In economics, "land" is everything not created by humans. The sea, in this sense of the word, is still land- just very wet land, which is generally not taxed because it is mostly useless.
Its the same. That geographic location always existed. Filling in land or clearing forests is an improvement.
Even still, its a bit of a red herring, since it really doesn't change the macroeconomic analysis. Given a certain area, you can't create more space in it, generally. You can't make houses bigger on the inside than they are on the outside, or add extra lots in between existing lots in the middle of a city.
Super Energy Apocalypse is AS2, and CellCraft is AS3. Neither of them currently works in Ruffle, but if you google "FlashPoint" by Blue Maxima it should work in that.
Wow, I remember reading that you put a lot of real-world research into designing the game, but I didn't know you actually got a thesis out of it! Awesome.
One thing I don't quite understand about Georgism is: who is going to compensate landowners for the massive drop in the value of their land that would come from suddenly subjecting it to enormous taxes? Wouldn't that require a one-time payment of billions in compensation?
Or is the idea to simply randomly steal money from people?
I don't see why that would need to be compensated. The value of land is inherently subject to political considerations. That is part of the risk that landowners accepted when they bought the land. No one is entitled to have their assets massively appreciate with no risk.
If you believe all taxation is stealing, then that is a different conversation.
Let me put it this way. A year ago, I owned zero dollars in land. Today, I own $1.5 million in land, and owe the bank a correspondingly large amount of money. If my local government decided to implement Georgism, it would be an enormous, enormous transfer of wealth from all the 2021 me-s to all the 2020 me-s.
I accept that taxation is a necessary evil, but it shouldn't be sudden and capricious. The alternative version of me who decided to rent for one more year shouldn't suddenly hit the jackpot while the actual me loses his shirt.
Is or is not the UBI side of this large enough for any person to live on, even those with unusually large expenses they can't shed? (Let's say they are disabled in a way that requires full time care.)
Is it enough to pay the extra costs of living in places with low land values?Isolated spots in the middle of nowhere tend to cost more for heating and/or cooling than the prime spot where I now live. There's nowhere to buy anything in walking or even biking range. Perhaps there's no phone, internet or even electricity available, and there's certainly no treated water or sewage. Health care is sparse. And *this* is where Joe-Random-Retiree from prime territory will be moving, after Georgism destroys most of the value of their investment in their home, and socks them with a tax they can't afford to pay. (And by the way, there goes the caretaking their grandchildren had been doing of/for them; now they get to pay market rates for someone to e.g. climb up a ladder and clear leaves out of their gutters.) Oh, I forgot the resulting social isolation, that will probably cause them to require psychological treatment unavailable in their new location, and still reduce their life expectancy.
Don't tell me that they can all move to pre-existing homes in idyllic small towns. The prime urban areas are very very dense - lots of people. As in, more people in a single city than in some low population states. It would take a lot to convince me that there's enough pre-existing vacant housing.
But of course I'm probably presuming a much larger exodus than most Georgians appear to expect.
You're right about that, but with the current regime, when they sell out they'll have a lot of money to use to buy another place elsewhere, with some leftover to invest to provide an additional income stream.
I guess you could make an argument for ramping it up slowly. That's probably a good idea for a lot of reasons.
That said, even if you don't, I don't think anyone deserves compensation. Land is inherently a risky investment and that means sometimes people lose out. You could have just as easily bought right before a crash or some other policy change.
But a lot of people who buy land buy it to live on. If I buy a house to live in it (rather than as an investment property), I actually don't care if it loses most of its value. That would only matter to be if I planned on selling it (which sure my children probably will after I've died so maybe I care a little, but on the other hand my property taxes are smaller until then).
On the other hand if a 100% LVT suddenly get implemented, I'm instantly in the hole for a huge amount of money every year on top of my mortgage.
I think it probably is correct that no government would voluntarily preside over the total meltdown of the banking system, so some solution would be found, but I find it odd that Georgists never explain this part.
Which is why the LVT is usually considered alongside a Citizen’s Dividend/UBI which you would then spend on either all or most of the ground rent for that house.
While I'm normally in favor of a UBI, I don't think this helps much in this situation, particularly in terms of fairness as you're compensating everyone equally while only punishing some of them. The 2020 version of Melvin has still hit the jackpot, and is now getting an extra payment on top of that, while 2021 Melvin has lost everything, had his house foreclosed, and can hopefully survive on the same payment 2020 Melvin is getting on top of his existing assets.
To consider some numbers for people in current high cost of living areas, I'll look at the bay area where I am. Being in one of the less expensive areas here, a typical house now costs around $1M (yes, that's crazy, but that's the reality we live in). Let's say Jack just bought a house having come up with $200k for the down payment, so Jack has an $800k mortgage. According to the numbers from the post, 70% of this was land value, so his house would sell for $300k after LVT is implemented (one point of the book review is the sale price of land becomes essentially zero). Now since he has an $800k mortgage on a $300k property, he can never sell this house, and will be stuck here for the next 30 years, having gone overnight from having $200k equity to being $500k in debt.
In addition to the mortgage payments, he is now also responsible for LVT payments on $700k of land which he cannot sell or even give away without paying off his mortgage. If we settle on an assumed 5% return for land, this gives an extra land tax payment of $35k per year, and removing property tax on the house saves maybe $10k per year. So if we set the UBI to $25k per year, he's doing about the same as he was before, except he's trapped in this house for the next 30 years unless he declares bankruptcy. Meanwhile renters in the same area are getting an extra $25k per year, and according to the analysis in the original book review are actually paying lower rent.
Now maybe your reaction is that it's perfectly okay to ruin anyone who moved into a high cost area and chose to buy instead of rent. That said, you may want to consider people who lived in this area earlier, and are in an even worse situation if they stay. Most people who have lived here longer than 10 years pay relatively little in property taxes as the property tax is typically based on the last sale price, but would now be hit by the entire $35k LVT with only $25k UBI to offset. I'm assuming here that the land value will be assessed in some new way as it cannot be based on sale price anymore, since that price will now be based on the house value and not the land value. This analysis also assumes that there is still a functioning society after the wave of foreclosures and bank collapses, which I am not at all sure would be the case. If the economy collapses, at least 2020 Melvin will now be just as screwed as 2021 Melvin, though neither are likely to get a UBI in that situation.
Trust in institutions is a big deal. The United States is a nicer place to live than the Congo because investors do not consider arbitrary confiscation among the risks they need to manage. If they did they would change their behavior accordingly, and I don't think you'd like the result very much.
The $1.5M you paid reflected a .01% chance of a full LVT being enacted within the next 5 or so years; if the risk of a full LVT being enacted was closer to 50%, you would have paid $750k for the same land.
Or you can just write off the purchase price in land value taxes. That would mean that if you paid a million for the land. U are safe from land value tax until it reaches above a million
I think this example (which will be commonplace) does get to what seems unjust about the LVT to me. Maybe land is conceptually different from other asset classes, but from the point of view of the individual investor, it seems very unfair that the treatment is so different because you happened to invest in one asset class rather than another. This is particularly so because middle class people typically hold a much higher percentage of their wealth in property than the rich.
I think the tax rate that Lars is talking about here would be modest enough that it's unlikely to bankrupt anyone in the middle class, and there's no tax policy that isn't going to hurt someone, somewhere, somehow.
If you invest a bunch of wealth in a stolen painting. And then the rightful owner comes along you lose your investment and we say that's what you get for investing in stolen goods. Well the Georgian position is that all privately owned land is essentially stolen from the commons (which in still on the fence about but I'm just explaining the perspective here) so when investors lose out from the LVT being implemented we say that's what they get for investing in stolen goods
The chances of losing your shirt is the risk you assumed when you greatly leveraged yourself to speculate.
If you’d gone $1.5mil in to debt to buy stock in wall building companies when Trump was elected, was it theft when he didn’t? Or when Biden was elected and the non existent build the wall endeavour was presumably scrapped? Of course not.
The risk of losing value is why you otherwise generally get a return on investing in assets. The safe play is to consume all your income asap.
The risk of losing a lot of value is why leveraging yourself with debt can otherwise be incredibly lucrative.
Like others have said, the person who owns the lands still has every right to use it. Phasing in a LVT over 20 years or so would probably solve all of these issues. If someone bought $1.5 million in land with no plan to use it and can’t sell the land within 20 years, it’s not the governments problem at that point
Yes, to me it's the main objection, but not specifically to Georgism, to any big change in tax scheme. Rapid big changes of taxes coupled to long adaptation time in investments impacted by those changes in inherently unfair, even if the tax policy that is being changed was also unfair. In fact, it's not only taxes, any economic rapid change advantage actors that can rapidly adapt compared to slower ones. When the change is "natural", ok, to bad, but when the change is regulatory, there are big questions to be answered. In particular, is the regulation pushed by "fast" actors?
Which country and which century are you speaking about? Because here, in Western Europe, homelessness is certainly not caused by land monopoly or anything related. Poverty, depending on how you define it, neither.
Poverty (like having trouble to pay for subsistance) is usually either due family issues (divorce with a few children to care), or trouble with the welfare system (either because lack of official papers, lack of understanding of the paperwork , or inability to accept living under the control of the administration. Usually a combination of those factors.
Housing crisis hit young people forced to rent to small apartment and delaying (sometimes forever) buying the home they hoped for their family (equivalent to what they saw their parents were able to buy). Homelessness is a completely different issue...
There could be different rules to avoid hardship during introduction. One possibility would be to fade it in slowly, as suggested elsewhere.
But there are more possibilities:
- There could be the possibility to deduct from the LVT all mortgage payments from legacy contracts. This way nobody pays double, the tax revenue probably ramps up faster as with fading in over 30 years, and many effects like stopping speculation kick in immediately. In your Example you pay the bank back as it was the plan anyway. As long as your payments to the bank exceed the LVT, this is all you do. Only after that you would have to pay the LVT instead of nothing. But you are still better off than renting the house, because now the Building belongs to you and LVT only equals the rent of the land, the rent of the building is yours to keep and you could also sell the building. If you did pay cash however, the part you payed for the land would be lost, not the part for the building. But if you had this money idling, it will feel unfair, but it wouldn't ruin you.
- There could be a rule, that the LVT isn't enforced on self used property if it would ruin the owner or only put him into poverty. This way nobody would get forced out of their home if landvalue raises or if they loose their income, be it unemployment or retirement.
They have no choice but to accept if they want to own land. Similarly, people have no choice but to accept that they may be victimized by a criminal in a certain area if they choose to live there.
Land ownership might be likewise thought of as theft. Years ago someone deprived everyone else of access to this patch of land, and if I buy it now, I’m effectively accepting possession of stolen goods.
Plus, if LVT does end up as the single tax, it can be easily sidestepped by not owning one particular asset. Sounds much less thefty than, say, VAT or a sales tax.
Not usually. But my point is that income taxes occasionally going up or down by a few percentage points is going to have an orders of magnitude smaller impact on most people than suddenly implementing a Georgist system would.
The American university system is doing its best to change that, though, and if you add the per-student cost of all 12 years of schooling before that I suspect the number starts looking surprisingly comparable.
The point of Georgism is to encourage people to invest in building skills and structures rather than “investing” in scarce land (ie paying off current landholders).
The classic response to this is Book 7, Chapter 3 of Progress and Poverty, "Claim of Land Owners to Compensation." Ultimately, compensation to landowners is disregarded on the same grounds as chattel slave owners or the holders of stolen property. There were disagreements on this front, of course: John Stuart Mill believed that compensation was in order; Alfred Marshall argued for a decades-long phase-in.
But here's another angle: the risk of future dispossession should end up priced into the asset. So ultimately it wouldn't be a *random* wiping away of assets, but rather a reflection of how well the asset-holder incorporated risk of future tax regimes.
No, we don't. The expectation in a first world country is that our government at least attempts to protect property rights, if they didn't I would move somewhere that did and/or buy a gun.
There is a huge difference between outlawing an optional firearm component as a result of a highly publicized mass casualty event that may or may not have used some, and dispossessing the most fundamental owned asset of all history from everybody at once.
That said I do not support the bump stock ban. Incidentally it appears that the bump stock ban does run into this issue, and may be getting around it due to public safety powers which clearly don't apply to land
We really really don't calculate in the possibility of dispossession, because it's extremely hard to cost out a very low chance of a high value change. In a first world country, we essentially round off that very low chance to zero (not much of a difference from 0.01%). If we intentionally implement a program that dispossesses property, we have taken that 0.01% (even if it were priced in) and making it 100%, thereby causing a massive imbalance in the market that clearly wasn't priced at 100% chance.
The only way to avoid that is to telegraph the change well in advance, so markets have time to adjust prices over time in anticipation. That doesn't change the confiscation problem, but smooths it out over time instead of it happening all at once and crashing the system.
That's a complete nonsense argument. You realize that if this made sense, it would invalidate any kind of risk pricing, no? Because after a thing happens, the odds that it happened are always ~100%, but the risk pricing would have had some other number before that
That's the whole deal with risk pricing! There's a thing that might happen where you're worse off, but because of that you get a better deal when it doesn't happen.
That would be a fair response, except in a situation where the rules of the game are changed by active and sudden interference. If I were emperor and could decree any policy choice I wanted, regardless of constraints and issues normally in place, then I could do all kinds of things that aren't at all priced in the current cost of whatever we might be discussing. I could rule that all cash now has no value. Would you argue that cash holdings have that priced in already? Of course not, because that's so unlikely that nobody would have considered it.
If an LVT were really implemented, there would be a discussion process in Congress, maybe one or more high profile laws/constitutional amendments involved, and a whole lot of active discussion. In that case, there would be a shift over time as people did price it in. Going from our current situation to a Georgian tax, without time delays to telegraph the approach (as I mentioned in my first post), would be a fiat decision that is no more built into CURRENT risk assessments than an emperor outlawing cash. It's nonsense to say that people are pricing in Georgian taxes now, or that if they were implemented in the current society that it's fair because people priced in risk.
If the slave owner bought property that they had no right to in the first place, whose fault is that?
Answer: the government, who made slavery legal in the first place. Since they are the ones who declared that buying a human being was okay in the first place, they should be the ones on the hook for compensation if they later decide that it isn't.
In the US at least, the government didn't create slavery, it was preexisting. The moral wrong was committed by the people doing the enslaving. The idea that the rest of us needed to have paid them off is ridiculous.
The US government inherited it from the British government. When the US chose to secede from the Empire it inherited all the obligations along with all the assets.
This is too far. We shouldn't consider slaveowners as blameless naifs, even if we shouldn't fully apply modern standards to them either. I view this as mostly a prudential question - what will most quickly lead to a wealthy, peaceful, free nation? - rather than a question of *morally deserved* compensation. If we're talking about what slaveowners morally deserved, my answer involves more punishment than reward.
It's not about morals, it's about the consequences. Paying off slave owners for accepting abolition is usually smart for the same reason I'd say that offering Kim-Jong Il and all his top brass a luxurious retirement on a Caribbean island would be a cheap price to pay for liberating North Korea, were that an option, for all that the entire government of that country probably deserves execution.
Even when retribution is justified, retributive policy tends to lead to bad ends.
After WWII, you could definitely argue that Germany deserved to pay crushing war debt and pay punitive amounts for their grave moral crimes - but the US decided to pay substantial money *in* instead. And I think if you compare the legacy of the Marshall Plan with the legacy of the Treaty of Versailles, you'll see why that was a good idea. I think it's possible that analogy applies here, even if it's stomach-turning to think of slaveowners receiving any compensation whatsoever.
I think context is useful here. New states were being added during westward expansion, and if the new ones were mostly free or mostly slave, that would have upset the antebellum 50/50 balance. That meant to defend slavery in their own states, slaveowners pushed for some of the new states to be slave states; Mason and Dixon struck a series of famous "compromises" to keep the balance and the peace. I think in that context, it's likely that Southern advocacy for expanding slavery was *usually* (not always or by everyone, but usually) intended to protect slaveowners' interests in exploiting slaves, and not because of an expansionist impulse to spread slavery across the world. (Of course, defending slavery in either form is still morally awful; this isn't a defense.)
In short, I think for all but positive advocates for slavery like John C Calhoun - who was unusual in this respect, even in his own time - history is consistent with the idea that slaveowners' defense of slavery was driven primarily by self-interest. I think if compensation had been offered, they still would have chafed and it wouldn't have ended all strife, but I'm very confident they would have taken it.
Listen, moral 'right' and 'wrong' aren't objective features of the universe. They're just the semi-arbitrary outcomes of abstract discussions, and really only signal the alignment of culture's current power-holders with the topic under consideration.
Putting aside issues of whether it practically would have worked (it probably wouldn't have, actually), the objective way of framing the issue is: the US had the choice of ending slavery by A) killing a million people in a civil war or B) buying slave owners out of their holdings. Regardless of whose 'fault' slavery was, those were the actual options. Which would you prefer?
That's ridiculous - the war started before slavery was abolished, because of the mere concerns about abolishment decades down the line, even when that would very likely have involved compensation.
If I recall correctly, most of those deaths occurred before a single slave was freed by Lincoln’s government. You could argue that Lincoln confiscated the slaves as restitution from the people who caused the million deaths, rather than the other way around.
FWIW in 1835 the UK government bought out all its citizens' ownership in chattel slavery as a way to wash their hands of the entanglement. It cost about 40% of the national budget and was financed by bonds that weren't fully paid off until 2015.
I don't think holding land is immoral and comparing it to slavery won't be very persuasive to others who don't have issue with it. This would mean that someone who buys a house on 1 acre of land for their kids and dogs to play on should suffer like a slave holder suffered when they lost their slaves and it is what they deserve. It's just not a good comparison in my view.
You can price in unethical things but that doesn't mean the unethical thing is not unethical. The price of me being randomly murdered might be priced into my value as a worker but that doesn't mean murdering me is just. That's a different issue. The pricing in actually lowers my value which is also unjust.
A single owner of land isn't immoral, but the exclusion of people from the commons through indefinite land title is immoral.
It is the system in its totality that is immoral.
The classic example we like to use is Robinson Crusoe. Imagine you're Friday and you wash up just after Robinson. He's claimed all the land. He says that you may live on the island, but charges you rent for living on his island, leaving you with just enough to subsist.
Your options are to pay the rent or jump back into the sea.
If your argument for LVT rests not on some kind of efficiency theorem but on "the system of land ownership is immoral" you will, rightly, not get very far.
That assumes that political outcomes are reasonably predictable. The implied meta-rule of political economy is therefore that no economically-significant legislation should be passed without signalling the change with enough warning for markets to rationally price in the risk. Otherwise you risk things like civil war.
If Georgian property reforms were implemented with anything less than, say, 50 years of rational anticipation, there would absolutely be conflict on the scale of the Civil War. The US would turn into a banana republic overnight. Landowners simply wouldn't stand for it.
This is assuming you jump straight to a 100% LVT. Even the most optimistic Georgists admit that isn't happening overnight.
Keep in mind it also comes with an un-taxing of all taxes on improvements. You are more than welcome to continue to collect rent on all your buildings.
Most policy papers I've seen (such as the one by Tideman linked in the paper) suggest starting with simply shifting property taxes off of buildings and entirely onto land, but collecting the same amount of tax.
As soon as you announce a timeline for taxing land rents to 100% (or near enough), that is immediately capitalized into the valuation. There are proposals of "compensation" by providing all landowners a tax deduction equal to the exchange value of the land *when they first bought* plus inflation (and maybe a minor bit of profit) while also immediately instituting a high LVT. This provides all the benefits of an immediate LVT while not immediately burdening all previous landowners.
It just makes what should be common property actually common property. And it wouldn't eliminate "ownership", it would just eliminate the private collection of land rents.
So "Georgism" is just "Totalitarian Communism With Extra Steps"? Might as well just skip straight to the rifles then, 'cos that's where this would be going in North America at least.
Or you could find some unoccupied land that you could buy and try the system out, if you are so confident in it's superior outcomes.
Communism is about collective ownership of *capital* as well as land. Georgism is about collective ownership of land with private ownership of capital.
This is a willful mischaracterization of Georgism. Henry George multiple times explicitly said that seizing land, violent revolution, and collective ownership of capital are not a solution. Georgism is literally only tax policy. On top of that, it is a tax on something no one ever created, has no deadweight loss, and pushes the right incentives. Like if you had to choose between ANY other tax and a LVT, how could you possibly justify it? How does an income tax sound fairer than a LVT? An income tax is a direct tax on labour. Capital gains tax a direct tax on capital. Sales tax on voluntary transaction. I am dumbfounded by people who believe that a LVT is radical but an income tax is kosher. This is simply status quo bias.
exactly - these are very dangerous ideas and it is naive to expect landowners to lay on their backs and say "sure, great idea, do your worst". You simply take assets from people who own them, exactly what the communist did. The difference between now it being land and before all productive capital is only cosmetic.
Ah so you're assuming that the plan would be announced and everyone would also be 100% confident that it would play out on that timetable? I was thinking more of a gradualist policy where you just try to start by shifting taxes off improvements and on to land, and collect the same amount, then work your way up from there. I'm not sure the expectation would be immediately capitalized at 100% under that scenario.
That is what I assumed. If you are more gradual, then I would imagine what is capitalized would be the probability of the government some time in the future collecting a 100% LVT.
I would be on board with this (assuming that the deduction passes with the land), but doesn't the compensation eat most of the revenue, so we're no longer able to use it to replace other taxes and/or fund a citizen's income? You're then really only taxing increases in land value (or land rent).
Yea you'd still need to have taxes on labour in capital as the deductions are being used up. It would be a phase out, but with all the immediate incentives of a LVT
This is an implementation problem that has many solutions. I think most commonly we support some sort of tax abatement/deferral/rebate, which would obviously not allow people to devest in properties late in life to make all their money back, but it would prevent them from having to pay the LVT. You also don't need to go from 0 to 100 tomorrow, it could phase in over a period of time, lessening the impacts.
People's homes are their most valuable asset, commonly, and destroying that would be economically devastating, but to right an unjust system there has to be a transition period.
Where this does get complicated is with minorities and gentrification. Lots of African Americans tend to be land rich and cash poor. Ideally a Georgist system would result in significant reductions in poverty, increases wages, cheaper rents, all things that would help the Black community, but might initially result in a bumpy road.
> Ideally a [X] system would result in [good things happening to everyone]
This is the slogan of every minor political party ever: everyone should support us, because we are better for everyone! (Which quickly leads to its close cousin, people who don't support us are idiots and must be forced to do so.)
Most Georgists recognize that going to a 100% LVT right away would be madness- it would totally destroy an entire economic sector and probably send the economy into a crash as not only individuals but banks lose assets (the financial sector is heavily invested in land). So any implementation- even in fantasy- should be gradual, with compensation to keep things stable. Many Georgists have proposed tax credits in order to help out people who would otherwise be stuck with mortgages on worthless assets and smooth the transition to taxation on land values. This means that a land tax would bring in less revenue for a while, of course, but that is well worth the cost to most people.
In reality however any shift to land taxation is going to be piecemeal anyways, because real politics is too complex to allow you to just wipe away tax codes and replace them overnight.
If you look at the centuries of jurisprudence debates on the foundations of property rights, it is quite easy to see that on a moral level, every time a landlord collects rent on their land values, they are "stealing" from the tenant. Preventing this is not stealing from landlords, it is simply preventing them from continuing to steal from the rest of society. And in anticipation of you suggesting that landlords have mortgages to pay - no they don't. If you have to pay a mortgage, you are also a tenant. Every bit of land on the planet has an absolute owner, whether it be a landlord or the bank collecting the mortgage interest.
When designing the LVT, the philosophical is paramount. Thus the tax should be levied on the beneficial landlord, not the legal landlord. So if someone has just committed to a massive mortgage, they have a liability to a bank. That makes the bank the true land lord, as they have the right to foreclose on the property if the payments are not made. It is right that making the owner pay an entire land value tax would be unfair, as they still owe money to the bank. The bank should be charged LVT on any outstanding mortgages they have dished out. They are the ultimate winners in the current land lords game.
How *exactly* do you phrase the tax law then so that it always charges the "beneficial landlord"? Does the tax burden shift to me as I pay off the mortgage (if so, this would suck for me)? What if I paid off my mortgage by taking out some other loan?
To ease the transition we could indulge the bank to get payed, but allow the owner to deduct the mortgage payments from legacy contracts from the LVT so he doesn't have to pay twice. This is kind of a fading in, but many benefits like blocking speculation ale in place immediately, an there is no haggling about how fast to fade out as it is already in the contracts.
> If you have to pay a mortgage, you are also a tenant
No you're not? If you're paying the mortgage, you have 100% equity in the land/house price; any increase in the value of the house benefit you, not the bank. That's not the case for any tenant who's just renting.
Isn’t it a core of Georgism that the lumping together of “land/house” is incorrect? A Georgist landlord owns the house and is exposed to changes in its price, but the land they effectively rent from the state and an increase in its value makes them neither richer nor poorer.
"Every bit of land on the planet has an absolute owner, whether it be a landlord or the bank collecting the mortgage interest"
Or the government, collecting tax.
I'm prepared to evaluate just about any policy on an empirical basis, but if you're a business who puts in the resources and expertise needed to build an office skyscraper or a set of high-rise apartments, then you're going to need some method of recouping that investment. Charging people a fee to live or work there, at least on its face, seems like a reasonable way to do it.
If you want to argue this eventually allows for indefinite recoupment of a finite initial investment, or that a tax scheme could be put together to better reflect the real social costs of land ownership, fine. But to me this argument that "rent is theft" feels about as reductive and absolutist as the libertarian line about "taxes is theft".
Georgism involves taxing the value only of the *unimproved* land. So building an office skyscraper on the land would *not* increase your taxes, and is therefore not discouraged.
Right, I'm just responding to Richard's remark that any form of rent is inherently a kind of theft.
I suppose I'd be mildly concerned about whether this would create perverse incentives to distort the valuation of land, but I suppose you could say as much for evaluations based on type of improvement. I'm not terribly familiar with the nuances there, maybe the former is harder to game than the latter?
I do think that it can produce perverse incentives (I have another comment laying out my argument for this). But I think that it should be the case that taxes on the underlying value of the land create many fewer perverse incentives than a tax on the full value of the property.
A tax on the value of something creates perverse incentives by discouraging you from investing in improvements that increase the value of that thing. If you are talking about the full value of the property there are lots of ways to do this- building basically anything on the property or improving what is already built there will increase the value. However, these improvements will increase the value of the stuff built on the land and not the value of the land itself.
If you want to increase the underlying value of the land, it is possible to do by making that location a more desirable place to live. But the things that you do to accomplish this (like having good schools or job opportunities nearby or having good public transit and other city services) are generally not the type of thing that the individual land owner would be the one paying for.
One thing Henry articulated very very well in his mayoral speech is that taxing land value cannot reduce the supply of land. It also cannot be passed on to the end user. This is because land is eternal. A tax on anything that requires a human decision, will reduce the availability of that thing, and thus the end user will have to pay higher prices to ensure it is produced. There is no logical disincentive for an LVT. It is a unique tax in that way.
Funny, I think that some tax absolutely is theft. The libertarians are right, in a way. If someone like Monet was forced to give 2/5 paintings to the state, just because they commanded it, that is no different from slavery/theft. The important concept to understand is that some things are available to all, independent of human labour (land), and some things are a direct product of human labour.
> every time a landlord collects rent on their land values, they are "stealing" from the tenant
No. No, they aren't. The tenant has already received services, namely shelter for the time period in question. That's like claiming a doctor is stealing from you when they bill you after they've provided services.
Actually, now that I think about it, even committed Georgists think that the tenant should be paying for their housing. If anything, they think that the landlord is stealing from the government.
No, it is different because 100% of a doctor's services are human created. Whereas when you rent something, part of it is landlord created, but invariably part is natural and has been arbitrarily taken from the commons. Henry George wrote a letter to the pope, saying if Cain and Able were to divide the world between them, that would be a valid and fair contract between them. But if they were to refuse access to the next born man, it would be to murder him. And if they were to demand a rent from him for access, it would be to make a slave of him. In contract law there is a rule called privity. If someone is not part of a contract, it cannot bind them. So on that logic, the next born man cannot be bound by Cain and Able's agreement, unless he agrees (and would ask for compensation). The whole history of property law runs counter to this very important principle. It is not a consistent philosophy of law. The land-less should be compensated with taxes from the landed.
A) doesn't this argument also say that anyone who wasn't alive at the time of the founding of the US cannot be forced to abide by its laws? Shouldn't it also imply that all property rights are invalid? Actually, under this logic isn't Georgism also invalid? I never agreed to only use property if I pay money to the government.
B) under Georgism the tenant would still be paying for his lodging. At worst the landlord is stealing from the government not the tenant.
The builder provided the house. The power company provided the power. The water company provided the water. The trash company provided waste removal. Etc.
Which service exactly did the landlord provide? Besides profiting from artificial scarcity...
If the land was there a thousand years ago, then how does the landlord provide it? It shouldn't be so hard to grasp that land is not provided by landlords.
Because our society has decided to solve organizational problems involving the use of land by way of property rights. By those rules, the landlord has the right to decide who gets to occupy the property in question and you are paying him to assign that spot to you.
I agree that there are other methods that society could use to manage land scarcity, but this is the one we ended up with.
I mean we could also have ended up with a system that lacked any kind of property. Why should I pay you for a car when the materials that the car was made out of existed well before you came along.
Of course you could word the law this way, but if you suddenly implemented 100% LVT, most of the lenders would probably go instantly bankrupt and thus be untaxable.
Even if a similarly successful system could be implemented without private banks in the long run, having all of them suddenly go bankrupt seems like it would be very likely to cause a financial collapse in the short run.
Look up the history of Jubilees. A financial "collapse" is a bit like a Jubilee. The wealth don't want it, because it ruins their income streams. The reason the poor suffer in a collapse is because governments bail out the rich at the expense of the poor, rather than proclaiming a jubilee. See Obama's bailout.
Phase it in gradually on a schedule over the course of 10-30 years, then, as others have pointed out. Plenty of time for banks to adjust their balance sheets and loan offerings. *Any* sudden drastic change to the tax code would cause chaos andwe should avoid that, but that doesn't mean we can't make the same change slowly on a predictable schedule.
That happens either way, with AnthonyCV's proposal you just skip the step where everyone with a mortgage goes instantly bankrupt, after which the banks still go bankrupt when no one can pay off their underwater mortgages.
Brilliant idea. I have been trying to help people realise that the ultimate beneficiaries of land rent are banks... the average home owner is shooting themselves in the foot by voting for strong land lord rights (unless, of course, they happen to own a bank).
> One thing I don't quite understand about Georgism is: who is going to compensate landowners for the massive drop in the value of their land that would come from suddenly subjecting it to enormous taxes?
Who is compensating people for the income taxes they pay? Who is compensating people for being born into different levels of wealth -- including specifically inheritable land?
This is just an generalized argument for status quo, which doesn't even try to defend the validity of status quo.
No one, but since that's been the status quo for so long and everyone expects it and has planned their financial lives assuming it, I don't think there's much cause for that to be the factor that stops us from causing a financial disaster.
That said: once everyone *knows* it's coming to an end, any rentier that tries to get their last licks in is likely to find much stronger opposition than they would today, I suspect.
Owners of stocks and bonds don't get compensated when taxes and capital change. That said, one also lives on land, and outstanding debts are A Big Deal - there's really no reason this needs to be implemented all at once. It can start at 1% and increase 1% per year until it hits 85% or so.
> Everybody needs land, but nobody can make any more of it. You can't work, eat, sleep, or even poop without access to land
Everybody needs time, but nobody can make more of it. You can't work, eat, sleep or even poop without access to time.
So why not tax time, instead? This would reduce to the Universal Basic Tax, everybody pays the same amount per year (currently about $30K/year for the US) for the privilege of living in a given country.
But income tax penalises those whose productivity is higher, which is completely backwards from what we want to do. We want to encourage high-productivity people to live in our society and discourage low-productivity people.
This was actually the communist way of solving unemployment; no kidding. Unemployment was considered a crime; if you didn't have a job and couldn't get one, you went to prison. (As a side effect, this also solved homelessness.)
Realistically, of course, if you wanted to avoid prison, you simply accepted any job the government offered you, at any salary. Problem solved. (If you were politically inconvenient, the only jobs the government offered you were the ones that ruined your health.)
It does sound pretty funny but the basic statement is still pretty obviously correct AFAIK. Raising taxes on something discourages it. Income tax means that the 1,000,000th dollar of pre-tax value you generate is worth less than the 1st dollar of pre-tax value because the 1,000,000th dollar is taxes at a higher rate. Income tax depresses productivity more than just the marginal rate would imply as a result. This is what is meant by "income tax penalizes productivity".
I assume you're talking about the 24th amendment? That only prohibits gating the right to _vote_ on paying a poll tax, it doesn't prohibit gating the right to _reside_ on paying a poll tax.
I think this *can* cause deadweight loss when local governments are now much less likely to want to fund improvements (since these improvements would not only cost money but *also* increase their residents' tax burden).
Their residents will be able to pay the tax from the productivity boost caused by the improvements -- the same productivity boost that would increase the land rent (and thus tax).
Not all improvements that increase the value of land lead to increased productivity for the residents. Building a nice park nearby could increase property values while having a negligible impact on the residents' salaries.
If land values are increasing because of an improvement, then I guess productivity in that locality will increase either by improving existing residents' productivity or attracting more productive residents to that location.
A couple of reasons. A land value tax is great because it has no deadweight loss, but that's not the reason Georgists advocate for it. For one thing, time isn't rivalrous- I don't get time by excluding other people from it. Georgists are mostly in favor of land value taxation because they assert that land rights are common, and so if you want to exclude people from land you must compensate them for it, as they would have had that right if you did not occupy it. Time doesn't have anything analogous.
There is also not time speculation, and this nonexistent time speculation does not cause economic recessions like land speculation does, so a time tax would not have that benefit either.
Of course time is rivalous - time that someone else spends cleaning my house is time I'm free to spend on something else, and time they can't use to improve their situation. Slavery is the equivalent here, which is that someone owns 100% of someone else's time, and we abolished that so it's actually if anything an argument for fully dissolving land rights.
But you're corrrct that it's pretty hard to speculate on time.
Education has a chance of increasing the future monetary value of a person's time. So it can be considered an improvement, at least: you spend money to improve a thing, then it yields more money than it otherwise would have. The thing in this case is a person's billable hours. So it seems like college loans are time speculation.
That is a truely bizarre comparison. The point of a tax is to collect and distribute wealth fairly. Since everyone uses exactly the same amount of time, there is no point in collecting its value and redistributing it. However, not everyone uses the same amount of land, or land with the same utility. It is for this reason that the people who use the more valuable land should compensate those who therefore are unable to use it. This is the purpose of market rent prices, those who want to take more, must pay more. Those who want to take less, must pay less. The same can't be said for time. You can neither take more, or take less.
> The point of a tax is to collect and distribute wealth fairly
That's a socialist point of view. I thought the point of a tax is to pay for public goods. Since everyone benefits from public goods equally, everyone should pay the same.
If you think everyone uses public goods equally, you have a pre-school understanding of society. And along with that comes the pre-school conclusion that everyone should pay the same. I am not sure if you are just trolling, but how on earth can a 12 year old pay the same as the CEO of a multinational bank? And how does someone living out in the bush, who walks everywhere, use the same services as an importer who owns 1000 trucks and is constantly suing people in the courts?
> how on earth can a 12 year old pay the same as the CEO of a multinational bank
The same way a 12 year old pays the same as a CEO for a Frappuccino or a Buick or country club membership or every other damn thing in society.
(Actually children probably get reduced-rate country club membership. If we're really stuck on the children thing then I think it's reasonable to have the tax cut in at the age of eighteen or even twenty-five)
Good job answering only one part of the question - I am much more curious about the answer to the other two, much better points. Thank you Richard for the contribution BTW.
I don't think "everyone benefits equally from public goods" is a good justification for Melvin's time tax, because it's not true. But the fact that the time tax isn't proportional to usage of public goods isn't necessarily a knock against it, either, unless we know of some other tax that would do better. Would a progressive tax do better? I'm not sure, but my instinct says no.
"A poll tax, also known as head tax or capitation, is a tax levied as a fixed sum on every liable individual (typically every adult), without reference to income or resources."
Straight from wikipedia. You are probably thinking of the American type that is explicitly forbidden.
The name is also explained in wikipedia: "The word "poll" is an archaic term for "head" or "top of the head"."
And if you can't pay you get shot? Probably you go underground and live as a illegal. This prohibits you from exercising your citizens rights like voting but more fundamental ones like access to the legal system even if your human rights are violated. So if you can't pay you are basically outlawed and can be killed or enslaved. So this is worse than being taxed for voting, but it includes it.
I could at least understand a “head tax” of this sort if you named a more reasonable number. But the 25th percentile for US income is $33K, so you would be taking almost all of the money from a quarter of the population. And that’s not counting their children, who I’m guessing aren’t contributing to the percentile statistics.
My guess is that your 30K number comes from taking the US budget and dividing it by the working US population, so assumedly this wouldn’t correspond to an increased safety net to deal with the fact that 1/4 people would no longer be able to afford to eat.
And before we say that we don’t need “low productivity” people, imagine if suddenly all janitors, servers, most cooks, clerks, and more suddenly left the nation. My guess is we would have problems
> Everybody needs time, but nobody can make more of it.
At the risk of taking the ludicrous seriously: assuming an increasing population, neither the total number of global hours nor the number of man-hours per capita increases, but the number of man-hours definitely does. Or alternatively, the total number of hours per capita likewise decreases. An hour is a pure public good per Stiglitz's definition above, and a man-hour is l̵i̵k̵e̵ labour. Neither is land.
I could vaguely imagine a system where global hours are made *like* land in that an individual can have property rights over actions taken in that span of time, collecting rents upon people who use (???) either something fixed like January 3rd 2025 or recurring like 2:15 - 2:30 pm on Wednesdays, and in those situations a Time Value Tax would make some economic sense. But, uh, that might not be the best approach.
(Unless you throw viable time travel into the mix - *there's* a premise for a certain kind of niche audience.)
When comparing an LVT (and in particular an LVT that soaks up all the imputed rent on the land) to any other form of tax, I think a bit more attention is necessary on what exactly we want from a tax and why. Usually these discussions seem to start and end with "LVT is non-distortionary, therefore it's optimal". But a non-distortionary tax is optimal only with respect to the narrow goal of maximizing economic activity. Most people have some values other than that, and would probably agree that the state should also have some values other than that.
In particular, one effect of an LVT is to heavily penalize owning land and not using it for the maximum possible revenue generation. This is clearly economically beneficial, since it encourages land to end up in the hands of those who can generate the most income from it. But it reduces the value of land to only its economic dimension, and the median landowner -- usually, a homeowner -- is barely participating in the economic dimension of land use at all. (E.g. only a small percentage of homeowners are also landlords, or farmers, or otherwise directly generating revenue from their land.) An LVT that captures all land rents has the effect of turning all homeowners back into renters again, complete with the renter's lack of security in their domicile -- the risk of eviction by a landlord is replaced by the risk of increased local land values creating an unsustainable tax burden. This seems like a substantial social cost, with bad implications for family formation, local community, time preference, and so on. (And it's not like these things are in such very great shape now that we can afford to burden them willy-nilly.)
None of this is necessarily a defeater for the idea of LVT -- some of the suggested benefits seem very significant. But this discussion seems heavily dominated by boosters talking up LVT in comparison to the current system; I rarely see any talk of what the costs of LVT would be, and that's a major omission.
>and the median landowner -- usually, a homeowner -- is barely participating in the economic dimension of land use at all.
This is false. Just because money isn't changing hands doesn't mean homeowners aren't receiving an economic benefit from land ownership. The savings on rent are imputed income for one, plus the appreciation in land value, and the higher freedom and right to modify and use the property as you wish. It's like saying buying a house to live in is a bad investment because you're not directly getting any revenue from it, under the current system.
As far as those social costs go, long-term leases at least partially ameliorate them. Under the current system, if you want housing security for 20+ years you buy a home with a fixed-rate mortgage, and under a future Georgist system if you want housing security for 20+ years, maybe banks can insure against LVT increases.
> This is false. Just because money isn't changing hands doesn't mean homeowners aren't receiving an economic benefit from land ownership.
This is a good example of the kind of Economist Brain that conflates wildly different things together so you can do math on them, then insists there was never a difference between them at all.
No, imputed rent is not actually income. Duh. The fact that you can construct a synthetic framework in which imputed rent is a line item with the same sign as actual income doesn't mean that the two act remotely similar in the real world. Likewise, the optionality of being able to modify your property, while very nice to have, is not an income stream.
If you describe an LVT as "taxing all land rents" it sounds reasonable, as if it's just an income tax on landlords or something. But if you suddenly turn all homeowners back into renters again (by imposing a monetary tax for which they have no monetary income to compensate) you're actually hurting them, in a qualitative way that doesn't get captured in economic statistics.
> If you describe an LVT as "taxing all land rents" it sounds reasonable, as if it's just an income tax on landlords or something. But if you suddenly turn all homeowners back into renters again (by imposing a monetary tax for which they have no monetary income to compensate) you're actually hurting them, in a qualitative way that doesn't get captured in economic statistics.
Sure, but the (implicit—it's often completely forgotten that George wasn't just talking about optimal tax policy, but moral property rights owed to all of us in the first instance) argument is that no individual has an inherent claim to land or natural resources; ergo, we owe others payment (i.e., rent) for excluding them from using those things.
The blunt answer is that we ought not care about the tax burden "hurting" with respect to land. If someone is incapable of compensating others via LVT (e.g., their income is too low, the land has suddenly outpaced one's income due to discovery of precious natural resources), then tough shit; land is to go to whomever can, at the very least, bear the price of excluding others from it, and thus who is (likely) to make the most productive use out of it.
It's true that this cuts against most contemporary folks' intuitions re: property ownership (a full 100% LVT would de facto eliminate the concept of property, with everyone being mere stewards, or whatever term best approximates 'long-term renter' without being pejorative), but hey: moral reflection will sometimes lead us to reject intuition in favor of principle!
If you start seizing people's homes because they can't afford to pay a 100% LVT on land they bought 40 years ago, they'll either implement Prop 13 or shoot you
Sure, there's a further pragmatic argument to be had about the implementation of an LVT, but that's separable from the initial moral question of whether it's justified and ought to strive to implement it. I think we are, so we should develop timelines of how to implement the strongest LVT we can.
I do think that LVT would cause some potential major cultural shifts, especially related to densification. But I see them as primarily positive ones. Humans are social creatures, sprawling suburbanization has done nothing but separate us from one another, make us spend hours a day inside a car, remove us from easy access to all the things that make life easy and enjoyable.
I don't think home security would be much of an issue. Perhaps living in the exact same place for a long time would be less common, but being able to find SOMEWHERE would be really very easy, in my opinion.
And at the end of the day, rural/suburban living would not cease. And the land ownership would likely be very stable, as the land would not have a large demand and therefore very low LVT. (And then again, as suggested, a UBI would help even more.)
> Perhaps living in the exact same place for a long time would be less common
I think you might be underestimating how destructive that might be. Stability of community is a *huge* factor in making many people's lives "easy and enjoyable", and one best not ignored.
Communities are already constantly destabilized and suburban sprawl has already largely destroyed what is even means to be a community by stealing hours and hours of our time every week, spreading us out, and reducing common centers of activity that build community.
I don't know if LVT would fix all that, I think it would definitely help. I'm very sensitive to the way that LVT might impact the way we interact with one another and I think its would lead to a massive benefit, overall.
My point about people living in the same place was not about instability, it was about the ability to have increased mobility, since we're not sinking such massive amounts of equity into a home and productivity can be more flexible to the needs of the community, meaning people can take advantage of mobility to provide for themselves economically. UBI of course would help with risk taking.
A homeowner through their labour contributes to using land efficiently so long as they pay the tax and find the value they gain from being a homeowner worth the cost. On top of that, land rents *ALREADY* exist, especially for homeowners who have mortgages. The landlord that is collecting the land rent in this case is the bank with their interest.
Wages are return on labor. Interest is return on capital. Rent is return on land.
If I plant a wheat field, selling wheat is my return on labor. If I use a tractor to save time, the additional harvest (since I could farm more wheat in the same amount of time) is interest. Rent is the amount of money someone could lease the land to me for. Could also be thought of the increased value that I could sell my wheat for by being close to a port or people or bread factory or whatever, over another wheat farm that is farther away.
This makes sense except for one thing. Under an LVT, the rent/mortgage/tax (whatever we're calling the equivalent) can change massively with land price fluctuations, and will tend to grow fairly quickly, at least in terms of a person's lifetime, regardless of the economic wellbeing of that person. In fact, retirees may have significant issues staying in even a crummy home outside of desirable areas. I get that shoving unproductive retirees out of economically growing areas is one of the intended side effects, it's just a rough one.
I'm also quite concerned with the idea that someone can build a economically valuable building near another person's home, and suddenly price them out of their home due to increased land value -> increased LVT. It may be economically beneficial for society as a whole, but it's also a great way for a rich jerk to force people off their land.
I'm not convinced. A citizen's dividend and government programs can make it easier. There are tax deferment/tax roll-ups that can be instituted if need be. Property taxes in place already have this issue and I fail to understand why property taxes would be okay but not a land value tax even though property taxes are taxes on labour too! I wouldn't ever want to force people away from their homes which is precisely why I would support a citizen's dividend.
I consider a citizen's dividend a completely separate discussion. If we did go with Georgian taxes, we may very well want to create an offset, but that doesn't make it an inherent part of LVTs. I would also be very interested in an examination of how the citizen's dividend affects the ability of LVTs to cover our tax needs, as per a lot of the author's discussion of the benefits of having LVTs. It's hard to argue that an LVT can cover 40%+ of our expenditures and then separately argue that we should spend a significant portion of those taxes making up for the shortcomings of LVTs when it comes to residential housing. You certainly can't continue to say that we'll be able to cover 40% (or whatever number) of our current spending in that case.
Georgism is not only the LVT, it is taxing away economic rents. Land rents just happens to be the biggest one. Another source of economic rents are intellectual property, but that is a different discussion.
Another big thing that is a part of Georgism is that economic rents belong to society so the Georgist remedy necessarily *must* include a Citizen's Dividend (CD).
>It's hard to argue that an LVT can cover 40%+ of our expenditures and then separately argue that we should spend a significant portion of those taxes making up for the shortcomings of LVTs when it comes to residential housing.
It isn't useful to discuss what land values are today because implementing a land value tax and removing all other taxes would raise land values tremendously as ATCOR and EBCOR (Excess Burdens Come Out of Rent; deadweight loss caused by inefficient taxes come out of the surplus of rent, very similar to ATCOR) kick into action. What Lars is doing in this article is showing that land is still a major part of the economy and nothing to be dismissed away as "19th century irrelevant philosophy".
But on the other hand, why would someone be entitled to buy a piece of land when it’s cheap and, when other people’s labor improves the area, to enjoy that at no additional cost?
I would agree that someone buying an unimproved lot with the hopes that nearby land gets developed and goes up in price (Las Vegas perhaps), is also not fair. I'm honestly not sure which way happens more often, but suspect that there would be a lot more average or poor people negatively affected by getting outpriced due to an LVT than the richer people who speculate on land.
I think we'd have significantly more stable urban design under an LVT. If an urban area was expanding, then you'd expect an increase of value at the edges proportional to the increase in population, but it wouldn't likely be some massive boom, since the boom/bust cycle of land speculation wouldn't exist.
Combine that with significantly more economic potential over a lifetime with no taxes on capital or labor, and I'm not super concerned with retirees being kicked out of their home.
Some have also postulated that each urban area likely has its own inherent geometric curve that defines the maximum possible land values and therefore the maximum size and shape. For example, if we built as densely as possible, eventually buildings couldn't really get taller without significant marginal decreases (really tall buildings have footprints that are mostly useless to foundation support and elevator shafts, etc, etc). This is largely defined by the geographical situation of the city and the geological surface on which we can build.
All that to say, places like Dallas Fort Worth are likely not to be some mostly flat sprawling are around a few dense areas, but perhaps localized densification all through the sprawling metro area, again, enhancing stability and making the scenario you propose less likely.
This could be avoided, if the LVT of plot is only changed when the use or owner changes.
So if you buy a house for your family and live there your LVT will be set according to the land value when you buy and it won't change as long as you keep it in the same use and you don't apply for a recalculation. So you don't have to worry if you surrounding changes for the better.
But as soon as you would financally benefit from increased land value, the tax is recalculated so that you can't profit financially from the increased land value and thus from speculation.
So if you start to lease a room or the whole house to some tenant land value gets assessed so you only profit from your improvements, not from the land value. Than LVT staiys stable again until something changes. So you don't have to increase the rent for your tenant just because of land value. But if you want to change the rent, the LVT is recalculated so that you will only keep your part of the rent for the building, maintaining and managing of the place put nothing from the changed land value.
If you sell your house you the price of the house is yours, but for the land you cant keep anything more than what you payed when you bought it. So you profit from your work and investments, but not from the value of the land.
One possible solution is to allow a homeowner to convert the increase in taxes on the land his residence is on into a loan that will be paid when the property is sold. Something like this is planned to be possible with property taxes in Denmark.
"Make everyone explicitly a debtor of the government" does not really sound like a great solution to the problems associated with "make everyone explicitly a tenant of the government".
Given that this already puts most mortgages underwater since the original mortgage included the land value which will not be included in the sale price, I don't think making it even more impossible to sell that property is much of a solution.
Isn't this already the case with property taxes though (at least where I live- I guess this varies widely)? My own property taxes went up enough last year to put a palpable squeeze on my finances because home values in my neighborhood are rising sharply. It's already "like we're renting from the government", as my mother in law is in fact fond of saying.
You could add security by only setting or changing the LVT for a given plot only when there are legal changes. So as long as you live in you house the LVT can't increase, only if you sell or lease (part of) it, LVT is recalculated.
What do you want to say with this? This is the first time I heard about 'Proposition 13' and just had a quick look at Wikipedia, so please forgive me to for not knowing what this stands for in this discussion.
Property taxes were unpopular in California, so they passed a law that property valuations could only go up by a tiny percent each year.
So millionaires [1] are sitting on $2 million homes and paying taxes like it's worth $100,000, while their neighbor pays full freight to fund the schools and other community services, and paying extra because the millionaire[1] is not.
The people may not like the precise house they're in, but the tax bill stops trading of housing.
It's voting for "low taxes for me, but high taxes for the people who aren't here yet," so you can see how it's popular, but lots of popular things are incredibly stupid.
[1] literally, their house is worth over $2 million
I'm not sure that I agree with the claim that a LVT has no associated deadweight loss. I sorta see the argument for the claim: since your land value isn't based on improvements, it cannot change and therefore nothing you do can change the amount of tax you pay and so the tax has no effect on economic activity other than to redistribute money a bit.
But thinking about it a bit more, just because we talk about the value of the land without improvements doesn't mean that the value cannot be changed by human activity. The land in SF isn't super valuable because it is next to really valuable natural features (though that is a small part of it). It's valuable because it is situation near a bunch of other man-made stuff like Silicon Valley. The vacant lot in SF isn't valuable because of what is built on *that* lot but because of what's built on the lot next to it.
And sure, if you don't own the nearby land, maybe this isn't so much of an issue, but I can think of a few situations where a huge LVT might cause people to make what would otherwise be suboptimal economic decisions.
For example:
1) A town is trying to decide whether or not to build a new park/school/stadium/public transit system/etc. Normally, people would be for this. However, residents note that this improvement would increase the value of their land and thus the amount they would need to pay for the LVT. Furthermore, the LVT would mean that they couldn't even afford to sell the land for any more money to escape the taxes. So they decide against the otherwise-optimal improvements.
2) An oil company offers to for free test whether or not there is oil on your land in exchange for giving them first shot at negotiating for drilling rights if they find anything. Great deal right? Not if there's a full Georist LVT. If they discover oil, your taxes will suddenly increase by the exact amount that drilling for that oil is worth. You need to let the company drill just to break even, and suddenly you have to deal with all the extra noise and everything else from the drilling operation. The only reason you'd want the oil company to check is so that if they don't find anything you can prove to the tax collectors that your land definitely *doesn't* have oil, which might marginally decrease your tax bill.
1) In this case, "the land value increasing" means that the parcels will be able to generate more revenue (enough to cover the additional tax burden). Possibly the previous use will no longer be appropriate, and perhaps the landowner will have some loss aversion to change, but in principle they should be able to be compensated by the aggregate increase in land value.
2) In general, if there's a full LVT (incorporating mineral rents), there wouldn't be any incentive to search for oil at all (people would pursue the intensive margin exclusively, and not the extensive margin)! If we are to believe that pursuing the extensive margin is still worthwhile, we'd have to incorporate some sort of "finder's fee" in place; presumably this would compensate both the searcher, as well as incumbent users of land who are in any way inconvenienced.
1) How will they be compensated by the aggregate increase in land value? A really full LVT that captures the full value of the rent means that all land is worth $0. The rents that you can earn from it are exactly cancelled by taxes you would have to pay on it.
Only if the pool of taxpayers paying for the improvement is the same pool that is getting the citizens dividends. If the improvements are paid for by the local government but the dividends are paid out nationally, it's still an issue.
So I take the money out of one pocket (pay the full LVT on the full rent) and put it into another (get my Citizen's Dividend). In that case, can't I just cut out the tax and keep the money in the original pocket?
They're implicitly compensated by improved infrastructure and public goods; if truly *rational*, someone with tenure over a land parcel would choose to pursue some important infrastructure (let's make it unambiguously very positive and say it's laying a modern sewage system) instead of being broadly conservative.
We could go further and make *explicit* compensation to affected users of land (in proportion to how much inconvenience they incur, why not): giving residents and businesses some form of stability as their city undergoes change is a valid form of public good as well.
They are not compensated as much as they would have been if there were no LVT and that is what causes the deadweight loss.
Suppose that building a new park would cost me $90 in taxes, but would increase the value of my land by $100. Without an LVT, I would vote for the improvement. However, with an LVT the park would also come with an increased tax burden of InterestRate*$100 or so, which pretty quickly turns my $10 gain into a loss and so I vote against the park.
Thus, a park which produced a net public benefit of $10 doesn't get built and there is a deadweight loss.
This is actually one of the criteria for deciding on public investment. If the public investment doesn't increase rents more than it costs, on aggregate, then you shouldn't build it.
This is true so far as the utility of a public investment is directly reflected in land values, which seems to be mostly true, but you could think of something for which that isn't true, like maybe preserving an historic building. This isn't deadweight loss, this is just the community democratically deciding to do the less economic thing.
So I haven't seen a formal statement for this theorem. But I guess it makes sense if you think of the government as an independent actor that acts primarily to maximize its own net income.
But if the government is a thing that is voted for by voters, you could have issues. In my scenario, sure the government would make money on building the park. It would cost the government $90/voter to build but the present discounted value of the revenue it generates would be $100/voter.
On the other hand the voters (who elect the government) who are actually paying this extra $100/voter might see it differently.
Hmm... though I guess the other voters in the city might be benefiting from the extra government revenue. This maybe works if improvements are only made by the government.
But fine scenario 3:
I have a great plan to decrease my taxes. I pay my neighbor a bit to set up a machine that plays loud music at all hours and to build a bunch of eyesore sculptures. This is pretty clearly a net negative that wouldn't have happened otherwise.
OK. Maybe a more serious objection. The Henry George Theorem only applies if the government collecting the LVTs is the *same* government that is making the improvements.
Imagine you live in a city of 1,000 people in a nation of 1,000,000 people. The national government supports itself on a LVT and the city government uses, say, a sales tax.
The city is planning to build a park. It would cost $90,000 but increase the value of land in the city by $100,000. Now a resident of the city tries to evaluate this plan:
* The park costs them $90 in increased sales tax
* The park increases the value of their property by $100
* The park causes them to pay an extra $100 in LVT
* Of that $100 they paid, they get $0.10 back in dividends.
Overall, this citizen is down $89.90. The local citizens overwhelmingly vote down the "build a park" measure.
I mean I guess in theory you can solve this by having the federal government finance all local building projects, but this leads to issues with locals overestimating the projected value of the improvement in the proposal stage. Also, these kinds of decisions usually should be local.
Isn't that increase in your land value coming from the utility the park provides? If I understand this, the park raises your annual tax burden by (say) $5 because that's how much more someone would be willing to pay to live in your town after the park is built. How is that deadweight loss?
It seems natural that your vote to build it depends on whether you'll enjoy the park yourself, rather than whether it will increase the sale value of your home.
This would be your decision making process is there was no LVT. However, with a LVT you also have to take into account the fact that if the park gets built, your taxes will increase by $5, cancelling out the benefits you would get from having the park built. This might cause you to vote against the park and not building the park (a thing that would have provided net value) would cause a deadweight loss.
But the tax on owning the land is exactly as high as the value that you'd get out of it. The tax would be high enough that the person who most wanted to use the land would be *indifferent* towards owning it.
2) Norway has exactly this policy. Norway has huge taxes on oil *extraction* (a form of LVT called a severance tax, when the "Land" is question is a depletable natural resource), but enormous subsidies on oil *exploration*. The entire system was set up by an Iraqi Immigrant named Farouq Al-Kasim who was dead set on saving Norway from the resource curse that haunted his homeland of Iraq.
It is! Farouq is a very humble and quiet guy who doesn't promote himself much, but he was recently elevated with a Knighthood of the order of St. Olaf for his contributions. In an interview some other oil policy experts said that if it hadn't been for the policy paper he pushed, they would likely have just the international oil companies do whatever they wanted.
My understanding is that it's a fixed large amount per barrel extracted, (fixed is normal, large is not), such that it incentivises maximising the efficiency of the extraction rather than pumping out as much as possible - and that it's worked, insofar as Norway still has lots and lots of oil money and the UK pissed away the money from its share of the North Sea oil
What do you mean by "the parcels will be able to generate more revenue"? The land on which I live in does not generate any revenue, it generates a benefit to me (the ability to live in a nice place) at an equivalent cost to me (the full Georgist LVT), in effect renting the land on which my house sits. If the surrounding infrastructure improves, I get to live in a nicer place so my benefit from the land increases, but I also pay an equivalently larger increased LVT for that - so in effect my "rent" has increased, and the only place where revenue got increased is the tax revenue.
On the other hand, the value of my "property" (land+house) did not increase - the house is the same, and the proper value of the land - the net discounted future rent minus the net discounted future LVT - is zero both before and after the improvements.
This motivates me to support the improvements if and only if I want to pay for all the increased value (not cost!) of these improvements in increased LVT; even cheap/free infrastructure improvements (such as repealing a stupid local restriction) would increase what I'm paying in LVT.
As for 2, mineral rights would usually be treated separately from general land value- they are treated under severance taxes, not under a land value tax. Severance taxes are also taxes on economic land, but specifically on natural resource extraction- for oil and minerals, but also for such things as orbital slots, broadband internet, and even more broadly water or topsoil use.
Some Georgists have proposed breaking a general 'land value tax' into a more specific 'site value tax,' which would only tax location value (proximity to jobs, amenities, utilities, the ocean etc) while having the physical properties of land itself all be covered by severance taxes.
> However, residents note that this improvement would increase the value of their land and thus the amount they would need to pay for the LVT.
This is flawed thinking because of two things: (a) public goods, investments, and improvements usually go where there is a demand for them; and (b) land values increase proportional to the benefit received by the public goods, investments, and improvements. If you are family in a neighbourhood where the nearest public school is 15 minutes away, and in comes the government and says that they are considering building another school that is more like 5 minutes away, will you tell me that you would turn it down because of a high tax bill? The benefit of that school is apparent, and if you singularly don't think it is worth it, likely your neighbours will. And if it is extremely unpopular regardless, then the benefit likely didn't exist in which case land values wouldn't have gone up anyway.
> If you are family in a neighbourhood where the nearest public school is 15 minutes away, and in comes the government and says that they are considering building another school that is more like 5 minutes away, will you tell me that you would turn it down because of a high tax bill?
I mean if we have a 100% LVT, then the government is going to raise my taxes by *exactly* what it believes the value of the closer school is. So, yeah, it's pretty likely that I will think that the increased taxes aren't worth it.
> I mean if we have a 100% LVT, then the government is going to raise my taxes by *exactly* what it believes the value of the closer school is. So, yeah, it's pretty likely that I will think that the increased taxes aren't worth it.
Then you have a problem with government, not with Georgism. Plus, there are many impartial methods and even market mechanisms that can be used to evaluate the value of a particular plot of land. No need for reliance on an army of government surveyors. I can provide links, but Lars already said in this post he will be soon covering this topic.
Huh? My problem isn't that the government is improperly assessing the change in value. If the government *properly* assesses the increase in value, I should be theoretically *indifferent* to the change. The increased value I get from the school should be exactly cancelled by my increased costs in terms of taxes.
But if in addition I have to face even minor inconveniences due to the new school, my kid has to switch schools or roads are closed due to construction or some extra tax money needs to be raised to pay for it- I can pretty quickly go from the indifferent column to the opposed column.
You assume that valuations are rigid and don't account for these. A land value estimation will be an approximation of the true land value at any given moment, and that in itself has a lot of subjective value built into it. There are the risks and such that are priced in that discount the overall value. A market value will have all these taken into account. On top of this, if you live in a jurisdiction with property taxes, the same "issues" apply even though in reality, building a school in a neighbourhood is never blocked because "my property taxes will go up". I am laughing even believing such a thing someone might say. Like imagine a homeowner literally going to anyone and saying "yeah, I'm not in favour of a school going up near my house because oh my god, my taxes will go up some 5-25% and that is completely unacceptable". This doesn't happen today under a property tax regime, it won't happen under a LVT regime. And what is the alternative? A tax on income? Sales? Capital gains? Corporate? Those are far worse! Those are directly taxing labour and capital!
A jurisdiction with property taxes has a small fraction of these issues. Property taxes are for something like 1% of the land's value. A full LVT would be like 5%, and that factor of 5 makes a huge practical difference.
As it stands, there *are* people worried about gentrification. Worried that improvements to the neighborhood will price them out of their homes. When these people are homeowners, I don't have a lot of sympathy because being priced out of your home looks like your property taxes increasing beyond what you can pay thus forcing you to sell your home for several times what you bought it for originally and having to move somewhere else. In exchange for being forced to move you at least get hundreds of thousands of dollars in compensation.
With full LVT this doesn't happen. With a properly implemented full LVT the resale value of any piece of land is exactly the value of the house built on it and nothing more. If neighborhood improvements mean I can no longer pay the tax and am forced to move, the value of my house has not gone up any. Also, since the tax right is much higher than property taxes usually are these days, it is much more *likely* that such an improvement will price me out of the neighborhood.
Also, I am not arguing here that other taxes are better. I am arguing that the claim that LVT doesn't produce deadweight loss is wrong.
In practice, a lot of places have directly said "No, you can't raise taxes on people just because the value of their land went up, we intrinsically value people not being taxed out of their homes more than we care about economic efficiency"
If you're not even *thinking* about things like old people getting priced out of the homes they've lived in for 30 years, then what possible chance do you think this has?
The more interesting problem is the heterogeneity of benefits. Suppose we have a neighborhood of 30 households, half with school-age kids. If we build a new school, the half with kids will be better off. But if we assess the increase in value and tax all the houses with access to the school, then the households without kids will be worse off: they'll be paying higher taxes for living in an area with better schools, but won't be benefiting from those schools.
Maybe you say that this is good, it encourages them to move away and let more families with kids move in. But that just ignores transaction costs. It costs a lot of money to move, and very often there are reasons why one particular house is more valuable to one person even when other people might not value it such. E.g.: it's the house you were married in or the one where you've got the kids' height marks scratched in the walls, or your best friend with kids lives next door, etc.
A lot of towns already confront this in a lesser form. At least in my state, property taxes are how the town - and therefore primarily its schools, usually a big chunk of expenses - get funding. This often pits parents and children against older people on fixed incomes who don't see a benefit to them from the school system, and for whom moving would be a serious hardship. (LVT would definitely exacerbate the dynamic)
"If you are family in a neighbourhood where the nearest public school is 15 minutes away, and in comes the government and says that they are considering building another school that is more like 5 minutes away, will you tell me that you would turn it down because of a high tax bill?"
If I'm not making enough money to be able to soak up the higher taxes, I would. A new school meaning my taxes go up 50% meaning I can't afford to turn on the heating would certainly make me go "let the kids walk or cycle or take the bus to school". I mean, this is also part of it that doesn't seem to be considered, and it's the argument over gentrification. Suddenly the value of houses in the old neighbourhood go up, because better-off people are moving in and converting it into a vibrant, creative, trendy scene, and now the working class who used to live there can't afford the rents any more.
Your wages are not likely to stagnate as society around you improves. Like how can it be that a city's economy is booming and land values are rising but the people living on land where land values are skyrocketing don't benefit?
This is also a gentrification argument and I am unconvinced of its merits. Instead of making a better society, people would rather it be worse off because they might then have to pay more to retain the exclusive right of land? This isn't a problem any normal person would have.
Gentrification is a transitory issue that's really just the negative consequence of maintaining an quasi-apartheid state in urban centers, where minority families have become land rich and cash poor, as a result of perverse city policies.
All the other cascading impacts of Georgism would do much more to help the "victims" of gentrification than what the current system does, which is continue to provide them low quality public housing, low wages, and little opportunity, because still being kicked out.
Regarding (2), it is of a lot of discussion among Georgist on how to deal with non-renewable natural resources. Suffice it to say that there is a wide range of answers with the simplest being (1) value the land before any potential discovery to find the LVT; (2) let prospectors do their job; (3) if anything is found, a flat tax can be applied on the extraction of said resources; (4) regardless if there is any resources or not, the tax bill for that owner won't change. There are some more complicated approaches that try to iron out the kinks, but in all honesty, I don't think this is a tremendous problem with the idea of the LVT. Most rents derive from location and not non-renewable natural resources.
1. None of this implies there is dead weight loss.
2. You are trying to make the increase of the LVT as a perverse incentive, because land owners might oppose it. I think the opposite: it is a good incentive, because you are incentivizing the governments/municipalities to increase land value. They can say "we will improve tax revenue x% by by building a subway." That was always the draw. It's kind of neo-cameralist, actually.
1) How is this not a deadweight loss? The park if built would have provided a net benefit. If it doesn't get built, that's a deadweight loss.
2) I mean this makes sense if you think of the government as a completely separate entity that decides whether or not to make improvements based on whether or not they increase its net revenue. But that's not usually the case. Usually the government does what the voters want. If the voters don't want a park, the government is going to build one, even if it is in the governments "interest".
The only way it doesn't get built is if the aggregate rental increase is less than the cost to build it. How it impacts an individual matters less than how it benefits the whole community.
And in that case, since there would be a net negative to the community to build it, it isn't a deadweight loss by it not getting built.
Deadweight loss isn't usually described in those terms, anyway. Its really about marginal transactions. I would buy oil for 10 dollars a barrel and a guy would sell me a barrel of oil for 10 dollars, but he can't, because it costs him 8 dollars and the government is taxing 4, meaning the transaction doesn't happen.
If I'm willing to spend 10 dollars on a park, and it's going to take the government 12 dollars to build the park, that's not a deadweight loss, unless the government could build the park for 8 dollars without an LVT. But it can't, because the rent exists with or without an LVT. That's the whole point.
It doesn't get built if the value it provides to residents is less than the cost to the residents to build/maintain it PLUS the cost to the residents from increased LVT.
It should get built if the value it provides to residents is less than the cost to the residents to build/maintain it (without the extra LVT term).
If the LVT changes you from the latter case to the former, there is a deadweight loss.
Here this *marginal* park produces $10 in value, and only costs $9 to build. However, the residents vote it down, because it also increases their taxes by $10, thus meaning that they would get $10 of value at the cost of $19.
No, because the cost to build it is recouped by the LVT.
I pay you 9 dollars to build my park. Then I take 10 dollars from the community, because that's how much value the park created. Then I repay the 9 dollars and now I have 1 dollar to give back out to everyone equally or invest in something else.
Now, in the other case, if I build a park for 9 dollars and the aggregate value of the community only goes up by 8 dollars, then I have just wasted people's money. That's not DWL.
That's what I meant by the Henry George Theorem. In a Georgist society, all public expenditures should be evaluated by their likelihood of producing as much value in land as they cost initially. That isn't to say we shouldn't do anything that wouldn't be equal in value to its cost, but it would require more burden of proof.
The Jubilee Train Line in England cost 3.5 billion dollars, creating 13.5 billion dollars in property value increase along the train line. Of course that got captured privately, rather than returned to the public coffers.
This only works if the government building the improvement is the same government collecting the LVT. If there is a federal LVT but the park is built by a city government that gets tax money from some other source it doesn't apply.
OK. I guess if you would rather model land improvements as being things that the government decides to do completely arbitrarily, we would have huge deadweight loss based on the government being completely arbitrary, but no additional deadweight loss due to LVT.
Unless you have a better model of how local governments make decisions that you'd rather use?
But what would fund the improvements? LVT itself! So the question posed to resident taxpayers will effectively be: would you like to pay for these things to be constructed? Which is exactly the right question to ask.
Is the proposal then that all levels of government are funded entirely through LVT? If so, how is the LVT divided between different levels of government? I think there's an issue if say, the federal government funds itself with a full LVT and this forces the local government (who usually is the one paying for parks) to fund itself some other way.
An interesting question. Perhaps, to avoid bureaucracy, someone who would like to improve their own land in a way that also improves others’ land should be able to collect those profits the way they collect the profits from their own improvements? Allow them to tap into extra LVT income that they caused? For example, someone has two plots, on one they build a hotel and make a profit directly, on the other they decide to construct a park. The cheaper they make the entry fee, up to it being entirely free, the more this improves surrounding land value, entitling them to the extra tax, recovering the cost of park construction. Not sure how this could be made practical.
I agree. This sort of taxation seems to encourage localities to appear unattractive. Your classic local "protection" from the mafia or the like actually becomes locally pro-social by suppressing land taxes.
Ok. I think you can solve 1 if you fund the local government with an LVT and find the federal government with an income tax which is paid by the local government where you live.
Though you might need to limit things so that a billionaire moving in doesn't bankrupt your town.
As far as I understood the original review, LVT doesn't have to be a fix amount of $ per area and it dosn't have to reflect the maximum possible benefit from a given plot of land. The idea is to tax away all the true, factual benefits someone has by only possessing the land without doing anything.
So if i have a house and lease out some apartments and the rents from my tenants raise only because the area gets attractive and everyone is competing for the available space, this increase would be taxed away. But if my tenants don't pay more, because they have a long running contract, I don't practically profit from the rising rents all around my building, and so my LVT won't increase.
Same with the oil: If there is oil discovered under my garden and nobody drills it up, i don't profit from the fact that it is there, so my LVT doesn't increase. If the oil company gives me some money for the right to drill in my garden, this is income just because i own the land, so this would be taxed away 100%. If the Oil company deals out compensations for the inconvenience of noise, smell and vibrations to the affected residents everyone can keep it as it is not about ownership but about living location.
