:23.159 tiniest details of US local laws to, you know, 00:03:23.180 --> 00:03:26.219 these global tax havens. And what struck me is 00:03:26.219 --> 00:03:29.139 that the word assessment itself. It sounds like 00:03:29.139 --> 00:03:30.840 the most boring word in the English language. 00:03:31.039 --> 00:03:32.960 It sounds like homework. It really does. It does. 00:03:33.020 --> 00:03:34.759 It sounds like something you have to do, not 00:03:34.759 --> 00:03:37.139 something that's done to you. But what I'm realizing 00:03:37.139 --> 00:03:39.240 is that it's actually this incredibly high stakes 00:03:39.240 --> 00:03:41.719 game. It is the moment the government looks at 00:03:41.719 --> 00:03:44.080 your little slice of the world and puts a price 00:03:44.080 --> 00:03:47.539 tag on it. That's it. And that one decision dictates 00:03:47.539 --> 00:03:50.259 the flow of so much money in our society. So 00:03:50.259 --> 00:03:53.280 it's the bridge. Precisely. Without an assessment. 00:03:53.770 --> 00:03:56.330 The entire system is paralyzed. You can have 00:03:56.330 --> 00:03:57.930 a tax rate. You can have a government that's 00:03:57.930 --> 00:04:01.110 desperate for cash. But until someone, somewhere, 00:04:01.330 --> 00:04:04.090 assigns a specific number to a piece of property 00:04:04.090 --> 00:04:08.409 or a car or a transaction, you cannot generate 00:04:08.409 --> 00:04:11.419 revenue. It's the trigger. It starts the whole 00:04:11.419 --> 00:04:13.639 chain reaction. OK, so let's start there. Let's 00:04:13.639 --> 00:04:15.699 start with the hook, the human element. We all 00:04:15.699 --> 00:04:17.500 know we have to pay. It's one of the guarantees 00:04:17.500 --> 00:04:20.699 in life. But who actually decides how much my 00:04:20.699 --> 00:04:23.519 slice of the world is worth? Because in my head, 00:04:23.519 --> 00:04:26.069 it's just the government. you know, this faceless 00:04:26.069 --> 00:04:28.490 entity. It's rarely faceless when you dig in. 00:04:28.550 --> 00:04:30.829 Yeah. In the U .S. context, it is usually a very 00:04:30.829 --> 00:04:32.870 specific person. They're called the assessor 00:04:32.870 --> 00:04:35.870 or more formally, the tax assessor. OK, but the 00:04:35.870 --> 00:04:37.529 sources we looked at, they highlight that this 00:04:37.529 --> 00:04:39.550 isn't just some civil servant in a back office 00:04:39.550 --> 00:04:42.829 stamping forms. This is a weirdly powerful role. 00:04:43.110 --> 00:04:45.949 It is an incredibly powerful and frankly, undervalued 00:04:45.949 --> 00:04:48.329 role in the public eye. This one official is 00:04:48.329 --> 00:04:50.569 charged with determining the value of each and 00:04:50.569 --> 00:04:52.569 every taxable property in their jurisdiction. 00:04:52.769 --> 00:04:55.889 Each one. Every single one. So think about the 00:04:55.889 --> 00:04:58.110 scope of that. In a major city, that could be 00:04:58.110 --> 00:05:00.050 hundreds of thousands of individual parcels. 00:05:00.329 --> 00:05:03.670 In a rural county, it might be thousands of acres 00:05:03.670 --> 00:05:07.850 of diverse farmland, forests, residential lots. 00:05:08.449 --> 00:05:11.089 And this one office has to put a number on all 00:05:11.089 --> 00:05:13.769 of it and say, this is worth X and that over 00:05:13.769 --> 00:05:16.269 there is worth Y. And here's the part when I 00:05:16.269 --> 00:05:18.250 read this in the notes that I found genuinely 00:05:18.250 --> 00:05:20.910 baffling. I had to read it twice. In the United 00:05:20.910 --> 00:05:24.779 States, this person is often elected. Yes. In 00:05:24.779 --> 00:05:26.660 many, many jurisdictions, they are an elected 00:05:26.660 --> 00:05:28.819 official. That seems absolutely insane to me. 00:05:28.860 --> 00:05:30.680 You are literally voting for the person whose 00:05:30.680 --> 00:05:34.019 only job, their entire reason for existing, is 00:05:34.019 --> 00:05:36.100 to calculate how much money you owe the government. 00:05:36.279 --> 00:05:38.519 It creates a fascinating political dynamic, doesn't 00:05:38.519 --> 00:05:40.500 it? It creates a massive conflict of interest. 00:05:40.680 --> 00:05:42.420 I mean, can you imagine running a campaign on 00:05:42.420 --> 00:05:45.560 the slogan, vote for me, I promise to accurately 00:05:45.560 --> 00:05:48.220 value your home at the current, you know, totally 00:05:48.220 --> 00:05:50.939 inflated market price, which will thereby double 00:05:50.939 --> 00:05:53.259 your taxes. You'd lose in a landslide. No one 00:05:53.259 --> 00:05:55.420 would ever vote for you. Of course not. Exactly. 00:05:55.779 --> 00:05:58.699 So what you end up with is this inherent tension. 00:05:59.660 --> 00:06:03.279 On one hand, the assessor has a statutory duty, 00:06:03.420 --> 00:06:06.199 a legal requirement to be accurate and fair, 00:06:06.339 --> 00:06:08.779 to follow the market wherever it goes. They have 00:06:08.779 --> 00:06:10.519 to tell the truth, basically. They have to tell 00:06:10.519 --> 00:06:13.209 the truth about value. Yeah. But on the other 00:06:13.209 --> 00:06:15.550 hand, they are often politically accountable 00:06:15.550 --> 00:06:19.050 to the very voters who, you know, understandably 00:06:19.050 --> 00:06:21.569 want their assessments and therefore their taxes 00:06:21.569 --> 00:06:24.629 to stay as low as possible. They're stuck. It 00:06:24.629 --> 00:06:26.430 puts the assessor in this position where they 00:06:26.430 --> 00:06:29.569 either have to be the bearer of bad news every 00:06:29.569 --> 00:06:32.670 few years or they risk underfunding the schools 00:06:32.670 --> 00:06:34.290 and the fire departments and everything else. 00:06:34.370 --> 00:06:36.970 It is a genuine tightrope walk. And to make it 00:06:36.970 --> 00:06:38.930 even more confusing for the average person, they 00:06:38.930 --> 00:06:41.120 don't even use the same titles everywhere. I 00:06:41.120 --> 00:06:43.000 got really stuck on this one term in the notes 00:06:43.000 --> 00:06:45.199 you flagged it regarding Vermont, this role called 00:06:45.199 --> 00:06:47.740 a lister. The lister. Yes. It's a great, great 00:06:47.740 --> 00:06:49.459 term. It sounds like someone who's in charge 00:06:49.459 --> 00:06:52.000 of organizing a grocery run for the town. Oh, 00:06:52.019 --> 00:06:53.800 don't worry. Bob's the town lister. He'll get 00:06:53.800 --> 00:06:56.279 the milk. It does. It has that kind of folksy 00:06:56.279 --> 00:06:59.019 small town feel. Yeah. And it is pretty unique 00:06:59.019 --> 00:07:01.300 to Vermont and, you know, some other parts of 00:07:01.300 --> 00:07:03.480 New England. So is it just a quirky name for 00:07:03.480 --> 00:07:06.699 an assessor or is the job itself actually different? 