> Please correct me if I am wrong. The whole basis of Georgeism seems to me to be "it isn't fair that some fat-cat landowners got lucky and own land and we need to redistribute the value to the people who aren't so lucky."
This is correct. Land is unlike other forms of wealth in that its value is not created by its owner. Therefore any wealth derived from it is pure ecenomic rent
> get really nervous when I see an income redistribution scheme buried in a lot of theoretical hand-waving and euphemisms. At least have the decency to come take it from me directly and honestly, so I can act accordingly.
Let me not hide it then. This is a redistribution sceme.
> In the first article the lede was "the rent is too damn high", which is a function of supply and demand, not exploitation. A true open market would allow a market solution for "the rent is too damn high", increasing supply to meet demand and lowering prices. How might we increase supply of land to meet buyers' demand?
Georgism does not interefere with the effficient market. The fact that rent is at its price is not a result of exploitation. But at the same time the fact that the proceeds of the rent goes to landlords bears no relation to any value they added to the economy. The value of urban land is the result of economies of agglomoration*. Therefore the just beneficiary of the land rent is the people that live in an agglomoration, not the land owner.
A thing which confuses me is that the blog suggests that an LVT will not directly increase rents, although it might indirectly increase them if all the awesome benefits of an LVT increase the productive value of the land. Nothing here suggests that an LVT will directly or indirectly *decrease* rents, so it does nothing to solve the problem of the rent being too damn high.
Well Georgism doesn't propose LVT as a way to decrease rents, that is not the point. What it does is move taxation from being on productive activity (labor, investment) to unproductive activity (rent extraction). It doesn't make rents go down, but it does substantially better the economy, and while the renters don't pay any more or less in rent, they have now been relieved from all taxation. Perhaps most importantly, it reworks the incentive structure in place so that land speculation, which does drive prices up, becomes much more difficult or impossible. This also removes many incentives for NIMBYism from residents and governments, making it that much more likely for zoning reform to occur.
A property tax discourages people from constructing buildings on their land, because they have to pay tax on the value of the building, and thus don't get to keep the full profit. A land value tax doesn't discourage people from constructing buildings on their land. So property taxes discourage the construction of structures, and thus increase rent on structures. To the extent that you can replace a property tax with a land value tax, you thus decrease rent on structures (even though the rent on the land remains the same).
An LVT wouldn't technically decrease rents directly, but it would decrease the amount of other taxes the renter has to pay (or would be returned to the people generally in a "citizen's dividend"), so the renters would have more money in their pocket at the end of the month. It would also have the effect of encouraging land to be used for more economical usages, which would lead to more housing if the rent is still too high.
This isn't true. The LVT would encourage more development because vacant and underdeveloped lots would be put to use, which would make housing cheaper and increase wages (See Ricardo's Law of Wages), reducing both the true and relative cost of housing.
You increase the supply of land by making it not economically profitable to own but not use land up to its full potential. That's what an LVT does.
You could get the same impact if you simply collected the tax and then burnt it in a hole. Of course, that would not be sensible. So the next question, what to do with it? Well, that sort of relies on your politically persuasion and ethical framework. Georgists believe that land rent is a value derived by the community, as its essentially a reflection of how desirable that piece of land is to use, so it should be returned equally to everyone, essentially as a payment to everyone to respect that individual's claim on the rights associated with that piece of land.
Yes, because even single-family-home owners who don't have any tenants still benefit unfairly from landlordship. Here's an example:
Consider the case of your neighbor, who is renting a house with the same exact layout and lot size next to yours. The rent they pay includes the rent for the building itself and utilizing the underlying land. Lets say that the county decides to build a nice school in the neighborhood over. Both your taxes and the renter's rent go towards paying for it (as the rent paid must cover the property owner's taxes otherwise they'd be losing money). Once the school is built, your property would become more valuable as a result so you are capturing the benefits of the taxes you paid. However, even though the renter paid just as much as you did towards building the school, their best case scenario is that their rent doesn't go up more than usual now, while the benefits of the school go towards the property value of their landlord.
Otoh, with a high LVT, both you and your neighbor's landlord are paying the same LVT. Once the school is built, the land value might be reassessed to be higher. The renter's rent goes up just the same as in the previous case, because the newly provided infrastructure makes the land more valuable. However, now the single-family-home-owner is also charged for the improved infrastructure, whereas before they got it for "free".
If the state builds the school, it’s funded by the taxpayers in any case. The difference is that with LVT, it’s more directly funded by those same taxpayers who are in position (quite literally) to benefit from it (even if in reality they don’t care about the school).
A property tax is a shitty version of an LVT, so yes, in current practice, the single-family-homeowner end up bearing of some of the cost while capturing back a lot of the benefit through increased land value as they already own the property.
However, if there was no property tax and no LVT, it would be clear that the infrastructure was paid for by income/sales taxes on the people of the county (30%-40% of them being renters on average), but the increase in land value was entirely captured by the 60-70% of landlords, even if some of those landlords are single-family-homeowners.
The Pennsylvania model seems like it would work well. Pennsylvania has a cool law that lets municipalities set different tax rates for land vs buildings. It worked really well for reducing urban blight in Harrisburg.
As a Pennsylvania property-taxpayer (though not in Harrisburg), I think "the Pennsylvania model" is pretty absurd, certainly as implemented.
My house has fluctuated substantially in value over the last ten years, but its appraised value hasn't changed since 2013, and indeed _can't_ change, by statute, unless I make substantial changes to the property. Municipalities adjust the revenue they collect by adjusting millages.
That hypothetical is presented in a context where there is no LVT, but the landlord is still charging the highest price they can. From that income, they pay whatever small taxes they owe on the property in the current system, which pay for the infrastructure improvements that they capture because they own the land. The issue is that the landlord hasn't actually created any value but are capturing a significant portion of the renter's created value (and yes, I'm aware that landlords do spend some portion on property maintenance and payment processing, etc, however, there exist property management companies that will do all of this for a % of your total rent income. In urban/suburban areas, the percentage of rent that goes towards actual maintenance is very small. Therefore, the money that the landlord gains after paying the property management company entirely value that was unfairly extracted by them.)
> the rent paid must cover the property owner's taxes otherwise they'd be losing money
If a landowner is allowed to surrender the land to the state, then it would be impossible for land value tax to exceed the rent on the land, because any landowner who found themself in this position would just surrender the land and continue as a land renter.
"because even single-family-home owners who don't have any tenants still benefit unfairly from landlordship" - just a note to say that this is not the tact to take if you actually want people to come over to your side. Also, your estimation of the contributions of the homeowner to the school quality and the rent rate if property values go up are both not correct - home owners contribute a greater share to local tax base over time and rent rates absolutely go up when property values go up.
"single-family-home owners who don't have any tenants still benefit unfairly from landlordship." - wait, that's not something you can just assume - you describe various reasons why the benefit is very valuable indeed, however, I benefit from it *fairly*, I just bought the benefit and paid for its full value, I have state guarantees on the land deed that it's mine now and if the state wants to take it away from me, the constitution requires the state to compensate me.
You can argue that the land value increases are earned unfairly and deserve to be taxed, fine, you can start taxing the future increases in land value from tomorrow. But simply taking away the *current* land value is not something the state has the right to do.
Yes, they are taxed on the theoretical rent and yes it would be passed onto the owners, as the HOA consists of the owners of the land, and this is how it should be.
The location of this subdivision matters, right? Lets say that central park in NYC was abolished and a subdivision of 16 homes was built there each taking up 5% of the land, with 20% of the land left as a private park for those who owned houses in the new subdivision. Even though 20% is held by the HOA, it is democratically controlled the 16 home-owners. Therefore, even though their private lots are 5% of the property, they each own 1/16th of that private park and should therefore be taxed for it.
> The HOA is an entity unto itself, and even though I theoretically "own" a portion of the common land, I can't do anything with it, and receive debatable value from it.
This is because you willingly entered that kind of arrangement. Some people do actually 'value' using the land around them like that. Don't ask me to explain it because I'm certainly not one of them, but in so far as government goes, if you want a lawn, then you have to pay for it, regardless of whether its your private lawn or a lawn that you share with 16 people.
> Under Georgeism, are public spaces like Central Park taxed on their theoretical land-rent value?
Well, Central Park is kind of like the HOA example, except that instead of sharing it with your 16 neighbors, its shared with your closest 7 million neighbors that live in the city and pay taxes for its upkeep. I'm not sure about the exact details surrounding NYC's central park, but in principle, the people of the city through representative government _could_ decide that it is private and only allow access for people who live _in_ NYC, just like the HOA could vote to sell tickets to the park that they own.
This particular decision only applies in Connecticut, but the reasoning (First Amendment and U.S. Supreme Court precedent) would apply in all states if federal or other state courts agree with it.
Yes, the COA is taxed on the theoretical rent of the land. The COA passes this LVT onto the owners. This encourages good land utilization, because the taller you build the condo-tower, the more owners you have between which the LVT is split. If someone wants to build a single-family-home next to the condo tower, they have to pay the same amount of LVT as all of the condo owners do in total.
It's not passed on to renters - it is collected from the landlord's receipts of existing rents that the renters pay. Because the landlord has a fixed tax burden regardless of how many units they have on the land, they have an incentive to build more units so that they can collect additional rent while paying the same tax.
Right. The tax is baked into the market-set rents. The rents don't go up - just the amount of rent that goes to the landlord vs to the state goes down.
The landowner does nothing to make their land more worthy of rent than any other land, so they can only compete with each other on price, and on the intrinsic features of the land. The intrinsic features of the land stay the same under the LVT, so the landlord doesn't gain any new leverage against a tenant to require the tenant to pay more. It's not like the case where you tax some productive activity, so that all people who do that activity do a little bit less, so they now all have a bit more leverage to charge more from their consumers because there's a bit less supply to go around. The supply remains constant, and the demand remains constant, so the prices should remain constant.
A short answer to Case 1 is that, as an owner-occupier, you have the imputed income that results from not paying rent. This is a fairly standard point of economic accounting: your average Reserve Bank will calculate economic prosperity of a household by including the value of the unpaid rents of owner-occupiers.
It's not surprising that so many "rationalists" oppose Georgism. They fancy themselves intelligent creators but actually cannot prosper unless they're allowed to own something that makes them money without any real effort on their part.
Frankly, I had never heard of Georgism and find it intriguing. That said, it suggests a radical shakeup of the capital structure of the modern world. I think it is reasonable, given that humanity is better off than at any point in history, to put a strongish prior on radical changes being undesirable.
A large reason why we are better of now that ever is because of radical changes we underwent in the past. Yes some radical changes have worked out badly, but that's why you should judge each radical change on its own merits.
"no real effort on their part" - tell me you don't own a home, without telling me...
It's probably safe to say the top comment on the last article, where the guy just bought a $1.5mill home, was prospering just fine without owning land.
I also am a well-off homeowner, and committed Georgist. (My spouse and I are both engineers for top-tier companies and we own a home close to both BART and Caltrain. We are winners under the current system. We just think the system should not be rigged to squash the economic prospects of people less successful than us. Our town should be a welcoming home to everyone involved in its local economy, both the folks in our "export" industries like tech, and the people who do local services -- baristas, yoga instructors, teachers, janitors, lawncare folks, whatever.)
The two critiques of LVT I find at least worth serious engagement are (a) the issue that we need to step up our game at assessments (which are known to be systematically distorted right now), and (b) the transition would create windfall gains and losses, and a lot of the losses would hit people who are middle class enough to own homes, but not up in the top 10% or so, where people enough wealth _outside_ real estate that a hit to their primary residence isn't that big a deal.
Addressing (a) is purely a technical problem. Between sales of vacant lots, and reasonable statistical methods applied to sales of non-vacant lots which then propagate implied changes in land value to adjacent areas, it really should not be THAT hard to build a model of the value of every square foot of land. This is actually a class of problem that the learning models of the past decade are _very good at_. So I agree it's a thing we have to do, as a pre-condition of trying to impose an LVT, but it's eminently do-able.
And hypothetically you can address (b) with some kind of phase-in process. Have the tax on structures phase out, while the tax on land steps up, over the course of 10 or 20 or 30 years. (On the one hand doing it over 30 is annoying, and you'd risk having the politics shift to reverse the process before you could see benefits. On the other hand, a 30 year phase in really is kind of fair, b/c it aligns to the standard 30-year mortgage. So anyone who bought last year will be able to pay down their original mortgage on the same time-frame that the tax change is phasing in. This is the same reason I'd favor structuring an elimination of the MID by having the cap on how much principal qualifies phase down in a pattern that lines up with the balance curve for a mortgage of the current qualifying amount, at a reasonable estimate of the prevailing rate.)
There is another critique, at least how I now see Georgism (I did not think of this before reading the comments): Georgism kind of replace private land owners by the state, the LVT can be seen as a land rent. This dissociate ownership of the land (that remain to the state) from ownership of private infrastructure built on this land (Houses, factories). This can happen under the current system, but it is not common: Infrastructure owner is often also the land owner. The reason why this is uncommon (I think) is the risk of infrastructure confiscation (by land rent increase), because infrastructures are impossible (or very difficult) to move. I would hesitate a lot (A LOT) building a house on somebody else land, and this somebody else being a state (even my own state) barely alleviate this hesitation compared to building on a private actor land. Expropriation is already something I despise (even if I was never the victim, and understand it's necessity)....
I think it's kind of instinctive too, master of your land/home and all. The fact that you are not on par with the state, basically owner and master of nothing if the state decide against, is not something nice to remember even if it's basically true. Part of the appeal of land/house ownership is this feeling to be in control there, at least. Maybe it's one of those illusion it's dangerous to break ;-)
All land is already, in a sense, owned by the government. It asserts sovereignty over it, and can (and does, all the time) pass laws that change what you may do on that land.
This is actually how the Austrian economist (nationality, not economic school) Silvio Gesell saw land reform. He advocated for the state seizing control of all land--with compensation for improvements--and then leasing back to land holders with a fair auction system. As far as I can tell this results in effectively the same situation as George's 100% LVT proposal, in terms of money changing hands.
(Gesell had some other, very complementary ideas for monetary reform which allow for capturing rents inherent in banking due to monetary policy as well. Gesell's "freigeld" demurrage money plus a 100% LVT would likely be enough to fund the full government without any deadweight taxes.)
I question the assumption that many rationalists oppose Georgism. I learned about it through this community and in no other social circle I'm in there's so much excitement and support for the concept.
I'm responding to many of the comments on the first part of this series. There was a lot of "I'M SCARED CUZ THIS LOOKS JUST LIKE COMMUNISM WITH EXTRA STEPS!!!"
I wonder how many of these there actually were and to what degree they actually represent the community at large. Seems like a small number of people who are also responsible for a large volume of comments.
Hey, it's not like you hear about Georgism everywhere outside of the ratsphere, and only the rats oppose it. It's more like you almost never hear about it elsewhere, and the opinions in the rationalist community are... mixed.
It's probably because Georgism does not fit in the traditional political divide (and most people are cheering for their team instead of trying to figure out things). One one hand it is "tax and redistribute"; on the other hand it does *not* make the capitalists the bad guys... at least not per se, although I suppose that many capitalists actually understand the game and invest a lot in real estate, becoming also a part-time landlords. (Okay, so maybe this makes Georgism like 80% left-wing, but no one in the mainstream left cares, because they are now too busy making sure there are enough minority CEOs.)
Though there is the popular meme in rationalist circles that you should "rent, not buy", which always made me wonder, given that the best investments I have ever made were real estate and cryptos (and the latter are relatively recent and the jury is still out on their future).
Speaking about real estate and cryptos in one sentence, to me it feels like the land was kinda "Bitcoin, before Bitcoin was a thing". Limited supply, increasing value, unproductive speculative investment... you know, half of the things people say about cryptocurrencies, they actually apply to land, too. It's just that they somehow come as cool insights when talking about the cryptos, and meh what talking about land. Or to put it the other way round, cryptocurrencies are like a virtual land, in a virtual universe; whenever people coordinate on which virtual universe they want to live on, the price of the virtual land in that universe skyrockets.
