WEBVTT 00:00:00.000 --> 00:00:03.359 I want you to picture a specific document. It's 00:00:03.359 --> 00:00:06.740 probably sitting in a fireproof box or some deep 00:00:06.740 --> 00:00:08.919 drawer somewhere in your house. It's got a heavy 00:00:08.919 --> 00:00:11.779 seal, maybe some, you know, archaic font on it. 00:00:11.820 --> 00:00:14.019 And your signature is right there at the bottom. 00:00:14.339 --> 00:00:17.480 And it says in no uncertain terms that you are 00:00:17.480 --> 00:00:20.500 the owner of your home. Right. The deed. The 00:00:20.500 --> 00:00:23.260 deed. And for most of us. That piece of paper, 00:00:23.420 --> 00:00:26.239 that's the finish line. It is the tangible proof 00:00:26.239 --> 00:00:28.620 of the American dream or really the universal 00:00:28.620 --> 00:00:31.739 dream of just having security. It's the ultimate 00:00:31.739 --> 00:00:35.200 psychological anchor. We view that deed as absolute. 00:00:35.340 --> 00:00:38.320 It's the concept of fee simple ownership, which 00:00:38.320 --> 00:00:40.439 is, you know, the highest form of ownership known 00:00:40.439 --> 00:00:43.799 to law. Right. Fee simple. But today we are going 00:00:43.799 --> 00:00:46.200 to sort of pull back the curtain on that idea. 00:00:46.340 --> 00:00:48.380 We're going to talk about the invisible string 00:00:48.380 --> 00:00:50.600 that's attached to that deed. The one that never 00:00:50.600 --> 00:00:53.359 gets cut. Exactly. The one financial obligation 00:00:53.359 --> 00:00:56.600 that never, ever ends even after the mortgage 00:00:56.600 --> 00:00:59.340 is dead and buried. We are talking about the 00:00:59.340 --> 00:01:01.579 bill that comes in the mail once or twice a year. 00:01:01.700 --> 00:01:03.899 The one that, if you ignore it long enough, proves 00:01:03.899 --> 00:01:06.040 that you might not be the owner after all. Ah, 00:01:06.040 --> 00:01:08.859 yes. We are doing a deep dive into property tax. 00:01:09.219 --> 00:01:13.000 And it is arguably the oldest, and I would say 00:01:13.000 --> 00:01:15.340 certainly the most controversial, relationship 00:01:15.340 --> 00:01:18.739 between a citizen and a state. And you are so 00:01:18.739 --> 00:01:22.430 right to frame it. as a challenge to the very 00:01:22.430 --> 00:01:24.769 concept of ownership. It feels that way. Well, 00:01:24.810 --> 00:01:27.109 the central tension we are going to explore today 00:01:27.109 --> 00:01:31.450 is exactly that. Do you actually own your home 00:01:31.450 --> 00:01:34.230 if the government can take it away from you because 00:01:34.230 --> 00:01:36.310 you missed a payment to the local council? It's 00:01:36.310 --> 00:01:38.030 a terrifying thought when you really sit with 00:01:38.030 --> 00:01:40.349 it. I mean, you can have zero debt to any private 00:01:40.349 --> 00:01:42.609 lender, a bank, whatever, but you still have 00:01:42.609 --> 00:01:45.769 this perpetual lien held by the state. Precisely. 00:01:45.810 --> 00:01:48.719 But before we get too existential... And don't 00:01:48.719 --> 00:01:50.180 worry, we will definitely get to the renter of 00:01:50.180 --> 00:01:51.760 your own home argument later. Oh, we're going 00:01:51.760 --> 00:01:54.219 there. We have to. But first, we need to understand 00:01:54.219 --> 00:01:56.439 that this isn't just about the annoyance of writing 00:01:56.439 --> 00:01:59.500 a check. This is a deep dive into the engine 00:01:59.500 --> 00:02:01.719 room of civilization. That's a great way to put 00:02:01.719 --> 00:02:04.400 it. Property tax is the fuel for the things we 00:02:04.400 --> 00:02:07.019 completely take for granted. You know, schools, 00:02:07.260 --> 00:02:10.949 police, fire departments, roads. And as we were 00:02:10.949 --> 00:02:12.710 looking through the sources for this dive, what 00:02:12.710 --> 00:02:14.969 really struck me was just how wildly different 00:02:14.969 --> 00:02:17.949 nations are in deciding what a piece of land 00:02:17.949 --> 00:02:20.919 is actually worth. It's chaotic. It really is. 00:02:21.180 --> 00:02:23.819 So here's our mission for this session. We are 00:02:23.819 --> 00:02:25.560 not just skimming the surface. We're going to 00:02:25.560 --> 00:02:29.000 unpack the actual mechanism, the black box of 00:02:29.000 --> 00:02:31.300 assessment that determines your bill. The math 00:02:31.300 --> 00:02:33.460 behind the madness. Yes. And then we're going 00:02:33.460 --> 00:02:35.280 to hop in a time machine, go all the way back 00:02:35.280 --> 00:02:38.219 to 6000 BCE to see how the Sumerians handled 00:02:38.219 --> 00:02:40.680 this without spreadsheets. I'm excited for that 00:02:40.680 --> 00:02:43.680 part. Me too. Then we're going on a global tour 00:02:43.680 --> 00:02:46.460 to see who pays what, why a renter in London 00:02:46.460 --> 00:02:48.900 pays the tax while the owner skates, and why 00:02:48.900 --> 00:02:50.939 the lack of Property tax in China is actually 00:02:50.939 --> 00:02:54.240 causing this massive economic crisis. And finally, 00:02:54.340 --> 00:02:56.680 we will confront the dark side. We'll look at 00:02:56.680 --> 00:03:00.300 these equity theft cases, specifically a really 00:03:00.300 --> 00:03:02.659 harrowing story out of Michigan that went all 00:03:02.659 --> 00:03:05.280 the way to the Supreme Court asking if the government 00:03:05.280 --> 00:03:07.520 is stealing from its citizens under the guise 00:03:07.520 --> 00:03:10.759 of taxation. It's an incredible story. So let's 00:03:10.759 --> 00:03:15.199 unpack this. Section one, the mechanics. What 00:03:15.199 --> 00:03:17.849 exactly is this beast? Because when I look at 00:03:17.849 --> 00:03:20.330 my tax bill, it feels like a distinct species 00:03:20.330 --> 00:03:23.610 of financial pain compared to, say, income tax 00:03:23.610 --> 00:03:26.389 or sales tax. It is distinct. And you're right 00:03:26.389 --> 00:03:29.849 to feel that way. At its core, property tax is 00:03:29.849 --> 00:03:32.710 what economists call an ad valorem tax. Ad valorem. 00:03:32.830 --> 00:03:34.830 OK, let's translate that. It just means according 00:03:34.830 --> 00:03:37.250 to value. But that's the rub, isn't it? Value 00:03:37.250 --> 00:03:39.789 is subjective. My income tax is math. I made 00:03:39.789 --> 00:03:42.650 X dollars. I owe Y percent. The math is, you 00:03:42.650 --> 00:03:44.729 know, it's absolute. Right. It's based on a transaction 00:03:44.729 --> 00:03:47.930 that actually happened. Yes. But property tax 00:03:47.930 --> 00:03:51.169 is an opinion. The assessor thinks my house is 00:03:51.169 --> 00:03:53.789 worth X. That is the fundamental friction point. 00:03:53.870 --> 00:03:55.689 That's where all the appeals come from, all the 00:03:55.689 --> 00:03:59.870 anger. It is a tax on an unrealized gain. You 00:03:59.870 --> 00:04:01.610 haven't sold the house. You haven't realized 00:04:01.610 --> 00:04:03.310 that money. I haven't seen a penny of it. But 00:04:03.310 --> 00:04:06.270 the state is taxing you on the asset's theoretical 00:04:06.270 --> 00:04:09.389 market price. And the scope of this is usually 00:04:09.389 --> 00:04:11.889 something called real property. Let's define 00:04:11.889 --> 00:04:14.020 that clearly because... Real property sounds 00:04:14.020 --> 00:04:16.040 redundant. Like what? There's fake property? 00:04:16.199 --> 00:04:19.319 Well, in the legal sense, real property or real 00:04:19.319 --> 00:04:21.699 estate is the combination of the land itself, 00:04:22.000 --> 00:04:24.720 the dirt, plus what they call the improvements. 