I think the LVT is usually supposed to be based on the profit that could be earned from the *best* possible use of the land, not necessarily the current use. You shouldn't be able to get out of paying extra for the oil on your land just because nobody is currently taking advantage of it.
Also allowing you to pay less because you contractually cannot raise rents opens loopholes. I can avoid paying any tax by paying someone to take ownership of my land but signing an agreement to let me live there rent free forever.
> I think the LVT is usually supposed to be based on the profit that could be earned from the *best* possible use of the land, not necessarily the current use.
It's definitely not current use. It's just that the 1 acre parking lot is supposed to have the same tax bill as the 1 acre skyscraper next to it.
The fair and blind way is to just calculate the value of the land, decide that someone can get a cash flow of 5% from that, and then have them pay that 5%.
There's the 85% LVT people who say it should be on 85% of the land value, because they still want a little bit of trading and speculation for price discovery.
But you can put your thumb on any of those numbers. Pay 3% of 100% of the value, or 4% of 50% of the value, or whatever.
This is a good analysis. But I do want to offer a bit of pushback:
The value of a plot of land should be the difference between the cost of constructing a building on that land and the value of the completed building (the most valuable one it makes sense to build). Empty land doesn't offer much value to the user, but completed buildings do.
Since the 1960s/1970s, big cities in the US have put in place a system of zoning and development rights that determines what can get built. Scarce development rights are the limiting factor that prevents new buildings from getting built. It's common for land to be quoted in cost per buildable square foot, which is a function of the development rights that come with the land. A large plot of land zoned for a low rise building might be worth less than a small plot where you can build a skyscraper.
In New York, you can even trade development rights (commonly called air rights) on a limited basis so you can build super tall skinny towers around Central Park. Air rights are really expensive these days - hundreds of dollars per square foot.
In fact air rights are so expensive, it seems like what we really are talking about when we talk about the value of land is actually mostly the value of development rights. However, development rights are just a totally made up thing, and if we let people just build what they want tomorrow, development rights would become worthless. Land would still be valuable but probably not as valuable as it seems now. People would build a ton of new buildings, and it would push down the value of new and existing buildings closer to the cost of construction.
I think your analysis is right but if the goal is to make housing less scarce and cheaper, it would seem easier to just loosen restrictions on new construction, rather than keeping housing artificially scarce and then taxing land & development rights to pay for government. The latter just seems like Hong Kong, effectively.
I guess my main takeaway is it is confusing to conflate land and development rights by calling it all "land", as we commonly do these days. I think they are economically different things - land is a real constraint, and development rights are totally made up.
Property rights are ultimately rights for a bundle of uses; the right to occupy, the right to exclude, the right to build on top of (a right that can be subdivided into many fussy details), the right to destroy, etc. You're absolutely correct that permitting regimes (some of them very silly and counterproductive) affect the value of land, but I don't think it's correct to say that *some* of these bundled rights are "real" and some are "fictitious": they're all fictitious in some way
So under a Georgist regime, if I want to reduce the value of my land to reduce my tax bill, the best way to do it is to petition the local government to make sure that it's zoned for exactly what I want to do with it. If I want to continue to live in my nice single-family home on a quarter-acre block, I need to go super-hardcore NIMBY to ensure that my area stays that way.
Yes, I think it's fair to say that LVT introduces some incentives towards exclusionary policy: this is best addressed by explicitly pursuing meta-policies that work *against* exclusionary principles (and after all, it's not as though regimes that operate in contradiction to georgist principles (Prop 13, anyone?) do particularly well in incenting anti-exclusionary behavior)
I believe this is actually the background to Prop 13 - I think the old property tax system was based on the highest and best use of the property and so ultimately some people were going to have to sell and move to be able to afford the taxes on their homes. Prop 13 of course went the opposite way entirely.
I think a cartel that strictly limits the productive use of land goes beyond merely "affecting" the value of land - I am saying that if you look at prices now, it's clear that you are mostly paying for cartel membership and the intrinsic value of the land (sans the cartel) has little to do with it.
It's true that technically all rights are fictitious but in most contexts, cartels are illegal.
The entire exercise of attributing cash flows to land versus rights versus improvements is something best left to the private sector. Anyone who has spent time looking at RE deals knows that each deal has different cash flow considerations. The idea that the land value is an objectively knowable thing that a government civil servant could figure out is wildly unrealistic. And if LVT is going to hammer the owner with a tax that's 75% of this value that can't objectively be measured, then you're going to have a lot of cases where LVT exceeds the rents by a wide margin.
So tell me about the last time you went to your county or city tax assessor and got them to correct an assessment. Was that "easy"? I've done it twice and it took over a year both times. And who pays the tax while there are no buyers for the overtaxed land? I'm very skeptical you have experience on the operating end of a RE asset.
You're going to have to show your work on how this assessment exercise is somehow going to be trivial and fair when the tax burden is literally 75% of your profit. On the private equity side, I can tell you that rents on CRE office space varies drastically. Maybe a manufacturing plant or highly specialized build outs next to vacant land might lend themselves to easier analysis.
Also, a 75% tax gives you a 25% margin so it's the opposite of a wide margin.
There is a simple reason to use humans: those programs do not write themselves. And once the programs are written, they are seldom that precise for messy real world business stuff such as real estate.
Yes, I'm not making a point about LVT specifically - I'm just making a broader point that the author says taxing land will encourage development (presumably so that landowners can afford the tax). And I am saying the main thing preventing development is the fact that development is usually illegal.
Oh yea. I generally agree with that. Regulatory burden for development is huge. NYC and SF are particularly bad but it's a key work stream of any RE deal I've ever seen or be involved with.
Yes Georgists agree, we are broadly against zoning regulations, at least as they are applied now. They are also some of the worst causes of land speculation.
I think we all agree on zoning as it is applied now is almost the cause of land speculation / housing shortages.
I am just trying to point out that this essay is trying estimate the value of all urban land, and a lot of the value of urban land *today* is attributable to zoning or development restrictions (onerous environmental reviews and taxes on development and affordable housing requirements and so on). That's why land value is so concentrated in a few cities - those are the ones that have strict development restrictions.
If you torpedo development restrictions, you will probably torpedo a lot the value of a lot of urban land, before you even implement an LVT. Because "land" is really land + development rights.
By analogy, imagine there was a government sanctioned donut monopoly and there was one donut shop in each city that sold donuts at $3 a pop and raked in monopoly profits from the Homer Simpsons who needed their fix.
If you analyzed the donut industry, you might conclude that donut shops are really valuable. But of course that's not what's going on, if you take away the monopoly, donut shops will not make much money - in reality, you would want to separate the value of a donut shop in a competitive environment and the value of the government granted monopoly. If you buy a donut shop in a monopoly regime, you are effectively mostly paying for the monopoly, the ability to gouge donut consumers. You probably don't care about the oven and the display case.
It is hard to separate the true value of land from the value that the zoning regime gives to landowners through inflated rents, but I think you have to do so to come up with a reasonable estimate.
This is the most sane and nuanced comment in this entire thread.
100% correct. There's so much baked into "land value" at the parcel level. I'm sure you can do interesting analysis when you aggregate a ton of parcels but every parcel is different, has different easements, rights, risks. Parsing out the costs/value of each of those would be quite difficult.
It might actually be easier to get to the land value by working backwards from the cashflow side but that doesn't sound simple either.
That doesn't strike me as realistic. Even Japan which has very lax zoning rules has a high proportion of land in assets. Even with no zoning the right to exclude someone from a piece of land is very valuable.
Right, but you can just look at the Rognlie chart cited in the essay. Housing is flat at 3%-5% of national income pre-1970 and then rises to nearly 10%; probably that is entirely due to development restrictions and zoning put in place in the 1960s/1970s, and probably very little to do with anything else, such as a desire for much fancier houses. If you reverse that by allowing development, you presumably take away more than half of your proposed tax base, at least when it comes to residential land. (That does leave you commercial and industrial, but I think those are generally smaller.)
Land is valuable, but I think if you're trying to figure out what % of govt you can plausibly fund with a land tax, that is a pretty big piece. Your tax base is the % of national income that goes to landowners, so any policy that takes 5%-7% off of that is going to be a big deal.
> If you buy a donut shop in a monopoly regime, you are effectively mostly paying for the monopoly, the ability to gouge donut consumers. You probably don't care about the oven and the display case.
This isn't such a theoretical. Municipal liquor licensing leads to a similar situation, especially when the license is tied to a street address.
To be clear, the 100% LVT is on rent/imputed income/appreciation for that year. It isn't 75% of the sale price once or 75% of the value every year.
Part III is about valuation and I believe it makes a pretty good case for why its very possible and reasonable to value land and separate land from improvements.
A 75% hit on cash flows = a 75% hit on fair market value. A 100% LVT = a complete wipe out of the asset price. Real estate is priced on a multiple of cash flows - much like every other asset besides commodities, crypto, and tech (for now). If the government captures all those cashflows, then why would there be any buyers?
I can tell you right now that any exercise that tries to attribute fair "land value" will not be practical at the parcel level. I know it's unreasonable because I've done RE transactions at various scales and there's no way in hell I could parse the land value from everything else unless the land was wetland and the value was zero. This is something you can talk yourself into at a high level but when you start looking parcel by parcel - or deal by deal in my case - it's far too imprecise to try to base a tax on. Especially if that tax could very easily exceed the cash flows generated by the asset if you get it wrong. I don't think you have a sense of the variability of even something like commercial office space rents within the same block of a large city.
There would be buyers because the economic opportunity afforded by the location is still real. Even if my land doesn't appreciate, I'd much rather have a bagel shop where there are 10k customers than one where there is 5.
Valuation is a problem to be solved, but that's Part III of the article. I don't think its as impractical as what you think. Some of the things that cause variability are just government policy, like rent control, zoning, etc, etc, and Georgist would be in favor of abolishing all those things.
Without most of those, the variability should decrease significantly. And then valuations should be able to be largely determined by regression analysis, backdropped by auctions and audits.
Let's suppose there are two empty land plots for a potential bagel shop where one has 10k customers and the other has 5k. What would the difference be worth for your bagel business? If the location alone would allow you to make $X more each year in the first location, then the appropriate rent for that location would be $X larger there, and with a full LVT, the LVT would be also $X larger for that location, so that no, you would have no economic reason to prefer one location over the other, as all the benefits of the particular location would be captured by all of the society through a Georgist tax.
This is a good complaint, but isn't it also a complaint for traditional landlords? If I'm really successful at a particular location, they can up the rent on my business until I'm back to the drawing board.
You're right. The better response to him would have been that land would have a demand because products and services have a demand and land is required to bring a product or service to the market, which is what creates the underlying value.
Basically the same here. Developers lobby for upzonings that will raise the value of their properties - see SoHo/NoHo right now in NY. The key to the game for the developers is that development rights are scarce - otherwise there would be no value in getting the political favor, and anyone could build.
Upzoning is a drop in the bucket compared to exemptions for regulations that exist entirely for the sake of making it impossible to build without explicit permission. San Francisco has a much simpler building code than anywhere else because the board has the right to just say no.
The other challenge I have with this analysis is that current land use restrictions are already preventing land owners from making their land maximally profitable - they already want to build more and are being prevented from doing so! I don't understand how an LVT actually accomplishing anything.
There's some discussion of this below, but I'm going to make my standard objection to Georgism. The ideal of Georgism, as this article points out, is a 100% tax on land rents. Econ 101 tells us that the value of an asset is the present value of its future cash flows. Georgism taxes away all those cash flows; it is therefore confiscating the entire value of the land. It is total government land confiscation by another name, and it is therefore not much wonder that it has not caught on.
Huh? The typical landowner is a homeowner who paid 200% of their life savings to buy a house. Those "cash flows" are the value they get from living in that house. Sure, that house has value mostly because of the work of others making that area valuable. That's probably why the homeowner bought a house there rather than somewhere else. But a lot of that value had already accrued before they paid for it. What exactly are they stealing?
But a new homeowner would make very little profit by selling their house (unless property values had changed massively since they first purchased the property). And a homeowner with no intention of selling their house would still be hit pretty hard by the tax.
I think it's still a pretty substantial fraction. First google search result I found for "what fraction of the value of us property is by homeowners" gave:
This doesn't explain why it's bad -the logic behind eminent domain already acknowledges the government owns the land. Most humans instinctively understand that land is common. Who owns the moon, right now, today? Why?
If the government implementing Georgism means effectively immediately confiscating all land, 1. How are current landowners compensated and 2. Why wouldn't a landlord just walk away from the worthless land entirely and stop paying taxes on it? Then you just have the government charging rent directly from tenants based on arbitrary valuations because there is no longer any free market for land because land is worthless because you can't derive income from it
Anyone who is actually providing a service rather than purely speculating on the value of the land to go up (i.e. landlords who do more than just collect a paycheck) would continue making money. Anyone who is simply speculating will lose money, that's built into the design and it's the whole point of implementing this tax.
re: "The free market"
I'm sure Lars will get into it, but you can have a market to determine how much the land tax is worth so that you can optimize the tax using market principles.
> Anyone who is actually providing a service rather than purely speculating on the value of the land to go up
The problem is that there's no principled way to distinguish between those two things in a way that lets market forces continue to operate. You wind up with an overly-regulated market in which prices are essentially fixed by bureaucracy. Reference the former Soviet Union to see how that worked out.
> there's no principled way to distinguish between those two things in a way that lets market forces continue to operate
Thats the entire point, you can distinguish between providing something of value and merely owning land and seeing monopoly rents by separating the land value from the improvement value.
Sidenote: Saying "hey lets have some regulation" is a far cry from going fully Soviet Union. The market will function just fine in a Georgist world.
>Saying "hey lets have some regulation" is a far cry from going fully Soviet Union
Agreed. However, this isn't "some regulation". This is abolishing property rights in a fundamental way. It would have terrible and far-reaching consequences.
The "anyone" here is a pretty strong word. With a 100% LVT it would be true if the assessed value was always precisely equal to the actual land value. If the assessment is imperfect or not updated frequently enough, there will be plenty of people providing services who would lose money and businesses because of the tax. And while some "simple speculators" who buy and hold land will lose money, the speculation will just stop being simple and will turn to a complex arbitrage of valuation and tax regulations.
That's why you need a market to determine the value of the land on a semi frequent basis. Also remember that in a Georgist world the price of land might go up or down, as opposed to our world where it can only go up. If the market always goes up it not much of a market.
I assume the pricing mechanism will be addressed in part 3.
Current landowners cannot be compensated for Georgism to work. All the value of Georgism to the government comes from taking the value of the land from the current landowners.
This isn't true is it? Assuming the basic Georgism thing to be right, even if you compensated every affected land owner 100% it would then shift the incentives to stop things getting worse from now on wouldn't it?
No one owns the moon because it's worthless or nearly so. If that ever changes, the Moon treaty will find it has a lot of opposition. The proliferation of fences, deeds, no tresspassing signs, and the like indicate that most humans do not believe that land is common.
Eminent domain (at least in the U.S.) also includes the principle of fair compensation for a government taking of private land.
I disagree that eminent domain in that framework "acknowledges the government owns the land". The governmental right is an option to purchase at fair market value for public use, which is not economically equivalent to ownership.
> Most humans instinctively understand that land is common
They might have understood that, until the invention of agriculture, at which point land ownership, and respect thereof, suddenly became a very important and urgent problem.
Even hunter-gatherer tribes, which didn't have any form of land ownership at least had an idea of tribal territories.
Nobody currently owns the Moon. But if the Moon becomes economically productive, we'll have to have a discussion about how to divvy it up. If someone wants to implement Georgism on the Moon then that's fine with me, it's only here on Earth where people like me have already spent their life's savings buying a house for their family that I object to it.
> it's only here on Earth where people like me have already spent their life's savings buying a house for their family that I object to it.
I hope this doesn't come across as rude, as I don't intend it to be, but: why do you think you're entitled to a piece of land *without* compensating others, via government taxation, for excluding it from use?
I get the emotional point—you've put work in and it's a common social expectation/ideal that one eventually wind up owning a home, with some land, outright—but *other people* could be using that same piece of land you're on, and it's not as if you or I were born with the (moral) right to own XYZ piece of land.
Because first arrival is morally arbitrary with respect to determining *ownership* rights of land? See "On Original Appropriation" by P. Vallentyne for a brief description of the varying views on what establishes a moral claim to land/natural resource ownership.
I have no issue with the use of initially unowned (i.e., natural) things without consent/compensation; what I take issue with is the assertion of an *exclusive moral property right in perpetuity*.
My view is that continued excludable use, occupation, etc. (the bundle of rights associated with "ownership") is subject to paying rent to everyone else, or whoever the relevant members of society are (i.e., payment of a land value tax). The most plausible method of doing that is government collection and distribution of said rents.
In the US, just about every acre of land that isn't owned by some sovereign-ish government (federal, state, or tribal) can have its chain of ownership traced back to purchase from or grant by a government. A lot of it was sold directly into private hands by the federal government, and a bunch more in the late 19th century was granted by the federal government to compensate private entities for providing public goods (particularly the Land Grant Colleges and the railroad land grants). There's also land in the East Coast and Southwest states where ownership can be traced by to colonial land grants (issued or sold by the English and Spanish crowns respectively), but there the same principle applies.
Basically, the government sold, bartered, or gave out the right to exclude others from the land to the original private owner under mutually agreed terms. That right had been sold or inherited several times since, but the rights to sell and bequeath ownership were part of the original deal as well.
Similarly, in England, all land belonged to William I by right of conquest, and anybody who now owns land could in theory trace their land right back to a royal grant, by which the Crown alienated its right to receive the rents. If the Crown now asserts its entitlement to the land rents, it would derogates from its previous grant.
An objection to this might be, "What right of conquest!? William I just stole the land and so did the US federal government." Leaving aside the practicality of righting a millennium old wrong, if that's right then the Crown (or federal government) definitely doesn't have a right to the rents! The land rightfully belongs to whoever is the heirs of the Saxon (or native American) owners.
If the Crown (or federal government) was entitled to the rents in the first place, it was entitled to alienate them, and it has. If it wasn't, then it still isn't. Either way, it is not now entitled to the rents.
I don't know that any of this really matters: if LVT works great in practice then bring it on! But I do find the argument that it's a moral imperative entirely unconvincing.
This only addresses the history of legal claims of ownership. What I'm referencing is the *moral* claim to such land, which is what undergirds *legal* property rights.
The moral claim is that the right to the exclusive property rights to the land was sold or assigned by the government. That is, the government had rights to the land and then sold, bartered, or gave it to private owners.
From a Georgist framework where the unimproved value of land is rightfully owned in common via the government, for the government to sell, barter, or assign fee simple or allodial land ownership is equivalent to issuing a consol (perpetual bond), with the rental income stream of the land standing in for consol's coupon payments. I understand how Georgists would argue that alienating the rent into private hands would be bad policy (same as one could argue that issuing tens of trillions of dollars worth of consols would be bad policy), but bad policy is not the same thing as being morally illegitimate, and clawing bad the rent or the coupon payments of the consols via confiscatory levels of taxation sound like an extreme remedy that can reasonably be assailed on the basis of the ancient moral principle of "no takesy-backsies".
The only two ways I can see that that wouldn't strongly imply a moral right to the land would be:
1. The policies or regimes under which the transfer was made were odious and the transfer morally illegitimate in most or all cases. I'm prepared to entertain this as a possibility, but I think the burden of proof should be on you if this is what you are arguing.
2. The government had no right to the land in the first place and thus had no right to sell, barter, or assign it. If you're arguing that this is the case, then I also question the right of the government to lay claim to the lands' rents by taxing them at a near-100% rate.
I get that "I'm going to be really difficult and demand people justify the status quo piece by piece" is a very fun thing for people in a minor political movement to do, and boy did I do it a lot when I'm younger.
But it just pisses people off.
I'm vaguely in favor of a LVT, depending on details, but, yes, I'll stop associating with something if the people involved are jerks.
And, yes, I've already gone through the discussions a dozen other times with "well why should be being a jerk stop you from supporting this obviously good thing" with a dozen other political movements. If your advocates suck this much, there's nothing to worry about because it's not going anywhere.
I don't know what to tell you other than to say that societal progression occurs, at least in part, due to people critiquing the status quo and demanding justification, piece by piece if necessary.
If we can't give a convincing moral argument as to why we continue treating property, land, etc. the way we do, then we need to look to alternative frameworks (e.g., LVT, with the impacts that it would have on ownership rights).
> why do you think you're entitled to a piece of land *without* compensating others, via government taxation, for excluding it from use?
Easy, because that's what I paid for. The land (around here at least) was originally owned by the government, who at some point in the 19th century sold perpetual and transferable ownership of it to some guy, who sold it to a chain of other people, who sold it to me.
The Government already got their cut, as a one-off sum back in the day.
> Easy, because that's what I paid for. The land (around here at least) was originally owned by the government, who at some point in the 19th century sold perpetual and transferable ownership of it to some guy, who sold it to a chain of other people, who sold it to me.
Sure. Though, I'm not asking for the legal-historical chain of what establishes why you have a government-protected legal right over your land and the structures built upon it.
> The Government already got their cut, as a one-off sum back in the day.
Land value changes, and the government can err in policies it implements.
Assuming for the sake of argument that your land value has gone up, and the government were to implement a strong LVT, why do you think that *you* are *morally* entitled to the piece of land you're on if you were no longer able to bear the tax burden imposed by the LVT, even though others could bear such a burden? Presumably, if you realized you couldn't bear the cost of the LVT, you could sell the home and move to less valuable land using the proceeds from the sale.
My point is: legal entitlements and rights don't always correspond to moral entitlements and rights. For example, one might think that individuals have a moral right to do X (whatever X is), but the government legally prohibits X.
He's entitled to it because he - literally - owns the title to it. He wasn't born with the moral right to own the land, he paid money for it. What exactly is complicated here?
All land is 'acquired' through violent enclosure. Governments are generated when the people within that enclosure decide to pool resources to solve coordination problems, for example: the exclusion of some individuals to nature's bounty.
What if the policy involves reasonable compensation for landowners, or a phase-in over a long enough time period that the immediate economic effects would be modest?
To expand on this, you could make the hit to the property's present value arbitrarily low by phasing it in slowly enough.
So if you were convinced that Georgism was the ideal policy but unwilling to confiscate all property, you could announce a 100% LVT starting 25 years in the future. At a 10% discount rate that's a confiscation of ~7% of all property by present value. Would you be more outraged by this than by a 7% income tax hike?
"Confiscation of property" is a really big red flag for me, so, yes.
Have the Goergists gotten together to do a "LVT city project" the way libertarians tried to do "free state project"? If Georgism can work for the initial building of a town, then it's great and should probably happen everywhere eventually. But if it can't, that's likely a fatal flaw.
some towns have tried it - i think it could work on an 'individual town basis' if it was a big city, but small towns have had some administrative difficulty - though there are few abject *policy* failures under the LVT banner, and far more modest successes.
most georgist predictions can be incrementally tested, which is to me a huge point in its favor over left wing utopianism
Do you happily volunteer to pay more rent than you're asked for? Personally, it's very hard for me to see what mere philosophical concern would lead me to do that.
I don’t voluntarily pay more in rent, since it’s going to a landlord and not to the public good, but I do happily volunteer to pay more state income tax than I’m asked for. In Massachusetts, there’s an optional higher tax rate and I personally choose to pay it, at no personal gain other than the knowledge that I’m contributing to the society I live in.
Admittedly most people don’t choose to pay this higher tax.
Congratulations, I don't think I've met or heard of anyone else who checks that box! Yes, this does make you a rarity. I think your marginal dollar would be far better off going to various charities than the state, but I genuinely admire and respect your commitment to your principles.
I'm definitely not the expert on anarchist theory, so I'm not the best person to answer this, but my point is that LVT doesn't require a state at all, so it can't reasonably be implied that its some land nationalization scheme, fundamentally.
> Georgism taxes away all those cash flows; it is therefore confiscating the entire value of the land.
Land prices derive from land rents, not the other way around. The exchange value of land is X=(R-T)/i where X is the exchange market value (land price), R is the yearly land rent, T is the yearly tax on the land, and i is the real cap rate. If R=T, you are right that X=0. But that does not mean that R=0.
I'll explain this in another way: let's say that you want to open up that ice cream shop. You can open it in the downtown core of a city where there is a huge market for ice cream but rents are high, or you can open it in the middle of Nebraska where rents are low but not a huge market. Now *poof*, suddenly there is a 100% land value tax. Land prices immediately drop to 0. Does the inherent value of the land in the downtown core go to zero, i.e. is opening a shop there worthless? Absolutely not! In fact, if you were going to open the shop in downtown anyway, you'd likely pay the same rent, if not MORE if there were no other taxes on income and capital. The inherent value of land is made apparent by that amount that you are willing to pay, i.e. the R. The LVT just makes X go down, but ceteris paribus, won't have an effect on R at all.
Ownership of anything is a bundle of multiple types of rights, traditionally you can divide them into three classes of 'usus' 'fructus' and 'abusus', where the first is the right to use or enjoy the thing (in case of land, the key part would be making improvements on it and living on it), the second is the rights to the 'fruit' of the owned property which, for land, would include the harvest, rent, charging for entry, etc; and the third is the rights to alter or alienate the property e.g. tear down the improvements to use that land for something entirely different and sell or gift it to others.
Denying the right to the 'fruit' of the land by taxing it 100% is equivalent to taking away a significant conceptual part of the property rights.
The simple answer is tautological - I have that right because the land is my property and in the current legal system all three of these rights have been transferred to me from someone who legally had these rights and the right to transfer them to me. In certain arrangements might have obtained/purchased a more limited bundle of ownership (e.g. usufruct), the buyer would pay less for them but get less rights. The notion of property is general and not limited to land - the same principal groups of rights can apply to a building or a machine, and we expect anyone who is the full owner of a building or a machine to have all three of these rights, and someone who has only part of them (e.g. does not have exclusive right to the rent of that building or the production of that machine) does not have full ownership of that building or machine.
Note that I'm not using the world "should" here, I'm talking about "is", not "ought" - if you had asked "But why should you have the exclusive right to the fruit of land?" then I would say that of course it does not have to be that way and we have systems where it isn't that way, however, in systems where I would only have "usus" rights to my land and someone else - for example, the village community or the state - would have the exclusive rights to the fruit of land, then we describe systems like that as saying that the land is owned by whoever has the "fructus" rights and not by those who are using it; there are historical systems where the tenants don't have exclusive rights to the fruit of the land, but in that case we say that this place and time has/had the tenants could not own the land and it had, for example, communal land ownership.
So the assumption that people should not have the exclusive right to the fruit of land is equivalent to stating that individual people should not own the land, it belongs to everyone, and individuals merely use it (which IMHO is an accurate representation of Georgism). But currently I do have obtained a government-sanctioned full property right to certain (small) pieces of land, which includes full exclusive rights to the fruit of those pieces of land, and removing that right would be literally depriving me of a significant piece of my property.
Came here to make the same point - income drives value, not the other way around.
This is part of what Georgists are getting at when they say land is special - if you tax, say, bond coupons at 100%, bonds immediately become worthless and you stop having bonds. If you tax factory production at 100%, factories become worthless and you stop having factories. If you tax land rents at 100%... the land continues to exist in the same quantity as before and you still gain value from having an ice cream stand at a busy corner because you can sell more ice cream.
I'm a slightly wishy-washy Georgist (I see land taxes as part of general taxation policy, and think even a low-ish land tax would be positive), but I am completely bought in to the idea that land is a distinct asset class.
I don't think any Georgist argues this, who actually knows what they're talking about.
Rent is the location value. If I have a bagel shop in Manhattan, I will make more money than one in the desert of Nevada. But only some of that money is rent, some is also return on labor and capital.
Most Georgists understand this, as far as I'm aware.
In economics 'rent' is a very specific term that means 'the return on economic land.' When talking about rents Georgists are always referring to this definition, something that commonly confuses people who are used to hearing about renting buildings or capital goods.
The government already confiscates a couple of hours per day of my time (income tax), 20% of most of the things I buy (VAT), over half of my fuel. If I had enough capital to be taxed it would confiscate a bunch of that too.
The difference is that if you tax 100% of something, then it ceases to be worthwhile at all. A 20% tax on land rents would be substantially different from Georgism, and a 100% income tax would be radically different from the current situation.
It doesn't look, from the topic list and from reading through this post until MEGO, as if any of these posts are going to explain in terms I could understand about how Georgism would actually work. If you're owning land as an investment, yes. But what if you're a not-wealthy person who bought a home back when land was cheap, and now the market has gone way up? Protests against property taxes based on market values, going up beyond people's ability to pay, gave us the Prop 13 rebellion. Why wouldn't the same problem arise with land taxes?
Lars's answer is apparently that you'd get your money back through UBI. Which seems like an awkwardly roundabout way to do it, but never mind. In that case, where is the money to run the government going to come from? Are we just going to soak the rich? I thought Lars says elsewhere that Georgism isn't going to do that.
One point to keep in mind there is I was using only the absolute lowest estimate from the land rents for UBI. If we found the 8% cap rate held with the Federal reserve estimate, or that Smith's estimates are correct, there would be a lot of money left over even after paying out a citizen's dividend.
This is debarabu. Jarvis tried to push similar laws through several times before but didn't have luck until Serrano v Preist reallocated property tax revenue away from wealthy neighborhood schools throughout the state. Also Jerry Brown put up 1978 Prop 8 which would have given homeowners specifically a break.
This is a sort of graphical representation for where the LVT might fall. Typically it will be very stable around an urban core. The vast majority of value will be there and therefore land owners there will pay the highest taxes.
Since the tax is a percentage of the assessed value, and Georgists believe assessments should happen frequently, you shouldn't suddenly be hit with a giant tax bill you can't afford. Because you can't speculate in land (100% LVT is equal to the appreciated value of the land), you would expect land values to go up more gradually with the rate of growth, rather than boom/bust cycles that we typically see.
The UBI helps to cover the average or below average land owner, as suggested in the graphic.
Why would not one be able to speculate in land? It is true that there will be little point in buying and holding land, but that's not what is usually meant by "speculation". With a LVT, land will be cheap, so a savvy insider will have a huge edge in exploiting small deficiencies in valuation calculations. Even if the valuation used for LVT is somehow perfect in aggregate, it is very unlikely to be perfect at all times for all properties. The knowledge that one coefficient in the regression model behind the valuation is likely to change in the next review will be extremely valuable and will be used to construct land portfolios that will benefit from exactly that change - that will be the real "land speculation".
Unimproved land values might be much lower than today, but volatility of these values will be likely pretty high, for a simple mathematical reason. Under 100% LVT, land fair value is the difference of two large numbers: capitalised land rent and capitalised assessed LVT. A small change to either of these large numbers which is not immediately compensated by the same change in the other will lead to a large change in the difference. These large changes will feed a huge army of politically connected speculators.
1) LTV proposes to tax all the land value which is about 75% of the cash flows of real estate. The other 25% is improvement or whatever according to your sources.
2) The average cap rate today is 5% which means investors expect a 5% return per annum on real estate investment.
If LTV capture 75% of RE cash flows, prices will decrease 75% to meet the 5% cap rate, correct?
So.... what's the game plan on destroying 75% of the RE wealth in the world? Like, every bank will immediately be insolvent and every homeowner with a mortgage will be deeply underwater and probably bankrupt too. There will be no RE liquidity whatsoever. The 75% haircut is just the LVT hit at face value, it doesn't even consider the spiral effects and liquidity crunch.
Besides initiating the biggest destruction of wealth in the history of mankind, what is this supposed to accomplish again? Are you just intellectualizing the nationalization of real estate?
The wealth isn't destroyed, its shifted. Because it's based on a source of wealth with static supply, taxing it doesn't change overall wealth. Right now income taxes, sales taxes, etc destroy wealth too! All taxation takes wealth. Georgists suggest the government should only tax or operate in those domains that have fixed supply, operate as monopolies, or are necessary for human existence (like access to land is).
Because there is no true "competitive market" for land taxing it doesn't reduce innovation or progress in the same way as when we tax someone for building a cool addition to their house, or earning wages.
If real estate prices go down by 75% (over any timeline), I promise you that the word "destroyed" will be more appropriate than the euphemism "shifted".
We exist in a financial system capitalized by real estate assets. It sounds like Georgist have some intellectual qualms about... actually I'm not even sure how to parse this political econbabble, but if you want to change how real estate is taxed, maybe tread a little more carefully and understand that we're talking about a cash flowing asset that sits at the foundation of literally every significant financial institution's balance sheet. Writing down the value of those assets to zero should come with a higher burden than having read some books and talking to some random economist in Australia.
Real estate is the largest asset class in the world and has created more wealth for people than anything else. This isn't an area to run some glib "out of the box" experiment because someone thinks the idea is elegant. There's about a dozen adult ways to address issues surrounding real estate and none of them involve lighting asset prices on fire.
Land values arent't "wealth" lol You are talking complete nonsense. If you ripped up the deed to every single plot of land on Earth, the wealth of humanity would decrease by exactly zero, in fact it would increase, as speculators would lose their land to capitalists who seek to develop it.
> If you ripped up the deed to every single plot of land on Earth, the wealth of humanity would decrease by exactly zero
If you ripped up the deed to every single plot of land on Earth then you'd have a massive civil war as everyone tries to assert ownership of every piece of land they think they can possibly defend. No crops would be grown, because nobody would have any confidence in still being around to reap what they sow. Eventually, after most people were dead, well-armed gangs would probably manage to capture enough land to restart some form of rudimentary agriculture.
Interesting that everything you described involved stealing the labor of others. "If all the land deeds were ripped up, someone would steal my house!". But your house isn't land, the house is yours, it is the result of your labor. You have failed to understand the fundamental differences between land, labor, and capital.
Lets try another example. You own a piece of vacant land, and rent that land to Walmart. Walmart builds a store, creates thousands of jobs and millions in wealth. Every month you go to Walmart and demand a cut of that wealth; "Why?", They ask, "We built all this and you did nothing", "By what right can you take what we made?". What response can you as a landlord give? Other than to say "Pay up or I'll take it by force".
Do you see now how capital and labor is separate from land? How you have an intrinsic right to your labor, a right which is fundamentally at odds with land ownership? That land, having been here long before mankind, is not wealth at all, but only a location where wealth can be created?
Is your memory so short that you don't remember 2008? Some large % of real estate value was wiped out and it nearly destroyed the economy.
Just because financial transactions aren't tangible doesn't mean they're not real. The proposed change would destroy countless price signals with knock-on effects that would be impossible to predict. This will never, ever, ever happen. Nor should it.
It's an asset from the perspective of landowners (including "significant financial institutions", which seem to regularly crash the economy and yet make out like bandits) solely because it's a burden from the perspective of tenants. The very notion of rent rests on the use of state power to redistribute wealth from the poor and middle class to the rich.
Prices will certainly be destroyed across the board, but from a moral perspective, they shouldn't have had an exclusive right to that land anyway. From a practical perspective, this just means that compensation is likely needed to actually implement Georgism.
What moral perspective? This is economics, not philosophy. Morality's got nothing to do with it. The only question is what the economic consequences would be, and they would be terrible. How is that therefore the moral choice?
It will obviously have to go along with a debt forgiveness program, which would leave wealth mostly unchanged except for landowners who don't have a mortgage on their land.
Are you proposing that the government effectively buy all mortgaged land by paying their value to the banks (forgiving individual debts) by printing an unprecedented amount of money or are you proposing that the government mandate that the banks forgive all their mortgages, bankrupting all the banks and every company and individual who has cash in banks?
I mean, most of my money and my employer's working capital is not cash, it's a bank account IOU that is backed mostly by the value of all the mortgages the bank has given out.
What if I say, take a barren piece of land and make it more productive through some sort of permaculture or reforesting terraforming project? Essentially a "capital improvement" on the land itself, but difficult for the tax assessor to disentangle. The LVT would be disincentivizing that kind of activity presumably. Or does the fact that it is now more productive and able to command higher rents make it a wash in terms of incentives? In other words, is there no dead weight loss in this scenario?
If this raises land value, then it shifts the incentive to the government to enact such projects - I think terraformjng at scale should probably be left to public institutions. Landscaping ofc would fall under "improvements" and the taxes would be removed if we shifted to lvt.
The idea of a "private city" is often brought up as a counter to georgism, but such cities have a lot of other problems that make them brittle or undemocratic. The core of georgism is that these kind of issues are exactly what gov should be for - and little more.
My impression is when the typical OECD government is conserved with improving or maintaining the value of lands, it's in national parks themselves. In order to get a return on "the people's" investment with a a higher LVT, the land would need to cycle back into private hands, no? I don't see that happening in the USA at least. Or instead, the value of certain renewable resource extraction/leasing to private entities (grazing rights, etc.) would increase and thereby incentivize mass land improvement efforts?
Is the alternative that the government would subsidize improvements en masse on private lands in order to receive a dividen long term?
I'm not sure what your question is here - the gov would be able to buy public lands as it can now for public works projects like subways and roads, sure.
the value of certain renewable resource extraction/leasing to private entities (grazing rights, etc.) would be the same as it is today - georgists would have the government tax the 'nature' part of the value generated away, leaving just 'labor and capital'. If we want less extraction because of future costs to humanity, then interventions like carbon taxes or regulations are taxing externalities and still efficient. some georgists argue that makes carbon taxes land taxes (as i do) but that's not really as important as the fact that regulating externalities, like LVT, avoids deadweight loss.
The incentive for the government improving land values seems obvious enough (greater land value --> greater tax revenue), but the machinations behind making those improvements eluded me a bit. I guess there are multiple avenues this might occur.
Carbon taxes, regulations, and the like make sense for penalizing those landholders who are extracting from or, worse, purposefully devaluing the quality of the land to game the system.
I think it's a very minor point, but I still see disincentive for the private person to improve the land value of their holding, something beyond just landscaping. I didn't see this addressed in part 3 either.
As suggested below its an improvement. I personally believe in cases where you can't disentangle the improvement from the land, if you give up rights to the land or are unable to pay the taxes due to some future increase, you should be paid a severance in addition to the payment for your improvement.
Yes, this is a case where a reverse severance would be applied- a pigouvian subsidy would probably be the appropriate economic term, if I recall correctly.
Exactly, I think this is the biggest issue with LVT. You don't even need to go as far as terraforming. Just building strip mall could entice other businessmen or developers to bring in their own businesses to the area. Then the value of the land you bought would increase by more than the cost of construction. it's no longer captured by just considering it as an improvement. A similar point is made here:
Even if you perfectly assess the current unimproved value of all land in the US, there is no clean way to account for future development. Suppose LVT was implemented in 1840. Then a lot in San Fransisco in the modern day would be taxed less than a lot in Pittsburg.
If the response is to raise taxes by incorporating the effects of future development on the value of land, then that's even worse. You're now disincentivizing future development.
I read this the other way. The first landowner took a risk on development in an disfavored area, but then drove customers to that area, thereby inducing others to come in. The value of the original owner's land would increase increasing their tax bill, but their revenue wouldn't necessarily increase to compensate.
I was a bit tentative writing my comment interpreting the post above, because I considered your point too. I think your assertion is largely correct, particularly when it comes to strip malls, but I'm not sure it would would apply to all forms of capital improvement. Would need to think on that.
I guess the retort would be that the developer would take this into account up front and this would push the "right" sort of economically efficient development suitable for a given site.
“Should” is moral language, and I’m not interested in morality.
What I am saying is that 100% LVT with yearly re-estimates of land value, will make risky high variance attempts at development considerably less profitable. Lowering the incentive for development will decrease development.
The thing is that "improvements on land" is not the same as "improvements of land value". The georgist term "improvements" is a specific term that refers to non-land capital property on the real estate - e.g. buildings and machinery; and those improvements give revenue by being used in business. On the other hand, the main things that improve the value of a land plot are infrastructure that's likely to be outside of the land plot and not bringing any revenue. So if a real estate developer takes a large plot of empty land, divides it into parcels and constructs or improves some part of the key infrastructure - roads/power/gas/water/network/etc - then the developer does not gain any benefit from the improved infrastructure as the increase in potential rent of the parcels is fully captured by the increased LTV, and the improved infrastructure itself does not bring a comparable revenue stream.
If they're outbidding you based on the capitalized value of an exhaustible resource, then you simply charge a royalty against that depletion. If by 'responsible' you mean sustainable, then you can simply put restrictions on the use, such as quotas that restrict depletion to a sustainable level.
Natural resource extraction in Georgist economics is dealt with by use of a severance tax, not a land value tax- one example of severance taxes is Norway's oil auction model. Severance taxes make it unprofitable for companies to deplete a renewable resource, removing the incentive.
Yep, that's correct! Also, nothing in Georgism says that you can't have environmental protections, so you could also just pass a law saying that depleting x natural resource is illegal. I think a lot of people tie themselves up by thinking that Georgists advocate for a government that has no laws except land taxation, which when you think about it is a bit silly.
I think that gets into my biggest worry about the idea. Georgism places a massive premium on ways to make the value of the land illegible, and then relies on regulation to patch it.
So in the fishing case suppose that some company believes that they can fish more efficiently without destroying the value of the pond.
Then five years later when we reassess, it turns out that the value has in fact been destroyed. Do we distinguish between
1. They intentionally destroyed the value.
2. They unintentionally destroyed the value.
3. The value was destroyed due to forces outside their control (it was sustainable but a fish blight randomly hit them).
If we do distinguish then there is a massive incentive to lie about the cause of damage.
If we don't distinguish then every land purchase has a huge negative downside in perpetuity.
Yes, currently companies are liable for damages caused to the property of others. This would make them liable for the damages caused to their own property.
> Post-Corona Balanced-Budget Super-Stimulus: The Case for Shifting Taxes Onto Land (co-written with Kumhof, Hudson, and Goodhart).
Hey, that's actually the same Goodhart from Goodhart's law!
> And if you think all taxation is theft, well, Land Value Tax is a tax, so presumably you have a problem with it on those grounds. But if you accept that you live in a society that occasionally taxes things, you might opt for what Milton Friedman called "the least bad tax."
I've heard the geolibertarian view that unproduced resources cannot be owned (in the absolute ownership sense that libertarians usually think of), but produced resources can. In this view, it uniquely isn't bad to tax land rents, because land rents uniquely arise from monopolizing something that nobody has a justification for owning. (This does raise a question which I think you addressed in your book review a little and which maybe you'll address in a later part of the series—is it possible to make a clear conceptual distinction between produced and unproduced resources? For example, how can prospectors be compensated for locating natural resources that nobody knew about before, even though they did not in any sense create those resources?)
> Everybody needs land, but nobody can make any more of it.
Is there a mainstream Georgist perspective on seasteading, land reclamation, or property rights in space? These cases feel something like creating new land through human effort, or making new land reachable to humans that was unreachable before.
"Nobody can make more land" is crazy misleading as a Georgist pitch, since Georgism doesn't tax *land*, it taxes *land value*. To see the difference - when a commuter line is extended, it creates no land, but creates a great deal of land *value*, since the new end of the line is suddenly far more appealing to people who work in the city and the businesses that cater to them.
Land value isn't a result of "nature's bounty", so much as it's a result of how much potential rent a given plot has once improved. And while "creating more land" is impractical, creating more *land value* happens all the time. Georgism would strongly disincentivize that by making it impossible to profit off of... which seems obviously bad for productive development.
You can totally profit off of creating more land value. Just build something that justifies the value of the land you're taking up.
As a dead simple example, say you own a parking lot in the city. The land rent of that parking lot is basically what you're able to charge for parking in a year. If we tax that at 100%, you have no incentive to build a parking lot.
But you DO have an incentive to build a multi-level parking garage, which provides a lot more parking for the same footprint. We don't tax the structure, so every additional level of parking garage is pure profit for you.
I don't buy it (wouldn't buy it!). If it's profitable in the first place to build that multi-level garage, that possible rent would be priced into the land value in the first place, the same way the plot of empty land in a big city is priced based on its future as a skyscraper. Land value *is* possibility value.
If that's correct (and I'm pretty confident it is), Georgism doesn't *reward* your development of a parking garage at all. Instead, it assumes that the land should be put to its best use, and punishes the owner with a tax value above rental value until the land is being put to its best use. This makes the winning move not to play - don't develop, just abandon.
Okay! So I think you might be partially correct here (that land would be valued at its highest and best use).
In that case, let's formulate your objection as a testable hypothesis. You are saying that an LVT discourages development.
Therefore, if we have a controlled study where LVT has been implemented in several places, you would predict the level of development to DESCREASE in proportion to the INCREASE in a rise in land value tax, and vice versa, yes?
Honestly, no. If an LVT were implemented, anyone canny would immediately look for ways to make sure the value of their property is proportionally more "improvements" and "developments" and proportionally less "land", depending on the regulatory scheme dividing the two.
So, my prediction: The total value of "development" would increase rapidly, but due to reclassification, not necessarily new development. And the kinds of new development that occurred would be dramatically affected by the specific regulatory conceptions of "land value" as distinguished from "developed value", resulting in underinvestment in some sectors and malinvestment in others.
So you ARE making the testable hypothesis that anywhere that implements an LVT is going to see a drop in the assessed land share as people game the system pushing assessments towards improvements to avoid the tax?
Increasing investment seems unlikely (for various reasons) but it not necessarily good even if it happens.
Let's suppose I have a good idea for land and put, say, a $1B investment on it. It turns out that this actually was a good idea and produces and economic surplus for me (yay me) though - having now established a new highest and best use - the next LVT assessment might claw it back (sad for me).
But suppose at this next assessment (or one shortly after) the valuer says that now, there is an even more profitable use he can think of (he might even be even right, but valuing the land part of improved land is controversial and substantially subjective in practice). I'm now taxed into losing money because my use may not be the very "highest and best". Is this not the expected outcome?
So I got bankrupt, the building is torn down and something better is built. MORE development! But even completely ignoring my own interest (I'm a capitalist, so who cares about me) this dynamic is societally nuts.
If this is more of a theoretical concern, its only going to be so because of how random/corruptible/subjective/legalistic land valuations turn out to be in reality (and probably inevitably so). We will be relying on the very lawyerable slop in the system to keep things working.
It would be valued to its best use discounted by the expected return to capital and labour. So yes, the best use is priced in, that doesn't mean there isn't profit to be made in actually building the damn thing.
Right now, the following is a viable business model: rent a plot of land, construct a building, derive a profit from the building. So the _rental_ market price of a plot is not valued at its best use. By George, the builder would effectively rent from the state, nothing else changes for them, except presumably the rent would be lower as it won’t be lining the pockets of any speculators.
It doesn't make it impossible to profit from. It makes it impossible to privatize imputed land rents in the hands of a few. Land rent would be collected and then either used for public spending or paid back out to all members of the community as a UBI.
> For example, how can prospectors be compensated for locating natural resources that nobody knew about before, even though they did not in any sense create those resources?
Some people might take the perspective that they did create it kind of. If nobody knew about the minerals underneath, then it might as well not exist. However, the labour of the prospector did bring them into knowledge so they morally should be compensated. How much is a bit more of a complicated ask.
> Is there a mainstream Georgist perspective on seasteading, land reclamation, or property rights in space? These cases feel something like creating new land through human effort, or making new land reachable to humans that was unreachable before.
Yes. Per the previously posted book review, 'land' basically includes the entire Earth's surface. It doesn't just include land as in 'dry land' but land as in a physical space on the planet. Seasteading and land reclamation would not create more land in the Georgist sense, but they add value to the 'land' (i.e. the natural resource of the sea) that already exists.
If you built a space elevator that allows easy transit to the Moon, you would still not have 'created more land' (the Moon was already there) but if you make it possible for people to exploit the natural resource by living or working there, you increase its value. Even the space that sattelites require to orbit the Earth without colliding with others can be considered land in the Georgist sense.
> Is there a mainstream Georgist perspective on seasteading, land reclamation, or property rights in space? These cases feel something like creating new land through human effort, or making new land reachable to humans that was unreachable before.
Yes. Per the previously posted book review, 'land' basically includes the entire Earth's surface. It doesn't just include land as in 'dry land' but land as in a physical space on the planet. Seasteading and land reclamation would not create more land in the Georgist sense, but they add value to the 'land' (i.e. the natural resource of the sea) that already exists.
If you built a space elevator that allows easy transit to the Moon, you would still not have 'created more land' (the Moon was already there) but if you make it possible for people to exploit the natural resource by living or working there, you increase its value. Even the space that sattelites require to orbit the Earth without colliding with others can be considered land in the Georgist sense.
Suppose you live in a hypothetical Georgist Pennsylvania, circa 2005. A few years later, an extraction method is discovered for the natural gas-rich shale you live on. The value of your land just exploded - but unlike our system, where this represents a windfall for you, this is more likely to represent a tragedy. Your land tax spikes, you can't afford it, and you're forced out of your home to make way for Big Frack, who doesn't even pay full value for it. They can afford to wait for you to go bankrupt, then pick the real estate up when it's distressed.
Does the Georgist have sympathy for our Pennsylvanian? Perhaps they do, but think their plight is outweighed by the plights of people whose properties lose value under our current system, so this is no worse of a problem than that. But wait, let's think about property losing value more rigorously.
Suppose you live near a river, and a lot of people near you love it. They fish, swim, row, and generally enjoy themselves; and the draw of that river represents a big chunk of local land value. However, you don't much care for the river; the land values have started rising because city slickers are moving in; and you're upset about it. If such a person can ruin the river - toss in crude oil barrels, introduce invasive species, whatever - doesn't Georgism incentivize them to do so?
TL;DR: does Georgism subsidize living near a toxic waste spill - or spilling it yourself? That would line up with the old adage "you get less of what you tax", where "what you tax" is "Nature's bounty."
"Doesn't even pay full value for it" - This would be untrue. They would pay nothing for it, except the LVT. There is no sale price or exchange value. There is no "distressed" condition where they could get it cheaper. Its assessed at the full value of its potential. As discussed in some of the other comments, this is likely best achieved through a severance tax, since by mining a non-renewable resource you're forever reducing the value of that land.
But you're right, in that it would cause a giant spike in land value, potentially forcing people from their homes. I think that is an undesirable outcome, but I think its an edgecase that we can handle through the political process. Eminent domain already exists, where land is seized because public benefit outweighs individual harm.
We could decide not to increase the assessment of a person's land until after they had died, for example, because the benefit of the shale oil isn't significant enough to make someone move from their home.
As for intentionally destroying land value, there are many ways to handle this, though again I think its an edge case. Some things that destroy land value as simply illegal, firstly, but other than that you could charge a severance fee/tax for permanently destroying the land value, or a Pigouvian tax on pollution.
As somebody who has lived in a place with neighbors, I assure it's trivial to intentionally or even unintentionally noticeably decrease the potential for peaceful and quiet enjoyment of nature's bounty that we call land. It seems like Georgism suggests every landowner do as much as they will tolerate to reduce the value of their land and surrounding area to keep taxes low
I'm sure that gangs would be happy to offer a service where, for a small charge, they'll move into your area and make life difficult for everyone who isn't paying them that fee.
Actually they already do this. But in a Georgist world, you'd actually _want_ it to happen.
I'm not sure I get this argument. By the same logic, I am currently incentivized to do everything in my power to make my house as hideous and undesirable as possible to keep my property taxes low?
Well no, because property taxes are so low anyway that the marginal loss in personal utility from making your house hideous will override your gains. If property tax is replaced by a high LVT, there's much more room for you to make disimprovements to your property before you start enjoying it less more than you save from the tax man.
So would you say you are making the testable hypothesis that, all else held equal, if land value taxes are raised, that we would expect to see a proportional decrease in development density or a decrease in general living quality?
I wouldn't necessarily say directly proportionate as there is likely a lower bound we haven't hit yet, but I yes I would expect a decrease in living quality as we tax people on the living quality of their neighborhoods, and I would expect it to curve upwards as tax increased. Of course, people won't do things that they themselves don't like, they'd all be incentivized to do things their neighbors don't like but they can deal with.
For a comparable real world example, look at the Endangered Species Act of 1973. If you find an endangered species on your property, and your desired use for the property isn't to preserve it for the endangered species, your best option is to kill the endangered species so that your land no longer has any value from an endangered species preservation perspective. People do this in real life, leading to what George would consider an overall decrease in the value of the land (to environmentalists) that allows the current owners to continue using the land for their current purpose without government interference.
Well, yes, you are. If gentrification works in one direction, why shouldn’t it work just as well in the other? A tenant does have an incentive to keep rents low, thankfully not many of them actually act on that.
Are you making a testable hypothesis that we could subject to examination? LVT should lead to an increased incidence of this sort of property-trashing behavior?
Most definitely not. People are irrational. There are no incentives to vote, yet they do it. There are incentives to litter, yet (thankfully) people don’t do it as much as they could.
All I'm saying is that Georgism doesn't override the political process. It isn't some algorithm that takes inputs and spits out justice.
We will never devise a system that doesn't require people to maintain vigilance against corruption so long as government exists and that government gives some people power.
There are a few problems. It will strongly incentivize preventing development, because people will not want their taxes to shoot up. The problem is for people who are not landlords is that the only way to access the value of the land is by selling it. A lot of of real estate value is single-family homes, and forcing them to move with the vagaries of land prices will make them very unhappy and also cause its own market inefficiencies. They would just vote against Georgism, but assuming they couldn't, what would result is a turbo-charged version of NIMBYism. Either banning development or in various ways sabotaging it.
Also true Georgism could only be enforced the same way as collectivism, by violent revolution. It would effectively be destroying roughly half of wealth. Urates isignificantlylower than the true rent value of land in California resulted in Proposition 13 and is now considered a third rail of politics there. Your numbers suggest that over 40% of the land value is held by the 50-90th percentiles, which is a broad enough group to shut down such a movement without having to hire people to do it, especially since older people and the type of people who have a lot of land have disproportionate power, among other reasons, because they vote at much higher rates. Average voter is in their 50s right on the boundary between Gen X and Baby Boomers.
A lot of unsupported and 'it's hard so we shouldn't do it" claims there. But I will address the first point about development.
People want things, "development" is just increasing the capacity for the community to produce things. Some people could try to discourage development and "turbo-charge" NIMBYism, it would be no worse than it is right now when some people can privatized the full rental value of their land.
Overall, though, the community would and should encourage development, is it increases economic opportunity and development and ideally they profit more from that they pay due to increased land value taxes.
And then at the end of all of that we still have the Citizen's Dividend (UBI).
I think it's worth considering all options, even if the choices seem unpopular. If everyone is always ruling out unpopular (but effective) solutions, they're never going to get popular, are they? Getting them to be popular is the entire objective.
Read through and by George do I have some questions, apologies if these will be answered later.
How does land retain value if the government taxes away such a large portion of the income land generates?
Who will bother owning land at all? And if you make land worthless, how do we tax its value?
How can land have value when there is no point to owning it, and how can that value fund our country?
Does it even count as owning land if not only do you have to pay all of its income as tax, but you are taxed on its theoretical income regardless of if you produce it or not? The only benefit you would profit from ownership of land would be intangibles, and it seems like in theory even those would be taxed.
Does your argument that LVT can finance things hold up when land loses its value because nobody wants it because you can't derive income from it?
In this post you bashed the Fed's, NYC's, and cities in general on their ability to adequate assess the market value of land. How is the solution to rely far more heavily on new taxes that rely on accurate valuation of land? Will there not be rampant corruption? ("No there won't be corruption" on its own is not an acceptable answer).
>Does it even count as owning land if not only do you have to pay all of its income as tax, but you are taxed on its theoretical income regardless of if you produce it or not? The only benefit you would profit from ownership of land would be intangibles, and it seems like in theory even those would be taxed.
This is so huge, thank you for saying it! "Land value" isn't a product of nature's bounty, it's most directly a measure of income potential once improved (whether or not it is now).
This is a confusion of concepts, land has a rental value based on its demand for use. If you tax 100% of the rental value, land would have a $0 price (market value) but its rental value would remain intact.
I assume you mean "tax 100% of the land value." Either way, Wizzy is absolutely right, and you have your concepts confused; that rental value is priced into the "land value" as its main, close to only, component. To see this, consider the impact of zoning restrictions on the value of land - they strongly decrease it, *by means of* decreasing the potential for rental value.
I meant exactly what I said, taxing the rental value of land at 100% would lower the market value (price) to $0. This does not make land 'worthless' in any way, shape, or form.
I'm not sure what zoning has to do with it, a tax on the rental value of land doesn't limit what you can do with your land, unlike zoning.
Lowering the market value of land to 0 absolutely does make it worthless, that's what worthless means. My understanding is that Georgism, all of the currently potentially unquantified natural aspects of a plot of land, such as clean air, views, nature etc., anything that has any value to anybody, is taxed at its full value.
What residual can remain to make the land not worthless?
"If the entire rent of land were taken in taxation, there would be no rental income, hence nothing to capitalize, and no selling price. A 100% tax on land rent would destroy the selling price of land, and thereby destroy any profit that could be had from land speculation.
This fact has led some critics to complain that because a 100% tax on land values would destroy land’s selling price, this revenue source would destroy its own tax base. This criticism ignores the difference between selling price and rental value. The selling price of land is based on the landholder’s ability to keep collecting the land’s rent in the future. If the rental value were fully collected by the community, there would be no rent to collect in the future, and therefore no selling price. Nevertheless, land would still have a rental value, as long as people were willing to pay for its use. If the overall economic climate improved, the land’s rental value would increase." https://henrygeorge.org/bob/interest-rates-and-land-prices/
"as long as people were willing to pay for its use" - no, willing AND ABLE. If there is no owner of the land to develop and maintain it, the willingness of the people is no good. And if 100% of the rental value is collected through taxes, there's no incentive for anyone to be that owner.
You've succeeded in establishing the rather semantic point that Georgism makes land worthless *to its owners*... but that's what I took Wizzy and I to mean all along, and that still causes huge problems!
Sorry, I think the last four sentences are directly contradictory.
>The selling price of land is based on the landholder’s ability to keep collecting the land’s rent in the future.
Yes, but not just to collect rent but to actually keep it and spend as their own.
>If the rental value were fully collected by the community, there would be no rent to collect in the future, and therefore no selling price.
Absolutely.
>Nevertheless, land would still have a rental value, as long as people were willing to pay for its use.
Yes, but that rental value doesn't go to the landlord, it goes to the government who matches LVT to that rental price. Landlords do not care about their ability to collect rent, they care about their ability to collect and KEEP rent as income.
> If the overall economic climate improved, the land’s rental value would increase
And so would the LVT, in proportion. Unless I'm missing something, under an 100% LVT by definition the landlord always ends up making exactly $0 regardless of what happens to the land.
That seems to be the point of Georgism but doesn't seem to make economic or practical sense.
You're confusing the land value with the purchase price. The land provides X$/year. This is the rental value. The value is the capitalized rental value, over some relevant time scale.
But if the LVT is 100%, then the market price is 0 because you'll have to pay the value (capitalized rent) in taxes every year and therefore receive no value from the land.
However, that doesn't make the land (more precisely the location) worthless. If you were running a bagel shop, would you rather do it in the middle of no where or in a town for 10k people? The location is absolutely important to any and all businesses. You derive more income from your capital and labor by being somewhere where there are lots of people, but you receive no benefit from land appreciation.
Georgism effectively matches the highest use of land with the appropriate tenant, able to achieve that.
Certainly its rental PRICE would have to remain intact, if not rise significantly, to support the LVT levied on the landlord. This goes from tenant to landlord and directly to government as LVT. However, by design the landlord themself can no longer derive any income from the land, and as such it seems worthless.
I think that these questions are a reason why modern Georgists usually aim at taxing 85% of the Land Rent instead of 100%. Completely removing the incentive to own land could cause problems.
You linked that thing about housing crises in MMOs. Did any MMO ever try a land value tax? I think a land value tax in an MMO would be a highly worthwhile experiment, for several reasons:
* It lets us troubleshoot the idea, and debug unforeseen problems, in a test environment where catastrophes are less catastrophic.
* It should be much easier to persuade an MMO to try this than to persuade a government. There aren't as many stakeholders, the policy is more easily rolled back, and it can directly help the success of the game/make money for the game's creators. Also, it should be easier to gain an audience with MMO leadership than real-world leadership.
* If it works in the MMO, that will help convince people to try it in real life. Imagine Georgia Gamer telling her parents and grandparents to vote for LVT after it fixes her favorite MMO. Also, the idea of translating MMO policy into real-world policy would make for a great clickbait headline. Clickbait headlines are the main things which power social movements nowadays, of course.
Best part is that the economist who did it didn't even realize he had re-derived Land Value Tax from first principles until I pointed it out to him in the comments (which I think are now lost in the transition from Gamasutra->Game Developer).
I think the actual implementation in EVE is fairly crude, at that, and falls short of a 100% LVT. Point was simply to make the holding fee on land-like-assets high enough until you started to see good effects.
I may just be stating the obvious with this, but there's a few ideas I want to work through in writing.
It seems like one way of thinking about land value is that it isn't the value of the land, it's a measure of the total spillover value of everyone else's activities, where proximity is relevant.
If instead of talking about land value, we talk about spillover value, does that make the idea clearer? If there's a plot of land in the middle of a city, it's more valuable than a plot of land in the middle of a field because living there (consuming it) would be a lot more fun, because of all the other people and amenities nearby. And doing business there (investing in it) would be a lot more profitable, because of all the other people and amenities nearby.
If a 100% LVT were instituted, all of the difference between the two plots of land would be taxed away. It would at that point become (on average) equally fun to live in the city and the country. If you lived in the country, you could use your extra money to buy the fun you want; if you lived in the city, you'd benefit from the fun of the city, but have less money to spend on other stuff. It would also be equally profitable to do business in the two places: if you lived in the city you'd get more profits from having lots of people (employees and customers) nearby; but you'd have to pay lots of tax for the privilege, so overall it would be a wash.
One possible outcome might be that more people move out of the cities... but maybe not. People like living close together.
It sounds like public goods/spillovers that are unrelated to proximity might start to have more important effects. For example, the law, which applies equally, everywhere. Internet access...
Sorry, I'm not sure I've actually worked anything out yet. I'll post and keep thinking!
But yes, it does sort of rely on the idea that humans like quick access to each other, and amenities, etc, etc, that we want to live densely and be close to things.
I would like to second the question of how to handle the instant drop in their land values. Realistically you would probably need to correspondingly unilaterally forgive bank debt against real estate, which would cause every US bank to fail. I am a big LVT fan and I think the land price bubble/underdevelopment of urban land is THE #1 issue in the US today, but I am not sure how to do this without destroying the economy
One idea is to pay the current land owners the current assessed value of their land. It would balance out economically, but it would be logistically difficult, and would cause an enormous 1 time spike in federal spending.
Probably the easiest and least logistically hellish idea is just to implement the LVT gradually and over a long period of time. That also gives time to get the system up and running smoothly. Maybe announce the change several years in advance before you make any changes at all. Then start with a small LVT, say 5%. Gradually ramp up to 100% over 20 years or so. The initial drop in values is minimal, and everyone has lots of time to prepare for the change.
Thank you for writing these ! I've found them entertaining and rather persuasive so far.
I do want to push back against the claim that farm land is unimproved if it doesn't have any buildings on it. An empty plot of land ready to be farmed is worth much more the same land covered in rocks & trees or with degraded soil. This doesn't affect your conclusion much because most Land Rent is urban.
This is an important point. Some improvements, while easy to separate from the value, are impossible to extract from the land themselves. That's something Georgists will have to contend with, but not a major hurdle.
You are of course, correct. An oversight! George even talks about this specifically (a planted orchard is worth more than a bare field, counting the obviously planted trees as improvements).
As soon as you wrote "the rich paying their fair share", with the implication that "the rich dont pay taxes", I stopped reading, you stopped being interesting. Try fewer applause lights next time.
Look, I raised an eyebrow at that too, just because it was so imprecisely and misleadingly put. But if a single sop to liberals who haven't thought deeply about such things is enough to put you off, you're going to miss out on a ton of otherwise interesting arguments.
I read Scott due to the relative lack of stupid applause lights. His guest writers should do better measuring up on that metric. If I want liberal applause lights, the market is oversupplied, elsewhere.
It's not super important, but just a reminder that there are nations other than the US. I'm fairly sure a similar analysis could be done for most modern Western nations, at the very least (as in general, rich people have the resources and flexibility to find things to turn their money into that have the lowest taxes they can get away with paying), but the article *is* only about US-Americans, and thus not very good fit for evidence on the "The richest pay a far lower tax rate than the middle class".
To be clear, this is only a nitpick, I don't think this damages your point. There are several bits and pieces in your article that focus specifically on the USA, so it's no surprise the comment section would, too. Nonetheless, this particular case was a bit jarring and I wanted to speak up.
Thanks for engaging with the comment section as much as you have been!
No problem! Part I did include quite a bit of information from Australia, for the record, though I admit the USA was my focus just to limit scope (the USA also happens to be where I live). I'm actually a Norwegian citizen and I think a global focus is important and I appreciate being reminded of that.
so you believe you can only ever learn anything interesting from people who share your baseline of mood affiliation/emotional politics? that seems unnecessarily self-limiting
Mostly because it's easier and less risky to build a small addendum to a city that's already there than to build a whole city from scratch.
What would you rather do? Build a brand new city with 100,000 homes in the middle of nowhere, or build one hundred new suburbs of a thousand homes each, on the outskirts of existing major cities? The former has a higher potential for profit, because land in the middle of nowhere is cheaper than land on the outskirts of a city. But the latter plan is much less risky.
Besides, where are you going to find the tens of thousands of workers who can build your city in the middle of nowhere in just ten years? You'll have to bootstrap the city a bit, building homes for the builders to live in. And you'll have to pay top dollar for your builders to persuade them to live in an uncompleted city in the middle of nowhere.
Building from scratch saves tons of money since you do not have to account for existing stuff.
There was an article about Chicago Great Fire mentioned by Scott that concluded that it was very beneficial to the city in the long run (about 10 years) since it allowed to start from clean plate.
I think that you cannot just build a city, you need to build a community. And movers and shakers from that community need to be rewarded, and often house prices do that in successful areas (not a very efficient way, lots of money goes in wrong hands, but this always happens).
I like land taxes increase idea(not an owner myself, lol) but just to impose 85% tax like all that extra value was created by government, and not by community... sounds like it could break that positive feedback.
Lots of people do do that in developing countries where urban population is increasing. In countries where its mostly static its more efficient to upgrade and sell bits of existing cities
Just... drop the term land and land tax. What you are talking about is taxing profits from resource hogging of any kind. It is an easier sell, too. Not "the evil government wants to make my house worth nothing", but "the fair government ensures that no one profits from hogging resources they didn't create".
I don't think people are quite stupid enough to agree to having all their money taken away if you just sell it in the right way.
I didn't _create_ the land that I live on, but I did pay a lot of money for it. And I bought it from someone who bought it from someone who bought it from someone who bought it from someone who bought it, in good faith, from the government.
LVT describes a steady state that government policy and the economy could occupy. I support that steady state, and think that it would be much more fair than the state we occupy right now. If we were to transition from the current system to the LVT system, then existing landowners deserve to be compensated for their land. Suddenly switching on a 100% land tax like a step function would not be fair. I'd support a delayed and gradual rollout of the tax, so that current prices aren't affected. Direct financial compensation for current landowners would also be fine.
This is a much better way to pitch for Georgism and one I can get behind. It is very different from the "well you don't deserve to own the land and land ownership is like slavery"
I am all for a gradual shift from existing taxes to land value taxes. But if Georgism means wiping out ~ 20% of my net worth, then in the words of Randy Jackson "Its a no for me dawg."
I've become big enough fan of Georgism in theory that questions tend toward the "okay, but how do we get a land tax implemented in practice?" side of things.
And in the USA at least I can think of several big obstacles:
1) The tax represents an enormous one-time (assuming the real-estate market reflects the new policy accurately) transfer of wealth from urbanized to less-urbanized areas. Property values in the former will fall much more than in the latter but the benefits will (by hypothesis) be distributed evenly. This is a hard sell politically for tribal / class reasons, even more so because the tax's claimed upside (better aligned incentives) matters much more in urban areas than in rural ones.
2) It's unconstitutional for the federal government to impose a land tax. As in, not just "technically prohibited due to an oversight" but "this would fundamentally alter the concept of federalism". Land belongs to states, not the US, and as another comment pointed out, taxing 100% of land rent is equivalent to nationalizing land.
3) Due to 1) and 2),the natural place to advocate for a land tax would be at the local level (where property taxes are assessed today). But the typical US urban area contains several different local governments, which will face a coordination problem assessing land taxes. Because it's relatively easy to substitute between locations within an urban area, in the short to medium term a land tax will likely raise tax and rent burdens within the locality and drive people elsewhere, while the long-term anti-distortionary benefits accrue to the whole urban area.
> face a coordination problem assessing land taxes.
They already face this coordination problem with assessing property taxes; so if the conversation is to shift from property taxes (buildings + land) to land taxes (just land), then the political overhead is more or less exactly what you had before, at least in places with property tax already in place.
"Conflicting statements concerning whether the implemenation of Henry George's single tax proposal would destroy the institution of private property in land have appeared in the literatures of economics and other disciplines. A number of writers have implied that the taxation of Ricardian rent is equivalent to land nationalization. In the main, followers of George have denied that the single tax would abolish private property in land. Their claim is based on the fact that land titles would remain in private hands under the single tax. Since the whole question of private property is beset with ideological difficulties, a property rights approach is applied to this issue in an attempt to resolve the controversy. The conclusions are that the actual implementation of George's system would not destroy private property in land and that it is incorrect to equate the single tax with land nationalization." https://www.jstor.org/stable/3486465?read-now=1&refreqid=excelsior%3A7ec98d783906d4866f87100d66ab69d5&seq=1#page_scan_tab_contents
I find the concept of "owning" an asset that's economically worth ~$0 non-intuitive, but it certainly counts for something that the private owners can choose how to use the property and the government can't override them.
This very much exists in the real world now, look up how futures work.
When you buy shares of a company, you spend some money in exchange for a part of their capital, and you’re entitled to the wealth that part of the capital creates. Eventually you can sell those shares for money.
Not so with futures. You basically click a button and you subscribe to price movements of a particular commodity, you receive or lose cash daily. When you wish to stop, you close your position, and nobody gives you money for the act of “selling” the contract either. So you very much buy and sell $0 assets.
At the end of the series Lars has some links to groups on how to get involved. You're right, there are hurdles, but there are also ways we can move in this direction now, we just need to continue to grow our institutions.
Krugman's disinterest in LVT likely has more to do with political rather than economic factors. In fact, looking at the linked 2009 article the quote was pulled from the very next paragraph is:
> The context was health care. "We're having enough trouble trying to make sure we repeal the Bush tax cuts," Krugman added, "and trying to shift to a completely different base of taxation is just not going to be on the table."
In general in his writing about public policy he seems to heavily weight both the economic AND political factors, and so is less interested in spending time on dramatic changes that (in the US) would probably face enough opposition to need an enormous Democratic super-majority to pass, if even politically possible at all (this probably also includes things UBI). Look at how much trouble California has had making even minor changes to Prop 13, which as far as I know isn't because of economists liking the current policy.