I suppose that if Georgisms turns out to be true (and kinda obvious in hindsight), it will make many people feel stupid. It will mean that the things they spent large parts of their life optimizing for were not really that important in grand picture. That they could have made much better financially, if they just (at the right moment) took mortgage, bought some land, and sold it a few decades later. Oops, not sold, *rented*; and used the rent to buy more land, et cetera. (And things like "learning the latest JavaScript framework" make only economical sense as a way to get some starting capital, so that you can buy the land during the nearest mortgage crisis.)
"I suppose that if Georgisms turns out to be true (and kinda obvious in hindsight), it will make many people feel stupid. It will mean that the things they spent large parts of their life optimizing for were not really that important in grand picture."
Honestly, this is very likely the case for Rationalists regardless of whether or not Georgism is true. If Rationalists were truly optimizing themselves for success, then you'd expect that they would be dramatically more successful than the rest of the population, which doesn't seem to be the case at all.
Minor point, "which doesn't seem to be the case at all" seems like an odd observation from where I'm standing. I see a lot of big names in the comment section of this blog and people mentioning that other big names very much read this blog and other stuff from the rationality community.
I grant this might be selection bias, I don't want to claim any kind of rigor -- after all, I'm not talking about the people in the comment section that aren't successful, the people who don't comment that aren't successful, or what the percentages of any of these are versus how they are in the rest of society -- but I did want to point out that I had the opposite *impression* you did.
(Of course, *even if* my impression were true, that doesn't prove causation, only correlation. It could be that very successful people are interested in rationality, not that rationality makes people successful, and I feel like there are good reasons to assume this would be true - successful people tend to have more time for intellectual pursuits, and rationality is one of them. Might be hard to untangle.)
I am extraordinarily successful and I read and comment on ACX mostly to make fun of "rationalists." It's amazing and sometimes amusing how irrational they are despite the label they claim.
Scott sometimes asks interesting and thought-provoking questions, but his followers are almost never on his level intellectually speaking. I suspect the "big names" you see are more likely to be people like me than those who actually believe themselves to be rationalists.
That's entirely possible (although I do rather doubt it, since I do know quite a few successful self-identifying rationalists personally - my social circle is just too small to be statistically relevant, since I'm an introvert). Case in your point, I don't really consider myself a rationalist but would also consider myself very successful - that said, I also think my shirking the label is probably at least partly a sleight of hand on my part. :)
I very much *don't* make fun of rationalists (nor much of anyone else, actually, to be fair, I like varied perspectives), am friends with a lot of them, very much enjoy getting inspired by them, very much enjoy attending the European LessWrong Community Weekends and reading science-fiction stories to the attendees (eh, it's just kind of my shtick), but just don't have the time or dedication to be invested in rationality in a way that would make me feel like I'm any proper part of the community. More stably orbiting at a distance. Does that make me a rationalist? Various people have said "yes". I'm shrugging and think it doesn't matter much either way; for transparency I continue to clarify I'm more in-orbit, though, whenever the topic arises, but arguments for either state can be made.
I take it you don't think you're a rationalist at all, by any measure? If you don't mind my curiosity (and feel free to tell me to shove off, or just ignore the question), what does that mean for you? Presumably you're not the polar opposite, either (I'm picturing 'the opposite' as someone who deliberately tries to increase their own cognitive biases).
How are we defining success? If we're talking about "successful people" in the sense of celebrities, politicians, famous billionaire CEOs, etc., then it's clear that no one in the Rationalist movement has anywhere near that level of wealth, power, influence, or fame. Bostrom might be the sole exception, as he's a famous academic who's written several award-winning books and is seen as a leader in his field. Hanson is likewise a very well-respected academic in his field, though not as famous as Bostrom. And Scott is the one who's closest to being a household name, since he has the most mainstream appeal of any of them. But Bostrom, Hanson, and Scott are far from representative of the average Rationalist, and most of their fame and prestige is for reasons unrelated or at best tangentially-related to Rationalism. Even Yudkowsky isn't on that level; he's famous within certain internet circles, extraordinarily influential within the Rationalist movement itself, and probably quite well-off by now, but he's still ultimately a big fish in a very small pond.
If we're using a more modest definition of success - for instance, just comparing their income, savings, assets, etc. to the rest of the populace - then I'd expect that Rationalists on average are probably a slight bit wealthier than the median person in their country, but only because they tend to work in STEM fields and those tend to pay well. Once you account for occupation, I'm reasonably certain that Rationalists wouldn't be better off than anyone else. In fairness, I really don't think they'd be worse off either (though if there *was* a significant difference in life outcomes between Rationalists and everyone else in one direction or another, then I find it considerably more likely they'd be worse off compared to others in the same line of work, rather than better off, just because people who subscribe to fringe ideologies and movements generally tend to be worse off than the average person). You could argue that adjusting for occupation isn't fair, since the fact that so many Rationalists work in STEM fields is a point for Rationalism in itself, but I find it more likely that Rationalism simply tends to appeal to people who already have STEM inclinations, rather than specifically encouraging them to go into STEM in the first place.
There are more abstract definitions of success too, like personal happiness, physical and mental health, robust social lives, and so forth, but those tend to be a lot harder to measure and quantify, especially on the group level. And my intuition tells me that Rationalists would not fare exceptionally well in those categories either, though it's really anyone's guess.
From the base rates perspective, the fact that e.g. "only a few rationalists become world-famous" is only important if the control group does better or at least just as well. -- Like, if everyone else's chance to become world-famous is 1:10000, but being a rationalist increases it to 1:1000, that would be awesome... and simultaneously, mostly invisible.
As you say, a fair control group would probably be controlled for profession, so like a random selection from population, proportionally weighted towards STEM.
We would also have to somehow measure the changes in profession that people make because they are rationalists. For example, who is a counterpart of "a software developer, later a rationalist, later an entrepreneur" -- an average software developer, or an average entrepreneur? Well, a certain fraction of non-rationalist software developers also becomes entrepreneurs; but how does this differ from the fraction of those who are rationalists?
So, doing exact numbers would be hard. And without exact numbers, the problem is that some things are difficult to see. Like, imagine that I have a magic button, and if I press it now, every rationalist will become 2× as rich, 2× as famous, and 2× as happy as they are now. Okay, I clicked the button... what do you observe? If you are one of them, you see a dramatic change in your life. If you are not one of them, you probably see nothing: the number of world-famous rationalists has not changed significantly, maybe it did not change at all. But if you couldn't even observe the effects of this magic button, how are you going to observe the effect of being a rationalist? You can perhaps say that it is smaller than a magical "10× everything" button, because that one would probably already be quite obvious from outside (e.g. after pressing such button, most rationalists would early retire, so there would be a lot of "so how do you guys enjoy your free time" in the comments).
+1 to Huluk's point. I also learned it from this community. And when I talk about it to people who've never heard of it, the biggest opposition comes from, in order of effected anger:
1. conservative-minded people that say "then what did my parents pay this house for"
2. marxist types that see it as perpetuating evil capitalist practices
3. standard-issue liberals that smile condescendingly and start talking about the importance of having many different taxes and fixing social problems with ad-hoc benefit programs
It suffers from the same problem as most syncretist ideologies, which is that people on the right view it as fundamentally leftist ("it's just a step away from collectivizing land entirely and that's literal communism!"), people on the left view it as fundamentally rightist ("it's just another attempt to reform a fundamentally cruel and unjust capitalist system!"), and people in the center just dismiss it for being a weird fringe idea.
Personally, a lot of the core assumptions of Georgism seem correct to me. The main reason I'm not an outright Georgist is because I don't see any clear path to get from the modern system to a Georgist one without dramatic changes that could risk destabilizing the entire economy. I would probably support attempts to implement Georgist ideas through a gradual series of incremental reforms, but I'm not entirely sure what that would look like.
I'm also rather skeptical of ideologies that claim all of the problems with society can be fixed with One Weird Trick (whether it's doctrinaire "free market will fix everything" minarchist libertarianism or Marxist communism), and Georgist claims pattern-match just a little too closely to that sort of mindset. It doesn't help that a lot of the Georgists I've spoken to have given off strong missionary vibes. But that's more of a personal intuition than any solid ground to dismiss Georgist ideas in themselves.
Alright, I'm going to try *really* hard to take this question in good faith and respond accordingly.
It's hyperbole, meant to play on the tendency of shady online advertisements to make dubious or outright false claims about how various ailments can be solved through "one weird trick." Obviously Marxism is not literally "one weird trick," nor is free-market libertarianism for that matter; these ideologies and their prescriptions for society are in fact incredibly complex. Nonetheless, at the core of these ideologies is the notion that a particular set of policies can be used to fix most or perhaps even all of the problems with our society, and beyond that, to fix most or all conceivable problems with any society (since these ideologies are designed to be fully generalizable and universalizable). This notion seems incredibly misguided to me, as human society is simply too complex for its problems to be addressed by *any* wholly theoretical framework. Furthermore, every society and time period has its own particularities that must be understood and addressed in their own right, so the idea of any system being fully generalizable and universalizable is itself extremely flawed. While this does not mean that improving society is impossible, it does mean that positive change will generally come through experimentation with different policies in different sets of circumstances, and not through a single set of policies designed in advance on theoretical grounds. Thus, from my perspective, the claims and prescriptions of Marxian economic theory can be viewed as analogous to the solutions proposed by those "one weird trick" advertisements and mocked accordingly.
Well, "capitalism" is a very broad term that can be applied to any economic system in which capital is privately owned, so capitalism (unlike Marxism) isn't inherently tied to a specific plan for how society should be arranged. That said, there are some capitalist ideologies that *do* propose a specific plan for optimizing society (such as the obviously Hegelian brand of globalist neoliberalism espoused by Fukuyama, or the free-market libertarian utopianism of Austrian School thinkers like Hayek and Mises), and I'm highly critical of those for the exact same reasons that I'm critical of Marxism.
As for experimentation with Marxist-Leninist policies, I don't see much need to experiment with systems that have already been proven to consistently and spectacularly fail, without exception. I don't think much good would come from experimenting with Nazi or Ba'athist ideas, for instance. Given the disastrous track record of Marxism-Leninism in the USSR, Maoist China, and elsewhere, I don't think much good will come from yet another attempt to implement those ideas either. And my support for political experimentation has its limits; I would oppose political experiments that would result in widespread violations of human rights, which was always the outcome of Marxist-Leninist regimes taking power.
I also think you're rather misunderstanding what I meant. My point was that *instead* of trying to change the whole system at once, we should experiment with policies a la carte, to see which ones work and which ones don't. Marxism-Leninism is explicitly built around changing the whole system at once, so you *can't* really try to experiment with it in piecemeal fashion. But if you're talking about "socialism" in a broader sense and not Marxism per se, then sure, there are probably some socialist policies that haven't really been tried on a large scale yet and could be implemented within the existing framework without totally overhauling the entire system at once.
> It doesn't help that a lot of the Georgists I've spoken to have given off strong missionary vibes.
Including many who have shown up in the comments here.
I don't get the point of Part II at all. It's like someone said at some LVT meeting "but the taxes will be passed onto the renters" and everyone panicked, because they love the renters and hate the landlords, and so they tried to justify that, no, relax, we are only hurting the outgroup with this.
If an LVT is efficient (and I think it is), it doesn't matter where the tax falls. But spending 1 of 3 parts to show that the oxen being gored are only those of the bad group is weird, probably wrong, and irrelevant.
I think the more realistic and honest answer is that, yes, in many cases, renters would bear a significant portion of the cost *in the short term*, but in the long term renters would be much better off in average. (In fact, if LVT works as well as Georgists claim, then *everyone* - including landowners - will be better off in the long term, but especially renters.)
Roughly half of adults own land, and a switch to an LVT would hurt them in obvious ways. If anything, you would want to convince people that lawn-owners aren't going to be especially screwed.
But from the Georgists who showed to infest the comments on part 1, lots of them would rather scream at land-owners than accomplish their goals.
And "would rather scream at their outgroup than accomplish their goals" might be the perfect description for minority political groups!
If it were the case that the tax were passed on to the renters, then (1) that would by itself be a non-starter since people who rent largely can't afford the cost of living doubling overnight; and (2) it would undo all the proposed benefits of the LVT which derive from changing the distortive incentive structure about land speculation. With that in mind I think this is a very reasonable objection to devote an article to in the sequence.
Most of the folks I know in my local neolib circles, including the guy who runs the YIMBY Neoliberal account, are, if not actually Georgists, at least sympathetic to Georgism. I dunno if it's universal, but it seems like Twitter globe-with-meridian folks are majority at-least-friendly on Georgism.
Owning something that makes you money on itself is called investing. Or long time preference. You suggest banning investment to focus on immediate returns, i.e. short time preference. There are many societies built around such a principle, so moving to such a place is easy. Many enjoy nice warm weather too :-) Well, ,built around is maybe not the right formulation. Trapped there may be better...
I'm somewhat critical of Georgism myself (see my posts above), but claiming that Georgists support "banning investment" is just obviously incorrect, to the point where your argument comes across as being in bad faith. At most you can argue that they support banning one particular type of investment, but even that's not quite right. It seems like you're just unfairly equating Georgism with Marxian communism on the basis of some perceived similarities.
I was reacting to a general criticism of buying stuff in the hope they will earn you money for nothing (i guess no or minimal work), which is indeed a definition of investing : consume resources now so that it will bring you more resource later.
By the way i agree with a later comment: it's tempting to differentiate investing (morally good) from speculating (morally bad) and i do it all the time.... But in fact it's extremely difficult to distinguish the two objectively : suppose you buy stuff because you think you can use it to earn you x per year. Now your neighbor think he can earn y>x per year with it, and want to buy your stuff, at a higher price obviously. You sell your stuff... Was you initially buying stuff speculation or investment? Seems you need to know if your initial estimation of earning x per year was in good faith or not, so not objectively decidable...
Now on georgism: it effectively replace private landlords by the state, in fact you can not really own land, just rent it. You then have to build stuff on rented land.... This is done, sometimes (ampheteotic rents of 99y, countries where foreigners can not buy land but can build, renters home improvement) but the risk of confiscation is so high that it is very uncommon. That's my 3rd argument againsr georgism...
1) fast transition to georgism is a fast and large regulation change, which is inherently unfair because people adapted to pervious regulation. Unstable regulation promote short time preference which kill investment and long term projects
2) Georgism in fact replace private landlords by the gouvernement. This may be a win if gouvernement is better in some sense than private actors, but it's an important concentration of powers and reduce choice of landlord... Which is very dangerous so bad.
3) it means improving or building on non-owned land, which is universally frowned upon due to large risk of confiscation of large non fluid assets.
"t's tempting to differentiate investing (morally good) from speculating (morally bad) and i do it all the time.... But in fact it's extremely difficult to distinguish the two objectively "
It's not. Investing creates something, which you hope will be valuable and earn you a return. Speculation does not create anything.
More accurately, it's a question of timing: if your asset evaluate, it's because the market believe it could earn more (or it's a bubble, but then it's speculator against other speculators - which is how I now see the stock market). So speculation is selling before your asset has the chance to produce, while investing is doing at least some production before selling? How much do you need to wait producing before selling to be considered a (good) investor instead of a (bad) speculator? And do you need to produce yourself, or other producing with your investment count?
Investing in a business carries risk, and investors ought to be rewarded for that risk. The risk-premium return of an investment is not rent-seeking.
Investing in land carries no risk inherent in the investment itself, as the reward of appreciating value is due to the external work of the community which surrounds it. Profiting off the appreciation of land is 100% an economic rent.
Buying a thing on the theory that you will be able to _sell it again later for more money_ is not investment. It is speculation.
_Investment_ is buying a thing because you believe it will produce a stream of income, by way of producing goods or services that others will be willing to pay for, as an ongoing flow.
And Georgism does not ban land _investment_. If you think you can buy the land and put it to a use that will produce greater revenue -- e.g. buy a vacant lot, and put an apartment building on it, and charge rent for the apartments -- then great, invest in the land (and the apartments).
A Georgist LVT makes land _speculation_ un-profitable. Which is good, because the speculator adds no value to the economy, and deserves no reward for simply having been in the right place at the right time. The speculator's profit derives entirely from the rest of the community's investment in making the land location more desirable.
One might reference here Warren Buffet's comments on gold, which is a purely speculative asset:
<blockquote>
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.
Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?
Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything.
You can fondle the cube, but it will not respond.
</blockquote>
(Because of this quote, I often think of people who play up speculative bubbles as "cube fondlers".)