00:04:24.759 --> 00:04:27.399 The building. The building, the garage, the driveway, 00:04:27.560 --> 00:04:30.660 the swimming pool, basically the immovable man 00:04:30.660 --> 00:04:33.019 -made objects. And this is where it gets super 00:04:33.019 --> 00:04:35.620 tricky for businesses, right? I was reading about 00:04:35.620 --> 00:04:38.779 the distinction between real property and personal 00:04:38.779 --> 00:04:42.100 property. If I'm a homeowner, it's simple. The 00:04:42.100 --> 00:04:44.939 sofa is personal property. The living room floor 00:04:44.939 --> 00:04:49.639 is real property, but for a factory. Oh, it is 00:04:49.639 --> 00:04:51.560 a litigator's dream. I mean, it's a nightmare 00:04:51.560 --> 00:04:53.740 for the business owner and the assessor, but 00:04:53.740 --> 00:04:56.560 a dream for the lawyers. Ha, I bet. Imagine a 00:04:56.560 --> 00:04:59.420 massive automotive factory. You have a robotic 00:04:59.420 --> 00:05:02.459 assembly line bolted to the floor. Is that robot 00:05:02.459 --> 00:05:05.240 real property? part of the building and therefore 00:05:05.240 --> 00:05:07.740 taxable at the higher rate? Or is it equipment? 00:05:07.879 --> 00:05:09.600 Or is it personal property equipment, which is 00:05:09.600 --> 00:05:12.100 often exempt or taxed at a much, much lower rate? 00:05:12.560 --> 00:05:14.779 Billions and I mean billions of dollars in tax 00:05:14.779 --> 00:05:17.279 revenue hang on that definition. So if I bolt 00:05:17.279 --> 00:05:20.259 it down, the assessor says tax it. If I put it 00:05:20.259 --> 00:05:23.100 on wheels, the company says exempt it. That's 00:05:23.100 --> 00:05:26.180 essentially the game, yes. And this is why you 00:05:26.180 --> 00:05:28.259 see these endless court cases over things like 00:05:28.259 --> 00:05:31.439 heavy machinery, telecommunications towers, even 00:05:31.439 --> 00:05:34.319 billboards. Is a billboard an improvement to 00:05:34.319 --> 00:05:36.660 the land? Or just personal property on the land. 00:05:36.839 --> 00:05:39.240 Wow. I never even thought about that. But for 00:05:39.240 --> 00:05:40.879 the average listener, you're right. The focus 00:05:40.879 --> 00:05:43.459 is the land and the building. Okay. Now, we need 00:05:43.459 --> 00:05:45.500 to be really clear about what this isn't because 00:05:45.500 --> 00:05:47.980 that helps define it too. This isn't a tax on 00:05:47.980 --> 00:05:51.699 rent. Correct. A rent tax or an income tax would 00:05:51.699 --> 00:05:54.699 be based on the income flow. An ad valorem property 00:05:54.699 --> 00:05:57.519 tax ignores whether you are making a single dollar 00:05:57.519 --> 00:06:00.759 from the property. So you could have a giant, 00:06:00.779 --> 00:06:04.720 beautiful skyscraper that is 100 % empty, generating 00:06:04.720 --> 00:06:07.860 $0 in rent. And you would still owe the property 00:06:07.860 --> 00:06:10.180 tax based on that building's theoretical market 00:06:10.180 --> 00:06:13.680 value. It's a tax on holding the asset, not on 00:06:13.680 --> 00:06:16.279 using it to generate income. Okay. And this is 00:06:16.279 --> 00:06:18.120 also distinct from something called a land value 00:06:18.120 --> 00:06:21.180 tax, or LVT. The Georgia Stream. The Georgia 00:06:21.180 --> 00:06:23.170 Stream, yes. Yeah. Tell us about that. Right. 00:06:23.550 --> 00:06:25.990 LVT is a favorite concept of many economists. 00:06:26.410 --> 00:06:30.110 The idea is that you only tax the dirt, the land 00:06:30.110 --> 00:06:32.889 itself, and you completely ignore the value of 00:06:32.889 --> 00:06:35.089 the building on top of it. Why would you do that? 00:06:35.189 --> 00:06:38.149 What's the point? The theory is that this encourages 00:06:38.149 --> 00:06:41.509 development. It incentivizes you to use the land 00:06:41.509 --> 00:06:45.089 for its highest and best use. If you own a vacant 00:06:45.089 --> 00:06:47.250 lot in the middle of downtown, you're paying 00:06:47.250 --> 00:06:49.689 the same tax as the guy next door with the 50 00:06:49.689 --> 00:06:52.350 -story office building. So you're being penalized 00:06:52.350 --> 00:06:54.910 for not building something. Exactly. You aren't 00:06:54.910 --> 00:06:57.069 penalized for building a nicer apartment complex 00:06:57.069 --> 00:06:59.750 or improving your property. The tax is purely 00:06:59.750 --> 00:07:02.750 on the locational value of the land itself. But 00:07:02.750 --> 00:07:05.670 for the most part, current systems tax both the 00:07:05.670 --> 00:07:07.870 dirt and the bricks. Okay, so let's get into 00:07:07.870 --> 00:07:10.629 the math that confuses everyone. Millage, or 00:07:10.629 --> 00:07:12.910 mills. It sounds like something from a Dickens 00:07:12.910 --> 00:07:14.870 novel, but it's the standard unit of measurement 00:07:14.870 --> 00:07:17.629 for property tax in the U .S. It does sound archaic, 00:07:17.629 --> 00:07:21.000 doesn't it? A mil comes from the Latin word millesimum, 00:07:21.019 --> 00:07:24.240 which just means thousandth. So one mil is one 00:07:24.240 --> 00:07:27.139 thousandth of a currency unit. Or put more simply, 00:07:27.259 --> 00:07:30.560 it's one dollar of tax for every thousand dollars 00:07:30.560 --> 00:07:33.480 of assessed value. OK, so a simpler way to think 00:07:33.480 --> 00:07:35.879 about it is like a percentage, but moved one 00:07:35.879 --> 00:07:38.160 decimal place over. That's a good way to look 00:07:38.160 --> 00:07:40.459 at it. So one percent is the same as 10 mils. 00:07:40.480 --> 00:07:42.920 So if my mil rate is 20, that's a two percent 00:07:42.920 --> 00:07:46.040 tax rate. Exactly. You got it. But here is the 00:07:46.040 --> 00:07:48.079 dynamic that people miss, and this is where all 00:07:48.079 --> 00:07:50.939 the politics comes in. Your tax bill is a function 00:07:50.939 --> 00:07:53.120 of two separate variables. You have the assessed 00:07:53.120 --> 00:07:55.879 value, which is what the house is worth. And 00:07:55.879 --> 00:07:57.579 you have the millage rate, which is what the 00:07:57.579 --> 00:08:00.379 government needs. And crucially, these are set 00:08:00.379 --> 00:08:02.839 by two different groups of people. Correct. The 00:08:02.839 --> 00:08:05.120 assessor, who is often an independent or elected 00:08:05.120 --> 00:08:07.480 official, determines the value. They're supposed 00:08:07.480 --> 00:08:09.920 to be objective. Then you have the city council 00:08:09.920 --> 00:08:12.699 or the school board or the county commissioners, 00:08:12.699 --> 00:08:14.899 the politicians, and they determine the budget. 00:08:15.000 --> 00:08:17.459 And that budget sets the millage. Let's play 00:08:17.459 --> 00:08:19.120 this out with an example because this is where 00:08:19.120 --> 00:08:21.339 the revenue neutrality trap happens. This is 00:08:21.339 --> 00:08:24.480 the shell game. It absolutely is. So let's say 00:08:24.480 --> 00:08:26.360 I live in a town where every single house is 00:08:26.360 --> 00:08:29.420 worth exactly $100 ,000. And the town needs, 00:08:29.639 --> 00:08:32.840 say, $1 million to run the schools for the year. 00:08:33.289 --> 00:08:37.190 Okay. So if there are 1 ,000 houses at $100 ,000 00:08:37.190 --> 00:08:40.929 each, the total tax base is $100 million. Right. 00:08:41.029 --> 00:08:43.669 To get $1 million in revenue from that $100 million 00:08:43.669 --> 00:08:48.529 base, the rate needs to be 1%, or as we now know, 00:08:48.710 --> 00:08:52.559 10 mils. Your bill is $1 ,000. Simple. Simple 00:08:52.559 --> 00:08:54.860 enough. But now the housing market goes crazy. 