Nobody likes property taxes... except economists.

Brian Albrecht at Economic Forces considers the topic in a piece I've had open as a tab for... checks notes... two bloody months.

Basically, the reason the public despises them so much is partly why economists like them:

Economists tend to prefer taxes like property taxes; voters despise them. Economists think corporate taxes are among the worst ways to raise revenue; voters think corporations should pay more. Economists generally prefer consumption taxes to income taxes, whereas voters tend to prefer income taxes.

Ask an economist about property taxes, and they’ll explain that the land part is fixed in supply (not much distortion there), impossible to hide, and therefore ideal to tax because taxing it doesn’t distort behavior. Ask a median voter about property taxes, and you’ll hear complaints about paying rent to the government on something they already own. As Hobart puts it, “the things voters hate about property taxes are the things economists love about them.

Explanation? Economic ignorance and rational irrational voters, blah-blah

"Ignorance about big topics like taxes is individually rational even when it’s collectively costly.""Ignorance about big topics like taxes is individually rational even when it’s collectively costly."

Albrecht discusses 2 papers/models for why voters like the taxes that cause the most harm, according to economists.

The first, from Gary Becker and Casey Mulligan, argues that inefficient taxes create political resistance that keeps rates low. The second, my own take on a model from David Friedman’s work on punishment, argues that inefficient taxes prevent the state from becoming too aggressive in extraction.

Painful taxes stay small, and they state usually leaves alone not-worth-bothering-with taxes.

"Think of taxation as a conflict between the state trying to extract and taxpayers trying to resist.""Think of taxation as a conflict between the state trying to extract and taxpayers trying to resist."

"The government expands whenever political pressure relaxes. It just grows when unconstrained, so voters use inefficient taxes as reins.""The government expands whenever political pressure relaxes. It just grows when unconstrained, so voters use inefficient taxes as reins."

inefficient taxes make enforcing them unprofitable, so the state isn't too crazy authoritarian; and inefficient taxes also hurt taxpayers just enough to keep them angry, thus the state in check.

This strong argument really applies to land value taxes, which are taxes on the unimproved value of land itself. The basic argument is that land supply is fixed [...] A tax on pure land value, therefore, creates no deadweight loss. The land exists regardless of the tax. It’s just a transfer from land owners to the government.
This distinction matters for the analysis that follows. The efficiency case for property taxes rests entirely on the land component. The capital component undermines that case. Real-world property taxes blend both, making them less efficient than the theoretical ideal but more efficient than pure capital taxes.

Becker and Mulligan argue that this ranking reverses when you account for political economy. Taxes with low deadweight loss don’t hurt much, so taxpayers don’t bother fighting them. Taxes with high deadweight loss are painful, so taxpayers spend resources lobbying against them. The result: efficient taxes grow large while inefficient taxes stay small.

Isn't the author contradicting himself here, or am I too tired to follow along...? If the logic is we only fight the taxes that harm, then... why do we have so many taxes that harm, and so few that don't?

EXPLANATION: there are two forces working opposite one another (Income effects and substitution effects, translated into this model = revenue effect and efficiency effect)

With efficient taxes, you save on deadweight loss per dollar of revenue, but you face a government that grows without limit because you never mobilize against it. With inefficient taxes, you waste resources on deadweight loss, but you stay vigilant and keep rates low.

Becker and Mulligan show that taxpayers can prefer inefficient taxes when the revenue effect dominates the efficiency effect. An inefficient tax that raises $100 with $20 of deadweight loss costs you $120. An efficient tax that raises $200 with $5 of deadweight loss costs you $205. You prefer the inefficient tax even though it has four times the deadweight loss per dollar of revenue.

Friedman’s paper is about punishment. He asks why we use prison instead of fines. From your textbook economics perspective, fines are much better. The defendant loses money, the state gains money, and no resources are destroyed in the process. Prison is horrible from this perspective. The defendant loses years of freedom, and the defendant’s potential economic output is wasted. Unlike fines, where the state at least gets some money, the state here pays the costs. That’s the opposite of getting money.

LET THEM EAT PRISON!

....so, counterintuitively, punishment restrains the state

Prison protects defendants by making prosecution unprofitable for the state. The state spends money on incarceration and receives nothing. Prosecutors have no financial incentive to convict innocent people because conviction doesn’t enrich them.

...when applied to taxation (state = tax authority, victim = taxpayer) efficiency of a tax = "the ratio of revenue collected to resources spent on collection."

Property taxes are efficient in this sense. The tax authority knows what you own, knows what it’s worth (or can assess it), and can seize your house if you don’t pay. Collection costs are low relative to revenue. This makes property tax enforcement highly profitable for the state.

AGAIN, why do we then have so little of it but so much of the crappy taxes (on income, employment, profits)?

Voters aren’t wrong, at least not completely wrong, to distrust “efficient” taxes. They’re protecting themselves from governments that would otherwise extract too much. The deadweight loss of inefficient taxes is the price of keeping Leviathan in check.

I follow...ish. Just don't get it. Maybe the schtackers can help out.