It is a silly post because a terminal payment when you sell the asset is just as much a stream of income. There is no difference between investment and speculation. The latter is just a boo word.
If you can't understand the difference between an asset that is used to produce income _flows_, and an asset that is _purely_ a stock, well, that's on you.
It is the same thing from a microeconomical perspective (i.e. when you're calculating a ROI). It's a very different thing from just about any other perspective.
No, snortlax is right : distinguishing the two is a moral judgement, and quite arbitrary. You needs to know the intention of the entity who buy then sell the stuff to decide off it's speculation (no plan) or investment (the bought stuff would be used somehow). Or even estimate if they would have bought it on the first place of further sell was impossible, like for art pieces for example...
I am not the last pesting against those damn speculators, but it's really a somewhat arbitrary moral judgement.
- or tries to create - This caveat inherently makes investing very difficult to differentiate from speculating: you need intention, which is internal to the buyer. And a wise investment needs to factor residual value after production, else you can invest in things only if you plan to use them to death. Once that is done, speculating can be seen as investing with a too short use period....What is too short?
The gold example is also very interesting, as people buy gold not only because it could appreciate. It fact, they buy it (mostly? at least that's always the reason I thought about buying some) because it is somewhat resistant to catastrophic depreciation, like total loss either by bubble collapse, economy crash, or regulatory confiscation...
That's also a traditional reason to buy land...
and store cash, when negative interest rates or bank account freeze are looming...
hum, there is some common pattern, maybe also why I tends to become more frightened of Georgism the more I read the comments: The advantages are real, but you need trust in the government/system.
Regarding part III, there is a critical subtlety in the question of "can you measure the unimproved value of land cleanly", and how that relates to the idea that the tax has no deadweight loss.
The normal sense of "unimproved value of land" is: if I took this particular parcel of land and knocked down the building, what would it be worth?
A subtle feature of this definition is that the value of land is sensitive to parcel size and is not linear. That is, two separate parcels A and B are worth *more*, added together, than a parcel C combining them would.
The reasons for this is the same as the reason that the LVT notionally raises a lot of money with no deadweight loss: because most of the value of any specific parcel is spillover - a positive externality - from all the improvements on the neighboring structures and really most of the structures in the region. If someone builds an apartment building in one parcel, the neighboring parcel becomes more valuable because you can put retail on it. A developer that owned *both parcels* could internalize this externality by building both structures - but if the parcels are taxed separately, then the developer is actually paying a tax on its structures! It pays a tax on the retail by way of the apartment-land and on the apartment by way of the retail-land.
It's important to note that this is not a hypothetical. In general this sort of thing - buying adjacent parcels and building synergistic structures on them - is fairly common. (There is a lot of it going on in Tysons Corner in Northern Virginia, near where I live.) Even more specifically, this is a norm for the development of suburban subdivisions - a single developer buys up the land for the entire neighborhood, builds a bunch of houses (and amenities like pools, sometimes), sets up an HOA and so on, and then sells the houses. This is profitable because the houses are worth more in a nice little neighborhood than when built one at a time as stragglers off of a main road.
So: if you take parcels as fixed and immutable, there is actually a deadweight loss from an LVT.
Is there a way to get around this? Well, you could allow people to combine parcels for the purpose of appraisal, and try to revalue the combined parcel without *any* of the buildings on it. But this creates a straightforward tax strategy in which ownership of ever-larger contiguous regions is combined so that more and more spillover value gets subtracted out and the tax base is eroded. (In the limit you value the Earth as a single parcel with no buildings at all, and ask "what is the value of a square kilometer of Manhattan if no buildings exist in the entire world?")
The existence of nonzero (and nontrivial) deadweight loss really changes things. The general rule with deadweight loss of taxes is that, for a given tax, it's proportional to the square of the tax rate. So for an LVT with an extremely high rate, this could be quite serious. But in particular this informs the comparison with an equal-revenue property tax.
The LVT falls on land and the property tax falls on land+structures. So the property tax has a larger base and a lower rate, but the structures portion of the base has a big coefficient for the deadweight loss while land just has what we have above + whatever you get from other problems in land valuation. The result is that, unless you actually know all of the relevant parameters, it's ambiguous which of the two taxes has a higher total deadweight loss.
Finally: it's overlooked, but a large, large portion of the tax on structures *also* has no deadweight loss: the tax on structures that already exist. With the exception of a few structures that might actually be torn down, you cannot disincentivize the construction of a building that already exists. So simply eliminating property taxes is a windfall to that particular factor, and - why pay out a windfall? As long as we are doing estimates and approximations, I personally favor reforming existing property taxes to have abatements for new improvements rather than trying to go full LVT.
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.
It is not a false dilemma. Either your assessment method ignores most of the exist value of land, *or* it definitely falls partly on improvements and therefore has a deadweight loss. Realistically, every method would pick the latter - it will result in some people who would have internalized positive externalities facing a disincentive to building improvements.
It's a theoretical argument on the same terms as the theoretical argument that the LVT has no deadweight loss. I have no interest in trying to come up with a sufficiently-powered study that you could do, particularly absent dictatorial control over tax policy.
Sure, but the point is we could look for it. And the thing is, many of the studies cited in this very article claim to have at least partial evidence for this very hypothesis.
So in other words, you are not willing to commit your theoretical critique of a tax endorsed by a list of Nobel laureates to any sort of real world implications which we can and have measured?
lmao buddy I don't care who endorses it. FWIW the entire empirical section of this post is irrelevant to me because I require no convincing that LVT falls on land not tenants.
There were a couple of threads in yesterday's post along these lines. For a long term residential owner living in their own house, they have an incentive to restrict what their neighbors build, because that could raise their own land value and therefore LVT. Over time this is quite common in real life, and we have a name for this type of behavior - Gentrification. It would be worse if we were attempting to gain more of our tax base from LVT instead of multiple sources. I personally don't have a problem with gentrification, but I also don't live in a city and don't have a stake in it.
Are you making a testable hypothesis that increased in LVT will lead to a roughly proportional increase in building restrictions and a consequent decrease in building density?
No, I think building density can and will increase with an LVT. I think it will do so at the expense of any current housing, which is often identified as a problem of gentrification on one end and NIMBYs on the other. NIMBYs try very hard to keep developers out, even though they would raise property values, and that's the behavior I am talking about. LVTs will make it harder for them to succeed, because it moves the question one step further back, to the land becoming more valuable (and more desirable) in the first place. NIMBYs win either way in the current system, as their property is worth more and they could sell or rent it for more than before, *or* (usually) choose to stay there. The property owners under an LVT can't choose to stay without paying huge penalties.
Looking into how real estate development I am not convinced about a plain assertion that " improvements don't increase the land value of the land on which they are built" in the general case. While this may be true in the case of a single small plot of land (e.g. a parcel for housing or a store) where all (or, which would be a crucial difference, *almost* all!) of the value created by the improvements would "spill over" to the neighbouring plots of land, this does not seem to be true for large plots of land.
For example, it's undisputable that the land value of all the land in a town is much higher than the land value of all that land before the town was built or an otherwise equivalent location which is not currently populated. In that regard, if someone owned a large plot of the land and developed it into a small town (or a gated community), the land value (and potential land value) of it would definitely increase. However, if they did it without dividing the land and selling it to the inhabitants but merely renting parcels it of it, then the land value (or the value of potential rent) would significantly increase, because all the "spillover" from improvements from one home to another, from a store or a park to the home and vice versa, all that interaction would happen inside of one (large) plot of land on which is owned by a single entity, and they would have directly increased the value of their land through these improvements.
This raises the question about whether subdivision affects things. In a hypothetical simplified example of only two neighbouring plots of land, building an improvement of one will often raise the value of the neighbouring land. Georgism proposes that plot A should be taxed on the unearned value increase created by the improvements on plot B; and plot B should be taxed on the unearned value created by the improvements on plot A. However, if someone owns *both* these plots, they effectively get taxed by the improvements they made on their own land, which IMHO can't be considered unearned income.
Subdivision of land is something that comes up in the literature. I don't think I addressed it head-on in part 3, but you can think of it as being something like zoning that has an effect on the land value because it changes how that land is practically able to be used.
That is to say, any method that uses multi-parameter hedonic regression can take land parcel size and shape into account during the assessment process.
The problem is that even if you assess the value of each parcel correctly, it's unfair and unproductive for the State to tax the owner of two properties for the value that their two properties give to each other. If a developer takes a field next to a freeway, builds 100 houses and a store, and tries to sell them out individually, the underlying value of the land on under each home has increased under his ownership, but clearly he is responsible for that. My understanding is that LVT would call him a thief for owning land that goes up in value, ignorant of the landowner's creation of that value, and tax it all away from him. Is that wrong?
Hm. I think "a thief" is putting it too strongly. Surely it's OK to simply recognize that the developer had a good plan and good follow-through and overall did a good thing, and as a result the land is now worth more and can be taxed more? If the developer wants to do all that work and then sit on empty houses, that seems like a bad thing, and to me it's fine that the LVT discourages it. If the developer wants to sell or rent those properties right away, that seems like a good thing, and to me it's fine that the LVT encourages it. When I hear about investors buying up new condos and keeping them empty, that to me seems like a sign that something is wrong with our economic system, something that an LVT might help fix.
Also, back to your example, isn't it the case that some, if not most ,of that extra value comes from the people living there? Imagine what would happen if you moved there, and then so did 99 of the worst people you've ever known or heard about, such that within an hour you are being literally eaten alive. As you are slowly turned over the spit, wouldn't you agree that the value of your property is less than that of a bare field of land in the middle of nowhere?
So, when the first person buys a chunk of that land with one of those houses, it seems to me that the increase in land value is best characterized as a form of speculation on the nature of the other people who will come to live there. My above example is obviously extreme, and the average case should have roughly average people (for that region). So I suppose a counter-argument might be that the extra value is created by the developer acting like a gate-keeper: even when they don't actively select the new owners, they restrict the pool of potential owners by simply building certain types of improvements and setting up the neighborhood a certain way and advertising a certain way.
"The law of society is, each for all, as well as all for each. No one can keep to himself the good he may do, any more than he can keep the bad. Every productive enterprise, besides its return to those who undertake it, yields collateral advantages to others. If a man plant a fruit tree, his gain is that he gathers the fruit in its time and season. But in addition to his gain, there is a gain to the whole community. Others than the owner are benefited by the increased supply of fruit; the birds which it shelters fly far and wide; the rain which it helps to attract falls not alone on his field; and, even to the eye which rests upon it from a distance, it brings a sense of beauty. And so with everything else. The building of a house, a factory, a ship, or a railroad, benefits others besides those who get the direct profits.
Well may the community leave to the individual producer all that prompts him to exertion; well may it let the laborer have the full reward of his labor, and the capitalist the full return of his capital. For the more that labor and capital produce, the greater grows the common wealth in which all may share. And in the value or rent of land is this general gain expressed in a definite and concrete form. Here is a fund which the state may take while leaving to labor and capital their full reward. With increased activity of production this would commensurately increase."
"Q6. If a land-owner builds, does not that increase the value of his land and consequently the amount of the tax he would have to pay? If so, would not he be taxed for his improvement?
A. No. Upon the value of the building he would never pay any tax. It is true that his improvement might attract others to the locality in such numbers as to make land there scarcer and consequently dearer. His own lot would in that case rise in value with the other land and be taxed more, just as the rest would be. But that would not take any of his labor in taxes; he would still have his building free of taxation. Thus: If on a lot worth $1000 a building worth $1000 were erected, making the whole worth $2000, the tax would fall only upon the $1000 which represents the value of the lot. If land then became so scarce that the lot rose in value to $1500 the tax would be raised. But the owner's improvement would be still exempt. When his property was worth $2000 he was taxed on $1000, the value of the lot, leaving $1000, the value of the building, free; and now, though he is taxed on $1500, the value of the lot, $1000, the value of the building, is still free." http://www.wealthandwant.com/themes/Neighbors%27_Actions.html
"If the developer wants to do all that work and then sit on empty houses, that seems like a bad thing, and to me it's fine that the LVT discourages it."
The point about deadweight loss is that the developer isn't simply going to plan to sit on empty houses. At the margin, the developer has less incentive to go forward with the development, because potential profits are heavily reduced by a high-rate LVT capturing much of the value increase in higher taxes.
The Danish study indicating that home prices capitalize the discounted present value of future land taxes into lower sales prices actually reinforces that point, because the price paid by homebuyers will reflect the post-development tax increase.
Most of your example is just the developer capturing the value created by the freeway which presumably links these 100 houses to some denser area were these future residents can work and pursue recreation. Adding a single store into the mix doesn’t change the game.
Plop that same 100 house development and store onto a cattle road in Nebraska and he will have created essentially no value.
There are a lot of fields next to highways. Should they all be, right now, land value taxed at the land value rate of the development that could be built on them ?
If what you say is true, then the value of large undeveloped plots next to the freeway would be identical or comparable to the total value of land after this development has occurred. This is not reflected in reality, there is a very large increase in land values.
My hypothesis is that this value is largely created by solving the coordination problem between these 100 people; they could just decide to settle there together at the same time and found a community (and capture the value increase themselves) but it's hard to do so, so it does not happen as much as people want, so people are willing to pay a premium to build on land where someone else has done this coordination and arranged the other 99 potential neighbours. And since they're demonstrably willing to pay a quite large premium for that, it indicates that this service is considered valuable and useful.
> This is not reflected in reality, there is a very large increase in land values.
I would be interested to see how you are supporting this assertion. 100 certainly does not seem to be enough people to move the needle on agglomeration effects increasing land value, and that really you are just including improvements like roads, sewer, utilities etc
Even independent of those I would pose the question of how much of a value difference would exist if half of the units sit vacant? It still seems that the value is added by the residents themselves, and not simply the structures and infrastructure provided by the developer.
Assuming taxes are assessed annually or every two years, perhaps this would incentivize faster more efficient development. Buy, develop, and flip before the reassessment.
"Finally: it's overlooked, but a large, large portion of the tax on structures *also* has no deadweight loss: the tax on structures that already exist."
Does this work? I mean, it seems like the same as saying "taxing candy bars has no deadweight loss, because you can't disincentivize making candy bars that are already made. So it can't decrease supply, so it can't affect price."
Isn't the expectation of a tax enough to disincentivize the construction of new buildings?
The portion of the tax that falls on new structures has a DWL. Just not the portion that falls on existing ones. The distinction is conceptually important because, first, it means that replacing the property tax with an LVT means some asset holders receive a windfall (which is suboptimal because it means you need higher rates than otherwise to pay for that windfall, at a given level of revenue), and second because property taxes can be modified to attempt to exclude new construction, if only partially. Many places offer abatements for new construction and this can substantially reduce the deadweight loss of the property tax.
I still feel like I don't fully understand. To define terms, by "new" we mean "after the tax was introduced" and by old we mean "before the tax was introduced"? Or do we mean something more like "built in the last 5 years" vs "older than that"?
Assuming the first, it sounds to me like, yeah, you can adjust taxes on things that already exist without retroactively affecting their existence. But you could only do that once. If you made a habit of starting to say "that building's old enough to be taxed" then it would incur a deadweight loss through the same expectation mechanism.
I'm having trouble thinking it through, but it feels to me like, for that reason, the windfall would only be a one time cost. So you could offset it just by charging a proportional fee, once, if that was important to do.
Yes, "new" means literally "anything built after the tax was introduced". And yes the time inconsistency problem is there. The intermediate solution is after new construction or improvement, you exempt the value of the new construction from the taxable value for a period of time. Thus there's still some disincentive from the tax but it's in the future so has a lower present value, and in the meantime you've mostly averted the uncertainty of "what if the government reneges on the deal".
An example that may be closer to the lives of the audience here than Tysons Corner is the Googleplex. Google owns offices on a huge swath of low-quality land in Mountain View. That land is now quite valuable, as it's in easy commuting distance from a high-paying company. And yet, if Google hadn't built it, it would just be crappy land near the salt flats of the southern SF Bay, where no one would want to live.
Right. Building a nice public restroom would count some towards the land value of the private land around it(as it isn't an improvement on any piece of private land) allowing the value of it to be recaptured by the public in the form of LVT.
