Land Value Taxation

EmbraceUnity · by **EmbraceUnity** on 2011-08-13T20:07:00

I would like to submit Land Value Taxation as the most effective tool for promoting economic development and environmental protection. Yet it is not only the most effective, but without addressing the problems which it solves, we will be condemned to extreme inequality, resource wars, and incalculable amounts of avoidable suffering.

Please review my article on the subject:

http://ieet.org/index.php/IEET/more/miller20110808

rehoot · by **rehoot** on 2011-08-13T21:49:00

There are some things that I didn't see in the article:
1) how to address the one-time switch from the status quo to the land-value tax (cash flow burden on land-holders without liquidity; shock to agricultural business models in the short run; and how to address pragmatic political power moves from some big land-holders)
2) how would the system address ability to pay: businesses that have a bad year and no money in the current system do not pay income taxes, but in the new system they would be required to pay taxes even when they have no ability to pay. that would seem to raise the risk of starting a new business and thereby reduce competition in some markets and allow price-gouging in some markets.
3) how would the land of giant farms be valued and what portion of the existing tax base would go there (and thereby be passed to anybody who eats)--the answer here would affect the distributive effect of the new system
4) what is the natural law that formed the original motivation for this approach to taxation (I have read a few books on natural law and natural rights--and a bunch that simple assume that it exists--and believe that all the definitions that I have read are describing the effects of an alleged natural law without describing what it really is). if you try explain the physical structure of natural law or its connection to the natural world by referring to things that can be shown to exist scientifically, you'll find yourself with no answer (other than imagination or wishful thinking).

The article seems to be based on a mixture of arguments: natural law; fairness of paying higher rents after you invent new agricultural technology; theories of motivation and economics... what is the minimal argument that would justify the new system? If there is no concise argument, then the real solution would require exponentially more detail and consideration of side-effects and opportunity costs.

DanielLC · by **DanielLC** on 2011-08-13T23:37:00

It keeps talking about monopolies. Are land monopolies a big problem? Why can't the anti-trust laws be used to stop them? If we adopt land taxes, this will only dicourage land monopolies. What do we do about all of the other ones?

The article imlies that there's something wrong with the idea of owning land and getting rent for it forever. This is how capital works. It doesn't matter if it's natral or artificial. If you build a building on that land, you'll get that much more rent. If you maintain the building, you'll get the difference forever. You don't even need something physical. If you have money, you can loan it and get interest forever.

Using land taxes to the exclusion of all else will prevent wealth redistrubution. While I do think most people overestimate the extent to which wealth should be redistributed, I don't think the best distribution is going to be the one that happens when you do nothing.

The part about land taxes not discouraging anything is interesting.

After thinking about this, here's what I came up with:

Suddenly shifting to land tax amounts to just taking the present value of the tax from the land-owners. This would not be a good idea. If we were to give them back the present value when we start taxing them, we won't have this problem. Of course, we can't afford to pay them all at once, but there's no reason we have to. Just start offering money to people in exchange for extra taxes tied to their land.

There's no reason to stop at land. If someone improves it and adds a building, as long as we pay them for the right to tax them, it won't discourage them.

We do have to tie it to something, however. Otherwise, you could get bunch of money and have a bunch of taxes, give away the money, and go bankrupt. What happens to your taxes?

It essentially comes down to the government offering you a loan as long as you have collateral.

This would make it impossible to gt to a point where you simply can't pay taxes. Just taxing income would do that too, but then you'd need certain patterns of wealth redistribution.

2) how would the system address ability to pay: businesses that have a bad year and no money in the current system do not pay income taxes, but in the new system they would be required to pay taxes even when they have no ability to pay. that would seem to raise the risk of starting a new business and thereby reduce competition in some markets and allow price-gouging in some markets.

As long as the taxes are made low enough that the net value of the land stays above zero, this shouldn't be a problem. They may have to sell their assets, but they can pay the tax. Taxing capital other than land would allow the tax to be spread out more, which should help avoid net value going below zero. Just be careful with things that have a volitile price.

