Happy 4th of July: Taxes, Revolution, and Housing

I always try to write something for the July 4th holiday, whether it is on Facebook or here or somewhere else. The holiday for me has always aroused mixed feelings. There’s the crowds and the heat, but also the food and, sometimes, connecting with people in backyards or some public place or somewhere with an exceptional view to watch fireworks. It’s also all about America’s Birthday, the anniversary of the signing of the Declaration of Independence. And the revolution was, ostensibly, about “taxation with out representation,” a notion that can be challenged but is still bedrock in our national consciousness (this is actually a fundamental misunderstanding of the American Revolution and you can read more about that in a different post).

While people have called me a libertarian as an insult, I’m not. I don’t see taxation as necessarily theft, although it can be in some circumstances. I have a pretty simple view of taxation. Taxes are important and useful for three reasons.

First, taxes are a way of gathering money to pay for things that the market would struggle to produce. For example, think about a park. Land can be worth a lot in a growing city, and taxes can be raised to purchase land and set it aside for free open space. While someone could do this as a money making venture, they probably wouldn’t. Housing or commercial space would be far more lucrative, so taxes are a good way to pay for this kind of community benefit that otherwise might happen.

Second, taxes also influence behavior by raising or lowering prices. As a Hayekian liberal, I see prices as the most important signal in the market place. When prices go up or down, various behaviors ensue. Taxes or subsidies (a negative tax) either encourage or discourage behavior. Increasing taxes on things like gasoline, cigarettes, or water would likely result in people trying to use less of those things, either through conservation, finding substitutes or giving up using them all together. Making those things cheaper would have the reverse effect.

Lastly, taxes move money around the economy by redistributing wealth. I acknowledge this not as a normative or prescriptive motivation; it’s just a fact. When taxes or subsidies are used, money moves out of some people’s pockets into others. Whether that transfer is fair, equitable, or otherwise depends on many factors, but it is what taxation always does. Policy makers must always recognize that there is no perfectly fair tax and must always be considering who is benefiting, who’s losing, and why and adjust accordingly.

Seattle is faced with the greatest crisis it has faced since it was first founded out at the edge of the wild frontier. We are a place in the world with tremendous growth and opportunity, growth that means more jobs, and more people. Those new people need housing, and our production is not keeping up, so prices are rising. Pressure is building to tax housing production in the name of lowering its price. This is folly.

But this move is rooted in a reading of economics and politics that would claim that building more housing, encouraging more economic growth, and welcoming new people into our community is coming at the expense of something called “social justice.” The notion is that poor people, people of color and especially black people, are being oppressed by this growth.

However, this view benefits existing property owners who, having already invested in property, now benefit from the scarcity of housing; they have a scare thing that is in high demand. Meanwhile the people that are supposedly being oppressed are certain to suffer more with higher prices.

The solution of adding costs through taxation of new housing product which would actually meet demand and have a salutary impact on prices isn’t a solution at all, but an insurance policy for those who already own a place to live.

Going back to my basic formulation of taxation, we are now on the verge of discouraging the production of housing and redistributing wealth from poor renters to wealthy homeowners. As per square foot fees add to rents and limit production, prices for single-family homes will certainly go up; it’s almost as if every dollar coming out of the pocket of a renter in the Central District, Capitol Hill, and Ballard, will now be vacuumed up into the equity of homeowners in Laurelhurst, Magnolia, and Arbor Heights. How is this social justice?

Instead of filling the streets in protest against the taxes imposed on new housing that will make their lives worse, renters are being encouraged to call for more taxation than is already proposed by the City in it’s Mandatory Inclusionary Zoning (MIZ) scheme. The supposedly revolutionary, socialist element is demanding more taxation of a good thing, housing, to stop inequality.

Instead of a revolution, this movement is reactionary, seeking to take the city backward, to a time of no or slow growth. Yet almost every candidate running for City office says this is a plan they’ll keep going with it. What’s happening to our city is that the banner of “social justice” has been transformed into a set of taxes that will siphon money from the poor into the hands of wealthy property owners.

If our city to step away from the brink of this disaster, City government must stop MIZ in it’s tracks immediately and reassess how we can develop an approach to housing that dramatically increases the production of market rate housing so that it meets or exceeds demand, then efficiently distributes subsidies to people still struggling with costs of living (not just housing). The taxes we collect from the levy can buy the public benefit that the market can’t produce.

By doing this, we would create a public benefit that the market can’t produce (low priced housing and guaranteed income for people struggling), incentives for the market to produce more of a good thing (housing), and take wealth from existing homeowners and give it to poorer people who rent (use the levy to redistribute wealth). This is a plan that isn’t revolutionary but just makes common sense, something that, along with housing, is in short supply in Seattle.

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