If instead a private entity bought that same land and built the same set of restrooms as the above with private access only to their adjacent private plot of land, then all the spillover value would go to their adjacent private plot of land alone.
That spill over would now count as improvement value, and not count towards Land Value anymore and wouldn't be captured as LVT Revenue.
So there's an incentive to private individuals to turn public spillover into their land value into private improvement value
I think you are spot-on on the Land-subdivision-determines-Landvalue paradox. Tbh, it sounds more severe than any of the 3 counterarguments, that get a blogpost to refute them. I wonder if that is because it is not brought forth by so many people, or because there is not a good way to refute it.
OK but like, there's not enough houses in America being built to satisfy the demand. So the landlords can just charge whatever they want because there's not really anywhere for people to go? Maybe their property values decrease, so they don't want to sell their houses, but why should that have any effect whatsoever on rent prices? If you implemented this LVT tax, what prevents a landlord from passing it on to the tenant if every other landlord is also passing it on to the tenants, and no one is building new houses because building new houses is illegal? People have to live somewhere and moving is very hard.
I was really hoping this section would be convincing but I just can't see how this would concretely change the situation in America. I guess I just don't believe the Danish study because presumably it's not illegal to build houses there or something. Help me understand how this applies to America. Can you explain, concretely, how in a city where landlords are already gouging people on rents and their taxes go up, and it's illegal to build new houses, that they wouldn't just increase the rents further? What is supposed to happen to the people who are living in that city? What does the person who can never afford a house and is already spending 50% of their income in rent actually do that "gives them leverage"? They can't buy land or a house. Everyone is raising rents everywhere because of this new tax. I predict that in America, the tenants of that city would just eat it and spend 60% of their income on rent instead of 50%, and just give up on ever having kids. How, concretely, are you imaging it could be any different?
Especially if you're paying a "citizen's dividend" -- in the hypothetical city where building houses is illegal, why don't the landlords just snap up the full amount of that dividend?
I think this is actually a better point. Landlords already charge the most the market can bear, so they can't pass on an increase in their costs. But if tenants become richer, they can afford more rent, so if the housing supply is fixed, they bid up rents.
Of course with a 100% LVT, the increase in rent just equates to an increase in tax, and the cycle continues until enough tenants decide they'd rather take their (now massive) citizen's dividends to a cheaper location.
Keep in mind that the current tenants are not a fixed group either. San Francisco's population has been significantly replaced over several generations with a much more affluent tech-heavy population. You can certainly price out the current residents and replace them with others, so the market can theoretically bear the highest amount that *anyone* can afford to pay who might want to. The whole conversation about gentrification is about this.
> Landlords already charge the most the market can bear, so they can't pass on an increase in their costs.
Assuming we are talking about a build-constrained NIMBY city:
"What the market can bear" isn't fixed. If you increase the costs to all landlords in a living area by $200, then they will all tend to raise their prices by almost $200. A lot of that almost-$200 will come from increased wages that employers are required to pay.
There will be some friction as some people are required to leave the area because their skills aren't enough to afford living there, and some businesses as they are not efficient enough in their use of space to afford having a footprint there.
PS: there's lots of places in the country to build that aren't run by NIMBYs. Bidding up housing prices in NIMBY-run cities is rewarding NIMBY policies. Stop doing that.
You won't increase the cost equally on all landlords though - you'll increase the cost on landlords in proportion to how much of their rent comes from land rather than from the structure. That is, single-family landlords have a higher increase than apartment landlords.
> If you implemented this LVT tax, what prevents a landlord from passing it on to the tenant if every other landlord is also passing it on to the tenants, and no one is building new houses because building new houses is illegal?
Now this is a really interesting objection, and I believe this *would* happen if there was a sharp discontinuity; landlords forming a cartel, and basically agreeing to shift taxes to tenants, whether or not it's rational/prudent.
Now, in a competitive equilibrium, this would drive more units into production, and these landlords would get soaked, the end. But clearly we don't live in a competitive equilibrium‒instead, we would see landlords enjoying super-marginal rents to continue to enjoy a return, and landlord enjoying submarginal rents to lose all their tenants and have their units sit empty.
Let's assume the former case, and let's assume it happens everywhere: that is, landlords have defied theory, and successfully passed LVT onto their tenants. What is another way of framing this? Notably, this means that the *ground rents* that these parcels can enjoy is greater than previously thought. What does that mean? The LVT should be increased, thus effectively taxing away the super-marginal rent that the landlord gets. That is, they *can't* pass it on, after all!
We're now in a weird disequilibrium instead of a tidy equilibrium, but eventually it'll have to be resolved somehow... in any case, we can't sustainably see landlords shift their tax on.
This is not CONCRETE enough for me to understand what you're saying. That's why I asked for a concrete example. My mind just doesn't work with the abstractions you're using like "weird disequilibrium", "tidy equilibrium", and "super-marginal rent". I'm not trying to be difficult, I just can't really hold on to these concepts in my mind and make them do useful predictive work (and I suspect that you can't either).
I propose, concretely, that in a NIMBY city where you can't build more houses, that the clear outcome to LVT is that landlords will respond to any decrease in their bottom line by just raising rents. They don't want to lose any money and they have the power so that's what they'll certainly do. If it makes everyone renting miserable then so be it. The landlords already ARE effectively a cartel that is currently raising rents to unbearable levels anyway; they will just do it even more with LVT. Either way, the outcome is that people "just deal": they add more roommates, stop paying for healthcare, stop paying their student loans, give up on ever having families, etc, exactly as they are currently doing. It just happens faster with LVT.
Can you paint me a concrete picture of a NIMBY city where you introduce LVT and this doesn't happen? What does that look like? How to the people renting the houses derive more power from LVT so that the can use that power to get lower / the same rents? Power concedes NOTHING without a demand. So how do the renters make this demand from the landlords? And how especially does this work when the people are getting a "freedom dividend" and thus clearly have extra money that the landlords can just take?
I propose that if you can't paint a CONCRETE picture of a NIMBY city that at least sounds more probable than the one I just painted, then the argument against rent being passed on to tenants with LVT doesn't really work, it's just confusing economic words.
So here's the difference. Without any LVT or property tax, A NIMBY city/community is "sustainable" because once you own the property, the appreciation of the underlying land doesn't increase your taxes/costs. At worst, this creates an incentive to block new construction (as it would increase the supply of the commodity you're hoarding). (Prop 13 in California is the quintessential case that demonstrates this btw)
With an LVT, A NIMBY city/community is not "sustainable", because as the land appreciates, the rent goes up and owning the land doesn't protect you from this. At a certain point, people in the community will have to _pay_ for how unproductively they're using the land. Now, if its a community of multi-millionaires and billionaires, they probably can afford to have a SFH anywhere they want and will not need to increase density. However, since most communities are not composed of millionaires and billionaires, they will have to choose how much they're willing to pay to be a NIMBY, whereas before it cost them nothing to say "no".
This seems like an excellent theoretical point and I think I can add something concrete. I'm personally feeling fairly at sea in this whole thing but I feel there is a particular lighthouse that gives me a clear directional answer. In multiple of the studies this post mentions it was found that taxing land more relative to improvements resulted in more improvements
More improvements and construction activity means more stock and less rent / lower mortgages pretty surely. Whether or not a LVT can be in theory or in practice passed on to some degree it seems apparent that it cannot be passed on to the same degree that the current tax scheme is. Whether or not a deadweight loss exists in the LVT scheme is an academic question in relation to the question of whether or not any such loss is more or less than in the current tax structure. I'm seeing that the answer is definitely less and this should apply to a NIMBY community where as you say, they may still be NIMBYs but now there is a market force headwind against them that has been seen to occur in practical examples
If landlords can charge whatever they want, why aren’t they? If the landlords can all just get together and decide to increase prices if there’s an LVT, what do they need the LVT for?
The argument is more that an LVT doesn't magically escape the same problems that already exist. Housing/rent prices are already going up very quickly in popular cities, which means that landlords are in fact doing that. The alternative is to live somewhere else, which for some people is more possible than others. If you can't live anywhere else, then the rates can go up indefinitely to the carrying capacity of people's income. Judging by the highly paid professionals living with roommates in popular cities like SF, that capacity is still expanding beyond what we once thought of as reasonable limits.
The limit would be when Google decides that paying hundreds of thousands of dollars so that their developers can live in driving distance of the Googleplex isn't worth it, and opens a Googleplex #2 in another city where rent is cheap.
It appears that the limit is insanely high, more than you would expect a software developer job to be valued at, but nonetheless there has to be a limit in Google's budget somewhere.
If I can make widgets for 1% cheaper than my competitors, I can capture the whole market. If I can rent my apartment for 1% cheaper than my competitors, I still only have 1 unit.
The LVT is an external factor that coordinates their behaviour without them having to "get together". They all see similar cost increases, and so all spontaneously have the same incentive to test whether the market will bear a somewhat higher rent, and suddenly the price at which landlords are willing to rent at has gone up across the board.
Since tenants have no ability to set the price (they NEED a place to live, one month without a unit is catastrophic and possibly fatal, whereas a unit sitting empty for a month is just an opportunity cost and whatever ongoing costs the unit incurs), they just have to pay the higher rate or leave the area. Or become homeless.
They are? Housing has more than doubled relative to income over the last generation. Wealth inequality is skyrocketing. Black Rock is buying up massive amounts of houses and than immediately increasing the rents and cutting services. It's MUCH harder to actually start a family / have kids anywhere because of the rent being two damn high. Most young people have to live with roommates in the cities. It's no longer possible to even rent a house with a minimum wage job, virtually anywhere America. People have to drive for 3-4+ hours a day to get to their job in the city. And it didn't used to be this way, at least not as bad. I've seen people being squeezed more and more in my own personal life, everywhere I've lived, and I believe that the data supports these observations nationally.
We're literally seeing the wealthiest in society taking more and more of the houses and choke everyone else until they're miserable. You are accurately describing the current situation almost everywhere in America. The landlords as a group are clearly effectively working as a cartel that raises rent prices to the great disadvantage of the renting class. You might call it "what the market will bear" but it's severely damaging the quality of life of the next generation, and it seems like a LVT would just immiserate the renting class even more, the way the current power structures work, as it's passed on from the landlords. Power concedes NOTHING without a demand, and I don't see how LVT gives the renters the power to make any demands. And people's lives can always get worse: people can live 5 to a room instead of just 3 as they are now. They can live in their cars. They can drive 10 hours a day instead of just 6. They can give up, forever, any hope of having kids or owning a house. LVT seems like it's just going to exacerbate the already cartel-like behavior of landlords, which I why I asked for a concrete way that that wouldn't happen.
Do you have any evidence at all that this is the result of landlords forming cartels and not just from limited supply, or are you just speculating that rising house prices are the result of cartels because cartels also raise prices?
They don't need to form a cartel, their behavior is the same either way. Landlords in major cities ARE all raising their prices. They have all the power, and so can do as they please.
They don't seem to address the ability of landlords to increase rent when their costs increase. Which, if the area they own in is desirable, they can. They couldn't in Denmark due to rent control, which is a whole separate issue, and so that study is not relevant to your argument unless you also propose universal rent control. The Denmark study seems to be the main plank in your argument, and it proves nothing except that rent control controls rental prices, which is not a particularly interesting result.
If all the landlord's costs go up, all the rents go up, and the tenants pay more or less 100% of the increase. Not anywhere close to 0% of the increase.
It could only possibly be true that the landlords eat the cost if there is minimal demand from tenants, but in that case, rent is not likely a big issue.
I don't believe that there's some literal cartel with formal agreements between members and such. But it's clear to me that most of the power belongs to the landlords, especially in NIMBY American cities. This imbalance of power is enough to make the landlords act like a cartel, simply by following their own interests. I don't see how LVT shifts this balance of power at all, and absent that the natural result is that the landlords as a group will pass on almost all of the LVT to the tenants. Do you think that LVT will significantly alter the current power balance between tenants and landlords?
One solution, which I like to plug as often as I can, is to move out of cities. I know, that sounds crazy to some people, but there is actual life outside of urban areas. There are places where you can buy a legit, livable house, with yards and trees, for less than $100,000 - in the US. That's even excluding the really run down former industrial towns, including Detroit, where you can get houses for almost literally $0.
I think people get hung up on the lower cash incomes of rural areas, but if you are spending 60%+ of your income on housing, and all of your other expenses are higher too, then only making half as much as you would in a city seems a lot more plausible. Sure, I could easily be making a lot more cash income in a city right now, but I would have a smaller home, no land, and less access to parks, trees, and everything that goes with it.
When I hear about how miserable people are living in cities, often due to high prices, I feel very inclined to point out this alternative. Not everyone wants to or can leave the cities, but everyone who does helps lower rental prices for those who can't.
If we want to go totally theoretical, there is a limit on how much rent landlords can charge before the tenants illegally refuse to pay, elect people who promise to make it legal to build more houses, or straight-up revolt and slaughter them. If the landlords have total control over the supply (which is implied by "building houses is illegal") the rent is already at that point, so it cannot be increased (without one of the aforementioned failure conditions). This excludes UBI, however.
With regard to UBI, there's one interesting thing about UBI as it relates to land rents - if you're living solely on UBI, you don't care *where* you are living. This allows entrepreneurs to build developments in the middle of nowhere and undercut city rents based on land value.
If there were a UBI and an LVT and the landlords still had a lock on zoning such that constructing developments in the middle of nowhere were illegal, then yes, the UBI would get eaten up by passed-on LVT, *but no more* because the UBI is literally all the extra latitude the landlords get before they're slammed back up against revolt. In that case there's little gained but also little lost.
Tax is only one dimension of the problem that we have not enough housing, at least in my country and I imagine it's the same in yours. You do have to fix consenting structures and any other locally relevant blocks to allow more housing to be built. But - switching to this tax does help achieve that. Landholders can't rely on capital gains to generate return from their asset holding and have more a lot more personal incentive to build more housing units on their land. If you do the same for the consenting body and the relevant government agencies then you're getting somewhere and start shifting the supply deficit. Conversely, if you did all the consenting and government things but didn't do the tax part then the individual landowners wouldn't be incentivised to build more and you still wouldn't solve the problem. Necessary but not sufficient.
Lars, could Donald Hagman's 1965 book, "The Single Tax and Land Use Planning: Henry George Updated," actually be a journal article and not a book?
I couldn't locate a book by that title in several usual places, including WorldCat and AbeBooks. However, HeinOnline offers a preview of a paper in the UCLA Law Review by that author, with that title, in its 1964-65 edition.
DOIs are clearly useful for online retrieval, interlibrary loan, and citations, among other purposes. But I couldn't readily find one for this particular article. (It does appear DOIs are being retroactively assigned to older articles from the pre-DOI era, but perhaps that's a gradual process?)
There are a number of DOI registration agencies, https://www.doi.org/registration_agencies.html, at least some of which may allow searching by metadata such as author and title. Crossref is one such registry that's frequently suggested. However my searches there for this article were fruitless: either not finding that piece or encountering "Internal Server Error" messages.
One byproduct of searching for "Donald Hagman" on Crossref, was that the first cites returned were to a couple of journals which published eulogies on his death in 1982, giving impressions of his life, outlook, background, and academic focus. As well, one of those lists titles for several of his other publications. (From this sampling, he does seem to have been well-liked and his work respected, but that obviously doesn't mean his research is beyond examination and criticism.)
If all else fails, HeinOnline (mentioned earlier) offers a 24-hour subscription that includes up to 5 downloads for US $29.95, but am thinking you might well be able to obtain a copy of this law review article at no cost, or at least at a considerably lower cost, through a local library.
The quote from the "Valuer General" of New Zealand is... literally... a fictional quote. That is, Hagman made it up, as part of an explicitly fictional narrative where the Valuer General visited New Chicago, a city on Mars. Now, part of it *is* a real quote from a real person.
"The Valuer General of New Zealand, Earth visited New Chicago. He was asked why all of the land-use control benefits of landvalue taxation had not been obtained in New Chicago as they were reputed to have been in New Zealand. He admitted, however, that many of the New Zealand benefits were mythical. He indicated that New Zealand had adopted land-value taxation principally to break up the large landed estates and that the tax had accomplished this.* He also indicated that "there was no evidence that the tax would (1) control urban sprawl and speculation in land; (2) encourage the construction of 'better' buildings; (3) encourage growth; or (4) cause slums to disappear.""**
* fn 66: Bird, A National Tax on the Unimproved Value of Land: The Australian Experience: 1910-52, 13 NAT'L TAX J. 386 (1960), indicates that the dismemberment of large estates was also a major motive behind land value taxation in Australia.