3) how would the land of giant farms be valued and what portion of the existing tax base would go there (and thereby be passed to anybody who eats)--the answer here would affect the distributive effect of the new system

Tying taxes to the land would lower the price of the land by the same as the (present value) cost of the taxes. The costs and savings would both get passed to anybody who eats, and would cancel out.

Mike Radivis · by **Mike Radivis** on 2011-08-15T13:07:00

For something that looks so good in theory and in reality it's surprisingly unpopular. A paper from 1982 discusses why that might be the case.

The author thinks the problem is basically the taxation of wealth instead of income:

We live now in a climate of opinion where the taxation of wealth as such, rather than income or expenditure, is basically considered wrong by most people. That was not true in the nineteenth century when Henry George wrote. The issue that he was addressing is -- shall we tax wealth that is created by man or shall we tax personal wealth that is generated by land rents? But, the problem we are dealing with now is the perception that the taxation of wealth is wrong, no matter how that wealth is generated.

Here's a historical example how that kind of taxation can lead to public resentment:

I believe that a considerable factor in the whole so-called revolt against property taxes in the United States in the 1970's came from the taxation of unrealized capital gains, particularly homeowners1 unrealized capital gains. I think that Americans consider such taxation inequitable, harsh and entirely illegitimate with respect to owner-occupied housing. The size of the unrealized capital gains in the 1970's was really vast. I have made some estimates of the size of the increase in the value of existing unsold, unchanged, unaltered owner-occupied non-farm houses between 1969 and 1979. The total estimated increase in market value of owner-occupied housing (including land) between 1969 and 1979 was about $1,500 billion from roughly $650 billion to $2.2 trillion. Of that $1,500 billion increase, about $600 billion, about forty percent of the increase, was in the form of unrealized capital gains. More than 25 percent of the market value of owner-occupied housing, as of 1979, consisted of unrealized capital gains, of houses many of which people had lived in for many years and had no intention of ever selling. The very rapid run up in property values is fairly obviously associated with inflation, with the income tax preferences attached to owner occupied housing, and with the fact that, until 1979. there were negative real rates of interest on home mortgages.

But this by itself should not have caused negative reactions by taxpayers: taxpayers are concerned with actual tax bills, not the way in which they are calculated. Why should there have been large increases in tax bills? If property values were increasing very rapidly, much more rapidly than income, even more rapidly than rate of inflation in general, effective tax should have declined and actual tax liabilities for many property owners might not have increased very much at all. Tax liabilities might in some cases have actually increased by less than earned income.

In reality what happened was that many local governments were cheating. They used the increase in market values during this period, in many cases, to expand local government expenditure at rapid rates. Moreover, the situation was aggravated in those states where the property tax assessment system was reformed, with revaluations because of changes in state law and court decisions. This happened in the state of Massachusetts, where there were numerous increases in assessed values in many parts of the state during the 60's and 70's because there were revaluations going on even as market values rose rapidly. Local governments took advantage of this. They cut their tax rates by substantially less than assessed property values rose and expanded local government expenditures.

This happened spectacularly in California, where house values are higher than anywhere else in the country. So property tax bills in dollar terms rose very rapidly for many owners of existing unchanged property. Voters considered this illegitimate. In close to half the states, during the years between 1970 and 1980. voters through referenda or through legislatures put effective property limits on tax levies as well as on tax rates. Legislatures also enacted a variety of other kinds of tax preference arrangements, for farm land, for the elderly and for other purposes. I view much of this as a strong reaction against the notion that it is legitimate to tax wealth, if that wealth is in the form of unrealized capital gains.

I have a more practical question: If there is a high land value tax, who would build houses for private non-commercial use only? Or is the point that such an endeavor wouldn't be economically sensible? So, if you build a house you need to let a part of it, because everything else would be much too expensive? Or would there be no big change to the situation today anyway?

Pablo Stafforini · by **Pablo Stafforini** on 2012-03-03T09:26:00

There was an interesting exchange between Edward Miller and Carl Shulman on this issue at the Utilitarians Facebook group.

DanielLC · by **DanielLC** on 2012-03-03T20:33:00

Or would there be no big change to the situation today anyway?

There would be effectively no change. The land would get cheaper to counter the cost of the taxes.

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