The following article is based on Li Chao Macro Research and Asset Allocation, author of Zhejiang Shang Li Chao Macro Team
Li Chao is a director of the China Chief Economist Forum and the chief economist of Zheshang Securities
Summary of content
>> Core Ideas
The real estate tax in the United States is approximately equivalent to the property tax, focusing on supplementing the tax source of local governments, and the weaker the financial resources, the stronger the dependence on real estate tax, and the limited role in regulating the real estate market, economy and other fields. The US real estate tax has reference significance for China's fiscal and tax reform, which is manifested in three aspects: the financial support for low-level governments is relatively large, the tax system design should be taken into account to promote common prosperity, and local enthusiasm should be actively exerted.
>> U.S. real estate taxes are approximately equivalent to property taxes
The United States has a long history of collecting real estate taxes, and since the real estate tax in the ownership link accounts for the absolute majority of the property tax, the U.S. real estate tax can be approximately equivalent to the property tax. The U.S. real estate tax is levied on the stock, showing the characteristics of "wide tax base and less tax type". The "broad tax base" is reflected in the wide range of objects covered by collection, and the "less tax type" is reflected in the small number of taxes and the convenience of collection and management. The United States adopts a "federal-state-local" three-tiered fiscal system, implements the fiscal discipline of fixed income, and the real estate tax is mainly based on the proportional tax rate, which is mainly determined according to the difference between the local government budget expenditure and non-real estate tax revenue. The territory of real estate tax in the United States varies greatly, and the real estate tax burden of different states can be judged by the amount of real estate tax payable per person and the actual tax rate of real estate tax in each state.
>> The role of U.S. real estate taxes: heavy supplementary tax sources, light market regulation
The US real estate tax has the two functions of supplementing fiscal funds and regulating the operation of the real estate market, and from a practical point of view, the US real estate tax is more focused on supplementing the tax sources of local governments. The U.S. tiered fiscal system stipulates that only state governments and local governments can collect real estate taxes on the ownership link, and real estate taxes contribute more to local government revenues, reaching more than 70% of local government revenues, but only accounting for about 2% of state government tax revenues. In particular, the weaker the financial resources of local governments, the more dependent on real estate taxes.
U.S. real estate taxes have a limited regulatory role. The US real estate market is a typical mature real estate market, supply and demand are tightly balanced, all kinds of real estate has shown a stable cyclical change law, real estate demand is affected by demographic factors for a long time, and short-term by financial conditions; house prices are highly correlated with factors such as liquidity and interest rate levels, and are more susceptible to monetary policy. The impact of the fiscal and taxation system on the operation of the real estate market is relatively limited, and the real estate tax has not significantly produced the role of expanding the supply of real estate and stabilizing housing prices.
>> What does U.S. real estate tax teach our country?
The regulatory role of the US real estate tax is limited for China, the main reason is: 1) the US real estate tax focuses on supplementing the local government tax source, while China pays more attention to the regulatory role, and the real estate tax is one of the policy tools that serve the long-term mechanism of real estate. 2) The development stage of the real estate market in China and the United States is different, and the stronger need to expand supply in China determines the policy demand of introducing real estate taxes to promote the balance between supply and demand. 3) The impact of real estate on the Chinese and American economies is very different, and the real estate policy cycle is the fundamental driving factor of China's economic cycle, so the real estate tax regulation effect has a greater impact on China's economy and market.
The experience of real estate tax collection and management in the United States has reference significance for China's fiscal and tax reform, which is mainly reflected in three aspects: 1) Real estate tax has greater financial support for low-level governments. In the future, China's real estate tax, as one of the important local taxes, can supplement the financial resources of local governments, but it is difficult to form a large scale, and it still needs central transfer payments to support local finances. 2) The tax system design that takes into account real estate tax and income tax should be coordinated to promote common prosperity. Combined with the experience of the United States, we will coordinate the tax system design of real estate taxes and income taxes, reduce the actual tax burden of middle- and low-income people, better play the redistributive function of fiscal and taxation policies, and serve the goal of common prosperity. 3) Give play to local enthusiasm, promote the real estate tax to play a regulatory role according to local conditions, and promote the smooth operation of the real estate market.