** fn 67: See Statement of Values General as reported in 27 ASSESSORS' NEWS LETTER 102 (1961).
I can provide the full PDF – DM me via Twitter @RikiScanlan
Interestingly, this link is literally the first result for me when I google "The Single Tax and Land Use Planning: Henry George Updated" (without any quotes, even). And I apparently have access to all of HeinOnline via MIT Libraries; let me know if there are any other articles you want access to around this stuff.
While this evidence is intriguing, I think you'd still need to red team the new rules to really make a compelling argument that they can't be gamed.
Suppose, for example, that one of the metrics used in practice to assess the value of the property is what other properties sell for versus what they previously sold. Great, that's hard data, even if it requires some interpretation; wear and work and so on. But you could easily imagine a degenerate case where only a couple properties were sold, and a cabal of property owners could gather and drive the prices down on those few sales so their taxes are artificially depressed; they then split the difference with the seller.
I want to believe that it's hard to just raise the rents and soak people, but having watched friends try to buy houses in the last year ... sellers' markets are rough for buyers.
A cartel can drive prices _up_ but I fail to see how a cartel can drive prices _down_. As soon as the price drops below the marginal productive value, someone outside the cartel will buy it.
Picture a smaller group (two people, maybe brothers) if it's hard to imagine someone acting in the interest of their partners as well as themselves. If two people own all the rentals in a town, then it benefits them each significantly to play along and keep prices lower, even if one suffers more than the other through low price sales. This is always harder the more people involved, but the core concept may be sound.
There's a different idea called "Harberger taxes" which is an attempt to solve the valuation problem. Basically, everyone self-assesses their own property, *but* this assessment has teeth; the assessment is an offer to sell the property at that price. If I say my property is worth $4M, then anyone who wants it for more than $4M can just write me a check and get the deed (and presumably assess the value at whatever higher number they want).
This unfortunately doesn't line up with a LVT perfectly, because you're pricing both 1) value of the land, 2) value of the improvements that are hard to move, and 3) value of not having to move. As well, the stable scenario is one where all of the assessments are *overestimates*, not one where they're true estimates (rather than the 'market price', i.e. what it would cost when the owner is motivated to sell, they're the price when the owner is motivated to keep).
That's a really cool idea! It sort of reminds me of the supposedly ancient way of proving that you're poorer than someone else: offer to trade everything you have for everything they have and see if they refuse.
I think you could find a clever way around this problem. For example, you could say that buying the land gets you the land but not the improvements on it; the buyer is contractually obligated to set up equivalent improvements on ~equivalent land owned by the seller, of the seller's choosing. Or that the buyer does not get ownership of the improvements, and must either negotiate that separately or lease/rent the land to the seller or refrain from doing anything with the land but sitting on it and enforcing rules of who's allowed to leave and enter. (I imagine all of these can be gamed, but I imagine you can do a lot better, too.)
Such a degenerate case seems very unlikely in a large city, and I imagine that public auctions would tend to be weighted as more reliable evidence than off-market sales precisely because one can game the later to set a price of your choosing. Mind you, if stamp duty still exists in this world then false sales to manipulate valuations become very expensive!
So, I was thinking about the observation that Georgist and Pigouvian taxes both have no economic deadweight loss. On the surface this makes perfect sense: force actors to price in negative externalities, and don't let them benefit from things they did nothing to earn or create.
But the Georgist definition of land isn't just a matter of uncreated wealth, because the value of one parcel of land (especially in cities) is primarily a matter of all the other improvements humans have made to surrounding land. On its face a LVT prevents me from benefitting from those positive externalities, which, fine, I didn't create them. But to me this suggests a problem in regards to defining how large each taxed unit should be. If I own a plot of land and build a house on it, then sure, I have no right to earn higher rent just because someone else builds a mall or a highway or a better school nearby. But what if I buy up many plots and build a bunch of things on them that mutually increase the value of one another? It seems like unless I can somehow arrange for all the land I own to get assessed as a single unit, I'm being prevented from benefitting from positive effects of improvements I myself create. An edge case for sure, but developers do, in fact, sometimes buy up large tracts to build mixed use communities for exactly this kind of reason today.
This, while an edge case, remains a very interesting thing to consider. It was given some attention by William Vickrey in his article "A Modern Theory of Land-Value Taxation", a bit inconclusively: he recognizes a small distortion that arises among a set of parcels under common ownership, but believes that assessing them differently based upon whether they're under common ownership would violate neutrality.
In general, I tend to believe that this distortion within cities should be small enough not to matter, with the exception of whether the *city itself* is the common owner, in which case the distortion ceases to matter, insofar as the city itself is the recipient of the tax receipts.
It matters *quite a bit* in extremely unusual situations (Walt Disney establishing Walt Disney World), which is consistent with the general principle: LVT can be applied fairly regularly on urban land, but is hard to apply to rural/submarginal lands (which probably needs some sort of framework that balances the desire to see new development when appropriate, and preserve wilderness/low-intensity usage when appropriate).
It's tempting to respond "the common developments one sees here (exurban tract development, suburban shopping malls, etc) are rather undesirable and unsustainable (see Chuck Marohn on the suburban ponzi scheme), whereas the development that arises from assumptions of independent parcel ownership (less heavily planned urban developments from the first decades of the 20th century or earlier) are more consistent with vibrant and sustainable practices of urbanism", but that would be too reductive. Clearly, there is *some* worth in large-scale developments, and it may be too restrictive to believe that these should all be public projects. If we *really* wish to encourage these developments, we can jettison the constraint that taxes remain neutral and give a relative LVT exception in accordance to how much of the "positive externalities" are internalized into the project. I'm curious what people may think the downsides of such a policy decision would be.
This is a great response and also gets to one of the more useful qualities of imagining implemented georgism - the problems it asks us to solve are much more interesting than our current tax setup. to me that seems to be because it solves so many stupider first-order problems to start.
This is also the model used by private mass transit corporations in places like Japan and Hong Kong, as far as I know (and by similar corporations in New York and Los Angeles at the turn of the 20th century).
If the tax remains with the city, rather than goes to a higher-level (e.g. state or national) government, that creates another problem. The services (or outright cash payouts to residents) financed by the tax make the city an even more attractive place to live relative to rural towns with cheap land. This increases demand, and drives up land prices and rents even further (so, when movement between municipalities is possible, it doesn't hold that landlords can't pass on the tax, at least temporarily).
Then, at the next reassessment, the government raises the tax further, then it uses the revenue to fund even more services, leading to even more demand, and thus even higher rent, and so on. Rents and taxes both spiral towards infinity.
The root of the problem is that, today, high land prices and rents are the mechanism that cuts demand for land (in the sense of demand that is able and willing to pay) down to the level of supply. Georgism attempts to redistribute the land rent back to the tenants, in effect letting them rent below the market-clearing rent, removing the mechanism that creates a market equilibrium. And I don't see what mechanism would take its place.
I have been thinking about this objection, which Alex Godofsky also raised, and wondering whether it might apply to single lot builders as well, albeit indirectly. If I build, say, an apartment building on my plot of land, there is now more money to be made by surrounding it with grocery stores or office parks or Home Depots. That, in turn, should raise the land value of my plot. Technically this is a "second order" effect, but it's not at all clear to me that it should be small when added up over all the mutually beneficial developments nearby. Isn't that the driving force behind city building anyway?
Thanks for explaining it this way. I saw the other objections and wondered why this didn't already apply to single lot owners. The value of a city is not independent of the value of each improvement made within it. Times Square raises the value of nearby properties, but Times Square would not have been built if those other properties did not already exist and provide a lot of value.
Yes, as I was writing my comment, I was thinking first about offices in a skyscraper, but replaced it with a multiple-lots example because it felt cleaner to me.
If you own land and rent it as a mobile home park, and suddenly you have to pay an additional $25k/yr, and so does every other mobile home park owner in the country, then of course prices will rise. When labor costs rose over the past year I raised my bids to compensate for it, just like every other contractor did - and they're not making more labor(ers) on cue either. I didn't shrug and tell my gf we were living off rice and beans so that I could have the privilege of dealing with the physical and emotional stress of contrstruction, nor would I react this way to have the privilege of dealing with the stress of owning a mobile home park. If prices didn't rise, then services would be cut - the septic wouldn't be pumped on time and would back up into the trailers (this actually happened at a park down the road from where I grew up until after many years of complaints it was finally condemned), the well pump would burn out and be replaced by a hand pump, and so on. I don't understand how anyone can possibly think otherwise. And if rents do rise or costs are cut, then the tub and flow analogy doesn't hold water either because the flow is essentially cranked up commensurate with the amount siphoned off.
Yes, I think that any dramatic change is likely to introduce disequilibria that won't be easily resolved (in general, this has a resemblance to the sort of tug-of-war we saw between actors in the Stagflation era).
Perhaps the lesson is: avoid sudden, dramatic changes
The crucial thing with land is that cutting services isn't a viable option: you'll have to pay the tax anyway, and you can't take the land out of existence. So without a retraction in supply, there's no possible way to raise prices, and the land tax has to come out of your pocket instead.
You *could* try to get the tenants to pay substantially more than they previously have (if permitted by law); now, the theory would say that they're already paying as much as the market can bear... but given a sharp discontinuity, and if *all* landowners work in a loose cartel to tighten the screws, it's possible that tenants will realize that they *could* cough up more. (Ultimately, this is a question of power/coordination/organization)
Of course, in the long run, if the ground rents increase in this manner, it means that the LVT increases in the same manner, and we're back to square one. And it can't go on forever
It would certainly be strange for landlords to form a cartel to extract greater rents from their tenants knowing that their taxes will increase by the same amount
Tenants almost certainly could pay more under the full Georgist plan, as their labor taxes would go down. The money saved on labor taxes would, intentionally, go towards paying LVTs. That was a big part of the post yesterday. So landlords will capture that tax money and funnel it to government instead of employers capturing that tax money and funneling it to government.
Is this mobile home tenant going to tow their trailer down the road to a park owned by another owner, who is willing to live on rice and beans, or operate at a loss? Because human nature being what it is, I think the supply of those landlords is going to be mighty tight indeed. Or are they going to trailer it to the national forest and use an outhouse and a hand well pump?
No matter how you slice it, the reality is higher renrs or lower services.
But it doesn't let them avoid the tax. They could - but they won't. No one in the 1st world is going to move to the woods and sh*t in a bucket, boil stream water to drink, and chop wood for heat, rather than pay the higher rent demanded by landlords to pay this new tax. There is plenty of land, but no one wants la d, they want electricity, and insulated walls, and running water, and wifi, and all the other things that require large amounts of capital to pay people like me to make it happen for them - and that generally comes from a landlord. Every single person who complains about rent-seeking, and there are millions of them, could avoid this by losing in the woods right now, but none of them do. They pay the rent.
Interesting that all of the things you mentioned are components of the improvements and not the land itself. The main thing they pay for is location, which is immobile and therefore can't be passed on. This is true in economic theory, and is supported by the evidence presented above.
Land isn't movable, but it is fungible. If the price on the east side of town is too high, people can move to the west side of town (or a different town, or state, or country). This will be true up until the point that all of the land on earth is occupied, which is a long time from now.
I don't think land is fungible. Substitutable to some degree, maybe, but not fungible. Every dollar is the same as any other dollar, but some land is better or worse for some purposes than others. Even similarly sized pieces of land in the same neighborhood can have meaningful differences.
"No matter how you slice it". Are you some sort of economics genius? Almost every economist in history, from Adam Smith to Milton Freedman, agrees that a tax on land would fall entirely upon the owner of the land. Prices are set by supply and demand, the only way to increase price is to reduce supply. You cannot reduce the supply of land, so unless the demand for land increases, you cannot raise the price.
Your claim goes against both logic, if the landlord could raise prices why have they not already done so, and the prevailing theories of economics over the last 3 centuries.
You can also force higher prices by artificially raising input costs. As in the example I gave above, higher unemployment benefits forced business owners in, say, restaurants to pay their help more, which caused them to raise prices.
Currently landlords can't raise prices because market forces prevent it - but if all la dlords are suddenly subject to the same additional percent added to their bottom line, then they'll all raise rents, just like restaurants have raised prices over the past year.
You are missing the point- price is not a result of input cost, it is a function of supply and demand. It doesn't matter what input costs are if there is no one to buy it or a billion other identical goods for buyers to choose from. This is the most basic concept of economics. An LVT alters neither supply nor demand, ergo it does not alter the price.
As IV said elsewhere, above or below, for modern purposes housing - not land but the amenities like heat, waterproofing, electricity, etc that the landlords are really in charge of but can't distribute without land - are almost necessities. Let's say the gov decides to place a tax amounting to $5k/yr on the air we breathe. Now obv the amount of air isn't going to change, and some people would prob go to jail as conscientious objectors, but most people would probably roll their eyes and come to the tacit agreement that we'll all just increase what we pay each other and "inflate" the cost of this new air tax away. Easiest solution, no?
But the supply of land isn't actually fixed. Earth has millions of acres of unused land, and cities grow (and sometimes shrink!) all the time. More land is added to city boundaries constantly. What seems to be getting confused here is that a particular parcel of land, in say, NYC, can't be moved. That's not the same as saying that no new land can't get added to the system known as NYC. If there's a severe and intractable problem with a piece of land, people will use a different piece of land, which will increase the rent of that other land.
Do you have a citation for Adam Smith arguing that a tax on land would fall entirely on the owner of the land? I am fairly certain he said no such thing.
> Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground. More or less can be got for it according as the competitors happen to be richer or poorer, or can afford to gratify their fancy for a particular spot of ground at a greater or smaller expense. In every country the greatest number of rich competitors is in the capital, and it is there accordingly that the highest ground-rents are always to be found. As the wealth of those competitors would in no respect be increased by a tax upon ground-rents, they would not probably be disposed to pay more for the use of the ground. Whether the tax was to be advanced by the inhabitant, or by the owner of the ground, would be of little importance. The more the inhabitant was obliged to pay for the tax, the less he would incline to pay for the ground; so that the final payment of the tax would fall altogether upon the owner of the ground-rent.
[Incidentally, a habit I picked up in grad school reviewing papers (and which I heartily recommend) was 'check the citation'; often I would think "wait, isn't this contradicted by X / present in Y?", and rather than just saying that would pull up the citation and verify first, because it's super frustrating to get a review comment that says "this is in Y" and then not see Y there, especially if this means your paper doesn't get accepted because it's not original enough. Here, I just googled "adam smith land value tax" and had the citation within 15 seconds.]
Ahh thanks. That explains the confusion. The actually useful bit happens a few paragraphs earlier:
"The final payment of this tax, therefore, would fall partly upon the inhabitant of the house, who, in order to pay his share, would be obliged to give up a part of his conveniency, and partly upon the owner of the ground, who, in order to pay his share, would be obliged to give up a part of his revenue. In what proportion this final payment would be divided between them it is not perhaps very easy to ascertain. The division would probably be very different in different circumstances, and a tax of this kind might, according to those different circumstances, affect very unequally both the inhabitant of the house and the owner of the ground."
Smith assumes (a little strangely, really) that the rent of the house does not go up with the tax because he has fixed how much he is willing to spend on housing in his head, but that the renters (inhabitants) pay by way of convenience, paying by taking for a less nice house or more out of the way one for the same money. The inhabitant doesn't pay ALL the tax (tax incidence isn't 100% generally) but he does pay for the tax; not in money in Smith's case because he fixes that part of the budget, but in getting a lesser place for the same total spend on housing.
The rents on houses in your quote isn't raised because the total of house rent plus tax is fixed, but the quality of the house goes down. The tax is paid on other margins.
A modern look would not fix the total part of the budget spent on housing, but would consider the possibility of spending less on other areas of spending instead. So rents over all might go up (instead of spending 60L on rent a month the renter might spend 63L and buy fewer meals out or something) or they might stay fixed.