00:08:54.899 --> 00:08:57.000 A big company moves to town. Everyone wants to 00:08:57.000 --> 00:08:58.980 live here. All the houses double in value. Now 00:08:58.980 --> 00:09:02.039 my house is worth $200 ,000. Right. Now, in a 00:09:02.039 --> 00:09:04.639 pure, honest world, the town still only needs 00:09:04.639 --> 00:09:07.440 $1 million to run the schools. The teachers' 00:09:07.519 --> 00:09:09.519 salaries didn't double overnight. So because 00:09:09.519 --> 00:09:11.440 the values doubled, the millage rate should be 00:09:11.440 --> 00:09:13.779 cut in half. It should drop from 10 mils to 5 00:09:13.779 --> 00:09:16.100 mils. It should drop to 5 mils. And your tax 00:09:16.100 --> 00:09:18.480 bill should remain exactly the same, $4 ,000. 00:09:19.000 --> 00:09:20.980 This is what's called a revenue -neutral adjustment. 00:09:21.159 --> 00:09:23.600 But that rarely happens. I have never seen that 00:09:23.600 --> 00:09:25.980 happen. Rarely. What usually happens is the council 00:09:25.980 --> 00:09:28.299 keeps the rate at 10 mils, or maybe they're feeling 00:09:28.299 --> 00:09:30.659 generous so they drop it slightly to 9 mils to 00:09:30.659 --> 00:09:32.840 look like heroes. So they can send out a mailer 00:09:32.840 --> 00:09:35.299 saying, we cut your tax rate. Exactly. We cut 00:09:35.299 --> 00:09:37.899 the millage. But because your assessment doubled, 00:09:38.120 --> 00:09:40.759 your tax bill... effectively skyrockets. They 00:09:40.759 --> 00:09:44.080 get a massive windfall of revenue without ever 00:09:44.080 --> 00:09:46.419 technically voting for a tax hike. They just 00:09:46.419 --> 00:09:49.019 rode the wave of assessment increases. That is 00:09:49.019 --> 00:09:51.299 the silent tax increase. The politicians can 00:09:51.299 --> 00:09:53.960 stand up and say, we didn't raise rates while 00:09:53.960 --> 00:09:55.759 the assessor is the one who has to hand out all 00:09:55.759 --> 00:09:58.820 the bad news. It creates a very convenient scapegoat 00:09:58.820 --> 00:10:01.879 dynamic between the treasurer's office and the 00:10:01.879 --> 00:10:03.840 assessor's office. It's brilliant politically. 00:10:04.139 --> 00:10:07.159 It's devious. Now, not all dirt is created equal. 00:10:07.299 --> 00:10:10.769 We have to talk about class. My house isn't taxed 00:10:10.769 --> 00:10:12.429 at the same rate as the shopping mall down the 00:10:12.429 --> 00:10:14.809 street or the vacant lot next door. No. And this 00:10:14.809 --> 00:10:16.909 is where tax policy becomes social engineering. 00:10:17.889 --> 00:10:20.230 Governments group properties into different classes, 00:10:20.509 --> 00:10:23.429 residential, commercial, industrial, agricultural 00:10:23.429 --> 00:10:26.509 and so on. And they apply different rates or 00:10:26.509 --> 00:10:29.389 assessment ratios to each. So like a factory 00:10:29.389 --> 00:10:31.990 might pay a higher rate than a family home. Often, 00:10:32.070 --> 00:10:35.210 yes. The idea is that commercial and industrial 00:10:35.210 --> 00:10:37.990 properties put a greater strain on public services. 00:10:38.169 --> 00:10:41.149 More traffic, more water usage, more need for 00:10:41.149 --> 00:10:43.809 fire services. But the most interesting lever 00:10:43.809 --> 00:10:46.269 they can pull is how they treat vacant land and 00:10:46.269 --> 00:10:48.950 vacant properties. You mentioned Israel in the 00:10:48.950 --> 00:10:51.769 notes. This is a fascinating example of using 00:10:51.769 --> 00:10:54.809 tax as a weapon against hoarding. Right. So Israel 00:10:54.809 --> 00:10:58.570 has a chronic long -term housing shortage. especially 00:10:58.570 --> 00:11:00.690 in its major cities. So the government looks 00:11:00.690 --> 00:11:02.669 at its toolkit, looks at the tax code and says, 00:11:02.789 --> 00:11:05.370 how do we force people to actually rent out their 00:11:05.370 --> 00:11:07.669 empty apartments? Get that supply onto the market. 00:11:07.750 --> 00:11:09.870 Get it onto the market. Their solution was simple. 00:11:10.509 --> 00:11:13.049 Classification. If you have an apartment and 00:11:13.049 --> 00:11:15.230 it is occupied, you pay the standard residential 00:11:15.230 --> 00:11:18.429 rate. If you leave that apartment vacant, the 00:11:18.429 --> 00:11:20.789 rate doubles. So they're actively fining you 00:11:20.789 --> 00:11:24.029 for inactivity, for not participating. Effectively, 00:11:24.029 --> 00:11:26.899 yes. They are making it financially painful to 00:11:26.899 --> 00:11:28.679 sit on empty housing supply in the middle of 00:11:28.679 --> 00:11:31.100 a housing crisis. France did something very similar 00:11:31.100 --> 00:11:33.700 back in 1999. What did they do? They introduced 00:11:33.700 --> 00:11:36.679 a specific tax on vacant properties, but only 00:11:36.679 --> 00:11:39.379 in cities that had tight housing markets. They 00:11:39.379 --> 00:11:41.860 targeted it, and they defined vacancy as being 00:11:41.860 --> 00:11:44.620 empty for more than two years. Did it work? The 00:11:44.620 --> 00:11:47.419 studies show it did. Vacancy rates in those targeted 00:11:47.419 --> 00:11:50.600 cities dropped by about 13%. It proves that property 00:11:50.600 --> 00:11:53.019 tax isn't just about revenue, it's a policy lever. 00:11:53.470 --> 00:11:56.169 You can use it to incentivize construction or 00:11:56.169 --> 00:11:59.090 you can use it to penalize speculation. But there's 00:11:59.090 --> 00:12:01.009 a counter argument there, isn't there? I mean, 00:12:01.029 --> 00:12:03.389 if I own the property and I'm paying my taxes, 00:12:03.610 --> 00:12:05.909 why is it the government's business if I use 00:12:05.909 --> 00:12:08.429 it or not? It's a very strong counter argument. 00:12:08.629 --> 00:12:10.950 Maybe I'm saving it for my kids to use in a few 00:12:10.950 --> 00:12:13.769 years. Maybe I'm renovating it slowly as I can 00:12:13.769 --> 00:12:15.870 afford to. Why should I be punished? That is 00:12:15.870 --> 00:12:18.450 the core libertarian critique. Why should the 00:12:18.450 --> 00:12:21.070 state dictate the utility of your private asset? 00:12:22.059 --> 00:12:23.960 But the counter argument, the one the government 00:12:23.960 --> 00:12:26.759 would make, is that land is a finite resource, 00:12:27.019 --> 00:12:30.379 especially in a city. By hoarding a piece of 00:12:30.379 --> 00:12:33.120 that finite resource, you are imposing a cost 00:12:33.120 --> 00:12:35.679 on society. You're driving up rents for everyone 00:12:35.679 --> 00:12:38.440 else. So the tax is there to compensate for that 00:12:38.440 --> 00:12:41.279 negative externality. It's the use it or lose 00:12:41.279 --> 00:12:43.539 it philosophy applied to real estate. OK, so 00:12:43.539 --> 00:12:46.259 that's the mechanics. Value times millage equals 00:12:46.259 --> 00:12:49.610 your bill. But this system didn't just appear 00:12:49.610 --> 00:12:52.470 in a vacuum. It is, as you said, ancient. It's 00:12:52.470 --> 00:12:54.929 the bedrock of organized society. You simply 00:12:54.929 --> 00:12:56.809 cannot have a state, you can't have a civilization, 00:12:57.029 --> 00:13:00.129 without a way to fund it. And for most of human 00:13:00.129 --> 00:13:02.830 history, land was the only wealth you could see, 00:13:03.029 --> 00:13:06.929 measure, and, well, tax. So let's jump into the 00:13:06.929 --> 00:13:10.049 time machine, section two. We are going all the 00:13:10.049 --> 00:13:14.100 way back to 6 ,000 BCE. Ancient Sumer. We're 00:13:14.100 --> 00:13:16.539 in the city -state of Lagash, which is in modern 00:13:16.539 --> 00:13:18.899 -day Iraq. And archaeologists found these clay 00:13:18.899 --> 00:13:21.399 tablets, literally tax records baked into the 00:13:21.399 --> 00:13:23.559 mud. But what's so fascinating isn't just that 00:13:23.559 --> 00:13:25.179 they taxed, it's how they managed the logistics 00:13:25.179 --> 00:13:27.080 of it. Right, they didn't have computers, they 00:13:27.080 --> 00:13:28.580 didn't have a central database they could just 00:13:28.580 --> 00:13:31.580 query. They had something much cleverer. A system 00:13:31.580 --> 00:13:34.539 called bala. It means rotation. The administrators 00:13:34.539 --> 00:13:37.179 realized that trying to tax the entire city at 00:13:37.179 --> 00:13:39.179 once was an impossible logistical nightmare. 