00:07:06.959 --> 00:07:09.819 Well, today the job is effectively the same. 00:07:10.170 --> 00:07:12.589 Their function is to determine property value 00:07:12.589 --> 00:07:16.550 for tax purposes. But the etymology of the word. 00:07:17.079 --> 00:07:19.040 You know, the history of it is actually really 00:07:19.040 --> 00:07:20.980 important and tells you a lot about how this 00:07:20.980 --> 00:07:23.199 all started. Okay. It goes back to the concept 00:07:23.199 --> 00:07:25.959 of the grand list. The grand list. What's that? 00:07:26.139 --> 00:07:28.379 In the colonial era, and you can trace this all 00:07:28.379 --> 00:07:30.420 the way back to England, you had to literally 00:07:30.420 --> 00:07:33.040 list your property. You would go to the town 00:07:33.040 --> 00:07:35.600 official and declare on a list the number of 00:07:35.600 --> 00:07:38.480 cows you owned, the acres of arable land, the 00:07:38.480 --> 00:07:40.420 number of silver spoons, the number of clocks 00:07:40.420 --> 00:07:42.180 in your house. Wait, wait. So it wasn't just 00:07:42.180 --> 00:07:44.839 like... My farm as a whole is worth 500 pounds. 00:07:45.060 --> 00:07:48.160 It was a line by line itemized inventory of your 00:07:48.160 --> 00:07:51.720 wealth. Exactly. A detailed inventory. And the 00:07:51.720 --> 00:07:54.980 lister was the person responsible for compiling 00:07:54.980 --> 00:07:56.759 that inventory from everyone in town. They were 00:07:56.759 --> 00:07:58.800 the ones checking your list against reality, 00:07:59.060 --> 00:08:00.980 making sure you didn't, you know, forget to mention 00:08:00.980 --> 00:08:03.939 a few cows. Wow. So modern assessment is usually 00:08:03.939 --> 00:08:06.259 what we call ad valorem, which is just Latin 00:08:06.259 --> 00:08:09.439 for according to value. It's based on the total 00:08:09.439 --> 00:08:12.579 value of the property as a single unit. But that 00:08:12.579 --> 00:08:16.920 Lister title is this amazing holdover from a 00:08:16.920 --> 00:08:20.300 time when the tax... was based on the specific 00:08:20.300 --> 00:08:22.839 things themselves. It feels incredibly invasive 00:08:22.839 --> 00:08:25.339 when you put it that way. Someone from the government 00:08:25.339 --> 00:08:28.100 coming around to literally count your spoons. 00:08:28.540 --> 00:08:31.899 It was. And in many ways, the modern version 00:08:31.899 --> 00:08:34.179 still feels that way to a lot of people. When 00:08:34.179 --> 00:08:36.360 a property appraiser in Florida, that's the title 00:08:36.360 --> 00:08:38.779 they use there, or an assessor in Ohio knocks 00:08:38.779 --> 00:08:40.679 on your door, they might not be counting your 00:08:40.679 --> 00:08:43.700 spoons, but they're absolutely checking to see 00:08:43.700 --> 00:08:45.259 if you finished that basement you took out a 00:08:45.259 --> 00:08:47.279 permit for. Right. They're looking for improvements. 00:08:47.639 --> 00:08:49.830 They're looking to see. if you added a deck or 00:08:49.830 --> 00:08:53.309 a pool. They are in effect updating the inventory 00:08:53.309 --> 00:08:56.190 of the jurisdiction to ensure that everyone is 00:08:56.190 --> 00:08:58.490 paying their fair share based on the current 00:08:58.490 --> 00:09:00.269 state of their property. So it doesn't matter 00:09:00.269 --> 00:09:02.730 if you call them a lister in Vermont, a property 00:09:02.730 --> 00:09:05.830 appraiser in Florida, or just a tax assessor 00:09:05.830 --> 00:09:09.549 everywhere else. The function is basically the 00:09:09.549 --> 00:09:12.259 same. They are the ones who provide the data. 00:09:12.379 --> 00:09:14.720 They are the gatekeepers of the math. They provide 00:09:14.720 --> 00:09:17.100 that base number. And this actually brings us 00:09:17.100 --> 00:09:19.740 to the core definition of the term itself. The 00:09:19.740 --> 00:09:21.700 source material makes a really important distinction 00:09:21.700 --> 00:09:25.159 between assessment as an action and assessment 00:09:25.159 --> 00:09:27.519 as, you know, the bill you get. Right. Because 00:09:27.519 --> 00:09:28.940 I've definitely heard people say, oh, I got my 00:09:28.940 --> 00:09:30.820 assessment in the mail. And they mean the bill, 00:09:30.940 --> 00:09:34.379 the tax liability. Colloquially, yes. That's 00:09:34.379 --> 00:09:36.399 very common. It often refers to the specific 00:09:36.399 --> 00:09:39.220 amount of money you owe, the debt. But for our 00:09:39.220 --> 00:09:41.120 purposes, strictly speaking, and for this deep 00:09:41.120 --> 00:09:44.200 dive, assessment is the act of valuation. It 00:09:44.200 --> 00:09:47.059 is the process of determining the value and sometimes 00:09:47.059 --> 00:09:50.179 the use of a piece of property. You said use 00:09:50.179 --> 00:09:53.159 of property. Why does the use matter? Isn't a 00:09:53.159 --> 00:09:55.539 one -acre lot a one -acre lot? Oh, the usage 00:09:55.539 --> 00:09:58.700 changes the value dramatically. Think about it. 00:09:58.889 --> 00:10:01.690 Is that one acre plot of land a working farm 00:10:01.690 --> 00:10:04.330 that's zoned for agriculture? Okay. Or is it 00:10:04.330 --> 00:10:06.769 a commercially zoned lot in the middle of a city 00:10:06.769 --> 00:10:10.029 that's about to become a shopping center? The 00:10:10.029 --> 00:10:13.019 dirt might be the same. But the tax implications 00:10:13.019 --> 00:10:15.340 are wildly different. The assessor has to make 00:10:15.340 --> 00:10:17.379 that determination, that classification, too. 00:10:17.500 --> 00:10:19.019 So it's not just about running a calculator. 00:10:19.019 --> 00:10:21.399 It's also a judgment on what the land is, what 00:10:21.399 --> 00:10:24.179 its purpose is. Correct. Yeah. And while we're 00:10:24.179 --> 00:10:26.500 focusing a lot on real estate, because, you know, 00:10:26.519 --> 00:10:28.539 that's the most common touchpoint for most people, 00:10:28.639 --> 00:10:31.399 the source notes this applies to personal property, 00:10:31.500 --> 00:10:33.960 too. What do you mean by that? Well, in many 00:10:33.960 --> 00:10:36.080 states, businesses have to pay an annual tax 00:10:36.080 --> 00:10:38.929 on their tangible assets. Their computers, their 00:10:38.929 --> 00:10:41.129 desks, their machinery, all that has to be assessed. 00:10:41.409 --> 00:10:43.950 In some places, you pay an annual property tax 00:10:43.950 --> 00:10:46.929 on your car based on its current value. That 00:10:46.929 --> 00:10:49.409 requires an assessment every single year. It's 00:10:49.409 --> 00:10:52.269 just, it's everywhere. Okay, I want to pause 00:10:52.269 --> 00:10:55.429 on the math here because I think this is where 00:10:55.429 --> 00:10:57.289 most people's eyes just glaze over. And I have 00:10:57.289 --> 00:10:59.370 a suspicion that that's at least partly by design. 00:10:59.929 --> 00:11:02.710 The source material mentions the mill rate. The 00:11:02.710 --> 00:11:05.970 mill rate. It is the source of more public confusion 00:11:05.970 --> 00:11:08.210 than almost anything else in local government 00:11:08.210 --> 00:11:11.309 finance. It sounds complicated, but it's actually 00:11:11.309 --> 00:11:13.730 not once you understand why it exists. Well, 00:11:13.769 --> 00:11:16.129 that's my question. Most taxes I pay are just 00:11:16.129 --> 00:11:19.379 straightforward percentages. Sales tax is 7%. 00:11:19.379 --> 00:11:22.460 My income tax is, you know, roughly 20 or 30%. 00:11:22.460 --> 00:11:25.659 Why on earth does property tax use mills? Why 00:11:25.659 --> 00:11:28.059 can't they just say the property tax is 2 %? 