So the lack of enthusiasm probably doesn't say anything bad about LVT as an economic policy! And it also seems like a great topic for this blog which has a bit broader focus than near-term public policy stuff.
I would definitely be interested in another follow up specifically on political viability, but that'll have to wait for later. I figured I would cover the big three questions I perceived coming up the most often.
Georgism kind of reminds me of Marx's labor theory of value. In both cases we're trying to take a single thing, and assert that everything else has value because of that thing. In both cases it kind of appears to make sense if you assume a 19th century society, but totally falls apart in the 20th century and beyond.
In the 1800s you could sort of make an argument that things only have value because of land. (I still think it's a faulty argument, but it's at least a somewhat convincing wrong argument.) You need land to produce food (most Americans were farmers back then). Railroad tycoons were rich because they owned a lot of land. Mine and factory owners owned physical things in the real world -- mines and factories.
The argument just descends into farce in the 2000s, though. For example, should Bill Gates be taxed $0 if he chooses to live on a yacht rather than live in a house? His programmers don't need a lot of land to produce any value. They could also live on yachts or in tiny apartments like a lot of them do already, voluntarily.
The truth is, land in and of itself doesn't have a lot of value. Some land has gold or oil buried underneath, but most doesn't. When we talk about the value of land, we're mostly talking about the value of externalities like who lives nearby, what the government rules happen to be for that land, or whether a road was built nearby, etc. Just saying you will tax "100% of the value of the land" doesn't really make sense because it's not clear how much of those externalities you want to capture. Should Bill Gates pay 100% of his profits on Microsoft in land taxes for his Redmond headquarters? Well, that seems absurd. But 0% also seems kind of absurd. What if Bill owned a factory instead of a software business? Still 0%? Or 50%?
Any number you pick is arbitrary. And the whole thing invites shell games like person A selling property to person B for $100 to set the LVT to $100.
I notice that you piggybacked on the modern-day "the rent is too damn high movement" here. (A problem that didn't exist in George's day, by the way!) Let's talk about that. The sky-high valuations of land in San Francisco, Seattle, and similar cities are not because of any magical property of the land itself, but just because people want to live there, AND the government is not allowing a lot of building.
The second thing is very very important! If you look at places like Houston, the property values are not high. How come? It's not because the government is taxing them more and preventing evil speculators from jumping in. It's because people are allowed to build outward. In California hardly any building is allowed, because of a complicated patchwork of rules -- tight urban growth boundaries, aggressive zoning, intense environmental reviews, etc.
Really, the old joke about how "they're not making more land" is actually very misleading because the government could quite easily "make more land." If someone waved a wand and made those land use rules go away, the sky-high property valuations would go too.
That brings me to my last point. I think people are way too optimistic about the future of cities and dense urban areas in general. The last two years showed a lot of white-collar businesses that remote work was possible. More than that, it culturally normalized it. To oppose remote work was to be an evil COVID denier. These cultural changes are not going away. And that's bad news for dense urban areas whose bread and butter was "being the place you have to live if you work at Google" (or wherever).
In the long term, the solution to high rents in SF is not to live in SF. The future is decentralized and does not resemble a 19th century factory town. Decentralization is a solution that will make most people happy. And when the next big earthquake or terrorist action comes, it will also save lives.
> The sky-high valuations of land in San Francisco, Seattle, and similar cities are not because of any magical property of the land itself, but just because people want to live there, AND the government is not allowing a lot of building.
Note that allowing a lot of building doesn't seem to be a great solution either. Shanghai, for instance, has uncomfortably high density _and_ ridiculously high property prices.
Megacities have bizarre economics. Cram another twenty million people into the San Francisco Bay Area and you've got an even more significant hub of economic activity which people are economically incentivised to spend even more money to get into. You'd triple the population, make it a much worse place to live, and fail to actually reduce the cost of living there.
Naively speaking... this doesn't sound so bad? Presumably with the "significant hub of economic activity", the people moving in are generating extra economic value and producing valuable things for the world.
And if twenty million people are able to live in SFBA because of more housing stock, and then choose to do so -- that's twenty million more people who have gotten what they wanted! If some people prefer a less dense area, they could move there; the argument isn't that EVERY place in the world become as dense as SFBA, but that such dense places should exist at all.
Well yes, Georgists would definitely agree that density is a good thing (it's efficient land use)! But the point is that it is silly to say that 'land is largely valueless, when this is demonstrably untrue- zoning does make buildings worth more, but it does so by making land worth less. In other words, getting rid of zoning everywhere as OP proposes wouldn't make land less valuable, it would make it more valuable, so high land values are not caused by restrictive zoning.
Keep in mind that surveys have always shown that the majority of Americans want to live in single family homes.
> In other words, getting rid of zoning everywhere as OP proposes wouldn't make land less valuable, it would make it more valuable, so high land values are not caused by restrictive zoning.
No, I think megacities are a horrendous Molochian trap. Let's forget about San Francisco for a moment and talk about Jakarta. Unlike San Francisco, which has some geographical advantages, Jakarta is an absolutely terrible place with nothing going for it at all. It's polluted, crowded, the traffic is considered the worst in the world. It's ugly to look at from every angle, and the climate is bad even by Indonesian standards. (Oh, and it's sinking.) Despite this, thirty-two million people live there instead of one of the much nicer parts of Indonesia.
Why? Because as a city grows, it takes over more and more of the economic activity from the surrounding area. Each additional person you take away from Elsewhere and add to Jakarta diminishes the liveability of Jakarta but also increases the economic activity disparity between Jakarta and Elsewhere.
It's a coordination problem. Everyone in Jakarta would be much happier if they could split into ten cities of three million people each. At this scale it wouldn't decrease the overall amount of economic activity (below a certain scale it would). But they can never all agree to do this. (Though interestingly, the Indonesian Government has decided to abandon Jakarta and build a totally new capital in the boonies of Borneo, which is a step in the right direction).
Bill Gates owns a ton of land. He's actually the largest private owner of farmland in the United States. So all that food you talked about, he's extracting rental value, directly increasing your/mine/our food costs as a result of speculative land holding.
Amazon, likewise, is a huge landowner. They own enough office space to fill all of Seattle multiple times over, and location is obviously critical to achieving their product distribution goals. Not to mention all the land they own near DC for data centers.
The idea that our modern economy is detached from land is a farce.
However, some Georgists share your concerns about "digital land". Some online spaces share land like qualities, for example your Twitter profile is uniquely distinct and valuable from any given digital space, due to network effects. Additionally, data collected by digital companies is a form of intellectual property that provides huge benefits along side those network effects.
Bill Gates bought all that farmland after he already became wealthy. Obviously he believes it will be a good investment. But it's only a footnote to his story, which is mainly about becoming wealthy through selling software licenses.
I sympathize with the idea that land as value seems to be rather arbitrary and not make as much sense in the 20th century, but to be fair all of economics and tax decisions seem to be arbitrary anyway (like you say, the concept of labor having value doesn't fully work in this century). What should be taxed is an open question that only has arbitrary answers.
Even if Bill Gates owned no land, he would buy things from stores, and the prices of those things would include the LVT the store has to pay. If he rented a house or an apartment, he would likewise pay indirect LVT, much like the way VAT is indirect.
And even if it’s necessary to tax things other than land value, the core idea is that establishing LVT would remove a lot of inefficiency and boost the economy by such an amount that a modest tax on skyrocketing wealth generation would suffice. That’s at least my optimistic reading of it.
If there are places where 70% of property values are land, doesn’t that mean their property taxes are pretty Georgian already? (I mean, not California due to Prop 13, but maybe other places?) Are they seeing benefits from high property taxes? If not, maybe changes to property taxes can’t fix as much as Georgians think.
I suspect that property taxes matter much less than zoning, so changing property taxes alone won’t move the needle much if you don’t also fix zoning.
This is somewhat true. Implementing Georgism somewhere with very strict zoning doesn't really solve the problem. But no, land is very underrated because it's usually under assessed.
In places where property values are 70% land, under current regimes, you tend to see very low property taxes and tons of exemptions and carve outs. Zoning is super important and should also be part of this balanced breakfast. One thing I'll mention that if you have an LVT in a city, that city is incentivized to increase land values as that is their tax base. One way to do that is... repeal restrictive zoning! So Land Value Tax and Zoning reform work together.
So, uh, what happens if the Land Value Tax goes above 100%?
Like, I don't have formal economics education, and my internal models don't mesh well with Georgism yet, and I'm ever so slightly tipsy. :-) But the arguments so far seem to be of the variety that don't stop applying at some particular level of tax. So if the US wanted to switch over to a Georgist system, and we discovered that we could replace all other taxes with a 240% LVT, why not do it? As you say, it's not like anyone's creating more land.
And although I'd love to be convinced that Georgism and the LVT comprise the One True Way, I'm deeply, reflexively suspicious of arguments that don't have a built-in stopping point. They smack of ideologues dreaming of castles in the clouds, and not of engineers making cost/benefit analyses in the cold harsh light of day. (Although, in that spirit, I suppose I could be persuaded around to a point of view that held that even at arbitrarily high levels, a LVT would be less bad than any other combination of taxes that generated the same amount of revenue.)
It's an interesting hypothetical. The sale price of land would obviously go negative: if you wanted someone to take your land off your hands, you'd have to give them 140% of the land value to make it worth their while, which perhaps they'd be able to use the interest from to pay the extra 140% tax above the land's actual value. As soon as the land value increased, the tax would increase in excess of what it's actually worth to them, the interest from their invested cash would be insufficient to pay the tax, and they'd be unwilling and likely unable to pay the tax to keep the property. However, unless they inject some extra cash of their own, they'd also unable to afford to pay someone to take the land off their hands.
If they were stuck holding the land, they wouldn't be paying the tax, so I guess the government would repossess it, but then they would be stuck with a property that *they* would have to pay the next landholder to accept.
To avoid having the land repossessed due to non-payment of tax, there would be a very, very, strong incentive for landholders to oppose any any changes in their community that would increase land values, and to support changes that would decrease them. If land values decreased, sure, living there is less valuable to landholders now, but this is more than made up for by the reduction in tax, and they would get to keep the cash they were originally paid to accept the land - now producing more interest than what is necessary to pay the tax.
Obviously a terrible idea, and I think I see why others in this thread are saying that some Georgists only want an e.g. 85% tax - you still want people to be incentivised to make their community better, and not merely be indifferent to whether it improves or not.
Going above 100 is bad because then you can't make as much from the land as it costs to pay the tax, meaning no one would want to own the land and they would leave that locality.
That's exactly the problem I foresee with this; if the LVT is too high (and the temptation to push it to 100% would be very strong, if the idea is that all other taxes can be scrapped/we can pay everyone UBI) then people will abandon it. "I can't sell it because nobody wants to buy it at that LVT, I don't want to own it because I can't afford to pay that LVT, here - I'm abandoning it".
What next - the state takes it over, because you need to build houses and if private industry won't do it, then the state will have to. And then the state charges itself LVT to get the revenue to pay the LVT to get the revenue...
This is also @Travis. LVT can only cause land to be abandoned if you're getting the valuation wrong and taxing an amount greater than the land generates each year. This would quickly become evident as the land became abandoned, giving the property zero value and making the tax obligation zero. So there's no incentive for the state to over-value the land, as it reduces their tax received.
But that's just what the land generates, and doesn't include what the property generates. If the land generates 10k in rent each year, and the buildings on the property generate an additional 40k each year, then the LVT could go all the way up to 500% before it stops being worthwhile to own the land. So, if the LVT only went up to 300%, would anything go horribly wrong then? Taxes would take 30k each year, but the owner would still be making 20k every year, and could conceivably replace the buildings with something that generates even more money.
Well actually here you have reached essentially the conclusion that has made me not worry about 100+% LVT- the state would never want to over assess or overtax land, since it would simply hurt their own economy and tax revenue.
The LVT isn't 100% of the value of the property though, right? Just the land? So if I can build something on the land that is worthwhile enough, I will do so. So you could tax over 100%?
But I guess this is a feedback loop because if I can build a building which can generate more wealth than the LTV, there is incentive to purchase the land which increases LTV. I guess I'm confused.
But they can make money off of the buildings built on the property, no? The higher than land value tax the more it would incentivize ultra-density, right?
If it’s above 100% and you are still collecting money, that is essentially no longer a LVT but instead has become a LVT+ some combination of income/property/wealth tax as the additional revenue by definition is being drawn from something other than the rental return of the land. If the rental return of my land is $50k a year and you tax me $60k then I either will need to pay that out of my salary or by liquidating assets, so the additional tax incidence is falling on something other than the land despite being named Land Value Tax.
Just like if you raised my income tax to 120% of my annual salary and I had to start liquidating assets to pay may tax bill, it’s not really just an income tax at the point regardless of what you call it.
What I absolutely love about Georgism is that you can replace "land" with "commons".
You don't get taxed because you own a piece of land in Manhattan. Nobody cares about that piece of land per se. You get taxed because of everything people built around your piece of land - you get taxed because of and proportional to how useful Manhattan is. That's value created by society, and to the extend any tax is fair at all, this is the most fair type.
Compare this with taxing income. You work, you better yourself to be more productive, put in hours... and somebody comes and takes half of that. Just because they can.
Now, why Georgism will be very hard to implement is how incentives are distributed. Everybody would win some. But land owners will lose a lot, and they'll fight tooth and nail against it, by any means possible. They do have a fait point as well - if you just paid 1 million for your home and still own the bank 900k, you will be a bit miffed to have to pay what pretty much amounts to double mortgage. TBH, not sure how to fix this, but there probably are methods. Delayed application for residential areas, for instance.
Another (mostly positive) consequence: just seriously talking about this will drive home prices way down.
"The typical landowner has been receiving an implicit subsidy from the government, as public goods generate higher rent and land value. One could argue that justice requires the title holder to pay back the past subsidies." https://www.progress.org/articles/the-transition-to-land-value-taxation
When you say "The housing crisis is driven by inflated land prices, which in turn drives poverty, homelessness, and all other manner of social ills" you miss the main point: land prices are inflated in the first place because of lack of supply, not primarily in the sense that you can't create more land, but mainly in the sense of constraints on what (very little) is allowed anymore to be built on the land that does exists. It's the inherent NIMBYism of modern society that is driving inequality, and until A LOT more building is permitted in our productive urban areas (until supply = demand) it won't get better. In fact, the benefits you imagine from your wished for tax only work in a static world where demand for housing and other productive assets magically freeze at current levels. Sorry, this is just Soviet style planning dressed up in well intentioned rhetoric. I like your openness to seeing flaws in your argument. Hope you'll see this one.
I don't think you're correct here, and I say that as a massive YIMBY. Yes, zoning is part of why housing is so expensive, but even if you massively upzone everything, land will still be way more expensive in the center of thriving cities than it is in the countryside.
Plus, the two problems go hand-in-hand: landowners are NIMBYs because they want to protect the value of their main asset; it is their main asset because land speculation is so profitable. We should fix both.
Land in or near "thriving" city centers will always be more expensive than in the countryside - that's not a problem to fix, it's a simple statement about people's common sense preferences. In what possible world would we expect an acre in downtown Los Angeles to be priced the same as an acre in the middle of the Nevada desert? So that just leaves the problem of landowners being way too NIMBY, such that building supply cannot begin to meet demand. Just imagine if the New Yorkers of 120 years ago insisted on the preservation of their neighborhoods and sightlines as we do today (and all in the name of preventing fat-cats from erecting luxury office and apartment blocks): instead of being the 20th century powerhouse it was Manhattan today would only be a quaint curiosity with all productive capacity seeking a home long ago elsewhere. That didn't happen (thank goodness) largely because New Yorkers of a century ago did not have the policy voice their descendants have today. It is the middle class's success over the past 100 years (much more than the fat-cat 1%) that empowers the effective veto of building projects that were not stopped in an earlier age. We cannot fix the supply problem by re-distributing the tax burden, unless you can explain how the new taxes align incentives for massive new building. Or unless you're satisfied to freeze cities in the amber of good intentions, like what would have happened to the New York of 1900 had there been similar-to-today's constraints on building the modern skyline. We may not like that skyline but it is what drove the American century.
I didn't pose the price differential as a problem, nor am I arguing in favor of NIMBYism, perhaps you need to read my prior comment again?
But yes, land tax will align incentives to build more: under LVT there will be no speculative profits, landowners' profits will come entirely from what they build. There'll also be less incentive to be NIMBY, see previous comment.
Land value assessment are ongoing, so anytime the demand increase above supply for a given land use, then the value of that land goes up, LVT goes up, and you have to do more to get revenue (build more units, specifically in the case of housing.) to pay the LVT.
This is the point of the LVT, to stop speculative land holding and underdevelopment of land which can be put to a higher use.
Some Dutch cities have a system that resembles Georgist taxes, called "Erfpacht". You pay taxes to the local government based on the value of the land, and it is indexed regularly. Most places nowadays allow you to pay it off in perpituity, but its still normal to pay it. A colleague just bought a house that was a lot cheaper than others around it because he needs to pay the yearly tax. I am not sure what the difference is with a real Georgist tax, there has to be something as I have not seen this example brought up before.
Here's a cleaner (more formal) way to make the roller-coaster point. At the time of building, we can use the naive formula that:
property value = land value + building cost
Why? Because if both transactions are arms-length, then some real buyer paid both prices, and by the subjective theory of value, that's what they're worth.
Now let's talk about the old building. Naively, we want to subtract depreciation of the built structure--a new structure would not be identical, but rather shiny and new. But we should also be aware that opportunity cost increases over time. At the time of building, somebody was willing to pay the built price for the built structure. Since the world changes over time, both in its needs and in its building methods, that becomes less and less true over time. So you have to multiply the improvements term by the chance that a new buyer of the land would want to preserve that improvement rather than tearing it down. And then if the buyer wants to tear down, you have the destruction cost (including permitting, which for a historical district or whatever could be enormous). So:
property value = land value + prob(retention) * (building cost - depreciation) - [1-prob(retention)] * destruction cost
Prob(retention) is likely to be U-shaped. Unless the initial builder is super-idiosyncratic, flipping at the start should only involve the flipping costs, and depreciation isn't generally as high as with a used car. After a long time, properties are "historic" and they're worth more as rehabs (to fix the depreciation, which might be extensive) than as teardowns. So the Fed line is likely to be pretty good for areas full of very new or historic properties, and way too low for the vast majority of improved US land, which is neither.
So I've been very persuaded by Georgism about cities, because the value dissipated in economic rents, the poor usage of valuable space, and the resulting drag on the national economy are all so overwhelmingly obvious.
I'm a bit worried about how this applies to rural land, however, precisely because it's not clear to me that we want to maximize the immediate improvement of rural land the way we do city land. Say that farming in Iowa inevitably uses up a finite inheritance of topsoil. Land value depends on the amount of topsoil. Future farming methods use less topsoil per bushel of corn than current ones. So currently the farmer is incentivized to farm less intensively now than his discount rate would suggest, in order to preserve land value. If a Georgist tax makes land value-less, or nearly so, then the farmer should farm more intensively. A very similar story could be told about a West Virginia coal field.
So now I worry that Georgist taxes are destructive in rural areas without also passing Pigouvian taxes, which we haven't done a good job of so far. Or more precisely, the case for Georgism seems to rely on land values bounded from below at the Ricardian rent-free rate (no improvements and no neighboring improvements with spillover). But with land containing natural resources, that's just not the case.
I will note that if you look at the plots you can flat exclude agricultural land from a proposed LVT and basically not notice the change in revenue, so it doesn't seem like it'd scupper most of the arguments made here, but it's certainly a critical thing to consider for any policy makers
Yes, I don't think this undermines the basic idea, but I think it's an important tweak at both the practical and theoretical levels. At the theoretical level, it suggests that what Georgists really want to tax is "place"--that which cannot be created or destroyed. So mineral resources (and similar) are really not capital or labor in the Georgist view, but some third category, and we would be wise to see out the implications of that.
At the practical level, I think you're 100% right that the financial difference from excluding rural land isn't that big, so there's no problem there. But I'd rather come up with a good theoretical distinction on land than on rural/urban because that's obviously a continuum and not something we want people to get litigious about. I also worry that there might be parallel cases in urban land--imagine some pollutant that was extremely hard to clean up, and which people really disliked (say it smells bad) but which isn't like an easily spread carcinogen or something so the criminal penalties for dumping it are low/nonexistent. Now a plot owner in a city who wants a tax-free privacy screen around his house can contaminate a set of plots so as to lower the value to near-zero and not have to pay tax on those plots. Maybe that seems sci-fi/far-fetched, but the general point is that any time land value could be reduced below the Ricardian minimum is an opportunity to game the system or generally create bad outcomes, and such opportunities aren't intrinsically limited to rural land.
So actually this is a major point in Georgism's favor, in my opinion. Right now, farming is primarily in the hands of agribusiness, which uses high-cover monoculture to raise crops, mostly because it is very labor-efficient to do so, and also because they receive a lot of subsidies. Georgism would incentivize doing more labor intensive, smaller scale permaculture, which has higher returns but is much more capital and labor intensive, and is also more efficient and better for the environment. That means that Georgism would encourage more efficient and smaller farming, plus it frees up land by densifying cities and hugely reduces cost-of-entry for farmers by sharply cutting capitalized prices of land (to ~0 at LVT of 100%).
Thanks, it's great to see how much effort you put into nailing down your claim, and I totally believe that you are trying to be very honest about them.
One (mild) criticism: for the question how the money is actually spent, you jump between different options, taking the option that is most convenient at a given place. If we raise 1 billion of LVT, we can use it *either* to pay for military/social services and remove other taxes, *or* we can give the money back via UBI. We cannot do both.
For me, this doesn't change the fundamental picture. If other taxes are removed, then this has _very_ roughly the same effect as a UBI, except that the distribution is totally different. And I think your calculation with UBI makes sense and gives an important insight. But it is not as transparent as it could be that this is an *alternative* to removing other taxes, and you are obviously aiming for perfect clarity elsewhere.
Fair criticism. A lot of Georgists are fairly neutral on how the revenues get used, which might be why Lars jumps between the various alternatives.
I think the reason for the variety of opinions here is that taxing land has features which should be desirable to most political philosophies, but how to spend the revenues has much more scope for disagreement depending on your personal preferences for equity/equality/types of public services etc.
Most Georgists fundamentally believe we will be able to raise more than enough revenue to fund the government and still return a UBI.
Lars avoided saying this, and most of us avoid strongly making this claim, because it isn't objectively demonstrable, but the idea is based in our understanding of the theory.
So we tend to settle with "let's do it and then we'll figure out if its enough. If it isn't, then we'll figure out what to do next."
Most Georgists aren't really "Single Taxers" anymore, anyway. A lot of us believe in pigouvian taxes against pollution and various other negative externalities, as well as severance taxes on depleting non-renewable resources, and some forms of taxes on land-like things, like intellectual property and some of the components of the digital economy.
Yes, sorry that I wasn't as perfectly clear as I could have been. One thing I would add is that when I did the UBI calculations, I was using the *most pessimistic* estimate. If that turns out to be true, whelp, that's it, that's all we can do. But if, say, Smith's estimate is correct at a decent capitalization rate, then you can do the UBI figures I mentioned *and* pay for at least one major budget line item while offsetting at least some existing inefficient taxes.
"But won't landlords just raise the rent to make up for the LVT, passing the burden of the tax on to the tenants? Georgists say no, because land is special in that it is scarce and nobody can make any more of it."
Kindly remember that I am an innumerate idiot. This doesn't seem to make sense to me, because it sounds like arguing that increases in prices won't be passed on, because the entity wanting to put up the price can't make more land.
And that sounds like "My electricity supplier is going to pass on the increase in costs by raising my electricity bill" where the Georgist says in response "Don't worry, they can't do that, because land can't be created!"
Landlord (be that private individual or commercial operator) wants to make a profit off renting out their property. Take away running costs etc. they want enough left over to make it worth their while to be a landlord. Private individual often wants to pay mortgages or live off the rental income, commercial landlords are running the business.
So the Land Value Tax is going to come along and take a bite out of their income (your example of $500/year lease payment) to a greater or lesser extent. Let's take that $500 - now, if it's taxed at 40%, the landlord only gets $300. Maybe the landlord decides this is not enough, in comparison with the running costs and the expected profit.
So what do they do? Pass the charge on to the tenant(s) either by hiking the rent or adding in a new 'charge'. No business is going to voluntarily take a cut in revenue. The prevention of that is passing legislation to prevent rent hikes (hey, isn't rent control controversial round here?), not saying "Ho ho, they only have one plot of land where the building stands, they can't create a second one, so they can't pass the rent hike on!"
Also, the parking lot next to the skyscraper - maybe you *need* the parking lot more than another skyscraper, because if people can't access transport to get to the skyscraper, it's no good to them. So yes, maybe the parking lot is as valuable. But if the owner then builds a new skyscraper there instead of leaving it as a parking lot, now the people can't park their cars anywhere on the streets and the skyscrapers are, in effect, unusable by them.
To the first: the general theory is that landlords are usually charging the maximum rate their tenants can pay already, so there's no more room to hike it up in response to a land tax - this argument should appeal to your intuitions vis a vis landlord greed.
To the final paragraph: if a parking lot is more valuable than a skyscraper, it'll be more profitable too, by definition. You can charge quite a lot for parking, but I suspect the actual optimum would turn out to be skyscrapers with a few floors of parking at the bottom.
Answers to both of these: Yes, if we implement a LVT right away, existing landlords will try to pass on rent increases, but fail to get the full amount. Tenants will move out rather than pay the full increase, and landlords will find that they need to offer competitive rents to actually get tenants - tenants don't have infinite money and are part of the price negotiation too. But, yes, the landlords might now mass default on their mortgages, banks will collapse - it'll be a disaster.
But in a world that is *already* Georgist, the landlord would have paid a much smaller sum for the property in the first place, because the market price for the property was just that of the improvements and not the land itself. This wasn't obvious to me until today, but the fact that properties come with a tax obligation reduces the price people are willing to pay, and if the tax rate is chosen to correctly as per Georgism, the sale price should end up equal to the improved price only and none of the land value.
So the landlord can make less rent in this world - they have to pass on the fraction of the rent for the land's value to the government as tax. But they get to keep the fraction of the rent for the improved value. They still own the building, and the tenant is paying them rent for that too. So that rent is still a decent return on investment, as a percentage per year, on the price of the property the landlord actually paid. Effectively landlords will be in the business of owning and renting buildings, not land. They will pass on the full cost of the land tax to the tenant, but that's fine. Tents today are paying for the value of land already. They won't be paying it double in a Georgian world.
How to get from our world to a Georgian one is the question though - if you just imposed the tax overnight, yes, many landlords will need to try (though they'll fail) to charge tenants double the land value in order to not make a massive loss. So you need to phase it in gradually enough for it not to matter, or buy the landholders out of the land value at the same time as creating the tax obligation.
As for the carpark next to the skyscraper: if it's that important, then the income from parking fees should be high enough to cover the tax: making a carpark is the most productive use of that land. If people would be unwilling to pay high enough parking fees that the carpark can afford the same LVT as the skyscraper, then it was not as necessary as presupposed.
"Tenants will move out rather than pay the full increase, and landlords will find that they need to offer competitive rents to actually get tenants - tenants don't have infinite money and are part of the price negotiation too".
In an ideal world, yes. In a world where (for instance) most of the good-paying jobs are located in the big city (as in Ireland where Dublin has a disproportionate warping effect on the rest of the country) and you need to rent somewhere to live there, or face having to find accommodation you can afford in reasonable commuting distance, then the landlords have the whip hand. Oh, you don't want to/can't afford to pay this rent? Fine, I'll just move on to the next person in the queue behind you.
There's plenty of flouting of the regulations already in place and poor to ineffectual enforcement:
The Government has ordered a crackdown on rogue landlords as rents have surged by as much as 17% in some parts of the country.
There have even been hikes of as much as 11% in high-demand areas where rental price increases are supposed to be controlled.
...The RPZ legislation previously limited rent increases to 4% per year, but was overhauled to link increases to general inflation."
So I honestly don't see how a LVT won't be passed on in the rent charged. Talking about renting out buildings, not land, and the value is in the improvements not the land itself sounds great, but what makes the land valuable is its location. If it's an acre in the middle of New York, it's very desirable and hence valuable. If it's an acre in the middle of Death Valley, it has no value.
This is where I am not getting it. The distinction is being made between Land Value - so the acre in New York is more valuable than the acre in Death Valley before ever you put any kind of building up on it. It's more valuable because of what you can do with it, the demand for that building or service, the fact that there is only a limited amount of available land in New York city proper. I get that, and I think most people do, too.
Then we get the Land Rent - the amount you can charge someone for living in your building or buying the things you make in the factory or whatever. And if your building is in a desirable location like New York city, then you can charge a lot more than you can for the Death Valley location. The fact that you can charge someone $5,000 a month for the use of that New York acre while you'd be lucky to get $1 a month for the Death Valley acre is what makes the New York acre valuable. I get that, too.
What I *don't* get is the jump to "and so if we can sell the New York acre for $100,000 and the Death Valley acre for $1, what that means is that we have a total value of $100,001 for all the land, which means we can charge rents of $5,000 per month for the Death Valley acre as well and that means we can do away with taxes if we just impose a LVT on that $5,000 per month!"
The 'total value' of all the land in the USA includes a lot of bad land, scrub, desert, mountains, middle of nowhere where nobody wants to live, Rust Belt dying towns, etc. You are not going to get New York city rents for those properties.
What I also don't get is the connection between "if you can generate $10,000 in revenue from your land but have to pay $5,000 in property tax, you are going to be less willing to pay $20,000 to buy that land than if you could generate $10,000 in revenue with no tax" - yes, that's making sense - "so if we put a LVT on that revenue of $5,000 instead of a property tax of $5,000, we can still value the land at $20,000 or more!" No, you've lost me now.
Same thing with the parking lot - if you are going to charge people parking fees at the same level as "if this was a skyscraper, you'd be paying $2,000 a month in rent for an office", then even if people *need* to park there, no way they can afford those charges, so they don't park there, so nobody can travel into the city, so your shiny new skyscraper remains empty and you don't make *any* rent from it.
As land is taxed, underdeveloped and vacant land will come onto the market and more housing units will be built, increasing the supply back up to the demand, reducing the price.
Another way to think about it, is landlords are already charging as much as the market supports. Trying to charge more will make them go to the next best alternative.
In California, you could have two houses next to each other, one covered by Prop 13 which is paying much less tax, but they rent out to tenants at the same amount.
The landlords are charging as much as the market clearing price for the current supply and demand, because if they would increase their price, the people would find another landlord without this increase. However, if *every* landlord suddenly gets a large increase in costs - no matter if it's because of inflation, or LTV, or some policy requiring landlords to invest in buildings, or some tax - then this would result in the market price increasing; not for the full amount, but for a large proportion of the LTV.
Your first argument about the supply increase is valid for the *long term*, however, the key objections are raised about the short term shock. Georgism has a lot of rebuttals that are fine for the long-run steady state scenario, however, that's not on people's minds and it would take literal decades for that steady state to arrive, houses do not get build overnight and neither do people respond to location desirability as fast. In order to justify that Georgism is somewhat plausible, there needs to be an answer that will ensure tolerable results for almost all people already on a, say, 2 year scale, or it will be repealed long before the steady state can arrive.
Okay, I am an idiot, is the proposal "the land itself is worth $10,000. The improvements you make mean it is now worth $20,000. The difference is $10,000, so you charge rent at the $20,000 level, pay the LVT at the $10,000 level, and keep the difference"?
Exactly. And when you bought the property, you didn't pay for the land itself - the sale price represented the value only of existing improvements. So you've invested 10k, and get to collect rent on a 10k asset - the same rate of return as before.
When you bought the property, the property was more valuable than it otherwise would have been because it was possible to make improvements and this was priced in to the value of the land.
If the land was otherwise worth $10000, and it was possible to make improvements that make it worth $20000, the land would have sold for $20000 (minus the cost of making the improvements). It would be impossible to disentangle the "value of the land" and the value of the improvements.
(Note that the answer to that is not 'subtract the value of the improvements", since the improvements may not even have been built at this point.)
> Tenants will move out rather than pay the full increase
To where? Assuming the LVT is applied region-wide, then there is nowhere they can go to escape it.
> landlords will find that they need to offer competitive rents to actually get tenants - tenants don't have infinite money and are part of the price negotiation too
In practice, tenants just have to pay what's being asked. Landlords look around and price their apartment based on other similar units, not based on what tenants can pay. If their costs all go up, they will all ask more, and the tenants will pay it, because they have to or they die.
> though they'll fail
No reason to think this is the case except naive microeconomics that ignore the realities of the power differential between landlords and tenants.
The idea is that whatever the landlord charges is attributable partly to the land and partly to the wealth. By definition, the land part in its entirety goes to the state, so the landlord gets to keep the wealth part. Can they set it as high or as low as they want? Of course they can. No paradox here. They don’t need to offset the LVT because effectively, the tenant pays it, not the landlord.
Part II will address passing on taxes to tenants in depth! And you don't need to understand the math, we just look at places LVT has been implemented and see what happens.
The greater value of urban land over rural land is generally urban land is under "planning control" and you have to get permission to build anything.
That San Francisco land sale notice made sure to note what the land was zoned for and thus what you could build on it.
I think your analysis has a large weakness as a result of this. I did not read the whole thing, but searching for "planning" or "permission" did not turn anything up.
If you don't discuss how much of the land value is in the permissions vs. location + area, then the value you tax on is going to be artificially inflated (quite a lot in the case of places like SF or New York which are notoriously difficult to get planning changes for).
If the value of the land changes a lot depending on what you're allowed to build on it, and the government can change this at will, then it's not really the land value you are talking about, which depends on the value being related to things that can't change like location close to other things that make it desirable.
The planning constraints on a given piece of land *are* part of the land value, and that's a good thing. The desirability of taxing land value is that the *landlord* can't change it, so it doesn't distort their economic behaviour. But having land value be something modifiable by the government is desirable: their incentive is to the maximise the desirability of all land under their jurisdiction, which means to implement the optimal set of zoning policies!
"If you take Georgism to its natural conclusions, you might start to question government-enforced monopolies over other kinds of "Land," such as electromagnetic spectrum..."
Is electromagnetic spectrum not already handled in a Georgist way? Governments hold auctions where you can buy monopoly rights over the spectrum for 10 years, say. So companies basically rent the spectrum from the government at the market rate for that period, which to me is indistinguishable to paying a tax equal to the market rent. An important aspect is the period of the rights - having <= 20 years makes it harder to profit by just holding onto the spectrum - an increase in value over time can easily be wiped out by the reduction in the remaining term. For a longer term, this would look less Georgist.
And actually, this is a pretty good advert for Georgism. The approach seems to work very well for electromagnetic spectrum and has been widely adopted around the world. Replacing the approximately pre-2005 approach where the monopoly rights were typically awarded by a bureaucracy via some opaque process in a form of corporate welfare.
There is no such thing as the "natural" value of the land. Farmland becomes valuable because you can farm on it, and the better you can farm, the more valuable it becomes. Land in the city, even if there's no building on it, is valuable because of the surrounding city. Your patch of land in the desert might be worthless in itself, but it will become really valuable once someone starts a technology park nextdoors.
The point is that it's supposed to not have negative effects, but I can't see how that works out. Let's say I invent an improved way of farming. Now the value of my farmland goes way up (because of how it's more productive), and my taxes increase, likely to a very substantial part of my productivity increase. This certainly doesn't encourage me to make such innovations.
Similarly, I can't buy up a lot of unproductive land and put up a city there to increase the value of my land (as was suggested in a Charter Cities post), as that will all get eaten up by taxes.
Not the improvements in the form of buildings, but the increased value of the land as an effect of the improvements. For instance, if I build a road to my property, this will increase its value as opposed to if no-one can reach it.
Example: There's cheap land in the middle of nowhere. Under the current system, I could buy that and build roads and put up buildings, and then earn a lot of money from selling people the now much more valuable land - more valuable not because the house or road is taxed, but because the land itself can now be used for things it couldn't before. This, after all, is why land is expensive in downtown Manhattan, and everything I read tells me that it will be taxed at this value, not at some hypothetical value it would have had not a huge city been there.
I could not make the same kind of land value earnings under LVT, as all land is essentially worth zero. As I understand it, this is a feature, not a bug? But it also means that the economy to pick up this cheap land and develop it into valuable *land* might not be there - if I'm to make any earnings, it will have to be from the actual buildings, not from the land?
Same thing if I buy unused land and turn it into farmland - presumably the farmland will now be taxed at the value it could be rented for, which is higher than the wilderness it used to be?
If this *isn't* the case, then how on *Earth* is it going to be handled?
If someone other than you invented an improved way of farming, yes, your farmland became more valuable overnight, because you can now use technology you didn’t invent on land you didn’t create. Why should you be entitled to pocket the profits of that?
You're not engaging with the problem. Suppose I know a method I think will give 10% increased agricultural productivity that nobody else knows about. If I can keep it secret, then this is good for me: the assessed value of the land won't go up, but I'll be able to produce more. If the secret gets out, then the land tax will eat up all of my additional income. So I have an incentive to not invent improvements like that or at a minimum, not share them with others.
Under the current system you also have an incentive to invent something and keep it to yourself and a disincentive to allow all the world to use it for free. Under the new system, everyone _has_ to farm using the most efficient methods or they lose money, as long as your invention is the best you rake in the cash from the royalties. I could see a couple of problems here but the general direction seems to be OK.
If improving the output involved capital investment in the land, then doesn't the Georgist specifically not tax that? Because that's capital, and not 'land'?
Not sure. The reasoning I see is "how much could the land in itself be rented for", but this isn't very clear-cut - if I improve farmland, presumably I will now have to pay higher taxes because the land itself is now more valuable?
I'm also not sure how to treat a forest - is the lumber value included or excluded in LVT calculations? If included, the landowner is in huge trouble - everyone would want to "rent" it for a few months and cut down all the trees, so the LVT would be enormous!
But is this really so different a situation than building a house on an empty plot? In both cases you have to sell the two together, you can't sell the land and not the house and likewise you can't sell the land and not the forest. This suggests it should be considered capital and taxed accordingly. You could rent the land for more with the forest on it etc. But that's because of the capital investment, which Georgism wouldn't seek to tax. I think the problem here is a hazy definition of 'land', going back and forth between common current usage and specific Georgist usage
This article convinced me that land plays a bigger role in modern economies than I gave it credit for.
One question regarding a side remark in the article: How is a lvt supposed to end 'wasteful, environmentally damaging sprawl' if in an ideal world it is implemented without deadweight-losses, i.e. in a way that doesnt change the optimal use of any given piece of land (other than for speculation) and is thus incentive-neutral? I understand that a lvt would not change the cost to rent anywhere, not in a city and not in a suburb or rural area. So if it makes sense for someone to live in a suburb now it should still make sense after the implementation of a lvt.
I don't understand anything about the housing argument either. Lack of housing is mostly caused by legal matters, like where you're allowed to build, and your rent is still going to be the effect of either controlled rents or supply and demand.
If anything, won't rents be a lot *higher* with LVT, since now that I have more money post-taxes, the owner of the building can raise taxes (and has to, because of his own cost of LVT taxes)?
Or this: Let's say I want to build an apartment complex, and I need a certain return on investment on it in order to even do it. Regardless of LVT, I'm going to make a calculation about my costs (including land and construction) and how much rent I can charge (based either on controlled rents or supply & demand, or some combination). While the calculation changes with LVT, I can't see how it affects the principles - I'm going to build or not build, and I'm going to charge all the rents I can get away with (and ideally higher rents yet if I need to cover LVT costs).
Where does LVT even *start* to push the rents down? The factors determining rent will still be my costs (*higher* now), supply & demand, and any legal restrictions on the rent I can charge.
Yes I agree. I expect the next post about "can land owners offset the LVT by increasing rents" to address this issue. Basically, supply of land is fixed and thus absolutely inelastic to changes in prices while there is some elasticity in demand (e.g. you will rent a smaller flat if prices are too high to afford a larger place). Therefore, basic economic theory tells us that we would *not* expect market prices for rent to increase as a consequence of the land owner having to pay a LVT.
However, if the LVT also leads to second round effects on the demand side because somehow everybody has more money now, we would expect all kinds of prices to rise, including rent. This seems to be the gist of ATCOR, although I really really doubt the effect would be that strong. If my salary increased by 100%, and real estate prices increased by 100%, while all other prices stay the same, I for one would *not* decide to pay 100% more for my flat - I would move to a cheaper place so that I only have to pay say 40% more. If the average person does the same, we should not expect real estate prices to rise quite as much as income has risen, and thus not all of the increase in wages would be captured by rent and the land tax. In essence, ATCOR poses the question whether real estate is a Giffen Good (https://en.wikipedia.org/wiki/Giffen_good).
Also, LVT will most certainly affect whether it's worth it to build new housing in this case. It's an outright additional cost, which will by necessity *either* be passed on to the person paying the rent, *or* reduce the income for the person renting. Either has effects.
I'm confused. Supply of land is fixed but land is not homogenous. Certain land is worth more than other land. LTV is taking that into account by estimating purely the cost of the land. If an apartment building that houses 1000 people is next to a house, the house and apartment will be taxed equally. No one would want to live in that house anymore because the land lord of the house would raise the rent price because the tax burden is tremendously high. Where am I going wrong?
This is my argument as well. Farmland for instance isn't a constant - the total area can rise or fall, and will do so depending on productivity, costs and incentives.
Makes sense to me. Of course, in the case of LVT, you start by taking away the entire value of the plots they originally paid for, so now they have to make that up a second time.
Another point: you can't short real estate. Also demand is pretty inelastic. This means real estate prices are doomed to go up long term - and since people realized this, that's the third incentive to put money in it, no matter the price.
TBH, I don't know of any measure outside georgism that can fix this, and doesn't have horrible side effects.
This is the story of housing in my home city of Stockholm - the combination of rent controls and housing restrictions has created a decades-long lack of housing, and throughout this period, housing costs keep increasing considerably more rapidly than wages (meaning that housing consumes an increasingly large share of household expenses). Presumably the way to improve on this would be by reducing rent controls (as has indeed happened over time) and making it easier to build.
I still can't gather how Georgism would reduce rents, though. What's the mechanism even supposed to be? Isn't it still just a matter of being allowed to build in the first place, and then supply and demand and requirements for return on investment applied to the housing that exists?
i guess the mechanism is that it would now cost money to sit around with empty plots of land, so property owners are more likely to sell to developers, or to develop their land themselves?
I can see some potentially nasty effects here. Let's say I have an old family house in the archipelago. It's not exceptionally valuable in itself, but rich people are putting up luxury houses all around me, and I actually _could_ sell the land for good money. Does that mean I will now have to pay an exorbitant LVT because of how the theoretical value of my land has appreciated, even though it has had _no_ economic effect on me yet? Could my land become so expensive that I'm forced to sell because I can't pay the LVT?
Or is the idea that I only need to pay the LVT if I *actually* get any earnings? But in that case, idle land won't cost you.
No, it's full worst cost scenario here. If the value of your land goes up, and you are doing nothing with it, it's still a full increase in your taxes. The purpose is to force you to sell it to someone who will do something better with it, so you can't sit on it. In very expensive cities, it will almost certainly convert all valuable land to skyscrapers and apartment complexes and almost no single family homes or "less efficient" uses. Depending on your view that may be a good thing, but it certainly changes how things work now.
I agree entirely. I originally loved the idea when first posted on ACX, but the more I thought about it the more I realized that it would (intentionally, and unavoidably) force people to sell property whether they wanted to or not. That was mostly fine to me as long as that was only businesses or real estate speculators, but it's clearly intended to apply to everyone and would certainly apply to private homes as much as anything else.
This is already a problem without specific carve-outs under current property tax laws. You own a house, worth $80k, you can pay taxes on it, then the area becomes much more wealthy, now your house is worth $200k, and you can't pay taxes on it any more, get out.
That's how it would solve housing crisis as well. It's a little acknowledged fact, but selling to "the masses" is a lot more profitable than making luxury goods. The 1% are actually closer to the .001%, and tend to be a very small and pretentious market. One of the best examples is actually appartment buildings and/or houses.
LVT would probably not force you to always go to _the_ most optimal land use - the article was suggesting it might eat up around 85% of land value, but in practice I'd be ultra happy with anything approaching 50%. Because this would strongly nughe owners away from the worst kinds of waste, like single family homes in prime residential areas. They're still possible, but now you have to pay for the privilege, instead of taking a free ride on a growing market.
I do wonder about the externalities here. It's quite possible that having a nice park in the middle of the city is a net good. But unless we carve out some exemption for public land, LTV will make it not just unproductive but exorbitantly expensive to keep the park around when you could sell it and develop more housing (resulting in a net bad).
Similarly, walking trails through a nice forest are difficult to monetize, but it's not obvious that turning it into yet another golf course would be a public good.
At least under a strict interpretation, Georgism seems uninterested in public goods like these?
That depends on the implementation, I guess. I'd expect public domain would be extempt.
But just as a thought exercise, anarcho libertarians thought up plenty of mechanisms to solve this. Local residents might chip in, or there might just be a form of entry fee (plenty of ways to implement this unobtrusively, if you don't care about 1% evasion)
Actually, Georgism incentivizes the development of public goods like those you mentioned (https://en.wikipedia.org/wiki/Henry_George_theorem). If the government can increase land values in an area by putting a public park such that total land values rise equal to the value of the parkland, there is always an incentive to do so- likewise with river trails, forests, etc. This is the opposite of the current tax system, where a government gets little direct benefit from greenspaces and parks.
Perhaps I am missing something, but it seems like several times in this article the author equates land rents (in the technical economic term) and "how much money I can rent my land out for". That was not my understanding of what "rent" was.
For example, suppose I claim a plot of land and build an apartment complex on it. Furthermore, let's say I can rent it out for $500. The "rent" I am capturing is not $500. It's the portion of the $500 that is not due to me building an apartment complex on the land. So if I could rent out an equivalent apartment complex in the empty countryside for $300. Then the rent is (at least more approximate to) $200, not $500.
Putting aside all of the other economic criticisms (e.g. how much would land be worth under a georgist system). I don't think you can just look at cap rates and conclude that this is fully equivalent to the rent being extracted on this land.
Land rents refer only to the share of rent that comes from the land itself, not the apartment portion. So yes, from your example we're only looking to tax the $200. One way to estimate that is to take the cap rate x the land value (excluding the value of the apartment).
Part III will deal with valuation! But property assessments already often assess the land and improvements separately, and it's actually relatively straightforward to estimate land values using hedonic price models (with improvements being the remainder of the property's market value).
"The purpose of LVT is not just to raise revenue, but to end speculation, rent-seeking, unaffordable housing, and wasteful, environmentally damaging sprawl."
Non-single-tax georgists are actually quite confusing to me. There are clear and easy ways to fix all of the issues mentioned that have nothing to do with an LVT. Speculation can be taxed, housing can be subsidized, ending zoning laws will inherently discourage wasteful sprawl, but you can also just tax sprawl if need be.
The attraction of an LVT is that it accomplishes all of these things efficiently. However, if you're ok with a non-single-tax then you're clearly ok with doing things inefficiently. Which raises the question: why even support georgism in the first place? Figuring out what portion of a land's value is due to rents is a difficult problem. Subsidizing urban housing is quite a simple problem, though inefficient.
Yes, its like Meta-Socratism, where I don't even ask the question, I just make a statement that forces you have the theoretical discussion we could have been having, but only with yourself in your own mind.
I'm not sure if you were for or against what I was saying.
Baked into the word sprawl inherently is the idea that people are living farther away from things they would like to, given a set of rational economic choices.
If that's true, there must be something that is preventing them from living as close as they would like. Perhaps its the constraints of reality, or perhaps they can't because of poor use of location.
Sprawl IS inherently bad for a whole host of reasons. That's not an assumption, it's just something that's been known in forward-thinking urban planning for more than half a century and generally in urban planning for decades.
> Also, keep in mind that LVT would see the elimination of the portion of property tax that falls on buildings. I just checked my own property tax records (I live in the suburbs of a medium-sized town far from any major urban cores). If the assessed land share more than doubled to 40%, under a 100% LVT regime I'd actually save $545.05 on my property taxes every year–and that's without a Citizen's Dividend.
Whatever Citizen's Dividend you could have would be lower, given that the one you calculated was splitting all the revenue equally (ie. not lowering any taxes whatsoever). Who is better vs. worse off largely depends on the way the money is spent (even some who owns no land directly or indirectly, could be worse off if the money goes to expand negative-value government programs).
You seem to be saying something contradictory, maybe you can clarify.
"If ATCOR is true, a Single Tax policy will always work. Abolishing capital and income taxes causes the lost tax revenue to get soaked up by rising land values, which you can then capture with a 100% LVT. You're raising the exact same amount of revenue as before, but the elimination of income and capital taxes lifts a burden off of labor and investment while LVT keeps housing prices and rents down, boosting the economy and lowering the cost of living. This economic boost in turn raises land values, which are fully captured by LVT, thus keeping land values stable."
Lost tax revenue causes land value to go up (if ATCOR is true), which would be necessary for these taxes to cover the reduced/eliminated taxes. I follow that fine. In the same paragraph, you say that it will keep housing prices and rents down, which is contradictory. Either land value goes up, or it goes down, but certainly not both. It appears that your overall statement here is that land value would, net of all effects, remain stable. That is a problem for the overall Georgist proposition, because we are trying to lower the prices because they are "Too Damn High" while also offsetting less efficient taxes. It sounds like you are saying that those two goals are themselves contradictory and we can't have both (or maybe either).
"If a piece of land costs $10,000 to buy, and is leased for $500/year, then an LVT that captures 100% of the land rent is $500/year, which works out to a 5% annual tax of the land value."
But if I buy that land for $10,000 then rent it out (whether it's agricultural land or I build a house on it or whatever) for $500/year, then you come along and take that $500 with LVT - what am I getting? $500-$500 = $0. You're not charging me 5% of the land value, you are taxing me on the rental income. The only value I can get is by selling on the land and getting my $10,000 back! That's where land speculation starts!
On the other hand, if you charge me 5% of the land value which is $500 and I can rent it out for $1,000, then I make $500 and it's now in my interest to farm the land or build houses.
I believe the argument is that the owner should improve the land until it is worth more than the $500 value of the empty land in rents, and therefore the landlord will make money above LVT. If you pay $500/year for the LVT and that's what the unimproved rent would be to lease it, then you would need to add that house or farm in order to charge >$500 and make it worthwhile.
"In a sane world, the "ground truth" value of most financial instruments like stocks and bonds would terminate in good old fashioned capital and labor, but we've already been through one crisis where much of the world's paper wealth turned out to be just elaborate incantations cast upon regular people's mortgages."
And there's the rub. In Henry George's time, taxing an empty lot in a city made sense, because it did revolve around capital and labour: build an apartment block there for housing or a factory to make things for sale.
Today it's all fancy skyscrapers full of offices where nobody *makes* anything, they push electronic bits around to manipulate stocks and shares prices. Manufacturing physical goods has been outsourced to cheap labour and cheap costs countries overseas. Everything is online and in the cloud. You could do it as well from that field in the middle of nowhere as from the middle of the city, so the value is ephemeral: is the field in the middle of nowhere worth what it sells for, or worth what the data centre on it generates?
Worth what it rents for of course. You can build data centers in the middle of nowhere, but there is a reason that Silicon Valley is still extremely expensive, and why all those tech companies (that could theoretically do all their business just as effectively in Velva, North Dakota) want to be there. Agglomeration effects have not been erased by the internet age- workers still want to live near amenities, and that means cities.
Georgists don't have a problem with the data center thing- the LVT is low, because the value of the land the data company is excluding the public from is low. That is entirely the point.
Not sure if this is too IRL for this blog/discussion, but a significant amount of conservation in large parts of this country is owing to conservation easements, private agreements that run with the land, and frequently offer those who can take advantage of it a one-time income tax deduction. These obviously can often decrease the assessed value of the land, as the landowner is waiving development rights and other activities; but they don't always do so. Sometimes the highest value of a piece of land turns out to be just that - to be a piece of land that sustains wildlife, recreation and/or some well-managed ag (grazing or timber).
As an environmentalist, my fear is that someday the highest value of the land will be ... well, superstititiously, it's not something I even want to utter, as I'm afraid if the libertarian crowd were to read it, they'd say, oh yeah, we need to do that now!
But I do wonder what provision Georgism would make for private conservation.
I made the same kind of point elsewhere. A strict interpretation of Georgism seems to demand that every piece of land is put to *its* optimal economic use, without any regards for externalities or public goods. And there's even less room for idealism, because while maybe you're fine with not getting the maximum amount of money from your lands, having to pay through the nose for the privilege may not be feasible for you.
Or perhaps you own the Chrysler building. It's a landmark and people in the city value it. But the moment someone thinks they can make more money by razing it and building something else there instead, you're pretty much forced to sell. The costs involved mean you can't even stand on principle.
It even seems like this could be used as a weapon against people who have an emotional attachment to something. Offer a higher price, and when they won't sell, they get slammed with increasing costs.
We may be in a "price of everything and value of nothing" territory here?
Agree. Completely. It seems to me we are certainly in the territory of institutionalizing utilitarianism - in other words, a terrible moral code, but one that is difficult to refute.
It naturally lends itself to destruction.
Of course, land speculators who throw up a storage facility while they wait, little-taxed, for sprawl to pay, are also destructive.
I despair of schemes. It's the values people hold that matter.
I don't think it's even utilitarianism - because the focus is on every individual plot of land, counter-utilitarian effects are likely to occur when the Georgist implementation forces transactions with negative externalities. A utilitarian (like me) won't like that.
Rather, it's replacing utility with money as the Good. I don't think that's ending well.
Utility unfortunately reduces in the conception, or imagination, of most with maximizing human welfare, so there's no there there for me - but I can't really gainsay a Numenorean!
For what its worth I don't think these points are true- Georgism doesn't state that the value of the land is not defined by how land can best be used for production, but how people believe it can be best used period, and that includes for conservation purposes. Nature is valuable! People like it, and they'll pay to live near it! That means there is economic incentive to conserve- and many Georgists support pigouvian subsidies for conservation. Also, Georgism isn't the sum of all government policy- a Georgist government can also have national parks and conservation land and historical preservation! Don't get too caught up in an overly reductive vision of what an LVT would entail on a policy level.
I remember that the original review defined "land" to include anything that was naturally occurring and had productive capacity. This seems to have fallen back into talking about literal land, and that may be an important mistake. For one thing, it may make it look like "land", writ large, is less relevant to the modern economy than it actually is. For another, it may cause people to underestimate the available tax base for a "single tax".
For example, the laws of nature are "given", and they allow you to do certain things to produce wealth. A patent is an exclusive right to use part of that natural capacity by taking certain actions. Looks like land ownership. Perhaps patents should be taxed at 100 percent. And there are probably at least a few other high-value examples if you go looking.
... and shouldn't there also be recovery for extraction? If I mine $1 worth of gold out of the land, then that's $1 that won't be there later. I have permanently reduced the value of the land. The same applies if I pollute either "my own" land or the environment generally.
Personally I like the idea of a "single tax", or at least the idea of a "handful of taxes" on just a few land-like things, not only because of George's arguments, but because they're relatively simple to administer, relatively non-distorting, and probably in many cases relatively hard to cheat.
Most of the big taxes nowadays are on broad categories transactions and activities like "income" and "sales", meaning that you have to think about the tax consequences of everything you do, and sometimes otherwise economically reasonable things don't get done because of distorting effects of the tax system. Or vice versa.
The problem of coming up with an accurate appraisal for land is hard, but if you have a bunch of taxes on transactions, transfers, and ownership of random things, you have to look at the aggregate difficulty of coming up with rules for valuing all of those. I think I'd rather have the land problem, even if I end up having to do it for a handful of different categories of "land".
The administrative cost of valuing land (even in the extended version) is going to be *vastly less* than the aggregate cost of all the accounting people have to do on *every single act and transaction* to support, say, income tax or even a VAT or sales tax.
Actual land, and probably a lot of land-like things, are hard to hide, which reduces the cost of policing against evasion.
Super minor point, but I think it would be correct to say that Pigouvian taxes have _negative_ deadweight loss instead of zero. It's not that it doesn't distort the incentives on a free market: it's that it distorts them in the way they "should" be distorted, internalizing the externalities.
Another example of a tax with zero DWL, at least in theory, would be a lump-sum tax that every person has to pay no matter what. Thatcher's government something similar for a while: https://en.wikipedia.org/wiki/Poll_tax_(Great_Britain).
I used to be a Georgist, until it was pointed out to me that 100% of the burden of the tax falls on the present owners of the land. A perfect Georgist tax reduces the market value of the land to zero, since it now produces zero net income. The present value of the land is the net present value of the income stream, so the state has just confiscated the land from its current owners.
To take an example close to home, I (jointly) own a house worth £650k. Its rebuild cost is c£250k, so presumably the land is worth the other £400k. If a perfect Georgist tax were introduced, I would lose that £400k which doesn't sound great. But it's worse than that, because I owe the building society just over £400k (coincidentally), for which they would no longer have sufficient security. I would be unable to remortgage or sell the property unless I inject c£200k to reduce my LTV to a reasonable level. Precisely because land represents a significant percentage of all bank loans, a sudden reduction in its value would cause major financial problems.
It's not really helping me with this problem to say that I'm now in receipt of a citizen's income: at best that's defraying the annual LVT payments, but it does nothing about the sudden deterioration in my asset position.
This causes two problems. Firstly: it's unjust. We can argue the merits of wealth taxes, but taxing one particular category of wealth at 100% fits no sensible view of how the burden of taxation should be distributed.
Secondly, and perhaps more importantly, very many people (probably the majority) are in a similar position to me, so LVT is politically impossible.
A possible solution would be to compensate the existing owners. In the case, you would still get the economic benefits of the tax, but you raise no income. The amount of compensation paid is equal to 100% of NPV of rents, so it's equal to all the money you'll ever raise. Actually, you benefit a bit because the state's discount rate is lower than the owners' discount rate, and you only have to pay the owners' NPV. My 5-year interest rate is 1.19% and the UK government's is 0.54%. I think the difference between those numbers should be the net income received, but of course other owners will have different discount rates.
Land rent is a surplus, not a charge. Land value tax very much fits perfectly with the benefit principle of taxation. Your complaint is largely that "I bought into an unjust system where I am able to extract rent from future generations of people and it is not fair to take that capacity away from me!" You could try and make that same claim about slavery, that hey you bought slaves with your money and it wouldn't be fair to take this 'property' away from you.
"First principles.
This world is the creation of God!
The men brought into it for the brief period of their earthly lives are the equal creatures of His bounty; the equal subjects of His provident care.
By his constitution a man is beset by physical wants on the satisfaction of which depends not only the maintenance of his physical life, but also the development of his intellectual and spiritual life.
God has made the satisfaction of these wants dependent on man’s own exertions, laying on him the injunction and giving him the power to labor – a power that of itself raises him far above the brute, since we may reverently say that it enables him to become, as it were, a helper in the creative work.
God has not put on man the task of making bricks without straw. With the need for labor and the power to labor He has also given to man the material for labor. This material is land!
Man, physically, can live only on and from land, and can use elements such as air, sunshine, and water, only by the use of land.
Being the equal creatures of the Creator, equally entitled under His providence to live their lives and satisfy their needs, men are equally entitled to the use of land, and any adjustment that denies this equal right to the use of land is morally wrong.
The right of property
Being created individuals, with individual wants and powers, men are individually entitled (subject of course to the moral obligations that arise from such relations as that of the family) to the use of their own powers and the enjoyment of the results.
There thus arises, anterior to human law, and deriving its validity from the law of God, a right of private ownership in things produced by labor – a right that the possessor may transfer, but of which to deprive him without his will is theft.
This right of property, originating in the right of the individual to himself, is the only full and complete right of property. It attaches to things produced by labor, but cannot attach to things created by God.
Thus, if a man take a fish from the ocean, he acquires a right of property in that fish, which exclusive right he may transfer by sale or gift. But he cannot obtain a similar right of property in the ocean, so that he may sell it or give it or forbid others to use it.
Or, if he set up a windmill, he acquires a right of property in the things such use of wind enables him to produce. But he cannot claim a right of property in the wind itself, so that he may sell it or forbid others to use it.
Or, if he cultivate grain, he acquires a right of property in the grain his labor brings forth. But he cannot obtain a similar right of property in the sun which ripened it or the soil in which it grew.
What the term "land" involves.
For these things are of the continuing gifts of God to all generations of men, which all may use, but none may claim as his alone.
To attach to things created by God the same right of private ownership that justly attaches to things produced by labor is to impair and deny the true rights of property. For a man who out of the proceeds of his labor is obliged to pay another man far the use of ocean or air or sunshine or soil – all of which are involved in the single term “land” – is in this deprived of his rightful property; and thus robbed." http://www.wealthandwant.com/HG/WoL.htm
We did in fact pay compensation to slave owners when slavery was abolished (under the Slave Compensation Act 1837), so even if one accepts that owning land is morally equivalent to owning slaves, the comparison suggests that compensation should be paid.
It's easy to say that now, and feels righteous. At a distance of 250+ years, slavers were following the law and tradition - slavery had been accepted by most societies for thousands of years - how was a slaver to know that it would suddenly be considered morally wrong?
Have a little charity toward your benighted fellow flawed humans.
> how was a slaver to know that it would suddenly be considered morally wrong?
Is this a joke? I hope you know that slavery was banned in many places several times in history multiple times. Abolition was for hundreds of years a strong movement. Plus it is not hard to see that literal OWNERSHIP OF A HUMAN BEING is wrong. And the chattel slavery that defined that era was especially cruel and explicitly racist. Whites weren't allowed to be enslaved. Why not? Because it was cruel for white, but not apparently black people? Give me a break. Slavery as an institution was seen as vile by many people for a long time.
For the record, I am not going to say I hate the UK for what they did, I just don't think it was a palatable thing to do.
I don't agree with your first problem: land is different to other forms of wealth, which makes the case for taxing it stronger.
The second problem is more reasonable, but it's not a criticism of the justification for taxing land. It's just a question of political strategy and how to transition to land taxation fairly. I agree that both probably require some amount of compensation for existing owners.
We can talk about how large that compensation should be, if you like, but it seems like you agree with LVT in principle.
I note that here and below, comments seem to divide roughly equally between those who say that obviously we all understand that the system would need to introduced gradually with appropriate compensation and those who see no problem with expropriating land from private owners. At the very least this suggests that proponents of Georgism have radically differing visions of how this will work in practice.
I'm a pragmaticist on taxation. Governments need revenue to pay for various activities we have agreed they should undertake and they should raise that revenue in whichever way works best in practice. I remain to be convinced that LVT would work better in practice than existing taxes. If it was introduced without compensation, it would be a disaster and I would oppose it. I might support it if it was introduced with appropriate compensation, but I would want to see the details.
Without compensation, it would be an uphill battle trying to get it passed, but I fail to see that because landowners don't want to give up their unearned income for taxation, I should instead be taxed from my EARNED income.
This is not a refutation of Georgism, merely a 'Who would start from here?'.
The claim LVT is unfair as it is only one category of wealth however is false. 100% of land value is unearned wealth created by others. Therefore the reclaiming of that communally created/natural value is just. It is only fair to say that other unearned wealth should also be eliminated from (IP or other monopoly privilege), not wealth per se. However we deal with other monopoly does not discount that we should colect as much land rent as possible.
However what is unfair is that not especially well off people have already paid exaggerated prices for land which, had LVT been in place, would have been lower or indeed near zero if we taxed the entire rent. So, I do agree full LVT tomorrow without compensation is neither necessary nor likely to ever be politically viable.
So there are two main options, phase in or compensation. Either raise the rate whilst cutting other taxes or a homeowners exemption of 'x' value so the tax falls more proportionally on those with multiple properties. In fact if you cut other taxes because of the removal of dead weight loss, land prices could in theory remain fairly stable even with a rising LVT rate and could be dissipated over time.
Compensation is not impossible, Taiwan during it's land to the tiller reform compensated the large landowners with bonds, this was highly successful in terms of improving productivty and done without bloodshed.
One thing missed in the math is that if you tax land exclusively, the value of land will drop. If you put a 5% tax on Tesla stock then much of the investment in Tesla would move into other(untaxed) stocks and the price of Tesla would fall (possibly plummet). This suggests that the expected income available from taxing land may be grossly overestimated.
Did you miss the section on Land Rents vs. Budgets where Lars converts land values to land rents, with the latter being what the government can reasonably expect to collect in revenue.
Land exchange value drops to zero if LVT is at 100%. But that does not mean the demand for land goes away meaning land rents ceteris paribus stays the same.
This is fascinating; great work! Look forward to consideration of dynamic effects, which I'm now entirely convinced are the only relevant ones. You've sold me on land taxes in a static world.
Possible dynamic effects this made me wonder about.
Could generate more sprawl; if people concentrate more, they build more on the same land. Rent value goes up, but, in Georgist-land, so do taxes. The tax minimization strategy is (I think; haven't fully thought this through) actually to disperse as widely as possible such that land is rendered less valuable.
General principle: isn't a land-value tax inherently a tax on concentration of people? And concentration of people has a lot of benefits. And you indicate that this is going to reduce sprawl, but seems to me that the opposite would happen.
Dynamics of high land prices in cities is mainly driven by scarcity of land near lots of other people and lots of jobs. There are more people that want to live in SF than there is land for them. The typical urbanist solution is more density / anti-NIMBY laws. But now more density results in increased rents and increased taxes. In the extreme Georgist case, there's zero marginal value of increasing density, because you're just increasing your rents, which get eaten up by taxes. Unless the claim is that the density gains are accounted for by structure-value, not land-value. But as you point out, almost all the value in urban construction is in land. So I do think this is a problem for the narrative. There's some fun economics implied as to whether this would push construction to be way, way more expensive. E.g. build Burj Khalifas with huge structure value on minimal land-footprints, although this would also increase the value of the land.
Related: what would this do to incentives to build large, expensive buildings? Part of the reason such things get built is because of the rents they can extract over the long-term. Slashing those rents by 50%+ might push down incentives to build big and increase sprawl (more small buildings > fewer big buildings).
General principle: there's a lot of positive between property value and land value, especially in urban areas, and it's tough to completely disentangle. Building certain kinds of valuable, rent-generating things on land tends to make the land more valuable.
Land has value because of the benefits it provides. It's possible new supply could come to market. The highway system added more effective supply to the market (and coincidentally increased the value of rural land considerably). Aggregate land rent would not go down, and it is worth noting that land rent is commensurate with transportation costs. So by all means spread out if you lack the productive capacity to take advantage of the increasing value of land.
In any event, this has been shown to be demonstrably false. What will happen is people will use land more productively and intensively. Pennsylvania has a history of split-rate taxation and has increased the portion that falls on land as they decrease the portion that falls on improvements.
"We confirm the theoretical prediction that the split-rate tax raises the capital/land ratio. We also find that the primary effect is in more housing units, rather than bigger units, suggesting the split-rate tax is potentially a powerful anti-sprawl tool. We find adoption of the split-rate tax increases the number of housing units, and that these units follow a more dense pattern of development." https://www.tagesspiegel.de/downloads/12984964/2/can-the-land-tax-help-curb-urban-sprawl.pdf
All nations collect some of the rent, but no - in fact the United States collects a larger share of land rent than the nations of Europe.
Of course, land rent is a surplus, not a charge so the ultimate objective is to increase this surplus and use this surplus to fund public works and citizen dividends. If in some uses land rent per capita goes down (because people use land more productively, aka a higher and better use) that's fine too. One must ultimately consider the dynamic effects that would occur, starting with the land that is used least productively, such as land held for the rise in value.
You can either pay land rent in a monopoly 'price' to a prior owner, or you can pay land rent to society, which is infinitely more ethical and just. One should simply consider this a 'private tax' or the public collection of the social surplus.
I'd really like to hear opinions (multiple) from academic economists on this.
I'm heavily biased in favor of Georgism, but acknowledge my lack of understanding of macroeconomics.
I have heard almost nothing from professional economists about it (and I've bee listening for 20+ years). I suppose that's probably because (a) they think it's obvious nonsense or (b) they think it's obvious sense (c) or they think it's professionally dangerous to talk about.
Given that we have some retired economists around here (David Friedman, I'm looking at you), probably it's not (c).
Continued silence makes me think it's probably (b), since economists are usually quick to attack perceived stupidity. But I'd be reassured to hear from them.
Many Georgist economists would accept the principle of ATCOR, that all taxes ultimately come out of rent, so a reduction in other taxes will result in an increase in demand for land.
"Our first set of results show that even a uniform land tax alone is theoretically enough to achieve the first best. We discuss in which cases and at which level land taxes can be achieved, and notably propose a formula for a property tax of land to reach the social planner's objective. When land can indeed be taxed at the first-best level, taxing productive capital is not necessary, and nor is taxing housing rents. " https://voxeu.org/article/land-back-it-should-be-taxed-it-can-be-taxed
"If Australia were to replace all existing taxes by taxing the economic rent of land, the adequacy of the final tax base would depend on some of the forgone revenue (from the abolished taxes) being converted into additional rent. Theory and history provide confidence that the necessary conversion would occur. Confidence is increased because the theory applies not only to the abolished taxes but also to their deadweight costs. If the category “land” is expanded to include land-like assets other than terra firma, it is no longer clear that any conversion is needed." https://www.prosper.org.au/wp-content/uploads/2018/04/TrickleUp22.pdf
I don't doubt that. But Georgism is a lot more than a property tax - in the US we have those now (and they're a good thing - I've seen land incredibly wasted in countries that don't tax it at all; taxing it even a little gets people not using it to sell to people who will).
Georgism is about a "single tax" on land that replaces all other taxes - it's INSTEAD of income tax, sales tax, consumption taxes, transfer taxes, etc., etc.
To be clear, modern Georgism is not single-taxism. It is about taxing only economic land (anything not created by human beings- natural resources, etc), not about LVT alone, and often includes severance taxes and pigouvian taxes. But again, many of the economists that I cited are not just saying land value taxation is good, but were explicitly Georgists (which you would know if you read the citations).
Mmm, the main argument for Georgism is not simply that an LVT has no deadweight loss. A poll tax has no deadweight loss either, but we don't advocate for that.
What would a world look like in which every parcel of land was being utilized for its maximal economic output? My intuition is that I wouldn’t want to live there.
Output is ultimately a function of consumption demand. By using land less intensively you simply push that demand for land elsewhere, contributing to sprawl and biodiversity loss.
I've been aware of Henry Grorge in a casual way for over half my life. I will read your essays with interest.
Right off the bat, however, would you also discuss Universal Basic Income which I am powerfully interested in. Apparently George also advocated something like this.
Do you advocate UBI?
I assume you are still advocating for LVT, so perhaps you think both are necessary. Why both?
If you use the method discussed to evaluate land, would this result in monopolization of land?