00:13:39.440 --> 00:13:41.799 You'd need an army of tax collectors. You would. 00:13:42.110 --> 00:13:44.269 So they rotated the burden. They would tax one 00:13:44.269 --> 00:13:46.970 specific district or area of the city each month. 00:13:47.129 --> 00:13:49.470 That is incredibly sophisticated. I mean, it 00:13:49.470 --> 00:13:51.649 smooths out the revenue flow for the government 00:13:51.649 --> 00:13:53.649 and it smooths out the administrative workload. 00:13:53.929 --> 00:13:56.950 It is the earliest example we have of bureaucratic 00:13:56.950 --> 00:14:00.389 efficiency. It's brilliant. Now, if we move forward 00:14:00.389 --> 00:14:02.570 a bit to ancient Egypt, the system becomes even 00:14:02.570 --> 00:14:05.350 more rigid and frankly more respected. Yeah. 00:14:05.409 --> 00:14:07.629 We have to talk about the scribes. The guys with 00:14:07.629 --> 00:14:11.149 the papyrus scrolls. In Egypt, literacy was power. 00:14:11.939 --> 00:14:14.779 Maybe 1 % of the entire population could read 00:14:14.779 --> 00:14:18.080 and write. The scribes were the tax assessors. 00:14:18.279 --> 00:14:20.620 And they weren't just low -level clerks. They 00:14:20.620 --> 00:14:23.500 were the absolute elite of society. So the taxman 00:14:23.500 --> 00:14:25.440 was at the top of the social ladder. Absolutely. 00:14:25.820 --> 00:14:28.000 They would go out to the fields and assess the 00:14:28.000 --> 00:14:30.379 grain, the cattle, the oil, the beer. Everything 00:14:30.379 --> 00:14:32.600 that was produced was taxed. And the enforcement 00:14:32.600 --> 00:14:35.580 was brutal, from what I understand. Extremely. 00:14:35.600 --> 00:14:38.320 This wasn't a voluntary contribution. If you 00:14:38.320 --> 00:14:39.799 couldn't pay your tax, you were brought before 00:14:39.799 --> 00:14:42.559 the court. There are records and even paintings 00:14:42.559 --> 00:14:45.639 on tomb walls of farmers being beaten for tax 00:14:45.639 --> 00:14:48.559 evasion. This was the extraction mechanism that 00:14:48.559 --> 00:14:51.279 built the pyramids. So no appeals board. No appeals 00:14:51.279 --> 00:14:53.440 board. Your appeal was hoping they'd stop hitting 00:14:53.440 --> 00:14:55.779 you. Let's fast forward a few thousand years 00:14:55.779 --> 00:14:58.559 to the medieval period. We usually think of kings 00:14:58.559 --> 00:15:01.799 just seizing whatever wealth they wanted arbitrarily. 00:15:02.100 --> 00:15:04.929 But the sources mention... William the Conqueror 00:15:04.929 --> 00:15:07.649 in the 1070s, this feels like a turning point 00:15:07.649 --> 00:15:10.549 for data. It is the birth of the surveillance 00:15:10.549 --> 00:15:13.429 state. It really is. When William conquers England 00:15:13.429 --> 00:15:16.590 in 1066, he needs to know exactly what he just 00:15:16.590 --> 00:15:19.129 bought. What did I just win? An inventory. Complete 00:15:19.129 --> 00:15:21.610 inventory. So he commissions the Doomsday Book. 00:15:21.809 --> 00:15:24.409 Which sounds incredibly apocalyptic. The name 00:15:24.409 --> 00:15:26.360 was a metaphor. The judgment of the book was 00:15:26.360 --> 00:15:28.879 said to be as final as the last judgment on Judgment 00:15:28.879 --> 00:15:31.820 Day, but really it was a database. He sent commissioners 00:15:31.820 --> 00:15:33.980 into every single shire in England to record 00:15:33.980 --> 00:15:36.440 who owns this land, how many plows are there, 00:15:36.519 --> 00:15:38.759 how many cows, how many fish ponds. So before 00:15:38.759 --> 00:15:42.039 you can tax, you have to know. Information is 00:15:42.039 --> 00:15:44.779 the absolute prerequisite for taxation. Exactly. 00:15:44.779 --> 00:15:47.980 You can't tax what you can't see. William effectively 00:15:47.980 --> 00:15:50.860 digitized England on parchment so that he could 00:15:50.860 --> 00:15:54.539 extract wealth efficiently. The pushback to this 00:15:54.539 --> 00:15:57.080 centralized power is really what gives us modern 00:15:57.080 --> 00:16:00.019 democracy. King John, 1215, the Magna Carta. 00:16:00.200 --> 00:16:02.919 Yes. We think of the Magna Carta as this grand 00:16:02.919 --> 00:16:06.059 human rights document, but at its heart, it was 00:16:06.059 --> 00:16:08.460 largely a tax revolt. Really? The barons were 00:16:08.460 --> 00:16:10.919 sick and tired of the king levying scutage, which 00:16:10.919 --> 00:16:13.480 was a tax in lieu of military service, whenever 00:16:13.480 --> 00:16:15.500 he felt like it, to fund his wars in France. 00:16:16.080 --> 00:16:18.200 They forced him to sign a document saying he 00:16:18.200 --> 00:16:20.240 could not raise these kinds of taxes without 00:16:20.240 --> 00:16:22.340 the common counsel of the realm. No taxation 00:16:22.340 --> 00:16:24.720 without representation starts right there. It's 00:16:24.720 --> 00:16:26.679 not just an American idea. It starts right there 00:16:26.679 --> 00:16:29.120 in a field at Runnymede. It sets the precedent 00:16:29.120 --> 00:16:31.480 that the power to tax requires the consent of 00:16:31.480 --> 00:16:34.840 the taxed. And that idea evolves. So by 1689, 00:16:34.940 --> 00:16:37.440 after the Glorious Revolution, the king's powers 00:16:37.440 --> 00:16:40.580 weakened even further. No taxing without Parliament's 00:16:40.580 --> 00:16:42.940 permission. Period. Which brings us perfectly 00:16:42.940 --> 00:16:46.220 to the American experiment. So, the pilgrims 00:16:46.220 --> 00:16:49.509 land at Plymouth in 1620. They are freezing. 00:16:49.710 --> 00:16:52.129 They are starving. Half of them are dying. And 00:16:52.129 --> 00:16:54.730 almost immediately, they start writing tax laws. 00:16:54.990 --> 00:16:57.309 It was about survival. At first, they tried a 00:16:57.309 --> 00:16:59.330 communal system where everything was shared. 00:16:59.490 --> 00:17:02.110 It failed miserably. Nobody wanted to work. The 00:17:02.110 --> 00:17:04.650 classic tragedy of the commons. Totally. So then 00:17:04.650 --> 00:17:07.170 they allocated private plots of land. But they 00:17:07.170 --> 00:17:09.410 realized they needed a fort for protection, and 00:17:09.410 --> 00:17:12.190 they needed a militia. So the Plymouth Colony 00:17:12.190 --> 00:17:15.109 implemented a property tax on land and also on 00:17:15.109 --> 00:17:17.150 faculties, which was basically your ability to 00:17:17.150 --> 00:17:19.950 earn an income. And the Puritans in Boston, a 00:17:19.950 --> 00:17:21.789 few years later, they took it a step further. 00:17:21.950 --> 00:17:24.569 They used property tax to fund the church. Which 00:17:24.569 --> 00:17:26.990 is so ironic today, since churches are almost 00:17:26.990 --> 00:17:30.009 universally tax exempt. For the Puritans, the 00:17:30.009 --> 00:17:32.009 church was the state. There was no separation. 00:17:32.390 --> 00:17:34.650 They also used property tax to fund the first 00:17:34.650 --> 00:17:37.700 public education in America. But there's a detail 00:17:37.700 --> 00:17:39.779 in the Boston records that I just love. They 00:17:39.779 --> 00:17:42.420 use the tax system as a form of welfare state. 