00:11:28.240 --> 00:11:30.120 It comes down to how the budget is constructed. 00:11:30.299 --> 00:11:31.840 It's a completely different philosophy, like 00:11:31.840 --> 00:11:34.159 we said earlier. Think of it this way. Sales 00:11:34.159 --> 00:11:36.789 tax is passive. The state sets the rate at, say, 00:11:36.830 --> 00:11:40.230 7%, and then however much stuff you buy, that's 00:11:40.230 --> 00:11:42.429 how much revenue they get. If the economy crashes 00:11:42.429 --> 00:11:44.669 and you stop buying things, the state gets less 00:11:44.669 --> 00:11:46.629 money. Okay, so their revenue just floats with 00:11:46.629 --> 00:11:49.350 the economy. It goes up and down. Right. But 00:11:49.350 --> 00:11:51.730 property tax, especially for a town or a city, 00:11:51.850 --> 00:11:54.570 it works completely backward. A town government 00:11:54.570 --> 00:11:57.230 generally doesn't start the year by saying, what 00:11:57.230 --> 00:11:59.190 rate should we charge? They don't. What do they 00:11:59.190 --> 00:12:01.789 start with? They start by saying, how much money 00:12:01.789 --> 00:12:04.960 do we need exactly to keep the lights on? Oh, 00:12:05.000 --> 00:12:06.600 so they start with the final bill. They start 00:12:06.600 --> 00:12:08.679 with the budget. Let's say a town needs exactly 00:12:08.679 --> 00:12:12.360 $1 million this year. That million dollars pays 00:12:12.360 --> 00:12:15.059 the teachers, it pays the roads, it runs the 00:12:15.059 --> 00:12:18.059 police station. It's a fixed cost. Okay, a million 00:12:18.059 --> 00:12:19.940 dollars. The assessor then looks at the whole 00:12:19.940 --> 00:12:22.899 town and says, okay, the total value of all the 00:12:22.899 --> 00:12:25.700 houses, all the businesses, all the taxable property 00:12:25.700 --> 00:12:32.509 in this town adds up to $100 million. They now 00:12:32.509 --> 00:12:34.830 have a problem to solve. They have to find a 00:12:34.830 --> 00:12:38.330 rate that extracts exactly $1 million from that 00:12:38.330 --> 00:12:41.490 $100 million base. Which would be 1%. Mathematically, 00:12:41.570 --> 00:12:44.149 yes, it's 1%. But in the world of municipal finance, 00:12:44.409 --> 00:12:47.009 they express that using the Latin word millesimum, 00:12:47.090 --> 00:12:50.710 which just means thousandth. So a mill is $1 00:12:50.710 --> 00:12:54.669 of tax for every $1 ,000 of assessed value. Okay, 00:12:54.690 --> 00:12:58.090 so 1 % is $10 for every thousand. So it's 10 00:12:58.090 --> 00:13:00.769 mils. Exactly, 10 mils. It still feels like an 00:13:00.769 --> 00:13:03.830 extra layer of unnecessary jargon just to obscure 00:13:03.830 --> 00:13:06.190 the true cost from people. I think there's some 00:13:06.190 --> 00:13:08.110 truth to that, whether it's intentional or not. 00:13:08.750 --> 00:13:12.389 It also creates a buffer. It allows for tiny 00:13:12.389 --> 00:13:15.509 fractional adjustments, like going from 10 .1 00:13:15.509 --> 00:13:18.269 mils to 10 .2 mils, that can add up to a lot 00:13:18.269 --> 00:13:20.470 of money across a whole city without looking 00:13:20.470 --> 00:13:23.250 like a massive percentage hike on paper. A psychological 00:13:23.250 --> 00:13:25.970 trick. It can be. But here is the real catch, 00:13:26.149 --> 00:13:28.549 and the source highlights this as a major warning. 00:13:29.529 --> 00:13:32.669 You cannot understand your tax bill by looking 00:13:32.669 --> 00:13:35.509 at the mill rate alone. You have to look at something 00:13:35.509 --> 00:13:38.269 called the assessment ratio. This was the part 00:13:38.269 --> 00:13:40.129 that made me feel like I was actively being tricked, 00:13:40.289 --> 00:13:42.570 the assessment ratio. It is the hidden variable 00:13:42.570 --> 00:13:44.409 in the whole equation. Okay, so break this down. 00:13:44.879 --> 00:13:47.200 In a normal, rational world, if my house has 00:13:47.200 --> 00:13:50.340 a market value of, say, $500 ,000, the assessed 00:13:50.340 --> 00:13:52.860 value on my tax bill should be $500 ,000. Right. 00:13:52.940 --> 00:13:57.000 That is what's called 100 % valuation. And some 00:13:57.000 --> 00:13:59.299 jurisdictions do that. It's transparent. It's 00:13:59.299 --> 00:14:01.639 easy to understand. What you see is what you 00:14:01.639 --> 00:14:04.519 get. But the source says many other areas use 00:14:04.519 --> 00:14:08.240 a ratio. Explain how that works. So another jurisdiction 00:14:08.240 --> 00:14:12.419 might have a policy written into law. that the 00:14:12.419 --> 00:14:15.919 assessed value is only, say, 50 % of the market 00:14:15.919 --> 00:14:18.379 value. So if my house is really worth $500 ,000, 00:14:18.379 --> 00:14:22.360 the town just pretends it's only worth $250 ,000 00:14:22.360 --> 00:14:24.899 for tax purposes. Yes, that's exactly what they 00:14:24.899 --> 00:14:28.320 do. Why? I mean, that sounds nice. It sounds 00:14:28.320 --> 00:14:30.879 like I'm getting a deal. It feels nice, and that's 00:14:30.879 --> 00:14:33.259 the point. It is almost entirely psychological. 00:14:34.080 --> 00:14:36.539 You open that assessment notice. You see a value 00:14:36.539 --> 00:14:38.580 that's way lower than what you paid for the house. 00:14:38.679 --> 00:14:41.320 And your first thought is, phew, the taxman didn't 00:14:41.320 --> 00:14:44.240 catch me. I'm winning. You feel relief. But I'm 00:14:44.240 --> 00:14:46.659 not actually winning, am I? Not at all. Because 00:14:46.659 --> 00:14:48.580 remember, the town still needs that $1 million 00:14:48.580 --> 00:14:52.039 budget. That number is fixed. Yeah. If they artificially 00:14:52.039 --> 00:14:54.179 cut everyone's assessment in half across the 00:14:54.179 --> 00:14:57.039 board, what do they have to do to the mill rate 00:14:57.039 --> 00:14:58.659 to get the same amount of money? They have to 00:14:58.659 --> 00:15:00.720 double it. They have to double it. It's a shell 00:15:00.720 --> 00:15:03.570 game. The final check you write is often exactly 00:15:03.570 --> 00:15:06.210 the same. That is so devious. It's psychological 00:15:06.210 --> 00:15:09.450 taxation. It works. It keeps the taxpayer passive. 00:15:09.990 --> 00:15:12.190 Because if you feel like you've already won on 00:15:12.190 --> 00:15:14.490 the valuation side of things, you're much less 00:15:14.490 --> 00:15:16.110 likely to go through the hassle of appealing 00:15:16.110 --> 00:15:18.769 it. Wow. OK, but let's talk about that. What 00:15:18.769 --> 00:15:21.990 if the assessor is actually wrong, not just using 00:15:21.990 --> 00:15:24.330 a ratio, but legitimately wrong about the physical 00:15:24.330 --> 00:15:26.610 house? Like they have on their records that I 00:15:26.610 --> 00:15:28.509 have a finished basement, but it's actually just 00:15:28.509 --> 00:15:30.990 a dirt pit full of spiders. Then you have a problem 00:15:30.990 --> 00:15:33.970 with the core data. And this leads to the taxpayer's 00:15:33.970 --> 00:15:37.549 only real recourse, the appeal. And the source 00:15:37.549 --> 00:15:40.529 material really emphasizes that this is a legal 00:15:40.529 --> 00:15:42.889 right. This isn't just, you know, complaining. 