| Popis: |
This working paper seeks to elucidate the role of real estate in the capital gains issue, indicating the quantitative orders of magnitude involved. We offer two main observations. First, generous capital consumption allowances (CCAs) greatly magnify the proportion newly constructed buildings, of course, but also on land and old buildings being sold and resold. Our tax code allows for properties to be re- depreciated by their new owners after a sale or swap, permitting real estate investors to recapture principal again and again on the same structure. When CCAs have been excessive relative to true economic depreciation, as they were during in the 1980s, capital gains have been commensurately larger than the actual increase in property prices. Second, very little of real estate cash flow is taxable as ordinary income, so the capital gains tax is currently the only major federal levy paid by the real estate industry. CCAs and tax-deductible mortgage interest payments combine to exempt most of real estate cash flow from the income tax. This encourages debt pyramiding as it throws the burden of public finance onto other taxpayers. A central conclusion of our study is that better statistics on asset values and capital gains are needed-or, more to the point, a better accounting format. The economic effects of a capital gains tax depend upon how the gains are made. The present GNP/NIPA format fails to differentiate between wealth and overhead; between value from production and value from obligation. In particular, theory and measurement should distinguish real estate from other sources of capital gains-and, within the category of real estate, distinguish land from built improvements. Markets for immovable structures and for land have distinctive inherent feature and are shaped by distinctive institutional constraints. |