00:17:42.539 --> 00:17:44.640 The exemptions for widows, right. I saw that. 00:17:44.859 --> 00:17:48.259 Yes. If a widow with children couldn't pay her 00:17:48.259 --> 00:17:51.460 property tax, the assessors, who are often also 00:17:51.460 --> 00:17:54.339 the sheriffs, would not only forgive the tax, 00:17:54.460 --> 00:17:56.660 but they would provide her a stipend from the 00:17:56.660 --> 00:17:58.980 collected pot to live on. Wow. But it went both 00:17:58.980 --> 00:18:01.539 ways. If you were a vandal, if you broke a street 00:18:01.539 --> 00:18:04.059 lamp or damaged a public bridge, your property 00:18:04.059 --> 00:18:06.039 tax bill would go up to cover the cost of the 00:18:06.039 --> 00:18:08.200 repair. That is hyper -local accountability. 00:18:08.519 --> 00:18:10.660 You break it, you buy it through your tax bill. 00:18:10.799 --> 00:18:13.380 Exactly. But the defining moment for the U .S. 00:18:13.380 --> 00:18:15.700 system, the real reason my school is funded by 00:18:15.700 --> 00:18:18.299 my property tax and yours by yours, comes down 00:18:18.299 --> 00:18:20.779 to the massive philosophical feud between Hamilton 00:18:20.779 --> 00:18:23.019 and Jefferson. This is the clash of the titans. 00:18:23.180 --> 00:18:25.400 It really is. On one side, you have Alexander 00:18:25.400 --> 00:18:28.160 Hamilton, the Federalist. He wanted a strong, 00:18:28.240 --> 00:18:30.730 powerful central government. And he believed 00:18:30.730 --> 00:18:32.529 the federal government needed to have the power 00:18:32.529 --> 00:18:35.529 to levy direct property taxes to fund a national 00:18:35.529 --> 00:18:38.190 army and a national debt. And Jefferson, the 00:18:38.190 --> 00:18:41.789 agrarian Democrat Republican, hated this idea. 00:18:42.029 --> 00:18:44.609 He saw it as a return to the tyranny of King 00:18:44.609 --> 00:18:47.630 George. Jefferson wanted revenue to be raised 00:18:47.630 --> 00:18:50.690 locally and spent locally. He believed that keeping 00:18:50.690 --> 00:18:52.710 the money close to the people was the only way 00:18:52.710 --> 00:18:55.130 to preserve democracy and prevent a powerful, 00:18:55.250 --> 00:18:57.170 distant government from emerging. And looking 00:18:57.170 --> 00:19:00.059 at the U .S. today. Jefferson won that fight. 00:19:00.619 --> 00:19:03.420 Decisively. Hamilton actually tried to implement 00:19:03.420 --> 00:19:06.799 a federal property tax in 1798. It was a complete 00:19:06.799 --> 00:19:09.319 political disaster. It triggered something called 00:19:09.319 --> 00:19:12.240 the Fries' Rebellion in Pennsylvania, where farmers 00:19:12.240 --> 00:19:14.640 were literally attacking tax assessors. It didn't 00:19:14.640 --> 00:19:16.819 go over well. It was a catastrophe for him politically. 00:19:17.140 --> 00:19:19.900 And since then, the federal government has largely 00:19:19.900 --> 00:19:23.259 stayed out of the property tax game. Today, something 00:19:23.259 --> 00:19:26.819 like 97 % of all property tax revenue is collected 00:19:26.819 --> 00:19:29.480 by and stays with local governments. Only about 00:19:29.480 --> 00:19:32.400 3 % goes to the state level. But that victory, 00:19:32.559 --> 00:19:35.380 that Jeffersonian victory, has a really dark 00:19:35.380 --> 00:19:37.420 double edge, doesn't it? Because if schools are 00:19:37.420 --> 00:19:39.680 funded locally by local property wealth, then 00:19:39.680 --> 00:19:42.000 rich towns have rich schools and poor towns have 00:19:42.000 --> 00:19:44.039 poor schools. And the inequality is baked in 00:19:44.039 --> 00:19:47.119 from the start. Exactly. The Jeffersonian victory 00:19:47.119 --> 00:19:50.700 is the direct root cause of the massive educational 00:19:50.700 --> 00:19:53.319 and municipal service inequality we see in the 00:19:53.319 --> 00:19:56.279 United States. By tethering school funding to 00:19:56.279 --> 00:19:58.319 local property wealth, you essentially ensure 00:19:58.319 --> 00:20:01.420 that a child's geography is their destiny. It's 00:20:01.420 --> 00:20:03.720 a tough pill to swallow. So we see how the U 00:20:03.720 --> 00:20:05.759 .S. ended up here. But the rest of the world 00:20:05.759 --> 00:20:08.359 handles this in wildly different ways. Let's 00:20:08.359 --> 00:20:11.420 start section three, the global tour. And we 00:20:11.420 --> 00:20:13.059 have to start with the United Kingdom. Because 00:20:13.059 --> 00:20:15.420 their system is a total mind -bender for most 00:20:15.420 --> 00:20:18.559 Americans. The council tax. Okay, so in the U 00:20:18.559 --> 00:20:21.799 .S., the rule is simple. The owner pays. If I 00:20:21.799 --> 00:20:24.880 rent a house to you, I, the landlord, get the 00:20:24.880 --> 00:20:27.240 tax bill, and I probably just roll that cost 00:20:27.240 --> 00:20:29.539 into your rent. But in the U .K.? In the U .K., 00:20:29.539 --> 00:20:32.000 the occupant pays. The resident. If you were 00:20:32.000 --> 00:20:34.339 a renter in a flat in London, you get the council 00:20:34.339 --> 00:20:36.480 tax bill. It comes in your name. You pay it directly 00:20:36.480 --> 00:20:38.259 to the local authority. The landlord doesn't 00:20:38.259 --> 00:20:40.460 see it. That fundamentally changes the psychological 00:20:40.460 --> 00:20:43.240 relationship. The renter is now directly funding 00:20:43.240 --> 00:20:46.619 the local services they use. It does. It directly 00:20:46.619 --> 00:20:48.819 aligns the burden with the user of the services. 00:20:49.039 --> 00:20:51.500 You know, trash collection, police, streetlights. 00:20:51.720 --> 00:20:53.980 But it completely separates it from the owner 00:20:53.980 --> 00:20:57.200 of the asset. And if a property is empty... The 00:20:57.200 --> 00:21:00.180 owner then becomes liable for it. Oh, okay. And 00:21:00.180 --> 00:21:02.380 it's highly controversial, not least because 00:21:02.380 --> 00:21:04.940 the bands, the value brackets they use to calculate 00:21:04.940 --> 00:21:07.640 the tax, haven't been updated in England since 00:21:07.640 --> 00:21:11.960 1991. Wait, wait. Nineteen. Ninety -one. You're 00:21:11.960 --> 00:21:13.920 telling me people are paying tax based on what 00:21:13.920 --> 00:21:15.880 their house was worth when Nirvana released Jews? 00:21:16.000 --> 00:21:18.140 Never mind. Yes, that's exactly what I'm telling 00:21:18.140 --> 00:21:20.420 you. Imagine the distortions that creates. A 00:21:20.420 --> 00:21:22.460 neighborhood that was cheap in 1991 might be 00:21:22.460 --> 00:21:24.960 incredibly expensive now, but the residents are 00:21:24.960 --> 00:21:27.519 still paying a tiny amount of tax. And vice versa. 00:21:27.660 --> 00:21:29.980 That's insane. And it gets worse. If you think 00:21:29.980 --> 00:21:32.039 that's bad, let's look at Germany. They recently 00:21:32.039 --> 00:21:34.619 had a full -blown constitutional crisis over 00:21:34.619 --> 00:21:38.400 this exact issue. A crisis? Yes. Until 2018, 00:21:38.839 --> 00:21:41.519 West Germany was using property values from 1964. 00:21:42.299 --> 00:21:44.900 And East Germany was using values from 1935. 00:21:45.460 --> 00:21:51.509 19. 35. You're telling me that in 2017, someone 00:21:51.509 --> 00:21:54.349 in Berlin was paying property tax based on a 00:21:54.349 --> 00:21:57.190 pre -World War II, pre -Berlin wall valuation. 00:21:57.670 --> 00:21:59.609 That is correct. And think about how much neighborhoods 00:21:59.609 --> 00:22:01.990 have changed. especially in a city like Berlin. 00:22:02.349 --> 00:22:05.369 A wealthy district in 1935 might be a working 00:22:05.369 --> 00:22:08.170 class area now, or a rundown area from the Cold 00:22:08.170 --> 00:22:10.730 War might be the trendiest, most expensive place 00:22:10.730 --> 00:22:13.829 to live. The inequity was absolutely staggering. 