You figure out how much my land is worth by looking at the empty lot near me. You subtract away the building value to discover the land value. However, being in proximity to buildings is desirable. That's why people want to be near cities and towns. If a person bought a massive amount of land in a remote area and built an entire city, the land around it would be worthless. Therefore, the land owner wouldn't pay much in land value tax. If it was sold off and a bunch of little pieces of land, then there would be plots that could be evaluated but since it is one massive piece, you have to compare to the area around it.
If literally all your taxes are coming from land value, then I imagine this might save people substantially. People might move to these areas or at least try to live in large plots of single owner land outside cities or something. Is this plausible?
There is a book you might be interested in reading called Radical Markets. They have a chapter in which they propose something like this and a way of evaluating the land. The owner prices his/her own land and the government can choose to buy it. The land owner prices things fairly cause they don't want the government to buy it. Worth a look.
Isn't the argument that you can get enough taxes from land simple and doesn't have to involve the valuations? People cannot avoid living on land. Therefore, you can tax them as much as you want. You could tax land value 150% or 300% or 400%. It doesn't matter how much the land is worth. No?
You theoretically could tax land over 100%, but no government would ever want to- it would result in land abandonment and people using far less land than they actually ought to be using, destroying the economy and hurting their own tax revenue. There is no incentive to overtax in a Georgist system.
Efficient according to what metric? I can distort the market to artificially create more "efficient" use of land by banning buildings less than 10 stories.
But that's not actually efficient- if land is cheap, it is more productive to build a store next door in an empty lot than it is to add another story to a building.
I share the concerns about what it would mean to implement a Georgian approach suddenly, and how disruptive and confiscatory that might be. People do make plans given a certain set of laws and taxation schemes, and suddenly changing those would create hardship that can't be shrugged off by the equivalent of saying "Well, if they own land then they're probably rich anyway"
I do have a subtler concern as well, with regard to how land is valued, and entrepreneurial and speculative activities around land. I'll drive it with a real-world example.
I own shares in a very small company that is essentially just an owner of a large amount of low-value land. (And before you get out the pitchforks, absolutely no one in this story is conspicuously wealthy.) Historically the land has been leased at about $2 per acre for cattle grazing. Several years ago some visionaries (not me) began to realize that the land had serious potential for renewable energy development, which might eventually command lease prices of $300-$500 per acre. So they began the speculative and entrepreneurial project of 1) buying shares of this company's stock, 2) lobbying the management to pursue renewable-energy opportunities, and 3) beating the pavement to find renewable-energy developers who might be interested in siting their projects there. If they succeed in creating a lot of new revenue from leasing to renewables developers they will enjoy appreciation in the price of the stock, which is really just a proxy for the value of the land that the company owns.
At this point I would like to ask Georgians what a Georgian account of this activity, including its profit motivation, might look like.
Firstly, how do we value the land itself - is it valued based on a lease value of $2/acre or more like $300/acre? Who decides that and when?
Secondly, is there a way that this entrepreneurial activity (which by the way plays a role in supporting renewable-energy development, commonly thought to be a Good Thing) would still be profitable, given that it's intrinsically focused on speculation on the value of land (in part by increasing the use value of that land)? Note that it's not as simple as separating out the value or the cost of the structures built on the land (solar arrays, short-distance transmission lines). There is also the work of identifying value in the first place, assessing suitability for renewables, business development with producers and consumers, all of which in the end have an effect of increasing the intrinsic value of the land.
Does profit-driven entrepreneurial land speculation exist under a Georgian regime? And if not, how does grazing land get turned into solar/wind land? I hope that the answer is not "central planning".
If I'm understanding this scenario correctly, the LVT would be based on the $2/acre value. In fact, this seems like a textbook case in which almost all the value of the lot would be bound up in improvements, which are not subject to the LVT.
The question to ask, I think, is what would happen to the value of unimproved lots down the road. Could I still buy those lots for cheap? If so, then the LVT will pass the developers by and they will be able to lease their land out at very high rates, and charge considerable rents. It's not the land that's valuable in this case, but rather the work that your entrepreneurs put in to it.
There's a lot of sentences like this that are causing me real problems:
> The cost to replace your building with a new one of identical design is on average going to be a lot more than what your old building is actually worth, even after factoring in depreciation. That's because the market doesn't care what you spent to build it, it only cares how much value it provides under current conditions.
I can't internalize this at all, and I feel like I'm being Euler'd or some bait-and-switch is happening. Some game is happening with the fragment "actually worth," and I can't tell what.
The testable hypothesis is that the cost approach undervalues land and if you had a situation where there were two identical lots, and one had a building, the cost approach would predict a value for the land the building sits on that would be much less than the market selling price of the identical empty lot next door.
Would appreciate a response to this article that is critical of Georgism, with regards to land development, new land uses, gives example of oil exploration
Terry Dwyer also covers this more extensively in his "Taxation: The Lost History" in various sections, such as "Rent As Reward for Risk" - https://www.jstor.org/stable/43817496?seq=34
"They also don't apply any estimates for how much land values would rise if restrictive zoning ordinances were removed."
That seems like burying the lede. How much of what you're talking about is just legalizing building and how much are you really talking about is really about Georgism?
Most of land speculation is speculation on zoning rights. That's easy to remove!
Actually, that's a socially acceptable lie. The truth is that most land speculation is speculation on connections with the zoning board. Maybe we should just have transparent, enforced zoning laws, rather than corruption? If we can't enforce the laws we have, why are we talking about new laws, rather than how to have law at all?
Land speculation was around long before zoning became common in the US, and would still be a problem (due to the nature of land as a perfectly inelastic good necessary to all economic activity) even if zoning was reduced, but yes zoning is bad. An LVT would, however, help incentivize governments to get rid of zoning laws, which artificially depress land values.
Land speculation is as likely to be successful as stock speculation (the average investor isn't going to outperform the market) once you remove the ability to generate government enforced restrictions on supply.
Zoning laws are a tiny problem compared to zoning boards. The problem is that we don't have law.
Zoning boards with LVT is the worst of both worlds. Most of the value of the land is permission to build. A building is a very credible signal of permission to build. Whereas the board could give Bill permission to build a highrise on your land and tax you for that permission that you don't actually own.
These terms are all relative ultimately. I’m Norwegian and Texan, in Norway the conservative party is to the right of Bernie Sanders, in Texas your average Democrat is to the right of Norwegian conservatives. And then Texans are super secular by legal standards but very religious personally, while Norway had an established state church until super recently but the populace is fairly irreligious.
Friedman gets invoked more by American conservatives than American liberals so I used that word.
Thanks for your reply. I still maintain that its misleading to call Friedman a conservative as he didn’t hold any conservative opinions. He was more in line with Fusionist economics than the New Deal sort but that’s only because on the economic spectrum Fusionists were more Liberal than the dirigiste New Dealers. I think Classical Liberal might be the term that best translates his positions across both sides of the Atlantic, but I understand where you are coming from.
Last I checked we live in a society that taxes a bunch of things and the chief question is what we should tax, and the idea that we should tax nothing seems to not be an option on the table, so perhaps the discussion should be which of the taxes is the least bad.
I apologize in advance for asking questions that may be FAQs, but I got really confused reading this last night, and think I need to step back and ask something really basic. But also get a question about any possible transition to a Georgist regime off my chest.
It appears to me that a 100% Georgist system is functionally equivalent to nationalizing all land, and having those who use that land pay rent to the state for their use of it. The renters would then be able to own property (e.g. buildings) on that land, and control the use of both the land and any structures on it. (The rent would be called "tax", but that's a distinction without a difference.)
First question - am I correct in this?
Now I note that it appears that 100% Georgism is not desired. I don't know why, but one obvious reason would be that e.g. an 85% tax on a Georgist model allows room for the markets to provide information about actual land values, beyond the blunt instrument of increasing the deemed value, and thus the rent charged, until people start choosing not to use ("own") that land, eventually even abandoning structures they own on it, as not cost effective for them.
But I'm going to use 100% Georgism for my questions about transition, because it's simpler/clearer.
Second question - what is the Georgist answer to this? So far, all I've seen is what amounts to "people like me - and probably you too - will gain from this transition". The corollary, of course, is that those who lose aren't as worthy of consideration as we are. ("Democracy is 3 foxes and a hen voting on what to have for dinner"?)
Suppose we switch to Georgism tomorrow. For people whose wealth is entirely in land, this amounts to complete expropriation. People whose wealth is entirely in other investments only have the risk of losses due to the economic disruption caused by the transition, which might actually turn out to benefit some investments.
This seems to me to be extremely unfair.
Drawing the process out over years or even decades gives people time to prepare for expropriation, and try to unload their land at a discount, to people expecting to get some returns in the time remaining before complete expropriation. Or they can simply extract as much value as possible from the land they own, in the time before it gets expropriated. Land prices can expect to converge on the expected value of the income stream from the time of the announcement until complete expropriation.
This looks better, and at least allows those stuck with land when the process starts to buy some other investments that will continue to provide an income stream after the transition - though a significantly smaller one than they had previously expected. But it's still a significant loss, and experienced only by those whose wealth happens to be in the wrong assets.
Now as it happens, I count as a person likely to do a lot worse in such a transition, without being at even a 1% level of wealth. I live in a major metropolitain area on a US coast, and am approaching retirement with a fully paid off house. Most of the value of my little old house is in the land it sits on. This probably focusses my thinking somewhat.
To some people, people like me doing worse would be a benefit. Or alternatively, you can't make an omelet without breaking eggs, and I'm just unlucky to be in the path of making things better for the average person. Is that where you are coming from?
Overall, do you have any answer to the problem of severely unequal impacts, even on people of equal wealth?
Also, what is your response to the observation that this requires significant expropriation of existing wealth?
Based on the discussion below, the classic answer is that land owners don't deserve compensation.
It's fair and just according to Georgists to punish people for having their wealth in the wrong assets when the music stops.
How about we instead expropriate everyone as part of this transition? Then I can at least have the pleasure of seeing Jeff Bezos, Elon Musk, Bill Gates et al. in the same very much reduced circumstances as me.
And it's much fairer to those currently having zero or lower next worth, particularly if they got that way as a result of historical oppression.
Removing my tongue from my cheek somewhat, please note that I'm not in fact advocating extreme state ownership of everything. I'm just suggesting it as being fairer than Georgism.
Every day we let the music keep playing is another day where tenants continue to be puinshed by our current system of privatised land rents. That harm already exists.
If your only issue with Georgism is how to transition, then it sounds like you agree with Georgism. You should just be a Georgist who also has arguments for how to fairly transition.
The tenants aren't going to be any better off in the new system (save that they might receive a UBI, but that's really a separate question). It's just that the state rather than the landlord ends up with the land rent.
No, that's merely my first issue. If I have no idea whether some experiment would actually work, but do know it would harm me personally, I'm not going to be overeager to try it just in case it might work. If anything, I'm going to want pretty strong evidence of the alleged benefits, along with some sign that the supporters are aware of the likely costs, and don't simply figure that any cost is OK so long as they personally aren't the ones paying it.
I don't count myself as understanding Georgism, and it's in the general domain of economics, where I've spent 50 years observing authoritative-sounding sources, sometimes Nobel prize winners, make all kinds of recommendations that turned out to be useless, or actively harmful, even judged by the low standard of "did it accomplish its supposed goals", without also adding "and what kind of unintended consequences made it less than cost effective".
So while I don't count Georgism as requiring the kind of evidence I'd require for miracles, or perpetual motion machines, it does count with extraordinary claims requiring extraordinary evidence. At least somewhat.
At this point, all I have is a few authoritative-sounding sources, which I can balance against dozens of more conventional economists with their own contradictory proposals.
I'm a land and home-owning Georgist, for what its worth. Advocating for Georgism actively harms that interest, though overall would probably help me and definitely would help society.
"Authoritative-sound" is pretty much any theory has. If you answer is "I just don't trust any economist and I'd rather go with the devil I know and reject any change to the status quo." then... I guess that's your right?
That's a little stronger than the way I'd put it, but basically I do indeed have both a distrust of economists and a bias against change. Also an even bigger distrust of politicians.
All of these can be overcome, but it requires good evidence.
I don't want to be in the position of those now regretting voting for Brexit (Presumably not all of those who voted for it, but it has had a few downsides that many of tis supporters didn't expect.)
Georgism is not the same as nationalizing all land, no. Land remains private insofar as individuals still have the rights to use land for whatever purpose they like and transfer ownership whenever they wish. It is the same thing as nationalizing land rents, which is the entire point of the idea: land rents are common property, and their privatization is essentially theft.
However, you are correct in saying that an LVT does destroy land values, because those land values are simply investments in rent extraction, which Georgists believe no private person has the right to do. However, that doesn't mean that landowners are to blame, they are simply doing what is economically rational, which is why the system needs to change. Many Georgists propose tax credits to landowners to help ease the transition, but ultimately the question comes down to this: if most people would seriously benefit from a Georgist tax reform, why shouldn't we do it? The fact that tax reform hurts *some* people is inevitable- that shouldn't impact our overall assessment.
There have been places where the land is commonly owned by entity A, with entity B having a long term lease, and often improving the property. Sometimes B owns the house, but A owns the land it's on. If C wants to live there, they'll have to pay both A and B - either rent from them, or buy the underlying asset.
I had something like that in mind, where A is the government. So B gets some measure of control of the land, as long as they continue to pay their rent/taxes.
But given that they have to pay for the right to use the land every year, I really can't see them as more than a tenant.
I'm also confused about the land value discussion. As soon as you tax something the value of that thing is going to decline. So the higher you ramp up the LVT, the less valuable that land is and the less LVT you are going to generate. There was a lot of discussion on the current of the land - but absolutely none at all on how the value of the land would change once you starting taxing it.
I'm not completely sold on LVT yet, but if people in NYC were charged 5% of the land value each year, [1] I think people would still want to own land in NYC and the land would still have value, because people want a place to put their buildings.
[1] I forget how this happened, but we ended up saying that 5% is the extraction rate you would normally get.
In your scenario where the value of the land is taxed at 5% annually no one is going to want land. As ROI would need to be 8-10% for it to be minimally attractive compared to other uses of capital.
I can't get past the truism - the more you tax something the less of it you get. There is some magical thinking in the Georgian formulation that I can't quite put my finger on.
There is a fixed quantity of many/most natural resources too. This explains too much.
There are millions upon millions of acres of undeveloped land. If you make land in Manhattan prohibitively expensive then development will shift to places that aren't Manhattan.
There isn't a fixed quantity of natural resources available to be used, though. You can go harvest essentially any natural resource still and almost every natural resource has an alterative. There are no alternatives to location.
Location is almost completely unique. There is only 1 1600 Penn Avenue. Only 1 Central Park.
You aren't making land prohibitively expensive, you aren't changing anything about the price people pay. You're just changing where the money goes. Did you even read the article? Is the bathtub analogy in this one? Land in NYC is already ridiculously more expensive than land in the middle of the desert in Nevada, but people don't just flee out of Manhattan. Why? Because there are advantages of being in Manhattan that you can't get for being in the middle of the desert.
The fatal one is that the house you live on is appropriately for the lot that it is on. If you own a house that is 'undersized' you a) can't afford the tax b) can't afford to build an appropriately sized one
The whole theory depends on the assumption that someone will come along to spend a lot of money on an asset that has high tax liability, constantly depreciates and has very low ROI.
I think we're speaking at different levels here. I'm just saying that people will want to own the land the Empire State Building is on, because the person who owns it gets to decide if the Empire State Building is there.
Georgism isn't proposing taxing the sale price of land, but the rental value of it. Sale price is just the derivative of rent, discounted for time. Say a piece of land rents out for $10,000 a year, and currently is for sale for $500,000 (not accurate perhaps, just off the top of my head, but bear with me). An LVT of 100% would tax the land at $10,000 per year, meaning that you cannot make money simply by owning the land and renting it out. Because land doesn't generate rent, the sale price is now $0, but the rental value remains $10,000 per year, because the rental value is dependent on the supply of land- which is fixed- and the demand for land, which is not altered by the tax.
> meaning that you cannot make money simply by owning the land and renting it out.
What do you think happens if instead of going through the convoluted mess of starting with land value and pretending you are taxing that you just tax profit on net rental revenue at 100%?
Why would anyone go through the risk of developing land?
It would be much less risky to develop land when the sale price of land is 0.
Besides that, if your land is being taxed at 100% LVT, then you really don't have a choice but to develop it, or relinquish the land title, since the only way to justify holding the title is putting it to use in some way.
Landlords and developers don't do society a service by holding onto and speculating in land until they've derived enough profit. Quite the opposite, holding land out of use actively harms the community.
The price of land isn't zero - the effective value of the land at 100LVT for undeveloped land is negative, no one would want it. I don' t see what problem this is supposed to solve beyond some people have a distaste for ownership.
My problem with more land tax is that more tax reduces the value, if you get to the stated goal of 100% tax and zero selling price land value. WTF 100% of zero is zero. X% land tax makes the land ~x% less valuable. If the rate of return on land investment is decreased from 5-8%, to some smaller value, then the price of land will drop. You get less tax. I pay ~2.5% property taxes now, if it was twice that... dang why are you trying to get me to sell my land?
Georgism isn't proposing taxing the sale price of land, but the rental value of it. Sale price is just the derivative of rent, discounted for time. Say a piece of land rents out for $10,000 a year, and currently is for sale for $500,000 (not accurate perhaps, just off the top of my head, but bear with me). An LVT of 100% would tax the land at $10,000 per year, meaning that you cannot make money simply by owning the land and renting it out. Because land doesn't generate rent, the sale price is now $0, but the rental value remains $10,000 per year, because the rental value is dependent on the supply of land- which is fixed- and the demand for land, which is not altered by the tax.
Yeah, fine. The whole idea of owning land is to rent it out and get some money back. (Unless you are going to live there... ) If I'm getting more money back somewhere else, (Stock market, bonds?) I'll consider investing elsewhere. Renting out property is a headache, why do Georgist want to make it more expensive. (I'm not sure what to do about the rent being too damn high. Go rural.)
Investment in land is a zero-sum game and is macroeconomically sterile. Land has no cost of production, and land users are already paying the rental value of land, in the case of LVT the public is simply capturing that amount instead. By all means, if you can't make a normal profit investing in something productive like structures then do something else. Of course, a big part of stocks is real estate too, so...
I'm not sure about zero sum. Or what sterile means in this context. If LVT is "capturing" the rent due me, then it's capturing my value. I will get less money when selling said land.
Zero-sum just means land is rivalrous- the only way you get land is by excluding other people from using it. Georgists argue that as land is not a good which was produced by anyone, it cannot truly be owned by anyone. Access to land is a common right, and so if you wish to own land and deny other people the exercise of their right you must compensate them the value of it. This is the land value tax- you can think of it, if you will, as a use fee.
Yes, as Mason Gaffney points out in his "Land as a Distinctive Factor of Production", "Investing in land is macro-economically sterile. It creates neither income nor capital. Socially, it is a wash: one buys, one sells, nothing else happens." http://www.wealthandwant.com/docs/Gaffney_LaaDFoP.html
All property is rivalrous - the value comes from how you use it. The use of the land is what makes it positive sum.
Lithium is zero sum - but it would be absurd to say that the only value is from keeping other people from using it. You get value from turning it into something useful.
Well, the Georgist answer is that yes, there will be no reason anymore to invest in land and own land for the purposes of renting it. People would buy land only for the purpose of investing in improvements on it such as buildings, or because it's attached to some buildings they want to use or rent.
What if I open a coal plant and pollute so much no one wants the land next to me and the land is worthless. Do I pay no taxes? Seems like you would need to tax externalities to prevent people from trying to reduce the value of the land in their proximity.
Georgism doesn't preclude environmental regulation- you would still go to jail for this. Most Georgists also propose pigouvian taxes on pollution, meaning you would pay as much in pollution tax as you would save in land value tax, meaning not only would you be in jail, you would be broke, stupid, and in jail.
Okay but some things have negative externalities that are entirely necessary like coal plants, airports, stadiums, concert venues, etc. You would have to offset the externality with Pivouvian taxes enough to avoid incentivizing the negative externality.
I want to ask about what I see as both a logical difficulty and a normative flaw in the idea of the Land Value Tax.
The normative objection is that the actions of a third party shouldn't create an obligation on me. When a Wal-Mart opens next to my plot of land, the value of my plot increases due to the proximity to Wal-Mart. Why does that decision, by the people owning the plot next door, mean I need to start paying a fine?
(I'm aware that the economic answer is "because the goal of policy is to generate the maximum possible development on every plot of land everywhere, so you need to be fined until you either play along or give up the land to someone who will build a strip mall". Give me a normative answer.)
But this philosophical objection actually extends into a logical contradiction. The more you aggregate land together, the lower the total land value is. The problem here is that the Land Value being taxed does not include the improvements made to the Land being assessed. But it *does* include the improvements on other nearby Land! So that empty plot in San Francisco has a Land Value of two million dollars. And the plot next door to it has a Land Value of two million dollars. And ten plots like that in nearby areas have total Land Value of twenty million dollars. There's a lot of San Francisco, compared to those plots, and that's what the value of the plot comes from.
But the Land Value of San Francisco is much lower than the sum of the Land Values of the plots that make it up. Maybe all of San Francisco has a Land Value of twenty million dollars. Because at that level, we need to exclude all of the improvements that already exist in all of San Francisco, and they were responsible for nearly 100% of the Land Value in each smaller plot! So we just lost nearly 100% of the Land Value.
The obvious implication is that land must only be owned in truly gigantic quantities. If you own a storefront in San Francisco, you owe an earth-shaking Land Value tax. But if you own all of San Francisco, and all the stores have to rent their space from you, you owe barely anything. Is that what we want?
This is really a false dilemma- improvements don't increase the land value of the land on which they are built, but they can still increase land value outside of their footprint within the same plot. Your valuation 'contradiction' just an artefact of subdivision, but it is entirely possible to value land on a per-square-foot basis. Part III of this article will talk about assessment methods which answer this question.
> Your valuation 'contradiction' just an artefact of subdivision, but it is entirely possible to value land on a per-square-foot basis.
I don't see how this responds to the problem I raise. The value per square foot is different depending on the total amount of land being considered.
You're saying that if I put two buildings on my land, one in the front and one in the back, conceptually I don't pay any taxes on them because they are improvements, except that I do pay taxes on the front building when assessing the back, and on the back building when assessing the front?
How is that different from the existing land+improvements tax regime, where when I'm assessing the front I pay taxes on the front building, and when I'm assessing the back I pay taxes on the back building?
Your thinking has a flaw. Your plot of land will have intrinsic rental value just because it exist + location bonus compared with other plots + neighbours improvements effect on the land rental value. Then we go to what community build around your plot and you may use more or less compared with others. That may increase or decrease your rental land value yield depending on how much you use compared with your neighbours.
Next we look at the improvements that others plot owners and then we see how much more rental yield your land will get if or loose depending on what happens to your neighbours buildings. I guess it is fair to pay less LVT if your neighbours don't maintain their buildings as they should be.
If your neighbours don't maintain their buildings, if you just want to rent your plot without a building on it then your LVT should decrease as they are a burden on your plot potential (it looks ugly if a house looks bad). Identically, if the neighbours maintain a good and welcoming appearance of the neighbourhood, your potential rental value yield is bigger and LVT should capture it.
If things look bad = less potential rental value = you pay less
If thinks look good = more potential rental value = you pay more
"You're saying that if I put two buildings on my land, one in the front and one in the back, conceptually I don't pay any taxes on them because they are improvements, except that I do pay taxes on the front building when assessing the back, and on the back building when assessing the front?"
- When the rental value is calculated... we look only at the improvements done by others and wwe consider your plot as empty even tho on one side you may have a building and on the other one is empty. We measure the effect of other people effort on your potential rental value that LVT should capture.
So we when calculating rental value we are looking for the effect of other people effort on your rental value potential for you to not skim the value from other areas other than your own labor (own buildings, improvements).
When someone rents a building somewhere they look for the position of the land, + how good or bad the public infrastructure & services are + how good the building on that land looks + how good or bad the surounding buildings from other plots look.
You may have the best positioned plot + best infrastructure and public services but if the surounding buildings look bad... your potential rent value will be lower than if other neighbours have good and nice looking buildings.
In concept, we want to assess the value of a plot of land minus the value of any developments that exist on that land. What's left over is the value of the land itself.
(1) So, I own half of Hollywood, the district in Los Angeles. It's covered in ritzy mansions and things, but those don't contribute to the value of my land, because they are developments.
(2) However, my land still has a lot of value compared to an equal-area piece of wilderness in the Rocky Mountains, because it's surrounded by Los Angeles, not to mention the other half of Hollywood. You're close to the movie business! You're close to celebrities! You're living in southern California! You're living on pestilential, uninhabitable ground, or possible in the middle of a lake (on which more later), but there's still quite a bit of value attached to the location.
This is all a coherent conceptual approach. But it becomes incoherent when I take ownership of all of southern California. Now we want to subtract the value of all developments that have occurred on all of that land, to calculate the true land value.
(3) As it happens, once you remove all the developments, you're left with an uninhabitable swamp of absolutely no commercial value. (The single most valuable development in southern California was draining the swamps that were naturally there.) The movie business is nowhere nearby. There are no celebrities anywhere nearby. In fact, there is no human habitation as far as the eye can see. The Hollywood-sized plot of wilderness in the Rockies is now *more* valuable than all the land under Los Angeles. By buying a really large amount of land, I just reduced my property taxes by nearly 100%. Is that the goal of the Georgist system?
The real lesson to draw here is that the land value anywhere in LA really is zero or negative, and human developments have contributed at least 100% of the current market value of the land there. But that's also something I think a Georgist would be unhappy with.
Similarly, my own productive actions shouldn't mean I'm penalized. I go to work and produce something worthwhile, why should I be punished by being taxed? I'm extra productive and I'm taxed even more. That doesn't seem just to me either.
Which is precisely the point of a land value tax? It taxes rents, which are by definition returns not caused by contributing a product or service to the market, and replaces all taxes on labor and capital (income taxes, capital gains taxes, sales taxes, corporate taxes, taxes on buildings etc) which do tax you on your productivity.
"The normative objection is that the actions of a third party shouldn't create an obligation on me."
I keep seeing this argument (mostly from libertarians) and IMHO this is a completely misunderstanding of property rights. A property title creates an obligation on everyone. If I own a piece of land, everyone is obligated to respect it and their actions are thereby restricted. For example, they can no longer freely cross the land and have to go around it. And thus, if we view contracts as transfers of property titles, all contracts create obligations on everyone. So I don't find this type of argument compelling.
There is an annoying motte and bailey going on with the land value tax discussion.
There is a theoretically optimal no deadweight loss LVT which values land according to its value as farmland. That tax has relatively few theoretical problems, but isn't worth all that much money (NYC is worth ~$1 billion as farmland).
Then there is a LVT which incorporates the improvements of the surrounding area. That tax can raise a lot of money but has large potential deadweight losses. You can patch a lot of these losses (development tax credits, regulations or special taxes on destructive uses) but then you are losing the theoretical justification for the tax.
Other people have brought this up, but essentially all of the land value in the US is due to the improvements surrounding it. A 100% LVT means that you should be indifferent between living in a crime ridden slum or a place “where all the women are strong, all the men are good-looking, and all the children are above average.”
That implies a huge deadweight loss where nobody invests in making areas better (or even worse actively invests in making it worse to keep taxes low on existing residents).
Yes, this is called location value and it is a form of economic land. In fact, that's one of the big moral points of the tax- why should landlords be able to make money from the improvements of the community? But to say that an LVT makes people indifferent to their own living conditions is silly- it just means that landlords can't profit from other people's labor and capital. If charging for land rents meant no one cared about improving their living conditions, renters would be indifferent to living in Silicon Valley or Austin, Nevada- because they already pay 100% LVT, just to a landlord rather than the government.
In short, this is a misunderstanding of both the economic effects of an LVT and definition of deadweight loss. If you don't believe me, there is a list of Nobel Economic Prize winners who can vouch for it- from Stiglitz to Friedman to Vickrey.
Well, yes, and people can make money from building houses and apartments and offices- those are not land. To be clear, when Georgists talk about landlords we only mean 'owners of land' and not the colloquial usage of landlord as 'someone who rents out a building'. We don't have a problem with renting out, manage, or maintain buildings- although it's probably more accurate to call them 'buildinglords'.
> To be clear, when Georgists talk about landlords we only mean 'owners of land' and not the colloquial usage of landlord as 'someone who rents out a building'.
Hoo-boy, changing definitions makes things hard to understand.
There's no DWL there, because your actions don't influence the value of your own tax bill, only of those around you. In fact there's negative DWL because you're incentive is to use your land as productively as possible (as opposed to the present situation where underutilisation is still rewarded with speculative gains).
I think the DWL is a situation in which the tax prevents someone from "inefficiently" using the land, so they decide not to use the land at all. There are gains that would've been realized but are not. How are you measuring efficiency here? More economic value produced per acre? I could create efficiency by requiring office buildings to be 50 stories tall. This would mean that a lot of lots would sit empty. I think that's the DWL.
Requiring office buildings to be 50 stories tall is not economically efficient, this is a criminal misuse of the term. But I'm not sure what you are suggesting- that an LVT makes people less likely to use land and generates more empty lots? If that is the case, there are plenty of studies that show that an LVT increases infill and intensity of development.
According to the metric of value produced per acre, it is "efficient." I think that definition is bad. So I wanted to ask what definition are you using for efficient here?
From a theoretical point of view, I just want it explained why it would not result in more empty lots. At what point would it result in empty lots in your view: LTV = 10%? 50%? 99%? 100%? 500%? At some point it would, no?
Let's take a concrete example. I own a trailer park where spots rent out for $5000 a year.
A criminal gang comes to me with an offer. You let us rob from the tenants and in exchange we will give you half of what we steal. Suppose that the deal causes $5000 in damage to the tenant and $2000 worth of value is stolen.
Under current taxation rules this deal would be rejected, the landlord loses $5000 or rent and only gets $1000 in kickbacks.
Under a 100% LVT when the rent drops from $5000 -> $0 neither the landlord or the tenant is made worse off and so the landlord will take the deal and we end up with $3000 of deadweight loss.
Crime doesn't suddenly become legal under a Georgist society? In fact, one could argue that almost any action taken to deliberately reduce the aggregate value of the community is ALREADY illegal.
My point is that the LVT makes this illegal activity profitable for the landlord and now we need legal force to align the incentives.
You can create a more complex scenario which is not illegal but has the same deadweight loss. For instance imagine instead of a criminal gang it is a bunch of terrible musicians that the landlord allows to practice. Nothing illegal is happening but the same deadweight loss applies.
Imagine that your trailer park should pay an LVT of 10,000 because that is the rental value of the land based on it's location, neighbourhood improvements on your potential rental value, public infrastructure and services usage.
Now you can obtain a revenue of 10,000$ per year from that trailer park = you can pay the LVT but you don't have an extra yield from the amneties you provide = may decide to go out of business or keep it for a while until the society will put a higher rental value to that plot that will increase your LVT and make you transfer the land to someone who can actually obtain a yield either by selling more services to those who own a camper or build something on it that gives them a satisfactory yield on top of the LVT captured.
Now let's say that the gang of criminal is lowering the LVT. Fine, but don't forget that people who want to rent there a spot for their camper will be fewer. The same with situation of musicians. You have to make a profit from operating not owning.
As the price/cost for camping there (quality in this case is lower due to criminals in the area) goes higher the demand goes lower and vice versa.
We have to make a distinction in between land rental and the price. The land rental yield should include the surounding improvements that contributed to the rent level.
Imagine that you own 1000sqm of plain land without any improvements on it or around it and you are surounded by another 100 neighbours. Based on this... the land rental yield is identical based on the external non-existent improvements. So other people rental yield is 5% but because your plot is positioned in the best place compared with others... your rental yield is 7,5%.
Now we collect the tax and we invest it in the community. The best road, lightning and so on happens to pass closer to your plot than of others... so you are the beneficiary of more of the pie called "community improvements". You already had a location advantage plus now you get more infrastructure so your potential rental yield is higher. Because location + community infrastructure/services consumption.
Now you are the beneficiary of the improvements supplied by the community expenditure. Time comes for buildings to be erected and everyone builds something on their plot. Some with more expensive things than others.
You decided to build a 200,000$ building while others spent 300,000$ on theirs. All building + plots go to be rented. For your 200,000$ building you can expect a 5% yield but because of your neighbours that spent more on theirs... you can actually get 7,5% in yield. You are beneficiary of location advantage so you pay 7,5% + we add 2,5% because you use more infrastructure than others + you get a boost in your building/improvement rental yield of 2,5% totaling to a yield of 17,5%.
- 5% - normal building yield (200,000$)
- 2,5 % - extra yield for your building due to community spending more on their buildings.
- 5% - rental value of land.
- 2,5% - location bonus rental value.
- 2,5% - usage of infrastructure/public services.
Total = 17,5% (land = 10%)
Now lets compare you with a neighbour:
- 7,5% - normal building yield (300,000$)
- 0 % - extra yield for your building due to community spending more on their buildings.
- 5% - rental value of land.
- 0% - location bonus rental value (you don't have a good location)
- 1,5% - usage of infrastructure/public services ( you use less infrastructure due to not the best location)
Total = 14% (land =6,5%)
So because of different factors, each plot has a different land rental yield value and it should be taken into account when calculating it.
Good comment. If I understand it correctly, it captures an example of which I'm thinking.
There's discussion in the comments of "improvements of the surrounding area" being solely provided by government-funded infrastructure. In theory, however, these "improvements of the surrounding area" can be privately financed by someone who purchases a large tract of land, builds on part of it, and then sells other parcels of the large tract.
In practice, that occurs with developments such as master planned communities. (At least to some degree, as real-life examples may include some amount of government infrastructure financing.) Start with, say, 3,000 acres of land, and be successful in building and selling houses on the first 2,000 acres that are developed. The remaining 1,000 acres will typically have increased value as subdivided land for additional residential and commercial development solely because of successful development of the other land. (It would be a positive externality if someone else owned that last 1,000 acres, but the developer has internalized the externality by owning it.)
As I understand the concept of a Georgist LVT discussed in this post, however, all (or at least most) of the increased NPV of that last 1,000 acres would be taxed away. (Indeed, if I understand it correctly, any gradual increases in value of the initial 2,000 acres - other than cost of improvements and structures - would be taxed away by the LVT.)
But there's risk involved in developing this project, beyond just purchase of the land. Maybe a developer draws up plans, pays for some initial roads and utilities, and builds a few houses that won't sell for enough to justify the cost of construction and improvements. The development fizzles and the whole project loses money.
So I'm seeing a specific deadweight loss from the described LVT that's "punitively high tax rate on successful large-scale greenfield developments". I assume that's why Michael mentions "development tax credits" as a possible patch for an LVT that incorporates value of improvements to the surrounding area.
I don't have a ton to say about Georgism besides how much I'd like to see a pilot somewhere. Even in a video game. But I always loved the way economic theory was so interesting as far as EVE.
As someone who untapped a massively valuable resource in EVE in a pretty unique way the fact that EVE has gone so far downhill sucks. If I hadn't had to quit EVE to focus on some real life stuff I would currently be one of the top 100 wealthiest players if not much higher. I ran ~120 characters at my peak. Would have been producing about 250 billion ISK a month without market trading.
The economic aspect of EVE was basically my favorite part. As an industrial innovator who convinced a very serious nullsec corp to let me, and my 119 other characters, in based on an understanding of the economics of EVE no game has really ever captured that feeling.
Even ATITD isn't really the same as EVE despite the crafting/economics focus.
If only the people running EVE were smarter, and took the economics stuff more seriously in the current era, there's a lot of cool stuff that could be done.
Singapore is probably the best example: 90% of land is govt-owned and gets leased out to users meaning government ultimately collects the land rent. As a result, a full half of govt revenue comes from land. Incidentally, Singapore went from kampongs to skyscrapers in about 30 years.
Convince a local government to do it, or start a new city with Georgism.
Starting a new city is probably the best test. Can you convince someone to build buildings and develop land without land ownership If so, great, implement Georgism everywhere. If not, well, the idea is fatally flawed.
The guy who founded Diapers.com is trying to build a Georgist city, though most of us are skeptical it'll be successful. There are some localities in Pennsylvania like Allentown and Harrisburg who have partial LVTs which seems to have dampened the impacts of the outsourcing of factory work from the rust belt, though they don't collect anywhere near 100% LVT so its hard to say exactly how everything worked out.
They were heading in a clearly negative direction, Harrisburg was on the brink of default, but the LVT seems to have at least leveled them out.
J. J. Pastoriza tried it in Houston and it seems to have worked, but the evidence is filtered through the fog of being a long time ago. The Texas Supreme Court shut him down very quickly.
I'm still working on collecting case studies, there are places that have tried it to greater or lesser degrees and I think the evidence will be interesting but I'm not done yet.
Also, Norway arguably has a Georgist approach to natural resource extraction and it works *incredibly* well.
While someone has given the example of Singapore the issue is that these experiments are difficult to run in the democratic west. Which is why EVE has had some interesting things to say about economics. Nothing earth-shattering since they haven't pushed for it. But interesting. They've employed, primarily early on, a decent amount of economics to handle problems in the game. Of course fundamentally it has some issues mapping 1 to 1 since in the real world you can't log out.
Some of the arguments for collective partial ownership of land seem to extend too far. For example, I could say:
All commodities are derived form the land of the earth. Nobody deserves to have iron or corn. When you use iron, you exclude others from using it. Since people have collective entitlement to all of the land, they should have collective entitlement to the fruits of the land. Likewise human beings are created from food derived from the earth which all people are entitled to. Everything is partially collectively owned if land is collectively partially owned. From this, we can say that we can tax anything we want.
Corn & iron are both mixed with labour before they attain market value. Georgism wants to tax the unimproved value of natural resources, not the value generated by human efforts.
Land is also mixed with labor. The Georgists know this so they want to extract the unimproved value from it, which I understand. But why not try to extract the unimproved value of the commodities prior to labor mixing?
Er, we do- that's called a severance tax. It's how Alaska and Norway manage their oil, in fact. The Alaska Permanent Fund is one of the best examples of real-world Georgist policy.
Norway's oil extraction policy by the way is arguably very Georgist. It was set up by Farouk Al-Qasim, a Iraqi-Norwegian immigrant and petroleum engineer, who wanted to save Norway from the resource curse that had plagued his native Iraq. It worked very well -- Norway effectively subsidizes oil exploration and massively taxes oil extraction (a form of LVT on natural resources, called a severance tax), and Norway has arguably the most technically advanced and highly efficient oil operations in the world, extracting more oil from any well than just about anybody else, and producing much less on-site pollution and waste (glares at BP). And all that oil wealth goes to the people in the form of the sovereign wealth fund. Companies are incentivized to explore and to innovate, but not to sit on their butts and rent-seek off of sitting on oil wells.
and, lest this feed into the "Georgism incentivizes paving the earth and over-development" narrative; it's worth pointing out that the Norwegian policy results in an emphasis on efficiency and making the best of the wells you've already got rather than sprawling out and grabbing more and more and more, drilling over and over again just to skim the easy cream off the top.
Yep, Georgists would support taxing the unimproved value of all natural resources. For corn that's pretty much just the land it's grown on. For human beings there probably isn't any.
For iron you could definitely argue that the right to make the initial extraction should be taxed, which is why most states have royalties for mineral extraction.
It's not consistent. The tax on iron extraction is paid once. We don't make anyone who possesses an iron object pay a yearly tax based on the unimproved value of the iron in all their iron objects they own.
To be fair, iron is not a necessary input of all productive activity like land/location. If Iron ever did become as important to the economy as land is, and as limited, it might make sense to do so on an ongoing basis. that is not the case currently, however- such a tax would be more costly to implement than it would return.
Severance taxes (LVT on depletable natural resources) are compensatory payments to the community for the depletion of the land's value and are entirely consistent with the principles of Georgism
Govt-owns & leases land at market rates is essentially the same as private-ownership with full taxation of rental value, so yes, you're pretty much right.
The only thing that guides Georgists to generally prefer the latter is that we want the market to be the one who decides how land is used, as we think the govt often gets that wrong.
Some people would describe it this way, but I wouldn't. The government owns the land so far as the government is representative of the community. The right to location is common, everyone has it, and therefore to sort out who has the right to any given location, ground rent must be paid to the community.
You could organize this in an anarchist way, a mutualist way, a minarchist way, etc, etc.
Apart from logistics there is also a rather large elephant in the room. Suppose we can perfectly assess land value and disassociate improvements from spillover effects (from surrounding development), and let’s suppose that the government is highly competent at using the tax revenue, and that there really is zero deadweight loss. And suppose the public is cool with the government seizing all land value.
Even then, efficient does not mean good, and it does not mean that economic growth is maximized. One of the “benefits” of 100% LVT is that it punishes inefficient use of land. But this means actually bankrupting and/or forcing out the least profitable businesses in areas with high land value. Or forcing people out of their homes. There are real societal costs from this constant relentless turnover.
Well yes, it does mean that people need to move when land needs change, but that's the entire point of it. You can't incentivize efficient land use and stop land speculation without encouraging people and businesses to move when the land they are on is no longer fit for the current use- it's inherent in the definition. However, in most cases changes in land use happen over decades as populations grow and shrink and different economic sectors develop, giving people plenty of time to adjust.
But to the Georgist point, people who hold valuable economic land for themselves under the current system do it at the expense of the public- they hurt everyone by appropriating the land rents of the community, and they stop economic growth from which they themselves would benefit. That doesn't mean we shouldn't attempt to alleviate this transition however- the Citizen's Dividend is an important Georgist policy which helps people to afford the land that they need, and various tax deferment programs can help retirees, for example.
Our current tax and financial system is partially built on the observation that it is easier to destroy than to create and therefore stability is generally a good thing.
Taxes on cash flows have the benefit that they are unlikely to completely destroy a business or a person, and that’s a good thing. If your income falls, your income tax falls. If a business has a bad year, then it’s profits fall and also it’s corporate tax burden (and it’s other taxes as well).
Bankrupting more businesses per year will indeed probably cause more businesses to open. But enough to completely offset the effect? Unlikely, how potential businesses are actually constrained on not being able to find any space whatsoever? And each round of bankruptcy has its own negative externalities, banks tightening their lending requirements, entrepreneurs giving up permanently, employees getting laid off, negative effects on other businesses that benefitted from their presence. Time that the spaces go unused etc. these externalities are not captured in the standard first pass analysis.
No - there are lots of people that own 'under-developed' land. The cost of the land itself is sunk cost and they are free to use the land however they want.
Sure, but increasing the number of businesses forced out per year is as far I can tell, an intended consequence of Georgism. And one that I argue is undesirable for reasons I listed in the below thread.
Going to a Georgist system might be a net positive (I'll withhold judgment until the whole series is complete, but I am sympathetic.) But path-dependence matters, and it would be necessary to phase-in a Georgist system.
Also, I'm skeptical that you can get buy-in for that. The powerful aren't going to accept a system that makes it difficult for them to evade taxes, and they're the ones who have political power.
Well, most Georgists recognize that a gradual phase-in is important. And yes, obviously landlords and rentseekers have political power. But that doesn't mean we can't improve the system, nor does it mean we oughtn't to try- that is defeatism, and serves nothing but the status quo.
So would you make the same argument about the ownership of people? That rapid change to property relations is bad and their 'freedom' should be phased in gradually?
Of course such a change is a net positive, because land rent belongs to everyone, privately capturing land rent is theft. Living with an ongoing theft is ultimately bad for society, this should be rather obvious.
All the same, Henry George recognized the reality of a gradual phase-in when he rejected the idea of compensation for current landowners.
"It is true, as Professor Ely says, that we "propose to take all of a certain species of property without a cent of compensation," but it is also true that this taking can only be gradual , and would consist in successive changes in our system of taxation, which reducing the taxes now levied on industry and the products of industry would increase the taxes now levied on land values. Surely, Professor Ely would not say that there could be anything in any one of these changes to shock the moral sentiment? Surely he would not say that the state is stopped in justice from imposing or increasing a tax on land values unless it at the same time makes compensation to land owners? Is property in land values more sacred than property in thing produced by labor? Has the land owner any better right to compensation when he is taxed than other people have when they are taxed? We do not compensate smokers when we tax tobacco; nor the final purchasers of dry goods when we tax dry goods; nor the people who use houses when we tax houses or the materials that enter into houses. We do not compensate saloon keepers when the keeping of saloons is interdicted by prohibitive law, nor does anybody propose to compensate them. And with his wide study of the effects of taxation Professor Ely will be able to recall many instances where businesses to which no objection on the score of morals could be made, have been crushed out of existence by the imposition of taxation. He will not, however, recall an instance in which the men so injured have been compensated. Should a proposition to apply to land owners the same rule which we habitually apply in all other cases of taxation shock the moral sense?" https://www.cooperative-individualism.org/george-henry_a-response-to-richard-ely-on-the-question-of-compensation-to-land-owners-1887.htm
> Also, I'm skeptical that you can get buy-in for that. The powerful aren't going to accept a system that makes it difficult for them to evade taxes, and they're the ones who have political power.
I agree with your first points but this is a fully general argument against change.
Here's what I don't understand - one thing Georgeism is expected to solve is land speculation, which drives prices up to wild heights.
But all these calculations you're doing about the value of land is in the current speculation-heavy environment.
If we implemented these taxes, wouldn't the speculation bubble burst and all urban land values drop by, like, 90%, meaning all your calculated revenues from the tax also drop by 90%?
In other words, yes, land is a big deal when we get to speculate on it, in the same way Bitcoin keeps going up and up in price. But is it still a big deal in the world you want to create, after the bubble bursts?
Prices are so high precisely because they're capitalized rents, i.e. speculation on the value of future value generated by the land. Taxing land will indeed drop the purchase price of land, but it won't change the rents, which is what Lars' revenue calculations are built on.
So yes, you're right: taxing land ends the speculation, but still generates sizeable revenues.
To say what Stephen said another way - capturing the rents via LVT makes the exchange price zero, because there is no potential income solely from owning the land. But it doesn't remove the value or the rental flows, it just redirects them, into the public coffers.
I think it is reasonably well established that Georgism is good in theory. My biggest question is how such a system could ever be implemented in practice.
Answering my own question:
Compensate land owners for their loss in wealth as a result of the LVT. Icky I know, giving rich people more money. But if it actually makes them support the policy, then it's worth it!
I'm a proponent of starting small and local. Get your local area to pass a revenue neutral split rate shift. So taxes on land and buildings are different, with land being higher, but they collect no more revenue.
Maybe that'll nudge some properties into development and you can see positive improvements as a result. Then you can convince them to take more and more steps until ultimately the goal is reached.
I know this is not the point of this write up (which is excellent, BTW), but it always strikes me when I read stuff like this:
Whenever I read about "People lifted out of poverty" and about how good everything is all the time under our current neoliberal hegemons; I consider my childhood, and my time in construction and agriculture, and wonder how people can believe something that's so clearly bullshit.
Maybe I'm the wrong one, but it's hard to imagine.
I don't think anyone is saying "everything is good all the time". It's just that on average it's better to be less poor, and the current system has created hundreds of millions of more less-poor people.
Regarding cap rates: while these are subject to a range of estimates, the underlying assumption is that blended cap rates observed for land + buildings are a good estimate for the cap rate on land alone.
There's a logical reason that we'd expect higher cap rates on buildings, however. As noted, buildings are a depreciating asset. It therefore stands to reason that the blended cap rate reflects a weighted average of a higher cap rate for buildings and a lower cap rate for land.
I suppose we could do an empirical study to observe the relation between selling prices for pure land and the amount of income it generates to rent it out.
Examples include:
- Leased land
- Mobile home lots
- Car parking lots annual income vs. annual selling price
Do you have any hypotheses you'd like to preregister about what the cap rates for these might be?
I was somewhat positive on Georgism after reading the post. Many of the comments, however, gave me the impression that it's an alternative to communism for those who want to get back at the rich - an alternative that's more marketable due to not being associated with large piles of skulls.
Systemic changes will of course have winners and losers. Sincere advocates shouldn't be shying away from the hard work of taking the latter's possible (or probable) concerns into account. It says nothing good that a number of Georgists would rather hand wave away the notion that there would be losers by dismissing them as immoral, exploitative actors akin to slave owners in the 1800s.
“There is no cause so right that one cannot find a fool following it”. The “tax the rich” mobs already exist, channeling them in a constructive direction that has chances of actually working sounds like an improvement.
I think you're finding what you want to find. There are many of us in the comments saying that an overnight switch to 100% LVT would be disastrous and even if it were possible it would not be wise to do it.
The vast majority of us support some sort of phased implementation that minimizes the negative impacts to people who engaged in the game under the rules as they understood them.
I personally am a home and land owner and I would hate to pay a bank what is effectively rental value for my property, rather than the government, and then at the end not own it nor have my rent dispersed back to the community.
I wouldn't dispute that most current Georgists are reasonable gradualists. It was my mistake that my first post had such a CW tinge to it.
My concern is how the current (reasonable) majority 1) ensures that their views on implementation remains a majority through the processes of coalition-building necessary for making Georgism a political reality, and 2) ensures that those who'd weaponize Georgism are sufficiently kept away from decision-making, while keeping in mind that their absolute (and probably proportional) numbers would increase and thereby also increase the weight of their views. Also keep in mind that the actual implementation of Georgism would involve a lot of bureaucrats who have 'eat the rich' style politics making decisions on the ground.
I'm a homeowner myself and favor a gradualist approach. I think concern for transitional pain is important but I think it's equally important to recognize the pain of people who are currently being harmed. The housing crisis is hurting a lot of people very very badly, and it's my sincere belief that if we don't go for a Georgist solution when the next housing crisis hits you're going to wind up dealing with far, far, nastier groups seizing power as Millenials and Zoomers get older and remain locked out of the housing ladder.
Speaking as a bureaucrat, I'm concerned that there are enough of the 'eat the rich' crowd in positions that would allow them to use Georgism to enact their vision of justice. In other words, I'm wary of how Georgism seems almost tailor made to be co-opted and used as a blunt instrument by these people.
I'll admit to not having considered the costs of not adopting Georgism. I'd have to chew on what could be done to alleviate the situation of the losers of the current system in order to weigh these costs for or against adopting Georgism. I'm looking forward to reading the next parts of your series.
I can sympathize with that. Moving to a broader base of less terminally online people (myself included) I think would dilute that considerably.
2008 was a very nasty housing crisis, and from every indication that I gave in part I we are well on our way back there. House prices cannot continue to go up forever in a straight line without a crash or serious social unrest. The evergrande crisis in China is likely not going to be pretty, either.
My position is that we can take our medicine now, or take our poison later (other ideologies that are more passionate and don't actually fix things, but are destructive and "fun" to participate in)
Irrational crowds don’t become stronger if you give them a rational justification of policies resembling theirs, they never needed one in the first place.
Ultradense housing is very possible without Georgism. Restrictive zoning is holding us back far more than tax structure.
I know you mentioned zoning reform in passing but the emphasis is little misplaced. It’s kind of like saying “the patient is bleeding out from his gun shot wounds, let’s say a prayer, and then apply a tourniquet”.
100% LVT is essentially evicting people who own homes is high land areas. Even ignoring the political impossibility, it’s just not necessary. Most people will willingly leave if you legalize development via zoning reform, and have private developers offer a fistful of cash.
The argument from Georgists, among other things, is that our tax structure greatly contributes to incentives for governments to support restrictive zoning.
> 100% LVT is essentially evicting people who own homes is high land areas
This is already happening under the status quo. Are you making the testable hypothesis under the status quo that the number of evictions will be greater than under the current system?
The Georgist position is that we should repeal restrictive zoning and pass a land value tax and both of these things work together.
I think you misunderstand my position on the suburbs. I'm in favor of shrinking them dramatically and making them denser. I'm also in favor of doing it in a way that people will voluntarily accept rather than evicting them with taxes.
>This is already happening under the status quo. Are you making the testable hypothesis under the status quo that the number of evictions will be greater than under the current system?
I'm not talking about all eviction, I'm talking about raising taxes for a specific subset of people such that they are forced to move (effectively evicting them). That's the whole point isn't it? Getting them to move to allow more efficient development to take place?
Nice solution, but I see the problem in the transition. The tax would effectively devalue land. Ignoring rich people and corporations, but for many commoners the property is their main retirement asset and even worse for ongoing property debts. Their rates can possibly no longe be sustained and neither be paid back by selling. Making the "middle class" broke and overindebted over night won't get through any legislation. Anyone any suggestions for that?
1. Fix the quality of assessments in areas that already have a property tax.
2. Shift the burden of existing property taxes off of buildings and onto land.
3. Fix restrictive zoning laws
Just do that and we have a major improvement over the status quo. If you start seeing good results, proceed to push towards full LVT.
If you need to do political horse trading such as deferred LVT payments until sale of the property for old people, do whatever it takes so long as it doesn't undermine the project. It will be messy but we can probably figure this out.
I don't want to harp too much on one line, but this:
"Furthermore, land, unlike capital, can't flee the country and take investment and industry with it."
While true, it seems like the value of land comes from it's proximity to where people want to be, and where people want to be is driven at least in part by where people can combine their labor with capital to produce value. So if capital were to flee, the land would remain, but the value of that land might go down, even if there are no improvements to it.
If a bunch of capital fled Manhattan or SF, I suspect land values in those urban areas would drop quite a bit.
"If you put ATCOR, the Henry George Theorem, and observations about non-pure-public-goods-spending together, one could postulate a virtuous cycle where government investment is always able to pay for itself without creating a drag on the economy and without any deficit spending or debt."
For that to work, I think you have to assume that the amount government spends on public goods is always less than or equal to the value they generate. In other words, no waste and no bad investments. I don't think that's a realistic assumption. So maybe it's better to say that the government *could* recover *some* of the costs of creating public goods, *if* we have generally good government (plus some luck to account for unforeseen circumstances beyond anyone's control).
I think it's worth pointing out that if you distribute 100% of the revenue from an LVT in the form of a citizen's dividend, then you won't have anything left over to fund defense, other social safety net programs, and all the other stuff government spends money on. So you can't have the tables at the end of Section 1.4 and the conclusions of Section 1.2 simultaneously.
I didn't make it super clear, but I used the lowest possible estimate (the Fed's estimates with the low cap rate) from section 1.2, which if Smith's estimates are true (as I think they are) there would be stuff left over for at least some major expenditures. And that's without assuming dynamic effects / ATCOR / etc.
I haven't seen anyone discuss the property tax Assessment Ratio, so I want to point out that the government is NOT drastically undervaluing property for tax purposes. The Assessed Value is not a market value, and it doesn't claim to be. If you look at the NYC page on Assessed Value, it says:
Your Assessed Value is based on a percentage of your Market Value. This percentage is known as the Level of Assessment or Assessment Ratio. Your Assessment Ratio depends on your tax class.
NYC does this so it can levy different amounts of taxes on different tax classes of property, not because they are 'writing down' the value of the property. So we should EXPECT the Assessed Value to be less than 10% of the fair market value - around 6%, in fact.
But this does make determining fair market value from tax assessments tedious - you have to know the Assessment Ratios for each city/county in your dataset.
> The assessor is probably not saying that the full market value of this obviously multi-million dollar property is $600K. Most likely the assessor gave their best guess of "full market value," and then state statutes forced the assessor to also write down a separate "assessed value" that applies some markdown percentage.
To which you say:
> NYC does this so it can levy different amounts of taxes on different tax classes of property, not because they are 'writing down' the value of the property
Which was my point.
My argument is that they are both doing the "assessed value" separately from "market value" thing for their own internal purposes, AND that their "market value" assessments are also likely to be depressed.
Fair enough about what you say in the article, but ... when you circle $8.99M in bold red, circle $609K, connect the two, and write 'WTF' between them, you're strongly implying there are shenanigans going on, as though the two should be equal but aren't. You even say in the caption:
> Assessed values less than 10% of the extremely obvious full market value
Which further implies you want us to think the two should be equal. I'm pointing out that NYC is just applying a transparent, publicly-available formula to get from one number to the other. No shenanigans needed.
But reasonable people can disagree about what you meant by these things, so I suppose this is just one person's opinion.
I will note, however, that sociologically/demographically - the people who actually own the land are almost exclusively the ones who are wealthier (and by inference, more influential). Would they ever want such a tax - which both reduces the value of their holding while increasing the carrying cost of same?
The homeownership generational gap isn't that troubling. The number of adults living alone has nearly doubled over 50 years, and people are getting married later or not at all.
The same argument that you use to show that most of the difference in value between real estates in the city vs. rural areas come from land value - can sort of be reversed. Just like it is obvious that the value difference doesn't come from difference in amount or wisdom of investments, it obviously doesn't come from any intrinsic property of the land. It must have to do with the fact that the land is *surrounded by a city* - i.e. externality of the investments of everyone else in the city.
So the whole thing may at most serve as a moral ground for taking high city-level tax - not federal tax (the justice of such a policy is debatable for other reasons).
The main reason land value is so high is its "monetary premium" as a store of value in an otherwise highly inflationary world. A better solution for making real estate more accessible is adopting Bitcoin as the world reserve currency. It won't involve expropriation, won't cause gentrification and more importantly, it won't leave us completely vulnerable to the state monetary policy and the economic ineficiencies that will sure follow without our ability to save the fruits of our labor.
No doubt everyone here is well-versed in MMT, but it is necessary to harp on about it a bit more: taxes DO matter and can only be collected (federally) after spending by the Fed (although individual states must tax to spend). Taxes dampen private demand and create space for further public spending. Particular taxes affect which resources are "freed up" or "released". None of this is incompatible with LVT or Georgism, and I would say they are congruent since LVT releases land (and other scarce natural resources) to the most productive use.
I'd like to attack the "no deadweight loss" claim from an angle I haven't seen in the comments. LVT is effectively equivalent to expropriating most or all land value. Sure, at least some forms of LVT would be free of deadweight loss if it were common knowledge that this new tax system would be our tax system forever, and no other asset classes would be expropriated.
However, realistically, after the government has expropriate land using Georgist arguments, how will investors trust that the government won't make up some excuse to expropriate other asset classes as well? Most voters don't think about dense economic arguments; if an electorate could be convinced by Georgists to support expropriate land, chances are a demagogue can convince it to support expropriating other assets as well.
After all, in theory, an unexpected, one-time expropriation of wealth (complete or partial, some asset classes or all of them) would have no deadweight loss either—assuming investors trusted the government's promises that it would be a one-time event that would never be repeated. But there is no way investors would trust that.
There is a related issue of fairness. Again, a high LVT would be fair if there had always been a consensus that land ownership without such a tax is illegitimate. In that case, even if a government had, for a while, rescinded the LVT, landowners would have to expect a subsequent government to reinstate it. However, we don't live in that society. For millennia, humanity has been treating land ownership as just as legitimate as ownership of anything else. Alice decides to invest her retirement savings in land, while Bob invests them in stocks. We institute the LVT; Bob is fine*, while Alice is out of her retirement savings through, IMO, no fault of her own—having made her investment decision in today's society, which considers land ownership legitimate, she had no reason to expect that land would effectively get expropriated.
* if the evaporation of investor trust doesn't crash the stock market as well, which is a big "if"
So do cities become further limited to the rich? Or perhaps, the most economically productive at the moment? How would a retiree still live in the same West Village flat that they spent decades in - only by their savings?
I would find a breakdown of current property taxation interesting. For instance, in Portland, OR my home is already assessed with land as the largest portion of valuation (71% of the assessed value is attributed to land) and while the taxed value is about 50% of the assessed value, its a percentage of the total assessed value, not just the “improvements” to the land. So we are already paying, largely, an LVT on residential properties, and still have massive issues because of zoning laws and tax benefits for owners of multiple lots.
If the tax is 100% of the rent, then as a landowner I have no incentive to rent it at the highest value possible. Won’t that lead to massive inefficiencies?
In economics, "land" is everything not created by humans. The sea, in this sense of the word, is still land- just very wet land, which is generally not taxed because it is mostly useless.
What about the parts of Boston that were created by landfill?
Its the same. That geographic location always existed. Filling in land or clearing forests is an improvement.
Even still, its a bit of a red herring, since it really doesn't change the macroeconomic analysis. Given a certain area, you can't create more space in it, generally. You can't make houses bigger on the inside than they are on the outside, or add extra lots in between existing lots in the middle of a city.
Wait a second, Lars Doucet? The guy who made Super Energy Apocalypse and CellCraft, two of my favorite flash games back when I was a kid?
What a wonderful surprise.
Yup that's me! Surprised people remember those :)
I not only played and enjoyed Defender's Quest but saw one of your talks at PAX or GDC (can't remember which) that was excellent.
Defenders quest is so good.
Man I loved Super Energy Apocalypse too
Sounds interesting, does anyone have a link to working versions handy?
Super Energy Apocalypse is AS2, and CellCraft is AS3. Neither of them currently works in Ruffle, but if you google "FlashPoint" by Blue Maxima it should work in that.
Fun fact: Super Energy Apocalypse was my master's thesis
https://oaktrust.library.tamu.edu/handle/1969.1/ETD-TAMU-2010-05-7707
Wow, I remember reading that you put a lot of real-world research into designing the game, but I didn't know you actually got a thesis out of it! Awesome.
It's probably of pretty embarrassing quality looking back on today, but I tried my best when I was a wee lad
One thing I don't quite understand about Georgism is: who is going to compensate landowners for the massive drop in the value of their land that would come from suddenly subjecting it to enormous taxes? Wouldn't that require a one-time payment of billions in compensation?
Or is the idea to simply randomly steal money from people?
I don't see why that would need to be compensated. The value of land is inherently subject to political considerations. That is part of the risk that landowners accepted when they bought the land. No one is entitled to have their assets massively appreciate with no risk.
If you believe all taxation is stealing, then that is a different conversation.
Let me put it this way. A year ago, I owned zero dollars in land. Today, I own $1.5 million in land, and owe the bank a correspondingly large amount of money. If my local government decided to implement Georgism, it would be an enormous, enormous transfer of wealth from all the 2021 me-s to all the 2020 me-s.
I accept that taxation is a necessary evil, but it shouldn't be sudden and capricious. The alternative version of me who decided to rent for one more year shouldn't suddenly hit the jackpot while the actual me loses his shirt.
Is or is not the UBI side of this large enough for any person to live on, even those with unusually large expenses they can't shed? (Let's say they are disabled in a way that requires full time care.)
Is it enough to pay the extra costs of living in places with low land values?Isolated spots in the middle of nowhere tend to cost more for heating and/or cooling than the prime spot where I now live. There's nowhere to buy anything in walking or even biking range. Perhaps there's no phone, internet or even electricity available, and there's certainly no treated water or sewage. Health care is sparse. And *this* is where Joe-Random-Retiree from prime territory will be moving, after Georgism destroys most of the value of their investment in their home, and socks them with a tax they can't afford to pay. (And by the way, there goes the caretaking their grandchildren had been doing of/for them; now they get to pay market rates for someone to e.g. climb up a ladder and clear leaves out of their gutters.) Oh, I forgot the resulting social isolation, that will probably cause them to require psychological treatment unavailable in their new location, and still reduce their life expectancy.
Don't tell me that they can all move to pre-existing homes in idyllic small towns. The prime urban areas are very very dense - lots of people. As in, more people in a single city than in some low population states. It would take a lot to convince me that there's enough pre-existing vacant housing.
But of course I'm probably presuming a much larger exodus than most Georgians appear to expect.
You're right about that, but with the current regime, when they sell out they'll have a lot of money to use to buy another place elsewhere, with some leftover to invest to provide an additional income stream.
What a monument to straw-men you've constructed.
I guess you could make an argument for ramping it up slowly. That's probably a good idea for a lot of reasons.
That said, even if you don't, I don't think anyone deserves compensation. Land is inherently a risky investment and that means sometimes people lose out. You could have just as easily bought right before a crash or some other policy change.
But a lot of people who buy land buy it to live on. If I buy a house to live in it (rather than as an investment property), I actually don't care if it loses most of its value. That would only matter to be if I planned on selling it (which sure my children probably will after I've died so maybe I care a little, but on the other hand my property taxes are smaller until then).
On the other hand if a 100% LVT suddenly get implemented, I'm instantly in the hole for a huge amount of money every year on top of my mortgage.
I mean you wouldn't need to worry about your mortgage because you and everyone else would just walk away from your mortgage.
I think it probably is correct that no government would voluntarily preside over the total meltdown of the banking system, so some solution would be found, but I find it odd that Georgists never explain this part.
This is a fair point
Which is why the LVT is usually considered alongside a Citizen’s Dividend/UBI which you would then spend on either all or most of the ground rent for that house.
While I'm normally in favor of a UBI, I don't think this helps much in this situation, particularly in terms of fairness as you're compensating everyone equally while only punishing some of them. The 2020 version of Melvin has still hit the jackpot, and is now getting an extra payment on top of that, while 2021 Melvin has lost everything, had his house foreclosed, and can hopefully survive on the same payment 2020 Melvin is getting on top of his existing assets.
To consider some numbers for people in current high cost of living areas, I'll look at the bay area where I am. Being in one of the less expensive areas here, a typical house now costs around $1M (yes, that's crazy, but that's the reality we live in). Let's say Jack just bought a house having come up with $200k for the down payment, so Jack has an $800k mortgage. According to the numbers from the post, 70% of this was land value, so his house would sell for $300k after LVT is implemented (one point of the book review is the sale price of land becomes essentially zero). Now since he has an $800k mortgage on a $300k property, he can never sell this house, and will be stuck here for the next 30 years, having gone overnight from having $200k equity to being $500k in debt.
In addition to the mortgage payments, he is now also responsible for LVT payments on $700k of land which he cannot sell or even give away without paying off his mortgage. If we settle on an assumed 5% return for land, this gives an extra land tax payment of $35k per year, and removing property tax on the house saves maybe $10k per year. So if we set the UBI to $25k per year, he's doing about the same as he was before, except he's trapped in this house for the next 30 years unless he declares bankruptcy. Meanwhile renters in the same area are getting an extra $25k per year, and according to the analysis in the original book review are actually paying lower rent.
Now maybe your reaction is that it's perfectly okay to ruin anyone who moved into a high cost area and chose to buy instead of rent. That said, you may want to consider people who lived in this area earlier, and are in an even worse situation if they stay. Most people who have lived here longer than 10 years pay relatively little in property taxes as the property tax is typically based on the last sale price, but would now be hit by the entire $35k LVT with only $25k UBI to offset. I'm assuming here that the land value will be assessed in some new way as it cannot be based on sale price anymore, since that price will now be based on the house value and not the land value. This analysis also assumes that there is still a functioning society after the wave of foreclosures and bank collapses, which I am not at all sure would be the case. If the economy collapses, at least 2020 Melvin will now be just as screwed as 2021 Melvin, though neither are likely to get a UBI in that situation.
Trust in institutions is a big deal. The United States is a nicer place to live than the Congo because investors do not consider arbitrary confiscation among the risks they need to manage. If they did they would change their behavior accordingly, and I don't think you'd like the result very much.
Adding an LVT isn't an arbitrary confiscation of wealth.
It is the seizure of all land value.
Exactly. Beware of any incentive to short time preference...and law/regulation/tax instability is a very strong incentive
Life is inherently risky. That doesn’t mean the government should be able to kill me arbitrarily.
The $1.5M you paid reflected a .01% chance of a full LVT being enacted within the next 5 or so years; if the risk of a full LVT being enacted was closer to 50%, you would have paid $750k for the same land.
Mortgages are over 30 years. And even if you bought your house with cash, it's still a loss.
I absolutely love Georgism (or any type of tax on commons), but the objection is fair. Ramping up would probably have to be over 20 years or so.
Or you can just write off the purchase price in land value taxes. That would mean that if you paid a million for the land. U are safe from land value tax until it reaches above a million
It would need to go together with a debt relief program. However, as income taxes would go down significantly, debt would not be that big a problem.
I think this example (which will be commonplace) does get to what seems unjust about the LVT to me. Maybe land is conceptually different from other asset classes, but from the point of view of the individual investor, it seems very unfair that the treatment is so different because you happened to invest in one asset class rather than another. This is particularly so because middle class people typically hold a much higher percentage of their wealth in property than the rich.
I think the tax rate that Lars is talking about here would be modest enough that it's unlikely to bankrupt anyone in the middle class, and there's no tax policy that isn't going to hurt someone, somewhere, somehow.
If you invest a bunch of wealth in a stolen painting. And then the rightful owner comes along you lose your investment and we say that's what you get for investing in stolen goods. Well the Georgian position is that all privately owned land is essentially stolen from the commons (which in still on the fence about but I'm just explaining the perspective here) so when investors lose out from the LVT being implemented we say that's what they get for investing in stolen goods
I think renters have been stealing from their landlords for the past 100 years.
I agree. It doesn't seem fair.
The chances of losing your shirt is the risk you assumed when you greatly leveraged yourself to speculate.
If you’d gone $1.5mil in to debt to buy stock in wall building companies when Trump was elected, was it theft when he didn’t? Or when Biden was elected and the non existent build the wall endeavour was presumably scrapped? Of course not.
The risk of losing value is why you otherwise generally get a return on investing in assets. The safe play is to consume all your income asap.
The risk of losing a lot of value is why leveraging yourself with debt can otherwise be incredibly lucrative.
Are you aware how psychopathic this sounds to normies?
Like others have said, the person who owns the lands still has every right to use it. Phasing in a LVT over 20 years or so would probably solve all of these issues. If someone bought $1.5 million in land with no plan to use it and can’t sell the land within 20 years, it’s not the governments problem at that point
Yes, to me it's the main objection, but not specifically to Georgism, to any big change in tax scheme. Rapid big changes of taxes coupled to long adaptation time in investments impacted by those changes in inherently unfair, even if the tax policy that is being changed was also unfair. In fact, it's not only taxes, any economic rapid change advantage actors that can rapidly adapt compared to slower ones. When the change is "natural", ok, to bad, but when the change is regulatory, there are big questions to be answered. In particular, is the regulation pushed by "fast" actors?
Which country and which century are you speaking about? Because here, in Western Europe, homelessness is certainly not caused by land monopoly or anything related. Poverty, depending on how you define it, neither.
Poverty (like having trouble to pay for subsistance) is usually either due family issues (divorce with a few children to care), or trouble with the welfare system (either because lack of official papers, lack of understanding of the paperwork , or inability to accept living under the control of the administration. Usually a combination of those factors.
Housing crisis hit young people forced to rent to small apartment and delaying (sometimes forever) buying the home they hoped for their family (equivalent to what they saw their parents were able to buy). Homelessness is a completely different issue...
There could be different rules to avoid hardship during introduction. One possibility would be to fade it in slowly, as suggested elsewhere.
But there are more possibilities:
- There could be the possibility to deduct from the LVT all mortgage payments from legacy contracts. This way nobody pays double, the tax revenue probably ramps up faster as with fading in over 30 years, and many effects like stopping speculation kick in immediately. In your Example you pay the bank back as it was the plan anyway. As long as your payments to the bank exceed the LVT, this is all you do. Only after that you would have to pay the LVT instead of nothing. But you are still better off than renting the house, because now the Building belongs to you and LVT only equals the rent of the land, the rent of the building is yours to keep and you could also sell the building. If you did pay cash however, the part you payed for the land would be lost, not the part for the building. But if you had this money idling, it will feel unfair, but it wouldn't ruin you.