00:15:43.230 --> 00:15:45.889 It absolutely is. Yeah. Because an assessment 00:15:45.889 --> 00:15:49.190 is legally defined as an estimate. The statutes 00:15:49.190 --> 00:15:52.509 in most places acknowledge that it can be flawed. 00:15:52.889 --> 00:15:56.190 But, and this is a very, very big but, you cannot 00:15:56.190 --> 00:15:57.950 just walk into the assessor's office and complain 00:15:57.950 --> 00:15:59.750 that your taxes are too high. I can't afford 00:15:59.750 --> 00:16:02.610 this. It's not a valid basis for an appeal. It 00:16:02.610 --> 00:16:05.549 is not. That is a grievance you might have with 00:16:05.549 --> 00:16:07.929 the budget committee or the city council who 00:16:07.929 --> 00:16:11.929 sets the spending. An appeal is strictly and 00:16:11.929 --> 00:16:15.330 only about the value. You have to prove that 00:16:15.330 --> 00:16:18.080 the assessor's number is wrong. So how does a 00:16:18.080 --> 00:16:20.139 regular person even begin to do that? I mean, 00:16:20.159 --> 00:16:21.820 they're the expert with the clipboard. I'm just 00:16:21.820 --> 00:16:23.899 a homeowner. You have to become an expert on 00:16:23.899 --> 00:16:25.980 your own house. You have to generate your own 00:16:25.980 --> 00:16:28.539 data. The source notes that the very first step 00:16:28.539 --> 00:16:31.240 for any taxpayer is to make their own independent 00:16:31.240 --> 00:16:34.000 estimate of the market value. So I have to do 00:16:34.000 --> 00:16:37.149 their job for them. In a way, yes. You need to 00:16:37.149 --> 00:16:40.250 find comparable houses in your neighborhood that 00:16:40.250 --> 00:16:42.690 have sold recently. You need to take photos of 00:16:42.690 --> 00:16:44.610 your dirt pit basement. You need to get repair 00:16:44.610 --> 00:16:47.409 estimates if your roof is failing. You are effectively 00:16:47.409 --> 00:16:50.909 building a legal case to say you, the town, think 00:16:50.909 --> 00:16:53.730 this house is worth X, but here is my evidence 00:16:53.730 --> 00:16:56.190 that the market says it is actually worth Y. 00:16:56.429 --> 00:16:58.049 It sounds like an enormous amount of work for 00:16:58.049 --> 00:17:00.450 the average person. It is. And the system is 00:17:00.450 --> 00:17:03.429 designed that way, to a degree. The burden of 00:17:03.429 --> 00:17:06.650 proof is almost always on the tax buyer. The 00:17:06.650 --> 00:17:09.329 assessor's value is presumed to be correct until 00:17:09.329 --> 00:17:12.049 you, the homeowner, can prove otherwise with 00:17:12.049 --> 00:17:14.789 overwhelming evidence. Of course it is. And the 00:17:14.789 --> 00:17:16.549 source mentioned that this becomes really, really 00:17:16.549 --> 00:17:19.049 critical during these periods called revaluations. 00:17:19.390 --> 00:17:22.309 Revaluation is the moment of truth or the moment 00:17:22.309 --> 00:17:24.690 of pain. Depending on your perspective. See, 00:17:24.750 --> 00:17:27.069 most towns, it's just too expensive and time 00:17:27.069 --> 00:17:29.329 consuming to update every single house every 00:17:29.329 --> 00:17:31.390 single year. So they just leave the values the 00:17:31.390 --> 00:17:33.529 same for a while. Exactly. They might go five, 00:17:33.750 --> 00:17:36.569 seven, even 10 years without systematically changing 00:17:36.569 --> 00:17:38.750 the values on the books. So your official assessment 00:17:38.750 --> 00:17:40.890 stays flat while the real estate market is going 00:17:40.890 --> 00:17:43.710 completely crazy. Precisely. You might be sitting 00:17:43.710 --> 00:17:45.609 there with an assessment that's based on 2015 00:17:45.609 --> 00:17:49.289 prices, while in the real world, your house value 00:17:49.289 --> 00:17:51.329 has doubled since then. You've been getting a 00:17:51.329 --> 00:17:54.940 deal, in a sense. Then the town announces a revaluation. 00:17:55.279 --> 00:17:58.259 They hire a firm. They update every single property 00:17:58.259 --> 00:18:00.720 to current market prices. And suddenly your assessment 00:18:00.720 --> 00:18:04.099 doubles overnight. It can, yes. And your tax 00:18:04.099 --> 00:18:06.680 bill, even if the mill rate goes down a bit to 00:18:06.680 --> 00:18:10.390 compensate. Could still skyrocket. That revaluation 00:18:10.390 --> 00:18:13.190 period is the window where you have to pay the 00:18:13.190 --> 00:18:15.269 most attention. OK. That's when the most errors 00:18:15.269 --> 00:18:17.289 happen because they're doing it in bulk. And 00:18:17.289 --> 00:18:18.869 that's when you really need to check their math. 00:18:19.109 --> 00:18:20.789 I feel like most people just get that letter, 00:18:20.869 --> 00:18:23.349 see the huge new number, get angry for a day 00:18:23.349 --> 00:18:24.890 and then just toss it in a drawer and hope it 00:18:24.890 --> 00:18:26.869 goes away. I think you're right. But what you're 00:18:26.869 --> 00:18:28.869 saying is that that letter is really an opening 00:18:28.869 --> 00:18:31.650 bid in a negotiation. That is a very healthy 00:18:31.650 --> 00:18:34.170 and accurate way to look at it. It is a proposed 00:18:34.170 --> 00:18:38.180 value. You have the. legal right to counter propose 00:18:38.180 --> 00:18:40.740 as long as you play by the rules and bring the 00:18:40.740 --> 00:18:43.039 evidence. OK, so we've covered the house. We've 00:18:43.039 --> 00:18:44.900 covered the local stuff, the listers and the 00:18:44.900 --> 00:18:47.960 mill rates and the appeals. But the source material 00:18:47.960 --> 00:18:50.859 for this deep dive, it goes way, way broader 00:18:50.859 --> 00:18:53.880 than that. It has this incredible taxonomy, this 00:18:53.880 --> 00:18:56.700 categorization of taxation. And it turns out 00:18:56.700 --> 00:18:59.319 you can assess pretty much anything on the planet. 00:18:59.680 --> 00:19:01.359 It really is a broad field. We've been talking 00:19:01.359 --> 00:19:04.279 almost exclusively about ad valorem taxes. Again, 00:19:04.380 --> 00:19:06.839 that's just taxes based on value, like property 00:19:06.839 --> 00:19:11.480 tax. But the source lists so many others, and 00:19:11.480 --> 00:19:14.660 they really reveal what a society prioritizes 00:19:14.660 --> 00:19:17.640 and, you know, what it wants to discourage. Let's 00:19:17.640 --> 00:19:19.299 run through a few of these because they paint 00:19:19.299 --> 00:19:21.960 such a fascinating picture of the world. First 00:19:21.960 --> 00:19:25.920 up, the obvious ones. The sin taxes. The classic 00:19:25.920 --> 00:19:28.720 example. These are excise taxes, usually on things 00:19:28.720 --> 00:19:31.640 like alcohol, tobacco, sugary drinks, gambling. 00:19:31.819 --> 00:19:33.839 And the assessment here isn't normally based 00:19:33.839 --> 00:19:37.359 on like the value of that specific bottle of 00:19:37.359 --> 00:19:39.299 whiskey, right? It's not an ad valorem. Right. 00:19:39.420 --> 00:19:41.299 It's often what's called a specific or unit tax. 00:19:41.400 --> 00:19:44.539 It's assessed based on the volume per liter of 00:19:44.539 --> 00:19:46.799 alcohol or it's a flat rate per pack of cigarettes. 00:19:47.019 --> 00:19:49.319 But the intent behind the tax is totally different. 