Friday, November 26, 2010

VAT: Another Reason for a Housing Boom?

The U.S. does not have a national sales tax, or a value-added tax (VAT). Many other countries do have VAT, and a number of economists and accountants (not me!) have recommended that the U.S. get a VAT.

Suppose that we knew that, say, a 10% VAT was coming to the U.S. in the year 2015. In principle, a consumption tax is levied on all forms of consumption, including housing consumption. However, in practice a VAT only taxes new housing -- that is, a sales tax is collected when a new home is sold, and no sales tax is collected on home resales or home rents (actual or imputed).

Thus, homes built before 2015 would be 10% more valuable that home built after 2015, because only the latter would pay tax. So anticipation of VAT would cause a temporary boom in housing construction and new housing prices.

Was something like this important during the housing boom of the 2000s?

1 comment:

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