- There could be a rule, that the LVT isn't enforced on self used property if it would ruin the owner or only put him into poverty. This way nobody would get forced out of their home if landvalue raises or if they loose their income, be it unemployment or retirement.
They have no choice but to accept if they want to own land. Similarly, people have no choice but to accept that they may be victimized by a criminal in a certain area if they choose to live there.
Land ownership might be likewise thought of as theft. Years ago someone deprived everyone else of access to this patch of land, and if I buy it now, I’m effectively accepting possession of stolen goods.
Plus, if LVT does end up as the single tax, it can be easily sidestepped by not owning one particular asset. Sounds much less thefty than, say, VAT or a sales tax.
Why is everyone entitled to a patch of land? Is that everyone in the entire world? If not, why not?
No-one is entitled to any land
Are you an advocate of floating?
What do you mean by that?
When we raise taxes on labor, do we compensate workers for the massive drop in the value of their skills?
We raise taxes on labor by like a few percent at a time.
What? SALT cap raised my taxes by like 25%.
I'm guessing a *relative* change of like 25% and an *absolute* change of like 10%? If not, what state has a 25% income tax?
Yes you're right, I realized after posting that you must have been talking about percentage points rather than % change.
But fine. Point taken. Occasionally we made sudden slightly larger changes for people in specific circumstances.
Do we compensate workers a few percent at a time somehow?
(Most georgists btw are fine with incremental ramping up of lvt in a net neutral revenue transfer from income ,improvement, and sales taxes)
Not usually. But my point is that income taxes occasionally going up or down by a few percentage points is going to have an orders of magnitude smaller impact on most people than suddenly implementing a Georgist system would.
Just allow tax write off of purchase price.
The government basically buying all property would solve the fairness issue, but leave the question of how the government would pay for it.
Also the amount of money that people invest into their skills is usually a lot less than what they invest in their homes.
The American university system is doing its best to change that, though, and if you add the per-student cost of all 12 years of schooling before that I suspect the number starts looking surprisingly comparable.
The point of Georgism is to encourage people to invest in building skills and structures rather than “investing” in scarce land (ie paying off current landholders).
Perhaps this issue can be ameliorated by slowly raising the land tax rate over the course of several decades.
Or by tax write off of purchase price.
The classic response to this is Book 7, Chapter 3 of Progress and Poverty, "Claim of Land Owners to Compensation." Ultimately, compensation to landowners is disregarded on the same grounds as chattel slave owners or the holders of stolen property. There were disagreements on this front, of course: John Stuart Mill believed that compensation was in order; Alfred Marshall argued for a decades-long phase-in.
But here's another angle: the risk of future dispossession should end up priced into the asset. So ultimately it wouldn't be a *random* wiping away of assets, but rather a reflection of how well the asset-holder incorporated risk of future tax regimes.
Pricing in a risk of dispossession is _really bad_. It's basically what separates the first and third worlds. You don't want that.
How do you figure? Surely we already do so
No, we don't. The expectation in a first world country is that our government at least attempts to protect property rights, if they didn't I would move somewhere that did and/or buy a gun.
It happens in the US though already to various objects. For instance, possessing a bump stock was prohibited fairly recently
There is a huge difference between outlawing an optional firearm component as a result of a highly publicized mass casualty event that may or may not have used some, and dispossessing the most fundamental owned asset of all history from everybody at once.
That said I do not support the bump stock ban. Incidentally it appears that the bump stock ban does run into this issue, and may be getting around it due to public safety powers which clearly don't apply to land
We really really don't calculate in the possibility of dispossession, because it's extremely hard to cost out a very low chance of a high value change. In a first world country, we essentially round off that very low chance to zero (not much of a difference from 0.01%). If we intentionally implement a program that dispossesses property, we have taken that 0.01% (even if it were priced in) and making it 100%, thereby causing a massive imbalance in the market that clearly wasn't priced at 100% chance.
The only way to avoid that is to telegraph the change well in advance, so markets have time to adjust prices over time in anticipation. That doesn't change the confiscation problem, but smooths it out over time instead of it happening all at once and crashing the system.
That's a complete nonsense argument. You realize that if this made sense, it would invalidate any kind of risk pricing, no? Because after a thing happens, the odds that it happened are always ~100%, but the risk pricing would have had some other number before that
That's the whole deal with risk pricing! There's a thing that might happen where you're worse off, but because of that you get a better deal when it doesn't happen.
That would be a fair response, except in a situation where the rules of the game are changed by active and sudden interference. If I were emperor and could decree any policy choice I wanted, regardless of constraints and issues normally in place, then I could do all kinds of things that aren't at all priced in the current cost of whatever we might be discussing. I could rule that all cash now has no value. Would you argue that cash holdings have that priced in already? Of course not, because that's so unlikely that nobody would have considered it.
If an LVT were really implemented, there would be a discussion process in Congress, maybe one or more high profile laws/constitutional amendments involved, and a whole lot of active discussion. In that case, there would be a shift over time as people did price it in. Going from our current situation to a Georgian tax, without time delays to telegraph the approach (as I mentioned in my first post), would be a fiat decision that is no more built into CURRENT risk assessments than an emperor outlawing cash. It's nonsense to say that people are pricing in Georgian taxes now, or that if they were implemented in the current society that it's fair because people priced in risk.
Yeah, pricing in seizure of a ton of land is probably really small. I figure crypto has banning priced in to a non-trivial degree.
I agree. Instability creates extremely high time preference behavior.
In most countries, compensation _was_ paid to slave owners when slavery was abolished. The failure of the US to do so led to nearly a million deaths.
If the slave owner bought property that they had no right to in the first place, whose fault is that?
Answer: the government, who made slavery legal in the first place. Since they are the ones who declared that buying a human being was okay in the first place, they should be the ones on the hook for compensation if they later decide that it isn't.
In the US at least, the government didn't create slavery, it was preexisting. The moral wrong was committed by the people doing the enslaving. The idea that the rest of us needed to have paid them off is ridiculous.
The US government inherited it from the British government. When the US chose to secede from the Empire it inherited all the obligations along with all the assets.
This is too far. We shouldn't consider slaveowners as blameless naifs, even if we shouldn't fully apply modern standards to them either. I view this as mostly a prudential question - what will most quickly lead to a wealthy, peaceful, free nation? - rather than a question of *morally deserved* compensation. If we're talking about what slaveowners morally deserved, my answer involves more punishment than reward.
It's not about morals, it's about the consequences. Paying off slave owners for accepting abolition is usually smart for the same reason I'd say that offering Kim-Jong Il and all his top brass a luxurious retirement on a Caribbean island would be a cheap price to pay for liberating North Korea, were that an option, for all that the entire government of that country probably deserves execution.
Yes, I agree with this. Not just but neither is conscripting people into murdering each other
Even when retribution is justified, retributive policy tends to lead to bad ends.
After WWII, you could definitely argue that Germany deserved to pay crushing war debt and pay punitive amounts for their grave moral crimes - but the US decided to pay substantial money *in* instead. And I think if you compare the legacy of the Marshall Plan with the legacy of the Treaty of Versailles, you'll see why that was a good idea. I think it's possible that analogy applies here, even if it's stomach-turning to think of slaveowners receiving any compensation whatsoever.
I think context is useful here. New states were being added during westward expansion, and if the new ones were mostly free or mostly slave, that would have upset the antebellum 50/50 balance. That meant to defend slavery in their own states, slaveowners pushed for some of the new states to be slave states; Mason and Dixon struck a series of famous "compromises" to keep the balance and the peace. I think in that context, it's likely that Southern advocacy for expanding slavery was *usually* (not always or by everyone, but usually) intended to protect slaveowners' interests in exploiting slaves, and not because of an expansionist impulse to spread slavery across the world. (Of course, defending slavery in either form is still morally awful; this isn't a defense.)
In short, I think for all but positive advocates for slavery like John C Calhoun - who was unusual in this respect, even in his own time - history is consistent with the idea that slaveowners' defense of slavery was driven primarily by self-interest. I think if compensation had been offered, they still would have chafed and it wouldn't have ended all strife, but I'm very confident they would have taken it.
Listen, moral 'right' and 'wrong' aren't objective features of the universe. They're just the semi-arbitrary outcomes of abstract discussions, and really only signal the alignment of culture's current power-holders with the topic under consideration.
Putting aside issues of whether it practically would have worked (it probably wouldn't have, actually), the objective way of framing the issue is: the US had the choice of ending slavery by A) killing a million people in a civil war or B) buying slave owners out of their holdings. Regardless of whose 'fault' slavery was, those were the actual options. Which would you prefer?
That's ridiculous - the war started before slavery was abolished, because of the mere concerns about abolishment decades down the line, even when that would very likely have involved compensation.
If I recall correctly, most of those deaths occurred before a single slave was freed by Lincoln’s government. You could argue that Lincoln confiscated the slaves as restitution from the people who caused the million deaths, rather than the other way around.
FWIW in 1835 the UK government bought out all its citizens' ownership in chattel slavery as a way to wash their hands of the entanglement. It cost about 40% of the national budget and was financed by bonds that weren't fully paid off until 2015.
I don't think holding land is immoral and comparing it to slavery won't be very persuasive to others who don't have issue with it. This would mean that someone who buys a house on 1 acre of land for their kids and dogs to play on should suffer like a slave holder suffered when they lost their slaves and it is what they deserve. It's just not a good comparison in my view.
You can price in unethical things but that doesn't mean the unethical thing is not unethical. The price of me being randomly murdered might be priced into my value as a worker but that doesn't mean murdering me is just. That's a different issue. The pricing in actually lowers my value which is also unjust.
A single owner of land isn't immoral, but the exclusion of people from the commons through indefinite land title is immoral.
It is the system in its totality that is immoral.
The classic example we like to use is Robinson Crusoe. Imagine you're Friday and you wash up just after Robinson. He's claimed all the land. He says that you may live on the island, but charges you rent for living on his island, leaving you with just enough to subsist.
Your options are to pay the rent or jump back into the sea.
Are you no less a slave than the ones in chains?
If your argument for LVT rests not on some kind of efficiency theorem but on "the system of land ownership is immoral" you will, rightly, not get very far.
Rent seeking is both inefficient and immoral.
> compensation to landowners is disregarded on the same grounds as chattel slave owners or the holders of stolen property.
If you're trying as hard as possible to make people hate Georgism, congratulations.
That assumes that political outcomes are reasonably predictable. The implied meta-rule of political economy is therefore that no economically-significant legislation should be passed without signalling the change with enough warning for markets to rationally price in the risk. Otherwise you risk things like civil war.
If Georgian property reforms were implemented with anything less than, say, 50 years of rational anticipation, there would absolutely be conflict on the scale of the Civil War. The US would turn into a banana republic overnight. Landowners simply wouldn't stand for it.
This is assuming you jump straight to a 100% LVT. Even the most optimistic Georgists admit that isn't happening overnight.
Keep in mind it also comes with an un-taxing of all taxes on improvements. You are more than welcome to continue to collect rent on all your buildings.
Most policy papers I've seen (such as the one by Tideman linked in the paper) suggest starting with simply shifting property taxes off of buildings and entirely onto land, but collecting the same amount of tax.
As soon as you announce a timeline for taxing land rents to 100% (or near enough), that is immediately capitalized into the valuation. There are proposals of "compensation" by providing all landowners a tax deduction equal to the exchange value of the land *when they first bought* plus inflation (and maybe a minor bit of profit) while also immediately instituting a high LVT. This provides all the benefits of an immediate LVT while not immediately burdening all previous landowners.
That sounds kind of like "expropriation"?
It just makes what should be common property actually common property. And it wouldn't eliminate "ownership", it would just eliminate the private collection of land rents.
So "Georgism" is just "Totalitarian Communism With Extra Steps"? Might as well just skip straight to the rifles then, 'cos that's where this would be going in North America at least.
Or you could find some unoccupied land that you could buy and try the system out, if you are so confident in it's superior outcomes.
Communism is about collective ownership of *capital* as well as land. Georgism is about collective ownership of land with private ownership of capital.
This is a willful mischaracterization of Georgism. Henry George multiple times explicitly said that seizing land, violent revolution, and collective ownership of capital are not a solution. Georgism is literally only tax policy. On top of that, it is a tax on something no one ever created, has no deadweight loss, and pushes the right incentives. Like if you had to choose between ANY other tax and a LVT, how could you possibly justify it? How does an income tax sound fairer than a LVT? An income tax is a direct tax on labour. Capital gains tax a direct tax on capital. Sales tax on voluntary transaction. I am dumbfounded by people who believe that a LVT is radical but an income tax is kosher. This is simply status quo bias.
exactly - these are very dangerous ideas and it is naive to expect landowners to lay on their backs and say "sure, great idea, do your worst". You simply take assets from people who own them, exactly what the communist did. The difference between now it being land and before all productive capital is only cosmetic.
Ah so you're assuming that the plan would be announced and everyone would also be 100% confident that it would play out on that timetable? I was thinking more of a gradualist policy where you just try to start by shifting taxes off improvements and on to land, and collect the same amount, then work your way up from there. I'm not sure the expectation would be immediately capitalized at 100% under that scenario.
(by 100% I mean, not perceived as a guaranteed 100% LVT in X years).
That is what I assumed. If you are more gradual, then I would imagine what is capitalized would be the probability of the government some time in the future collecting a 100% LVT.
I would be on board with this (assuming that the deduction passes with the land), but doesn't the compensation eat most of the revenue, so we're no longer able to use it to replace other taxes and/or fund a citizen's income? You're then really only taxing increases in land value (or land rent).
Yea you'd still need to have taxes on labour in capital as the deductions are being used up. It would be a phase out, but with all the immediate incentives of a LVT
Ya the most important part of Georgian isn’t the tax benefits it’s the way it affects property pricing.
THIS I thought this was my own idea but I’m happy others are spreading the gospel.
This is an implementation problem that has many solutions. I think most commonly we support some sort of tax abatement/deferral/rebate, which would obviously not allow people to devest in properties late in life to make all their money back, but it would prevent them from having to pay the LVT. You also don't need to go from 0 to 100 tomorrow, it could phase in over a period of time, lessening the impacts.
People's homes are their most valuable asset, commonly, and destroying that would be economically devastating, but to right an unjust system there has to be a transition period.
Where this does get complicated is with minorities and gentrification. Lots of African Americans tend to be land rich and cash poor. Ideally a Georgist system would result in significant reductions in poverty, increases wages, cheaper rents, all things that would help the Black community, but might initially result in a bumpy road.
If a new community was incorporated, could it use Georgism from the start?
Can you get people to invest in a brand new community if they can't capture the increase in value of the land?
If so, great, we should do it. If not, this is a fatal flaw, and we should never do it.
Yes, you can. Arden, Delaware was founded as a Georgist land trust community. But it got corrupted by NIMBYs.
There are several other examples, I think Lars includes some more later.
My case studies are unfinished because these three articles alone took five months to research, but I'll get to it eventually.
> Ideally a [X] system would result in [good things happening to everyone]
This is the slogan of every minor political party ever: everyone should support us, because we are better for everyone! (Which quickly leads to its close cousin, people who don't support us are idiots and must be forced to do so.)
Arguably this is the slogan of every political party ever, at least from my observation.
Most Georgists recognize that going to a 100% LVT right away would be madness- it would totally destroy an entire economic sector and probably send the economy into a crash as not only individuals but banks lose assets (the financial sector is heavily invested in land). So any implementation- even in fantasy- should be gradual, with compensation to keep things stable. Many Georgists have proposed tax credits in order to help out people who would otherwise be stuck with mortgages on worthless assets and smooth the transition to taxation on land values. This means that a land tax would bring in less revenue for a while, of course, but that is well worth the cost to most people.
In reality however any shift to land taxation is going to be piecemeal anyways, because real politics is too complex to allow you to just wipe away tax codes and replace them overnight.
A full write off in land value taxes of purchase price adjusted for inflation would be the way to go.
If you look at the centuries of jurisprudence debates on the foundations of property rights, it is quite easy to see that on a moral level, every time a landlord collects rent on their land values, they are "stealing" from the tenant. Preventing this is not stealing from landlords, it is simply preventing them from continuing to steal from the rest of society. And in anticipation of you suggesting that landlords have mortgages to pay - no they don't. If you have to pay a mortgage, you are also a tenant. Every bit of land on the planet has an absolute owner, whether it be a landlord or the bank collecting the mortgage interest.
> "If you have to pay a mortgage, you are also a tenant"
Maybe in some philosophical sense, but probably not in the sense that you wouldn't have to pay the LVT.
When designing the LVT, the philosophical is paramount. Thus the tax should be levied on the beneficial landlord, not the legal landlord. So if someone has just committed to a massive mortgage, they have a liability to a bank. That makes the bank the true land lord, as they have the right to foreclose on the property if the payments are not made. It is right that making the owner pay an entire land value tax would be unfair, as they still owe money to the bank. The bank should be charged LVT on any outstanding mortgages they have dished out. They are the ultimate winners in the current land lords game.
How *exactly* do you phrase the tax law then so that it always charges the "beneficial landlord"? Does the tax burden shift to me as I pay off the mortgage (if so, this would suck for me)? What if I paid off my mortgage by taking out some other loan?
To ease the transition we could indulge the bank to get payed, but allow the owner to deduct the mortgage payments from legacy contracts from the LVT so he doesn't have to pay twice. This is kind of a fading in, but many benefits like blocking speculation ale in place immediately, an there is no haggling about how fast to fade out as it is already in the contracts.
> If you have to pay a mortgage, you are also a tenant
No you're not? If you're paying the mortgage, you have 100% equity in the land/house price; any increase in the value of the house benefit you, not the bank. That's not the case for any tenant who's just renting.
Isn’t it a core of Georgism that the lumping together of “land/house” is incorrect? A Georgist landlord owns the house and is exposed to changes in its price, but the land they effectively rent from the state and an increase in its value makes them neither richer nor poorer.
"Every bit of land on the planet has an absolute owner, whether it be a landlord or the bank collecting the mortgage interest"
Or the government, collecting tax.
I'm prepared to evaluate just about any policy on an empirical basis, but if you're a business who puts in the resources and expertise needed to build an office skyscraper or a set of high-rise apartments, then you're going to need some method of recouping that investment. Charging people a fee to live or work there, at least on its face, seems like a reasonable way to do it.
If you want to argue this eventually allows for indefinite recoupment of a finite initial investment, or that a tax scheme could be put together to better reflect the real social costs of land ownership, fine. But to me this argument that "rent is theft" feels about as reductive and absolutist as the libertarian line about "taxes is theft".
Georgism involves taxing the value only of the *unimproved* land. So building an office skyscraper on the land would *not* increase your taxes, and is therefore not discouraged.
Right, I'm just responding to Richard's remark that any form of rent is inherently a kind of theft.
I suppose I'd be mildly concerned about whether this would create perverse incentives to distort the valuation of land, but I suppose you could say as much for evaluations based on type of improvement. I'm not terribly familiar with the nuances there, maybe the former is harder to game than the latter?
I do think that it can produce perverse incentives (I have another comment laying out my argument for this). But I think that it should be the case that taxes on the underlying value of the land create many fewer perverse incentives than a tax on the full value of the property.
A tax on the value of something creates perverse incentives by discouraging you from investing in improvements that increase the value of that thing. If you are talking about the full value of the property there are lots of ways to do this- building basically anything on the property or improving what is already built there will increase the value. However, these improvements will increase the value of the stuff built on the land and not the value of the land itself.
If you want to increase the underlying value of the land, it is possible to do by making that location a more desirable place to live. But the things that you do to accomplish this (like having good schools or job opportunities nearby or having good public transit and other city services) are generally not the type of thing that the individual land owner would be the one paying for.
One thing Henry articulated very very well in his mayoral speech is that taxing land value cannot reduce the supply of land. It also cannot be passed on to the end user. This is because land is eternal. A tax on anything that requires a human decision, will reduce the availability of that thing, and thus the end user will have to pay higher prices to ensure it is produced. There is no logical disincentive for an LVT. It is a unique tax in that way.
Funny, I think that some tax absolutely is theft. The libertarians are right, in a way. If someone like Monet was forced to give 2/5 paintings to the state, just because they commanded it, that is no different from slavery/theft. The important concept to understand is that some things are available to all, independent of human labour (land), and some things are a direct product of human labour.
> every time a landlord collects rent on their land values, they are "stealing" from the tenant
No. No, they aren't. The tenant has already received services, namely shelter for the time period in question. That's like claiming a doctor is stealing from you when they bill you after they've provided services.
Actually, now that I think about it, even committed Georgists think that the tenant should be paying for their housing. If anything, they think that the landlord is stealing from the government.
No, it is different because 100% of a doctor's services are human created. Whereas when you rent something, part of it is landlord created, but invariably part is natural and has been arbitrarily taken from the commons. Henry George wrote a letter to the pope, saying if Cain and Able were to divide the world between them, that would be a valid and fair contract between them. But if they were to refuse access to the next born man, it would be to murder him. And if they were to demand a rent from him for access, it would be to make a slave of him. In contract law there is a rule called privity. If someone is not part of a contract, it cannot bind them. So on that logic, the next born man cannot be bound by Cain and Able's agreement, unless he agrees (and would ask for compensation). The whole history of property law runs counter to this very important principle. It is not a consistent philosophy of law. The land-less should be compensated with taxes from the landed.
A) doesn't this argument also say that anyone who wasn't alive at the time of the founding of the US cannot be forced to abide by its laws? Shouldn't it also imply that all property rights are invalid? Actually, under this logic isn't Georgism also invalid? I never agreed to only use property if I pay money to the government.
B) under Georgism the tenant would still be paying for his lodging. At worst the landlord is stealing from the government not the tenant.
The builder provided the house. The power company provided the power. The water company provided the water. The trash company provided waste removal. Etc.
Which service exactly did the landlord provide? Besides profiting from artificial scarcity...
What service does a car rental company provide?
If the land was there a thousand years ago, then how does the landlord provide it? It shouldn't be so hard to grasp that land is not provided by landlords.
Because our society has decided to solve organizational problems involving the use of land by way of property rights. By those rules, the landlord has the right to decide who gets to occupy the property in question and you are paying him to assign that spot to you.
I agree that there are other methods that society could use to manage land scarcity, but this is the one we ended up with.
I mean we could also have ended up with a system that lacked any kind of property. Why should I pay you for a car when the materials that the car was made out of existed well before you came along.
Could the policy apportion the land value tax such that mortgage lenders are on the hook for the mortgaged fraction of the property value?
Of course you could word the law this way, but if you suddenly implemented 100% LVT, most of the lenders would probably go instantly bankrupt and thus be untaxable.
They are already unneeded anyway, since they get free money from the Fed, not from their customer's saving... so who cares?
Even if a similarly successful system could be implemented without private banks in the long run, having all of them suddenly go bankrupt seems like it would be very likely to cause a financial collapse in the short run.
Look up the history of Jubilees. A financial "collapse" is a bit like a Jubilee. The wealth don't want it, because it ruins their income streams. The reason the poor suffer in a collapse is because governments bail out the rich at the expense of the poor, rather than proclaiming a jubilee. See Obama's bailout.
Phase it in gradually on a schedule over the course of 10-30 years, then, as others have pointed out. Plenty of time for banks to adjust their balance sheets and loan offerings. *Any* sudden drastic change to the tax code would cause chaos andwe should avoid that, but that doesn't mean we can't make the same change slowly on a predictable schedule.
That happens either way, with AnthonyCV's proposal you just skip the step where everyone with a mortgage goes instantly bankrupt, after which the banks still go bankrupt when no one can pay off their underwater mortgages.
Brilliant idea. I have been trying to help people realise that the ultimate beneficiaries of land rent are banks... the average home owner is shooting themselves in the foot by voting for strong land lord rights (unless, of course, they happen to own a bank).
> One thing I don't quite understand about Georgism is: who is going to compensate landowners for the massive drop in the value of their land that would come from suddenly subjecting it to enormous taxes?
Who is compensating people for the income taxes they pay? Who is compensating people for being born into different levels of wealth -- including specifically inheritable land?
This is just an generalized argument for status quo, which doesn't even try to defend the validity of status quo.
If this were ever implemented, which it won't, I imagine the best way would be to phase it in over multiple years.
Under non-Georgism, who will compensate tenants for the last few decades of being gouged by rentiers?
Jill Biden
No one, but since that's been the status quo for so long and everyone expects it and has planned their financial lives assuming it, I don't think there's much cause for that to be the factor that stops us from causing a financial disaster.
That said: once everyone *knows* it's coming to an end, any rentier that tries to get their last licks in is likely to find much stronger opposition than they would today, I suspect.
Randomly steal money from people? Or randomly put a stop to their continuous theft from the public?
Owners of stocks and bonds don't get compensated when taxes and capital change. That said, one also lives on land, and outstanding debts are A Big Deal - there's really no reason this needs to be implemented all at once. It can start at 1% and increase 1% per year until it hits 85% or so.
Georgism on the Omnibus podcast, now here. Henry George is a man being recognized more and more!
> Everybody needs land, but nobody can make any more of it. You can't work, eat, sleep, or even poop without access to land
Everybody needs time, but nobody can make more of it. You can't work, eat, sleep or even poop without access to time.
So why not tax time, instead? This would reduce to the Universal Basic Tax, everybody pays the same amount per year (currently about $30K/year for the US) for the privilege of living in a given country.
It would have no deadweight loss, but it wouldn't have the benefits as far as I can tell either, since there are no speculators on time to drive away
But it would drive away those who are unable to pay $30K/year, which would have enormous ongoing benefits.
But income tax penalises those whose productivity is higher, which is completely backwards from what we want to do. We want to encourage high-productivity people to live in our society and discourage low-productivity people.
In my country we have a joke how outlawing poverty would help make everyone rich.
I guess this is an American version of it.
Except he's probably not joking.
This was actually the communist way of solving unemployment; no kidding. Unemployment was considered a crime; if you didn't have a job and couldn't get one, you went to prison. (As a side effect, this also solved homelessness.)
Realistically, of course, if you wanted to avoid prison, you simply accepted any job the government offered you, at any salary. Problem solved. (If you were politically inconvenient, the only jobs the government offered you were the ones that ruined your health.)
It does sound pretty funny but the basic statement is still pretty obviously correct AFAIK. Raising taxes on something discourages it. Income tax means that the 1,000,000th dollar of pre-tax value you generate is worth less than the 1st dollar of pre-tax value because the 1,000,000th dollar is taxes at a higher rate. Income tax depresses productivity more than just the marginal rate would imply as a result. This is what is meant by "income tax penalizes productivity".
It sounds like this is something pretty unrelated to Georgism then.
I'm far from convinced that driving those people away would be net good, besides that
Citizenship based on the ability to pay a fixed fee. Sounds like a good premise for a dystopian fiction novel.
Definitely no deadweight loss, but this tax would be super regressive, and also is explicitly banned by the US Constitution.
I assume you're talking about the 24th amendment? That only prohibits gating the right to _vote_ on paying a poll tax, it doesn't prohibit gating the right to _reside_ on paying a poll tax.
Ah never mind. It was based on a misunderstanding of the clause about direct taxes.
So is land value taxing on the federal level.
I think this *can* cause deadweight loss when local governments are now much less likely to want to fund improvements (since these improvements would not only cost money but *also* increase their residents' tax burden).
Their residents will be able to pay the tax from the productivity boost caused by the improvements -- the same productivity boost that would increase the land rent (and thus tax).
Not all improvements that increase the value of land lead to increased productivity for the residents. Building a nice park nearby could increase property values while having a negligible impact on the residents' salaries.
If land values are increasing because of an improvement, then I guess productivity in that locality will increase either by improving existing residents' productivity or attracting more productive residents to that location.
Sorry. No deadweight loss only if you couldn't escape by leaving the country slash renouncing citizenship slash not being able to pay.
A couple of reasons. A land value tax is great because it has no deadweight loss, but that's not the reason Georgists advocate for it. For one thing, time isn't rivalrous- I don't get time by excluding other people from it. Georgists are mostly in favor of land value taxation because they assert that land rights are common, and so if you want to exclude people from land you must compensate them for it, as they would have had that right if you did not occupy it. Time doesn't have anything analogous.
There is also not time speculation, and this nonexistent time speculation does not cause economic recessions like land speculation does, so a time tax would not have that benefit either.
Of course time is rivalous - time that someone else spends cleaning my house is time I'm free to spend on something else, and time they can't use to improve their situation. Slavery is the equivalent here, which is that someone owns 100% of someone else's time, and we abolished that so it's actually if anything an argument for fully dissolving land rights.
But you're corrrct that it's pretty hard to speculate on time.
Education has a chance of increasing the future monetary value of a person's time. So it can be considered an improvement, at least: you spend money to improve a thing, then it yields more money than it otherwise would have. The thing in this case is a person's billable hours. So it seems like college loans are time speculation.
That is a truely bizarre comparison. The point of a tax is to collect and distribute wealth fairly. Since everyone uses exactly the same amount of time, there is no point in collecting its value and redistributing it. However, not everyone uses the same amount of land, or land with the same utility. It is for this reason that the people who use the more valuable land should compensate those who therefore are unable to use it. This is the purpose of market rent prices, those who want to take more, must pay more. Those who want to take less, must pay less. The same can't be said for time. You can neither take more, or take less.
> The point of a tax is to collect and distribute wealth fairly
That's a socialist point of view. I thought the point of a tax is to pay for public goods. Since everyone benefits from public goods equally, everyone should pay the same.
If you think everyone uses public goods equally, you have a pre-school understanding of society. And along with that comes the pre-school conclusion that everyone should pay the same. I am not sure if you are just trolling, but how on earth can a 12 year old pay the same as the CEO of a multinational bank? And how does someone living out in the bush, who walks everywhere, use the same services as an importer who owns 1000 trucks and is constantly suing people in the courts?
> how on earth can a 12 year old pay the same as the CEO of a multinational bank
The same way a 12 year old pays the same as a CEO for a Frappuccino or a Buick or country club membership or every other damn thing in society.
(Actually children probably get reduced-rate country club membership. If we're really stuck on the children thing then I think it's reasonable to have the tax cut in at the age of eighteen or even twenty-five)
Good job answering only one part of the question - I am much more curious about the answer to the other two, much better points. Thank you Richard for the contribution BTW.
I don't think "everyone benefits equally from public goods" is a good justification for Melvin's time tax, because it's not true. But the fact that the time tax isn't proportional to usage of public goods isn't necessarily a knock against it, either, unless we know of some other tax that would do better. Would a progressive tax do better? I'm not sure, but my instinct says no.
This is called a poll tax, and is one of the worst taxes.
Also, time is non-rivalrous and non-excludable.
This is not a poll tax. A poll tax is a tax that you only pay if you vote. This tax you pay if you are alive.
"A poll tax, also known as head tax or capitation, is a tax levied as a fixed sum on every liable individual (typically every adult), without reference to income or resources."
Straight from wikipedia. You are probably thinking of the American type that is explicitly forbidden.
The name is also explained in wikipedia: "The word "poll" is an archaic term for "head" or "top of the head"."
Except that by being based on possession of land, that would be necessarily in reference to resources.
I don't understand what you are saying? Could you make it clearer for me?
And if you can't pay you get shot? Probably you go underground and live as a illegal. This prohibits you from exercising your citizens rights like voting but more fundamental ones like access to the legal system even if your human rights are violated. So if you can't pay you are basically outlawed and can be killed or enslaved. So this is worse than being taxed for voting, but it includes it.
I could at least understand a “head tax” of this sort if you named a more reasonable number. But the 25th percentile for US income is $33K, so you would be taking almost all of the money from a quarter of the population. And that’s not counting their children, who I’m guessing aren’t contributing to the percentile statistics.
My guess is that your 30K number comes from taking the US budget and dividing it by the working US population, so assumedly this wouldn’t correspond to an increased safety net to deal with the fact that 1/4 people would no longer be able to afford to eat.
And before we say that we don’t need “low productivity” people, imagine if suddenly all janitors, servers, most cooks, clerks, and more suddenly left the nation. My guess is we would have problems
> Everybody needs time, but nobody can make more of it.
At the risk of taking the ludicrous seriously: assuming an increasing population, neither the total number of global hours nor the number of man-hours per capita increases, but the number of man-hours definitely does. Or alternatively, the total number of hours per capita likewise decreases. An hour is a pure public good per Stiglitz's definition above, and a man-hour is l̵i̵k̵e̵ labour. Neither is land.
I could vaguely imagine a system where global hours are made *like* land in that an individual can have property rights over actions taken in that span of time, collecting rents upon people who use (???) either something fixed like January 3rd 2025 or recurring like 2:15 - 2:30 pm on Wednesdays, and in those situations a Time Value Tax would make some economic sense. But, uh, that might not be the best approach.
(Unless you throw viable time travel into the mix - *there's* a premise for a certain kind of niche audience.)
Everyone owns the same amount of time, so it would be a wash - we tax everyone $X, then give everyone a check for $X, minus administrative costs.
Is uhm, time distriuted among us like land is? Cause if it is, then maybe I'd like a time value tax.
*distributed
But seriously I don't get the argument here.
Good article, thanks for writing it.
When comparing an LVT (and in particular an LVT that soaks up all the imputed rent on the land) to any other form of tax, I think a bit more attention is necessary on what exactly we want from a tax and why. Usually these discussions seem to start and end with "LVT is non-distortionary, therefore it's optimal". But a non-distortionary tax is optimal only with respect to the narrow goal of maximizing economic activity. Most people have some values other than that, and would probably agree that the state should also have some values other than that.
In particular, one effect of an LVT is to heavily penalize owning land and not using it for the maximum possible revenue generation. This is clearly economically beneficial, since it encourages land to end up in the hands of those who can generate the most income from it. But it reduces the value of land to only its economic dimension, and the median landowner -- usually, a homeowner -- is barely participating in the economic dimension of land use at all. (E.g. only a small percentage of homeowners are also landlords, or farmers, or otherwise directly generating revenue from their land.) An LVT that captures all land rents has the effect of turning all homeowners back into renters again, complete with the renter's lack of security in their domicile -- the risk of eviction by a landlord is replaced by the risk of increased local land values creating an unsustainable tax burden. This seems like a substantial social cost, with bad implications for family formation, local community, time preference, and so on. (And it's not like these things are in such very great shape now that we can afford to burden them willy-nilly.)
None of this is necessarily a defeater for the idea of LVT -- some of the suggested benefits seem very significant. But this discussion seems heavily dominated by boosters talking up LVT in comparison to the current system; I rarely see any talk of what the costs of LVT would be, and that's a major omission.
>and the median landowner -- usually, a homeowner -- is barely participating in the economic dimension of land use at all.
This is false. Just because money isn't changing hands doesn't mean homeowners aren't receiving an economic benefit from land ownership. The savings on rent are imputed income for one, plus the appreciation in land value, and the higher freedom and right to modify and use the property as you wish. It's like saying buying a house to live in is a bad investment because you're not directly getting any revenue from it, under the current system.
As far as those social costs go, long-term leases at least partially ameliorate them. Under the current system, if you want housing security for 20+ years you buy a home with a fixed-rate mortgage, and under a future Georgist system if you want housing security for 20+ years, maybe banks can insure against LVT increases.
> This is false. Just because money isn't changing hands doesn't mean homeowners aren't receiving an economic benefit from land ownership.
This is a good example of the kind of Economist Brain that conflates wildly different things together so you can do math on them, then insists there was never a difference between them at all.
No, imputed rent is not actually income. Duh. The fact that you can construct a synthetic framework in which imputed rent is a line item with the same sign as actual income doesn't mean that the two act remotely similar in the real world. Likewise, the optionality of being able to modify your property, while very nice to have, is not an income stream.
If you describe an LVT as "taxing all land rents" it sounds reasonable, as if it's just an income tax on landlords or something. But if you suddenly turn all homeowners back into renters again (by imposing a monetary tax for which they have no monetary income to compensate) you're actually hurting them, in a qualitative way that doesn't get captured in economic statistics.
> If you describe an LVT as "taxing all land rents" it sounds reasonable, as if it's just an income tax on landlords or something. But if you suddenly turn all homeowners back into renters again (by imposing a monetary tax for which they have no monetary income to compensate) you're actually hurting them, in a qualitative way that doesn't get captured in economic statistics.
Sure, but the (implicit—it's often completely forgotten that George wasn't just talking about optimal tax policy, but moral property rights owed to all of us in the first instance) argument is that no individual has an inherent claim to land or natural resources; ergo, we owe others payment (i.e., rent) for excluding them from using those things.
The blunt answer is that we ought not care about the tax burden "hurting" with respect to land. If someone is incapable of compensating others via LVT (e.g., their income is too low, the land has suddenly outpaced one's income due to discovery of precious natural resources), then tough shit; land is to go to whomever can, at the very least, bear the price of excluding others from it, and thus who is (likely) to make the most productive use out of it.
It's true that this cuts against most contemporary folks' intuitions re: property ownership (a full 100% LVT would de facto eliminate the concept of property, with everyone being mere stewards, or whatever term best approximates 'long-term renter' without being pejorative), but hey: moral reflection will sometimes lead us to reject intuition in favor of principle!
If you start seizing people's homes because they can't afford to pay a 100% LVT on land they bought 40 years ago, they'll either implement Prop 13 or shoot you
There could be special rules to avoid hardship, like reductions for self used living space, or tax deference if it would cause poverty otherwise.
Sure, there's a further pragmatic argument to be had about the implementation of an LVT, but that's separable from the initial moral question of whether it's justified and ought to strive to implement it. I think we are, so we should develop timelines of how to implement the strongest LVT we can.
I'd rather be a home-owner effectively turned into a rentier by an LVT than a regular old rentier
Right, which is my intuition.
I do think that LVT would cause some potential major cultural shifts, especially related to densification. But I see them as primarily positive ones. Humans are social creatures, sprawling suburbanization has done nothing but separate us from one another, make us spend hours a day inside a car, remove us from easy access to all the things that make life easy and enjoyable.
I don't think home security would be much of an issue. Perhaps living in the exact same place for a long time would be less common, but being able to find SOMEWHERE would be really very easy, in my opinion.
And at the end of the day, rural/suburban living would not cease. And the land ownership would likely be very stable, as the land would not have a large demand and therefore very low LVT. (And then again, as suggested, a UBI would help even more.)
> Perhaps living in the exact same place for a long time would be less common
I think you might be underestimating how destructive that might be. Stability of community is a *huge* factor in making many people's lives "easy and enjoyable", and one best not ignored.
Communities are already constantly destabilized and suburban sprawl has already largely destroyed what is even means to be a community by stealing hours and hours of our time every week, spreading us out, and reducing common centers of activity that build community.
I don't know if LVT would fix all that, I think it would definitely help. I'm very sensitive to the way that LVT might impact the way we interact with one another and I think its would lead to a massive benefit, overall.
My point about people living in the same place was not about instability, it was about the ability to have increased mobility, since we're not sinking such massive amounts of equity into a home and productivity can be more flexible to the needs of the community, meaning people can take advantage of mobility to provide for themselves economically. UBI of course would help with risk taking.
A homeowner through their labour contributes to using land efficiently so long as they pay the tax and find the value they gain from being a homeowner worth the cost. On top of that, land rents *ALREADY* exist, especially for homeowners who have mortgages. The landlord that is collecting the land rent in this case is the bank with their interest.
I think that a big problem with this discussion is that the word "rent" has been massively overloaded.
I feel like the Georgists are trying to pull a swift one by asserting that all these related-but-not-equivalent concepts should be called "rent".
They are in economics referred to as economic rent. I mean leave it to economics to come up with ass names. What are we to do?
I mean, that version of word rent exists before our common term, so is it really economics fault?
Rent before modern economics referred exclusively to economic rents?
Wages are return on labor. Interest is return on capital. Rent is return on land.
If I plant a wheat field, selling wheat is my return on labor. If I use a tractor to save time, the additional harvest (since I could farm more wheat in the same amount of time) is interest. Rent is the amount of money someone could lease the land to me for. Could also be thought of the increased value that I could sell my wheat for by being close to a port or people or bread factory or whatever, over another wheat farm that is farther away.
This makes sense except for one thing. Under an LVT, the rent/mortgage/tax (whatever we're calling the equivalent) can change massively with land price fluctuations, and will tend to grow fairly quickly, at least in terms of a person's lifetime, regardless of the economic wellbeing of that person. In fact, retirees may have significant issues staying in even a crummy home outside of desirable areas. I get that shoving unproductive retirees out of economically growing areas is one of the intended side effects, it's just a rough one.
I'm also quite concerned with the idea that someone can build a economically valuable building near another person's home, and suddenly price them out of their home due to increased land value -> increased LVT. It may be economically beneficial for society as a whole, but it's also a great way for a rich jerk to force people off their land.
I'm not convinced. A citizen's dividend and government programs can make it easier. There are tax deferment/tax roll-ups that can be instituted if need be. Property taxes in place already have this issue and I fail to understand why property taxes would be okay but not a land value tax even though property taxes are taxes on labour too! I wouldn't ever want to force people away from their homes which is precisely why I would support a citizen's dividend.
I consider a citizen's dividend a completely separate discussion. If we did go with Georgian taxes, we may very well want to create an offset, but that doesn't make it an inherent part of LVTs. I would also be very interested in an examination of how the citizen's dividend affects the ability of LVTs to cover our tax needs, as per a lot of the author's discussion of the benefits of having LVTs. It's hard to argue that an LVT can cover 40%+ of our expenditures and then separately argue that we should spend a significant portion of those taxes making up for the shortcomings of LVTs when it comes to residential housing. You certainly can't continue to say that we'll be able to cover 40% (or whatever number) of our current spending in that case.
Georgism is not only the LVT, it is taxing away economic rents. Land rents just happens to be the biggest one. Another source of economic rents are intellectual property, but that is a different discussion.
Another big thing that is a part of Georgism is that economic rents belong to society so the Georgist remedy necessarily *must* include a Citizen's Dividend (CD).
>It's hard to argue that an LVT can cover 40%+ of our expenditures and then separately argue that we should spend a significant portion of those taxes making up for the shortcomings of LVTs when it comes to residential housing.
It isn't useful to discuss what land values are today because implementing a land value tax and removing all other taxes would raise land values tremendously as ATCOR and EBCOR (Excess Burdens Come Out of Rent; deadweight loss caused by inefficient taxes come out of the surplus of rent, very similar to ATCOR) kick into action. What Lars is doing in this article is showing that land is still a major part of the economy and nothing to be dismissed away as "19th century irrelevant philosophy".
But on the other hand, why would someone be entitled to buy a piece of land when it’s cheap and, when other people’s labor improves the area, to enjoy that at no additional cost?
I would agree that someone buying an unimproved lot with the hopes that nearby land gets developed and goes up in price (Las Vegas perhaps), is also not fair. I'm honestly not sure which way happens more often, but suspect that there would be a lot more average or poor people negatively affected by getting outpriced due to an LVT than the richer people who speculate on land.
You mean tenants? They already have to pay for land value!
I mean people who own their own houses.
I think we'd have significantly more stable urban design under an LVT. If an urban area was expanding, then you'd expect an increase of value at the edges proportional to the increase in population, but it wouldn't likely be some massive boom, since the boom/bust cycle of land speculation wouldn't exist.
Combine that with significantly more economic potential over a lifetime with no taxes on capital or labor, and I'm not super concerned with retirees being kicked out of their home.
Some have also postulated that each urban area likely has its own inherent geometric curve that defines the maximum possible land values and therefore the maximum size and shape. For example, if we built as densely as possible, eventually buildings couldn't really get taller without significant marginal decreases (really tall buildings have footprints that are mostly useless to foundation support and elevator shafts, etc, etc). This is largely defined by the geographical situation of the city and the geological surface on which we can build.
All that to say, places like Dallas Fort Worth are likely not to be some mostly flat sprawling are around a few dense areas, but perhaps localized densification all through the sprawling metro area, again, enhancing stability and making the scenario you propose less likely.
This could be avoided, if the LVT of plot is only changed when the use or owner changes.
So if you buy a house for your family and live there your LVT will be set according to the land value when you buy and it won't change as long as you keep it in the same use and you don't apply for a recalculation. So you don't have to worry if you surrounding changes for the better.
But as soon as you would financally benefit from increased land value, the tax is recalculated so that you can't profit financially from the increased land value and thus from speculation.
So if you start to lease a room or the whole house to some tenant land value gets assessed so you only profit from your improvements, not from the land value. Than LVT staiys stable again until something changes. So you don't have to increase the rent for your tenant just because of land value. But if you want to change the rent, the LVT is recalculated so that you will only keep your part of the rent for the building, maintaining and managing of the place put nothing from the changed land value.
If you sell your house you the price of the house is yours, but for the land you cant keep anything more than what you payed when you bought it. So you profit from your work and investments, but not from the value of the land.
One possible solution is to allow a homeowner to convert the increase in taxes on the land his residence is on into a loan that will be paid when the property is sold. Something like this is planned to be possible with property taxes in Denmark.
"Make everyone explicitly a debtor of the government" does not really sound like a great solution to the problems associated with "make everyone explicitly a tenant of the government".
Given that this already puts most mortgages underwater since the original mortgage included the land value which will not be included in the sale price, I don't think making it even more impossible to sell that property is much of a solution.
Isn't this already the case with property taxes though (at least where I live- I guess this varies widely)? My own property taxes went up enough last year to put a palpable squeeze on my finances because home values in my neighborhood are rising sharply. It's already "like we're renting from the government", as my mother in law is in fact fond of saying.
You could add security by only setting or changing the LVT for a given plot only when there are legal changes. So as long as you live in you house the LVT can't increase, only if you sell or lease (part of) it, LVT is recalculated.
This is Proposition 13 all over again.
What do you want to say with this? This is the first time I heard about 'Proposition 13' and just had a quick look at Wikipedia, so please forgive me to for not knowing what this stands for in this discussion.
Property taxes were unpopular in California, so they passed a law that property valuations could only go up by a tiny percent each year.
So millionaires [1] are sitting on $2 million homes and paying taxes like it's worth $100,000, while their neighbor pays full freight to fund the schools and other community services, and paying extra because the millionaire[1] is not.
The people may not like the precise house they're in, but the tax bill stops trading of housing.
It's voting for "low taxes for me, but high taxes for the people who aren't here yet," so you can see how it's popular, but lots of popular things are incredibly stupid.
[1] literally, their house is worth over $2 million
I'm not sure that I agree with the claim that a LVT has no associated deadweight loss. I sorta see the argument for the claim: since your land value isn't based on improvements, it cannot change and therefore nothing you do can change the amount of tax you pay and so the tax has no effect on economic activity other than to redistribute money a bit.
But thinking about it a bit more, just because we talk about the value of the land without improvements doesn't mean that the value cannot be changed by human activity. The land in SF isn't super valuable because it is next to really valuable natural features (though that is a small part of it). It's valuable because it is situation near a bunch of other man-made stuff like Silicon Valley. The vacant lot in SF isn't valuable because of what is built on *that* lot but because of what's built on the lot next to it.
And sure, if you don't own the nearby land, maybe this isn't so much of an issue, but I can think of a few situations where a huge LVT might cause people to make what would otherwise be suboptimal economic decisions.
For example:
1) A town is trying to decide whether or not to build a new park/school/stadium/public transit system/etc. Normally, people would be for this. However, residents note that this improvement would increase the value of their land and thus the amount they would need to pay for the LVT. Furthermore, the LVT would mean that they couldn't even afford to sell the land for any more money to escape the taxes. So they decide against the otherwise-optimal improvements.
2) An oil company offers to for free test whether or not there is oil on your land in exchange for giving them first shot at negotiating for drilling rights if they find anything. Great deal right? Not if there's a full Georist LVT. If they discover oil, your taxes will suddenly increase by the exact amount that drilling for that oil is worth. You need to let the company drill just to break even, and suddenly you have to deal with all the extra noise and everything else from the drilling operation. The only reason you'd want the oil company to check is so that if they don't find anything you can prove to the tax collectors that your land definitely *doesn't* have oil, which might marginally decrease your tax bill.
1) In this case, "the land value increasing" means that the parcels will be able to generate more revenue (enough to cover the additional tax burden). Possibly the previous use will no longer be appropriate, and perhaps the landowner will have some loss aversion to change, but in principle they should be able to be compensated by the aggregate increase in land value.
2) In general, if there's a full LVT (incorporating mineral rents), there wouldn't be any incentive to search for oil at all (people would pursue the intensive margin exclusively, and not the extensive margin)! If we are to believe that pursuing the extensive margin is still worthwhile, we'd have to incorporate some sort of "finder's fee" in place; presumably this would compensate both the searcher, as well as incumbent users of land who are in any way inconvenienced.
1) How will they be compensated by the aggregate increase in land value? A really full LVT that captures the full value of the rent means that all land is worth $0. The rents that you can earn from it are exactly cancelled by taxes you would have to pay on it.
Only if the pool of taxpayers paying for the improvement is the same pool that is getting the citizens dividends. If the improvements are paid for by the local government but the dividends are paid out nationally, it's still an issue.
So I take the money out of one pocket (pay the full LVT on the full rent) and put it into another (get my Citizen's Dividend). In that case, can't I just cut out the tax and keep the money in the original pocket?
They're implicitly compensated by improved infrastructure and public goods; if truly *rational*, someone with tenure over a land parcel would choose to pursue some important infrastructure (let's make it unambiguously very positive and say it's laying a modern sewage system) instead of being broadly conservative.
We could go further and make *explicit* compensation to affected users of land (in proportion to how much inconvenience they incur, why not): giving residents and businesses some form of stability as their city undergoes change is a valid form of public good as well.
They are not compensated as much as they would have been if there were no LVT and that is what causes the deadweight loss.
Suppose that building a new park would cost me $90 in taxes, but would increase the value of my land by $100. Without an LVT, I would vote for the improvement. However, with an LVT the park would also come with an increased tax burden of InterestRate*$100 or so, which pretty quickly turns my $10 gain into a loss and so I vote against the park.
Thus, a park which produced a net public benefit of $10 doesn't get built and there is a deadweight loss.
https://en.wikipedia.org/wiki/Henry_George_theorem
This is actually one of the criteria for deciding on public investment. If the public investment doesn't increase rents more than it costs, on aggregate, then you shouldn't build it.
This is true so far as the utility of a public investment is directly reflected in land values, which seems to be mostly true, but you could think of something for which that isn't true, like maybe preserving an historic building. This isn't deadweight loss, this is just the community democratically deciding to do the less economic thing.
So I haven't seen a formal statement for this theorem. But I guess it makes sense if you think of the government as an independent actor that acts primarily to maximize its own net income.
But if the government is a thing that is voted for by voters, you could have issues. In my scenario, sure the government would make money on building the park. It would cost the government $90/voter to build but the present discounted value of the revenue it generates would be $100/voter.
On the other hand the voters (who elect the government) who are actually paying this extra $100/voter might see it differently.
Hmm... though I guess the other voters in the city might be benefiting from the extra government revenue. This maybe works if improvements are only made by the government.
But fine scenario 3:
I have a great plan to decrease my taxes. I pay my neighbor a bit to set up a machine that plays loud music at all hours and to build a bunch of eyesore sculptures. This is pretty clearly a net negative that wouldn't have happened otherwise.
OK. Maybe a more serious objection. The Henry George Theorem only applies if the government collecting the LVTs is the *same* government that is making the improvements.
Imagine you live in a city of 1,000 people in a nation of 1,000,000 people. The national government supports itself on a LVT and the city government uses, say, a sales tax.
The city is planning to build a park. It would cost $90,000 but increase the value of land in the city by $100,000. Now a resident of the city tries to evaluate this plan:
* The park costs them $90 in increased sales tax
* The park increases the value of their property by $100
* The park causes them to pay an extra $100 in LVT
* Of that $100 they paid, they get $0.10 back in dividends.
Overall, this citizen is down $89.90. The local citizens overwhelmingly vote down the "build a park" measure.
I mean I guess in theory you can solve this by having the federal government finance all local building projects, but this leads to issues with locals overestimating the projected value of the improvement in the proposal stage. Also, these kinds of decisions usually should be local.
Isn't that increase in your land value coming from the utility the park provides? If I understand this, the park raises your annual tax burden by (say) $5 because that's how much more someone would be willing to pay to live in your town after the park is built. How is that deadweight loss?
It seems natural that your vote to build it depends on whether you'll enjoy the park yourself, rather than whether it will increase the sale value of your home.
This would be your decision making process is there was no LVT. However, with a LVT you also have to take into account the fact that if the park gets built, your taxes will increase by $5, cancelling out the benefits you would get from having the park built. This might cause you to vote against the park and not building the park (a thing that would have provided net value) would cause a deadweight loss.
I don't understand why the value of land would be $0. You'd still want to buy land if you want to use it wouldn't you ?
But the tax on owning the land is exactly as high as the value that you'd get out of it. The tax would be high enough that the person who most wanted to use the land would be *indifferent* towards owning it.
2) Norway has exactly this policy. Norway has huge taxes on oil *extraction* (a form of LVT called a severance tax, when the "Land" is question is a depletable natural resource), but enormous subsidies on oil *exploration*. The entire system was set up by an Iraqi Immigrant named Farouq Al-Kasim who was dead set on saving Norway from the resource curse that haunted his homeland of Iraq.
I work in energy infrastructure in Europe, and this fact is new to me - what brilliant design.
It is! Farouq is a very humble and quiet guy who doesn't promote himself much, but he was recently elevated with a Knighthood of the order of St. Olaf for his contributions. In an interview some other oil policy experts said that if it hadn't been for the policy paper he pushed, they would likely have just the international oil companies do whatever they wanted.
My understanding is that it's a fixed large amount per barrel extracted, (fixed is normal, large is not), such that it incentivises maximising the efficiency of the extraction rather than pumping out as much as possible - and that it's worked, insofar as Norway still has lots and lots of oil money and the UK pissed away the money from its share of the North Sea oil
Yes this is correct as far as my (not yet finished) research has indicated so far.
What do you mean by "the parcels will be able to generate more revenue"? The land on which I live in does not generate any revenue, it generates a benefit to me (the ability to live in a nice place) at an equivalent cost to me (the full Georgist LVT), in effect renting the land on which my house sits. If the surrounding infrastructure improves, I get to live in a nicer place so my benefit from the land increases, but I also pay an equivalently larger increased LVT for that - so in effect my "rent" has increased, and the only place where revenue got increased is the tax revenue.
On the other hand, the value of my "property" (land+house) did not increase - the house is the same, and the proper value of the land - the net discounted future rent minus the net discounted future LVT - is zero both before and after the improvements.
This motivates me to support the improvements if and only if I want to pay for all the increased value (not cost!) of these improvements in increased LVT; even cheap/free infrastructure improvements (such as repealing a stupid local restriction) would increase what I'm paying in LVT.
As for 2, mineral rights would usually be treated separately from general land value- they are treated under severance taxes, not under a land value tax. Severance taxes are also taxes on economic land, but specifically on natural resource extraction- for oil and minerals, but also for such things as orbital slots, broadband internet, and even more broadly water or topsoil use.
Some Georgists have proposed breaking a general 'land value tax' into a more specific 'site value tax,' which would only tax location value (proximity to jobs, amenities, utilities, the ocean etc) while having the physical properties of land itself all be covered by severance taxes.
> However, residents note that this improvement would increase the value of their land and thus the amount they would need to pay for the LVT.
This is flawed thinking because of two things: (a) public goods, investments, and improvements usually go where there is a demand for them; and (b) land values increase proportional to the benefit received by the public goods, investments, and improvements. If you are family in a neighbourhood where the nearest public school is 15 minutes away, and in comes the government and says that they are considering building another school that is more like 5 minutes away, will you tell me that you would turn it down because of a high tax bill? The benefit of that school is apparent, and if you singularly don't think it is worth it, likely your neighbours will. And if it is extremely unpopular regardless, then the benefit likely didn't exist in which case land values wouldn't have gone up anyway.
> If you are family in a neighbourhood where the nearest public school is 15 minutes away, and in comes the government and says that they are considering building another school that is more like 5 minutes away, will you tell me that you would turn it down because of a high tax bill?
I mean if we have a 100% LVT, then the government is going to raise my taxes by *exactly* what it believes the value of the closer school is. So, yeah, it's pretty likely that I will think that the increased taxes aren't worth it.
> I mean if we have a 100% LVT, then the government is going to raise my taxes by *exactly* what it believes the value of the closer school is. So, yeah, it's pretty likely that I will think that the increased taxes aren't worth it.
Then you have a problem with government, not with Georgism. Plus, there are many impartial methods and even market mechanisms that can be used to evaluate the value of a particular plot of land. No need for reliance on an army of government surveyors. I can provide links, but Lars already said in this post he will be soon covering this topic.
Huh? My problem isn't that the government is improperly assessing the change in value. If the government *properly* assesses the increase in value, I should be theoretically *indifferent* to the change. The increased value I get from the school should be exactly cancelled by my increased costs in terms of taxes.
But if in addition I have to face even minor inconveniences due to the new school, my kid has to switch schools or roads are closed due to construction or some extra tax money needs to be raised to pay for it- I can pretty quickly go from the indifferent column to the opposed column.
You assume that valuations are rigid and don't account for these. A land value estimation will be an approximation of the true land value at any given moment, and that in itself has a lot of subjective value built into it. There are the risks and such that are priced in that discount the overall value. A market value will have all these taken into account. On top of this, if you live in a jurisdiction with property taxes, the same "issues" apply even though in reality, building a school in a neighbourhood is never blocked because "my property taxes will go up". I am laughing even believing such a thing someone might say. Like imagine a homeowner literally going to anyone and saying "yeah, I'm not in favour of a school going up near my house because oh my god, my taxes will go up some 5-25% and that is completely unacceptable". This doesn't happen today under a property tax regime, it won't happen under a LVT regime. And what is the alternative? A tax on income? Sales? Capital gains? Corporate? Those are far worse! Those are directly taxing labour and capital!
A jurisdiction with property taxes has a small fraction of these issues. Property taxes are for something like 1% of the land's value. A full LVT would be like 5%, and that factor of 5 makes a huge practical difference.
As it stands, there *are* people worried about gentrification. Worried that improvements to the neighborhood will price them out of their homes. When these people are homeowners, I don't have a lot of sympathy because being priced out of your home looks like your property taxes increasing beyond what you can pay thus forcing you to sell your home for several times what you bought it for originally and having to move somewhere else. In exchange for being forced to move you at least get hundreds of thousands of dollars in compensation.
With full LVT this doesn't happen. With a properly implemented full LVT the resale value of any piece of land is exactly the value of the house built on it and nothing more. If neighborhood improvements mean I can no longer pay the tax and am forced to move, the value of my house has not gone up any. Also, since the tax right is much higher than property taxes usually are these days, it is much more *likely* that such an improvement will price me out of the neighborhood.
Also, I am not arguing here that other taxes are better. I am arguing that the claim that LVT doesn't produce deadweight loss is wrong.
In practice, a lot of places have directly said "No, you can't raise taxes on people just because the value of their land went up, we intrinsically value people not being taxed out of their homes more than we care about economic efficiency"
If you're not even *thinking* about things like old people getting priced out of the homes they've lived in for 30 years, then what possible chance do you think this has?
The more interesting problem is the heterogeneity of benefits. Suppose we have a neighborhood of 30 households, half with school-age kids. If we build a new school, the half with kids will be better off. But if we assess the increase in value and tax all the houses with access to the school, then the households without kids will be worse off: they'll be paying higher taxes for living in an area with better schools, but won't be benefiting from those schools.
Maybe you say that this is good, it encourages them to move away and let more families with kids move in. But that just ignores transaction costs. It costs a lot of money to move, and very often there are reasons why one particular house is more valuable to one person even when other people might not value it such. E.g.: it's the house you were married in or the one where you've got the kids' height marks scratched in the walls, or your best friend with kids lives next door, etc.
A lot of towns already confront this in a lesser form. At least in my state, property taxes are how the town - and therefore primarily its schools, usually a big chunk of expenses - get funding. This often pits parents and children against older people on fixed incomes who don't see a benefit to them from the school system, and for whom moving would be a serious hardship. (LVT would definitely exacerbate the dynamic)
"If you are family in a neighbourhood where the nearest public school is 15 minutes away, and in comes the government and says that they are considering building another school that is more like 5 minutes away, will you tell me that you would turn it down because of a high tax bill?"
If I'm not making enough money to be able to soak up the higher taxes, I would. A new school meaning my taxes go up 50% meaning I can't afford to turn on the heating would certainly make me go "let the kids walk or cycle or take the bus to school". I mean, this is also part of it that doesn't seem to be considered, and it's the argument over gentrification. Suddenly the value of houses in the old neighbourhood go up, because better-off people are moving in and converting it into a vibrant, creative, trendy scene, and now the working class who used to live there can't afford the rents any more.
Your wages are not likely to stagnate as society around you improves. Like how can it be that a city's economy is booming and land values are rising but the people living on land where land values are skyrocketing don't benefit?
This is also a gentrification argument and I am unconvinced of its merits. Instead of making a better society, people would rather it be worse off because they might then have to pay more to retain the exclusive right of land? This isn't a problem any normal person would have.
Gentrification is a transitory issue that's really just the negative consequence of maintaining an quasi-apartheid state in urban centers, where minority families have become land rich and cash poor, as a result of perverse city policies.
All the other cascading impacts of Georgism would do much more to help the "victims" of gentrification than what the current system does, which is continue to provide them low quality public housing, low wages, and little opportunity, because still being kicked out.
Regarding (2), it is of a lot of discussion among Georgist on how to deal with non-renewable natural resources. Suffice it to say that there is a wide range of answers with the simplest being (1) value the land before any potential discovery to find the LVT; (2) let prospectors do their job; (3) if anything is found, a flat tax can be applied on the extraction of said resources; (4) regardless if there is any resources or not, the tax bill for that owner won't change. There are some more complicated approaches that try to iron out the kinks, but in all honesty, I don't think this is a tremendous problem with the idea of the LVT. Most rents derive from location and not non-renewable natural resources.
1. None of this implies there is dead weight loss.
2. You are trying to make the increase of the LVT as a perverse incentive, because land owners might oppose it. I think the opposite: it is a good incentive, because you are incentivizing the governments/municipalities to increase land value. They can say "we will improve tax revenue x% by by building a subway." That was always the draw. It's kind of neo-cameralist, actually.
1) How is this not a deadweight loss? The park if built would have provided a net benefit. If it doesn't get built, that's a deadweight loss.
2) I mean this makes sense if you think of the government as a completely separate entity that decides whether or not to make improvements based on whether or not they increase its net revenue. But that's not usually the case. Usually the government does what the voters want. If the voters don't want a park, the government is going to build one, even if it is in the governments "interest".
The only way it doesn't get built is if the aggregate rental increase is less than the cost to build it. How it impacts an individual matters less than how it benefits the whole community.
And in that case, since there would be a net negative to the community to build it, it isn't a deadweight loss by it not getting built.
Deadweight loss isn't usually described in those terms, anyway. Its really about marginal transactions. I would buy oil for 10 dollars a barrel and a guy would sell me a barrel of oil for 10 dollars, but he can't, because it costs him 8 dollars and the government is taxing 4, meaning the transaction doesn't happen.
If I'm willing to spend 10 dollars on a park, and it's going to take the government 12 dollars to build the park, that's not a deadweight loss, unless the government could build the park for 8 dollars without an LVT. But it can't, because the rent exists with or without an LVT. That's the whole point.
It doesn't get built if the value it provides to residents is less than the cost to the residents to build/maintain it PLUS the cost to the residents from increased LVT.
It should get built if the value it provides to residents is less than the cost to the residents to build/maintain it (without the extra LVT term).
If the LVT changes you from the latter case to the former, there is a deadweight loss.
Here this *marginal* park produces $10 in value, and only costs $9 to build. However, the residents vote it down, because it also increases their taxes by $10, thus meaning that they would get $10 of value at the cost of $19.
No, because the cost to build it is recouped by the LVT.
I pay you 9 dollars to build my park. Then I take 10 dollars from the community, because that's how much value the park created. Then I repay the 9 dollars and now I have 1 dollar to give back out to everyone equally or invest in something else.
Now, in the other case, if I build a park for 9 dollars and the aggregate value of the community only goes up by 8 dollars, then I have just wasted people's money. That's not DWL.
That's what I meant by the Henry George Theorem. In a Georgist society, all public expenditures should be evaluated by their likelihood of producing as much value in land as they cost initially. That isn't to say we shouldn't do anything that wouldn't be equal in value to its cost, but it would require more burden of proof.
There is a real world example of this: https://capx.co/who-wins-gains-how-capturing-land-value-can-revolutionise-our-infrastructure/
The Jubilee Train Line in England cost 3.5 billion dollars, creating 13.5 billion dollars in property value increase along the train line. Of course that got captured privately, rather than returned to the public coffers.
This only works if the government building the improvement is the same government collecting the LVT. If there is a federal LVT but the park is built by a city government that gets tax money from some other source it doesn't apply.
I don't know where you live that you think governments reliably do what their constituents want them to do
OK. I guess if you would rather model land improvements as being things that the government decides to do completely arbitrarily, we would have huge deadweight loss based on the government being completely arbitrary, but no additional deadweight loss due to LVT.
Unless you have a better model of how local governments make decisions that you'd rather use?
But what would fund the improvements? LVT itself! So the question posed to resident taxpayers will effectively be: would you like to pay for these things to be constructed? Which is exactly the right question to ask.
Is the proposal then that all levels of government are funded entirely through LVT? If so, how is the LVT divided between different levels of government? I think there's an issue if say, the federal government funds itself with a full LVT and this forces the local government (who usually is the one paying for parks) to fund itself some other way.
An interesting question. Perhaps, to avoid bureaucracy, someone who would like to improve their own land in a way that also improves others’ land should be able to collect those profits the way they collect the profits from their own improvements? Allow them to tap into extra LVT income that they caused? For example, someone has two plots, on one they build a hotel and make a profit directly, on the other they decide to construct a park. The cheaper they make the entry fee, up to it being entirely free, the more this improves surrounding land value, entitling them to the extra tax, recovering the cost of park construction. Not sure how this could be made practical.
I agree. This sort of taxation seems to encourage localities to appear unattractive. Your classic local "protection" from the mafia or the like actually becomes locally pro-social by suppressing land taxes.
Ok. I think you can solve 1 if you fund the local government with an LVT and find the federal government with an income tax which is paid by the local government where you live.
Though you might need to limit things so that a billionaire moving in doesn't bankrupt your town.
As far as I understood the original review, LVT doesn't have to be a fix amount of $ per area and it dosn't have to reflect the maximum possible benefit from a given plot of land. The idea is to tax away all the true, factual benefits someone has by only possessing the land without doing anything.
So if i have a house and lease out some apartments and the rents from my tenants raise only because the area gets attractive and everyone is competing for the available space, this increase would be taxed away. But if my tenants don't pay more, because they have a long running contract, I don't practically profit from the rising rents all around my building, and so my LVT won't increase.
Same with the oil: If there is oil discovered under my garden and nobody drills it up, i don't profit from the fact that it is there, so my LVT doesn't increase. If the oil company gives me some money for the right to drill in my garden, this is income just because i own the land, so this would be taxed away 100%. If the Oil company deals out compensations for the inconvenience of noise, smell and vibrations to the affected residents everyone can keep it as it is not about ownership but about living location.
I think the LVT is usually supposed to be based on the profit that could be earned from the *best* possible use of the land, not necessarily the current use. You shouldn't be able to get out of paying extra for the oil on your land just because nobody is currently taking advantage of it.
Also allowing you to pay less because you contractually cannot raise rents opens loopholes. I can avoid paying any tax by paying someone to take ownership of my land but signing an agreement to let me live there rent free forever.
> I think the LVT is usually supposed to be based on the profit that could be earned from the *best* possible use of the land, not necessarily the current use.
It's definitely not current use. It's just that the 1 acre parking lot is supposed to have the same tax bill as the 1 acre skyscraper next to it.
The fair and blind way is to just calculate the value of the land, decide that someone can get a cash flow of 5% from that, and then have them pay that 5%.
There's the 85% LVT people who say it should be on 85% of the land value, because they still want a little bit of trading and speculation for price discovery.
But you can put your thumb on any of those numbers. Pay 3% of 100% of the value, or 4% of 50% of the value, or whatever.
This is a good analysis. But I do want to offer a bit of pushback:
The value of a plot of land should be the difference between the cost of constructing a building on that land and the value of the completed building (the most valuable one it makes sense to build). Empty land doesn't offer much value to the user, but completed buildings do.
Since the 1960s/1970s, big cities in the US have put in place a system of zoning and development rights that determines what can get built. Scarce development rights are the limiting factor that prevents new buildings from getting built. It's common for land to be quoted in cost per buildable square foot, which is a function of the development rights that come with the land. A large plot of land zoned for a low rise building might be worth less than a small plot where you can build a skyscraper.
In New York, you can even trade development rights (commonly called air rights) on a limited basis so you can build super tall skinny towers around Central Park. Air rights are really expensive these days - hundreds of dollars per square foot.
In fact air rights are so expensive, it seems like what we really are talking about when we talk about the value of land is actually mostly the value of development rights. However, development rights are just a totally made up thing, and if we let people just build what they want tomorrow, development rights would become worthless. Land would still be valuable but probably not as valuable as it seems now. People would build a ton of new buildings, and it would push down the value of new and existing buildings closer to the cost of construction.
I think your analysis is right but if the goal is to make housing less scarce and cheaper, it would seem easier to just loosen restrictions on new construction, rather than keeping housing artificially scarce and then taxing land & development rights to pay for government. The latter just seems like Hong Kong, effectively.
I guess my main takeaway is it is confusing to conflate land and development rights by calling it all "land", as we commonly do these days. I think they are economically different things - land is a real constraint, and development rights are totally made up.
Property rights are ultimately rights for a bundle of uses; the right to occupy, the right to exclude, the right to build on top of (a right that can be subdivided into many fussy details), the right to destroy, etc. You're absolutely correct that permitting regimes (some of them very silly and counterproductive) affect the value of land, but I don't think it's correct to say that *some* of these bundled rights are "real" and some are "fictitious": they're all fictitious in some way
So under a Georgist regime, if I want to reduce the value of my land to reduce my tax bill, the best way to do it is to petition the local government to make sure that it's zoned for exactly what I want to do with it. If I want to continue to live in my nice single-family home on a quarter-acre block, I need to go super-hardcore NIMBY to ensure that my area stays that way.
Yes, I think it's fair to say that LVT introduces some incentives towards exclusionary policy: this is best addressed by explicitly pursuing meta-policies that work *against* exclusionary principles (and after all, it's not as though regimes that operate in contradiction to georgist principles (Prop 13, anyone?) do particularly well in incenting anti-exclusionary behavior)
I believe this is actually the background to Prop 13 - I think the old property tax system was based on the highest and best use of the property and so ultimately some people were going to have to sell and move to be able to afford the taxes on their homes. Prop 13 of course went the opposite way entirely.