00:19:49.460 --> 00:19:52.039 How so? With property tax, the primary goal is 00:19:52.039 --> 00:19:53.950 just revenue. We need money to run the town. 00:19:54.130 --> 00:19:56.769 With a syntax, the goal is partly revenue, but 00:19:56.769 --> 00:19:59.150 it's largely about social engineering. We are 00:19:59.150 --> 00:20:02.029 consciously assessing a cost to your bad behavior 00:20:02.029 --> 00:20:04.250 in the hopes that it will discourage you from 00:20:04.250 --> 00:20:06.059 doing it. We're trying to make it too expensive 00:20:06.059 --> 00:20:08.640 to smoke. Essentially, yes. Then you have the 00:20:08.640 --> 00:20:11.420 environmental taxes, the sourceless things like 00:20:11.420 --> 00:20:14.220 carbon taxes, landfill taxes, and this interesting 00:20:14.220 --> 00:20:16.819 one called severance taxes. The severance tax 00:20:16.819 --> 00:20:19.039 is a really interesting concept. And it has nothing 00:20:19.039 --> 00:20:21.400 to do with firing someone. It refers to the act 00:20:21.400 --> 00:20:23.920 of severing a natural resource from the earth. 00:20:24.039 --> 00:20:27.339 Oh, like mining coal or drilling for oil. Exactly. 00:20:27.539 --> 00:20:30.440 The state or the nation is effectively saying 00:20:30.440 --> 00:20:34.349 this natural wealth. the oil in the ground, the 00:20:34.349 --> 00:20:36.710 timber in the forest, it belongs collectively 00:20:36.710 --> 00:20:39.650 to the land, to the people. If you're going to 00:20:39.650 --> 00:20:41.849 take it away, if you're going to sever it, we 00:20:41.849 --> 00:20:43.809 are going to assess a value on that removal. 00:20:44.329 --> 00:20:47.250 and tax you for it. Wow. That's a really philosophical 00:20:47.250 --> 00:20:50.230 way to view a tax. You're taking something irreplaceable 00:20:50.230 --> 00:20:52.309 from the planet, so we assess a cost to that 00:20:52.309 --> 00:20:55.109 action. It's a way of monetizing the depletion 00:20:55.109 --> 00:20:57.470 of a finite natural resource. And then, of course, 00:20:57.490 --> 00:20:59.930 you have the huge category of consumption taxes. 00:21:00.509 --> 00:21:03.289 Sales tax, value -added tax, or VAT, which is 00:21:03.289 --> 00:21:05.569 common in Europe, hotel taxes, tourist taxes. 00:21:06.059 --> 00:21:08.259 It's just relentless. It feels like everywhere 00:21:08.259 --> 00:21:11.579 money moves or value is created someone is standing 00:21:11.579 --> 00:21:13.980 there with a clipboard ready to assess a slice 00:21:13.980 --> 00:21:16.099 of it. That is the fundamental nature of the 00:21:16.099 --> 00:21:18.720 modern state. But what I found so fascinating 00:21:18.720 --> 00:21:21.400 is that the source also points out that this 00:21:21.400 --> 00:21:24.680 isn't modern at all. The deepest roots of assessment 00:21:24.680 --> 00:21:27.339 go back to religious duty and basic community 00:21:27.339 --> 00:21:30.599 survival. Yes, I saw this, the religious assessments. 00:21:30.720 --> 00:21:33.559 The source listed things like the church tax, 00:21:33.819 --> 00:21:36.220 the tithe, the temple tax. And then these very 00:21:36.220 --> 00:21:39.279 specific historical terms like the jizya zakat 00:21:39.279 --> 00:21:42.200 or the fiskus judaicus. Okay, you've got to break 00:21:42.200 --> 00:21:44.680 those down for us. What was the jizya? The jizya 00:21:44.680 --> 00:21:48.019 was a per capita tax, a head tax, that was levied 00:21:48.019 --> 00:21:49.900 on non -Muslim subjects who were permanently 00:21:49.900 --> 00:21:53.009 residing in Muslim lands under Islamic law. It 00:21:53.009 --> 00:21:55.029 was a form of assessment based on your status 00:21:55.029 --> 00:21:57.349 and in exchange for protection from the state. 00:21:57.490 --> 00:21:59.670 It wasn't about your house. It was about your 00:21:59.670 --> 00:22:02.009 person and your religion. And Zakat is different. 00:22:02.150 --> 00:22:05.509 Very different. Zakat is one of the five pillars 00:22:05.509 --> 00:22:08.769 of Islam. It's a form of obligatory almsgiving 00:22:08.769 --> 00:22:11.410 that's treated as a religious duty or a tax. 00:22:12.390 --> 00:22:14.690 It's often assessed on a person's accumulated 00:22:14.690 --> 00:22:17.940 wealth above a certain minimum. The funds are 00:22:17.940 --> 00:22:19.779 then used to help the poor and needy. So the 00:22:19.779 --> 00:22:22.140 idea of looking at someone's standing in society 00:22:22.140 --> 00:22:24.799 or their total wealth and assessing a contribution 00:22:24.799 --> 00:22:27.940 based on that, it's ancient. It is absolutely 00:22:27.940 --> 00:22:30.960 fundamental to any form of organized human society. 00:22:31.099 --> 00:22:32.779 It doesn't matter if it's a secular government 00:22:32.779 --> 00:22:35.460 paving roads or a religious community supporting 00:22:35.460 --> 00:22:38.720 its poor. The mechanism is the same. You have 00:22:38.720 --> 00:22:41.039 to have a system for the assessment of capacity 00:22:41.039 --> 00:22:43.900 to pay. You cannot build a civilization without 00:22:43.900 --> 00:22:46.660 a way to pool resources, and you can't pool resources 00:22:46.660 --> 00:22:49.319 without first assessing who has what. The source 00:22:49.319 --> 00:22:51.420 also mentioned a specific school of thought called 00:22:51.420 --> 00:22:54.900 Georgist taxes or land value taxation. This felt 00:22:54.900 --> 00:22:57.160 like a really specific philosophical argument 00:22:57.160 --> 00:22:59.240 embedded in the material that challenges the 00:22:59.240 --> 00:23:01.980 way we do things right now. Oh, this is a huge 00:23:01.980 --> 00:23:05.740 and perennially debated topic in economic circles. 00:23:06.359 --> 00:23:09.140 Henry George was a 19th century American political 00:23:09.140 --> 00:23:12.400 economist. His central idea was that people should 00:23:12.400 --> 00:23:15.269 be able to own the value they produce themselves, 00:23:15.529 --> 00:23:18.109 like the house they build or the business they 00:23:18.109 --> 00:23:20.210 run. Okay, that makes sense. But that the economic 00:23:20.210 --> 00:23:23.289 value that is derived purely from land, its location, 00:23:23.529 --> 00:23:26.109 the natural resources under it, the value created 00:23:26.109 --> 00:23:28.349 by the surrounding community, that that value 00:23:28.349 --> 00:23:30.430 should belong equally to all members of society. 00:23:30.769 --> 00:23:32.650 So if I'm understanding this right, the idea 00:23:32.650 --> 00:23:35.569 is to tax the land itself, but not the building 00:23:35.569 --> 00:23:37.690 that's on it. Exactly. That's the core of it. 00:23:37.809 --> 00:23:39.589 Think about our current system for a minute. 00:23:39.990 --> 00:23:43.460 If you buy a rundown vacant lot in a city, and 00:23:43.460 --> 00:23:45.539 you invest your money to build a beautiful, productive 00:23:45.539 --> 00:23:48.079 apartment complex on it, what happens to your 00:23:48.079 --> 00:23:50.240 assessment? It goes way up. My taxes go way up. 00:23:50.279 --> 00:23:52.559 Right. The system, as it's currently designed, 00:23:52.799 --> 00:23:55.220 effectively punishes you for improving the neighborhood. 