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U.S. real estate taxes are approximately equivalent to property taxes
The real estate tax discussed in this article refers specifically to the real estate tax of the ownership link. From a global perspective, real estate tax has a long history, the real estate tax in various countries in the scope of taxation, the basis of valuation, the subject and other aspects of many differences, the broad real estate tax is the sum of the taxes involved in all aspects of the real estate industry, that is, the real estate tax collected in the development, circulation and ownership and other links. From China's point of view, real estate tax has a long history in China, but since the introduction of the tax, it has been positioned in the circulation link, and tax exemption policies have been adopted for most real estate of nature, and the coverage is small. The real estate tax that has been hotly discussed in the market recently is not a generalized real estate tax, specifically referring to the real estate tax in the ownership link, and in the future, the State Council will introduce a new policy to increase the scope of the real estate tax pilot, and also specifically refers to the real estate tax in the ownership link. We believe that after anchoring the real estate tax of the ownership link, referring to the relevant tax experience of developed economies will help the landing of real estate tax in China.
The U.S. ownership real estate tax is in fact "equivalent" to the property tax. The U.S. real estate tax includes two parts: real estate tax and real estate tax, and the taxation link is mainly divided into two links: circulation and ownership, the circulation link collects gift tax, inheritance tax and income tax, and the ownership link only collects property tax. Property tax as an important tax, the object of taxation includes movable property and real estate, movable property is represented by cars, boats and other assets, real estate is mainly represented by houses, land, so the United States ownership link real estate tax is actually part of the property tax. Further considering the tax contribution, because the proportion of real estate in the property tax is in an absolutely dominant position, the real estate tax in the US ownership link is very close to the tax amount of the property tax, and in the follow-up research process, especially considering the application of data, the US ownership link real estate tax can be regarded as equivalent to the property tax.
The U.S. real estate tax is levied on the stock, showing the typical characteristics of "wide tax base, less tax type". The U.S. tax law stipulates that the taxpayer of property tax is the owner of the property right, there is no property owner, and the actual user or controller of the real estate property right should be regarded as the owner of the real estate property right. The taxation of real estate tax is real estate, including land and above-ground buildings. The U.S. real estate tax shows a typical "wide tax base, less tax" characteristics, "wide tax base" refers to the tax coverage of a wide range, in addition to the public, religious, charitable and other institutions of real estate exemption, the rest of all real estate owners are subject to taxation, no owner of real estate tax on the occupier. "Less tax" means that the real estate tax is only a property tax, which not only brings convenience to the tax formulation department, the taxing department and the taxpayer in the tax process, but also does not have the situation of double taxation.
U.S. real estate taxes are predominantly proportional. The statutory tax rate of U.S. real estate tax is generally stipulated in the local government budget legislative process, and the tax rate form adopts a relatively simple and easy-to-operate proportional tax rate, and the real estate tax rate in the U.S. states is basically within 3%. The method of confirming the tax rate is specifically as follows: the local government can obtain the nominal tax rate by dividing the net value of the real estate assessment by dividing the net value of the real estate assessment according to the financial needs of the public expenditure at the same level in the current year, and then comprehensively considering other incomes from non-real estate tax sources. The calculation formula is: statutory tax rate = (budget expenditure - non-property tax income) ÷ net real estate appraisal = (budget expenditure - non-property tax income) ÷ (total assessed value - exemption - deduction - discount).
There are territorial differences in real estate taxes in the United States, how to observe the tax burden of various places? Due to the different financial funding gaps of local governments, there are also differences in the tax rate setting of real estate taxes, reflecting the territorial differences in real estate taxes in the United States, so how to comprehensively evaluate the real estate tax burden in various parts of the United States? We can look at the actual tax burden of real estate taxes from two perspectives, 1) the amount of real estate tax payable per person can measure the absolute level; according to the Calculation of the American Tax Foundation, the highest amount of real estate tax payable per person in the United States in 2018 was New Jersey ($3378) and the lowest was in Alabama ($598), a difference of nearly 6 times. 2) The effective tax rate on real estate taxes by state; according to the American Tax Foundation, New Jersey had the highest effective rate of real estate tax at 2.13% in 2019, and Hawaii had the lowest effective rate of 0.31%.