00:22:14.089 --> 00:22:16.069 So what happened? Well, the German Constitutional 00:22:16.069 --> 00:22:18.109 Court finally stepped in and said, this is ridiculous. 00:22:18.529 --> 00:22:20.769 They ruled that it violated the principle of 00:22:20.769 --> 00:22:23.630 equality enshrined in their constitution. You 00:22:23.630 --> 00:22:26.150 can't treat people so differently based on completely 00:22:26.150 --> 00:22:28.630 arbitrary ancient data. So they have to reassess 00:22:28.630 --> 00:22:30.970 everything, the entire country. It is a massive, 00:22:31.069 --> 00:22:33.589 gargantuan, bureaucratic undertaking. They are 00:22:33.589 --> 00:22:35.970 trying to revalue millions and millions of properties 00:22:35.970 --> 00:22:40.210 to implement a new, fairer system by 2025. It's 00:22:40.210 --> 00:22:43.109 creating chaos and confusion, but it's a necessary 00:22:43.109 --> 00:22:45.609 step to restore any kind of fairness to the system. 00:22:45.769 --> 00:22:47.309 Now let's talk about the elephant in the room 00:22:47.309 --> 00:22:50.089 when it comes to global economics, China. We 00:22:50.089 --> 00:22:51.769 often hear this line that China doesn't have 00:22:51.769 --> 00:22:54.450 property tax. That is, for the most part, technically 00:22:54.450 --> 00:22:57.799 true for residential homeowners. Because remember, 00:22:58.039 --> 00:23:00.480 in China, the state officially owns all the land. 00:23:01.559 --> 00:23:04.960 Individuals get 70 -year leases on it. Historically, 00:23:04.960 --> 00:23:07.400 there has been no annual holding tax on homes. 00:23:07.579 --> 00:23:09.799 Which sounds great if you're a homeowner. No 00:23:09.799 --> 00:23:12.160 annual bill from the government. It sounds great 00:23:12.160 --> 00:23:15.559 until you ask the next logical question. So how 00:23:15.559 --> 00:23:18.299 does the local government pay for the subway 00:23:18.299 --> 00:23:20.819 and the parks and the schools? Right. How do 00:23:20.819 --> 00:23:23.420 they? They've been using a system that the media 00:23:23.420 --> 00:23:27.339 calls land finance. The local governments make 00:23:27.339 --> 00:23:29.900 almost all their money by selling new 70 -year 00:23:29.900 --> 00:23:32.500 leases to real estate developers. They sell the 00:23:32.500 --> 00:23:34.880 dirt to pay for the city. But that's a Ponzi 00:23:34.880 --> 00:23:37.240 scheme. That's not sustainable. You need to keep 00:23:37.240 --> 00:23:39.279 selling more and more land at higher and higher 00:23:39.279 --> 00:23:41.559 prices to pay the bills. What happens when you 00:23:41.559 --> 00:23:43.819 run out of land or the developers stop buying? 00:23:44.000 --> 00:23:46.200 That is exactly what is happening in China right 00:23:46.200 --> 00:23:49.079 now. The real estate market has cooled dramatically. 00:23:49.740 --> 00:23:52.299 Major developers like Evergrande have gone bankrupt. 00:23:52.559 --> 00:23:54.960 Land sales have plummeted. So local governments 00:23:54.960 --> 00:23:57.440 are broke. They are suddenly insolvent. They 00:23:57.440 --> 00:23:59.980 have billions and billions in debt from building 00:23:59.980 --> 00:24:02.460 all that infrastructure. And their primary revenue 00:24:02.460 --> 00:24:05.359 stream has just dried up because they don't have 00:24:05.359 --> 00:24:08.579 a recurring stable property tax to fall back 00:24:08.579 --> 00:24:11.160 on. So the lack of a property tax is actually 00:24:11.160 --> 00:24:13.519 a massive destabilizing force for the entire 00:24:13.519 --> 00:24:16.660 Chinese economy. It creates a dangerous boom 00:24:16.660 --> 00:24:19.000 -bust cycle. They have been talking about introducing 00:24:19.000 --> 00:24:22.640 a real property tax for over a decade. But they're 00:24:22.640 --> 00:24:25.559 terrified that if they do, it will cause housing 00:24:25.559 --> 00:24:28.119 market values to completely collapse. They're 00:24:28.119 --> 00:24:30.839 trapped. Wow. Let's pivot to our neighbor to 00:24:30.839 --> 00:24:34.259 the north, Canada, Vancouver specifically. We 00:24:34.259 --> 00:24:36.240 talked about classification as a policy tool, 00:24:36.359 --> 00:24:39.099 but they took it to a, well, some would say xenophobic, 00:24:39.119 --> 00:24:41.539 others would say protectionist level. It's the 00:24:41.539 --> 00:24:44.180 foreign buyer tax. Vancouver in the 2010s became 00:24:44.180 --> 00:24:46.240 what people call the safe deposit box for global 00:24:46.240 --> 00:24:48.599 capital. I remember hearing that. Wealthy investors 00:24:48.599 --> 00:24:50.980 from abroad were buying up condos, often with 00:24:50.980 --> 00:24:53.099 cash, and just leaving them empty. They weren't 00:24:53.099 --> 00:24:54.740 living there. They were just parking their money 00:24:54.740 --> 00:24:57.059 in a stable asset. And it was driving prices 00:24:57.059 --> 00:25:00.359 up so high that locals, nurses, teachers, firefighters 00:25:00.359 --> 00:25:03.059 couldn't afford to live in the city they served. 00:25:03.319 --> 00:25:05.140 So the government of British Columbia stepped 00:25:05.140 --> 00:25:09.059 in and slapped a tax on them. A big one. A 20 00:25:09.059 --> 00:25:12.240 % tax on the purchase price if you are a non 00:25:12.240 --> 00:25:15.119 -resident foreign buyer. And they added an empty 00:25:15.119 --> 00:25:18.000 homes tax on top of that. And the fines for trying 00:25:18.000 --> 00:25:21.359 to dodge it are massive, over $100 ,000. What 00:25:21.359 --> 00:25:23.640 was the message there? It was a very blunt instrument 00:25:23.640 --> 00:25:26.420 designed to send a clear message. Housing in 00:25:26.420 --> 00:25:28.839 our city is for people to live in, not for parking 00:25:28.839 --> 00:25:31.599 cash. And did it work? The consensus is that 00:25:31.599 --> 00:25:33.599 it cooled the very high end of the market, yes. 00:25:33.980 --> 00:25:36.039 But it raises that fundamental tension again. 00:25:36.460 --> 00:25:39.579 Is a house a home? Or is it an asset class like 00:25:39.579 --> 00:25:42.000 stocks or gold? And what right does the government 00:25:42.000 --> 00:25:44.519 have to decide? A question with no easy answer. 00:25:44.700 --> 00:25:46.500 Now, for the listener who's hearing all this 00:25:46.500 --> 00:25:48.980 and just wants to opt out entirely, where are 00:25:48.980 --> 00:25:51.599 the no tax zones? Where can I move? If you are 00:25:51.599 --> 00:25:54.619 willing to relocate, you do have options. In 00:25:54.619 --> 00:25:57.240 the Middle East, Kuwait has no property tax thanks 00:25:57.240 --> 00:26:00.660 to its oil wealth. In Africa, Mauritania. Mauritania. 00:26:01.000 --> 00:26:03.460 Lovely this time of year, I hear. Or, if you 00:26:03.460 --> 00:26:06.420 prefer Europe, there's Malta. The Faroe Islands, 00:26:06.579 --> 00:26:08.559 which are part of Denmark but self -governing. 