I think a cartel that strictly limits the productive use of land goes beyond merely "affecting" the value of land - I am saying that if you look at prices now, it's clear that you are mostly paying for cartel membership and the intrinsic value of the land (sans the cartel) has little to do with it.
It's true that technically all rights are fictitious but in most contexts, cartels are illegal.
The entire exercise of attributing cash flows to land versus rights versus improvements is something best left to the private sector. Anyone who has spent time looking at RE deals knows that each deal has different cash flow considerations. The idea that the land value is an objectively knowable thing that a government civil servant could figure out is wildly unrealistic. And if LVT is going to hammer the owner with a tax that's 75% of this value that can't objectively be measured, then you're going to have a lot of cases where LVT exceeds the rents by a wide margin.
So tell me about the last time you went to your county or city tax assessor and got them to correct an assessment. Was that "easy"? I've done it twice and it took over a year both times. And who pays the tax while there are no buyers for the overtaxed land? I'm very skeptical you have experience on the operating end of a RE asset.
You're going to have to show your work on how this assessment exercise is somehow going to be trivial and fair when the tax burden is literally 75% of your profit. On the private equity side, I can tell you that rents on CRE office space varies drastically. Maybe a manufacturing plant or highly specialized build outs next to vacant land might lend themselves to easier analysis.
Also, a 75% tax gives you a 25% margin so it's the opposite of a wide margin.
Property assessment can be done by computer programs. There is no reason to use humans at all.
There is a simple reason to use humans: those programs do not write themselves. And once the programs are written, they are seldom that precise for messy real world business stuff such as real estate.
Yes, I'm not making a point about LVT specifically - I'm just making a broader point that the author says taxing land will encourage development (presumably so that landowners can afford the tax). And I am saying the main thing preventing development is the fact that development is usually illegal.
Oh yea. I generally agree with that. Regulatory burden for development is huge. NYC and SF are particularly bad but it's a key work stream of any RE deal I've ever seen or be involved with.
Yes Georgists agree, we are broadly against zoning regulations, at least as they are applied now. They are also some of the worst causes of land speculation.
I think we all agree on zoning as it is applied now is almost the cause of land speculation / housing shortages.
I am just trying to point out that this essay is trying estimate the value of all urban land, and a lot of the value of urban land *today* is attributable to zoning or development restrictions (onerous environmental reviews and taxes on development and affordable housing requirements and so on). That's why land value is so concentrated in a few cities - those are the ones that have strict development restrictions.
If you torpedo development restrictions, you will probably torpedo a lot the value of a lot of urban land, before you even implement an LVT. Because "land" is really land + development rights.
By analogy, imagine there was a government sanctioned donut monopoly and there was one donut shop in each city that sold donuts at $3 a pop and raked in monopoly profits from the Homer Simpsons who needed their fix.
If you analyzed the donut industry, you might conclude that donut shops are really valuable. But of course that's not what's going on, if you take away the monopoly, donut shops will not make much money - in reality, you would want to separate the value of a donut shop in a competitive environment and the value of the government granted monopoly. If you buy a donut shop in a monopoly regime, you are effectively mostly paying for the monopoly, the ability to gouge donut consumers. You probably don't care about the oven and the display case.
It is hard to separate the true value of land from the value that the zoning regime gives to landowners through inflated rents, but I think you have to do so to come up with a reasonable estimate.
This is the most sane and nuanced comment in this entire thread.
100% correct. There's so much baked into "land value" at the parcel level. I'm sure you can do interesting analysis when you aggregate a ton of parcels but every parcel is different, has different easements, rights, risks. Parsing out the costs/value of each of those would be quite difficult.
It might actually be easier to get to the land value by working backwards from the cashflow side but that doesn't sound simple either.
That doesn't strike me as realistic. Even Japan which has very lax zoning rules has a high proportion of land in assets. Even with no zoning the right to exclude someone from a piece of land is very valuable.
Right, but you can just look at the Rognlie chart cited in the essay. Housing is flat at 3%-5% of national income pre-1970 and then rises to nearly 10%; probably that is entirely due to development restrictions and zoning put in place in the 1960s/1970s, and probably very little to do with anything else, such as a desire for much fancier houses. If you reverse that by allowing development, you presumably take away more than half of your proposed tax base, at least when it comes to residential land. (That does leave you commercial and industrial, but I think those are generally smaller.)
Land is valuable, but I think if you're trying to figure out what % of govt you can plausibly fund with a land tax, that is a pretty big piece. Your tax base is the % of national income that goes to landowners, so any policy that takes 5%-7% off of that is going to be a big deal.
> If you buy a donut shop in a monopoly regime, you are effectively mostly paying for the monopoly, the ability to gouge donut consumers. You probably don't care about the oven and the display case.
This isn't such a theoretical. Municipal liquor licensing leads to a similar situation, especially when the license is tied to a street address.
No we don't generally agree.
To be clear, the 100% LVT is on rent/imputed income/appreciation for that year. It isn't 75% of the sale price once or 75% of the value every year.
Part III is about valuation and I believe it makes a pretty good case for why its very possible and reasonable to value land and separate land from improvements.
A 75% hit on cash flows = a 75% hit on fair market value. A 100% LVT = a complete wipe out of the asset price. Real estate is priced on a multiple of cash flows - much like every other asset besides commodities, crypto, and tech (for now). If the government captures all those cashflows, then why would there be any buyers?
I can tell you right now that any exercise that tries to attribute fair "land value" will not be practical at the parcel level. I know it's unreasonable because I've done RE transactions at various scales and there's no way in hell I could parse the land value from everything else unless the land was wetland and the value was zero. This is something you can talk yourself into at a high level but when you start looking parcel by parcel - or deal by deal in my case - it's far too imprecise to try to base a tax on. Especially if that tax could very easily exceed the cash flows generated by the asset if you get it wrong. I don't think you have a sense of the variability of even something like commercial office space rents within the same block of a large city.
There would be buyers because the economic opportunity afforded by the location is still real. Even if my land doesn't appreciate, I'd much rather have a bagel shop where there are 10k customers than one where there is 5.
Valuation is a problem to be solved, but that's Part III of the article. I don't think its as impractical as what you think. Some of the things that cause variability are just government policy, like rent control, zoning, etc, etc, and Georgist would be in favor of abolishing all those things.
Without most of those, the variability should decrease significantly. And then valuations should be able to be largely determined by regression analysis, backdropped by auctions and audits.
Let's suppose there are two empty land plots for a potential bagel shop where one has 10k customers and the other has 5k. What would the difference be worth for your bagel business? If the location alone would allow you to make $X more each year in the first location, then the appropriate rent for that location would be $X larger there, and with a full LVT, the LVT would be also $X larger for that location, so that no, you would have no economic reason to prefer one location over the other, as all the benefits of the particular location would be captured by all of the society through a Georgist tax.
This is a good complaint, but isn't it also a complaint for traditional landlords? If I'm really successful at a particular location, they can up the rent on my business until I'm back to the drawing board.
You're right. The better response to him would have been that land would have a demand because products and services have a demand and land is required to bring a product or service to the market, which is what creates the underlying value.
In Australia, that is how landlords make money. Rezoning political favours. Buy it cheap, and wait for the rezone.
Basically the same here. Developers lobby for upzonings that will raise the value of their properties - see SoHo/NoHo right now in NY. The key to the game for the developers is that development rights are scarce - otherwise there would be no value in getting the political favor, and anyone could build.
That's really whitewashing the situation.
Upzoning is a drop in the bucket compared to exemptions for regulations that exist entirely for the sake of making it impossible to build without explicit permission. San Francisco has a much simpler building code than anywhere else because the board has the right to just say no.
The other challenge I have with this analysis is that current land use restrictions are already preventing land owners from making their land maximally profitable - they already want to build more and are being prevented from doing so! I don't understand how an LVT actually accomplishing anything.
Which song from Mary Poppins?
Did you mean to include a link there?
I read a draft of this article, and can confirm that https://www.youtube.com/watch?v=XxyB29bDbBA was intended to be embedded at this point
Sorry, fixed, this was my fault and not Lars'.
There's some discussion of this below, but I'm going to make my standard objection to Georgism. The ideal of Georgism, as this article points out, is a 100% tax on land rents. Econ 101 tells us that the value of an asset is the present value of its future cash flows. Georgism taxes away all those cash flows; it is therefore confiscating the entire value of the land. It is total government land confiscation by another name, and it is therefore not much wonder that it has not caught on.
Huh? The typical landowner is a homeowner who paid 200% of their life savings to buy a house. Those "cash flows" are the value they get from living in that house. Sure, that house has value mostly because of the work of others making that area valuable. That's probably why the homeowner bought a house there rather than somewhere else. But a lot of that value had already accrued before they paid for it. What exactly are they stealing?
But a new homeowner would make very little profit by selling their house (unless property values had changed massively since they first purchased the property). And a homeowner with no intention of selling their house would still be hit pretty hard by the tax.
The typical land owner, yes, but pretty small in the grand scheme of land value.
This is a land value tax, not a land amount tax, or a land tax per head.
I think it's still a pretty substantial fraction. First google search result I found for "what fraction of the value of us property is by homeowners" gave:
https://www.statista.com/statistics/375884/share-of-homeowner-equity-in-real-estate-usa/
which suggests that about 2/3rds of the tax will fall on homeowners.
This doesn't explain why it's bad -the logic behind eminent domain already acknowledges the government owns the land. Most humans instinctively understand that land is common. Who owns the moon, right now, today? Why?
If the government implementing Georgism means effectively immediately confiscating all land, 1. How are current landowners compensated and 2. Why wouldn't a landlord just walk away from the worthless land entirely and stop paying taxes on it? Then you just have the government charging rent directly from tenants based on arbitrary valuations because there is no longer any free market for land because land is worthless because you can't derive income from it
Anyone who is actually providing a service rather than purely speculating on the value of the land to go up (i.e. landlords who do more than just collect a paycheck) would continue making money. Anyone who is simply speculating will lose money, that's built into the design and it's the whole point of implementing this tax.
re: "The free market"
I'm sure Lars will get into it, but you can have a market to determine how much the land tax is worth so that you can optimize the tax using market principles.
> Anyone who is actually providing a service rather than purely speculating on the value of the land to go up
The problem is that there's no principled way to distinguish between those two things in a way that lets market forces continue to operate. You wind up with an overly-regulated market in which prices are essentially fixed by bureaucracy. Reference the former Soviet Union to see how that worked out.
> there's no principled way to distinguish between those two things in a way that lets market forces continue to operate
Thats the entire point, you can distinguish between providing something of value and merely owning land and seeing monopoly rents by separating the land value from the improvement value.
Sidenote: Saying "hey lets have some regulation" is a far cry from going fully Soviet Union. The market will function just fine in a Georgist world.
>Saying "hey lets have some regulation" is a far cry from going fully Soviet Union
Agreed. However, this isn't "some regulation". This is abolishing property rights in a fundamental way. It would have terrible and far-reaching consequences.
The "anyone" here is a pretty strong word. With a 100% LVT it would be true if the assessed value was always precisely equal to the actual land value. If the assessment is imperfect or not updated frequently enough, there will be plenty of people providing services who would lose money and businesses because of the tax. And while some "simple speculators" who buy and hold land will lose money, the speculation will just stop being simple and will turn to a complex arbitrage of valuation and tax regulations.
That's why you need a market to determine the value of the land on a semi frequent basis. Also remember that in a Georgist world the price of land might go up or down, as opposed to our world where it can only go up. If the market always goes up it not much of a market.
I assume the pricing mechanism will be addressed in part 3.
of course you can derive income from it, you just derive income from the capital portion of your property
if i own 500 apartment units, i will continue making money based on the value of my apartment units (which are capital, not land).
Current landowners cannot be compensated for Georgism to work. All the value of Georgism to the government comes from taking the value of the land from the current landowners.
This isn't true is it? Assuming the basic Georgism thing to be right, even if you compensated every affected land owner 100% it would then shift the incentives to stop things getting worse from now on wouldn't it?
No one owns the moon because it's worthless or nearly so. If that ever changes, the Moon treaty will find it has a lot of opposition. The proliferation of fences, deeds, no tresspassing signs, and the like indicate that most humans do not believe that land is common.
It indicates that humans are selfish certainly, yet that has nothing to do with whether land is actually common or not.
Eminent domain (at least in the U.S.) also includes the principle of fair compensation for a government taking of private land.
I disagree that eminent domain in that framework "acknowledges the government owns the land". The governmental right is an option to purchase at fair market value for public use, which is not economically equivalent to ownership.
> Most humans instinctively understand that land is common
They might have understood that, until the invention of agriculture, at which point land ownership, and respect thereof, suddenly became a very important and urgent problem.
Even hunter-gatherer tribes, which didn't have any form of land ownership at least had an idea of tribal territories.
Nobody currently owns the Moon. But if the Moon becomes economically productive, we'll have to have a discussion about how to divvy it up. If someone wants to implement Georgism on the Moon then that's fine with me, it's only here on Earth where people like me have already spent their life's savings buying a house for their family that I object to it.
> it's only here on Earth where people like me have already spent their life's savings buying a house for their family that I object to it.
I hope this doesn't come across as rude, as I don't intend it to be, but: why do you think you're entitled to a piece of land *without* compensating others, via government taxation, for excluding it from use?
I get the emotional point—you've put work in and it's a common social expectation/ideal that one eventually wind up owning a home, with some land, outright—but *other people* could be using that same piece of land you're on, and it's not as if you or I were born with the (moral) right to own XYZ piece of land.
Because first arrival is morally arbitrary with respect to determining *ownership* rights of land? See "On Original Appropriation" by P. Vallentyne for a brief description of the varying views on what establishes a moral claim to land/natural resource ownership.
I have no issue with the use of initially unowned (i.e., natural) things without consent/compensation; what I take issue with is the assertion of an *exclusive moral property right in perpetuity*.
My view is that continued excludable use, occupation, etc. (the bundle of rights associated with "ownership") is subject to paying rent to everyone else, or whoever the relevant members of society are (i.e., payment of a land value tax). The most plausible method of doing that is government collection and distribution of said rents.
In the US, just about every acre of land that isn't owned by some sovereign-ish government (federal, state, or tribal) can have its chain of ownership traced back to purchase from or grant by a government. A lot of it was sold directly into private hands by the federal government, and a bunch more in the late 19th century was granted by the federal government to compensate private entities for providing public goods (particularly the Land Grant Colleges and the railroad land grants). There's also land in the East Coast and Southwest states where ownership can be traced by to colonial land grants (issued or sold by the English and Spanish crowns respectively), but there the same principle applies.
Basically, the government sold, bartered, or gave out the right to exclude others from the land to the original private owner under mutually agreed terms. That right had been sold or inherited several times since, but the rights to sell and bequeath ownership were part of the original deal as well.
Similarly, in England, all land belonged to William I by right of conquest, and anybody who now owns land could in theory trace their land right back to a royal grant, by which the Crown alienated its right to receive the rents. If the Crown now asserts its entitlement to the land rents, it would derogates from its previous grant.
An objection to this might be, "What right of conquest!? William I just stole the land and so did the US federal government." Leaving aside the practicality of righting a millennium old wrong, if that's right then the Crown (or federal government) definitely doesn't have a right to the rents! The land rightfully belongs to whoever is the heirs of the Saxon (or native American) owners.
If the Crown (or federal government) was entitled to the rents in the first place, it was entitled to alienate them, and it has. If it wasn't, then it still isn't. Either way, it is not now entitled to the rents.
I don't know that any of this really matters: if LVT works great in practice then bring it on! But I do find the argument that it's a moral imperative entirely unconvincing.
The entire point is that _nobody_ is entitled to the rents. But yes, how exactly to right a millennium old wrong is a big practical issue.
This only addresses the history of legal claims of ownership. What I'm referencing is the *moral* claim to such land, which is what undergirds *legal* property rights.
The moral claim is that the right to the exclusive property rights to the land was sold or assigned by the government. That is, the government had rights to the land and then sold, bartered, or gave it to private owners.
From a Georgist framework where the unimproved value of land is rightfully owned in common via the government, for the government to sell, barter, or assign fee simple or allodial land ownership is equivalent to issuing a consol (perpetual bond), with the rental income stream of the land standing in for consol's coupon payments. I understand how Georgists would argue that alienating the rent into private hands would be bad policy (same as one could argue that issuing tens of trillions of dollars worth of consols would be bad policy), but bad policy is not the same thing as being morally illegitimate, and clawing bad the rent or the coupon payments of the consols via confiscatory levels of taxation sound like an extreme remedy that can reasonably be assailed on the basis of the ancient moral principle of "no takesy-backsies".
The only two ways I can see that that wouldn't strongly imply a moral right to the land would be:
1. The policies or regimes under which the transfer was made were odious and the transfer morally illegitimate in most or all cases. I'm prepared to entertain this as a possibility, but I think the burden of proof should be on you if this is what you are arguing.
2. The government had no right to the land in the first place and thus had no right to sell, barter, or assign it. If you're arguing that this is the case, then I also question the right of the government to lay claim to the lands' rents by taxing them at a near-100% rate.
Did I miss anything?
I get that "I'm going to be really difficult and demand people justify the status quo piece by piece" is a very fun thing for people in a minor political movement to do, and boy did I do it a lot when I'm younger.
But it just pisses people off.
I'm vaguely in favor of a LVT, depending on details, but, yes, I'll stop associating with something if the people involved are jerks.
And, yes, I've already gone through the discussions a dozen other times with "well why should be being a jerk stop you from supporting this obviously good thing" with a dozen other political movements. If your advocates suck this much, there's nothing to worry about because it's not going anywhere.
I don't know what to tell you other than to say that societal progression occurs, at least in part, due to people critiquing the status quo and demanding justification, piece by piece if necessary.
If we can't give a convincing moral argument as to why we continue treating property, land, etc. the way we do, then we need to look to alternative frameworks (e.g., LVT, with the impacts that it would have on ownership rights).
> why do you think you're entitled to a piece of land *without* compensating others, via government taxation, for excluding it from use?
Easy, because that's what I paid for. The land (around here at least) was originally owned by the government, who at some point in the 19th century sold perpetual and transferable ownership of it to some guy, who sold it to a chain of other people, who sold it to me.
The Government already got their cut, as a one-off sum back in the day.
> Easy, because that's what I paid for. The land (around here at least) was originally owned by the government, who at some point in the 19th century sold perpetual and transferable ownership of it to some guy, who sold it to a chain of other people, who sold it to me.
Sure. Though, I'm not asking for the legal-historical chain of what establishes why you have a government-protected legal right over your land and the structures built upon it.
> The Government already got their cut, as a one-off sum back in the day.
Land value changes, and the government can err in policies it implements.
Assuming for the sake of argument that your land value has gone up, and the government were to implement a strong LVT, why do you think that *you* are *morally* entitled to the piece of land you're on if you were no longer able to bear the tax burden imposed by the LVT, even though others could bear such a burden? Presumably, if you realized you couldn't bear the cost of the LVT, you could sell the home and move to less valuable land using the proceeds from the sale.
My point is: legal entitlements and rights don't always correspond to moral entitlements and rights. For example, one might think that individuals have a moral right to do X (whatever X is), but the government legally prohibits X.
He's entitled to it because he - literally - owns the title to it. He wasn't born with the moral right to own the land, he paid money for it. What exactly is complicated here?
He paid money for the *legal* right to the land. Having a legal right to something doesn't entail a moral right to it, let alone perpetually.
Does government own all the land? How did they acquire this property? Can I acquire this property through the same means as the government?
All land is 'acquired' through violent enclosure. Governments are generated when the people within that enclosure decide to pool resources to solve coordination problems, for example: the exclusion of some individuals to nature's bounty.
What if the policy involves reasonable compensation for landowners, or a phase-in over a long enough time period that the immediate economic effects would be modest?
To expand on this, you could make the hit to the property's present value arbitrarily low by phasing it in slowly enough.
So if you were convinced that Georgism was the ideal policy but unwilling to confiscate all property, you could announce a 100% LVT starting 25 years in the future. At a 10% discount rate that's a confiscation of ~7% of all property by present value. Would you be more outraged by this than by a 7% income tax hike?
"Confiscation of property" is a really big red flag for me, so, yes.
Have the Goergists gotten together to do a "LVT city project" the way libertarians tried to do "free state project"? If Georgism can work for the initial building of a town, then it's great and should probably happen everywhere eventually. But if it can't, that's likely a fatal flaw.
https://www.lincolninst.edu/sites/default/files/pubfiles/assessing-theory-practice-land-value-taxation-full_0.pdf
some towns have tried it - i think it could work on an 'individual town basis' if it was a big city, but small towns have had some administrative difficulty - though there are few abject *policy* failures under the LVT banner, and far more modest successes.
most georgist predictions can be incrementally tested, which is to me a huge point in its favor over left wing utopianism
There are various flavors of Georgists that do not require a government or state. Collection of rents can be entirely voluntary, philosophically.
Do you happily volunteer to pay more rent than you're asked for? Personally, it's very hard for me to see what mere philosophical concern would lead me to do that.
I don’t voluntarily pay more in rent, since it’s going to a landlord and not to the public good, but I do happily volunteer to pay more state income tax than I’m asked for. In Massachusetts, there’s an optional higher tax rate and I personally choose to pay it, at no personal gain other than the knowledge that I’m contributing to the society I live in.
Admittedly most people don’t choose to pay this higher tax.
Congratulations, I don't think I've met or heard of anyone else who checks that box! Yes, this does make you a rarity. I think your marginal dollar would be far better off going to various charities than the state, but I genuinely admire and respect your commitment to your principles.
I'm definitely not the expert on anarchist theory, so I'm not the best person to answer this, but my point is that LVT doesn't require a state at all, so it can't reasonably be implied that its some land nationalization scheme, fundamentally.
> Georgism taxes away all those cash flows; it is therefore confiscating the entire value of the land.
Land prices derive from land rents, not the other way around. The exchange value of land is X=(R-T)/i where X is the exchange market value (land price), R is the yearly land rent, T is the yearly tax on the land, and i is the real cap rate. If R=T, you are right that X=0. But that does not mean that R=0.
I'll explain this in another way: let's say that you want to open up that ice cream shop. You can open it in the downtown core of a city where there is a huge market for ice cream but rents are high, or you can open it in the middle of Nebraska where rents are low but not a huge market. Now *poof*, suddenly there is a 100% land value tax. Land prices immediately drop to 0. Does the inherent value of the land in the downtown core go to zero, i.e. is opening a shop there worthless? Absolutely not! In fact, if you were going to open the shop in downtown anyway, you'd likely pay the same rent, if not MORE if there were no other taxes on income and capital. The inherent value of land is made apparent by that amount that you are willing to pay, i.e. the R. The LVT just makes X go down, but ceteris paribus, won't have an effect on R at all.
I didn't say R = 0. I said X = 0. The land isn't worthless; it's just all owned by the government.
What does it mean to own land?
Ownership of anything is a bundle of multiple types of rights, traditionally you can divide them into three classes of 'usus' 'fructus' and 'abusus', where the first is the right to use or enjoy the thing (in case of land, the key part would be making improvements on it and living on it), the second is the rights to the 'fruit' of the owned property which, for land, would include the harvest, rent, charging for entry, etc; and the third is the rights to alter or alienate the property e.g. tear down the improvements to use that land for something entirely different and sell or gift it to others.
Denying the right to the 'fruit' of the land by taxing it 100% is equivalent to taking away a significant conceptual part of the property rights.
But why do you have the exclusive right to the fruit of land?
The simple answer is tautological - I have that right because the land is my property and in the current legal system all three of these rights have been transferred to me from someone who legally had these rights and the right to transfer them to me. In certain arrangements might have obtained/purchased a more limited bundle of ownership (e.g. usufruct), the buyer would pay less for them but get less rights. The notion of property is general and not limited to land - the same principal groups of rights can apply to a building or a machine, and we expect anyone who is the full owner of a building or a machine to have all three of these rights, and someone who has only part of them (e.g. does not have exclusive right to the rent of that building or the production of that machine) does not have full ownership of that building or machine.
Note that I'm not using the world "should" here, I'm talking about "is", not "ought" - if you had asked "But why should you have the exclusive right to the fruit of land?" then I would say that of course it does not have to be that way and we have systems where it isn't that way, however, in systems where I would only have "usus" rights to my land and someone else - for example, the village community or the state - would have the exclusive rights to the fruit of land, then we describe systems like that as saying that the land is owned by whoever has the "fructus" rights and not by those who are using it; there are historical systems where the tenants don't have exclusive rights to the fruit of the land, but in that case we say that this place and time has/had the tenants could not own the land and it had, for example, communal land ownership.
So the assumption that people should not have the exclusive right to the fruit of land is equivalent to stating that individual people should not own the land, it belongs to everyone, and individuals merely use it (which IMHO is an accurate representation of Georgism). But currently I do have obtained a government-sanctioned full property right to certain (small) pieces of land, which includes full exclusive rights to the fruit of those pieces of land, and removing that right would be literally depriving me of a significant piece of my property.
TL;DR - if people cannot obtain exclusive right to the fruit of the land, then we simply say that this society has prohibited private land ownership.
Came here to make the same point - income drives value, not the other way around.
This is part of what Georgists are getting at when they say land is special - if you tax, say, bond coupons at 100%, bonds immediately become worthless and you stop having bonds. If you tax factory production at 100%, factories become worthless and you stop having factories. If you tax land rents at 100%... the land continues to exist in the same quantity as before and you still gain value from having an ice cream stand at a busy corner because you can sell more ice cream.
I'm a slightly wishy-washy Georgist (I see land taxes as part of general taxation policy, and think even a low-ish land tax would be positive), but I am completely bought in to the idea that land is a distinct asset class.
A rent isn't a cash flow. A rent is the portion of the cash flow that is derived from you not contributing to the productive capacity of the land.
The author (and many Georgists I talk to) treat cash flows as if they are 100% rents. But I suspect they are simply conflating the two concepts.
I don't think any Georgist argues this, who actually knows what they're talking about.
Rent is the location value. If I have a bagel shop in Manhattan, I will make more money than one in the desert of Nevada. But only some of that money is rent, some is also return on labor and capital.
Most Georgists understand this, as far as I'm aware.
In economics 'rent' is a very specific term that means 'the return on economic land.' When talking about rents Georgists are always referring to this definition, something that commonly confuses people who are used to hearing about renting buildings or capital goods.
The government already confiscates a couple of hours per day of my time (income tax), 20% of most of the things I buy (VAT), over half of my fuel. If I had enough capital to be taxed it would confiscate a bunch of that too.
The difference is that if you tax 100% of something, then it ceases to be worthwhile at all. A 20% tax on land rents would be substantially different from Georgism, and a 100% income tax would be radically different from the current situation.
It doesn't look, from the topic list and from reading through this post until MEGO, as if any of these posts are going to explain in terms I could understand about how Georgism would actually work. If you're owning land as an investment, yes. But what if you're a not-wealthy person who bought a home back when land was cheap, and now the market has gone way up? Protests against property taxes based on market values, going up beyond people's ability to pay, gave us the Prop 13 rebellion. Why wouldn't the same problem arise with land taxes?
Lars's answer is apparently that you'd get your money back through UBI. Which seems like an awkwardly roundabout way to do it, but never mind. In that case, where is the money to run the government going to come from? Are we just going to soak the rich? I thought Lars says elsewhere that Georgism isn't going to do that.
One point to keep in mind there is I was using only the absolute lowest estimate from the land rents for UBI. If we found the 8% cap rate held with the Federal reserve estimate, or that Smith's estimates are correct, there would be a lot of money left over even after paying out a citizen's dividend.
> gave us Prop 13
This is debarabu. Jarvis tried to push similar laws through several times before but didn't have luck until Serrano v Preist reallocated property tax revenue away from wealthy neighborhood schools throughout the state. Also Jerry Brown put up 1978 Prop 8 which would have given homeowners specifically a break.
William Fischel has several papers on this: https://taxprof.typepad.com/taxprof_blog/files/49ST0535.pdf
https://twitter.com/CGUSAOfficial/status/1460672622153195524
This is a sort of graphical representation for where the LVT might fall. Typically it will be very stable around an urban core. The vast majority of value will be there and therefore land owners there will pay the highest taxes.
Since the tax is a percentage of the assessed value, and Georgists believe assessments should happen frequently, you shouldn't suddenly be hit with a giant tax bill you can't afford. Because you can't speculate in land (100% LVT is equal to the appreciated value of the land), you would expect land values to go up more gradually with the rate of growth, rather than boom/bust cycles that we typically see.
The UBI helps to cover the average or below average land owner, as suggested in the graphic.
Why would not one be able to speculate in land? It is true that there will be little point in buying and holding land, but that's not what is usually meant by "speculation". With a LVT, land will be cheap, so a savvy insider will have a huge edge in exploiting small deficiencies in valuation calculations. Even if the valuation used for LVT is somehow perfect in aggregate, it is very unlikely to be perfect at all times for all properties. The knowledge that one coefficient in the regression model behind the valuation is likely to change in the next review will be extremely valuable and will be used to construct land portfolios that will benefit from exactly that change - that will be the real "land speculation".
Unimproved land values might be much lower than today, but volatility of these values will be likely pretty high, for a simple mathematical reason. Under 100% LVT, land fair value is the difference of two large numbers: capitalised land rent and capitalised assessed LVT. A small change to either of these large numbers which is not immediately compensated by the same change in the other will lead to a large change in the difference. These large changes will feed a huge army of politically connected speculators.
Help me understand this:
1) LTV proposes to tax all the land value which is about 75% of the cash flows of real estate. The other 25% is improvement or whatever according to your sources.
2) The average cap rate today is 5% which means investors expect a 5% return per annum on real estate investment.
If LTV capture 75% of RE cash flows, prices will decrease 75% to meet the 5% cap rate, correct?
So.... what's the game plan on destroying 75% of the RE wealth in the world? Like, every bank will immediately be insolvent and every homeowner with a mortgage will be deeply underwater and probably bankrupt too. There will be no RE liquidity whatsoever. The 75% haircut is just the LVT hit at face value, it doesn't even consider the spiral effects and liquidity crunch.
Besides initiating the biggest destruction of wealth in the history of mankind, what is this supposed to accomplish again? Are you just intellectualizing the nationalization of real estate?
The wealth isn't destroyed, its shifted. Because it's based on a source of wealth with static supply, taxing it doesn't change overall wealth. Right now income taxes, sales taxes, etc destroy wealth too! All taxation takes wealth. Georgists suggest the government should only tax or operate in those domains that have fixed supply, operate as monopolies, or are necessary for human existence (like access to land is).
Because there is no true "competitive market" for land taxing it doesn't reduce innovation or progress in the same way as when we tax someone for building a cool addition to their house, or earning wages.
To be clear* income and sales taxes actively destroy wealth (deadweight loss)
If real estate prices go down by 75% (over any timeline), I promise you that the word "destroyed" will be more appropriate than the euphemism "shifted".
We exist in a financial system capitalized by real estate assets. It sounds like Georgist have some intellectual qualms about... actually I'm not even sure how to parse this political econbabble, but if you want to change how real estate is taxed, maybe tread a little more carefully and understand that we're talking about a cash flowing asset that sits at the foundation of literally every significant financial institution's balance sheet. Writing down the value of those assets to zero should come with a higher burden than having read some books and talking to some random economist in Australia.
Real estate is the largest asset class in the world and has created more wealth for people than anything else. This isn't an area to run some glib "out of the box" experiment because someone thinks the idea is elegant. There's about a dozen adult ways to address issues surrounding real estate and none of them involve lighting asset prices on fire.
Land values arent't "wealth" lol You are talking complete nonsense. If you ripped up the deed to every single plot of land on Earth, the wealth of humanity would decrease by exactly zero, in fact it would increase, as speculators would lose their land to capitalists who seek to develop it.
> If you ripped up the deed to every single plot of land on Earth, the wealth of humanity would decrease by exactly zero
If you ripped up the deed to every single plot of land on Earth then you'd have a massive civil war as everyone tries to assert ownership of every piece of land they think they can possibly defend. No crops would be grown, because nobody would have any confidence in still being around to reap what they sow. Eventually, after most people were dead, well-armed gangs would probably manage to capture enough land to restart some form of rudimentary agriculture.
Interesting that everything you described involved stealing the labor of others. "If all the land deeds were ripped up, someone would steal my house!". But your house isn't land, the house is yours, it is the result of your labor. You have failed to understand the fundamental differences between land, labor, and capital.
Lets try another example. You own a piece of vacant land, and rent that land to Walmart. Walmart builds a store, creates thousands of jobs and millions in wealth. Every month you go to Walmart and demand a cut of that wealth; "Why?", They ask, "We built all this and you did nothing", "By what right can you take what we made?". What response can you as a landlord give? Other than to say "Pay up or I'll take it by force".
Do you see now how capital and labor is separate from land? How you have an intrinsic right to your labor, a right which is fundamentally at odds with land ownership? That land, having been here long before mankind, is not wealth at all, but only a location where wealth can be created?
Is your memory so short that you don't remember 2008? Some large % of real estate value was wiped out and it nearly destroyed the economy.
Just because financial transactions aren't tangible doesn't mean they're not real. The proposed change would destroy countless price signals with knock-on effects that would be impossible to predict. This will never, ever, ever happen. Nor should it.
They sound like me in my early 20s, so, no, I don't think they remember 2008.
the value was wiped out because underlying advancements in human wealth never existed....
It's an asset from the perspective of landowners (including "significant financial institutions", which seem to regularly crash the economy and yet make out like bandits) solely because it's a burden from the perspective of tenants. The very notion of rent rests on the use of state power to redistribute wealth from the poor and middle class to the rich.
Prices will certainly be destroyed across the board, but from a moral perspective, they shouldn't have had an exclusive right to that land anyway. From a practical perspective, this just means that compensation is likely needed to actually implement Georgism.
What moral perspective? This is economics, not philosophy. Morality's got nothing to do with it. The only question is what the economic consequences would be, and they would be terrible. How is that therefore the moral choice?
It will obviously have to go along with a debt forgiveness program, which would leave wealth mostly unchanged except for landowners who don't have a mortgage on their land.
Are you proposing that the government effectively buy all mortgaged land by paying their value to the banks (forgiving individual debts) by printing an unprecedented amount of money or are you proposing that the government mandate that the banks forgive all their mortgages, bankrupting all the banks and every company and individual who has cash in banks?
I mean, most of my money and my employer's working capital is not cash, it's a bank account IOU that is backed mostly by the value of all the mortgages the bank has given out.
Assuming that's all correct, it would then stop it from getting worse for those who don't own land. Which, currently, it still is every year.
Just a heads up everyone, parts II and III will post in the next few days.
Part II deals with whether Land Value Tax can be passed on to tenants.
Part III deals with whether we can accurately assess unimproved land value separately from improvements.
Great work so far!
What if I say, take a barren piece of land and make it more productive through some sort of permaculture or reforesting terraforming project? Essentially a "capital improvement" on the land itself, but difficult for the tax assessor to disentangle. The LVT would be disincentivizing that kind of activity presumably. Or does the fact that it is now more productive and able to command higher rents make it a wash in terms of incentives? In other words, is there no dead weight loss in this scenario?
If this raises land value, then it shifts the incentive to the government to enact such projects - I think terraformjng at scale should probably be left to public institutions. Landscaping ofc would fall under "improvements" and the taxes would be removed if we shifted to lvt.
The idea of a "private city" is often brought up as a counter to georgism, but such cities have a lot of other problems that make them brittle or undemocratic. The core of georgism is that these kind of issues are exactly what gov should be for - and little more.
My impression is when the typical OECD government is conserved with improving or maintaining the value of lands, it's in national parks themselves. In order to get a return on "the people's" investment with a a higher LVT, the land would need to cycle back into private hands, no? I don't see that happening in the USA at least. Or instead, the value of certain renewable resource extraction/leasing to private entities (grazing rights, etc.) would increase and thereby incentivize mass land improvement efforts?
Is the alternative that the government would subsidize improvements en masse on private lands in order to receive a dividen long term?
I'm not sure what your question is here - the gov would be able to buy public lands as it can now for public works projects like subways and roads, sure.
the value of certain renewable resource extraction/leasing to private entities (grazing rights, etc.) would be the same as it is today - georgists would have the government tax the 'nature' part of the value generated away, leaving just 'labor and capital'. If we want less extraction because of future costs to humanity, then interventions like carbon taxes or regulations are taxing externalities and still efficient. some georgists argue that makes carbon taxes land taxes (as i do) but that's not really as important as the fact that regulating externalities, like LVT, avoids deadweight loss.
Apologies, my commen could have been clearer.
The incentive for the government improving land values seems obvious enough (greater land value --> greater tax revenue), but the machinations behind making those improvements eluded me a bit. I guess there are multiple avenues this might occur.
Carbon taxes, regulations, and the like make sense for penalizing those landholders who are extracting from or, worse, purposefully devaluing the quality of the land to game the system.
I think it's a very minor point, but I still see disincentive for the private person to improve the land value of their holding, something beyond just landscaping. I didn't see this addressed in part 3 either.
I think those sorts of things should be assessed as improvements and thus not taxed; if the assessors can't do that there will be a disincentive.
I'd think this should be addressed in part 3.
As suggested below its an improvement. I personally believe in cases where you can't disentangle the improvement from the land, if you give up rights to the land or are unable to pay the taxes due to some future increase, you should be paid a severance in addition to the payment for your improvement.
Yes, this is a case where a reverse severance would be applied- a pigouvian subsidy would probably be the appropriate economic term, if I recall correctly.
Exactly, I think this is the biggest issue with LVT. You don't even need to go as far as terraforming. Just building strip mall could entice other businessmen or developers to bring in their own businesses to the area. Then the value of the land you bought would increase by more than the cost of construction. it's no longer captured by just considering it as an improvement. A similar point is made here:
https://www.forbes.com/sites/modeledbehavior/2015/03/29/the-problem-with-100-land-value-taxes/?sh=72b39f9d5349
Even if you perfectly assess the current unimproved value of all land in the US, there is no clean way to account for future development. Suppose LVT was implemented in 1840. Then a lot in San Fransisco in the modern day would be taxed less than a lot in Pittsburg.
If the response is to raise taxes by incorporating the effects of future development on the value of land, then that's even worse. You're now disincentivizing future development.
I read this the other way. The first landowner took a risk on development in an disfavored area, but then drove customers to that area, thereby inducing others to come in. The value of the original owner's land would increase increasing their tax bill, but their revenue wouldn't necessarily increase to compensate.
I was a bit tentative writing my comment interpreting the post above, because I considered your point too. I think your assertion is largely correct, particularly when it comes to strip malls, but I'm not sure it would would apply to all forms of capital improvement. Would need to think on that.
I guess the retort would be that the developer would take this into account up front and this would push the "right" sort of economically efficient development suitable for a given site.
“Should” is moral language, and I’m not interested in morality.
What I am saying is that 100% LVT with yearly re-estimates of land value, will make risky high variance attempts at development considerably less profitable. Lowering the incentive for development will decrease development.
The thing is that "improvements on land" is not the same as "improvements of land value". The georgist term "improvements" is a specific term that refers to non-land capital property on the real estate - e.g. buildings and machinery; and those improvements give revenue by being used in business. On the other hand, the main things that improve the value of a land plot are infrastructure that's likely to be outside of the land plot and not bringing any revenue. So if a real estate developer takes a large plot of empty land, divides it into parcels and constructs or improves some part of the key infrastructure - roads/power/gas/water/network/etc - then the developer does not gain any benefit from the improved infrastructure as the increase in potential rent of the parcels is fully captured by the increased LTV, and the improved infrastructure itself does not bring a comparable revenue stream.
How does Georgism deal with the problem of short term exploitation vs long term rents.
Suppose I own a fish pond whose unimproved value is $1000 a year forever or $5000 one year and then nothing.
How does a responsible owner outbid somebody who exploits the property and then disappears?
I think this is a bit of the inverse of my question just posted. Curious to hear responses.
If they're outbidding you based on the capitalized value of an exhaustible resource, then you simply charge a royalty against that depletion. If by 'responsible' you mean sustainable, then you can simply put restrictions on the use, such as quotas that restrict depletion to a sustainable level.
*Who* can do this?
Are you suggesting that we should destroy natural economic incentives to behave responsibly, then replace them with government regulation?
Natural resource extraction in Georgist economics is dealt with by use of a severance tax, not a land value tax- one example of severance taxes is Norway's oil auction model. Severance taxes make it unprofitable for companies to deplete a renewable resource, removing the incentive.
So there would be a separate tax on anything which reduced the value of the land?
Yep, that's correct! Also, nothing in Georgism says that you can't have environmental protections, so you could also just pass a law saying that depleting x natural resource is illegal. I think a lot of people tie themselves up by thinking that Georgists advocate for a government that has no laws except land taxation, which when you think about it is a bit silly.
I think that gets into my biggest worry about the idea. Georgism places a massive premium on ways to make the value of the land illegible, and then relies on regulation to patch it.
So in the fishing case suppose that some company believes that they can fish more efficiently without destroying the value of the pond.
Then five years later when we reassess, it turns out that the value has in fact been destroyed. Do we distinguish between
1. They intentionally destroyed the value.
2. They unintentionally destroyed the value.
3. The value was destroyed due to forces outside their control (it was sustainable but a fish blight randomly hit them).
If we do distinguish then there is a massive incentive to lie about the cause of damage.
If we don't distinguish then every land purchase has a huge negative downside in perpetuity.
Is this any different from present day companies being potentially liable for ecological disasters?
Yes, currently companies are liable for damages caused to the property of others. This would make them liable for the damages caused to their own property.
> Post-Corona Balanced-Budget Super-Stimulus: The Case for Shifting Taxes Onto Land (co-written with Kumhof, Hudson, and Goodhart).
Hey, that's actually the same Goodhart from Goodhart's law!
> And if you think all taxation is theft, well, Land Value Tax is a tax, so presumably you have a problem with it on those grounds. But if you accept that you live in a society that occasionally taxes things, you might opt for what Milton Friedman called "the least bad tax."
I've heard the geolibertarian view that unproduced resources cannot be owned (in the absolute ownership sense that libertarians usually think of), but produced resources can. In this view, it uniquely isn't bad to tax land rents, because land rents uniquely arise from monopolizing something that nobody has a justification for owning. (This does raise a question which I think you addressed in your book review a little and which maybe you'll address in a later part of the series—is it possible to make a clear conceptual distinction between produced and unproduced resources? For example, how can prospectors be compensated for locating natural resources that nobody knew about before, even though they did not in any sense create those resources?)
> Everybody needs land, but nobody can make any more of it.
Is there a mainstream Georgist perspective on seasteading, land reclamation, or property rights in space? These cases feel something like creating new land through human effort, or making new land reachable to humans that was unreachable before.
"Nobody can make more land" is crazy misleading as a Georgist pitch, since Georgism doesn't tax *land*, it taxes *land value*. To see the difference - when a commuter line is extended, it creates no land, but creates a great deal of land *value*, since the new end of the line is suddenly far more appealing to people who work in the city and the businesses that cater to them.
Land value isn't a result of "nature's bounty", so much as it's a result of how much potential rent a given plot has once improved. And while "creating more land" is impractical, creating more *land value* happens all the time. Georgism would strongly disincentivize that by making it impossible to profit off of... which seems obviously bad for productive development.
You can totally profit off of creating more land value. Just build something that justifies the value of the land you're taking up.
As a dead simple example, say you own a parking lot in the city. The land rent of that parking lot is basically what you're able to charge for parking in a year. If we tax that at 100%, you have no incentive to build a parking lot.
But you DO have an incentive to build a multi-level parking garage, which provides a lot more parking for the same footprint. We don't tax the structure, so every additional level of parking garage is pure profit for you.
I don't buy it (wouldn't buy it!). If it's profitable in the first place to build that multi-level garage, that possible rent would be priced into the land value in the first place, the same way the plot of empty land in a big city is priced based on its future as a skyscraper. Land value *is* possibility value.
If that's correct (and I'm pretty confident it is), Georgism doesn't *reward* your development of a parking garage at all. Instead, it assumes that the land should be put to its best use, and punishes the owner with a tax value above rental value until the land is being put to its best use. This makes the winning move not to play - don't develop, just abandon.
Okay! So I think you might be partially correct here (that land would be valued at its highest and best use).
In that case, let's formulate your objection as a testable hypothesis. You are saying that an LVT discourages development.
Therefore, if we have a controlled study where LVT has been implemented in several places, you would predict the level of development to DESCREASE in proportion to the INCREASE in a rise in land value tax, and vice versa, yes?
Honestly, no. If an LVT were implemented, anyone canny would immediately look for ways to make sure the value of their property is proportionally more "improvements" and "developments" and proportionally less "land", depending on the regulatory scheme dividing the two.
So, my prediction: The total value of "development" would increase rapidly, but due to reclassification, not necessarily new development. And the kinds of new development that occurred would be dramatically affected by the specific regulatory conceptions of "land value" as distinguished from "developed value", resulting in underinvestment in some sectors and malinvestment in others.
(The biggest winners: lawyers.)
So you ARE making the testable hypothesis that anywhere that implements an LVT is going to see a drop in the assessed land share as people game the system pushing assessments towards improvements to avoid the tax?
Increasing investment seems unlikely (for various reasons) but it not necessarily good even if it happens.
Let's suppose I have a good idea for land and put, say, a $1B investment on it. It turns out that this actually was a good idea and produces and economic surplus for me (yay me) though - having now established a new highest and best use - the next LVT assessment might claw it back (sad for me).
But suppose at this next assessment (or one shortly after) the valuer says that now, there is an even more profitable use he can think of (he might even be even right, but valuing the land part of improved land is controversial and substantially subjective in practice). I'm now taxed into losing money because my use may not be the very "highest and best". Is this not the expected outcome?
So I got bankrupt, the building is torn down and something better is built. MORE development! But even completely ignoring my own interest (I'm a capitalist, so who cares about me) this dynamic is societally nuts.
If this is more of a theoretical concern, its only going to be so because of how random/corruptible/subjective/legalistic land valuations turn out to be in reality (and probably inevitably so). We will be relying on the very lawyerable slop in the system to keep things working.
It would be valued to its best use discounted by the expected return to capital and labour. So yes, the best use is priced in, that doesn't mean there isn't profit to be made in actually building the damn thing.
Right now, the following is a viable business model: rent a plot of land, construct a building, derive a profit from the building. So the _rental_ market price of a plot is not valued at its best use. By George, the builder would effectively rent from the state, nothing else changes for them, except presumably the rent would be lower as it won’t be lining the pockets of any speculators.
It doesn't make it impossible to profit from. It makes it impossible to privatize imputed land rents in the hands of a few. Land rent would be collected and then either used for public spending or paid back out to all members of the community as a UBI.
Increasing land value is desirable, for EVERYONE.
> For example, how can prospectors be compensated for locating natural resources that nobody knew about before, even though they did not in any sense create those resources?
Some people might take the perspective that they did create it kind of. If nobody knew about the minerals underneath, then it might as well not exist. However, the labour of the prospector did bring them into knowledge so they morally should be compensated. How much is a bit more of a complicated ask.
> Is there a mainstream Georgist perspective on seasteading, land reclamation, or property rights in space? These cases feel something like creating new land through human effort, or making new land reachable to humans that was unreachable before.
Yes. Per the previously posted book review, 'land' basically includes the entire Earth's surface. It doesn't just include land as in 'dry land' but land as in a physical space on the planet. Seasteading and land reclamation would not create more land in the Georgist sense, but they add value to the 'land' (i.e. the natural resource of the sea) that already exists.
If you built a space elevator that allows easy transit to the Moon, you would still not have 'created more land' (the Moon was already there) but if you make it possible for people to exploit the natural resource by living or working there, you increase its value. Even the space that sattelites require to orbit the Earth without colliding with others can be considered land in the Georgist sense.
> Is there a mainstream Georgist perspective on seasteading, land reclamation, or property rights in space? These cases feel something like creating new land through human effort, or making new land reachable to humans that was unreachable before.
Yes. Per the previously posted book review, 'land' basically includes the entire Earth's surface. It doesn't just include land as in 'dry land' but land as in a physical space on the planet. Seasteading and land reclamation would not create more land in the Georgist sense, but they add value to the 'land' (i.e. the natural resource of the sea) that already exists.
If you built a space elevator that allows easy transit to the Moon, you would still not have 'created more land' (the Moon was already there) but if you make it possible for people to exploit the natural resource by living or working there, you increase its value. Even the space that sattelites require to orbit the Earth without colliding with others can be considered land in the Georgist sense.
Suppose you live in a hypothetical Georgist Pennsylvania, circa 2005. A few years later, an extraction method is discovered for the natural gas-rich shale you live on. The value of your land just exploded - but unlike our system, where this represents a windfall for you, this is more likely to represent a tragedy. Your land tax spikes, you can't afford it, and you're forced out of your home to make way for Big Frack, who doesn't even pay full value for it. They can afford to wait for you to go bankrupt, then pick the real estate up when it's distressed.
Does the Georgist have sympathy for our Pennsylvanian? Perhaps they do, but think their plight is outweighed by the plights of people whose properties lose value under our current system, so this is no worse of a problem than that. But wait, let's think about property losing value more rigorously.
Suppose you live near a river, and a lot of people near you love it. They fish, swim, row, and generally enjoy themselves; and the draw of that river represents a big chunk of local land value. However, you don't much care for the river; the land values have started rising because city slickers are moving in; and you're upset about it. If such a person can ruin the river - toss in crude oil barrels, introduce invasive species, whatever - doesn't Georgism incentivize them to do so?
TL;DR: does Georgism subsidize living near a toxic waste spill - or spilling it yourself? That would line up with the old adage "you get less of what you tax", where "what you tax" is "Nature's bounty."
"Doesn't even pay full value for it" - This would be untrue. They would pay nothing for it, except the LVT. There is no sale price or exchange value. There is no "distressed" condition where they could get it cheaper. Its assessed at the full value of its potential. As discussed in some of the other comments, this is likely best achieved through a severance tax, since by mining a non-renewable resource you're forever reducing the value of that land.
But you're right, in that it would cause a giant spike in land value, potentially forcing people from their homes. I think that is an undesirable outcome, but I think its an edgecase that we can handle through the political process. Eminent domain already exists, where land is seized because public benefit outweighs individual harm.
We could decide not to increase the assessment of a person's land until after they had died, for example, because the benefit of the shale oil isn't significant enough to make someone move from their home.
As for intentionally destroying land value, there are many ways to handle this, though again I think its an edge case. Some things that destroy land value as simply illegal, firstly, but other than that you could charge a severance fee/tax for permanently destroying the land value, or a Pigouvian tax on pollution.
As somebody who has lived in a place with neighbors, I assure it's trivial to intentionally or even unintentionally noticeably decrease the potential for peaceful and quiet enjoyment of nature's bounty that we call land. It seems like Georgism suggests every landowner do as much as they will tolerate to reduce the value of their land and surrounding area to keep taxes low
I'm sure that gangs would be happy to offer a service where, for a small charge, they'll move into your area and make life difficult for everyone who isn't paying them that fee.
Actually they already do this. But in a Georgist world, you'd actually _want_ it to happen.
I'm not sure I get this argument. By the same logic, I am currently incentivized to do everything in my power to make my house as hideous and undesirable as possible to keep my property taxes low?
Well no, because property taxes are so low anyway that the marginal loss in personal utility from making your house hideous will override your gains. If property tax is replaced by a high LVT, there's much more room for you to make disimprovements to your property before you start enjoying it less more than you save from the tax man.
So would you say you are making the testable hypothesis that, all else held equal, if land value taxes are raised, that we would expect to see a proportional decrease in development density or a decrease in general living quality?
I wouldn't necessarily say directly proportionate as there is likely a lower bound we haven't hit yet, but I yes I would expect a decrease in living quality as we tax people on the living quality of their neighborhoods, and I would expect it to curve upwards as tax increased. Of course, people won't do things that they themselves don't like, they'd all be incentivized to do things their neighbors don't like but they can deal with.
For a comparable real world example, look at the Endangered Species Act of 1973. If you find an endangered species on your property, and your desired use for the property isn't to preserve it for the endangered species, your best option is to kill the endangered species so that your land no longer has any value from an endangered species preservation perspective. People do this in real life, leading to what George would consider an overall decrease in the value of the land (to environmentalists) that allows the current owners to continue using the land for their current purpose without government interference.
Well, yes, you are. If gentrification works in one direction, why shouldn’t it work just as well in the other? A tenant does have an incentive to keep rents low, thankfully not many of them actually act on that.
Are you making a testable hypothesis that we could subject to examination? LVT should lead to an increased incidence of this sort of property-trashing behavior?
Most definitely not. People are irrational. There are no incentives to vote, yet they do it. There are incentives to litter, yet (thankfully) people don’t do it as much as they could.
> We could decide not to increase the assessment of a person's land until after they had died, for example,
ah shit here we go again
All I'm saying is that Georgism doesn't override the political process. It isn't some algorithm that takes inputs and spits out justice.
We will never devise a system that doesn't require people to maintain vigilance against corruption so long as government exists and that government gives some people power.
There are a few problems. It will strongly incentivize preventing development, because people will not want their taxes to shoot up. The problem is for people who are not landlords is that the only way to access the value of the land is by selling it. A lot of of real estate value is single-family homes, and forcing them to move with the vagaries of land prices will make them very unhappy and also cause its own market inefficiencies. They would just vote against Georgism, but assuming they couldn't, what would result is a turbo-charged version of NIMBYism. Either banning development or in various ways sabotaging it.
Also true Georgism could only be enforced the same way as collectivism, by violent revolution. It would effectively be destroying roughly half of wealth. Urates isignificantlylower than the true rent value of land in California resulted in Proposition 13 and is now considered a third rail of politics there. Your numbers suggest that over 40% of the land value is held by the 50-90th percentiles, which is a broad enough group to shut down such a movement without having to hire people to do it, especially since older people and the type of people who have a lot of land have disproportionate power, among other reasons, because they vote at much higher rates. Average voter is in their 50s right on the boundary between Gen X and Baby Boomers.
A lot of unsupported and 'it's hard so we shouldn't do it" claims there. But I will address the first point about development.
People want things, "development" is just increasing the capacity for the community to produce things. Some people could try to discourage development and "turbo-charge" NIMBYism, it would be no worse than it is right now when some people can privatized the full rental value of their land.
Overall, though, the community would and should encourage development, is it increases economic opportunity and development and ideally they profit more from that they pay due to increased land value taxes.
And then at the end of all of that we still have the Citizen's Dividend (UBI).
Are you making a testable hypothesis that an increase in LVT, all else held equal, leads to a proportional decrease in development?
I think it's worth considering all options, even if the choices seem unpopular. If everyone is always ruling out unpopular (but effective) solutions, they're never going to get popular, are they? Getting them to be popular is the entire objective.
Read through and by George do I have some questions, apologies if these will be answered later.
How does land retain value if the government taxes away such a large portion of the income land generates?
Who will bother owning land at all? And if you make land worthless, how do we tax its value?
How can land have value when there is no point to owning it, and how can that value fund our country?
Does it even count as owning land if not only do you have to pay all of its income as tax, but you are taxed on its theoretical income regardless of if you produce it or not? The only benefit you would profit from ownership of land would be intangibles, and it seems like in theory even those would be taxed.
Does your argument that LVT can finance things hold up when land loses its value because nobody wants it because you can't derive income from it?
In this post you bashed the Fed's, NYC's, and cities in general on their ability to adequate assess the market value of land. How is the solution to rely far more heavily on new taxes that rely on accurate valuation of land? Will there not be rampant corruption? ("No there won't be corruption" on its own is not an acceptable answer).
>Does it even count as owning land if not only do you have to pay all of its income as tax, but you are taxed on its theoretical income regardless of if you produce it or not? The only benefit you would profit from ownership of land would be intangibles, and it seems like in theory even those would be taxed.
This is so huge, thank you for saying it! "Land value" isn't a product of nature's bounty, it's most directly a measure of income potential once improved (whether or not it is now).
This is a confusion of concepts, land has a rental value based on its demand for use. If you tax 100% of the rental value, land would have a $0 price (market value) but its rental value would remain intact.
I assume you mean "tax 100% of the land value." Either way, Wizzy is absolutely right, and you have your concepts confused; that rental value is priced into the "land value" as its main, close to only, component. To see this, consider the impact of zoning restrictions on the value of land - they strongly decrease it, *by means of* decreasing the potential for rental value.
I meant exactly what I said, taxing the rental value of land at 100% would lower the market value (price) to $0. This does not make land 'worthless' in any way, shape, or form.
I'm not sure what zoning has to do with it, a tax on the rental value of land doesn't limit what you can do with your land, unlike zoning.
Lowering the market value of land to 0 absolutely does make it worthless, that's what worthless means. My understanding is that Georgism, all of the currently potentially unquantified natural aspects of a plot of land, such as clean air, views, nature etc., anything that has any value to anybody, is taxed at its full value.
What residual can remain to make the land not worthless?
"If the entire rent of land were taken in taxation, there would be no rental income, hence nothing to capitalize, and no selling price. A 100% tax on land rent would destroy the selling price of land, and thereby destroy any profit that could be had from land speculation.
This fact has led some critics to complain that because a 100% tax on land values would destroy land’s selling price, this revenue source would destroy its own tax base. This criticism ignores the difference between selling price and rental value. The selling price of land is based on the landholder’s ability to keep collecting the land’s rent in the future. If the rental value were fully collected by the community, there would be no rent to collect in the future, and therefore no selling price. Nevertheless, land would still have a rental value, as long as people were willing to pay for its use. If the overall economic climate improved, the land’s rental value would increase." https://henrygeorge.org/bob/interest-rates-and-land-prices/
"as long as people were willing to pay for its use" - no, willing AND ABLE. If there is no owner of the land to develop and maintain it, the willingness of the people is no good. And if 100% of the rental value is collected through taxes, there's no incentive for anyone to be that owner.
You've succeeded in establishing the rather semantic point that Georgism makes land worthless *to its owners*... but that's what I took Wizzy and I to mean all along, and that still causes huge problems!
Sorry, I think the last four sentences are directly contradictory.
>The selling price of land is based on the landholder’s ability to keep collecting the land’s rent in the future.
Yes, but not just to collect rent but to actually keep it and spend as their own.
>If the rental value were fully collected by the community, there would be no rent to collect in the future, and therefore no selling price.
Absolutely.
>Nevertheless, land would still have a rental value, as long as people were willing to pay for its use.
Yes, but that rental value doesn't go to the landlord, it goes to the government who matches LVT to that rental price. Landlords do not care about their ability to collect rent, they care about their ability to collect and KEEP rent as income.
> If the overall economic climate improved, the land’s rental value would increase
And so would the LVT, in proportion. Unless I'm missing something, under an 100% LVT by definition the landlord always ends up making exactly $0 regardless of what happens to the land.
That seems to be the point of Georgism but doesn't seem to make economic or practical sense.
You're confusing the land value with the purchase price. The land provides X$/year. This is the rental value. The value is the capitalized rental value, over some relevant time scale.
But if the LVT is 100%, then the market price is 0 because you'll have to pay the value (capitalized rent) in taxes every year and therefore receive no value from the land.
However, that doesn't make the land (more precisely the location) worthless. If you were running a bagel shop, would you rather do it in the middle of no where or in a town for 10k people? The location is absolutely important to any and all businesses. You derive more income from your capital and labor by being somewhere where there are lots of people, but you receive no benefit from land appreciation.
Georgism effectively matches the highest use of land with the appropriate tenant, able to achieve that.
Certainly its rental PRICE would have to remain intact, if not rise significantly, to support the LVT levied on the landlord. This goes from tenant to landlord and directly to government as LVT. However, by design the landlord themself can no longer derive any income from the land, and as such it seems worthless.
I think that these questions are a reason why modern Georgists usually aim at taxing 85% of the Land Rent instead of 100%. Completely removing the incentive to own land could cause problems.
There's a broken link in the recap part zero with link text "Strong Towns" which goes to https://www.fortressofdoors.com/p/1bbeeaa7-5e11-4219-91e6-64847e8537cd/strongtowns.org/landvaluetax/ (a 404)
I'm guessing it should just go to https://strongtowns.org/landvaluetax ?
Also there is a stray newline / linebreak character in section 1.2
"installation that o[\n]nly three people like"
You linked that thing about housing crises in MMOs. Did any MMO ever try a land value tax? I think a land value tax in an MMO would be a highly worthwhile experiment, for several reasons:
* It lets us troubleshoot the idea, and debug unforeseen problems, in a test environment where catastrophes are less catastrophic.
* It should be much easier to persuade an MMO to try this than to persuade a government. There aren't as many stakeholders, the policy is more easily rolled back, and it can directly help the success of the game/make money for the game's creators. Also, it should be easier to gain an audience with MMO leadership than real-world leadership.
* If it works in the MMO, that will help convince people to try it in real life. Imagine Georgia Gamer telling her parents and grandparents to vote for LVT after it fixes her favorite MMO. Also, the idea of translating MMO policy into real-world policy would make for a great clickbait headline. Clickbait headlines are the main things which power social movements nowadays, of course.
EVE Online did! And it worked!
https://www.gamedeveloper.com/design/how-i-used-eve-online-to-predict-the-great-recession
Best part is that the economist who did it didn't even realize he had re-derived Land Value Tax from first principles until I pointed it out to him in the comments (which I think are now lost in the transition from Gamasutra->Game Developer).
I think the actual implementation in EVE is fairly crude, at that, and falls short of a 100% LVT. Point was simply to make the holding fee on land-like-assets high enough until you started to see good effects.
I may just be stating the obvious with this, but there's a few ideas I want to work through in writing.
It seems like one way of thinking about land value is that it isn't the value of the land, it's a measure of the total spillover value of everyone else's activities, where proximity is relevant.
If instead of talking about land value, we talk about spillover value, does that make the idea clearer? If there's a plot of land in the middle of a city, it's more valuable than a plot of land in the middle of a field because living there (consuming it) would be a lot more fun, because of all the other people and amenities nearby. And doing business there (investing in it) would be a lot more profitable, because of all the other people and amenities nearby.
If a 100% LVT were instituted, all of the difference between the two plots of land would be taxed away. It would at that point become (on average) equally fun to live in the city and the country. If you lived in the country, you could use your extra money to buy the fun you want; if you lived in the city, you'd benefit from the fun of the city, but have less money to spend on other stuff. It would also be equally profitable to do business in the two places: if you lived in the city you'd get more profits from having lots of people (employees and customers) nearby; but you'd have to pay lots of tax for the privilege, so overall it would be a wash.
One possible outcome might be that more people move out of the cities... but maybe not. People like living close together.
It sounds like public goods/spillovers that are unrelated to proximity might start to have more important effects. For example, the law, which applies equally, everywhere. Internet access...
Sorry, I'm not sure I've actually worked anything out yet. I'll post and keep thinking!
Essentially, yeah, you're on the right track.
But yes, it does sort of rely on the idea that humans like quick access to each other, and amenities, etc, etc, that we want to live densely and be close to things.
I would like to second the question of how to handle the instant drop in their land values. Realistically you would probably need to correspondingly unilaterally forgive bank debt against real estate, which would cause every US bank to fail. I am a big LVT fan and I think the land price bubble/underdevelopment of urban land is THE #1 issue in the US today, but I am not sure how to do this without destroying the economy
One idea is to pay the current land owners the current assessed value of their land. It would balance out economically, but it would be logistically difficult, and would cause an enormous 1 time spike in federal spending.
Probably the easiest and least logistically hellish idea is just to implement the LVT gradually and over a long period of time. That also gives time to get the system up and running smoothly. Maybe announce the change several years in advance before you make any changes at all. Then start with a small LVT, say 5%. Gradually ramp up to 100% over 20 years or so. The initial drop in values is minimal, and everyone has lots of time to prepare for the change.
Wouldn't the very mention of your plan send banks and entire markets into a panic ?
What are they gonna do, try to ride themselves of this land as quickly as possibly by selling it at lower and lower prices?
Yes, this is how financial crises usually occur -- e.g. the recent mortgage crisis.
Thank you for writing these ! I've found them entertaining and rather persuasive so far.
I do want to push back against the claim that farm land is unimproved if it doesn't have any buildings on it. An empty plot of land ready to be farmed is worth much more the same land covered in rocks & trees or with degraded soil. This doesn't affect your conclusion much because most Land Rent is urban.
This is an important point. Some improvements, while easy to separate from the value, are impossible to extract from the land themselves. That's something Georgists will have to contend with, but not a major hurdle.
You are of course, correct. An oversight! George even talks about this specifically (a planted orchard is worth more than a bare field, counting the obviously planted trees as improvements).
As soon as you wrote "the rich paying their fair share", with the implication that "the rich dont pay taxes", I stopped reading, you stopped being interesting. Try fewer applause lights next time.
This is an article that among other things is advocating for reducing income and sales taxes, in case you didn't notice.
Look, I raised an eyebrow at that too, just because it was so imprecisely and misleadingly put. But if a single sop to liberals who haven't thought deeply about such things is enough to put you off, you're going to miss out on a ton of otherwise interesting arguments.
I read Scott due to the relative lack of stupid applause lights. His guest writers should do better measuring up on that metric. If I want liberal applause lights, the market is oversupplied, elsewhere.
The richest pay a far lower tax rate than the middle class. Do you dispute this?
https://www.whitehouse.gov/cea/written-materials/2021/09/23/what-is-the-average-federal-individual-income-tax-rate-on-the-wealthiest-americans/
It's not super important, but just a reminder that there are nations other than the US. I'm fairly sure a similar analysis could be done for most modern Western nations, at the very least (as in general, rich people have the resources and flexibility to find things to turn their money into that have the lowest taxes they can get away with paying), but the article *is* only about US-Americans, and thus not very good fit for evidence on the "The richest pay a far lower tax rate than the middle class".
To be clear, this is only a nitpick, I don't think this damages your point. There are several bits and pieces in your article that focus specifically on the USA, so it's no surprise the comment section would, too. Nonetheless, this particular case was a bit jarring and I wanted to speak up.
Thanks for engaging with the comment section as much as you have been!
No problem! Part I did include quite a bit of information from Australia, for the record, though I admit the USA was my focus just to limit scope (the USA also happens to be where I live). I'm actually a Norwegian citizen and I think a global focus is important and I appreciate being reminded of that.
There was no such implication there.
so you believe you can only ever learn anything interesting from people who share your baseline of mood affiliation/emotional politics? that seems unnecessarily self-limiting
Get 10-100 billions dollars, build a city, sell it - you should get 30 billions! 300%
Even if it will take 10 years, that is 11% of interest, way better than market.
Why nobody is doing that? Maybe it is not THAT EASY?
Mostly because it's easier and less risky to build a small addendum to a city that's already there than to build a whole city from scratch.
What would you rather do? Build a brand new city with 100,000 homes in the middle of nowhere, or build one hundred new suburbs of a thousand homes each, on the outskirts of existing major cities? The former has a higher potential for profit, because land in the middle of nowhere is cheaper than land on the outskirts of a city. But the latter plan is much less risky.
Besides, where are you going to find the tens of thousands of workers who can build your city in the middle of nowhere in just ten years? You'll have to bootstrap the city a bit, building homes for the builders to live in. And you'll have to pay top dollar for your builders to persuade them to live in an uncompleted city in the middle of nowhere.
Building from scratch saves tons of money since you do not have to account for existing stuff.
There was an article about Chicago Great Fire mentioned by Scott that concluded that it was very beneficial to the city in the long run (about 10 years) since it allowed to start from clean plate.
I think that you cannot just build a city, you need to build a community. And movers and shakers from that community need to be rewarded, and often house prices do that in successful areas (not a very efficient way, lots of money goes in wrong hands, but this always happens).
I like land taxes increase idea(not an owner myself, lol) but just to impose 85% tax like all that extra value was created by government, and not by community... sounds like it could break that positive feedback.
Lots of people do do that in developing countries where urban population is increasing. In countries where its mostly static its more efficient to upgrade and sell bits of existing cities
Just... drop the term land and land tax. What you are talking about is taxing profits from resource hogging of any kind. It is an easier sell, too. Not "the evil government wants to make my house worth nothing", but "the fair government ensures that no one profits from hogging resources they didn't create".
I don't think people are quite stupid enough to agree to having all their money taken away if you just sell it in the right way.
I didn't _create_ the land that I live on, but I did pay a lot of money for it. And I bought it from someone who bought it from someone who bought it from someone who bought it from someone who bought it, in good faith, from the government.
Would you agree that the situation you're describing is what Gordon Tullock would call the Transitional Gains trap?
https://www.jstor.org/stable/3003249
LVT describes a steady state that government policy and the economy could occupy. I support that steady state, and think that it would be much more fair than the state we occupy right now. If we were to transition from the current system to the LVT system, then existing landowners deserve to be compensated for their land. Suddenly switching on a 100% land tax like a step function would not be fair. I'd support a delayed and gradual rollout of the tax, so that current prices aren't affected. Direct financial compensation for current landowners would also be fine.
This is a much better way to pitch for Georgism and one I can get behind. It is very different from the "well you don't deserve to own the land and land ownership is like slavery"
I am all for a gradual shift from existing taxes to land value taxes. But if Georgism means wiping out ~ 20% of my net worth, then in the words of Randy Jackson "Its a no for me dawg."
I've become big enough fan of Georgism in theory that questions tend toward the "okay, but how do we get a land tax implemented in practice?" side of things.
And in the USA at least I can think of several big obstacles:
1) The tax represents an enormous one-time (assuming the real-estate market reflects the new policy accurately) transfer of wealth from urbanized to less-urbanized areas. Property values in the former will fall much more than in the latter but the benefits will (by hypothesis) be distributed evenly. This is a hard sell politically for tribal / class reasons, even more so because the tax's claimed upside (better aligned incentives) matters much more in urban areas than in rural ones.
2) It's unconstitutional for the federal government to impose a land tax. As in, not just "technically prohibited due to an oversight" but "this would fundamentally alter the concept of federalism". Land belongs to states, not the US, and as another comment pointed out, taxing 100% of land rent is equivalent to nationalizing land.
3) Due to 1) and 2),the natural place to advocate for a land tax would be at the local level (where property taxes are assessed today). But the typical US urban area contains several different local governments, which will face a coordination problem assessing land taxes. Because it's relatively easy to substitute between locations within an urban area, in the short to medium term a land tax will likely raise tax and rent burdens within the locality and drive people elsewhere, while the long-term anti-distortionary benefits accrue to the whole urban area.
> face a coordination problem assessing land taxes.
They already face this coordination problem with assessing property taxes; so if the conversation is to shift from property taxes (buildings + land) to land taxes (just land), then the political overhead is more or less exactly what you had before, at least in places with property tax already in place.
Yes, this seems like the easiest problem of the 3 to solve.