U.S. real estate tax rates are dynamically changing from year to year. Comprehensive U.S. real estate tax rate determination method and territorial differences, because the local government budget revenue and expenditure gap is changing year by year, the real estate tax rate is also dynamically changing, according to the U.S. ATTOM on more than 87 million households (households) of the statistical analysis results show that in 2018, the U.S. single-family real estate tax amount of 3498 US dollars, the actual average effective real estate tax rate of 1.16%, the former is higher than the average single-family real estate tax tax amount of 3399 US dollars in 2017, But the latter is lower than the average effective real estate tax rate of 1.17% in 2017.
U.S. real estate tax: heavy supplementary tax sources, light market regulation
U.S. real estate taxes focus on supplementing local tax sources. The tax function is mainly reflected in two aspects: raising fiscal funds and regulating economic operations. U.S. real estate taxes also have these two functions, on the one hand, it is an important supplement to fiscal funds, and on the other hand, it regulates the real estate market, resident income distribution, and the operation of the economy. From a practical point of view, the US real estate tax is more focused on supplementing the financial resources of state and local governments, and has a limited impact on the distribution of residents' income and the operation of the real estate market, which is determined by multiple factors such as historical evolution and tax system design:
History shows that the U.S. real estate tax was originally established to raise financial funds. In 1787, in Article 1, Paragraph 2 of the Constitution, the United States granted the federal government the power to levy direct taxes, including property taxes, mainly to meet the huge expenditures of the Revolutionary War. Since 1818, Illinois has introduced a general property tax system, which is levied at the same rate for all types of movable and immovable property. With the expansion of the territory of the United States, after the independence of the states in the mid-19th century, in order to overcome the prevailing local financial crisis at that time, the state governments began to introduce and collect real estate taxes. It can be seen that the historical evolution of real estate taxes in the United States shows that the main purpose of the early promulgation of real estate taxes is to raise fiscal funds to meet the needs of fiscal expenditures such as war and public services.
Currently U.S. real estate taxes are important local government taxes. First of all, from the perspective of the design of the real estate tax system, the US federal government does not levy real estate tax, state and local governments levy property taxes in the real estate ownership link, and the state government has the right to tax and tax legislation, and can set the real estate tax rate by itself. Secondly, the three levels of fiscal revenue in the United States rely on different taxes, although state governments and local governments can levy real estate taxes on the ownership link, but local governments are more dependent. The state government's tax revenue sources sales and total income tax, income tax accounted for a relatively high proportion, real estate tax only accounted for about 2% of the state government's tax revenue, but it is more important for local governments, can reach more than 70% of local government revenue, especially considering the differences in different regions, the special zone can be as high as about 95%, almost all rely on property tax (mainly real estate tax).
The weaker the financial resources of local governments, the more dependent on real estate taxes. The autonomy of local governments over the collection of real estate taxes strengthens local fiscal power and enhances regional heterogeneity. For example, the proportion of real estate tax in New York, California and Texas, where local fiscal revenue is the highest, is 57.1%, 67.6% and 83.1% respectively, because of its more flexible tax structure. Weak states rely more on real estate tax revenues, which account for more than 90 percent. The side reflects the importance of real estate tax to supplement the source of local government tax.
The real estate tax rate setting reflects the idea of supplementing the source of taxation. The United States adopts the fiscal discipline of fixed revenue by expenditure, and the three-tier tax system in the United States delegates the power of tax collection and management, and each state and local government can set its own real estate tax rate, which is confirmed in the local government budget legislation process every year. In the process of determining the real estate tax rate, it is based on the capital needs of local government budget expenditure and other tax gaps to confirm, which can be understood as "how much fund gap levy how much tax", so from the tax rate setting process can also verify the idea of supplementary fiscal revenue.
U.S. real estate taxes have a limited regulatory role. In addition to supplementing local government tax sources, the US real estate tax also has a certain regulatory effect, which may affect the operation of the real estate market, adjust the distribution of income, etc., but from the perspective of the effect of the regulatory role, the impact is relatively limited. The US real estate market has a history of more than 100 years, is a typical mature real estate market, industrial real estate, residential real estate, commercial real estate has shown a relatively stable cyclical change law. In terms of influencing factors, it is affected by factors such as population size and population age structure in the long run, and is greatly affected by factors such as liquidity and interest rates in the short term, and house prices also show cyclical changes, which are more sensitive to monetary policy and are highly correlated with liquidity and interest rates. The impact of the fiscal and taxation system on the operation of the real estate market is relatively limited, and the real estate tax has not significantly produced the role of expanding the supply of real estate and stabilizing housing prices.