00:26:08.940 --> 00:26:11.480 In the Pacific, you have the Cook Islands or 00:26:11.480 --> 00:26:14.920 Palo and... Strictly speaking, American Samoa 00:26:14.920 --> 00:26:18.119 has no tax on privately held land. So you basically 00:26:18.119 --> 00:26:19.819 have to go to the edges of the map to escape 00:26:19.819 --> 00:26:23.299 the taxman. Usually, yes. These places tend to 00:26:23.299 --> 00:26:25.819 fund themselves through other means like natural 00:26:25.819 --> 00:26:29.019 resource wealth, very heavy import tariffs, or 00:26:29.019 --> 00:26:31.319 direct subsidies from a larger nation. There's 00:26:31.319 --> 00:26:33.559 no free lunch. There never is. Okay, section 00:26:33.559 --> 00:26:36.089 four. Valuation and calculation. We've talked 00:26:36.089 --> 00:26:38.230 a lot about market value. But looking at the 00:26:38.230 --> 00:26:40.750 global landscape, there are other ways to skin 00:26:40.750 --> 00:26:43.109 this cat. The biggest alternative, and one that 00:26:43.109 --> 00:26:45.589 many economists prefer, is rental value. Places 00:26:45.589 --> 00:26:47.490 like Hong Kong, Singapore, and parts of India, 00:26:47.650 --> 00:26:49.710 they don't ask, what could you sell this house 00:26:49.710 --> 00:26:51.710 for? They ask a different question. They ask, 00:26:51.849 --> 00:26:54.190 how much rent could this property generate in 00:26:54.190 --> 00:26:57.910 a year? That feels, I don't know, fairer somehow. 00:26:58.349 --> 00:27:01.890 More connected to reality. It connects the tax 00:27:01.890 --> 00:27:05.069 to the actual... income potential of the asset. 00:27:05.269 --> 00:27:08.150 In Hong Kong, property tax is effectively an 00:27:08.150 --> 00:27:11.430 income tax on rental yields. It forces the tax 00:27:11.430 --> 00:27:14.190 to reflect the economic utility of the building, 00:27:14.329 --> 00:27:16.690 not just a speculative bubble price that might 00:27:16.690 --> 00:27:19.269 be temporary. But then you have the other European 00:27:19.269 --> 00:27:21.910 model, the cadastral value. I know Spain does 00:27:21.910 --> 00:27:24.829 this. The valor cadastral, yes. This is an administrative 00:27:24.829 --> 00:27:27.549 value assigned by the government, and it is almost 00:27:27.549 --> 00:27:30.049 always much, much lower than the actual market 00:27:30.049 --> 00:27:33.579 price. So you might buy a villa for, say, $500 00:27:33.579 --> 00:27:36.880 ,000. But the official valor cadastral for tax 00:27:36.880 --> 00:27:39.539 purposes might only be $100 ,000. So your annual 00:27:39.539 --> 00:27:42.299 tax is low, which sounds great. It is. But the 00:27:42.299 --> 00:27:44.740 trap snaps shut when you go to sell it because 00:27:44.740 --> 00:27:46.900 the government knows the cadastral value is fake. 00:27:47.140 --> 00:27:49.180 So when you sell that villa for the real market 00:27:49.180 --> 00:27:51.500 price, they hit you with the plus -valia tax, 00:27:51.700 --> 00:27:53.779 a separate tax on the increase in the value of 00:27:53.779 --> 00:27:55.539 the land since you bought it. They get you coming 00:27:55.539 --> 00:27:57.359 or going. One way or another, they get their 00:27:57.359 --> 00:27:59.730 share. Let's talk about exemptions. Who gets 00:27:59.730 --> 00:28:02.049 to ride for free in all these systems? It's a 00:28:02.049 --> 00:28:04.329 pretty consistent list across the globe, and 00:28:04.329 --> 00:28:06.269 it's basically a laundry list of what a society 00:28:06.269 --> 00:28:09.349 values. Government buildings are almost always 00:28:09.349 --> 00:28:12.970 exempt. Taxing? City Hall is just moving money 00:28:12.970 --> 00:28:15.430 from left pocket to the right. Right. Pointless 00:28:15.430 --> 00:28:17.630 accounting. Exactly. Religious institutions. 00:28:17.869 --> 00:28:20.869 Almost universally exempt. Mosques, churches, 00:28:21.250 --> 00:28:25.670 temples, synagogues. public burial grounds, educational 00:28:25.670 --> 00:28:29.170 institutions, scientific institutions. That one 00:28:29.170 --> 00:28:30.990 can cause a lot of tension in college towns, 00:28:31.109 --> 00:28:33.289 right? If you have a massive university like 00:28:33.289 --> 00:28:36.369 Harvard or Yale that owns 60 % of the land in 00:28:36.369 --> 00:28:38.910 a small town. It is a huge problem. The university 00:28:38.910 --> 00:28:41.690 uses the roads, the police, the fire department, 00:28:41.890 --> 00:28:44.589 but it pays zero property tax on its academic 00:28:44.589 --> 00:28:47.400 buildings. The local residents who might be struggling 00:28:47.400 --> 00:28:49.779 to pay their own bills have to subsidize the 00:28:49.779 --> 00:28:52.079 university's massive footprint. So what do the 00:28:52.079 --> 00:28:54.859 towns do? It leads to these huge political battles, 00:28:54.960 --> 00:28:57.319 where towns try to force universities to make 00:28:57.319 --> 00:28:59.859 pilots, which stands for payments in lieu of 00:28:59.859 --> 00:29:02.180 taxes. Please, just give us something. Exactly. 00:29:02.279 --> 00:29:05.140 They are voluntary contributions, but they are 00:29:05.140 --> 00:29:06.980 negotiated under a lot of political pressure. 00:29:07.779 --> 00:29:10.359 Help us pay for the services you use, or things 00:29:10.359 --> 00:29:12.480 might get difficult for your next expansion plan. 00:29:12.759 --> 00:29:15.470 Um, gentle shakedown. Some would call it that, 00:29:15.549 --> 00:29:18.509 yes. Germany also has an interesting exemption 00:29:18.509 --> 00:29:20.809 for non -profits pursuing charitable purposes. 00:29:21.190 --> 00:29:24.069 And Slovakia has one for properties covered by 00:29:24.069 --> 00:29:27.210 diplomatic privileges, but only if there's reciprocity. 00:29:27.490 --> 00:29:30.269 We won't tax your embassy if you don't tax ours. 00:29:30.509 --> 00:29:33.029 Makes sense. Now we have to go to the dark side. 00:29:33.369 --> 00:29:36.930 Section 5. We started this whole deep dive asking... 00:29:37.210 --> 00:29:39.150 Do you really own your home? And for most of 00:29:39.150 --> 00:29:41.269 us, that's a philosophical question. But for 00:29:41.269 --> 00:29:43.430 some people, it becomes a legal nightmare. This 00:29:43.430 --> 00:29:45.069 is where the renter of your own home argument 00:29:45.069 --> 00:29:47.910 stops being theoretical. We need to look at it 00:29:47.910 --> 00:29:50.049 through the lens of tax foreclosure. We need 00:29:50.049 --> 00:29:51.569 to talk about what happens when you don't pay. 00:29:51.730 --> 00:29:54.109 The outline highlights a specific case in Southfield, 00:29:54.150 --> 00:29:57.589 Michigan, the Raffaele case. This story, when 00:29:57.589 --> 00:30:00.289 I read about it, it made my blood boil. It should. 00:30:00.390 --> 00:30:03.190 It's an unbelievable story. So a man named Uriah 00:30:03.190 --> 00:30:05.670 Raffaelli, he was an elderly engineer. He bought 00:30:05.670 --> 00:30:07.569 a small rental property in Southfield for about 00:30:07.569 --> 00:30:11.410 $60 ,000. He paid his property taxes, but one 00:30:11.410 --> 00:30:13.710 year he made a mistake. He miscalculated the 00:30:13.710 --> 00:30:15.950 interest on a late payment. Okay, so a simple 00:30:15.950 --> 00:30:17.990 mistake. How much was the mistake? The initial 00:30:17.990 --> 00:30:23.809 error was $8 .41. $8, not $800, $8. $8. He missed 00:30:23.809 --> 00:30:26.339 it. He didn't know he'd underpaid. The county 00:30:26.339 --> 00:30:28.900 started adding penalties, interest, fees. The 00:30:28.900 --> 00:30:32.440 debt grew to about $285. Eventually, the total 00:30:32.440 --> 00:30:36.160 delinquent amount hit around $900. Still, $900, 00:30:36.180 --> 00:30:37.839 that's a car repair. I can put that on a credit 00:30:37.839 --> 00:30:40.460 card. For most people, yes. But because of that 00:30:40.460 --> 00:30:43.640 $900 debt, Oakland County in Michigan foreclosed 00:30:43.640 --> 00:30:46.599 on his property. They seized the house. And then 00:30:46.599 --> 00:30:50.160 they sold it at auction for $24 ,500. Okay, that's 00:30:50.160 --> 00:30:54.059 bad. He lost a $60 ,000 investment over a $900 00:30:54.059 --> 00:30:57.720 debt. But here is the crucial question. The house 00:30:57.720 --> 00:31:00.440 was worth way more than the $900 she owed. Did 00:31:00.440 --> 00:31:03.279 they give him the difference back? No. And this 00:31:03.279 --> 00:31:05.259 is the critical distinction that listeners need 00:31:05.259 --> 00:31:08.180 to understand. If the bank forecloses on your 00:31:08.180 --> 00:31:10.400 mortgage, they sell the house, they take what 00:31:10.400 --> 00:31:12.220 they are owed, the remaining mortgage balance, 00:31:12.500 --> 00:31:15.420 and they are legally required to give you the 00:31:15.420 --> 00:31:18.640 change. That surplus is your equity. Right. It's 00:31:18.640 --> 00:31:21.299 your money. It's your money. But in Michigan 00:31:21.299 --> 00:31:23.380 at the time, and in about a dozen other states, 00:31:23.559 --> 00:31:26.339 with tax foreclosure, the government takes the 00:31:26.339 --> 00:31:29.430 house, sells it, and keeps the change. They keep 00:31:29.430 --> 00:31:32.569 the entire surplus. So Raffaelli lost his $60 00:31:32.569 --> 00:31:35.769 ,000 property and the county not only got its 00:31:35.769 --> 00:31:40.289 $900, but it pocketed an extra $23 ,600 in profit. 