Smith does make a very strange assertion that a landowner has a monopoly on the land. That is sort of true, if you own LOTS of land, like the whole west side of the city say, which might be what he had in mind at the time. It is also sort of true in the sense that each plot of land is unique, and so you have a monopoly over it because only you can rent it, but you have to compete against every other unique plot of land. This is much the same as saying every worker is a monopolist because each person is unique; strictly true, but also entirely pointless because each person still has to compete against others.
If I understand the LVT argument correctly, the original owner is likely to go bankrupt if they have a mortgage on the property. The new owner won't be living on rice and beans because they will have bought it for a much lower price and thus will have an after tax Cap rate similar to the first owner before the LVT implementation.
If there was no mortgage, then either:
1. The LVT will be acceptably small since most of the value comes from the sweat and improvements of the owner and no alternate use would unlock more cashflow using less effort.
2. The LVT would put the park out of business because there is an alternative use that would be much more economically productive.
You could try to raise rents, but you'd be competing with a bunch of other mobile home parks that were picked up on the cheap in bankruptcy liquidations.
I agree this is one possibility, and maybe even the end result over time, forcing older generations into bankruptcy so younger generations can get cheap housing. Although I don't see why that's desirable... But at the same time, if prices increase overnight and 90% of landlords jack up their prices, there are going to be many fewer bankruptcies available for purchase than there are people looking so it seems like, at best, there would be a period of significant inequality, and most of the country would be absorbing the increase in their rents for a number of years. But if 90% of rents are higher than ever, even the landlords who bought cheap wouldn't rent for that much below market and leave it all on the table for someone else to grab, so the bankruptcy wave might peter out quicker than expected
Do keep in mind that I am working off of your hypothetical. I believe that actual proponents would argue for something much more gradual and sans massive bankruptcy wave. I hope that the author sketches out what a potential transition plan would look like.
> I agree this is one possibility, and maybe even the end result over time, forcing older generations into bankruptcy so younger generations can get cheap housing.
The current state of forcing the young and old generations to pay higher and higher prices for housing to support a tiny percentage of extremely wealthy old people doesn't strike me as better.
"I agree this is one possibility, and maybe even the end result over time, forcing older generations into bankruptcy so younger generations can get cheap housing."
If their only wealth is land rent, then yes. This is a healthy thing, long term.
Obviously there is a transition problem, because society has made the insane decision to *encourage* the accumulation of wealth through land rent.
"This just means that if you tax land, absent any other interventions, the price of land goes down. The rental income of the land available to the landlord goes down too, which means the landlord is eating the tax and can't pass it on to the tenant."
If the change is fully capitalized, then the price of land hasn't gone down, it's just being paid less to the bank and more to the local gov, or vice versa. The price is still essentially the same. And since the landlord is still paying essentially the same price I see no reason why the tenants would be paying any more or less either, and didn't see any mention of that in the study. Did they examine rents or just sales?
"Employing prices for home sales before and after the reform was announced and carried out and controlling for a number of other potentially important factors, we examine the effect of the tax changes upon home sales prices. The conclusion is very clear, indicating a statistically significant change in sales prices compatible with a 100 per cent capitalization of the future land tax changes using a reasonable discount rate. "
It seems like several deal with reinforcing the capitalization, which would be expected. The two below the Dutch study are somewhat vague but potentially interesting. So we see an increase in units with an increase in land taxes, are they just building higher to fit more rentals into the same footprint, or reducing the size of each unit? Either way, many would consider this to be a reduction in quality of life. The one below gets the same effect with an increased "intensity of land development". But is it another Manhattan, or more likely, another Jersey City? Choi below gets the same effect with greater population density. So the costs are being passed down via cuts in quality of life, at least in my opinion, tenants crammed in like tax-paying sardines. They get less land for their rental dollars.
Right, and I'd fully expect taxes to factor into sale prices. A .3% rate change is small enough to be potentially absorbable regardless, depending on property valuations, but without data on what happened to rents following this increase we can't say whether or not the cost was passed down. In this case it may not have been able to be, because the tenants could still move to the town that got a decrease, assuming supply. If a tax increase were large enough to cut into rent profitability where rents were raised, but the increase was nationwide, the tenants would have nowhere to move to, barring emigration.
What are the mechanisms preventing bad actors from artificially lowering the value assessment of the land they own for LVT calculation purposes?
Given that many landholders are already wealthy and powerful, wouldn't they find a way to game the system in their favour, through political influence or otherwise?
A lot sans improvements is perhaps easier to valuate comparing to the neighbouring lots, so if anybody in vicinity is selling, then it gives us a hint about the market price of lots in the area and helps us spot artificially lowered valuations?
I understand that it's not a new problem, because many current tax schemes may suffer from tax evasion, but if we base all taxation on just unimproved land value, doesn't it make it easier to evade?
For one, land can't move to the cayman islands, and for two, land assessments must be done in public and can be scrutinized by educated people. Neither can be done with other asset classes that are able to evade nearly all visibility.
Hmm. I still don't buy the "can't pass on the tax" argument, at least on the theory side.
To begin with, a change in the tax rate seems like a perfect Schelling point for landlords to coordinate rent increases. If all rents go up by the same amount, do renters really have much of a choice? Neither supply nor demand immediately change when the tax rate changes...
More generally, my gut instinct would be that shifts in the the way landlords pay taxes would result in changes in rents, such that the landlord's income remains constant (at a minimum). That seems to be what happens when property taxes go up, anyway. So if the overall tax income of an area shifts toward being based on an LVT, then the LVT will increase and other taxes will decrease, and more and more of the tax income will be funneled through rent and landlords. Ultimately, in the case of all taxes being replaced with an LVT, a renter would pay their entire tax burden as part of their rent, passed through their landlord to the government(s). I can't quite imagine that the total tax burden would change too much, which means the result would be that everything we currently pay in income tax withholding and sales tax, would instead be added onto whatever we currently pay for rent. (Or paid directly, to the extent that we actually own some of the property that we use.) (I have no idea what social security withholding would look like.) The upshot being that although we pay the same amount in taxes, superficially it looks like rents go way up.
Is this sort of thing what you're talking about when you mention landlords passing on the LVT to their tenants? Or am I confused and you mean something else?
Another thing: it might be good to distinguish two financial functions of landlords. One is the "speculative" function of simply owning property and hoping that values increase. The other is the ongoing revenue stream from rentals, which is partly offset by maintenance, taxes, and that sort of thing. As I see it, the LVT ignores the second function and aims directly at that first function. So it seems like there'd still be room in that second function for someone to own property, charge rent, use some of that rental income to pay a property management company to handle the day-to-day stuff, and still keep enough of the rental income to be able to live without having to do much work. Right? But from what I've read, I get the impression that there's some confusion between the ideas of eliminating land speculation, and of eliminating the "rentier class" entirely. Which of these do Georgism and the LVT aim for?
It is true that an LVT could cause landlords to attempt to raise rents, and they might be able to in the short term (since obviously it takes time for changes in housing to occur)- just a price instability, essentially. But in order for those to last in the long term, landlords would need to form a cartel, which is impossible given the fragmented nature of the land market. Once an LVT got to 100% landlords would have no incentive to raise rents at all, since they would not gain anything from it, it would all be taxed away directly.
As far as the second point about the supposed rentier class, when you are talking about property, are you talking about land or buildings, or both? Georgism, when talking about 'landlords,' only refers to people who profit from the use of land, and is not referring to the colloquial usage of landlords for people who rent out apartments for example. We have no problem with people building, renting out, and managing buildings- those are returns on labor and capital, and that's why they are left out of the land value tax as improvements. Those people might be better termed 'buildinglords,' but unfortunately- true to current economic form- in general use we conflate people who extract rents from land and people who profit from managing and renting out buildings.
Your last paragraph is mere inches from Georgism. Landlords rent out two things at once: the Land and the Buildings. We think profiting from the former is illegitimate, but the latter is totally valid. So we only consider the former to be Rentierism.
Am I correct that the annual rates analyzed are all on the order of the Danish rates, which are annual taxes set at 2% to 3% of land value? In that case, the annual rates in some areas increased by an average of 0.34% and others decreased by an average of 0.26%. I'd be hesitant to assume that full capitalization of relatively small changes in this annual tax rate imply full capitalization of far larger tax rates.
I'm not convinced that 3% of land value isn't approaching a 100% LVT. Average UK rental yield is 3.63%, but that's a gross yield, which will equate to a net yield of just over 3%.
It's perhaps tangential to this blog, but understanding what happened in New Zealand seems quite important. It seems New Zealand achieved a full LVT in 1912, but it became progressively less relevant until it was abolished in 1991. So what went wrong, and how could we avoid repeating those mistakes? A quick Google showed me https://www.ethicaleconomics.org.uk/2017/02/a-history-of-land-value-taxation-in-new-zealand/.
Short version is that postwar pro-homeownership policy resulted in a majority of voters having their home be their primary asset, and slowly voting to lower their taxes.
This is a very relevant observation with respect to the political viability of georgism - it's pretty much a strawman argument to focus on how the renters will be affected, if a very large part of the community are homeowners.
Yeah, one of the awkward things about price distortions in general is that the more detached from reality it becomes, the more effort it makes sense to expend against fixing it.
Consider the housing situation in California, for example. Because land assessments have a capped increase, where the market land value does not, and in some cities for some properties rent increases are capped, whereas market rents are not, we're now facing a huge transfer that would happen if all assessments were updated to true values. And every year the transfer gets larger!
In America more broadly, the federal government promotes mortgage-backed land purchases, which is basically making a class of people who will be ruined by this change in tax policy (as they might have a $2M mortgage on a $2.5M property which, supposing 80% of the value is in land, will now be a $0.5M property, putting them $1.5M underwater).
In short, the Australian experience – and I will bet my hat that the NZ experience is the same – was explicitly designed to smash large landed estates that had accumulated across the nineteenth century. This was part of a populist movement against large landholders, which was a coalition of mercantile elites and working class people who wanted to acquire small landholdings as a means of achieving economic independence. By the post-war period, these factors had largely subsided in political relevance, whereas small property ownership (owner-occupiers) had begun the long march to dominance (and which then reversed after the 1980s/1990s).
> In fact, many of the strongest opponents of LVT seem opposed precisely because they agree that land is a big deal.
Hello.
> Well, I'm already charging as much as the market will bear. If I charge any more, my tenant will move out. [...] Price signals from the market are telling them to stop producing and do something else.
Yeah, no. The fact you don't respond to very basic economics like transaction costs or the idea that what the market will bear can change in response to taxation is such a fundamental flaw I'm tempted to stop. You don't even talk about demand elasticity! This theory section is really, really bad and ignores mainstream economics on the issue. The normal position is that while the supply of land is completely inelastic the demand is also highly inelastic. You can choose to stop buying cigarettes but you can't stop consuming land because you need to physically exist somewhere.
What determines who pays taxes is demand elasticity. If it's high then the producer eats it (because if they raise prices their customers go elsewhere) while if it's low then the consumer eats it because the producer can raise the price and the consumer has no choice but to pay it. The classic example of this is, and I swear I'm not making this up, rent.
> Even a dedicated cartel like OPEC can't enforce high oil prices by fiat. They do it by cutting off production and driving down the global supply of oil until people are forced to pay the price OPEC wants.
They could. They choose not to because it's cheaper to do it their way. We also do see landlords in aristocratic regimes (where landholders also hold political power) doing exactly that: coordinating to set higher rents. The idea "landlords can't coordinate to raise rents" is ridiculous. I mean, they can't now because it's a crime and the government investigates and prosecutes people for it. But "it's illegal" is different from "it's impossible."
> This phenomenon is known as Ricardo's Law of Rent.
Ricardo's Law of Rent is specifically concerned with land as a factor of production. Ricardo is explicitly excluding domestic land like homes. You are not. Yet you don't bring this up.
> All the leverage is on the side of the tenants, which forces the landlord to eat the tax.
If all the leverage in tenant-landlord relations is on the side of the renters then why don't we see tenants using that to renegotiate lower rents now? This is very opposite of most people's default intuition but you don't really justify it.
> One day, Denmark decided to redraw all its municipal boundaries. Regions that had been under one local government woke up the next day under a different one, immediately adopting a new set of local regulations and rules, including changed tax rates. This caused a large-scale, semi-random shuffling of Land Value Tax rates overnight.
This is extremely confounded. Firstly, Denmark has a huge amount of control over its housing market that would prevent a full free market response. Secondly, it's widely accepted that social services affect property rates. I haven't read the paper but you don't mention such compensation. Is it there? Further, even if it could be proved (and it probably could) that taxes decrease property value, this doesn't mean the rent goes down too. You assert this ("This just means that if you tax land, absent any other interventions, the price of land goes down. The rental income of the land available to the landlord goes down too, which means the landlord is eating the tax and can't pass it on to the tenant.") but I didn't see it in the paper. I'll read it more thoroughly later or you can point it out. But there's plenty of examples of high rent, low value areas. Rent is not a fixed portion of value by any means.
> land taxes do capitalize into land values, whereas the monthly rent level remains unaffected by the land tax.
In fact, one of your studies finds this is the exact effect it causes! (Though I haven't read the study, just your summary.)
> Wyatt cites another source (Pillai 1987) that claims that LVT hasn't worked in developing countries, but notes that the "LVT" imposed there was a flat tax based on land acreage rather than actual land market value.
How else would it be assessed unless you're taxing the value of improvements on the land too?
> That's according to a 1983 article originally published in Fortune Magazine. I don't know how Pennsylvania fares today, given it's been 38 years.
I do. Still bad. As are most of the states with higher property taxes. Those property taxes, by the way, are widely believed to drive up rents because landlords price them into rents. I don't know if it's true econometrically. But I know both tenants and landlords believe that and act as if it's true. Of course, Denmark (the example you give at the beginning) is rent controlled. They've been retreating from that policy but remember how I said that study was hugely confounded? Yeah.
> LVT proponents claim that an LVT can't be passed on to tenants, but Wyatt is saying that if you turn around and spend that LVT money on making your city better and more desirable, then the increased demand for land in your city might more than offset the negative capitalization of the tax into the sales price of land. That's a solid argument. Notice that Wyatt is here implicitly admitting to capitalization of land taxes into land prices; he's just also arguing that there are other effects in play. What Wyatt doesn't realize is that the natural policy conclusion here is...a 100% LVT that recaptures all the added gains to land value from public spending.
No, what you don't realize is that you're assuming public spending is the highest and best use of that money. This is another studied area: the whole crowding out theory, basically whether public or private spending gives better returns. If any tax, not just land taxes, give better returns than they cause in economic damage then they are net positives for society. So this is in no way a unique trait of land taxes. This is in fact the justification for property taxes: they are relatively less damaging and the money can be put to relatively good use. But as I understand it that's not Georgism, that's just mainstream economics. Georgism is the idea they are not damaging AT ALL if levied solely on land and so can be set high without bad economic effects. "Least bad" and "not bad" have a huge chasm between them.
This is true of the section that you can increase land prices by taxation. Yes, you can do that with anything that's positive sum. You can tax businesses and spend it on business incentives such that more businesses get created, for example. At least theoretically, the problem is often that the government can't actually manage to do that.
> Conclusion: Land Value Tax can't be passed on to tenants.
You've completely failed to support this. What you've shown is a bunch of mixed evidence with one example where rent control was in effect and a huge number of confounding social service changes occurred and apparently weren't controlled for.
> If land is truly chronically underassessed, than simply making land assessments more accurate across the board will give you a similar effect to raising the rate of LVT, without touching the nominal tax rate or changing any laws.
No, you couldn't because a lot of the adjustments are based on improvements. If you wanted a pure land tax you'd need to figure out some way to do adjustments and to ban reassessments for improvements. Otherwise the status quo, where building a pool leads to a reassessment and an increase in taxes, will continue. Which is not really all that Georgian.
If supply is perfectly inelastic then the elasticity of demand is irrelevant; the tax falls entirely on the supplier. If you want to link mainstream economists who argue that land tax isn't fully capitalised, or empirical evidence as such, feel free to add them.
Well, firstly, the supply of land isn't perfectly inelastic. Land can be created and destroyed. See: the Netherlands.
But secondly: your statement is incoherent. The phrase "elasticity of demand is irrelevant" means "the willingness of people to pay for something regardless of price has no effect on the price." This is such an absurd statement I don't know what to make of it. It's clearly untrue.