"Conflicting statements concerning whether the implemenation of Henry George's single tax proposal would destroy the institution of private property in land have appeared in the literatures of economics and other disciplines. A number of writers have implied that the taxation of Ricardian rent is equivalent to land nationalization. In the main, followers of George have denied that the single tax would abolish private property in land. Their claim is based on the fact that land titles would remain in private hands under the single tax. Since the whole question of private property is beset with ideological difficulties, a property rights approach is applied to this issue in an attempt to resolve the controversy. The conclusions are that the actual implementation of George's system would not destroy private property in land and that it is incorrect to equate the single tax with land nationalization." https://www.jstor.org/stable/3486465?read-now=1&refreqid=excelsior%3A7ec98d783906d4866f87100d66ab69d5&seq=1#page_scan_tab_contents
Oh, interesting; I stand corrected on that point.
I find the concept of "owning" an asset that's economically worth ~$0 non-intuitive, but it certainly counts for something that the private owners can choose how to use the property and the government can't override them.
You aren't owning an asset worth 0, you're owning a bundle of rights that are equal to rental value of the land.
This very much exists in the real world now, look up how futures work.
When you buy shares of a company, you spend some money in exchange for a part of their capital, and you’re entitled to the wealth that part of the capital creates. Eventually you can sell those shares for money.
Not so with futures. You basically click a button and you subscribe to price movements of a particular commodity, you receive or lose cash daily. When you wish to stop, you close your position, and nobody gives you money for the act of “selling” the contract either. So you very much buy and sell $0 assets.
At the end of the series Lars has some links to groups on how to get involved. You're right, there are hurdles, but there are also ways we can move in this direction now, we just need to continue to grow our institutions.
Krugman's disinterest in LVT likely has more to do with political rather than economic factors. In fact, looking at the linked 2009 article the quote was pulled from the very next paragraph is:
> The context was health care. "We're having enough trouble trying to make sure we repeal the Bush tax cuts," Krugman added, "and trying to shift to a completely different base of taxation is just not going to be on the table."
In general in his writing about public policy he seems to heavily weight both the economic AND political factors, and so is less interested in spending time on dramatic changes that (in the US) would probably face enough opposition to need an enormous Democratic super-majority to pass, if even politically possible at all (this probably also includes things UBI). Look at how much trouble California has had making even minor changes to Prop 13, which as far as I know isn't because of economists liking the current policy.
So the lack of enthusiasm probably doesn't say anything bad about LVT as an economic policy! And it also seems like a great topic for this blog which has a bit broader focus than near-term public policy stuff.
I would definitely be interested in another follow up specifically on political viability, but that'll have to wait for later. I figured I would cover the big three questions I perceived coming up the most often.
Remaining topics I need to research:
- Political viability
- Examining specific case studies in detail
- Transition plans & assuaging existing landowners
Georgism kind of reminds me of Marx's labor theory of value. In both cases we're trying to take a single thing, and assert that everything else has value because of that thing. In both cases it kind of appears to make sense if you assume a 19th century society, but totally falls apart in the 20th century and beyond.
In the 1800s you could sort of make an argument that things only have value because of land. (I still think it's a faulty argument, but it's at least a somewhat convincing wrong argument.) You need land to produce food (most Americans were farmers back then). Railroad tycoons were rich because they owned a lot of land. Mine and factory owners owned physical things in the real world -- mines and factories.
The argument just descends into farce in the 2000s, though. For example, should Bill Gates be taxed $0 if he chooses to live on a yacht rather than live in a house? His programmers don't need a lot of land to produce any value. They could also live on yachts or in tiny apartments like a lot of them do already, voluntarily.
The truth is, land in and of itself doesn't have a lot of value. Some land has gold or oil buried underneath, but most doesn't. When we talk about the value of land, we're mostly talking about the value of externalities like who lives nearby, what the government rules happen to be for that land, or whether a road was built nearby, etc. Just saying you will tax "100% of the value of the land" doesn't really make sense because it's not clear how much of those externalities you want to capture. Should Bill Gates pay 100% of his profits on Microsoft in land taxes for his Redmond headquarters? Well, that seems absurd. But 0% also seems kind of absurd. What if Bill owned a factory instead of a software business? Still 0%? Or 50%?
Any number you pick is arbitrary. And the whole thing invites shell games like person A selling property to person B for $100 to set the LVT to $100.
I notice that you piggybacked on the modern-day "the rent is too damn high movement" here. (A problem that didn't exist in George's day, by the way!) Let's talk about that. The sky-high valuations of land in San Francisco, Seattle, and similar cities are not because of any magical property of the land itself, but just because people want to live there, AND the government is not allowing a lot of building.
The second thing is very very important! If you look at places like Houston, the property values are not high. How come? It's not because the government is taxing them more and preventing evil speculators from jumping in. It's because people are allowed to build outward. In California hardly any building is allowed, because of a complicated patchwork of rules -- tight urban growth boundaries, aggressive zoning, intense environmental reviews, etc.
Really, the old joke about how "they're not making more land" is actually very misleading because the government could quite easily "make more land." If someone waved a wand and made those land use rules go away, the sky-high property valuations would go too.
That brings me to my last point. I think people are way too optimistic about the future of cities and dense urban areas in general. The last two years showed a lot of white-collar businesses that remote work was possible. More than that, it culturally normalized it. To oppose remote work was to be an evil COVID denier. These cultural changes are not going away. And that's bad news for dense urban areas whose bread and butter was "being the place you have to live if you work at Google" (or wherever).
In the long term, the solution to high rents in SF is not to live in SF. The future is decentralized and does not resemble a 19th century factory town. Decentralization is a solution that will make most people happy. And when the next big earthquake or terrorist action comes, it will also save lives.
> The sky-high valuations of land in San Francisco, Seattle, and similar cities are not because of any magical property of the land itself, but just because people want to live there, AND the government is not allowing a lot of building.
Note that allowing a lot of building doesn't seem to be a great solution either. Shanghai, for instance, has uncomfortably high density _and_ ridiculously high property prices.
Megacities have bizarre economics. Cram another twenty million people into the San Francisco Bay Area and you've got an even more significant hub of economic activity which people are economically incentivised to spend even more money to get into. You'd triple the population, make it a much worse place to live, and fail to actually reduce the cost of living there.
Induced demand is a thing for cities too.
Naively speaking... this doesn't sound so bad? Presumably with the "significant hub of economic activity", the people moving in are generating extra economic value and producing valuable things for the world.
And if twenty million people are able to live in SFBA because of more housing stock, and then choose to do so -- that's twenty million more people who have gotten what they wanted! If some people prefer a less dense area, they could move there; the argument isn't that EVERY place in the world become as dense as SFBA, but that such dense places should exist at all.
Well yes, Georgists would definitely agree that density is a good thing (it's efficient land use)! But the point is that it is silly to say that 'land is largely valueless, when this is demonstrably untrue- zoning does make buildings worth more, but it does so by making land worth less. In other words, getting rid of zoning everywhere as OP proposes wouldn't make land less valuable, it would make it more valuable, so high land values are not caused by restrictive zoning.
Keep in mind that surveys have always shown that the majority of Americans want to live in single family homes.
> In other words, getting rid of zoning everywhere as OP proposes wouldn't make land less valuable, it would make it more valuable, so high land values are not caused by restrictive zoning.
What's the evidence for this?
No, I think megacities are a horrendous Molochian trap. Let's forget about San Francisco for a moment and talk about Jakarta. Unlike San Francisco, which has some geographical advantages, Jakarta is an absolutely terrible place with nothing going for it at all. It's polluted, crowded, the traffic is considered the worst in the world. It's ugly to look at from every angle, and the climate is bad even by Indonesian standards. (Oh, and it's sinking.) Despite this, thirty-two million people live there instead of one of the much nicer parts of Indonesia.
Why? Because as a city grows, it takes over more and more of the economic activity from the surrounding area. Each additional person you take away from Elsewhere and add to Jakarta diminishes the liveability of Jakarta but also increases the economic activity disparity between Jakarta and Elsewhere.
It's a coordination problem. Everyone in Jakarta would be much happier if they could split into ten cities of three million people each. At this scale it wouldn't decrease the overall amount of economic activity (below a certain scale it would). But they can never all agree to do this. (Though interestingly, the Indonesian Government has decided to abandon Jakarta and build a totally new capital in the boonies of Borneo, which is a step in the right direction).
Bill Gates owns a ton of land. He's actually the largest private owner of farmland in the United States. So all that food you talked about, he's extracting rental value, directly increasing your/mine/our food costs as a result of speculative land holding.
Amazon, likewise, is a huge landowner. They own enough office space to fill all of Seattle multiple times over, and location is obviously critical to achieving their product distribution goals. Not to mention all the land they own near DC for data centers.
The idea that our modern economy is detached from land is a farce.
However, some Georgists share your concerns about "digital land". Some online spaces share land like qualities, for example your Twitter profile is uniquely distinct and valuable from any given digital space, due to network effects. Additionally, data collected by digital companies is a form of intellectual property that provides huge benefits along side those network effects.
Except that you can always make more land on the internet. So pretty different from the Georgist idea of land.
Bill Gates bought all that farmland after he already became wealthy. Obviously he believes it will be a good investment. But it's only a footnote to his story, which is mainly about becoming wealthy through selling software licenses.
I sympathize with the idea that land as value seems to be rather arbitrary and not make as much sense in the 20th century, but to be fair all of economics and tax decisions seem to be arbitrary anyway (like you say, the concept of labor having value doesn't fully work in this century). What should be taxed is an open question that only has arbitrary answers.
Even if Bill Gates owned no land, he would buy things from stores, and the prices of those things would include the LVT the store has to pay. If he rented a house or an apartment, he would likewise pay indirect LVT, much like the way VAT is indirect.
And even if it’s necessary to tax things other than land value, the core idea is that establishing LVT would remove a lot of inefficiency and boost the economy by such an amount that a modest tax on skyrocketing wealth generation would suffice. That’s at least my optimistic reading of it.
If there are places where 70% of property values are land, doesn’t that mean their property taxes are pretty Georgian already? (I mean, not California due to Prop 13, but maybe other places?) Are they seeing benefits from high property taxes? If not, maybe changes to property taxes can’t fix as much as Georgians think.
I suspect that property taxes matter much less than zoning, so changing property taxes alone won’t move the needle much if you don’t also fix zoning.
This is somewhat true. Implementing Georgism somewhere with very strict zoning doesn't really solve the problem. But no, land is very underrated because it's usually under assessed.
In places where property values are 70% land, under current regimes, you tend to see very low property taxes and tons of exemptions and carve outs. Zoning is super important and should also be part of this balanced breakfast. One thing I'll mention that if you have an LVT in a city, that city is incentivized to increase land values as that is their tax base. One way to do that is... repeal restrictive zoning! So Land Value Tax and Zoning reform work together.
Also, in the big cities with the worst assessments and the lowest property taxes, they tend to rely more on other taxes, like sales and income tax.
So, uh, what happens if the Land Value Tax goes above 100%?
Like, I don't have formal economics education, and my internal models don't mesh well with Georgism yet, and I'm ever so slightly tipsy. :-) But the arguments so far seem to be of the variety that don't stop applying at some particular level of tax. So if the US wanted to switch over to a Georgist system, and we discovered that we could replace all other taxes with a 240% LVT, why not do it? As you say, it's not like anyone's creating more land.
And although I'd love to be convinced that Georgism and the LVT comprise the One True Way, I'm deeply, reflexively suspicious of arguments that don't have a built-in stopping point. They smack of ideologues dreaming of castles in the clouds, and not of engineers making cost/benefit analyses in the cold harsh light of day. (Although, in that spirit, I suppose I could be persuaded around to a point of view that held that even at arbitrarily high levels, a LVT would be less bad than any other combination of taxes that generated the same amount of revenue.)
It's an interesting hypothetical. The sale price of land would obviously go negative: if you wanted someone to take your land off your hands, you'd have to give them 140% of the land value to make it worth their while, which perhaps they'd be able to use the interest from to pay the extra 140% tax above the land's actual value. As soon as the land value increased, the tax would increase in excess of what it's actually worth to them, the interest from their invested cash would be insufficient to pay the tax, and they'd be unwilling and likely unable to pay the tax to keep the property. However, unless they inject some extra cash of their own, they'd also unable to afford to pay someone to take the land off their hands.
If they were stuck holding the land, they wouldn't be paying the tax, so I guess the government would repossess it, but then they would be stuck with a property that *they* would have to pay the next landholder to accept.
To avoid having the land repossessed due to non-payment of tax, there would be a very, very, strong incentive for landholders to oppose any any changes in their community that would increase land values, and to support changes that would decrease them. If land values decreased, sure, living there is less valuable to landholders now, but this is more than made up for by the reduction in tax, and they would get to keep the cash they were originally paid to accept the land - now producing more interest than what is necessary to pay the tax.
Obviously a terrible idea, and I think I see why others in this thread are saying that some Georgists only want an e.g. 85% tax - you still want people to be incentivised to make their community better, and not merely be indifferent to whether it improves or not.
Going above 100 is bad because then you can't make as much from the land as it costs to pay the tax, meaning no one would want to own the land and they would leave that locality.
That's exactly the problem I foresee with this; if the LVT is too high (and the temptation to push it to 100% would be very strong, if the idea is that all other taxes can be scrapped/we can pay everyone UBI) then people will abandon it. "I can't sell it because nobody wants to buy it at that LVT, I don't want to own it because I can't afford to pay that LVT, here - I'm abandoning it".
What next - the state takes it over, because you need to build houses and if private industry won't do it, then the state will have to. And then the state charges itself LVT to get the revenue to pay the LVT to get the revenue...
This is also @Travis. LVT can only cause land to be abandoned if you're getting the valuation wrong and taxing an amount greater than the land generates each year. This would quickly become evident as the land became abandoned, giving the property zero value and making the tax obligation zero. So there's no incentive for the state to over-value the land, as it reduces their tax received.
Yes, that's what I said. 100% LVT is equivalent to the amount the land generates each year. And yes, if that happens it would be quite evident.
But that's just what the land generates, and doesn't include what the property generates. If the land generates 10k in rent each year, and the buildings on the property generate an additional 40k each year, then the LVT could go all the way up to 500% before it stops being worthwhile to own the land. So, if the LVT only went up to 300%, would anything go horribly wrong then? Taxes would take 30k each year, but the owner would still be making 20k every year, and could conceivably replace the buildings with something that generates even more money.
Well actually here you have reached essentially the conclusion that has made me not worry about 100+% LVT- the state would never want to over assess or overtax land, since it would simply hurt their own economy and tax revenue.
The LVT isn't 100% of the value of the property though, right? Just the land? So if I can build something on the land that is worthwhile enough, I will do so. So you could tax over 100%?
But I guess this is a feedback loop because if I can build a building which can generate more wealth than the LTV, there is incentive to purchase the land which increases LTV. I guess I'm confused.
But they can make money off of the buildings built on the property, no? The higher than land value tax the more it would incentivize ultra-density, right?
If it’s above 100% and you are still collecting money, that is essentially no longer a LVT but instead has become a LVT+ some combination of income/property/wealth tax as the additional revenue by definition is being drawn from something other than the rental return of the land. If the rental return of my land is $50k a year and you tax me $60k then I either will need to pay that out of my salary or by liquidating assets, so the additional tax incidence is falling on something other than the land despite being named Land Value Tax.
Just like if you raised my income tax to 120% of my annual salary and I had to start liquidating assets to pay may tax bill, it’s not really just an income tax at the point regardless of what you call it.
What I absolutely love about Georgism is that you can replace "land" with "commons".
You don't get taxed because you own a piece of land in Manhattan. Nobody cares about that piece of land per se. You get taxed because of everything people built around your piece of land - you get taxed because of and proportional to how useful Manhattan is. That's value created by society, and to the extend any tax is fair at all, this is the most fair type.
Compare this with taxing income. You work, you better yourself to be more productive, put in hours... and somebody comes and takes half of that. Just because they can.
Now, why Georgism will be very hard to implement is how incentives are distributed. Everybody would win some. But land owners will lose a lot, and they'll fight tooth and nail against it, by any means possible. They do have a fait point as well - if you just paid 1 million for your home and still own the bank 900k, you will be a bit miffed to have to pay what pretty much amounts to double mortgage. TBH, not sure how to fix this, but there probably are methods. Delayed application for residential areas, for instance.
Another (mostly positive) consequence: just seriously talking about this will drive home prices way down.
"The typical landowner has been receiving an implicit subsidy from the government, as public goods generate higher rent and land value. One could argue that justice requires the title holder to pay back the past subsidies." https://www.progress.org/articles/the-transition-to-land-value-taxation
Well yes, but what if you bought the property two weeks ago?
I'm very much not against the idea. Just pointing out the (good) points opposition will bring.
When you say "The housing crisis is driven by inflated land prices, which in turn drives poverty, homelessness, and all other manner of social ills" you miss the main point: land prices are inflated in the first place because of lack of supply, not primarily in the sense that you can't create more land, but mainly in the sense of constraints on what (very little) is allowed anymore to be built on the land that does exists. It's the inherent NIMBYism of modern society that is driving inequality, and until A LOT more building is permitted in our productive urban areas (until supply = demand) it won't get better. In fact, the benefits you imagine from your wished for tax only work in a static world where demand for housing and other productive assets magically freeze at current levels. Sorry, this is just Soviet style planning dressed up in well intentioned rhetoric. I like your openness to seeing flaws in your argument. Hope you'll see this one.
I don't think you're correct here, and I say that as a massive YIMBY. Yes, zoning is part of why housing is so expensive, but even if you massively upzone everything, land will still be way more expensive in the center of thriving cities than it is in the countryside.
Plus, the two problems go hand-in-hand: landowners are NIMBYs because they want to protect the value of their main asset; it is their main asset because land speculation is so profitable. We should fix both.
Land in or near "thriving" city centers will always be more expensive than in the countryside - that's not a problem to fix, it's a simple statement about people's common sense preferences. In what possible world would we expect an acre in downtown Los Angeles to be priced the same as an acre in the middle of the Nevada desert? So that just leaves the problem of landowners being way too NIMBY, such that building supply cannot begin to meet demand. Just imagine if the New Yorkers of 120 years ago insisted on the preservation of their neighborhoods and sightlines as we do today (and all in the name of preventing fat-cats from erecting luxury office and apartment blocks): instead of being the 20th century powerhouse it was Manhattan today would only be a quaint curiosity with all productive capacity seeking a home long ago elsewhere. That didn't happen (thank goodness) largely because New Yorkers of a century ago did not have the policy voice their descendants have today. It is the middle class's success over the past 100 years (much more than the fat-cat 1%) that empowers the effective veto of building projects that were not stopped in an earlier age. We cannot fix the supply problem by re-distributing the tax burden, unless you can explain how the new taxes align incentives for massive new building. Or unless you're satisfied to freeze cities in the amber of good intentions, like what would have happened to the New York of 1900 had there been similar-to-today's constraints on building the modern skyline. We may not like that skyline but it is what drove the American century.
I didn't pose the price differential as a problem, nor am I arguing in favor of NIMBYism, perhaps you need to read my prior comment again?
But yes, land tax will align incentives to build more: under LVT there will be no speculative profits, landowners' profits will come entirely from what they build. There'll also be less incentive to be NIMBY, see previous comment.
Land value assessment are ongoing, so anytime the demand increase above supply for a given land use, then the value of that land goes up, LVT goes up, and you have to do more to get revenue (build more units, specifically in the case of housing.) to pay the LVT.
This is the point of the LVT, to stop speculative land holding and underdevelopment of land which can be put to a higher use.
Some Dutch cities have a system that resembles Georgist taxes, called "Erfpacht". You pay taxes to the local government based on the value of the land, and it is indexed regularly. Most places nowadays allow you to pay it off in perpituity, but its still normal to pay it. A colleague just bought a house that was a lot cheaper than others around it because he needs to pay the yearly tax. I am not sure what the difference is with a real Georgist tax, there has to be something as I have not seen this example brought up before.
Yes, Erfpacht is indeed very Georgist in concept. It should just be much larger, and not possible to pay it off in perpetuity!
Here's a cleaner (more formal) way to make the roller-coaster point. At the time of building, we can use the naive formula that:
property value = land value + building cost
Why? Because if both transactions are arms-length, then some real buyer paid both prices, and by the subjective theory of value, that's what they're worth.
Now let's talk about the old building. Naively, we want to subtract depreciation of the built structure--a new structure would not be identical, but rather shiny and new. But we should also be aware that opportunity cost increases over time. At the time of building, somebody was willing to pay the built price for the built structure. Since the world changes over time, both in its needs and in its building methods, that becomes less and less true over time. So you have to multiply the improvements term by the chance that a new buyer of the land would want to preserve that improvement rather than tearing it down. And then if the buyer wants to tear down, you have the destruction cost (including permitting, which for a historical district or whatever could be enormous). So:
property value = land value + prob(retention) * (building cost - depreciation) - [1-prob(retention)] * destruction cost
Prob(retention) is likely to be U-shaped. Unless the initial builder is super-idiosyncratic, flipping at the start should only involve the flipping costs, and depreciation isn't generally as high as with a used car. After a long time, properties are "historic" and they're worth more as rehabs (to fix the depreciation, which might be extensive) than as teardowns. So the Fed line is likely to be pretty good for areas full of very new or historic properties, and way too low for the vast majority of improved US land, which is neither.
So I've been very persuaded by Georgism about cities, because the value dissipated in economic rents, the poor usage of valuable space, and the resulting drag on the national economy are all so overwhelmingly obvious.
I'm a bit worried about how this applies to rural land, however, precisely because it's not clear to me that we want to maximize the immediate improvement of rural land the way we do city land. Say that farming in Iowa inevitably uses up a finite inheritance of topsoil. Land value depends on the amount of topsoil. Future farming methods use less topsoil per bushel of corn than current ones. So currently the farmer is incentivized to farm less intensively now than his discount rate would suggest, in order to preserve land value. If a Georgist tax makes land value-less, or nearly so, then the farmer should farm more intensively. A very similar story could be told about a West Virginia coal field.
So now I worry that Georgist taxes are destructive in rural areas without also passing Pigouvian taxes, which we haven't done a good job of so far. Or more precisely, the case for Georgism seems to rely on land values bounded from below at the Ricardian rent-free rate (no improvements and no neighboring improvements with spillover). But with land containing natural resources, that's just not the case.
That's a really good insight thanks for sharing!
I will note that if you look at the plots you can flat exclude agricultural land from a proposed LVT and basically not notice the change in revenue, so it doesn't seem like it'd scupper most of the arguments made here, but it's certainly a critical thing to consider for any policy makers
Yes, I don't think this undermines the basic idea, but I think it's an important tweak at both the practical and theoretical levels. At the theoretical level, it suggests that what Georgists really want to tax is "place"--that which cannot be created or destroyed. So mineral resources (and similar) are really not capital or labor in the Georgist view, but some third category, and we would be wise to see out the implications of that.
At the practical level, I think you're 100% right that the financial difference from excluding rural land isn't that big, so there's no problem there. But I'd rather come up with a good theoretical distinction on land than on rural/urban because that's obviously a continuum and not something we want people to get litigious about. I also worry that there might be parallel cases in urban land--imagine some pollutant that was extremely hard to clean up, and which people really disliked (say it smells bad) but which isn't like an easily spread carcinogen or something so the criminal penalties for dumping it are low/nonexistent. Now a plot owner in a city who wants a tax-free privacy screen around his house can contaminate a set of plots so as to lower the value to near-zero and not have to pay tax on those plots. Maybe that seems sci-fi/far-fetched, but the general point is that any time land value could be reduced below the Ricardian minimum is an opportunity to game the system or generally create bad outcomes, and such opportunities aren't intrinsically limited to rural land.
So actually this is a major point in Georgism's favor, in my opinion. Right now, farming is primarily in the hands of agribusiness, which uses high-cover monoculture to raise crops, mostly because it is very labor-efficient to do so, and also because they receive a lot of subsidies. Georgism would incentivize doing more labor intensive, smaller scale permaculture, which has higher returns but is much more capital and labor intensive, and is also more efficient and better for the environment. That means that Georgism would encourage more efficient and smaller farming, plus it frees up land by densifying cities and hugely reduces cost-of-entry for farmers by sharply cutting capitalized prices of land (to ~0 at LVT of 100%).
If it's more capital and labor intensive, then how exactly is it more efficient?
Thanks, it's great to see how much effort you put into nailing down your claim, and I totally believe that you are trying to be very honest about them.
One (mild) criticism: for the question how the money is actually spent, you jump between different options, taking the option that is most convenient at a given place. If we raise 1 billion of LVT, we can use it *either* to pay for military/social services and remove other taxes, *or* we can give the money back via UBI. We cannot do both.
For me, this doesn't change the fundamental picture. If other taxes are removed, then this has _very_ roughly the same effect as a UBI, except that the distribution is totally different. And I think your calculation with UBI makes sense and gives an important insight. But it is not as transparent as it could be that this is an *alternative* to removing other taxes, and you are obviously aiming for perfect clarity elsewhere.
Fair criticism. A lot of Georgists are fairly neutral on how the revenues get used, which might be why Lars jumps between the various alternatives.
I think the reason for the variety of opinions here is that taxing land has features which should be desirable to most political philosophies, but how to spend the revenues has much more scope for disagreement depending on your personal preferences for equity/equality/types of public services etc.
Most Georgists fundamentally believe we will be able to raise more than enough revenue to fund the government and still return a UBI.
Lars avoided saying this, and most of us avoid strongly making this claim, because it isn't objectively demonstrable, but the idea is based in our understanding of the theory.
So we tend to settle with "let's do it and then we'll figure out if its enough. If it isn't, then we'll figure out what to do next."
Most Georgists aren't really "Single Taxers" anymore, anyway. A lot of us believe in pigouvian taxes against pollution and various other negative externalities, as well as severance taxes on depleting non-renewable resources, and some forms of taxes on land-like things, like intellectual property and some of the components of the digital economy.
Yes, sorry that I wasn't as perfectly clear as I could have been. One thing I would add is that when I did the UBI calculations, I was using the *most pessimistic* estimate. If that turns out to be true, whelp, that's it, that's all we can do. But if, say, Smith's estimate is correct at a decent capitalization rate, then you can do the UBI figures I mentioned *and* pay for at least one major budget line item while offsetting at least some existing inefficient taxes.
"But won't landlords just raise the rent to make up for the LVT, passing the burden of the tax on to the tenants? Georgists say no, because land is special in that it is scarce and nobody can make any more of it."
Kindly remember that I am an innumerate idiot. This doesn't seem to make sense to me, because it sounds like arguing that increases in prices won't be passed on, because the entity wanting to put up the price can't make more land.
And that sounds like "My electricity supplier is going to pass on the increase in costs by raising my electricity bill" where the Georgist says in response "Don't worry, they can't do that, because land can't be created!"
Landlord (be that private individual or commercial operator) wants to make a profit off renting out their property. Take away running costs etc. they want enough left over to make it worth their while to be a landlord. Private individual often wants to pay mortgages or live off the rental income, commercial landlords are running the business.
So the Land Value Tax is going to come along and take a bite out of their income (your example of $500/year lease payment) to a greater or lesser extent. Let's take that $500 - now, if it's taxed at 40%, the landlord only gets $300. Maybe the landlord decides this is not enough, in comparison with the running costs and the expected profit.
So what do they do? Pass the charge on to the tenant(s) either by hiking the rent or adding in a new 'charge'. No business is going to voluntarily take a cut in revenue. The prevention of that is passing legislation to prevent rent hikes (hey, isn't rent control controversial round here?), not saying "Ho ho, they only have one plot of land where the building stands, they can't create a second one, so they can't pass the rent hike on!"
Also, the parking lot next to the skyscraper - maybe you *need* the parking lot more than another skyscraper, because if people can't access transport to get to the skyscraper, it's no good to them. So yes, maybe the parking lot is as valuable. But if the owner then builds a new skyscraper there instead of leaving it as a parking lot, now the people can't park their cars anywhere on the streets and the skyscrapers are, in effect, unusable by them.
To the first: the general theory is that landlords are usually charging the maximum rate their tenants can pay already, so there's no more room to hike it up in response to a land tax - this argument should appeal to your intuitions vis a vis landlord greed.
To the final paragraph: if a parking lot is more valuable than a skyscraper, it'll be more profitable too, by definition. You can charge quite a lot for parking, but I suspect the actual optimum would turn out to be skyscrapers with a few floors of parking at the bottom.
Answers to both of these: Yes, if we implement a LVT right away, existing landlords will try to pass on rent increases, but fail to get the full amount. Tenants will move out rather than pay the full increase, and landlords will find that they need to offer competitive rents to actually get tenants - tenants don't have infinite money and are part of the price negotiation too. But, yes, the landlords might now mass default on their mortgages, banks will collapse - it'll be a disaster.
But in a world that is *already* Georgist, the landlord would have paid a much smaller sum for the property in the first place, because the market price for the property was just that of the improvements and not the land itself. This wasn't obvious to me until today, but the fact that properties come with a tax obligation reduces the price people are willing to pay, and if the tax rate is chosen to correctly as per Georgism, the sale price should end up equal to the improved price only and none of the land value.
So the landlord can make less rent in this world - they have to pass on the fraction of the rent for the land's value to the government as tax. But they get to keep the fraction of the rent for the improved value. They still own the building, and the tenant is paying them rent for that too. So that rent is still a decent return on investment, as a percentage per year, on the price of the property the landlord actually paid. Effectively landlords will be in the business of owning and renting buildings, not land. They will pass on the full cost of the land tax to the tenant, but that's fine. Tents today are paying for the value of land already. They won't be paying it double in a Georgian world.
How to get from our world to a Georgian one is the question though - if you just imposed the tax overnight, yes, many landlords will need to try (though they'll fail) to charge tenants double the land value in order to not make a massive loss. So you need to phase it in gradually enough for it not to matter, or buy the landholders out of the land value at the same time as creating the tax obligation.
As for the carpark next to the skyscraper: if it's that important, then the income from parking fees should be high enough to cover the tax: making a carpark is the most productive use of that land. If people would be unwilling to pay high enough parking fees that the carpark can afford the same LVT as the skyscraper, then it was not as necessary as presupposed.
"Tenants will move out rather than pay the full increase, and landlords will find that they need to offer competitive rents to actually get tenants - tenants don't have infinite money and are part of the price negotiation too".
In an ideal world, yes. In a world where (for instance) most of the good-paying jobs are located in the big city (as in Ireland where Dublin has a disproportionate warping effect on the rest of the country) and you need to rent somewhere to live there, or face having to find accommodation you can afford in reasonable commuting distance, then the landlords have the whip hand. Oh, you don't want to/can't afford to pay this rent? Fine, I'll just move on to the next person in the queue behind you.
There's plenty of flouting of the regulations already in place and poor to ineffectual enforcement:
https://www.irishexaminer.com/news/arid-40710713.html
The Government has ordered a crackdown on rogue landlords as rents have surged by as much as 17% in some parts of the country.
There have even been hikes of as much as 11% in high-demand areas where rental price increases are supposed to be controlled.
...The RPZ legislation previously limited rent increases to 4% per year, but was overhauled to link increases to general inflation."
So I honestly don't see how a LVT won't be passed on in the rent charged. Talking about renting out buildings, not land, and the value is in the improvements not the land itself sounds great, but what makes the land valuable is its location. If it's an acre in the middle of New York, it's very desirable and hence valuable. If it's an acre in the middle of Death Valley, it has no value.
This is where I am not getting it. The distinction is being made between Land Value - so the acre in New York is more valuable than the acre in Death Valley before ever you put any kind of building up on it. It's more valuable because of what you can do with it, the demand for that building or service, the fact that there is only a limited amount of available land in New York city proper. I get that, and I think most people do, too.
Then we get the Land Rent - the amount you can charge someone for living in your building or buying the things you make in the factory or whatever. And if your building is in a desirable location like New York city, then you can charge a lot more than you can for the Death Valley location. The fact that you can charge someone $5,000 a month for the use of that New York acre while you'd be lucky to get $1 a month for the Death Valley acre is what makes the New York acre valuable. I get that, too.
What I *don't* get is the jump to "and so if we can sell the New York acre for $100,000 and the Death Valley acre for $1, what that means is that we have a total value of $100,001 for all the land, which means we can charge rents of $5,000 per month for the Death Valley acre as well and that means we can do away with taxes if we just impose a LVT on that $5,000 per month!"
The 'total value' of all the land in the USA includes a lot of bad land, scrub, desert, mountains, middle of nowhere where nobody wants to live, Rust Belt dying towns, etc. You are not going to get New York city rents for those properties.
What I also don't get is the connection between "if you can generate $10,000 in revenue from your land but have to pay $5,000 in property tax, you are going to be less willing to pay $20,000 to buy that land than if you could generate $10,000 in revenue with no tax" - yes, that's making sense - "so if we put a LVT on that revenue of $5,000 instead of a property tax of $5,000, we can still value the land at $20,000 or more!" No, you've lost me now.
Same thing with the parking lot - if you are going to charge people parking fees at the same level as "if this was a skyscraper, you'd be paying $2,000 a month in rent for an office", then even if people *need* to park there, no way they can afford those charges, so they don't park there, so nobody can travel into the city, so your shiny new skyscraper remains empty and you don't make *any* rent from it.
As land is taxed, underdeveloped and vacant land will come onto the market and more housing units will be built, increasing the supply back up to the demand, reducing the price.
Another way to think about it, is landlords are already charging as much as the market supports. Trying to charge more will make them go to the next best alternative.
In California, you could have two houses next to each other, one covered by Prop 13 which is paying much less tax, but they rent out to tenants at the same amount.
The landlords are charging as much as the market clearing price for the current supply and demand, because if they would increase their price, the people would find another landlord without this increase. However, if *every* landlord suddenly gets a large increase in costs - no matter if it's because of inflation, or LTV, or some policy requiring landlords to invest in buildings, or some tax - then this would result in the market price increasing; not for the full amount, but for a large proportion of the LTV.
Your first argument about the supply increase is valid for the *long term*, however, the key objections are raised about the short term shock. Georgism has a lot of rebuttals that are fine for the long-run steady state scenario, however, that's not on people's minds and it would take literal decades for that steady state to arrive, houses do not get build overnight and neither do people respond to location desirability as fast. In order to justify that Georgism is somewhat plausible, there needs to be an answer that will ensure tolerable results for almost all people already on a, say, 2 year scale, or it will be repealed long before the steady state can arrive.
Okay, I am an idiot, is the proposal "the land itself is worth $10,000. The improvements you make mean it is now worth $20,000. The difference is $10,000, so you charge rent at the $20,000 level, pay the LVT at the $10,000 level, and keep the difference"?
Exactly. And when you bought the property, you didn't pay for the land itself - the sale price represented the value only of existing improvements. So you've invested 10k, and get to collect rent on a 10k asset - the same rate of return as before.
When you bought the property, the property was more valuable than it otherwise would have been because it was possible to make improvements and this was priced in to the value of the land.
If the land was otherwise worth $10000, and it was possible to make improvements that make it worth $20000, the land would have sold for $20000 (minus the cost of making the improvements). It would be impossible to disentangle the "value of the land" and the value of the improvements.
(Note that the answer to that is not 'subtract the value of the improvements", since the improvements may not even have been built at this point.)
> Tenants will move out rather than pay the full increase
To where? Assuming the LVT is applied region-wide, then there is nowhere they can go to escape it.
> landlords will find that they need to offer competitive rents to actually get tenants - tenants don't have infinite money and are part of the price negotiation too
In practice, tenants just have to pay what's being asked. Landlords look around and price their apartment based on other similar units, not based on what tenants can pay. If their costs all go up, they will all ask more, and the tenants will pay it, because they have to or they die.
> though they'll fail
No reason to think this is the case except naive microeconomics that ignore the realities of the power differential between landlords and tenants.
The idea is that whatever the landlord charges is attributable partly to the land and partly to the wealth. By definition, the land part in its entirety goes to the state, so the landlord gets to keep the wealth part. Can they set it as high or as low as they want? Of course they can. No paradox here. They don’t need to offset the LVT because effectively, the tenant pays it, not the landlord.
Part II will address passing on taxes to tenants in depth! And you don't need to understand the math, we just look at places LVT has been implemented and see what happens.
The greater value of urban land over rural land is generally urban land is under "planning control" and you have to get permission to build anything.
That San Francisco land sale notice made sure to note what the land was zoned for and thus what you could build on it.
I think your analysis has a large weakness as a result of this. I did not read the whole thing, but searching for "planning" or "permission" did not turn anything up.
If you don't discuss how much of the land value is in the permissions vs. location + area, then the value you tax on is going to be artificially inflated (quite a lot in the case of places like SF or New York which are notoriously difficult to get planning changes for).
If the value of the land changes a lot depending on what you're allowed to build on it, and the government can change this at will, then it's not really the land value you are talking about, which depends on the value being related to things that can't change like location close to other things that make it desirable.
The planning constraints on a given piece of land *are* part of the land value, and that's a good thing. The desirability of taxing land value is that the *landlord* can't change it, so it doesn't distort their economic behaviour. But having land value be something modifiable by the government is desirable: their incentive is to the maximise the desirability of all land under their jurisdiction, which means to implement the optimal set of zoning policies!
"If you take Georgism to its natural conclusions, you might start to question government-enforced monopolies over other kinds of "Land," such as electromagnetic spectrum..."
Is electromagnetic spectrum not already handled in a Georgist way? Governments hold auctions where you can buy monopoly rights over the spectrum for 10 years, say. So companies basically rent the spectrum from the government at the market rate for that period, which to me is indistinguishable to paying a tax equal to the market rent. An important aspect is the period of the rights - having <= 20 years makes it harder to profit by just holding onto the spectrum - an increase in value over time can easily be wiped out by the reduction in the remaining term. For a longer term, this would look less Georgist.
And actually, this is a pretty good advert for Georgism. The approach seems to work very well for electromagnetic spectrum and has been widely adopted around the world. Replacing the approximately pre-2005 approach where the monopoly rights were typically awarded by a bureaucracy via some opaque process in a form of corporate welfare.
Yes, basically. Like you said, the non-Georgist part is long lease terms. The value increases over time, so the rent should as well.
There is no such thing as the "natural" value of the land. Farmland becomes valuable because you can farm on it, and the better you can farm, the more valuable it becomes. Land in the city, even if there's no building on it, is valuable because of the surrounding city. Your patch of land in the desert might be worthless in itself, but it will become really valuable once someone starts a technology park nextdoors.
Did you actually read the article?
The point is that it's supposed to not have negative effects, but I can't see how that works out. Let's say I invent an improved way of farming. Now the value of my farmland goes way up (because of how it's more productive), and my taxes increase, likely to a very substantial part of my productivity increase. This certainly doesn't encourage me to make such innovations.
Similarly, I can't buy up a lot of unproductive land and put up a city there to increase the value of my land (as was suggested in a Charter Cities post), as that will all get eaten up by taxes.
You seem to have missed the part where the improvements will not be taxed
Not the improvements in the form of buildings, but the increased value of the land as an effect of the improvements. For instance, if I build a road to my property, this will increase its value as opposed to if no-one can reach it.
Example: There's cheap land in the middle of nowhere. Under the current system, I could buy that and build roads and put up buildings, and then earn a lot of money from selling people the now much more valuable land - more valuable not because the house or road is taxed, but because the land itself can now be used for things it couldn't before. This, after all, is why land is expensive in downtown Manhattan, and everything I read tells me that it will be taxed at this value, not at some hypothetical value it would have had not a huge city been there.
I could not make the same kind of land value earnings under LVT, as all land is essentially worth zero. As I understand it, this is a feature, not a bug? But it also means that the economy to pick up this cheap land and develop it into valuable *land* might not be there - if I'm to make any earnings, it will have to be from the actual buildings, not from the land?
Same thing if I buy unused land and turn it into farmland - presumably the farmland will now be taxed at the value it could be rented for, which is higher than the wilderness it used to be?
If this *isn't* the case, then how on *Earth* is it going to be handled?
If someone other than you invented an improved way of farming, yes, your farmland became more valuable overnight, because you can now use technology you didn’t invent on land you didn’t create. Why should you be entitled to pocket the profits of that?
You're not engaging with the problem. Suppose I know a method I think will give 10% increased agricultural productivity that nobody else knows about. If I can keep it secret, then this is good for me: the assessed value of the land won't go up, but I'll be able to produce more. If the secret gets out, then the land tax will eat up all of my additional income. So I have an incentive to not invent improvements like that or at a minimum, not share them with others.
Under the current system you also have an incentive to invent something and keep it to yourself and a disincentive to allow all the world to use it for free. Under the new system, everyone _has_ to farm using the most efficient methods or they lose money, as long as your invention is the best you rake in the cash from the royalties. I could see a couple of problems here but the general direction seems to be OK.
If improving the output involved capital investment in the land, then doesn't the Georgist specifically not tax that? Because that's capital, and not 'land'?
Not sure. The reasoning I see is "how much could the land in itself be rented for", but this isn't very clear-cut - if I improve farmland, presumably I will now have to pay higher taxes because the land itself is now more valuable?
I'm also not sure how to treat a forest - is the lumber value included or excluded in LVT calculations? If included, the landowner is in huge trouble - everyone would want to "rent" it for a few months and cut down all the trees, so the LVT would be enormous!
But is this really so different a situation than building a house on an empty plot? In both cases you have to sell the two together, you can't sell the land and not the house and likewise you can't sell the land and not the forest. This suggests it should be considered capital and taxed accordingly. You could rent the land for more with the forest on it etc. But that's because of the capital investment, which Georgism wouldn't seek to tax. I think the problem here is a hazy definition of 'land', going back and forth between common current usage and specific Georgist usage
This article convinced me that land plays a bigger role in modern economies than I gave it credit for.
One question regarding a side remark in the article: How is a lvt supposed to end 'wasteful, environmentally damaging sprawl' if in an ideal world it is implemented without deadweight-losses, i.e. in a way that doesnt change the optimal use of any given piece of land (other than for speculation) and is thus incentive-neutral? I understand that a lvt would not change the cost to rent anywhere, not in a city and not in a suburb or rural area. So if it makes sense for someone to live in a suburb now it should still make sense after the implementation of a lvt.
I don't understand anything about the housing argument either. Lack of housing is mostly caused by legal matters, like where you're allowed to build, and your rent is still going to be the effect of either controlled rents or supply and demand.
If anything, won't rents be a lot *higher* with LVT, since now that I have more money post-taxes, the owner of the building can raise taxes (and has to, because of his own cost of LVT taxes)?
Or this: Let's say I want to build an apartment complex, and I need a certain return on investment on it in order to even do it. Regardless of LVT, I'm going to make a calculation about my costs (including land and construction) and how much rent I can charge (based either on controlled rents or supply & demand, or some combination). While the calculation changes with LVT, I can't see how it affects the principles - I'm going to build or not build, and I'm going to charge all the rents I can get away with (and ideally higher rents yet if I need to cover LVT costs).
Where does LVT even *start* to push the rents down? The factors determining rent will still be my costs (*higher* now), supply & demand, and any legal restrictions on the rent I can charge.
That should be "can raise rents" above in the first paragraph, not taxes.
Yes I agree. I expect the next post about "can land owners offset the LVT by increasing rents" to address this issue. Basically, supply of land is fixed and thus absolutely inelastic to changes in prices while there is some elasticity in demand (e.g. you will rent a smaller flat if prices are too high to afford a larger place). Therefore, basic economic theory tells us that we would *not* expect market prices for rent to increase as a consequence of the land owner having to pay a LVT.
However, if the LVT also leads to second round effects on the demand side because somehow everybody has more money now, we would expect all kinds of prices to rise, including rent. This seems to be the gist of ATCOR, although I really really doubt the effect would be that strong. If my salary increased by 100%, and real estate prices increased by 100%, while all other prices stay the same, I for one would *not* decide to pay 100% more for my flat - I would move to a cheaper place so that I only have to pay say 40% more. If the average person does the same, we should not expect real estate prices to rise quite as much as income has risen, and thus not all of the increase in wages would be captured by rent and the land tax. In essence, ATCOR poses the question whether real estate is a Giffen Good (https://en.wikipedia.org/wiki/Giffen_good).
Also, LVT will most certainly affect whether it's worth it to build new housing in this case. It's an outright additional cost, which will by necessity *either* be passed on to the person paying the rent, *or* reduce the income for the person renting. Either has effects.
I'm confused. Supply of land is fixed but land is not homogenous. Certain land is worth more than other land. LTV is taking that into account by estimating purely the cost of the land. If an apartment building that houses 1000 people is next to a house, the house and apartment will be taxed equally. No one would want to live in that house anymore because the land lord of the house would raise the rent price because the tax burden is tremendously high. Where am I going wrong?
Well, living in a single-family house occupying an apartment-block-sized plot is a tremendous luxury that should be priced accordingly.
In that situation, do you think the tax would be passed onto the renter as higher rent?
This is my argument as well. Farmland for instance isn't a constant - the total area can rise or fall, and will do so depending on productivity, costs and incentives.
Situation: the tenants require good location and quality amenities
Before: the developers have to pay through the nose for the plots, passing on the cost to the tenants
After: the developers compete on amenities only, the tenants pay for the location to the state
Makes sense to me. Of course, in the case of LVT, you start by taking away the entire value of the plots they originally paid for, so now they have to make that up a second time.
Transition is an entirely different question.
Another point: you can't short real estate. Also demand is pretty inelastic. This means real estate prices are doomed to go up long term - and since people realized this, that's the third incentive to put money in it, no matter the price.
TBH, I don't know of any measure outside georgism that can fix this, and doesn't have horrible side effects.
This is the story of housing in my home city of Stockholm - the combination of rent controls and housing restrictions has created a decades-long lack of housing, and throughout this period, housing costs keep increasing considerably more rapidly than wages (meaning that housing consumes an increasingly large share of household expenses). Presumably the way to improve on this would be by reducing rent controls (as has indeed happened over time) and making it easier to build.
I still can't gather how Georgism would reduce rents, though. What's the mechanism even supposed to be? Isn't it still just a matter of being allowed to build in the first place, and then supply and demand and requirements for return on investment applied to the housing that exists?
i guess the mechanism is that it would now cost money to sit around with empty plots of land, so property owners are more likely to sell to developers, or to develop their land themselves?
I can see some potentially nasty effects here. Let's say I have an old family house in the archipelago. It's not exceptionally valuable in itself, but rich people are putting up luxury houses all around me, and I actually _could_ sell the land for good money. Does that mean I will now have to pay an exorbitant LVT because of how the theoretical value of my land has appreciated, even though it has had _no_ economic effect on me yet? Could my land become so expensive that I'm forced to sell because I can't pay the LVT?
Or is the idea that I only need to pay the LVT if I *actually* get any earnings? But in that case, idle land won't cost you.
No, it's full worst cost scenario here. If the value of your land goes up, and you are doing nothing with it, it's still a full increase in your taxes. The purpose is to force you to sell it to someone who will do something better with it, so you can't sit on it. In very expensive cities, it will almost certainly convert all valuable land to skyscrapers and apartment complexes and almost no single family homes or "less efficient" uses. Depending on your view that may be a good thing, but it certainly changes how things work now.
This seems like it will make it a political non-starter, then. "The government will force you to sell your house and move" won't go over well.
I agree entirely. I originally loved the idea when first posted on ACX, but the more I thought about it the more I realized that it would (intentionally, and unavoidably) force people to sell property whether they wanted to or not. That was mostly fine to me as long as that was only businesses or real estate speculators, but it's clearly intended to apply to everyone and would certainly apply to private homes as much as anything else.
This is already a problem without specific carve-outs under current property tax laws. You own a house, worth $80k, you can pay taxes on it, then the area becomes much more wealthy, now your house is worth $200k, and you can't pay taxes on it any more, get out.
Yes. That's a feature, not a bug.
That's how it would solve housing crisis as well. It's a little acknowledged fact, but selling to "the masses" is a lot more profitable than making luxury goods. The 1% are actually closer to the .001%, and tend to be a very small and pretentious market. One of the best examples is actually appartment buildings and/or houses.
LVT would probably not force you to always go to _the_ most optimal land use - the article was suggesting it might eat up around 85% of land value, but in practice I'd be ultra happy with anything approaching 50%. Because this would strongly nughe owners away from the worst kinds of waste, like single family homes in prime residential areas. They're still possible, but now you have to pay for the privilege, instead of taking a free ride on a growing market.
I do wonder about the externalities here. It's quite possible that having a nice park in the middle of the city is a net good. But unless we carve out some exemption for public land, LTV will make it not just unproductive but exorbitantly expensive to keep the park around when you could sell it and develop more housing (resulting in a net bad).
Similarly, walking trails through a nice forest are difficult to monetize, but it's not obvious that turning it into yet another golf course would be a public good.
At least under a strict interpretation, Georgism seems uninterested in public goods like these?
That depends on the implementation, I guess. I'd expect public domain would be extempt.
But just as a thought exercise, anarcho libertarians thought up plenty of mechanisms to solve this. Local residents might chip in, or there might just be a form of entry fee (plenty of ways to implement this unobtrusively, if you don't care about 1% evasion)
Actually, Georgism incentivizes the development of public goods like those you mentioned (https://en.wikipedia.org/wiki/Henry_George_theorem). If the government can increase land values in an area by putting a public park such that total land values rise equal to the value of the parkland, there is always an incentive to do so- likewise with river trails, forests, etc. This is the opposite of the current tax system, where a government gets little direct benefit from greenspaces and parks.
It costs money now to sit around with empty plots of land.
You can short sell an REIT.
Perhaps I am missing something, but it seems like several times in this article the author equates land rents (in the technical economic term) and "how much money I can rent my land out for". That was not my understanding of what "rent" was.
For example, suppose I claim a plot of land and build an apartment complex on it. Furthermore, let's say I can rent it out for $500. The "rent" I am capturing is not $500. It's the portion of the $500 that is not due to me building an apartment complex on the land. So if I could rent out an equivalent apartment complex in the empty countryside for $300. Then the rent is (at least more approximate to) $200, not $500.
Putting aside all of the other economic criticisms (e.g. how much would land be worth under a georgist system). I don't think you can just look at cap rates and conclude that this is fully equivalent to the rent being extracted on this land.
Land rents refer only to the share of rent that comes from the land itself, not the apartment portion. So yes, from your example we're only looking to tax the $200. One way to estimate that is to take the cap rate x the land value (excluding the value of the apartment).
How would you know the value of the apartment?
Part III will deal with valuation! But property assessments already often assess the land and improvements separately, and it's actually relatively straightforward to estimate land values using hedonic price models (with improvements being the remainder of the property's market value).
"The purpose of LVT is not just to raise revenue, but to end speculation, rent-seeking, unaffordable housing, and wasteful, environmentally damaging sprawl."
Non-single-tax georgists are actually quite confusing to me. There are clear and easy ways to fix all of the issues mentioned that have nothing to do with an LVT. Speculation can be taxed, housing can be subsidized, ending zoning laws will inherently discourage wasteful sprawl, but you can also just tax sprawl if need be.
The attraction of an LVT is that it accomplishes all of these things efficiently. However, if you're ok with a non-single-tax then you're clearly ok with doing things inefficiently. Which raises the question: why even support georgism in the first place? Figuring out what portion of a land's value is due to rents is a difficult problem. Subsidizing urban housing is quite a simple problem, though inefficient.
I get I'm not supposed to like "sprawl," because the word "sprawl" was used instead of "people living where they want."
But it seems to be assuming a big conclusion to just say that sprawl is bad.
I can guarantee you that no one wants to commute 1.5 hours to work in downtown Seattle.
You've baked a lot into that sentence.
Yes, its like Meta-Socratism, where I don't even ask the question, I just make a statement that forces you have the theoretical discussion we could have been having, but only with yourself in your own mind.
> that forces you have the theoretical discussion we could have been having, but only with yourself in your own mind.
No, fuck you.
And yet people do. People make decisions under the constraints of the real world.
Sprawl is bad if it is artificially created by government intervention in my view. Then it is probably economically sub-optimal.
Sprawl is also created by land speculation, which is another market distortion ;)
I'm not sure if you were for or against what I was saying.
Baked into the word sprawl inherently is the idea that people are living farther away from things they would like to, given a set of rational economic choices.
If that's true, there must be something that is preventing them from living as close as they would like. Perhaps its the constraints of reality, or perhaps they can't because of poor use of location.
Sprawl IS inherently bad for a whole host of reasons. That's not an assumption, it's just something that's been known in forward-thinking urban planning for more than half a century and generally in urban planning for decades.
Interesting stuff. I propose a way to implement a LVT here: https://gideonmagnus.medium.com/a-simple-way-to-tax-land-3cbf7b81887d
> Also, keep in mind that LVT would see the elimination of the portion of property tax that falls on buildings. I just checked my own property tax records (I live in the suburbs of a medium-sized town far from any major urban cores). If the assessed land share more than doubled to 40%, under a 100% LVT regime I'd actually save $545.05 on my property taxes every year–and that's without a Citizen's Dividend.
Whatever Citizen's Dividend you could have would be lower, given that the one you calculated was splitting all the revenue equally (ie. not lowering any taxes whatsoever). Who is better vs. worse off largely depends on the way the money is spent (even some who owns no land directly or indirectly, could be worse off if the money goes to expand negative-value government programs).
You seem to be saying something contradictory, maybe you can clarify.
"If ATCOR is true, a Single Tax policy will always work. Abolishing capital and income taxes causes the lost tax revenue to get soaked up by rising land values, which you can then capture with a 100% LVT. You're raising the exact same amount of revenue as before, but the elimination of income and capital taxes lifts a burden off of labor and investment while LVT keeps housing prices and rents down, boosting the economy and lowering the cost of living. This economic boost in turn raises land values, which are fully captured by LVT, thus keeping land values stable."
Lost tax revenue causes land value to go up (if ATCOR is true), which would be necessary for these taxes to cover the reduced/eliminated taxes. I follow that fine. In the same paragraph, you say that it will keep housing prices and rents down, which is contradictory. Either land value goes up, or it goes down, but certainly not both. It appears that your overall statement here is that land value would, net of all effects, remain stable. That is a problem for the overall Georgist proposition, because we are trying to lower the prices because they are "Too Damn High" while also offsetting less efficient taxes. It sounds like you are saying that those two goals are themselves contradictory and we can't have both (or maybe either).
Can you help clarify this point?
"If a piece of land costs $10,000 to buy, and is leased for $500/year, then an LVT that captures 100% of the land rent is $500/year, which works out to a 5% annual tax of the land value."
But if I buy that land for $10,000 then rent it out (whether it's agricultural land or I build a house on it or whatever) for $500/year, then you come along and take that $500 with LVT - what am I getting? $500-$500 = $0. You're not charging me 5% of the land value, you are taxing me on the rental income. The only value I can get is by selling on the land and getting my $10,000 back! That's where land speculation starts!
On the other hand, if you charge me 5% of the land value which is $500 and I can rent it out for $1,000, then I make $500 and it's now in my interest to farm the land or build houses.
I believe the argument is that the owner should improve the land until it is worth more than the $500 value of the empty land in rents, and therefore the landlord will make money above LVT. If you pay $500/year for the LVT and that's what the unimproved rent would be to lease it, then you would need to add that house or farm in order to charge >$500 and make it worthwhile.
"In a sane world, the "ground truth" value of most financial instruments like stocks and bonds would terminate in good old fashioned capital and labor, but we've already been through one crisis where much of the world's paper wealth turned out to be just elaborate incantations cast upon regular people's mortgages."
And there's the rub. In Henry George's time, taxing an empty lot in a city made sense, because it did revolve around capital and labour: build an apartment block there for housing or a factory to make things for sale.
Today it's all fancy skyscrapers full of offices where nobody *makes* anything, they push electronic bits around to manipulate stocks and shares prices. Manufacturing physical goods has been outsourced to cheap labour and cheap costs countries overseas. Everything is online and in the cloud. You could do it as well from that field in the middle of nowhere as from the middle of the city, so the value is ephemeral: is the field in the middle of nowhere worth what it sells for, or worth what the data centre on it generates?
https://www.siliconrepublic.com/enterprise/apple-athenry-data-centre-planning-extension
Worth what it rents for of course. You can build data centers in the middle of nowhere, but there is a reason that Silicon Valley is still extremely expensive, and why all those tech companies (that could theoretically do all their business just as effectively in Velva, North Dakota) want to be there. Agglomeration effects have not been erased by the internet age- workers still want to live near amenities, and that means cities.
Georgists don't have a problem with the data center thing- the LVT is low, because the value of the land the data company is excluding the public from is low. That is entirely the point.
Not sure if this is too IRL for this blog/discussion, but a significant amount of conservation in large parts of this country is owing to conservation easements, private agreements that run with the land, and frequently offer those who can take advantage of it a one-time income tax deduction. These obviously can often decrease the assessed value of the land, as the landowner is waiving development rights and other activities; but they don't always do so. Sometimes the highest value of a piece of land turns out to be just that - to be a piece of land that sustains wildlife, recreation and/or some well-managed ag (grazing or timber).
As an environmentalist, my fear is that someday the highest value of the land will be ... well, superstititiously, it's not something I even want to utter, as I'm afraid if the libertarian crowd were to read it, they'd say, oh yeah, we need to do that now!
But I do wonder what provision Georgism would make for private conservation.
I made the same kind of point elsewhere. A strict interpretation of Georgism seems to demand that every piece of land is put to *its* optimal economic use, without any regards for externalities or public goods. And there's even less room for idealism, because while maybe you're fine with not getting the maximum amount of money from your lands, having to pay through the nose for the privilege may not be feasible for you.
Or perhaps you own the Chrysler building. It's a landmark and people in the city value it. But the moment someone thinks they can make more money by razing it and building something else there instead, you're pretty much forced to sell. The costs involved mean you can't even stand on principle.
It even seems like this could be used as a weapon against people who have an emotional attachment to something. Offer a higher price, and when they won't sell, they get slammed with increasing costs.
We may be in a "price of everything and value of nothing" territory here?
Agree. Completely. It seems to me we are certainly in the territory of institutionalizing utilitarianism - in other words, a terrible moral code, but one that is difficult to refute.
It naturally lends itself to destruction.
Of course, land speculators who throw up a storage facility while they wait, little-taxed, for sprawl to pay, are also destructive.
I despair of schemes. It's the values people hold that matter.
I don't think it's even utilitarianism - because the focus is on every individual plot of land, counter-utilitarian effects are likely to occur when the Georgist implementation forces transactions with negative externalities. A utilitarian (like me) won't like that.
Rather, it's replacing utility with money as the Good. I don't think that's ending well.
Utility unfortunately reduces in the conception, or imagination, of most with maximizing human welfare, so there's no there there for me - but I can't really gainsay a Numenorean!
For what its worth I don't think these points are true- Georgism doesn't state that the value of the land is not defined by how land can best be used for production, but how people believe it can be best used period, and that includes for conservation purposes. Nature is valuable! People like it, and they'll pay to live near it! That means there is economic incentive to conserve- and many Georgists support pigouvian subsidies for conservation. Also, Georgism isn't the sum of all government policy- a Georgist government can also have national parks and conservation land and historical preservation! Don't get too caught up in an overly reductive vision of what an LVT would entail on a policy level.
I remember that the original review defined "land" to include anything that was naturally occurring and had productive capacity. This seems to have fallen back into talking about literal land, and that may be an important mistake. For one thing, it may make it look like "land", writ large, is less relevant to the modern economy than it actually is. For another, it may cause people to underestimate the available tax base for a "single tax".
For example, the laws of nature are "given", and they allow you to do certain things to produce wealth. A patent is an exclusive right to use part of that natural capacity by taking certain actions. Looks like land ownership. Perhaps patents should be taxed at 100 percent. And there are probably at least a few other high-value examples if you go looking.
... and shouldn't there also be recovery for extraction? If I mine $1 worth of gold out of the land, then that's $1 that won't be there later. I have permanently reduced the value of the land. The same applies if I pollute either "my own" land or the environment generally.
Personally I like the idea of a "single tax", or at least the idea of a "handful of taxes" on just a few land-like things, not only because of George's arguments, but because they're relatively simple to administer, relatively non-distorting, and probably in many cases relatively hard to cheat.
Most of the big taxes nowadays are on broad categories transactions and activities like "income" and "sales", meaning that you have to think about the tax consequences of everything you do, and sometimes otherwise economically reasonable things don't get done because of distorting effects of the tax system. Or vice versa.
The problem of coming up with an accurate appraisal for land is hard, but if you have a bunch of taxes on transactions, transfers, and ownership of random things, you have to look at the aggregate difficulty of coming up with rules for valuing all of those. I think I'd rather have the land problem, even if I end up having to do it for a handful of different categories of "land".
The administrative cost of valuing land (even in the extended version) is going to be *vastly less* than the aggregate cost of all the accounting people have to do on *every single act and transaction* to support, say, income tax or even a VAT or sales tax.
Actual land, and probably a lot of land-like things, are hard to hide, which reduces the cost of policing against evasion.
Super minor point, but I think it would be correct to say that Pigouvian taxes have _negative_ deadweight loss instead of zero. It's not that it doesn't distort the incentives on a free market: it's that it distorts them in the way they "should" be distorted, internalizing the externalities.
Another example of a tax with zero DWL, at least in theory, would be a lump-sum tax that every person has to pay no matter what. Thatcher's government something similar for a while: https://en.wikipedia.org/wiki/Poll_tax_(Great_Britain).
I used to be a Georgist, until it was pointed out to me that 100% of the burden of the tax falls on the present owners of the land. A perfect Georgist tax reduces the market value of the land to zero, since it now produces zero net income. The present value of the land is the net present value of the income stream, so the state has just confiscated the land from its current owners.
To take an example close to home, I (jointly) own a house worth £650k. Its rebuild cost is c£250k, so presumably the land is worth the other £400k. If a perfect Georgist tax were introduced, I would lose that £400k which doesn't sound great. But it's worse than that, because I owe the building society just over £400k (coincidentally), for which they would no longer have sufficient security. I would be unable to remortgage or sell the property unless I inject c£200k to reduce my LTV to a reasonable level. Precisely because land represents a significant percentage of all bank loans, a sudden reduction in its value would cause major financial problems.
It's not really helping me with this problem to say that I'm now in receipt of a citizen's income: at best that's defraying the annual LVT payments, but it does nothing about the sudden deterioration in my asset position.
This causes two problems. Firstly: it's unjust. We can argue the merits of wealth taxes, but taxing one particular category of wealth at 100% fits no sensible view of how the burden of taxation should be distributed.
Secondly, and perhaps more importantly, very many people (probably the majority) are in a similar position to me, so LVT is politically impossible.
A possible solution would be to compensate the existing owners. In the case, you would still get the economic benefits of the tax, but you raise no income. The amount of compensation paid is equal to 100% of NPV of rents, so it's equal to all the money you'll ever raise. Actually, you benefit a bit because the state's discount rate is lower than the owners' discount rate, and you only have to pay the owners' NPV. My 5-year interest rate is 1.19% and the UK government's is 0.54%. I think the difference between those numbers should be the net income received, but of course other owners will have different discount rates.
Land rent is a surplus, not a charge. Land value tax very much fits perfectly with the benefit principle of taxation. Your complaint is largely that "I bought into an unjust system where I am able to extract rent from future generations of people and it is not fair to take that capacity away from me!" You could try and make that same claim about slavery, that hey you bought slaves with your money and it wouldn't be fair to take this 'property' away from you.
"First principles.
This world is the creation of God!
The men brought into it for the brief period of their earthly lives are the equal creatures of His bounty; the equal subjects of His provident care.
By his constitution a man is beset by physical wants on the satisfaction of which depends not only the maintenance of his physical life, but also the development of his intellectual and spiritual life.
God has made the satisfaction of these wants dependent on man’s own exertions, laying on him the injunction and giving him the power to labor – a power that of itself raises him far above the brute, since we may reverently say that it enables him to become, as it were, a helper in the creative work.
God has not put on man the task of making bricks without straw. With the need for labor and the power to labor He has also given to man the material for labor. This material is land!
Man, physically, can live only on and from land, and can use elements such as air, sunshine, and water, only by the use of land.
Being the equal creatures of the Creator, equally entitled under His providence to live their lives and satisfy their needs, men are equally entitled to the use of land, and any adjustment that denies this equal right to the use of land is morally wrong.
The right of property
Being created individuals, with individual wants and powers, men are individually entitled (subject of course to the moral obligations that arise from such relations as that of the family) to the use of their own powers and the enjoyment of the results.
There thus arises, anterior to human law, and deriving its validity from the law of God, a right of private ownership in things produced by labor – a right that the possessor may transfer, but of which to deprive him without his will is theft.
This right of property, originating in the right of the individual to himself, is the only full and complete right of property. It attaches to things produced by labor, but cannot attach to things created by God.
Thus, if a man take a fish from the ocean, he acquires a right of property in that fish, which exclusive right he may transfer by sale or gift. But he cannot obtain a similar right of property in the ocean, so that he may sell it or give it or forbid others to use it.
Or, if he set up a windmill, he acquires a right of property in the things such use of wind enables him to produce. But he cannot claim a right of property in the wind itself, so that he may sell it or forbid others to use it.
Or, if he cultivate grain, he acquires a right of property in the grain his labor brings forth. But he cannot obtain a similar right of property in the sun which ripened it or the soil in which it grew.
What the term "land" involves.
For these things are of the continuing gifts of God to all generations of men, which all may use, but none may claim as his alone.
To attach to things created by God the same right of private ownership that justly attaches to things produced by labor is to impair and deny the true rights of property. For a man who out of the proceeds of his labor is obliged to pay another man far the use of ocean or air or sunshine or soil – all of which are involved in the single term “land” – is in this deprived of his rightful property; and thus robbed." http://www.wealthandwant.com/HG/WoL.htm
We did in fact pay compensation to slave owners when slavery was abolished (under the Slave Compensation Act 1837), so even if one accepts that owning land is morally equivalent to owning slaves, the comparison suggests that compensation should be paid.
UK. The US didn't pay anything (but probably should have).
Slavers don't deserve anything. What the UK did was disappointing, but they did make it up by disrupting the slave trade.
It's easy to say that now, and feels righteous. At a distance of 250+ years, slavers were following the law and tradition - slavery had been accepted by most societies for thousands of years - how was a slaver to know that it would suddenly be considered morally wrong?
Have a little charity toward your benighted fellow flawed humans.
> how was a slaver to know that it would suddenly be considered morally wrong?
Is this a joke? I hope you know that slavery was banned in many places several times in history multiple times. Abolition was for hundreds of years a strong movement. Plus it is not hard to see that literal OWNERSHIP OF A HUMAN BEING is wrong. And the chattel slavery that defined that era was especially cruel and explicitly racist. Whites weren't allowed to be enslaved. Why not? Because it was cruel for white, but not apparently black people? Give me a break. Slavery as an institution was seen as vile by many people for a long time.
For the record, I am not going to say I hate the UK for what they did, I just don't think it was a palatable thing to do.
I don't agree with your first problem: land is different to other forms of wealth, which makes the case for taxing it stronger.
The second problem is more reasonable, but it's not a criticism of the justification for taxing land. It's just a question of political strategy and how to transition to land taxation fairly. I agree that both probably require some amount of compensation for existing owners.
We can talk about how large that compensation should be, if you like, but it seems like you agree with LVT in principle.
I note that here and below, comments seem to divide roughly equally between those who say that obviously we all understand that the system would need to introduced gradually with appropriate compensation and those who see no problem with expropriating land from private owners. At the very least this suggests that proponents of Georgism have radically differing visions of how this will work in practice.
Okay, which one are you? Because you seem to agree with the actual argument that land should be the primary tax base.
I'm a pragmaticist on taxation. Governments need revenue to pay for various activities we have agreed they should undertake and they should raise that revenue in whichever way works best in practice. I remain to be convinced that LVT would work better in practice than existing taxes. If it was introduced without compensation, it would be a disaster and I would oppose it. I might support it if it was introduced with appropriate compensation, but I would want to see the details.
Without compensation, it would be an uphill battle trying to get it passed, but I fail to see that because landowners don't want to give up their unearned income for taxation, I should instead be taxed from my EARNED income.
You haven't really offered any argument against Lars' many reasons why taxing land would be better in practice than taxing income.
This is not a refutation of Georgism, merely a 'Who would start from here?'.
The claim LVT is unfair as it is only one category of wealth however is false. 100% of land value is unearned wealth created by others. Therefore the reclaiming of that communally created/natural value is just. It is only fair to say that other unearned wealth should also be eliminated from (IP or other monopoly privilege), not wealth per se. However we deal with other monopoly does not discount that we should colect as much land rent as possible.
However what is unfair is that not especially well off people have already paid exaggerated prices for land which, had LVT been in place, would have been lower or indeed near zero if we taxed the entire rent. So, I do agree full LVT tomorrow without compensation is neither necessary nor likely to ever be politically viable.
So there are two main options, phase in or compensation. Either raise the rate whilst cutting other taxes or a homeowners exemption of 'x' value so the tax falls more proportionally on those with multiple properties. In fact if you cut other taxes because of the removal of dead weight loss, land prices could in theory remain fairly stable even with a rising LVT rate and could be dissipated over time.
Compensation is not impossible, Taiwan during it's land to the tiller reform compensated the large landowners with bonds, this was highly successful in terms of improving productivty and done without bloodshed.
https://taiwantoday.tw/news.php?unit=10&post=15716
One thing missed in the math is that if you tax land exclusively, the value of land will drop. If you put a 5% tax on Tesla stock then much of the investment in Tesla would move into other(untaxed) stocks and the price of Tesla would fall (possibly plummet). This suggests that the expected income available from taxing land may be grossly overestimated.
Did you miss the section on Land Rents vs. Budgets where Lars converts land values to land rents, with the latter being what the government can reasonably expect to collect in revenue.
Land exchange value drops to zero if LVT is at 100%. But that does not mean the demand for land goes away meaning land rents ceteris paribus stays the same.
This is fascinating; great work! Look forward to consideration of dynamic effects, which I'm now entirely convinced are the only relevant ones. You've sold me on land taxes in a static world.
Possible dynamic effects this made me wonder about.
Could generate more sprawl; if people concentrate more, they build more on the same land. Rent value goes up, but, in Georgist-land, so do taxes. The tax minimization strategy is (I think; haven't fully thought this through) actually to disperse as widely as possible such that land is rendered less valuable.
General principle: isn't a land-value tax inherently a tax on concentration of people? And concentration of people has a lot of benefits. And you indicate that this is going to reduce sprawl, but seems to me that the opposite would happen.
Dynamics of high land prices in cities is mainly driven by scarcity of land near lots of other people and lots of jobs. There are more people that want to live in SF than there is land for them. The typical urbanist solution is more density / anti-NIMBY laws. But now more density results in increased rents and increased taxes. In the extreme Georgist case, there's zero marginal value of increasing density, because you're just increasing your rents, which get eaten up by taxes. Unless the claim is that the density gains are accounted for by structure-value, not land-value. But as you point out, almost all the value in urban construction is in land. So I do think this is a problem for the narrative. There's some fun economics implied as to whether this would push construction to be way, way more expensive. E.g. build Burj Khalifas with huge structure value on minimal land-footprints, although this would also increase the value of the land.