What does U.S. real estate tax mean for our country?
What are the implications of U.S. real estate taxes for the practice of real estate taxes in China?
We believe that the significance of the regulatory role is limited, the main reason is: First, the original intention of the establishment of the real estate tax policy is different, the United States pays more attention to the implementation of real estate tax as the most important tax source of local governments, although China's real estate tax is also regarded as a local tax, but it is more based on the cooperation with real estate macro-control, as one of the policy tools that serve the long-term mechanism of real estate, China pays more attention to the regulatory role of real estate tax. The second is that China's real estate market and the US real estate market are at different stages, the mature real estate market in the United States means a stable and sustained cyclical change law and a relatively tight balance of supply and demand pattern, while the development of China's real estate market is still in the growth stage, with the improvement of residents' income and urbanization brought by the rigid demand and improvement demand is still strong, the need to expand supply is high, especially in first- and second-tier cities. Third, the impact of real estate on China and the United States is quite different, and the proportion of real estate investment in the UNITED States to GDP is low (only 4%). The real estate policy cycle is the fundamental driving force behind China's economic cycle, comprehensively considering the direct impact of real estate investment and the indirect impact of real estate upstream and downstream industries, it plays a decisive role in China's economic growth, due to the difference in the impact of real estate on the Chinese and American economies, the impact of real estate tax regulation on China and the United States is also significantly differentiated.
The experience of real estate tax collection and management in the United States is of reference significance for China's fiscal and tax reform. Although the US real estate tax has limited reference significance for China at the level of regulatory role, it has important reference significance for China from the aspects of tax system design and tax collection and management, and we believe that it is mainly reflected in the following three aspects:
1) Real estate tax has greater financial support for low-level governments. China's construction of a modern fiscal and taxation system, the need to balance the central and local, local and local financial distribution, the United States experience shows that real estate taxes to the low-level local government tax contribution is larger, but the contribution to the state level is limited, and giving local autonomy to help mobilize the enthusiasm of local governments, the collection of real estate taxes for the region's public financial expenditure. From China's point of view, real estate tax, as one of the important local taxes, can supplement the financial resources of local governments, but it is difficult to form a larger scale, and it still needs central transfer payments to support local finances.
2) Coordinate the design of the tax system that takes into account real estate tax and income tax to promote common prosperity. According to the provisions of the U.S. federal government, the U.S. real estate tax can be deducted through the deduction of personal income tax, and U.S. residents can deduct the real estate tax paid from the taxable income when calculating federal personal income tax, but rental housing, commercial business housing, overseas real estate, etc. are not deducted. This tax system design in the United States can effectively help low- and middle-income families to reduce the tax burden, and the real estate tax is subtracted from the taxable income, which is equivalent to the government refunding the real estate tax. The 14th Five-Year Plan proposes that China should establish a modern fiscal and taxation system, proposing that "the direct tax system with income tax and property tax as the main body will be improved, the individual income tax system combining comprehensive and classified will be further improved, and the real estate tax legislation and reform will be actively and steadily promoted." We believe that combined with the experience of the United States, it is necessary to study and judge the setting of real estate taxes and income taxes in the design of the tax system, reduce the actual tax burden of middle- and low-income people through tax system design, better play the redistribution function of fiscal and taxation policies, and serve the goal of common prosperity.
3) Give full play to local enthusiasm and promote the role of real estate tax according to local conditions. The experience of real estate tax in the United States shows that the appropriate decentralization of the right to tax and the right to determine the tax rate of real estate tax is conducive to mobilizing the enthusiasm of local governments, and the collection of real estate taxes according to local conditions is used to meet public expenditures such as economic growth and social development in the region. We believe that at present, China's implementation of the real estate regulation and control policy according to the city policy, in the process of promoting the real estate tax to give local governments a certain degree of autonomy, especially in the scope of taxation, conditions for reduction and reduction, tax basis and other aspects, this move not only helps to enhance the enthusiasm of local governments, but also coincides with the macro-control mechanism of real estate, helps to better play the regulatory role of real estate tax, and promotes the smooth operation of the real estate market.