00:31:40.490 --> 00:31:42.470 That's right. That is state -sanctioned theft. 00:31:42.549 --> 00:31:44.730 You are stealing the equity, the life savings 00:31:44.730 --> 00:31:47.410 of a citizen. That was exactly the argument that 00:31:47.410 --> 00:31:49.069 was made. It's a practice called home equity 00:31:49.069 --> 00:31:51.809 theft. The Pacific Legal Foundation, a nonprofit 00:31:51.809 --> 00:31:54.170 law firm, took this case all the way to the Michigan 00:31:54.170 --> 00:31:56.829 Supreme Court. And they argued it violated the 00:31:56.829 --> 00:31:59.089 takings clause of the Constitution. The government 00:31:59.089 --> 00:32:01.970 cannot take private property for public use without 00:32:01.970 --> 00:32:04.130 just compensation. And the just compensation 00:32:04.130 --> 00:32:06.630 here would be paying him back his surplus equity. 00:32:06.990 --> 00:32:10.369 Exactly. They argued that the taking wasn't the 00:32:10.369 --> 00:32:12.789 house. It was the debt. And the compensation 00:32:12.789 --> 00:32:15.130 should be everything above and beyond that debt. 00:32:15.289 --> 00:32:18.470 Did they win? They did. In a unanimous decision 00:32:18.470 --> 00:32:21.750 in 2020, the Michigan Supreme Court ruled that 00:32:21.750 --> 00:32:24.289 the county cannot keep the surplus equity from 00:32:24.289 --> 00:32:27.190 a tax foreclosure sale. It was a massive victory 00:32:27.190 --> 00:32:29.950 for property rights. But this practice still 00:32:29.950 --> 00:32:32.789 exists in other states. It is the ultimate proof 00:32:32.789 --> 00:32:35.309 that your ownership is conditional. It's absolutely 00:32:35.309 --> 00:32:37.789 terrifying. And it links directly to the broader 00:32:37.789 --> 00:32:40.190 issue of gentrification, what some people call 00:32:40.190 --> 00:32:42.329 the paradox of prosperity. Right. It's a very 00:32:42.329 --> 00:32:45.390 similar mechanism, just slower. You buy a house 00:32:45.390 --> 00:32:48.119 in a cheap, maybe rundown. Neighborhood, you 00:32:48.119 --> 00:32:50.339 fix it up. Your neighbor sticks theirs up. The 00:32:50.339 --> 00:32:52.240 neighborhood gets trendy. Coffee shops open. 00:32:52.359 --> 00:32:55.019 Boutiques. The value of your house triples. Which 00:32:55.019 --> 00:32:57.240 should be good news. I'm rich. I'm a real estate 00:32:57.240 --> 00:32:59.839 genius. On paper, you are rich. In reality, you 00:32:59.839 --> 00:33:01.940 are cash poor. Your assessment triples. Your 00:33:01.940 --> 00:33:04.039 tax bill triples. And if you're a retiree on 00:33:04.039 --> 00:33:06.200 a fixed pension or working class family whose 00:33:06.200 --> 00:33:08.420 wages haven't tripled, you literally cannot afford 00:33:08.420 --> 00:33:11.099 the tax on the home you own free and clear. You 00:33:11.099 --> 00:33:13.599 are priced out of your own living room. You're 00:33:13.599 --> 00:33:15.779 being forced out by your own success. Yeah. The 00:33:15.779 --> 00:33:18.039 tax system forces you to sell your home and move. 00:33:18.240 --> 00:33:21.039 It displaces the very people who built the community 00:33:21.039 --> 00:33:23.500 and gave it its character. It's a cruel irony. 00:33:23.819 --> 00:33:26.839 It is. And some jurisdictions try to fight this. 00:33:26.940 --> 00:33:29.640 We mentioned Spain offers tax relief for residents 00:33:29.640 --> 00:33:33.000 over 65. California famously has Proposition 00:33:33.000 --> 00:33:37.660 13 from the 1970s, which severely caps how much 00:33:37.660 --> 00:33:40.200 your assessment can rise each year, regardless 00:33:40.200 --> 00:33:42.680 of what the market does. But Prop 13 has its 00:33:42.680 --> 00:33:45.619 own huge controversial side effects. Well, massive 00:33:45.619 --> 00:33:48.319 ones. It basically starves local governments 00:33:48.319 --> 00:33:51.599 of revenue, and it discourages people from ever 00:33:51.599 --> 00:33:53.559 moving. Because if you sell your house and buy 00:33:53.559 --> 00:33:56.650 a new one, your tax base resets to the new, much 00:33:56.650 --> 00:33:58.349 higher market value. It creates all these weird 00:33:58.349 --> 00:34:00.250 distortions. It seems like there is no perfect 00:34:00.250 --> 00:34:03.430 system. No. Every single solution seems to create 00:34:03.430 --> 00:34:05.930 a new, different kind of problem or distortion. 00:34:06.230 --> 00:34:08.070 So where does this all leave us? What does this 00:34:08.070 --> 00:34:10.920 all mean? We've gone from soil tablets in ancient 00:34:10.920 --> 00:34:13.559 Iraq to the Supreme Court of Michigan. We've 00:34:13.559 --> 00:34:16.039 seen taxes used to fund Puritan churches and 00:34:16.039 --> 00:34:18.639 to punish empty condos in Vancouver. We have 00:34:18.639 --> 00:34:21.559 seen that property tax is so much more than just 00:34:21.559 --> 00:34:24.639 a bill. It is the legal and financial definition 00:34:24.639 --> 00:34:27.000 of the relationship between the citizen and the 00:34:27.000 --> 00:34:30.280 state. It is in many ways the price of admission 00:34:30.280 --> 00:34:32.840 to civilization. But I want to leave the listener 00:34:32.840 --> 00:34:34.760 with that provocative thought we promised at 00:34:34.760 --> 00:34:36.659 the very beginning, the one that gets to the 00:34:36.659 --> 00:34:39.519 heart of it. Go for it. We cling to this idea 00:34:39.519 --> 00:34:42.000 of ownership. We work our whole lives to pay 00:34:42.000 --> 00:34:43.920 off a mortgage so we can hold that deed and say, 00:34:44.000 --> 00:34:46.679 this is my land, this is mine. But if you have 00:34:46.679 --> 00:34:49.320 to pay the government a fee, a tribute, every 00:34:49.320 --> 00:34:51.639 single year for the privilege of staying there, 00:34:51.760 --> 00:34:54.480 and if they can take it all away, all of it, 00:34:54.500 --> 00:34:57.300 if you miss that fee. Are we all just tenants 00:34:57.300 --> 00:35:00.079 of the state, renters with a lifetime lease? 00:35:00.380 --> 00:35:03.300 Is the property tax a rent we pay to society 00:35:03.300 --> 00:35:05.500 for the roads and the schools and the police? 00:35:06.159 --> 00:35:09.239 Or is it proof that true, absolute ownership 00:35:09.239 --> 00:35:12.079 is a myth? That at the end of the day, the government 00:35:12.079 --> 00:35:14.900 is the final landlord? It's a question that might 00:35:14.900 --> 00:35:17.420 keep you up at night. But at least now, when 00:35:17.420 --> 00:35:19.699 that bill arrives in the mail, you'll know exactly 00:35:19.699 --> 00:35:22.179 the history, the math, and the deep, complicated 00:35:22.179 --> 00:35:24.599 politics behind that number. Thanks for taking 00:35:24.599 --> 00:35:26.539 the deep dive with us. Until next time.