Related: what would this do to incentives to build large, expensive buildings? Part of the reason such things get built is because of the rents they can extract over the long-term. Slashing those rents by 50%+ might push down incentives to build big and increase sprawl (more small buildings > fewer big buildings).
General principle: there's a lot of positive between property value and land value, especially in urban areas, and it's tough to completely disentangle. Building certain kinds of valuable, rent-generating things on land tends to make the land more valuable.
Land has value because of the benefits it provides. It's possible new supply could come to market. The highway system added more effective supply to the market (and coincidentally increased the value of rural land considerably). Aggregate land rent would not go down, and it is worth noting that land rent is commensurate with transportation costs. So by all means spread out if you lack the productive capacity to take advantage of the increasing value of land.
In any event, this has been shown to be demonstrably false. What will happen is people will use land more productively and intensively. Pennsylvania has a history of split-rate taxation and has increased the portion that falls on land as they decrease the portion that falls on improvements.
"We confirm the theoretical prediction that the split-rate tax raises the capital/land ratio. We also find that the primary effect is in more housing units, rather than bigger units, suggesting the split-rate tax is potentially a powerful anti-sprawl tool. We find adoption of the split-rate tax increases the number of housing units, and that these units follow a more dense pattern of development." https://www.tagesspiegel.de/downloads/12984964/2/can-the-land-tax-help-curb-urban-sprawl.pdf
See part II: empirical studies seem to suggest it leads to increased density, not less.
Isn't LVT implemented in Denmark? IIRC, the rents are still pretty damn high there.
All nations collect some of the rent, but no - in fact the United States collects a larger share of land rent than the nations of Europe.
Of course, land rent is a surplus, not a charge so the ultimate objective is to increase this surplus and use this surplus to fund public works and citizen dividends. If in some uses land rent per capita goes down (because people use land more productively, aka a higher and better use) that's fine too. One must ultimately consider the dynamic effects that would occur, starting with the land that is used least productively, such as land held for the rise in value.
You can either pay land rent in a monopoly 'price' to a prior owner, or you can pay land rent to society, which is infinitely more ethical and just. One should simply consider this a 'private tax' or the public collection of the social surplus.
I'd really like to hear opinions (multiple) from academic economists on this.
I'm heavily biased in favor of Georgism, but acknowledge my lack of understanding of macroeconomics.
I have heard almost nothing from professional economists about it (and I've bee listening for 20+ years). I suppose that's probably because (a) they think it's obvious nonsense or (b) they think it's obvious sense (c) or they think it's professionally dangerous to talk about.
Given that we have some retired economists around here (David Friedman, I'm looking at you), probably it's not (c).
Continued silence makes me think it's probably (b), since economists are usually quick to attack perceived stupidity. But I'd be reassured to hear from them.
Many Georgist economists would accept the principle of ATCOR, that all taxes ultimately come out of rent, so a reduction in other taxes will result in an increase in demand for land.
Terry Dwyer covers the history of economic thought around rent in his "Taxation: The Lost History" - https://www.jstor.org/stable/43817496
"Our first set of results show that even a uniform land tax alone is theoretically enough to achieve the first best. We discuss in which cases and at which level land taxes can be achieved, and notably propose a formula for a property tax of land to reach the social planner's objective. When land can indeed be taxed at the first-best level, taxing productive capital is not necessary, and nor is taxing housing rents. " https://voxeu.org/article/land-back-it-should-be-taxed-it-can-be-taxed
"If Australia were to replace all existing taxes by taxing the economic rent of land, the adequacy of the final tax base would depend on some of the forgone revenue (from the abolished taxes) being converted into additional rent. Theory and history provide confidence that the necessary conversion would occur. Confidence is increased because the theory applies not only to the abolished taxes but also to their deadweight costs. If the category “land” is expanded to include land-like assets other than terra firma, it is no longer clear that any conversion is needed." https://www.prosper.org.au/wp-content/uploads/2018/04/TrickleUp22.pdf
Land value taxation has been endorsed by Adam Smith, Milton Friedman (https://www.youtube.com/watch?v=yS7Jb58hcsc), Wolf Ladejinski (the economist who was in charge of rebuilding Taiwan and Japan post-WWII- https://en.wikipedia.org/wiki/Wolf_Ladejinsky), Donald Shoup (author of The High Cost of Free Parking), Leon Walras (who formulated the marginal theory of value- https://en.wikipedia.org/wiki/L%C3%A9on_Walras), and Nobel Prize laureates William Vickrey (https://en.wikipedia.org/wiki/William_Vickrey), Robert Solow (https://en.wikipedia.org/wiki/Robert_Solow) and Joseph Stiglitz (https://www.landandliberty.net/joseph-stiglitz-responds-to-thomas-picketty/).
http://www.wealthandwant.com/themes/quotable_nobels.htm
I don't doubt that. But Georgism is a lot more than a property tax - in the US we have those now (and they're a good thing - I've seen land incredibly wasted in countries that don't tax it at all; taxing it even a little gets people not using it to sell to people who will).
Georgism is about a "single tax" on land that replaces all other taxes - it's INSTEAD of income tax, sales tax, consumption taxes, transfer taxes, etc., etc.
That's what I'd like input on from academics.
To be clear, modern Georgism is not single-taxism. It is about taxing only economic land (anything not created by human beings- natural resources, etc), not about LVT alone, and often includes severance taxes and pigouvian taxes. But again, many of the economists that I cited are not just saying land value taxation is good, but were explicitly Georgists (which you would know if you read the citations).
The article quotes a current economist, Nicolas Tideman, at Virginia Tech.
How about extra tax for all ginger people? It also carries zero deadweight loss.
Mmm, the main argument for Georgism is not simply that an LVT has no deadweight loss. A poll tax has no deadweight loss either, but we don't advocate for that.
A tax on the production of gingers may very well change the future supply of gingers
What would a world look like in which every parcel of land was being utilized for its maximal economic output? My intuition is that I wouldn’t want to live there.
Output is ultimately a function of consumption demand. By using land less intensively you simply push that demand for land elsewhere, contributing to sprawl and biodiversity loss.
"By George" 6 times
It was cute and clever the first time, but by the end it's like a child who knows one joke and keeps on shouting it over and over
Just giving the people what they want
https://mobile.twitter.com/larsiusprime/status/1463030608184107009
Voting is a bad way to make decisions. ;)
I've been aware of Henry Grorge in a casual way for over half my life. I will read your essays with interest.
Right off the bat, however, would you also discuss Universal Basic Income which I am powerfully interested in. Apparently George also advocated something like this.
Do you advocate UBI?
I assume you are still advocating for LVT, so perhaps you think both are necessary. Why both?
TIA.
If you use the method discussed to evaluate land, would this result in monopolization of land?
You figure out how much my land is worth by looking at the empty lot near me. You subtract away the building value to discover the land value. However, being in proximity to buildings is desirable. That's why people want to be near cities and towns. If a person bought a massive amount of land in a remote area and built an entire city, the land around it would be worthless. Therefore, the land owner wouldn't pay much in land value tax. If it was sold off and a bunch of little pieces of land, then there would be plots that could be evaluated but since it is one massive piece, you have to compare to the area around it.
If literally all your taxes are coming from land value, then I imagine this might save people substantially. People might move to these areas or at least try to live in large plots of single owner land outside cities or something. Is this plausible?
There is a book you might be interested in reading called Radical Markets. They have a chapter in which they propose something like this and a way of evaluating the land. The owner prices his/her own land and the government can choose to buy it. The land owner prices things fairly cause they don't want the government to buy it. Worth a look.
I'm familiar with it! Harberger taxes is the term for it I believe.
Isn't the argument that you can get enough taxes from land simple and doesn't have to involve the valuations? People cannot avoid living on land. Therefore, you can tax them as much as you want. You could tax land value 150% or 300% or 400%. It doesn't matter how much the land is worth. No?
You theoretically could tax land over 100%, but no government would ever want to- it would result in land abandonment and people using far less land than they actually ought to be using, destroying the economy and hurting their own tax revenue. There is no incentive to overtax in a Georgist system.
Any percentage from 0% - 100% will do that to an extent as well.
No, it encourages efficient use of land. Use exactly as much as you need and no more.
Efficient according to what metric? I can distort the market to artificially create more "efficient" use of land by banning buildings less than 10 stories.
But that's not actually efficient- if land is cheap, it is more productive to build a store next door in an empty lot than it is to add another story to a building.
I agree.
I share the concerns about what it would mean to implement a Georgian approach suddenly, and how disruptive and confiscatory that might be. People do make plans given a certain set of laws and taxation schemes, and suddenly changing those would create hardship that can't be shrugged off by the equivalent of saying "Well, if they own land then they're probably rich anyway"
I do have a subtler concern as well, with regard to how land is valued, and entrepreneurial and speculative activities around land. I'll drive it with a real-world example.
I own shares in a very small company that is essentially just an owner of a large amount of low-value land. (And before you get out the pitchforks, absolutely no one in this story is conspicuously wealthy.) Historically the land has been leased at about $2 per acre for cattle grazing. Several years ago some visionaries (not me) began to realize that the land had serious potential for renewable energy development, which might eventually command lease prices of $300-$500 per acre. So they began the speculative and entrepreneurial project of 1) buying shares of this company's stock, 2) lobbying the management to pursue renewable-energy opportunities, and 3) beating the pavement to find renewable-energy developers who might be interested in siting their projects there. If they succeed in creating a lot of new revenue from leasing to renewables developers they will enjoy appreciation in the price of the stock, which is really just a proxy for the value of the land that the company owns.
At this point I would like to ask Georgians what a Georgian account of this activity, including its profit motivation, might look like.
Firstly, how do we value the land itself - is it valued based on a lease value of $2/acre or more like $300/acre? Who decides that and when?
Secondly, is there a way that this entrepreneurial activity (which by the way plays a role in supporting renewable-energy development, commonly thought to be a Good Thing) would still be profitable, given that it's intrinsically focused on speculation on the value of land (in part by increasing the use value of that land)? Note that it's not as simple as separating out the value or the cost of the structures built on the land (solar arrays, short-distance transmission lines). There is also the work of identifying value in the first place, assessing suitability for renewables, business development with producers and consumers, all of which in the end have an effect of increasing the intrinsic value of the land.
Does profit-driven entrepreneurial land speculation exist under a Georgian regime? And if not, how does grazing land get turned into solar/wind land? I hope that the answer is not "central planning".
If I'm understanding this scenario correctly, the LVT would be based on the $2/acre value. In fact, this seems like a textbook case in which almost all the value of the lot would be bound up in improvements, which are not subject to the LVT.
The question to ask, I think, is what would happen to the value of unimproved lots down the road. Could I still buy those lots for cheap? If so, then the LVT will pass the developers by and they will be able to lease their land out at very high rates, and charge considerable rents. It's not the land that's valuable in this case, but rather the work that your entrepreneurs put in to it.
There's a lot of sentences like this that are causing me real problems:
> The cost to replace your building with a new one of identical design is on average going to be a lot more than what your old building is actually worth, even after factoring in depreciation. That's because the market doesn't care what you spent to build it, it only cares how much value it provides under current conditions.
I can't internalize this at all, and I feel like I'm being Euler'd or some bait-and-switch is happening. Some game is happening with the fragment "actually worth," and I can't tell what.
The testable hypothesis is that the cost approach undervalues land and if you had a situation where there were two identical lots, and one had a building, the cost approach would predict a value for the land the building sits on that would be much less than the market selling price of the identical empty lot next door.
Would appreciate a response to this article that is critical of Georgism, with regards to land development, new land uses, gives example of oil exploration
https://www.econlib.org/archives/2012/02/a_search-theore.html
Folvary responds here: https://link.springer.com/article/10.1007%2Fs11138-013-0243-7
There's also a brief response by Noah Smith in "A misguided attack on Land Value Taxes" http://noahpinionblog.blogspot.com/2015/03/a-misguided-attack-on-land-value-taxes.html
Terry Dwyer also covers this more extensively in his "Taxation: The Lost History" in various sections, such as "Rent As Reward for Risk" - https://www.jstor.org/stable/43817496?seq=34
and "Discovery of Natural Resources - https://www.jstor.org/stable/43817496?seq=187
After logging in to the site (gmail account works) you can go to these links to jump to that specific section.
"They also don't apply any estimates for how much land values would rise if restrictive zoning ordinances were removed."
That seems like burying the lede. How much of what you're talking about is just legalizing building and how much are you really talking about is really about Georgism?
Most of land speculation is speculation on zoning rights. That's easy to remove!
Actually, that's a socially acceptable lie. The truth is that most land speculation is speculation on connections with the zoning board. Maybe we should just have transparent, enforced zoning laws, rather than corruption? If we can't enforce the laws we have, why are we talking about new laws, rather than how to have law at all?
Land speculation was around long before zoning became common in the US, and would still be a problem (due to the nature of land as a perfectly inelastic good necessary to all economic activity) even if zoning was reduced, but yes zoning is bad. An LVT would, however, help incentivize governments to get rid of zoning laws, which artificially depress land values.
Land speculation is as likely to be successful as stock speculation (the average investor isn't going to outperform the market) once you remove the ability to generate government enforced restrictions on supply.
Zoning laws are a tiny problem compared to zoning boards. The problem is that we don't have law.
Zoning boards with LVT is the worst of both worlds. Most of the value of the land is permission to build. A building is a very credible signal of permission to build. Whereas the board could give Bill permission to build a highrise on your land and tax you for that permission that you don't actually own.
Zoning boards only have power because the zoning laws grant them that power.
Friedman wasn’t a conservative, he was what we in Europe call a Liberal, similar to what you call Classical Liberal.
These terms are all relative ultimately. I’m Norwegian and Texan, in Norway the conservative party is to the right of Bernie Sanders, in Texas your average Democrat is to the right of Norwegian conservatives. And then Texans are super secular by legal standards but very religious personally, while Norway had an established state church until super recently but the populace is fairly irreligious.
Friedman gets invoked more by American conservatives than American liberals so I used that word.
It's more than a sliding scale though, American "conservatives" are now more "liberal" in the original sense than American so-called "liberals".
Please feel free to mentally replace my insufficient party labels with whatever is semantically appropriate in your own mind.
Thanks for your reply. I still maintain that its misleading to call Friedman a conservative as he didn’t hold any conservative opinions. He was more in line with Fusionist economics than the New Deal sort but that’s only because on the economic spectrum Fusionists were more Liberal than the dirigiste New Dealers. I think Classical Liberal might be the term that best translates his positions across both sides of the Atlantic, but I understand where you are coming from.
"But if you accept that you live in a society that occasionally taxes things..."
We live in a society that occasionally doesn't tax things.
Last I checked we live in a society that taxes a bunch of things and the chief question is what we should tax, and the idea that we should tax nothing seems to not be an option on the table, so perhaps the discussion should be which of the taxes is the least bad.
I apologize in advance for asking questions that may be FAQs, but I got really confused reading this last night, and think I need to step back and ask something really basic. But also get a question about any possible transition to a Georgist regime off my chest.
It appears to me that a 100% Georgist system is functionally equivalent to nationalizing all land, and having those who use that land pay rent to the state for their use of it. The renters would then be able to own property (e.g. buildings) on that land, and control the use of both the land and any structures on it. (The rent would be called "tax", but that's a distinction without a difference.)
First question - am I correct in this?
Now I note that it appears that 100% Georgism is not desired. I don't know why, but one obvious reason would be that e.g. an 85% tax on a Georgist model allows room for the markets to provide information about actual land values, beyond the blunt instrument of increasing the deemed value, and thus the rent charged, until people start choosing not to use ("own") that land, eventually even abandoning structures they own on it, as not cost effective for them.
But I'm going to use 100% Georgism for my questions about transition, because it's simpler/clearer.
Second question - what is the Georgist answer to this? So far, all I've seen is what amounts to "people like me - and probably you too - will gain from this transition". The corollary, of course, is that those who lose aren't as worthy of consideration as we are. ("Democracy is 3 foxes and a hen voting on what to have for dinner"?)
Suppose we switch to Georgism tomorrow. For people whose wealth is entirely in land, this amounts to complete expropriation. People whose wealth is entirely in other investments only have the risk of losses due to the economic disruption caused by the transition, which might actually turn out to benefit some investments.
This seems to me to be extremely unfair.
Drawing the process out over years or even decades gives people time to prepare for expropriation, and try to unload their land at a discount, to people expecting to get some returns in the time remaining before complete expropriation. Or they can simply extract as much value as possible from the land they own, in the time before it gets expropriated. Land prices can expect to converge on the expected value of the income stream from the time of the announcement until complete expropriation.
This looks better, and at least allows those stuck with land when the process starts to buy some other investments that will continue to provide an income stream after the transition - though a significantly smaller one than they had previously expected. But it's still a significant loss, and experienced only by those whose wealth happens to be in the wrong assets.
Now as it happens, I count as a person likely to do a lot worse in such a transition, without being at even a 1% level of wealth. I live in a major metropolitain area on a US coast, and am approaching retirement with a fully paid off house. Most of the value of my little old house is in the land it sits on. This probably focusses my thinking somewhat.
To some people, people like me doing worse would be a benefit. Or alternatively, you can't make an omelet without breaking eggs, and I'm just unlucky to be in the path of making things better for the average person. Is that where you are coming from?
Overall, do you have any answer to the problem of severely unequal impacts, even on people of equal wealth?
Also, what is your response to the observation that this requires significant expropriation of existing wealth?
Based on the discussion below, the classic answer is that land owners don't deserve compensation.
It's fair and just according to Georgists to punish people for having their wealth in the wrong assets when the music stops.
How about we instead expropriate everyone as part of this transition? Then I can at least have the pleasure of seeing Jeff Bezos, Elon Musk, Bill Gates et al. in the same very much reduced circumstances as me.
And it's much fairer to those currently having zero or lower next worth, particularly if they got that way as a result of historical oppression.
Removing my tongue from my cheek somewhat, please note that I'm not in fact advocating extreme state ownership of everything. I'm just suggesting it as being fairer than Georgism.
Every day we let the music keep playing is another day where tenants continue to be puinshed by our current system of privatised land rents. That harm already exists.
If your only issue with Georgism is how to transition, then it sounds like you agree with Georgism. You should just be a Georgist who also has arguments for how to fairly transition.
The tenants aren't going to be any better off in the new system (save that they might receive a UBI, but that's really a separate question). It's just that the state rather than the landlord ends up with the land rent.
Yes, good, let's do that.
Well, they will be better off, if they pay any taxes on income or sales or anything else.
This isn't true. LVT will increase productive use of land, meaning less vacant and underdeveloped lots, meaning more housing and more jobs.
No, that's merely my first issue. If I have no idea whether some experiment would actually work, but do know it would harm me personally, I'm not going to be overeager to try it just in case it might work. If anything, I'm going to want pretty strong evidence of the alleged benefits, along with some sign that the supporters are aware of the likely costs, and don't simply figure that any cost is OK so long as they personally aren't the ones paying it.
I don't count myself as understanding Georgism, and it's in the general domain of economics, where I've spent 50 years observing authoritative-sounding sources, sometimes Nobel prize winners, make all kinds of recommendations that turned out to be useless, or actively harmful, even judged by the low standard of "did it accomplish its supposed goals", without also adding "and what kind of unintended consequences made it less than cost effective".
So while I don't count Georgism as requiring the kind of evidence I'd require for miracles, or perpetual motion machines, it does count with extraordinary claims requiring extraordinary evidence. At least somewhat.
At this point, all I have is a few authoritative-sounding sources, which I can balance against dozens of more conventional economists with their own contradictory proposals.
I'm a land and home-owning Georgist, for what its worth. Advocating for Georgism actively harms that interest, though overall would probably help me and definitely would help society.
"Authoritative-sound" is pretty much any theory has. If you answer is "I just don't trust any economist and I'd rather go with the devil I know and reject any change to the status quo." then... I guess that's your right?
That's a little stronger than the way I'd put it, but basically I do indeed have both a distrust of economists and a bias against change. Also an even bigger distrust of politicians.
All of these can be overcome, but it requires good evidence.
I don't want to be in the position of those now regretting voting for Brexit (Presumably not all of those who voted for it, but it has had a few downsides that many of tis supporters didn't expect.)
Georgism is not the same as nationalizing all land, no. Land remains private insofar as individuals still have the rights to use land for whatever purpose they like and transfer ownership whenever they wish. It is the same thing as nationalizing land rents, which is the entire point of the idea: land rents are common property, and their privatization is essentially theft.
However, you are correct in saying that an LVT does destroy land values, because those land values are simply investments in rent extraction, which Georgists believe no private person has the right to do. However, that doesn't mean that landowners are to blame, they are simply doing what is economically rational, which is why the system needs to change. Many Georgists propose tax credits to landowners to help ease the transition, but ultimately the question comes down to this: if most people would seriously benefit from a Georgist tax reform, why shouldn't we do it? The fact that tax reform hurts *some* people is inevitable- that shouldn't impact our overall assessment.
There have been places where the land is commonly owned by entity A, with entity B having a long term lease, and often improving the property. Sometimes B owns the house, but A owns the land it's on. If C wants to live there, they'll have to pay both A and B - either rent from them, or buy the underlying asset.
I had something like that in mind, where A is the government. So B gets some measure of control of the land, as long as they continue to pay their rent/taxes.
But given that they have to pay for the right to use the land every year, I really can't see them as more than a tenant.
I'm also confused about the land value discussion. As soon as you tax something the value of that thing is going to decline. So the higher you ramp up the LVT, the less valuable that land is and the less LVT you are going to generate. There was a lot of discussion on the current of the land - but absolutely none at all on how the value of the land would change once you starting taxing it.
I'm not completely sold on LVT yet, but if people in NYC were charged 5% of the land value each year, [1] I think people would still want to own land in NYC and the land would still have value, because people want a place to put their buildings.
[1] I forget how this happened, but we ended up saying that 5% is the extraction rate you would normally get.
In your scenario where the value of the land is taxed at 5% annually no one is going to want land. As ROI would need to be 8-10% for it to be minimally attractive compared to other uses of capital.
I can't get past the truism - the more you tax something the less of it you get. There is some magical thinking in the Georgian formulation that I can't quite put my finger on.
As I think a little more about it - the ROI might need to be even higher as the cost of borrowing for development becomes burdensomely high.
Except land. Because its fixed in quantity.
There is a fixed quantity of many/most natural resources too. This explains too much.
There are millions upon millions of acres of undeveloped land. If you make land in Manhattan prohibitively expensive then development will shift to places that aren't Manhattan.
There isn't a fixed quantity of natural resources available to be used, though. You can go harvest essentially any natural resource still and almost every natural resource has an alterative. There are no alternatives to location.
Location is almost completely unique. There is only 1 1600 Penn Avenue. Only 1 Central Park.
You aren't making land prohibitively expensive, you aren't changing anything about the price people pay. You're just changing where the money goes. Did you even read the article? Is the bathtub analogy in this one? Land in NYC is already ridiculously more expensive than land in the middle of the desert in Nevada, but people don't just flee out of Manhattan. Why? Because there are advantages of being in Manhattan that you can't get for being in the middle of the desert.
Under LVT, you don't own land to speculate on it -- you own it to use it.
Distinguish the Empire State Building from the land it is built on.
You would want to own the land, because that lets you control the building, or replace it with a better one.
I would still want to own the land my house is on, because that gives me control of my house.
You are making several false assumptions.
The fatal one is that the house you live on is appropriately for the lot that it is on. If you own a house that is 'undersized' you a) can't afford the tax b) can't afford to build an appropriately sized one
The whole theory depends on the assumption that someone will come along to spend a lot of money on an asset that has high tax liability, constantly depreciates and has very low ROI.
I think we're speaking at different levels here. I'm just saying that people will want to own the land the Empire State Building is on, because the person who owns it gets to decide if the Empire State Building is there.
Georgism isn't proposing taxing the sale price of land, but the rental value of it. Sale price is just the derivative of rent, discounted for time. Say a piece of land rents out for $10,000 a year, and currently is for sale for $500,000 (not accurate perhaps, just off the top of my head, but bear with me). An LVT of 100% would tax the land at $10,000 per year, meaning that you cannot make money simply by owning the land and renting it out. Because land doesn't generate rent, the sale price is now $0, but the rental value remains $10,000 per year, because the rental value is dependent on the supply of land- which is fixed- and the demand for land, which is not altered by the tax.
> meaning that you cannot make money simply by owning the land and renting it out.
What do you think happens if instead of going through the convoluted mess of starting with land value and pretending you are taxing that you just tax profit on net rental revenue at 100%?
Why would anyone go through the risk of developing land?
It would be much less risky to develop land when the sale price of land is 0.
Besides that, if your land is being taxed at 100% LVT, then you really don't have a choice but to develop it, or relinquish the land title, since the only way to justify holding the title is putting it to use in some way.
Landlords and developers don't do society a service by holding onto and speculating in land until they've derived enough profit. Quite the opposite, holding land out of use actively harms the community.
The price of land isn't zero - the effective value of the land at 100LVT for undeveloped land is negative, no one would want it. I don' t see what problem this is supposed to solve beyond some people have a distaste for ownership.
This isn't necessarily true. Undeveloped land isn't necessarily worthless. There are flat parking lots in NYC, for example.
My problem with more land tax is that more tax reduces the value, if you get to the stated goal of 100% tax and zero selling price land value. WTF 100% of zero is zero. X% land tax makes the land ~x% less valuable. If the rate of return on land investment is decreased from 5-8%, to some smaller value, then the price of land will drop. You get less tax. I pay ~2.5% property taxes now, if it was twice that... dang why are you trying to get me to sell my land?
Georgism isn't proposing taxing the sale price of land, but the rental value of it. Sale price is just the derivative of rent, discounted for time. Say a piece of land rents out for $10,000 a year, and currently is for sale for $500,000 (not accurate perhaps, just off the top of my head, but bear with me). An LVT of 100% would tax the land at $10,000 per year, meaning that you cannot make money simply by owning the land and renting it out. Because land doesn't generate rent, the sale price is now $0, but the rental value remains $10,000 per year, because the rental value is dependent on the supply of land- which is fixed- and the demand for land, which is not altered by the tax.
Yeah, fine. The whole idea of owning land is to rent it out and get some money back. (Unless you are going to live there... ) If I'm getting more money back somewhere else, (Stock market, bonds?) I'll consider investing elsewhere. Renting out property is a headache, why do Georgist want to make it more expensive. (I'm not sure what to do about the rent being too damn high. Go rural.)
Investment in land is a zero-sum game and is macroeconomically sterile. Land has no cost of production, and land users are already paying the rental value of land, in the case of LVT the public is simply capturing that amount instead. By all means, if you can't make a normal profit investing in something productive like structures then do something else. Of course, a big part of stocks is real estate too, so...
I'm not sure about zero sum. Or what sterile means in this context. If LVT is "capturing" the rent due me, then it's capturing my value. I will get less money when selling said land.
Zero-sum just means land is rivalrous- the only way you get land is by excluding other people from using it. Georgists argue that as land is not a good which was produced by anyone, it cannot truly be owned by anyone. Access to land is a common right, and so if you wish to own land and deny other people the exercise of their right you must compensate them the value of it. This is the land value tax- you can think of it, if you will, as a use fee.
Yes, as Mason Gaffney points out in his "Land as a Distinctive Factor of Production", "Investing in land is macro-economically sterile. It creates neither income nor capital. Socially, it is a wash: one buys, one sells, nothing else happens." http://www.wealthandwant.com/docs/Gaffney_LaaDFoP.html
All property is rivalrous - the value comes from how you use it. The use of the land is what makes it positive sum.
Lithium is zero sum - but it would be absurd to say that the only value is from keeping other people from using it. You get value from turning it into something useful.
Well, the Georgist answer is that yes, there will be no reason anymore to invest in land and own land for the purposes of renting it. People would buy land only for the purpose of investing in improvements on it such as buildings, or because it's attached to some buildings they want to use or rent.
What if I open a coal plant and pollute so much no one wants the land next to me and the land is worthless. Do I pay no taxes? Seems like you would need to tax externalities to prevent people from trying to reduce the value of the land in their proximity.
Georgism doesn't preclude environmental regulation- you would still go to jail for this. Most Georgists also propose pigouvian taxes on pollution, meaning you would pay as much in pollution tax as you would save in land value tax, meaning not only would you be in jail, you would be broke, stupid, and in jail.
Okay but some things have negative externalities that are entirely necessary like coal plants, airports, stadiums, concert venues, etc. You would have to offset the externality with Pivouvian taxes enough to avoid incentivizing the negative externality.
Personally I'm not worried about people being incentivized to build coal plants next door to reduce their taxes.
It's the principle. You do not want to create incentives to create negative externalities.
I want to ask about what I see as both a logical difficulty and a normative flaw in the idea of the Land Value Tax.
The normative objection is that the actions of a third party shouldn't create an obligation on me. When a Wal-Mart opens next to my plot of land, the value of my plot increases due to the proximity to Wal-Mart. Why does that decision, by the people owning the plot next door, mean I need to start paying a fine?
(I'm aware that the economic answer is "because the goal of policy is to generate the maximum possible development on every plot of land everywhere, so you need to be fined until you either play along or give up the land to someone who will build a strip mall". Give me a normative answer.)
But this philosophical objection actually extends into a logical contradiction. The more you aggregate land together, the lower the total land value is. The problem here is that the Land Value being taxed does not include the improvements made to the Land being assessed. But it *does* include the improvements on other nearby Land! So that empty plot in San Francisco has a Land Value of two million dollars. And the plot next door to it has a Land Value of two million dollars. And ten plots like that in nearby areas have total Land Value of twenty million dollars. There's a lot of San Francisco, compared to those plots, and that's what the value of the plot comes from.
But the Land Value of San Francisco is much lower than the sum of the Land Values of the plots that make it up. Maybe all of San Francisco has a Land Value of twenty million dollars. Because at that level, we need to exclude all of the improvements that already exist in all of San Francisco, and they were responsible for nearly 100% of the Land Value in each smaller plot! So we just lost nearly 100% of the Land Value.
The obvious implication is that land must only be owned in truly gigantic quantities. If you own a storefront in San Francisco, you owe an earth-shaking Land Value tax. But if you own all of San Francisco, and all the stores have to rent their space from you, you owe barely anything. Is that what we want?
This is really a false dilemma- improvements don't increase the land value of the land on which they are built, but they can still increase land value outside of their footprint within the same plot. Your valuation 'contradiction' just an artefact of subdivision, but it is entirely possible to value land on a per-square-foot basis. Part III of this article will talk about assessment methods which answer this question.
> Your valuation 'contradiction' just an artefact of subdivision, but it is entirely possible to value land on a per-square-foot basis.
I don't see how this responds to the problem I raise. The value per square foot is different depending on the total amount of land being considered.
You're saying that if I put two buildings on my land, one in the front and one in the back, conceptually I don't pay any taxes on them because they are improvements, except that I do pay taxes on the front building when assessing the back, and on the back building when assessing the front?
How is that different from the existing land+improvements tax regime, where when I'm assessing the front I pay taxes on the front building, and when I'm assessing the back I pay taxes on the back building?
Your thinking has a flaw. Your plot of land will have intrinsic rental value just because it exist + location bonus compared with other plots + neighbours improvements effect on the land rental value. Then we go to what community build around your plot and you may use more or less compared with others. That may increase or decrease your rental land value yield depending on how much you use compared with your neighbours.
Next we look at the improvements that others plot owners and then we see how much more rental yield your land will get if or loose depending on what happens to your neighbours buildings. I guess it is fair to pay less LVT if your neighbours don't maintain their buildings as they should be.
If your neighbours don't maintain their buildings, if you just want to rent your plot without a building on it then your LVT should decrease as they are a burden on your plot potential (it looks ugly if a house looks bad). Identically, if the neighbours maintain a good and welcoming appearance of the neighbourhood, your potential rental value yield is bigger and LVT should capture it.
If things look bad = less potential rental value = you pay less
If thinks look good = more potential rental value = you pay more
"You're saying that if I put two buildings on my land, one in the front and one in the back, conceptually I don't pay any taxes on them because they are improvements, except that I do pay taxes on the front building when assessing the back, and on the back building when assessing the front?"
- When the rental value is calculated... we look only at the improvements done by others and wwe consider your plot as empty even tho on one side you may have a building and on the other one is empty. We measure the effect of other people effort on your potential rental value that LVT should capture.
So we when calculating rental value we are looking for the effect of other people effort on your rental value potential for you to not skim the value from other areas other than your own labor (own buildings, improvements).
When someone rents a building somewhere they look for the position of the land, + how good or bad the public infrastructure & services are + how good the building on that land looks + how good or bad the surounding buildings from other plots look.
You may have the best positioned plot + best infrastructure and public services but if the surounding buildings look bad... your potential rent value will be lower than if other neighbours have good and nice looking buildings.
How does this respond to my original point?
In concept, we want to assess the value of a plot of land minus the value of any developments that exist on that land. What's left over is the value of the land itself.
(1) So, I own half of Hollywood, the district in Los Angeles. It's covered in ritzy mansions and things, but those don't contribute to the value of my land, because they are developments.
(2) However, my land still has a lot of value compared to an equal-area piece of wilderness in the Rocky Mountains, because it's surrounded by Los Angeles, not to mention the other half of Hollywood. You're close to the movie business! You're close to celebrities! You're living in southern California! You're living on pestilential, uninhabitable ground, or possible in the middle of a lake (on which more later), but there's still quite a bit of value attached to the location.
This is all a coherent conceptual approach. But it becomes incoherent when I take ownership of all of southern California. Now we want to subtract the value of all developments that have occurred on all of that land, to calculate the true land value.
(3) As it happens, once you remove all the developments, you're left with an uninhabitable swamp of absolutely no commercial value. (The single most valuable development in southern California was draining the swamps that were naturally there.) The movie business is nowhere nearby. There are no celebrities anywhere nearby. In fact, there is no human habitation as far as the eye can see. The Hollywood-sized plot of wilderness in the Rockies is now *more* valuable than all the land under Los Angeles. By buying a really large amount of land, I just reduced my property taxes by nearly 100%. Is that the goal of the Georgist system?
The real lesson to draw here is that the land value anywhere in LA really is zero or negative, and human developments have contributed at least 100% of the current market value of the land there. But that's also something I think a Georgist would be unhappy with.
Similarly, my own productive actions shouldn't mean I'm penalized. I go to work and produce something worthwhile, why should I be punished by being taxed? I'm extra productive and I'm taxed even more. That doesn't seem just to me either.
Which is precisely the point of a land value tax? It taxes rents, which are by definition returns not caused by contributing a product or service to the market, and replaces all taxes on labor and capital (income taxes, capital gains taxes, sales taxes, corporate taxes, taxes on buildings etc) which do tax you on your productivity.
Good point. I think this is a better form of tax most likely. Thinking things through still.
What you want is a head tax.
"The normative objection is that the actions of a third party shouldn't create an obligation on me."
I keep seeing this argument (mostly from libertarians) and IMHO this is a completely misunderstanding of property rights. A property title creates an obligation on everyone. If I own a piece of land, everyone is obligated to respect it and their actions are thereby restricted. For example, they can no longer freely cross the land and have to go around it. And thus, if we view contracts as transfers of property titles, all contracts create obligations on everyone. So I don't find this type of argument compelling.
There is an annoying motte and bailey going on with the land value tax discussion.
There is a theoretically optimal no deadweight loss LVT which values land according to its value as farmland. That tax has relatively few theoretical problems, but isn't worth all that much money (NYC is worth ~$1 billion as farmland).
Then there is a LVT which incorporates the improvements of the surrounding area. That tax can raise a lot of money but has large potential deadweight losses. You can patch a lot of these losses (development tax credits, regulations or special taxes on destructive uses) but then you are losing the theoretical justification for the tax.
I've barely-ever heard a georgist advocate for taxing land at its farm value.
Feel free to explain the potential DWL for the LVT actually proposed by georgists.
Other people have brought this up, but essentially all of the land value in the US is due to the improvements surrounding it. A 100% LVT means that you should be indifferent between living in a crime ridden slum or a place “where all the women are strong, all the men are good-looking, and all the children are above average.”
That implies a huge deadweight loss where nobody invests in making areas better (or even worse actively invests in making it worse to keep taxes low on existing residents).
Yes, this is called location value and it is a form of economic land. In fact, that's one of the big moral points of the tax- why should landlords be able to make money from the improvements of the community? But to say that an LVT makes people indifferent to their own living conditions is silly- it just means that landlords can't profit from other people's labor and capital. If charging for land rents meant no one cared about improving their living conditions, renters would be indifferent to living in Silicon Valley or Austin, Nevada- because they already pay 100% LVT, just to a landlord rather than the government.
In short, this is a misunderstanding of both the economic effects of an LVT and definition of deadweight loss. If you don't believe me, there is a list of Nobel Economic Prize winners who can vouch for it- from Stiglitz to Friedman to Vickrey.
> why should landlords be able to make money from the improvements of the community?
Because a portion of it is created buy the people who built the houses and apartments and offices that people want to have proximity to.
Well, yes, and people can make money from building houses and apartments and offices- those are not land. To be clear, when Georgists talk about landlords we only mean 'owners of land' and not the colloquial usage of landlord as 'someone who rents out a building'. We don't have a problem with renting out, manage, or maintain buildings- although it's probably more accurate to call them 'buildinglords'.
> To be clear, when Georgists talk about landlords we only mean 'owners of land' and not the colloquial usage of landlord as 'someone who rents out a building'.
Hoo-boy, changing definitions makes things hard to understand.
There's no DWL there, because your actions don't influence the value of your own tax bill, only of those around you. In fact there's negative DWL because you're incentive is to use your land as productively as possible (as opposed to the present situation where underutilisation is still rewarded with speculative gains).
I think the DWL is a situation in which the tax prevents someone from "inefficiently" using the land, so they decide not to use the land at all. There are gains that would've been realized but are not. How are you measuring efficiency here? More economic value produced per acre? I could create efficiency by requiring office buildings to be 50 stories tall. This would mean that a lot of lots would sit empty. I think that's the DWL.
Requiring office buildings to be 50 stories tall is not economically efficient, this is a criminal misuse of the term. But I'm not sure what you are suggesting- that an LVT makes people less likely to use land and generates more empty lots? If that is the case, there are plenty of studies that show that an LVT increases infill and intensity of development.
According to the metric of value produced per acre, it is "efficient." I think that definition is bad. So I wanted to ask what definition are you using for efficient here?
From a theoretical point of view, I just want it explained why it would not result in more empty lots. At what point would it result in empty lots in your view: LTV = 10%? 50%? 99%? 100%? 500%? At some point it would, no?
Let's take a concrete example. I own a trailer park where spots rent out for $5000 a year.
A criminal gang comes to me with an offer. You let us rob from the tenants and in exchange we will give you half of what we steal. Suppose that the deal causes $5000 in damage to the tenant and $2000 worth of value is stolen.
Under current taxation rules this deal would be rejected, the landlord loses $5000 or rent and only gets $1000 in kickbacks.
Under a 100% LVT when the rent drops from $5000 -> $0 neither the landlord or the tenant is made worse off and so the landlord will take the deal and we end up with $3000 of deadweight loss.
Where does this analysis fail?
Crime doesn't suddenly become legal under a Georgist society? In fact, one could argue that almost any action taken to deliberately reduce the aggregate value of the community is ALREADY illegal.
My point is that the LVT makes this illegal activity profitable for the landlord and now we need legal force to align the incentives.
You can create a more complex scenario which is not illegal but has the same deadweight loss. For instance imagine instead of a criminal gang it is a bunch of terrible musicians that the landlord allows to practice. Nothing illegal is happening but the same deadweight loss applies.
Imagine that your trailer park should pay an LVT of 10,000 because that is the rental value of the land based on it's location, neighbourhood improvements on your potential rental value, public infrastructure and services usage.
Now you can obtain a revenue of 10,000$ per year from that trailer park = you can pay the LVT but you don't have an extra yield from the amneties you provide = may decide to go out of business or keep it for a while until the society will put a higher rental value to that plot that will increase your LVT and make you transfer the land to someone who can actually obtain a yield either by selling more services to those who own a camper or build something on it that gives them a satisfactory yield on top of the LVT captured.
Now let's say that the gang of criminal is lowering the LVT. Fine, but don't forget that people who want to rent there a spot for their camper will be fewer. The same with situation of musicians. You have to make a profit from operating not owning.
As the price/cost for camping there (quality in this case is lower due to criminals in the area) goes higher the demand goes lower and vice versa.
We have to make a distinction in between land rental and the price. The land rental yield should include the surounding improvements that contributed to the rent level.
Imagine that you own 1000sqm of plain land without any improvements on it or around it and you are surounded by another 100 neighbours. Based on this... the land rental yield is identical based on the external non-existent improvements. So other people rental yield is 5% but because your plot is positioned in the best place compared with others... your rental yield is 7,5%.
Now we collect the tax and we invest it in the community. The best road, lightning and so on happens to pass closer to your plot than of others... so you are the beneficiary of more of the pie called "community improvements". You already had a location advantage plus now you get more infrastructure so your potential rental yield is higher. Because location + community infrastructure/services consumption.
Now you are the beneficiary of the improvements supplied by the community expenditure. Time comes for buildings to be erected and everyone builds something on their plot. Some with more expensive things than others.
You decided to build a 200,000$ building while others spent 300,000$ on theirs. All building + plots go to be rented. For your 200,000$ building you can expect a 5% yield but because of your neighbours that spent more on theirs... you can actually get 7,5% in yield. You are beneficiary of location advantage so you pay 7,5% + we add 2,5% because you use more infrastructure than others + you get a boost in your building/improvement rental yield of 2,5% totaling to a yield of 17,5%.
- 5% - normal building yield (200,000$)
- 2,5 % - extra yield for your building due to community spending more on their buildings.
- 5% - rental value of land.
- 2,5% - location bonus rental value.
- 2,5% - usage of infrastructure/public services.
Total = 17,5% (land = 10%)
Now lets compare you with a neighbour:
- 7,5% - normal building yield (300,000$)
- 0 % - extra yield for your building due to community spending more on their buildings.
- 5% - rental value of land.
- 0% - location bonus rental value (you don't have a good location)
- 1,5% - usage of infrastructure/public services ( you use less infrastructure due to not the best location)
Total = 14% (land =6,5%)
So because of different factors, each plot has a different land rental yield value and it should be taken into account when calculating it.
Good comment. If I understand it correctly, it captures an example of which I'm thinking.
There's discussion in the comments of "improvements of the surrounding area" being solely provided by government-funded infrastructure. In theory, however, these "improvements of the surrounding area" can be privately financed by someone who purchases a large tract of land, builds on part of it, and then sells other parcels of the large tract.
In practice, that occurs with developments such as master planned communities. (At least to some degree, as real-life examples may include some amount of government infrastructure financing.) Start with, say, 3,000 acres of land, and be successful in building and selling houses on the first 2,000 acres that are developed. The remaining 1,000 acres will typically have increased value as subdivided land for additional residential and commercial development solely because of successful development of the other land. (It would be a positive externality if someone else owned that last 1,000 acres, but the developer has internalized the externality by owning it.)
As I understand the concept of a Georgist LVT discussed in this post, however, all (or at least most) of the increased NPV of that last 1,000 acres would be taxed away. (Indeed, if I understand it correctly, any gradual increases in value of the initial 2,000 acres - other than cost of improvements and structures - would be taxed away by the LVT.)
But there's risk involved in developing this project, beyond just purchase of the land. Maybe a developer draws up plans, pays for some initial roads and utilities, and builds a few houses that won't sell for enough to justify the cost of construction and improvements. The development fizzles and the whole project loses money.
So I'm seeing a specific deadweight loss from the described LVT that's "punitively high tax rate on successful large-scale greenfield developments". I assume that's why Michael mentions "development tax credits" as a possible patch for an LVT that incorporates value of improvements to the surrounding area.
I don't have a ton to say about Georgism besides how much I'd like to see a pilot somewhere. Even in a video game. But I always loved the way economic theory was so interesting as far as EVE.
As someone who untapped a massively valuable resource in EVE in a pretty unique way the fact that EVE has gone so far downhill sucks. If I hadn't had to quit EVE to focus on some real life stuff I would currently be one of the top 100 wealthiest players if not much higher. I ran ~120 characters at my peak. Would have been producing about 250 billion ISK a month without market trading.
The economic aspect of EVE was basically my favorite part. As an industrial innovator who convinced a very serious nullsec corp to let me, and my 119 other characters, in based on an understanding of the economics of EVE no game has really ever captured that feeling.
Even ATITD isn't really the same as EVE despite the crafting/economics focus.
If only the people running EVE were smarter, and took the economics stuff more seriously in the current era, there's a lot of cool stuff that could be done.
Yes, for an economic concept that promises this much awesomeness, surely someone somewhere has tried it to show off how well it works.
So, where is it?
Singapore is probably the best example: 90% of land is govt-owned and gets leased out to users meaning government ultimately collects the land rent. As a result, a full half of govt revenue comes from land. Incidentally, Singapore went from kampongs to skyscrapers in about 30 years.
I don't like this argument because government is the one making the choices and governments aren't perfectly optimized for generating awesomeness.
Convince a local government to do it, or start a new city with Georgism.
Starting a new city is probably the best test. Can you convince someone to build buildings and develop land without land ownership If so, great, implement Georgism everywhere. If not, well, the idea is fatally flawed.
The guy who founded Diapers.com is trying to build a Georgist city, though most of us are skeptical it'll be successful. There are some localities in Pennsylvania like Allentown and Harrisburg who have partial LVTs which seems to have dampened the impacts of the outsourcing of factory work from the rust belt, though they don't collect anywhere near 100% LVT so its hard to say exactly how everything worked out.
They were heading in a clearly negative direction, Harrisburg was on the brink of default, but the LVT seems to have at least leveled them out.
J. J. Pastoriza tried it in Houston and it seems to have worked, but the evidence is filtered through the fog of being a long time ago. The Texas Supreme Court shut him down very quickly.
https://twitter.com/larsiusprime/status/1427107150053183505
I'm still working on collecting case studies, there are places that have tried it to greater or lesser degrees and I think the evidence will be interesting but I'm not done yet.
Also, Norway arguably has a Georgist approach to natural resource extraction and it works *incredibly* well.
While someone has given the example of Singapore the issue is that these experiments are difficult to run in the democratic west. Which is why EVE has had some interesting things to say about economics. Nothing earth-shattering since they haven't pushed for it. But interesting. They've employed, primarily early on, a decent amount of economics to handle problems in the game. Of course fundamentally it has some issues mapping 1 to 1 since in the real world you can't log out.
Some of the arguments for collective partial ownership of land seem to extend too far. For example, I could say:
All commodities are derived form the land of the earth. Nobody deserves to have iron or corn. When you use iron, you exclude others from using it. Since people have collective entitlement to all of the land, they should have collective entitlement to the fruits of the land. Likewise human beings are created from food derived from the earth which all people are entitled to. Everything is partially collectively owned if land is collectively partially owned. From this, we can say that we can tax anything we want.
Corn & iron are both mixed with labour before they attain market value. Georgism wants to tax the unimproved value of natural resources, not the value generated by human efforts.
Land is also mixed with labor. The Georgists know this so they want to extract the unimproved value from it, which I understand. But why not try to extract the unimproved value of the commodities prior to labor mixing?
Er, we do- that's called a severance tax. It's how Alaska and Norway manage their oil, in fact. The Alaska Permanent Fund is one of the best examples of real-world Georgist policy.
Major points for consistency!
Norway's oil extraction policy by the way is arguably very Georgist. It was set up by Farouk Al-Qasim, a Iraqi-Norwegian immigrant and petroleum engineer, who wanted to save Norway from the resource curse that had plagued his native Iraq. It worked very well -- Norway effectively subsidizes oil exploration and massively taxes oil extraction (a form of LVT on natural resources, called a severance tax), and Norway has arguably the most technically advanced and highly efficient oil operations in the world, extracting more oil from any well than just about anybody else, and producing much less on-site pollution and waste (glares at BP). And all that oil wealth goes to the people in the form of the sovereign wealth fund. Companies are incentivized to explore and to innovate, but not to sit on their butts and rent-seek off of sitting on oil wells.
and, lest this feed into the "Georgism incentivizes paving the earth and over-development" narrative; it's worth pointing out that the Norwegian policy results in an emphasis on efficiency and making the best of the wells you've already got rather than sprawling out and grabbing more and more and more, drilling over and over again just to skim the easy cream off the top.
Yep, Georgists would support taxing the unimproved value of all natural resources. For corn that's pretty much just the land it's grown on. For human beings there probably isn't any.
For iron you could definitely argue that the right to make the initial extraction should be taxed, which is why most states have royalties for mineral extraction.
Major points for consistency!
It's not consistent. The tax on iron extraction is paid once. We don't make anyone who possesses an iron object pay a yearly tax based on the unimproved value of the iron in all their iron objects they own.
To be fair, iron is not a necessary input of all productive activity like land/location. If Iron ever did become as important to the economy as land is, and as limited, it might make sense to do so on an ongoing basis. that is not the case currently, however- such a tax would be more costly to implement than it would return.
If you only want to pay once, you're free to invest a lump sum of an appropriate size then use the dividends to pay the annual tax.
Severance taxes (LVT on depletable natural resources) are compensatory payments to the community for the depletion of the land's value and are entirely consistent with the principles of Georgism
a point of clarification
the basic george policy is that the state owns all the land and the state leases the land at what would be the market rate for the undeveloped land
have I got it right ?
Govt-owns & leases land at market rates is essentially the same as private-ownership with full taxation of rental value, so yes, you're pretty much right.
The only thing that guides Georgists to generally prefer the latter is that we want the market to be the one who decides how land is used, as we think the govt often gets that wrong.
Some people would describe it this way, but I wouldn't. The government owns the land so far as the government is representative of the community. The right to location is common, everyone has it, and therefore to sort out who has the right to any given location, ground rent must be paid to the community.
You could organize this in an anarchist way, a mutualist way, a minarchist way, etc, etc.
Apart from logistics there is also a rather large elephant in the room. Suppose we can perfectly assess land value and disassociate improvements from spillover effects (from surrounding development), and let’s suppose that the government is highly competent at using the tax revenue, and that there really is zero deadweight loss. And suppose the public is cool with the government seizing all land value.
Even then, efficient does not mean good, and it does not mean that economic growth is maximized. One of the “benefits” of 100% LVT is that it punishes inefficient use of land. But this means actually bankrupting and/or forcing out the least profitable businesses in areas with high land value. Or forcing people out of their homes. There are real societal costs from this constant relentless turnover.
Well yes, it does mean that people need to move when land needs change, but that's the entire point of it. You can't incentivize efficient land use and stop land speculation without encouraging people and businesses to move when the land they are on is no longer fit for the current use- it's inherent in the definition. However, in most cases changes in land use happen over decades as populations grow and shrink and different economic sectors develop, giving people plenty of time to adjust.
But to the Georgist point, people who hold valuable economic land for themselves under the current system do it at the expense of the public- they hurt everyone by appropriating the land rents of the community, and they stop economic growth from which they themselves would benefit. That doesn't mean we shouldn't attempt to alleviate this transition however- the Citizen's Dividend is an important Georgist policy which helps people to afford the land that they need, and various tax deferment programs can help retirees, for example.
Our current tax and financial system is partially built on the observation that it is easier to destroy than to create and therefore stability is generally a good thing.
Taxes on cash flows have the benefit that they are unlikely to completely destroy a business or a person, and that’s a good thing. If your income falls, your income tax falls. If a business has a bad year, then it’s profits fall and also it’s corporate tax burden (and it’s other taxes as well).
Bankrupting more businesses per year will indeed probably cause more businesses to open. But enough to completely offset the effect? Unlikely, how potential businesses are actually constrained on not being able to find any space whatsoever? And each round of bankruptcy has its own negative externalities, banks tightening their lending requirements, entrepreneurs giving up permanently, employees getting laid off, negative effects on other businesses that benefitted from their presence. Time that the spaces go unused etc. these externalities are not captured in the standard first pass analysis.
Is “forcing out the least profitable businesses in areas with high land value” not happening right now?
No - there are lots of people that own 'under-developed' land. The cost of the land itself is sunk cost and they are free to use the land however they want.
I was referring to businesses that rent.
Sure, but increasing the number of businesses forced out per year is as far I can tell, an intended consequence of Georgism. And one that I argue is undesirable for reasons I listed in the below thread.
I saw you mention the fact but not the reasons. Why is it bad that businesses that fail to keep up get forced out?
There are two rules of a financial system:
(1) Rapid change is bad.
(2) See rule number one.
Going to a Georgist system might be a net positive (I'll withhold judgment until the whole series is complete, but I am sympathetic.) But path-dependence matters, and it would be necessary to phase-in a Georgist system.
Also, I'm skeptical that you can get buy-in for that. The powerful aren't going to accept a system that makes it difficult for them to evade taxes, and they're the ones who have political power.
Well step 1 is for you to become a georgist and convince more people that we should start moving towards it!
Well, most Georgists recognize that a gradual phase-in is important. And yes, obviously landlords and rentseekers have political power. But that doesn't mean we can't improve the system, nor does it mean we oughtn't to try- that is defeatism, and serves nothing but the status quo.
So would you make the same argument about the ownership of people? That rapid change to property relations is bad and their 'freedom' should be phased in gradually?
Of course such a change is a net positive, because land rent belongs to everyone, privately capturing land rent is theft. Living with an ongoing theft is ultimately bad for society, this should be rather obvious.
All the same, Henry George recognized the reality of a gradual phase-in when he rejected the idea of compensation for current landowners.
"It is true, as Professor Ely says, that we "propose to take all of a certain species of property without a cent of compensation," but it is also true that this taking can only be gradual , and would consist in successive changes in our system of taxation, which reducing the taxes now levied on industry and the products of industry would increase the taxes now levied on land values. Surely, Professor Ely would not say that there could be anything in any one of these changes to shock the moral sentiment? Surely he would not say that the state is stopped in justice from imposing or increasing a tax on land values unless it at the same time makes compensation to land owners? Is property in land values more sacred than property in thing produced by labor? Has the land owner any better right to compensation when he is taxed than other people have when they are taxed? We do not compensate smokers when we tax tobacco; nor the final purchasers of dry goods when we tax dry goods; nor the people who use houses when we tax houses or the materials that enter into houses. We do not compensate saloon keepers when the keeping of saloons is interdicted by prohibitive law, nor does anybody propose to compensate them. And with his wide study of the effects of taxation Professor Ely will be able to recall many instances where businesses to which no objection on the score of morals could be made, have been crushed out of existence by the imposition of taxation. He will not, however, recall an instance in which the men so injured have been compensated. Should a proposition to apply to land owners the same rule which we habitually apply in all other cases of taxation shock the moral sense?" https://www.cooperative-individualism.org/george-henry_a-response-to-richard-ely-on-the-question-of-compensation-to-land-owners-1887.htm
Start small and local. Revenue neutral split rate. Show success. Carry on.
> Also, I'm skeptical that you can get buy-in for that. The powerful aren't going to accept a system that makes it difficult for them to evade taxes, and they're the ones who have political power.
I agree with your first points but this is a fully general argument against change.
Here's what I don't understand - one thing Georgeism is expected to solve is land speculation, which drives prices up to wild heights.
But all these calculations you're doing about the value of land is in the current speculation-heavy environment.
If we implemented these taxes, wouldn't the speculation bubble burst and all urban land values drop by, like, 90%, meaning all your calculated revenues from the tax also drop by 90%?
In other words, yes, land is a big deal when we get to speculate on it, in the same way Bitcoin keeps going up and up in price. But is it still a big deal in the world you want to create, after the bubble bursts?
Prices are so high precisely because they're capitalized rents, i.e. speculation on the value of future value generated by the land. Taxing land will indeed drop the purchase price of land, but it won't change the rents, which is what Lars' revenue calculations are built on.
So yes, you're right: taxing land ends the speculation, but still generates sizeable revenues.
To say what Stephen said another way - capturing the rents via LVT makes the exchange price zero, because there is no potential income solely from owning the land. But it doesn't remove the value or the rental flows, it just redirects them, into the public coffers.
I think it is reasonably well established that Georgism is good in theory. My biggest question is how such a system could ever be implemented in practice.
Answering my own question:
Compensate land owners for their loss in wealth as a result of the LVT. Icky I know, giving rich people more money. But if it actually makes them support the policy, then it's worth it!
I'm a proponent of starting small and local. Get your local area to pass a revenue neutral split rate shift. So taxes on land and buildings are different, with land being higher, but they collect no more revenue.
Maybe that'll nudge some properties into development and you can see positive improvements as a result. Then you can convince them to take more and more steps until ultimately the goal is reached.
I know this is not the point of this write up (which is excellent, BTW), but it always strikes me when I read stuff like this:
Whenever I read about "People lifted out of poverty" and about how good everything is all the time under our current neoliberal hegemons; I consider my childhood, and my time in construction and agriculture, and wonder how people can believe something that's so clearly bullshit.
Maybe I'm the wrong one, but it's hard to imagine.
I don't think anyone is saying "everything is good all the time". It's just that on average it's better to be less poor, and the current system has created hundreds of millions of more less-poor people.
Regarding cap rates: while these are subject to a range of estimates, the underlying assumption is that blended cap rates observed for land + buildings are a good estimate for the cap rate on land alone.
There's a logical reason that we'd expect higher cap rates on buildings, however. As noted, buildings are a depreciating asset. It therefore stands to reason that the blended cap rate reflects a weighted average of a higher cap rate for buildings and a lower cap rate for land.
I suppose we could do an empirical study to observe the relation between selling prices for pure land and the amount of income it generates to rent it out.
Examples include:
- Leased land
- Mobile home lots
- Car parking lots annual income vs. annual selling price
Do you have any hypotheses you'd like to preregister about what the cap rates for these might be?
I was somewhat positive on Georgism after reading the post. Many of the comments, however, gave me the impression that it's an alternative to communism for those who want to get back at the rich - an alternative that's more marketable due to not being associated with large piles of skulls.
Systemic changes will of course have winners and losers. Sincere advocates shouldn't be shying away from the hard work of taking the latter's possible (or probable) concerns into account. It says nothing good that a number of Georgists would rather hand wave away the notion that there would be losers by dismissing them as immoral, exploitative actors akin to slave owners in the 1800s.
“There is no cause so right that one cannot find a fool following it”. The “tax the rich” mobs already exist, channeling them in a constructive direction that has chances of actually working sounds like an improvement.
The danger is assuming that they'd rather be channelled in constructive directions than, say, take the driver's seat at the point of a gun.
https://www.theonion.com/gay-pride-parade-sets-mainstream-acceptance-of-gays-bac-1819566014
This is yet another case where the loudest advocates for a position are harming the cause.
I think you're finding what you want to find. There are many of us in the comments saying that an overnight switch to 100% LVT would be disastrous and even if it were possible it would not be wise to do it.
The vast majority of us support some sort of phased implementation that minimizes the negative impacts to people who engaged in the game under the rules as they understood them.
I personally am a home and land owner and I would hate to pay a bank what is effectively rental value for my property, rather than the government, and then at the end not own it nor have my rent dispersed back to the community.
I wouldn't dispute that most current Georgists are reasonable gradualists. It was my mistake that my first post had such a CW tinge to it.
My concern is how the current (reasonable) majority 1) ensures that their views on implementation remains a majority through the processes of coalition-building necessary for making Georgism a political reality, and 2) ensures that those who'd weaponize Georgism are sufficiently kept away from decision-making, while keeping in mind that their absolute (and probably proportional) numbers would increase and thereby also increase the weight of their views. Also keep in mind that the actual implementation of Georgism would involve a lot of bureaucrats who have 'eat the rich' style politics making decisions on the ground.
Personally, I'm focused at the local level. I don't think we're anywhere to "movement" level, but your concerns are reasonable.
I'm a homeowner myself and favor a gradualist approach. I think concern for transitional pain is important but I think it's equally important to recognize the pain of people who are currently being harmed. The housing crisis is hurting a lot of people very very badly, and it's my sincere belief that if we don't go for a Georgist solution when the next housing crisis hits you're going to wind up dealing with far, far, nastier groups seizing power as Millenials and Zoomers get older and remain locked out of the housing ladder.
Speaking as a bureaucrat, I'm concerned that there are enough of the 'eat the rich' crowd in positions that would allow them to use Georgism to enact their vision of justice. In other words, I'm wary of how Georgism seems almost tailor made to be co-opted and used as a blunt instrument by these people.
I'll admit to not having considered the costs of not adopting Georgism. I'd have to chew on what could be done to alleviate the situation of the losers of the current system in order to weigh these costs for or against adopting Georgism. I'm looking forward to reading the next parts of your series.
I can sympathize with that. Moving to a broader base of less terminally online people (myself included) I think would dilute that considerably.
2008 was a very nasty housing crisis, and from every indication that I gave in part I we are well on our way back there. House prices cannot continue to go up forever in a straight line without a crash or serious social unrest. The evergrande crisis in China is likely not going to be pretty, either.
My position is that we can take our medicine now, or take our poison later (other ideologies that are more passionate and don't actually fix things, but are destructive and "fun" to participate in)
Irrational crowds don’t become stronger if you give them a rational justification of policies resembling theirs, they never needed one in the first place.
Ultradense housing is very possible without Georgism. Restrictive zoning is holding us back far more than tax structure.
I know you mentioned zoning reform in passing but the emphasis is little misplaced. It’s kind of like saying “the patient is bleeding out from his gun shot wounds, let’s say a prayer, and then apply a tourniquet”.
100% LVT is essentially evicting people who own homes is high land areas. Even ignoring the political impossibility, it’s just not necessary. Most people will willingly leave if you legalize development via zoning reform, and have private developers offer a fistful of cash.
The argument from Georgists, among other things, is that our tax structure greatly contributes to incentives for governments to support restrictive zoning.
> 100% LVT is essentially evicting people who own homes is high land areas
This is already happening under the status quo. Are you making the testable hypothesis under the status quo that the number of evictions will be greater than under the current system?
The Georgist position is that we should repeal restrictive zoning and pass a land value tax and both of these things work together.
I think you misunderstand my position on the suburbs. I'm in favor of shrinking them dramatically and making them denser. I'm also in favor of doing it in a way that people will voluntarily accept rather than evicting them with taxes.
>This is already happening under the status quo. Are you making the testable hypothesis under the status quo that the number of evictions will be greater than under the current system?
I'm not talking about all eviction, I'm talking about raising taxes for a specific subset of people such that they are forced to move (effectively evicting them). That's the whole point isn't it? Getting them to move to allow more efficient development to take place?
Nice solution, but I see the problem in the transition. The tax would effectively devalue land. Ignoring rich people and corporations, but for many commoners the property is their main retirement asset and even worse for ongoing property debts. Their rates can possibly no longe be sustained and neither be paid back by selling. Making the "middle class" broke and overindebted over night won't get through any legislation. Anyone any suggestions for that?
Gradualism.
1. Fix the quality of assessments in areas that already have a property tax.
2. Shift the burden of existing property taxes off of buildings and onto land.
3. Fix restrictive zoning laws
Just do that and we have a major improvement over the status quo. If you start seeing good results, proceed to push towards full LVT.
If you need to do political horse trading such as deferred LVT payments until sale of the property for old people, do whatever it takes so long as it doesn't undermine the project. It will be messy but we can probably figure this out.
I don't want to harp too much on one line, but this:
"Furthermore, land, unlike capital, can't flee the country and take investment and industry with it."
While true, it seems like the value of land comes from it's proximity to where people want to be, and where people want to be is driven at least in part by where people can combine their labor with capital to produce value. So if capital were to flee, the land would remain, but the value of that land might go down, even if there are no improvements to it.
If a bunch of capital fled Manhattan or SF, I suspect land values in those urban areas would drop quite a bit.
"If you put ATCOR, the Henry George Theorem, and observations about non-pure-public-goods-spending together, one could postulate a virtuous cycle where government investment is always able to pay for itself without creating a drag on the economy and without any deficit spending or debt."
For that to work, I think you have to assume that the amount government spends on public goods is always less than or equal to the value they generate. In other words, no waste and no bad investments. I don't think that's a realistic assumption. So maybe it's better to say that the government *could* recover *some* of the costs of creating public goods, *if* we have generally good government (plus some luck to account for unforeseen circumstances beyond anyone's control).
This was Tideman's point. If you have a bad government that buys stuff people don't need or want the Henry George theorem won't apply.
I think it's worth pointing out that if you distribute 100% of the revenue from an LVT in the form of a citizen's dividend, then you won't have anything left over to fund defense, other social safety net programs, and all the other stuff government spends money on. So you can't have the tables at the end of Section 1.4 and the conclusions of Section 1.2 simultaneously.
I didn't make it super clear, but I used the lowest possible estimate (the Fed's estimates with the low cap rate) from section 1.2, which if Smith's estimates are true (as I think they are) there would be stuff left over for at least some major expenditures. And that's without assuming dynamic effects / ATCOR / etc.
I haven't seen anyone discuss the property tax Assessment Ratio, so I want to point out that the government is NOT drastically undervaluing property for tax purposes. The Assessed Value is not a market value, and it doesn't claim to be. If you look at the NYC page on Assessed Value, it says:
Your Assessed Value is based on a percentage of your Market Value. This percentage is known as the Level of Assessment or Assessment Ratio. Your Assessment Ratio depends on your tax class.
Assessment Ratios
Tax class 1 6%
Tax class 2, 3 and 4 45%
https://www1.nyc.gov/site/finance/taxes/property-determining-your-assessed-value.page
NYC does this so it can levy different amounts of taxes on different tax classes of property, not because they are 'writing down' the value of the property. So we should EXPECT the Assessed Value to be less than 10% of the fair market value - around 6%, in fact.
Most cities do this - Cook County, IL, uses a 10% Ratio for non-commercial property and 25% for commercial property (https://www.cookcountyassessor.com/your-assessment-notice-and-tax-bill).
But this does make determining fair market value from tax assessments tedious - you have to know the Assessment Ratios for each city/county in your dataset.
I believe I addressed this in the article:
> The assessor is probably not saying that the full market value of this obviously multi-million dollar property is $600K. Most likely the assessor gave their best guess of "full market value," and then state statutes forced the assessor to also write down a separate "assessed value" that applies some markdown percentage.
To which you say:
> NYC does this so it can levy different amounts of taxes on different tax classes of property, not because they are 'writing down' the value of the property
Which was my point.
My argument is that they are both doing the "assessed value" separately from "market value" thing for their own internal purposes, AND that their "market value" assessments are also likely to be depressed.
Fair enough about what you say in the article, but ... when you circle $8.99M in bold red, circle $609K, connect the two, and write 'WTF' between them, you're strongly implying there are shenanigans going on, as though the two should be equal but aren't. You even say in the caption:
> Assessed values less than 10% of the extremely obvious full market value
Which further implies you want us to think the two should be equal. I'm pointing out that NYC is just applying a transparent, publicly-available formula to get from one number to the other. No shenanigans needed.
But reasonable people can disagree about what you meant by these things, so I suppose this is just one person's opinion.
I grant your rhetorical point. What I should have circled in red is the unchanging land value estimates.
Excellent writeup - thank you for the hard work.
I will note, however, that sociologically/demographically - the people who actually own the land are almost exclusively the ones who are wealthier (and by inference, more influential). Would they ever want such a tax - which both reduces the value of their holding while increasing the carrying cost of same?
I think not.
The homeownership generational gap isn't that troubling. The number of adults living alone has nearly doubled over 50 years, and people are getting married later or not at all.
Someone probably commented about it, but:
The same argument that you use to show that most of the difference in value between real estates in the city vs. rural areas come from land value - can sort of be reversed. Just like it is obvious that the value difference doesn't come from difference in amount or wisdom of investments, it obviously doesn't come from any intrinsic property of the land. It must have to do with the fact that the land is *surrounded by a city* - i.e. externality of the investments of everyone else in the city.
So the whole thing may at most serve as a moral ground for taking high city-level tax - not federal tax (the justice of such a policy is debatable for other reasons).
The main reason land value is so high is its "monetary premium" as a store of value in an otherwise highly inflationary world. A better solution for making real estate more accessible is adopting Bitcoin as the world reserve currency. It won't involve expropriation, won't cause gentrification and more importantly, it won't leave us completely vulnerable to the state monetary policy and the economic ineficiencies that will sure follow without our ability to save the fruits of our labor.
No doubt everyone here is well-versed in MMT, but it is necessary to harp on about it a bit more: taxes DO matter and can only be collected (federally) after spending by the Fed (although individual states must tax to spend). Taxes dampen private demand and create space for further public spending. Particular taxes affect which resources are "freed up" or "released". None of this is incompatible with LVT or Georgism, and I would say they are congruent since LVT releases land (and other scarce natural resources) to the most productive use.
I'd like to attack the "no deadweight loss" claim from an angle I haven't seen in the comments. LVT is effectively equivalent to expropriating most or all land value. Sure, at least some forms of LVT would be free of deadweight loss if it were common knowledge that this new tax system would be our tax system forever, and no other asset classes would be expropriated.
However, realistically, after the government has expropriate land using Georgist arguments, how will investors trust that the government won't make up some excuse to expropriate other asset classes as well? Most voters don't think about dense economic arguments; if an electorate could be convinced by Georgists to support expropriate land, chances are a demagogue can convince it to support expropriating other assets as well.
After all, in theory, an unexpected, one-time expropriation of wealth (complete or partial, some asset classes or all of them) would have no deadweight loss either—assuming investors trusted the government's promises that it would be a one-time event that would never be repeated. But there is no way investors would trust that.
There is a related issue of fairness. Again, a high LVT would be fair if there had always been a consensus that land ownership without such a tax is illegitimate. In that case, even if a government had, for a while, rescinded the LVT, landowners would have to expect a subsequent government to reinstate it. However, we don't live in that society. For millennia, humanity has been treating land ownership as just as legitimate as ownership of anything else. Alice decides to invest her retirement savings in land, while Bob invests them in stocks. We institute the LVT; Bob is fine*, while Alice is out of her retirement savings through, IMO, no fault of her own—having made her investment decision in today's society, which considers land ownership legitimate, she had no reason to expect that land would effectively get expropriated.
* if the evaporation of investor trust doesn't crash the stock market as well, which is a big "if"
Hi Lars, in your original post you said "As speculators leave the real estate market the land tax that replaces his property tax drop will drop".
Apologies if I just missed it, but I can't see where you've taken this into account in your estimates of how much revenue an LVT would raise.
So do cities become further limited to the rich? Or perhaps, the most economically productive at the moment? How would a retiree still live in the same West Village flat that they spent decades in - only by their savings?
I would find a breakdown of current property taxation interesting. For instance, in Portland, OR my home is already assessed with land as the largest portion of valuation (71% of the assessed value is attributed to land) and while the taxed value is about 50% of the assessed value, its a percentage of the total assessed value, not just the “improvements” to the land. So we are already paying, largely, an LVT on residential properties, and still have massive issues because of zoning laws and tax benefits for owners of multiple lots.
If the tax is 100% of the rent, then as a landowner I have no incentive to rent it at the highest value possible. Won’t that lead to massive inefficiencies?