Also, as I said, economists generally agree the elasticity of demand and supply determines who bears a tax, not the elasticity of supply. This is such a basic fact I'm having trouble finding economists who say it because it's that obvious. There's a bunch of textbooks and resources though. Here's a website: https://www.investopedia.com/terms/t/tax_incidence.asp
"Tax incidence (or incidence of tax) is an economic term for understanding the division of a tax burden between stakeholders, such as buyers and sellers or producers and consumers. Tax incidence can also be related to the price elasticity of supply and demand. When supply is more elastic than demand, the tax burden falls on the buyers. If demand is more elastic than supply, producers will bear the cost of the tax."
Now, you might (and I am really reaching here to try and understand you) be saying the supply of land is infinitely inelastic while the demand is mostly but not totally inelastic. But this isn't true: they're both only highly inelastic. In fact, a landowner can choose to not bring land to market or to surrender ownership but a renter cannot choose to not exist in a physical space. They can, at best, downscale their expectations of how much land they want to occupy. Though even there there's limits.
If you want to make a sophisticated argument about elasticity then I'm all ears. But declaring half the equation irrelevant on shaky grounds is unconvincing.
the netherland's land reclamation gets into what we mean by 'economic land' vs 'ground rents'. from a georgist perspective, technology was invented that could make land (in this case, the water) more valuable, the same way a train makes suburban land more valuable because you can get more people to the city center.
if the buildings in that area were floating on magical 'plots' it would be easier to illustrate the three-factor model. but in any case, the making of land more valuable with massive public works projects is exactly what LVT incentivizes.
a key insight here to more directly answer your question: 'land value' is certainly inelastic *enough* compared to *other potential sources of revenue* that we should experiment with allowing it to bear a higher % of taxes than it currently is. georgism makes falsifiable predictions, we can ramp up a lvt and observe results to see if the assumptions are holding true. we don't need a utopian revolution.
> the making of land more valuable with massive public works projects is exactly what LVT incentivizes.
Don't you mean disincentivizes? It taxes land and/or the returns from land. Taxes disincentivize things. This is an astonishingly well established piece of policy.
> a key insight here to more directly answer your question: 'land value' is certainly inelastic *enough* compared to *other potential sources of revenue* that we should experiment with allowing it to bear a higher % of taxes than it currently is. georgism makes falsifiable predictions, we can ramp up a lvt and observe results to see if the assumptions are holding true. we don't need a utopian revolution.
It doesn't actually. That's part of the problem: You can't actually whether the taxes should be higher or lower because Georgism has no good way of determining them. Georgism generally thinks they're too low but I've never seen the math done as to why.
> Don't you mean disincentivizes? It taxes land and/or the returns from land
Govt collects the revenue from land in their jurisdiction, so govt is now incentivised to invest in public goods which maximise land value (which is considered the best route to Pareto-optimality, see Ricardo or Brueckner).
> a key insight here to more directly answer your question: 'land value' is certainly inelastic *enough* compared to *other potential sources of revenue* that we should experiment with allowing it to bear a higher % of taxes than it currently is. georgism makes falsifiable predictions, we can ramp up a lvt and observe results to see if the assumptions are holding true. we don't need a utopian revolution.
Oh, and just to add on: If all Georgism was were a sober argument about which taxes were least bad and placing land taxes there then I'd agree. But that's like saying Marxism is just an argument about having a welfare state. It's sanewashing. Georgism believes that land value taxes are good and have no negative economic effects as far as I can tell.
Paul Samuelson was pretty clear when he said in "Economics- an Introductory Analysis" that "Pure land rent is in the nature of a "surplus" which can be taxed without affecting production incentives." You can throw that on the pile with the endorsements of other such Nobel laureates as Friedman, Vickrey, Solow, and Stiglitz. But please, if you feel you are better equipped to understand land value taxation than they are, feel free to enlighten us on the subject.
Samuelson's Economics was the introductory economic textbook for decades, and as far as I know land has not become any more elastic in the intervening years,. As far as misattributing views of Nobel economists, please. Stiglitz created the Henry George Theorem and Vickrey founded a Georgist conference and wrote numerous papers on land value taxation; Solow was a fellow of the Lincoln Institute for Land Policy and wrote papers on land taxation and Henry George. They knew what they were about on the topic of land taxation and took it seriously.
> "you might be saying the supply of land is infinitely inelastic while the demand is mostly but not totally inelastic"
Correct, that is what I was saying.
So let's discuss elasticity
> Land can be created and destroyed. See: the Netherlands.
This doesn't make existing owners of land price-elastic in the slightest: each unit's marginal cost to bring their land to market remains zero. It may discourage the (highly uncommon) private land reclamation, but that's exactly offset by increased incentive for governments to reclaim land (as they get to keep the tax revenues from land they reclaim).
> demand is mostly but not totally inelastic
It's more elastic than you're giving credit for: when land prices are high, consumers reduce their consumption of land, as demonstrated by every apartment building.
> a landowner can choose to not bring land to market
Sites held out of use are still in the land market, they're just serving their current highest & best use: speculation. Land tax fixes this.
I think it's not appropriate to go from "there's a fixed amount of land" to "land supply is perfectly inelastic". Supply of land literally means the quantity of land offered for rent given a certain price.
Not all land that could be rentable is part of the land supply; people may choose not to do so (leaving the land unrented and not using it themselves productively) for all kinds of reasons - in fact, the fact that this happens and that this is important is a key part of George's thesis! One of the proposed goals of Georgian LVT is to stimulate the land use, effectively increasing it's supply. It's also clear that the supply of land at the price of 0 is very low, because there's a certain transaction overhead and nobody would bother to handle a rental contract if there is no benefit expected. So IMHO it's quite clear that land supply (in the economic sense) is *not* perfectly inelastic, far from it.
You're misunderstanding the supply and demand issue. There is very little reason to think LTV increases the demand for land, which is what would be necessary for land rents to increase. If supply is inelastic the only way for the price to increase is for demand to increase (assuming a competitive market).
Nope. Sorry. It's you who doesn't understand supply and demand.
Elasticity of supply is, essentially, how quantity supplied responds to shifts in the demand curve. An accross-the-board increase in demand (a rightward shift of the demand curve) for land rentals (of whatever sort) will not cause the number of units on offer to increase meaningfully (because the amount of land is finite, construction is expensive, and time-consuming), so it will translate into a higher price for much the same quantity being supplied (plus, a bunch of unfulfilled demand).
That's one way to raise rents. The other is shifting the supply curve. This means a lower quantity offered at *any* price.
Shifting the supply curve has nothing to do with supply curve elasticity. The shifted curve may well be just as elastic/inelastic as previously.
The effect of shifting the supply curve on market price will depend on *demand* elasticity - which, as has already been pointed out, is *also* inelastic when it comes to rents.
The proposition - which I find perfectly plausible - is that LVT shall decrease suppliers' (land-owners) willingness to offer land for rent at the previous prices, because now their costs are higher. You might still find units being offered at the previous market price, but there will be fewer of them (a leftward shift of the supply curve).
With inelastic demand, this shakes out to a somewhat smaller equilibrium quantity sold, for a significantly higher equilibrium price. Renters who balk at the higher prices don't really have many options, because all landlords have a higher cost now.
Funnily enough, inelasticity of supply actually also contributes to higher prices, albeit in an indirect fashion. In a different market, a supplier left with a smaller profit per unit sold (as with LVT, and any sort of tax on sales), might consider keeping prices at their pre-tax level and ramping up the quantity supplied, in order to capture customers fleeing his competitors that chose to raise prices. With inelastic supply, however, this isn't an option, so raising the price is the only viable option (other than landlords willingly taking that bullet, which I would neither expect, nor applaud).
> With inelastic demand, this shakes out to a somewhat smaller equilibrium quantity sold, for a significantly higher equilibrium price. Renters who balk at the higher prices don't really have many options, because all landlords have a higher cost now.
Question: suppose that indeed the quantity sold is only mildly smaller because demand is relatively inelastic - i.e. prices rise, and for some landlords there is no longer an overlap between what the price are willing to receive in exchange for renting their land and what marginal renters are willing to pay, but that number is relatively small due to demand inelasticity.
Still - that mild quantity of landlords, what are they doing with that land then? They're still getting taxed *regardless* of whether they rent the land or not. If they're at all self-interested, they had better lower the price they're willing to receive until they get *someone* to rent. Or sell the land to someone else who is willing to do the same.
As I understand it, a typical tax on suppliers in a market has the property where you pay the tax when the good is exchanged, but not when you don't. That difference has an impact on suppliers' relative incentives between the two options - for any particular price, they are less willing to offer the good now at that price than before because they pay the tax if they transact the good, but don't pay the tax if they don't transact. In other words, the supply curve shifts. And I think you're totally right on the analysis of that situation.
I think there's a miscommunication though. The Georgists are advocating for an implementation of LVT where landlords are taxed if the good is exchanged (i.e. they rent the land)... but ALSO they are taxed exactly as much if they don't rent the land! Since they pay the tax equally regardless of whether they rent their land or not, their relative willingness to rent the land or not at a given price, to first order, doesn't change, or so the Georgists argue. The supply curve (of the renting market) doesn't shift in the first place.
And I'm much less sure on this, but maybe the Georgists are also presuming that the landlord continues to be taxed until the point they can find someone else to buy the land from them - that they are forcibly not allowed to simply disclaim ownership to avoid the tax (which *would* allow the supply curve to shift as land actually exits the market).
Or I guess maybe they can be allowed to entirely disclaim the land, but somehow the LVT is magically never over-assessed (heh, which might be hard in the real world) such that its economic value after tax is still positive and rapidly someone else will rationally claim the land and be willing to pay the tax.
I have no idea if that implementation is practically possible, but I think that's the terms on which you need to engage them - that you are talking about a tax (or the practicality thereof) that falls on landlords *even if they choose not to rent the land*, and that therefore attempts to create no differential incentive impacting their willingness to rent at a given price because they pay the tax either way, and that landlords cannot escape from either because either they cannot disclaim the land: they or whoever they sell it to will still get taxed.
>The proposition - which I find perfectly plausible - is that LVT shall decrease suppliers' (land-owners) willingness to offer land for rent at the previous prices, because now their costs are higher. You might still find units being offered at the previous market price, but there will be fewer of them (a leftward shift of the supply curve).
Landlords are consumers of land, not suppliers. Only God can change the supply of land (or Saudi princes spewing sand into the Red Sea, but that's a fringe case). But okay, suppose the LVT results in some rental units no longer being profitable, because the landlord eats the tax and their costs now exceed their potential rental income. The landlord has options, including selling the land to an owner-occupier or developing further (and development would be much faster in the absence of bureaucratic red tape, zoning regulations, etc.--any Georgist who opposes upzoning is a crank).
So you might end up with some units on severely underdeveloped land disappearing from the rental market. In the short term you could think of this as a contraction in the urban "margin" of cultivation and a limiting case in which the tax does get "passed on" due to decreased supply. On the other hand, the incentive to develop, as well as relaxation of other taxes (e.g., property tax), would lead to lower rents in the long run.
The idea that landowners will not want to use their land for anything, when there is a high LTV, is extremely unlikely. It is not economically viable in such a situation for landowners to simply withdraw their land from the market. I should have written that the supply of land is fixed (which it is), it does not simply have a low elasticity. So again, you clearly do not understand how to analyze this issue properly.
The quantity of land existing in the world is not the same as the economic supply of the land, so a fixed quantity of land does not imply that the supply of land is fixed.
There's a certain ration of landowners that will withdraw their land from the market. I fully agree with you that with a high LTV that ratio will be very low - but still not zero! And the ratio would be dependent on the offered price; if the offered rent price is much higher than the LTV, then some of the holdouts would be convinced to offer it for rent, and if the offered rent is very low compared to LTV then more people would refuse to rent and just leave it unused.
I mean, if someone has an unused plot of land and is paying thousands of dollars of property tax on it (no matter if it the current system or georgian LTV), if they would get an offer to rent it out for a single dollar, they would most likely refuse and just let it go unused, and if they would get an offer to rent it out for good price, they would most likely agree - that is evidence of at least some price elasticity, that the quantity of land supplied depends on the price offered.
It is fundamentally wrong to consider that supply of land is fully inelastic; it absolutely *does* have an elasticity, and a key argument of LTV is that it changes that elasticity, adding some extra motivation for full usage; I would concede that a high LTV makes supply less elastic - but still not fully elastic; no matter how high taxes are, getting rent offers that are considered insultingly low will result in no deal, so the supply curve is clearly there, we can only argue about its slope.
>What determines who pays taxes is demand elasticity. If it's high then the producer eats it (because if they raise prices their customers go elsewhere) while if it's low then the consumer eats it because the producer can raise the price and the consumer has no choice but to pay it. The classic example of this is, and I swear I'm not making this up, rent.
I don't see how. My landlord is already charging the highest rent he thinks he can, weighted against the risk that, if he raises the rent, he'll have to deal with the unit sitting empty, costing him money and effort on finding a new tenant. If he raised the rent (say) $100, I might stay put (the rental market is very frictional and relocating is a pain). If he raised it (say) $300, I'd move. This is true whether he raised the rent to cover a tax imposed on him or just for shits and giggles. Nothing in the structure of the land value tax allows the landlord to not reckon with the consequences of arbitrary rent increases.
One potential flaw in this argument is that if the rent everywhere were increased, "just move" would not be a viable way to avoid the tax getting "passed on" to me. But the land tax will not fall homogeneously either on locations or on housing units. The parcel of land I live on is severely underdeveloped: there are three units where one might plausibly have ten (more if the land were upzoned). A landlord in a similar location, with a similarly-sized parcel that hosts more units, would not have as much tax to "pass on" per unit. So it seems like the absolute worst thing my landlord could do without increasing the risk of a unit sitting empty would be to raise the rent by an amount corresponding to the lowest (theoretically) "passed on" rent increase in the area.
N.b., I don't think either Ricardo or Smith thought the landlord could evade the burden of a tax on land-rents, even on residential land. Per Ricardo: "Taxes on houses are of this description; though laid on the occupier, they will frequently fall by a diminution of rent on the landlord. The produce of the land is consumed and reproduced from year to year, and so are many other commodities; as they may therefore be speedily brought to a level with the demand, they cannot long exceed their natural price. But as a tax on houses may be considered in the light of an additional rent paid by the tenant, its tendency will be to diminish the demand for houses of the same annual rent, without diminishing their supply. Rent will therefore fall, and a part of the tax will be paid indirectly by the landlord."
>If all the leverage in tenant-landlord relations is on the side of the renters then why don't we see tenants using that to renegotiate lower rents now? This is very opposite of most people's default intuition but you don't really justify it.
If all the leverage is on the side of the landlord, why isn't my landlord charging me $10,000/month in rent?
>Ricardo's Law of Rent is specifically concerned with land as a factor of production. Ricardo is explicitly excluding domestic land like homes. You are not. Yet you don't bring this up.
Ricardo at least seemed to think the law of rent applied equally to rural land, whose value is a function of its "natural properties", and urban land, whose value is a function of its relation to amenities, work, etc. In a sense, urban land that is used to build housing "produces value" in the form of rent collected by the landlord: in another sense, it "produces value" by attracting labor for nearby businesses, and when the rent is too high, those businesses end up in the awkward position of having to subsidize their employees' sky-high rent, and then you end up with software engineers in San Francisco making six-figure salaries but still needing roommates.
>How else would it be assessed unless you're taxing the value of improvements on the land too?
Assessing the market value of land (not just acreage) is not only possible but something that's already regularly done. Many municipalities in Pennsylvania, for example, tax land and improvements separately, with land taxed at a higher millage (it generally spurs development, punishes speculators and holders of severely underdeveloped land, and doesn't result in rent increases).
> My landlord is already charging the highest rent he thinks he can, weighted against the risk that, if he raises the rent, he'll have to deal with the unit sitting empty, costing him money and effort on finding a new tenant.
I've already explained this. The idea that your landlord is charging all the rent they can in the current market does not mean that they're charging all the rent they can in the market Georgist taxes create. This argument gets repeated a lot by Georgists but it's just wrong. If you imposed a tax on every landlord they would spontaneously coordinate to raise prices so long as demand elasticity was low enough that you needed to rent somewhere. You cannot exit the market but they can so their elasticity is actually lower than yours, despite what Georgists say.