00:23:56.000 --> 00:23:58.359 It incentivizes you to leave that lot vacant 00:23:58.359 --> 00:24:01.099 or dilapidated to keep your taxes low. This is 00:24:01.099 --> 00:24:03.940 what creates slumlords, or those weird empty 00:24:03.940 --> 00:24:07.059 lots you see in prime downtown areas. That makes 00:24:07.059 --> 00:24:09.559 perfect sense. I improve my property, I make 00:24:09.559 --> 00:24:11.359 the neighborhood better, and the assessor comes 00:24:11.359 --> 00:24:13.960 and punishes me with a higher bill. The Georgist 00:24:13.960 --> 00:24:16.700 argument is, let's flip that entirely. Let's 00:24:16.700 --> 00:24:19.140 assess the land at its highest and best potential 00:24:19.140 --> 00:24:21.500 value, regardless of what's currently on it. 00:24:21.880 --> 00:24:24.180 So if you own a prime corner lot in downtown 00:24:24.180 --> 00:24:27.339 Manhattan, you should pay a massive tax on the 00:24:27.339 --> 00:24:29.299 value of that land, whether you have a skyscraper 00:24:29.299 --> 00:24:32.059 there or a gravel parking lot. So it forces you 00:24:32.059 --> 00:24:33.980 to build something useful. It forces development. 00:24:34.380 --> 00:24:36.730 It forces the efficient use of land. It encourages 00:24:36.730 --> 00:24:39.690 development and discourages speculation. It's 00:24:39.690 --> 00:24:41.109 a completely different way of thinking about 00:24:41.109 --> 00:24:43.890 assessment, not just as a tool to collect cash, 00:24:44.170 --> 00:24:46.750 but as a tool to actively shape the physical 00:24:46.750 --> 00:24:49.529 form of a city. It's just amazing how much philosophy 00:24:49.529 --> 00:24:51.910 is hidden inside these boring sounding numbers. 00:24:52.150 --> 00:24:54.269 We think it's just math, but it's actually a 00:24:54.269 --> 00:24:57.390 series of decisions about what we as a society 00:24:57.390 --> 00:25:00.009 choose to value and what we choose to punish. 00:25:00.250 --> 00:25:03.509 It really is. It's moral philosophy disguised 00:25:03.509 --> 00:25:05.769 as arithmetic. But of course, wherever you have 00:25:05.769 --> 00:25:07.650 rules and numbers, you have people who are trying 00:25:07.650 --> 00:25:10.309 to break them or at least, you know, bend them 00:25:10.309 --> 00:25:13.170 until they snap. And this brings us to the section 00:25:13.170 --> 00:25:15.069 of the source material that read more like a 00:25:15.069 --> 00:25:18.230 spy novel than an economics paper. The dark side 00:25:18.230 --> 00:25:21.130 of assessment. Avoidance and evasion. The source 00:25:21.130 --> 00:25:24.009 draws a pretty sharp line between those two terms. 00:25:24.089 --> 00:25:26.609 What's the fundamental difference? It is a critical 00:25:26.609 --> 00:25:29.250 legal line, though it's also a very thin moral 00:25:29.250 --> 00:25:31.849 one for many people. Tax avoidance is legal. 00:25:32.319 --> 00:25:35.059 It is using the existing rules of the system, 00:25:35.160 --> 00:25:38.279 as written, to minimize your tax bill. Give me 00:25:38.279 --> 00:25:40.700 an example of that. Taking a deduction for your 00:25:40.700 --> 00:25:43.359 mortgage interest is tax avoidance. Putting money 00:25:43.359 --> 00:25:46.640 into a 401k to defer taxes is tax avoidance. 00:25:46.640 --> 00:25:49.359 It's legal tax planning. Okay. And tax evasion? 00:25:49.720 --> 00:25:53.420 Evasion is illegal. It is fraud. It is actively 00:25:53.420 --> 00:25:55.759 lying. It is hiding assets you're supposed to 00:25:55.759 --> 00:25:58.279 report, underreporting your income, or just flat 00:25:58.279 --> 00:26:00.440 out refusing to pay what the law says you owe. 00:26:00.680 --> 00:26:03.019 The source calls it a cat and mouse game. And 00:26:03.019 --> 00:26:05.160 the names of the avoidance strategies, I mean, 00:26:05.180 --> 00:26:06.839 they sound like cocktails at some kind of spy 00:26:06.839 --> 00:26:09.220 bar in Geneva. They really do. They have a certain 00:26:09.220 --> 00:26:12.380 flair. We have the double Irish, the Dutch sandwich, 00:26:12.660 --> 00:26:16.099 the single malt. And they are all these fascinatingly 00:26:16.099 --> 00:26:19.240 complex and often perfectly legal structures 00:26:19.240 --> 00:26:22.380 designed to do one thing. Explain the Dutch sandwich. 00:26:23.099 --> 00:26:24.920 I'm getting hungry just saying the name, but 00:26:24.920 --> 00:26:26.559 I have a strong feeling it's not about food. 00:26:26.720 --> 00:26:29.180 No, it's not. It's about moving money around 00:26:29.180 --> 00:26:31.819 the globe to avoid assessment. These strategies 00:26:31.819 --> 00:26:34.240 are all related to a concept that tax authorities 00:26:34.240 --> 00:26:39.980 call BEPS. That's B -E -P -S. It stands for Base 00:26:39.980 --> 00:26:43.240 Erosion and Profit Shifting. BPS. That sounds 00:26:43.240 --> 00:26:45.839 like a disease. For national treasuries, it is 00:26:45.839 --> 00:26:48.700 a disease. The basic idea is that large multinational 00:26:48.700 --> 00:26:51.640 companies operate in many, many countries. And 00:26:51.640 --> 00:26:54.480 they want their profits to be assessed for taxes 00:26:54.480 --> 00:26:56.339 in the country that has the lowest possible tax 00:26:56.339 --> 00:26:58.660 rate. Right. So if I'm a tech company and I make 00:26:58.660 --> 00:27:00.960 a billion dollars selling phones in France where 00:27:00.960 --> 00:27:02.799 the corporate taxes are high, I want to find 00:27:02.799 --> 00:27:04.960 a way to pretend I actually made that money in. 00:27:05.079 --> 00:27:07.710 A tax haven. or what's called an offshore financial 00:27:07.710 --> 00:27:10.289 center, a place like Bermuda or the Cayman Islands, 00:27:10.549 --> 00:27:12.549 where the corporate tax rate might be close to 00:27:12.549 --> 00:27:15.009 zero. But how do you actually move the money? 00:27:15.109 --> 00:27:16.970 I mean, if I sell the phone in Paris, the cash 00:27:16.970 --> 00:27:19.269 is in Paris. You can't just wire it to Bermuda 00:27:19.269 --> 00:27:21.349 and say it's not French profit anymore, can you? 00:27:21.569 --> 00:27:24.170 Not directly. That's where the Dutch sandwich 00:27:24.170 --> 00:27:26.910 and these other schemes come in. They often rely 00:27:26.910 --> 00:27:29.319 on something intangible. intellectual property, 00:27:29.619 --> 00:27:32.420 IP. So patents, logos, algorithms, that kind 00:27:32.420 --> 00:27:34.779 of thing. Things that have immense value, but 00:27:34.779 --> 00:27:37.740 no physical location. So the value isn't the 00:27:37.740 --> 00:27:40.000 physical phone you sold in Paris. The argument 00:27:40.000 --> 00:27:43.259 goes, the real value is the patent on the phone 00:27:43.259 --> 00:27:45.960 or the software running it. Ah, I think I see 00:27:45.960 --> 00:27:48.740 where this is going. So company A, the French 00:27:48.740 --> 00:27:52.140 subsidiary, pays a huge royalty fee to company 00:27:52.140 --> 00:27:54.900 B. which is a shell company located in, say, 00:27:55.000 --> 00:27:57.380 the Netherlands, for the right to use the company's 00:27:57.380 --> 00:27:59.759 logo and patents. And that royalty payment is 00:27:59.759 --> 00:28:01.960 a business expense in France, so it reduces their 00:28:01.960 --> 00:28:04.500 taxable profit there. Exactly. It moves the profit 00:28:04.500 --> 00:28:07.240 out of high -tax France and into the lower -tax 00:28:07.240 --> 00:28:09.779 Netherlands. Then, through a series of other 00:28:09.779 --> 00:28:12.519 shell companies involving maybe an Irish subsidiary, 00:28:12.539 --> 00:28:15.559 that's the sandwich, the money finally gets moved 00:28:15.559 --> 00:28:18.079 to a zero -tax haven like Bermuda. So at the 00:28:18.079 --> 00:28:20.380 end of the day, the billion dollars in profit 00:28:20.380 --> 00:28:22.880 is never assessed in France where it was earned, 00:28:23.119 --> 00:28:25.119 and it's barely assessed in the Netherlands. 