Urban property taxation in developing countries

The property tax is the most widely used source of municipal tax revenue in the developing world, but its current yield is often insubstantial. This paper has two objectives. The first is to assess the policy arguments for the use of property taxes as a municipal revenue source. The second is to review the revenue performance of property taxation and define practical ways to improve it. Tax policy must ensure that the rates are set high enough to make tax collecting worthwhile. Administrative reforms should support simple procedures for property discovery and valuation, suited to the characteristics of the local tax base and the skills of the local authorities. Central governments can achieve reform on a nationwide scale, even where the property tax is locally administered, by delivering standardized packages of training and technical assistance to local governments.Public Sector Management and Reform,Banks&Banking Reform,Environmental Economics&Policies,Public Sector Economics&Finance,Municipal Financial Management

A Progressive Consumption Tax for Individuals: An Alternative Hybrid Approach

Dissatisfaction with the existing income tax has increased in recent years. Practical problems with the income tax base create numerous loopholes, increasingly exploited by well-advised taxpayers. For the most part, these gaps are attributable to the income tax\u27s realization requirement, under which taxpayers report gains and losses as realized through market transactions. A consumption tax appeals as a response to these significant current loopholes since realization loses its significance under a consumption-based tax. The consumption tax\u27s appeal has been further enhanced by the recent and growing recognition of the narrow difference between income and consumption taxes, assuming away practical problems. Contrary to the long-standing belief that the income tax imposes an excess tax burden on all investment return, recent scholarship establishes that, relative to a pure income tax, the consumption tax relinquishes the tax burden on only the risk-free investment return. Accordingly, the consumption tax addresses the loopholes while relinquishing relatively little. Despite such threshold appeal, a consumption tax has not yet replaced the income tax. This Article descriptively explains this failure through an analysis of the leading progressive consumption tax proposal: the cash flow tax. The Article recaps the serious offsetting concerns raised by commentary on the cash flow tax, exhibiting how such concerns relate primarily to the cash flow tax\u27s wholesale removal of current tax on saved wages. Specifically, the lack of any current tax on saved wages raises tax avoidance, transition, and revenue concerns. In addition, saving decisions could be impacted in undesirable ways under a cash flow tax with progressive rates. Accordingly, the case for the consumption tax has been weakened by these concerns. The normative portion of this Article then presents a new progressive consumption tax proposal: a hybrid approach. Like the current income tax, the hybrid approach generally would tax wages, even if saved for future consumption. In addition, the hybrid approach would utilize a modified cash flow approach to tax the excess of (i) savings withdrawals for consumption, over (ii) previously saved wages, increased by the risk-free return thereon. As a result, the hybrid approach would capture the benefits of consumption taxation without the disabling problems of the cash flow tax. As discussed in the Article, the hybrid approach achieves this result since (i) the wage tax component addresses the cash flow tax concerns, and (ii) the modified cash flow component addresses the income tax problems

A Bundle of Confusion for the Income Tax: What It Means to Own Something

ABSTRACT-Conceptions of property exist on a spectrum between the Blackstonian absolute dominion over an object to a bundle of rights and obligations that recognizes, if not encourages, the splitting of property interests among different people. The development of the bundle of rights conception of property occurred in roughly the same era as the enactment of the modem federal income tax. Nevertheless, when Congress enacted the tax in 1913, it did not consider how the nuances of property, and the possible splitting of the interests in an income-producing item, might affect application of the tax. Soon after the tax\u27s enactment, the Treasury Department and the courts were confronted with questions of who owned, and could be taxed on, what income. As shown by an examination of family partnerships and synthetic leases, the government continues to struggle with determining who owns a sufficent property interest to be taxed because Congress has yet to define ownership for tax purposes

Progressive Consumption Taxes

Recent intellectual and political forces have moved the consumption tax to the forefront of tax policy debate. Since traditional flat-rate consumption taxes like the VAT raise serious distributional concerns, tax scholars have responded with innovative progressive consumption taxes. Two such taxes - the Hybrid Approach and the X-tax - were independently analyzed in a recent symposium on fundamental tax reform. These two proposals contain striking similarities. Both would tax individuals at progressive rates on their wages, with a separate tax on consumption less wages. Important differences exist, though, regarding the latter tax. The Hybrid Approach would impose such tax on individuals while the X-tax contemplates a VAT-like tax on all businesses. The X-tax and the Hybrid Approach are intriguing as they address the distributional objections to conventional consumption taxes. Standing alone, however, each raises problematic implementation tradeoffs. On the one hand, the X-tax simplifies individual tax reporting compared to the Hybrid Approach and current law. On the other hand, the X-tax would change current law significantly more than the Hybrid Approach, thereby exacerbating transition costs. Blending the respective strengths of the X-tax and the Hybrid Approach, I propose a new consumption tax consisting of three parts: a progressive wage tax, a business tax solely on corporations, and a limited individual tax on consumption less wages. This combination minimizes both individual tax reporting and changes to current law, thereby easing the way to a more equitable, efficient, and administrable tax system