00:28:25.440 --> 00:28:27.940 It lands in a place where the assessment is zero. 00:28:28.380 --> 00:28:31.119 Effectively, yes. They are gaming the system 00:28:31.119 --> 00:28:34.460 to choose where their value is assessed. It's 00:28:34.460 --> 00:28:36.480 the ultimate form of assessment shopping. That 00:28:36.480 --> 00:28:39.079 is incredibly clever and also incredibly frustrating 00:28:39.079 --> 00:28:40.819 for the countries like France that are losing 00:28:40.819 --> 00:28:43.619 out on all that revenue. It is the ultimate manipulation 00:28:43.619 --> 00:28:46.970 of the concept of assessment. And notice the 00:28:46.970 --> 00:28:50.069 fundamental difference here. You, as a homeowner, 00:28:50.210 --> 00:28:53.029 cannot move your house. Right. My house is stuck 00:28:53.029 --> 00:28:55.490 in the ground. It's physically here. The lister 00:28:55.490 --> 00:28:56.869 can come to your door and count your spoons. 00:28:57.029 --> 00:28:58.910 The assessor can come measure your front porch. 00:28:59.490 --> 00:29:02.630 You are, for tax purposes, a sitting duck. Your 00:29:02.630 --> 00:29:05.569 assets are immobile and easy to assess. But capital 00:29:05.569 --> 00:29:08.849 isn't. But capital, intellectual property, corporate 00:29:08.849 --> 00:29:11.710 profits, those things are fluid. They are electrons. 00:29:11.970 --> 00:29:13.930 They can fly around the world at the speed of 00:29:13.930 --> 00:29:15.849 light to find the jurisdiction with the lowest 00:29:15.849 --> 00:29:18.470 assessment and the lowest tax rate. That is such 00:29:18.470 --> 00:29:22.049 a powerful and infuriating image. The immobile 00:29:22.049 --> 00:29:24.829 house versus the hypermobile capital. It feels 00:29:24.829 --> 00:29:28.269 completely unfair. It highlights a massive structural 00:29:28.269 --> 00:29:31.750 disparity in the global tax system. The burden 00:29:31.750 --> 00:29:34.670 of assessment, and therefore taxation, falls 00:29:34.670 --> 00:29:36.910 most heavily on the things that cannot move. 00:29:37.440 --> 00:29:39.799 which are labor and real estate, while the things 00:29:39.799 --> 00:29:42.539 that can move often find ways to escape assessment 00:29:42.539 --> 00:29:45.329 entirely. And the source mentions the specific 00:29:45.329 --> 00:29:47.869 places that facilitate this whole system. Tax 00:29:47.869 --> 00:29:50.910 havens, corporate havens, Ireland, Panama, Switzerland 00:29:50.910 --> 00:29:53.009 are all named. Right. These are the jurisdictions 00:29:53.009 --> 00:29:55.950 that have built their economies in part on offering 00:29:55.950 --> 00:29:58.309 these low tax or no tax environments to attract 00:29:58.309 --> 00:30:00.730 that mobile capital. And the source also mentions 00:30:00.730 --> 00:30:02.710 the moments where this whole shadowy system was 00:30:02.710 --> 00:30:05.029 kind of cracked open. The Paradise Papers, the 00:30:05.029 --> 00:30:07.230 Panama Papers and the Luxembourg leaks. These 00:30:07.230 --> 00:30:09.890 were massive data leaks from law firms and banks. 00:30:09.970 --> 00:30:13.539 Right. Massive leaks of millions of documents, 00:30:13.700 --> 00:30:17.180 and they exposed in excruciating detail how the 00:30:17.180 --> 00:30:20.200 world's wealthiest individuals and largest corporations 00:30:20.200 --> 00:30:23.500 were using these incredibly complex assessment 00:30:23.500 --> 00:30:27.099 loopholes and offshore structures to hide what 00:30:27.099 --> 00:30:29.779 turned out to be trillions of dollars in wealth. 00:30:29.940 --> 00:30:32.740 Trillions. It showed that while your local assessor 00:30:32.740 --> 00:30:35.299 is meticulously measuring your back porch to 00:30:35.299 --> 00:30:38.539 see if it adds $500 to your property value. Billions 00:30:38.539 --> 00:30:40.220 and billions are slipping through the cracks 00:30:40.220 --> 00:30:42.940 at the global level because the value is being 00:30:42.940 --> 00:30:46.119 intentionally hidden inside anonymous shell companies. 00:30:46.339 --> 00:30:48.900 It really does put that lister in Vermont into 00:30:48.900 --> 00:30:51.599 a much broader and kind of sadder. perspective. 00:30:51.680 --> 00:30:53.579 It does. It just shows you the scale of the game. 00:30:53.619 --> 00:30:55.259 It's played at the local level and the global 00:30:55.259 --> 00:30:57.480 level, but with very different rules for different 00:30:57.480 --> 00:30:59.880 players. But this leads perfectly into the final 00:30:59.880 --> 00:31:01.839 section of our deep dive, because this isn't 00:31:01.839 --> 00:31:03.359 just something that's happening in the dark anymore. 00:31:03.480 --> 00:31:06.059 People are studying this. There are detectives 00:31:06.059 --> 00:31:08.220 on the case. The research and advocacy world. 00:31:08.319 --> 00:31:11.359 Yes. The source lists some real heavy hitters 00:31:11.359 --> 00:31:13.640 in academia who have dedicated their careers 00:31:13.640 --> 00:31:16.359 to this. People like Gabriel Zikman, Mihir Adi 00:31:16.359 --> 00:31:18.900 Desai, and Joel Slemrod. Let's talk about Gabriel 00:31:18.900 --> 00:31:20.640 Zucman for a second. I feel like I've seen his 00:31:20.640 --> 00:31:22.480 name popping up in headlines a lot recently. 00:31:22.720 --> 00:31:25.400 Gabriel Zucman has effectively become the world's 00:31:25.400 --> 00:31:28.460 leading detective of hidden wealth. His research 00:31:28.460 --> 00:31:31.420 is groundbreaking because he's trying to assess. 00:31:32.089 --> 00:31:34.869 all the money that isn't being assessed. He uses 00:31:34.869 --> 00:31:37.890 these very clever methods looking at anomalies 00:31:37.890 --> 00:31:40.890 in global financial data to estimate exactly 00:31:40.890 --> 00:31:43.789 how much wealth is being hidden in tax havens. 00:31:43.789 --> 00:31:45.869 So he's essentially trying to do the job of a 00:31:45.869 --> 00:31:47.750 global tax assessor where one doesn't actually 00:31:47.750 --> 00:31:50.950 exist. That is a fantastic way to put it. He 00:31:50.950 --> 00:31:53.869 is trying to create the grand list for the entire 00:31:53.869 --> 00:31:56.799 global economy, trying to find... all the missing 00:31:56.799 --> 00:31:59.619 spoons, so to speak. And then alongside the academics, 00:31:59.700 --> 00:32:01.359 you have the advocacy groups. And it's really 00:32:01.359 --> 00:32:03.700 interesting to see the different angles they 00:32:03.700 --> 00:32:06.059 take on the same problem. The sourceless groups 00:32:06.059 --> 00:32:09.279 like the Tax Justice Network or TJN and Oxfam. 00:32:09.500 --> 00:32:11.720 These groups often come at it from a fair share 00:32:11.720 --> 00:32:14.660 perspective. Their argument is that the current 00:32:14.660 --> 00:32:17.099 systems of assessment are fundamentally broken 00:32:17.099 --> 00:32:20.500 and unjust because they allow all that fluid 00:32:20.500 --> 00:32:23.259 capital to escape, which leaves a heavier burden 00:32:23.259 --> 00:32:25.140 on regular working people and small businesses. 00:32:25.879 --> 00:32:28.960 they advocate for closing the loopholes, like 00:32:28.960 --> 00:32:30.960 the Dutch sandwich. And on the other side of 00:32:30.960 --> 00:32:33.579 the spectrum? Well, it's not always a clear other 00:32:33.579 --> 00:32:36.380 side, but you have groups like the Tax Foundation. 00:32:37.180 --> 00:32:39.480 They tend to focus more on tax policy analysis 00:32:39.480 --> 00:32:42.640 from an economic efficiency standpoint. So they 00:32:42.640 --> 00:32:45.190 might look at that Dutch sandwich and say, Well, 00:32:45.289 --> 00:32:47.369 the reason companies go through all this trouble 00:32:47.369 --> 00:32:49.730 is because corporate tax rates are too high and 00:32:49.730 --> 00:32:52.549 too complex in the first place. If we simplify 00:32:52.549 --> 00:32:55.029 the tax code to lower the rates, we'd create 00:32:55.029 --> 00:32:57.029 a more competitive environment and they wouldn't 00:32:57.029 --> 00:32:59.750 need to hide the money. So different diagnoses 00:32:59.750 --> 00:33:01.630 and different prescriptions for the exact same 00:33:01.630 --> 00:33:04.109 problem. Exactly. One side says the rules are 00:33:04.109 --> 00:33:06.190 too weak. The other says the rules are too burdensome. 00:33:06.440 --> 00:33:09.079 And just to wrap up the sheer scope of this topic, 00:33:09.319 --> 00:33:13.000 the source has this massive, almost absurd list 00:33:13.000 --> 00:33:15.500 of countries at the end. It literally goes from 00:33:15.500 --> 00:33:18.420 Albania to Zimbabwe. It's a great reminder that 00:33:18.420 --> 00:33:20.579 while the specific jargon changes, you know, 00:33:20.579 --> 00:33:22.380 maybe you don't have a lister in Zimbabwe or 00:33:22.380 --> 00:33:25.119 a mill rate in Albania. The fundamental challenge 00:33:25.119 --> 00:33:28.059 is completely universal. Every single society 00:33:28.059 --> 00:33:31.690 needs resources. And every society needs a system 00:33:31.690 --> 00:33:34.289 to decide who contributes and how much. It really 00:33:34.289 --> 00:33:36.630 is a global human experience. We all live under 00:33:36.630 --> 00:33:38.650 the clipboard in one way or another. We absolutely 00:33:38.650 --> 00:33:40.930 do. So let's try and bring this deep dive in 00:33:40.930 --> 00:33:43.509 for a landing. We have covered a lot of ground 00:33:43.509 --> 00:33:45.910 here. We started with a local official, you know, 00:33:45.910 --> 00:33:48.250 measuring a basement in a suburb somewhere. And 00:33:48.250 --> 00:33:51.869 we ended with these complex global profit shifting 00:33:51.869 --> 00:33:54.829 schemes that involve patents and anonymous shell 00:33:54.829 --> 00:33:56.869 companies. It's a pretty big journey for a topic 00:33:56.869 --> 00:33:59.279 that just starts with a single. boring looking 00:33:59.279 --> 00:34:01.400 bill in the mail. It really is. So if we had 00:34:01.400 --> 00:34:03.839 to synthesize all of this, what is the single 00:34:03.839 --> 00:34:05.880 biggest takeaway? Why does understanding this 00:34:05.880 --> 00:34:08.800 word assessment actually matter to the average 00:34:08.800 --> 00:34:12.159 person? For me, the key takeaway is that assessment 00:34:12.159 --> 00:34:15.699 is the bridge. It is the crucial and often invisible 00:34:15.699 --> 00:34:18.860 bridge between the world of private wealth and 00:34:18.860 --> 00:34:21.139 the world of public function. The bridge. I like 00:34:21.139 --> 00:34:24.230 that. It's the mechanism that turns value. which 00:34:24.230 --> 00:34:27.409 is an abstract, floaty concept into revenue, 00:34:27.690 --> 00:34:31.070 which is concrete action. It's the process that 00:34:31.070 --> 00:34:34.289 turns the market value of your house into a schoolteacher's 00:34:34.289 --> 00:34:36.909 salary. It turns a corporate transaction into 00:34:36.909 --> 00:34:39.630 a newly paved road. It's the translation layer 00:34:39.630 --> 00:34:42.769 of society's operating system. Yes. That's a 00:34:42.769 --> 00:34:44.889 great way to put it. And it's a layer that we 00:34:44.889 --> 00:34:47.750 ignore at our own peril. Because if we don't 00:34:47.750 --> 00:34:50.230 understand how that value is calculated, we can 00:34:50.230 --> 00:34:52.369 never really understand how our society is funded. 00:34:52.760 --> 00:34:54.920 or who is truly paying for it. That leads perfectly 00:34:54.920 --> 00:34:57.039 into our final provocative thought. We always 00:34:57.039 --> 00:34:58.639 like to leave the listener with something to 00:34:58.639 --> 00:35:00.659 chew on, something that might make them look 00:35:00.659 --> 00:35:02.300 at that boring envelope a little bit differently 00:35:02.300 --> 00:35:04.340 next year. Here's what I want you to think about. 00:35:04.900 --> 00:35:07.099 We've established throughout this whole conversation 00:35:07.099 --> 00:35:11.559 that assessment is, at its very core, an opinion. 00:35:12.039 --> 00:35:14.239 It is an estimate. It doesn't matter if it's 00:35:14.239 --> 00:35:16.889 the Lister in Vermont looking at your barn. or 00:35:16.889 --> 00:35:19.630 a massive computer algorithm valuing a corporate 00:35:19.630 --> 00:35:22.809 merger or a government geologist estimating the 00:35:22.809 --> 00:35:25.530 value of a mineral deposit in the ground. It's 00:35:25.530 --> 00:35:27.670 all subjective at some level. It is inherently 00:35:27.670 --> 00:35:31.050 subjective. So my question is this. If assessment 00:35:31.050 --> 00:35:34.389 is really just an estimate of value, an opinion 00:35:34.389 --> 00:35:37.630 that we've all agreed to treat as fact. How much 00:35:37.630 --> 00:35:39.989 of our global economy is actually based on these 00:35:39.989 --> 00:35:42.750 subjective decisions made by people with clipboards? 00:35:43.170 --> 00:35:45.849 We treat these numbers as hard facts. My house 00:35:45.849 --> 00:35:49.230 is worth X. This company is worth Y. But they 00:35:49.230 --> 00:35:51.530 are just assessments. They are, in a sense, administrative 00:35:51.530 --> 00:35:53.690 fictions that we all agree to believe in to make 00:35:53.690 --> 00:35:56.429 the system work. And with that in mind, when 00:35:56.429 --> 00:35:57.849 was the last time you actually checked the math 00:35:57.849 --> 00:35:59.769 on your own bill? Because if you aren't checking 00:35:59.769 --> 00:36:01.909 the assessment, you are letting someone else's 00:36:01.909 --> 00:36:03.829 opinion dictate what your slice of the world 00:36:03.829 --> 00:36:05.570 is worth. And there's a pretty good chance they 00:36:05.570 --> 00:36:07.949 might be wrong. That is both a terrifying and 00:36:07.949 --> 00:36:10.949 a very empowering thought. Check the math, folks. 00:36:11.230 --> 00:36:13.670 Always. Always check the math. Thanks for diving 00:36:13.670 --> 00:36:15.010 in with us. We'll see you next time.