A New Understanding of Tax

Perhaps we should blame it all on Mill. A great deal and possibly all of the mind-numbing complexity of America\u27s largest and least popular tax follows from the decision to have a progressive personal income tax. Proponents wanted an individual income tax notwithstanding - indeed, in large part because of - such a tax\u27s double taxation of savings. This double-tax argument is an analytic point generally attributed to Mill\u27s classic 1848 treatise, Principles of Political Economy. Historically, much of the support for the Sixteenth Amendment, ratified in 1913, came from Southern and Midwestern, progressive, agricultural interests, who wanted, in general, to implement a redistributive tax and, in particular, to collect some tax from East Coast financiers. After all, the Supreme Court had ruled that the income tax of the late nineteenth century was unconstitutional only insofar as it fell on the fruits of capital; no constitutional amendment would have been necessary to retain or implement a national wage or sales tax. The legal raison d \u27etre of the income tax was to get at such returns to savings as dividends and interest. To this day, liberals and moderates insist on retaining the structure of an income tax precisely because it gets at the returns to saving in addition to labor earnings. Consumption taxes of all sorts are set in contrast to the income tax, on another side of a great divide, as taxes that fail to get at the yield to capital - that deliberately avoid Mill\u27s second tax. Prominent commentators on the case for consumption taxation - both those in favor and those opposed - continue to cite, as the best or most sophisticated argument for adopting a consumption-based tax, the analytic facts that consumption taxes do not overly burden capital or its yield, and as such do not distort the savings-consumption decision, or, equivalently, do not favor present over deferred consumption. The literature for and against consumption taxation is strewn with stock horizontal equity models, comparing savers and spenders, Ants and Grasshoppers: the idea is that income taxes punish savers, like the mythical Ant, vis-a-vis spenders like her friend Grasshopper. On the other side of the great divide, supporters of redistributive taxation argue that retaining an income tax base is a central task of maintaining or obtaining fairness in tax in large part because it, alone, gets at the return to capital, the nearly exclusive province of the economically fortunate

A New Understanding of Tax

Perhaps we should blame it all on Mill. A great deal and possibly all of the mind-numbing complexity of America\u27s largest and least popular tax follows from the decision to have a progressive personal income tax. Proponents wanted an individual income tax notwithstanding - indeed, in large part because of - such a tax\u27s double taxation of savings. This double-tax argument is an analytic point generally attributed to Mill\u27s classic 1848 treatise, Principles of Political Economy. Historically, much of the support for the Sixteenth Amendment, ratified in 1913, came from Southern and Midwestern, progressive, agricultural interests, who wanted, in general, to implement a redistributive tax and, in particular, to collect some tax from East Coast financiers. After all, the Supreme Court had ruled that the income tax of the late nineteenth century was unconstitutional only insofar as it fell on the fruits of capital; no constitutional amendment would have been necessary to retain or implement a national wage or sales tax. The legal raison d \u27etre of the income tax was to get at such returns to savings as dividends and interest. To this day, liberals and moderates insist on retaining the structure of an income tax precisely because it gets at the returns to saving in addition to labor earnings. Consumption taxes of all sorts are set in contrast to the income tax, on another side of a great divide, as taxes that fail to get at the yield to capital - that deliberately avoid Mill\u27s second tax. Prominent commentators on the case for consumption taxation - both those in favor and those opposed - continue to cite, as the best or most sophisticated argument for adopting a consumption-based tax, the analytic facts that consumption taxes do not overly burden capital or its yield, and as such do not distort the savings-consumption decision, or, equivalently, do not favor present over deferred consumption. The literature for and against consumption taxation is strewn with stock horizontal equity models, comparing savers and spenders, Ants and Grasshoppers: the idea is that income taxes punish savers, like the mythical Ant, vis-a-vis spenders like her friend Grasshopper. On the other side of the great divide, supporters of redistributive taxation argue that retaining an income tax base is a central task of maintaining or obtaining fairness in tax in large part because it, alone, gets at the return to capital, the nearly exclusive province of the economically fortunate

Tax Fairness

This Article argues that, contrary to the consensus of economists and many legal scholars, the norm of horizontal equity in taxation has independent meaning as a default rule in favor of existing arrangements. Although it has long been said, and widely thought, that tax should be fair in its dealings with individuals who are situated similarly to one another, no one has been able to say convincingly just what that fairness comprises. As a result, the learned referees in the last major dispute over the significance of horizontal equity judged that fairness\u27s critic had decidedly won the day. Since then, there have been ever more critics, but no cogent, comprehensive defense. My defense is both theoretical and practical. First, I argue that horizontal equity is a special aspect of the revenue function in taxation. Because it enshrines the status quo before enactment of a new tax law, horizontal equity can be reconceived as a commitment by the authors of tax legislation to honor the past and future policy choices of others, with whom they are jointly engaged in a project of deliberative democracy. Alternately, horizontal equity may bejustfied by welfare gains from a shared agreement to leave certain controversial questions of distributive justice undecided during the revenue-raisingp rocess. Both oft hese rationalesl eave open-indeed,t hey clear the air for-arguments about the ultimate ends law, and tax law in particular, should serve in society