> If all the leverage is on the side of the landlord, why isn't my landlord charging me $10,000/month in rent?
You give me your answer first and then I'll give you mine.
> Ricardo at least seemed to think the law of rent applied equally to rural land, whose value is a function of its "natural properties", and urban land, whose value is a function of its relation to amenities, work, etc.
Yes? You've not read what I said very closely. I said as a factor of production. Rural land is a factor of production in food. Urban land, in Ricardo's time, of factories. In these cases he's referring to it not as a consumable for persons but for industries. It might well hold up in the domestic market too. But that detail at least needs to be addressed.
> Assessing the market value of land (not just acreage) is not only possible but something that's already regularly done.
I'm aware. I've had this argument with a dozen people at this point and not found any of you very convincing. As I've said: I have sat in, at this point, on hundreds of land assessments in and around Philadelphia and eastern Pennsylvania (and some of the nearby states). So please feel free to explain to me, IN DETAIL, how you think these assessments are done well and have the results you claim. Feel free to use technical terms! Feel free to get as wonky as you like! I'll understand it if you can speak to the actual level of implementation.
> (it generally spurs development, punishes speculators and holders of severely underdeveloped land, and doesn't result in rent increases).
That's what you claim but I haven't seen any evidence.
No tax is imposed by the public collection of rent. Rent is a surplus, not a charge. The state, acting as the ultimate landlord in its domain is simply taking what it had previously delegated to private landowners to collect. It is not simply Georgists that make this claim, pretty much every economist recognizes this fact going back through history, even those that were critical of Henry George.
"All economists agree that a tax on pure rent cannot be shifted. Mr. George was right in his contention with Mr. Atkinson. The tax on rent, as it does not reach the no-rent land at the margin of cultivation, cannot increase the cost of the marginal product which fixes the price of produce, and thereby the height of rents." https://www.jstor.org/stable/1008912?seq=10#metadata_info_tab_contents
"More recently, I find only one source that is true to Ramsey and Pigou: Joseph Stiglitz, 1986, Economics of the Public Sector, (NY & London: W.W. Norton):
P.404, "Ramsey taxes are proportional to the sum of the reciprocal of the elasticity of demand AND SUPPLY: (emphasis mine)"
He puts this in the form of a simple equation (also found in Pigou, p.108, evidently taken directly from Ramsey).
NOTE THAT IF THE ELASTICITY OF SUPPLY (OR DEMAND) IS ZERO, TAX RATES MAY BE AS HIGH AS YOU PLEASE.
In practical terms, what does this mean? There is no commodity for which the demand is inelastic for all possible prices. For most items, this is obvious at all prices. Suppose, though, there is something so essential, and buyers so obsessive (like serious drug addicts), that they are frantic to get the item "at any price." Is this then a source of infinite tax revenues? No, because if you raise the tax-price high enough, buyers will run out of money. Think compensated demand curves.
With supply, it is another story. The supply of land is absolutely inelastic, at any price. The Ramsey Rule, therefore, tells us plainly that, to repeat Pigou:
"When one source of production yields an absolutely inelastic supply, ... A given revenue can be raised with less sacrifice by concentrating taxation upon this use than by imposing uniform rates of tax on all uses."
"... if there is any commodity for which ... the supply is absolutely inelastic, the formula implies that the rate of tax imposed on every other commodity must be nil, i.e. that the whole of the revenue wanted must be raised on that commodity." -pp.105, 108."
>I've already explained this. The idea that your landlord is charging all the rent they can in the current market does not mean that they're charging all the rent they can in the market Georgist taxes create. This argument gets repeated a lot by Georgists but it's just wrong. If you imposed a tax on every landlord they would spontaneously coordinate to raise prices so long as demand elasticity was low enough that you needed to rent somewhere. You cannot exit the market but they can so their elasticity is actually lower than yours, despite what Georgists say.
I genuinely don't see how. If the idea is that landlords are intentionally not conspiring to raise rents now and instead are politely waiting for a land value tax to be introduced, well! How considerate of them!
Again, I can see how a land tax being applied to all land in the city might cause the rent of housing units, the smallest component of which is due to land-rent, to rise. But I just flat out do not see why landlords would be able to pass on the full amount of the tax. Smith and Ricardo didn't, either.
In fact there is a clear reason for landlords NOT to collaborate and raise rents. If my landlord suddenly raised the rent without any commensurate improvements to my building, and he was still able to find tenants, that would be a clear indicator that the site was undervalued, i.e., the rent increase is an increase in land-rent. No assessor is gonna be able to tease out these effects on individual buildings. But if all the landlords in a neighborhood start hiking rents to pass the LVT on to tenants, the market will notice and respond by buying vacant parcels in the area for a higher price. This WILL be noticed by an assessor, result in increased land value assessments, and thus capture the increase in rent as land-rent, leaving landlords no better off than they were before.
They would be as Mrs. Frisby's housewives, who forsook their brooms in favor of vacuum cleaners, thus creating more demand for coal, depositing more soot in everyone's homes, so that in the end the housewives could only keep their homes almost as clean as they did when they were using brooms.
>You give me your answer first and then I'll give you mine.
Well, because if my landlord raised the rent to $10,000/month, I'd move out and he'd never be able to find a tenant willing to rent at that price. He's a profit maximizer and would profit much more by setting a lower rent.
In another market, with much higher demand for housing (effectively, a higher land value) and a lower vacancy rate, he might be able to get away with this. In fact, in many cities there's an incredibly clear negative correlation between rental vacancy rates and year-over-year rent changes (with high enough vacancy rates, average rents can actually decrease). This is the vehicle by which tenants "negotiate with" landlords: landlords being profit maximizers, they quickly learn that if they increase rents too aggressively, tenants simply relocate, and they have trouble finding replacement tenants.
>Yes? You've not read what I said very closely. I said as a factor of production. Rural land is a factor of production in food. Urban land, in Ricardo's time, of factories. In these cases he's referring to it not as a consumable for persons but for industries. It might well hold up in the domestic market too. But that detail at least needs to be addressed.
I'm still not seeing the issue. One, it's not obvious to me that the law of rent only applies to factors of production: you could consider the difference in rental income due to a tower of apartments in the beating heart of NYC (where you will be able to collect a very good rent) versus the middle of Kansas (where you will have to set the rents low and probably still have trouble filling units) as the ground-rent. Two, even if it does, housing can be thought of as a sort of capital insofar as workers need places to live: with no housing in the area, they won't be producing much of anything at all.
>I'm aware. I've had this argument with a dozen people at this point and not found any of you very convincing.
Okay, so it sounds like you're already well aware that assessing land and improvements separately is a thing that's done! I'm not sure why you're asking me to explain a thing you already know.
>That's what you claim but I haven't seen any evidence.
Two well-known case studies in Pennsylvania are Allentown and Harrisburg, both of which implemented a split-rate tax with land at a much higher millage and saw decreases in blight and commercial vacancy, an exodus of owners of severely underdeveloped land (e.g., car dealerships), and increases in development. Pittsburgh benefited from a split-rate tax for a while, until a combination of sticker shock due to infrequent assessment and a concerted disinfo campaign by LVT's opponents torpedoed it.
> But I just flat out do not see why landlords would be able to pass on the full amount of the tax.
Because they all raise their rent by the amount of the tax... This is extremely simple.
You say you'd move if your landlord raised your rent by $300, but if every other landlord did the same, you would have to accept a worse unit in a worse location to recoup that $300.
Landlords aren't raising their rents now because they've balanced the rate they charge against their costs and the risk of vacancy. If their costs go up, that equation changes, and they change their rent.
> the market will notice and respond by buying vacant parcels in the area for a higher price.
No, it won't, because the net income from rent will be the same, and the parcels will not be any more or less desirable than before.
> Those property taxes, by the way, are widely believed to drive up rents because landlords price them into rents.
I think this is the wrong way to think about it. HIgh prices (property taxes) will reduce the supply of housing. The reduction in supply is what causes the high rents - not landlords pricing in the property taxes.
I can potentially see the argument working for land rents. But presumably when people complain about rents, it's usually about their housing, not their land? And *here*, the supply isn't constant. The cost of housing *will* be driven up - either, the landlords can raise rents outright (which might well work, as everyone has to do it), or there will simply be less housing built until the rents are driven up by scarcity.
Also, is land actually constant in any way that matters? In mere total area, I guess it mostly is (the Dutch would disagree), but is that the important measure? Farmland isn't a constant, for instance - you can create new farmland, or plant forests on your old ones when it doesn't pay. There are remarkably few things that depend exclusively on total land area in a nation, as opposed to what it's for, and what it might be fit for at the margins when the situation changes.
I think Lars' post has pretty-compellingly shown that the land tax can't be passed into raised rents.
In terms of the portion of rent coming from the floorspace, LVT should bring those down as well. By punishing passive speculation, it will nudge owners towards developing their property as much as possible, increasing supply of floorspace.
If that were the case then all people renting eyewateringly expensive studio flats in the bay would move into much bigger, cheaper houses in the rural midwest. (or rather more expensive houses on much cheaper land)
Farmland is not increasing in the US - housing & commercial development is increasingly consuming the most productive land. When farmland is 'created' (aside from the Dutch method) it means taking wilderness land out of sequestration (or relative sequestration, if used for grazing/hunting/logging). This isn't impossible to solve, but it does mean making a choice for society - not guns vs butter, but butter vs birds vs bedrooms.
land value tends to follow a normal distribution from city centers, with bumpy increases on fertile land (still dwarfed by the value of urban land), and around public goods.
The concept that landowners of different parcels who are using them for different purposes (one has a large garden & orchard, one has a shop, one has several rental units) are going to be each taxed (equally) enough to support the city & state & federal taxes necessary to support the wants of a larger renter class - even disregarding the "eat the rich" and "fuck the landlords" attitude thick in the comments to these posts - doesn't pass the smell test. All the words in the articles aren't really helping - I feel like something major is being ignored or glossed over.
I've read part I. (Also: "do your homework" is a crap way to convince people to favorably consider your proposed upending of society as we know it.) Take my example - three different parcels, with three different families of landowners, and lets say four families of renters, and walk me through how the taxes work out.
I also hate the "do your own research" type of argumentation, but I do think that if you're skeptical of how much revenue can be raised, Lars' Part I is probably a good place to start.
If you're talking about three identical plots of land, side by side, just with different activities on top, then yes they would face the same tax under what georgists propose.
So you want all orchards and gardens to be sold off and turned into stores and apartment buildings, unless the owners are privately wealthy enough to pay the elevated tax. This is a lousy idea and I hate it.
Parks & gardens are public goods so are best provided by the municipality. With land tax they'll have optimal incentives to do so, as it boosts their revenue from nearby properties. Bonus is that the value of those public goods is no longer captured by land owners.
I want all private sites to be used for their highest best use. In cities this may well mean that many parking lots or private gardens get converted to houses for humans to live in, seems fine by me. Or at the very least, when folks are deprived of those houses in lieu of a private garden in the middle of a city, the land owner can compensate society for the privilege.
You're conflating the landowner qua owner of the land (who engages in zero productive activity) with the landowner qua user of the land (who does any productive activity that occurs on the land). Some landowners intentionally rent out their land to other people, while other landowners "rent out their land" to themself (who may use it to build and operate a building, which they then occupy or further rent out), which doesn't show up under standard accounting, but easily could be accounted if one wanted, by each landowner creating two shell companies - one holding the land and collecting land rent from the other, which does whatever productive activity that goes on on the land (including building or maintaining structures).
For any landowner that actually rents out their land, as long as the amount of the land value tax they pay is less than the land rent they collect, they'll hold on to their land, and still continue to profit from pure inactivity. But if the amount of the land value tax is more than the land rent they collect, they would dump the land. For the landowners that use their land, separating them into these two companies leads to the same principle - if the land value tax is less than the imputed land rent they are collecting from their user self, then they'd continue to hold onto the land, but if the land value tax is greater than the imputed rent, then they would again dump the land and join the renter class.
In any case, the landowner class continues to profit (on literally zero effort) unless the land value tax is set high enough to equal or exceed the amount of land rent (actual or imputed).
One ideal type of Georgism says the land value tax should be set to exactly equal the land rent (actual or imputed). The net result is that all current landowners keep their productive business that they operate on the land, and dumps the landownership on the state. Now there are no private landowners, and everyone just rents land from the state.
Now the claim is just that the sum total of rent on the land is sufficient to support the wants of the population. This is exactly what it means for the sum total of land value taxes to support the wants of the renter class. Obviously, not *every* want can be supported this way. But if there is an investment the state can make that increases economic activity by more than it costs, then the state can collect that back in rent, and thus will be able to support it. And this seems like the sort of wants that the state *should* support, rather than the wants that *can't* be paid for in this way.
"everyone just rents land from the state" - I get it now - this is a backdoor way to make everyone literal serfs and wards of the government.
This is as horrid a fix to the "renting sucks" problem as single payer healthcare is to high medicine bills and food stamps are to hungry kids. This sucks and I hate it.
Everyone already de facto just rents land from the state. That's what sovereignty means. You may do with "your" land only what the state permits you to do. They are the sovereign.
The only change would be that rent would go to the state rather than the landowner.
I find two things unconvincing about this article:
1. The studies cited show LVT rate changes being capitalized into the price, which is supposedly theoretically consistent with no rent increase, but there’s no direct demonstration of no rent increase afaict. So the argument that rent wouldn’t increase under an extreme LVT seems still theoretical. (Also, as some other commenters mentioned, some of the studies were in jurisdictions with rent control. If raising rent is illegal, then of course it won’t fall on renters.
2. In practice, property tax rate changes _are_ passed onto renters. It seems a priori unlikely that taxing only the land and not structures would have a different outcome. It should take strong evidence to move off this prior, and the provided evidence is indirect at best,.
On net, this article reduced my credence in Georgism due to the above two factor.s
1. You're right that the studies don't analyse rent directly, but I'm curious why you don't think that full capitalization implies rents being unaffected?
2. Afaik the economic literature is quite strong on even property tax being fully capitalized (see the Hilber paper above, for eg). And the case would be even stronger for land because land supply is perfectly inelastic (property is not).
I don’t get how the tax doesn’t get passed on to tenants. Suppose in a 100% LVT world two landlords build identical buildings, one in the middle of nowhere and another one in a desirable location. Wouldn’t the tenants pay vastly different rents, in each case consisting of the part due to the building (the landlord pockets it) and the part due to the land (the landlord collects it and repays it as the tax)?
If I understand it correctly, not only does the 100% LVT get paid 100% by the tenants, Georgism doesn’t preclude rent hikes in gentrified areas either. The difference is whose pockets those hikes go into, which is no longer the landlords but the state.
> If I understand it correctly, not only does the 100% LVT get paid 100% by the tenants, Georgism doesn’t preclude rent hikes in gentrified areas either. The difference is whose pockets those hikes go into, which is no longer the landlords but the state.
It is true that the rents aren't lower under Georgism as under the status quo. The point is they aren't higher either. It is better that land rents go to the state rather than landlords, because now everyone benefits, not just those who hapen to own land.
you can lower rents if you build densely on a parcel of land roughly the same value and size as a competing landlord (which is why LVT needs zoning reform as a first order reform to work - and vice versa)
"It is better that land rents go to the state rather than landlords, because now everyone benefits, not just those who happen to own land."
That is a really big assumption. It is not at all clear that states spend money in more social beneficial ways than individuals, and in many cases it is quite obvious they do so in much worse ways (war, secret police, generalized oppression.) There is little reason to assume governments will spend better, and a lot of reason to assume they will spend the money in worse ways.
So it's your claim that we have a choice between war and secret police in one hand, and sending Jeff Bezos to space in the other? No better world is possible?
No. My claim is that Jeff Bezos does not spend his money on wars or secret police, so far as I am aware, while governments do. Governments also send people to space. I think spending the money on sending people to space is better for society than wars and secret police, no matter who does it.
The fact that Bezos might also spend the money to build a new business that helps people by producing what they want and all is a big plus too. Governments don't do that sort of thing.
Either you've misunderstood me or you're dodging the question.
Yeah, governments do a War sometimes. Governments do most of War nowadays, unsurprising given what a modern War requires. I don't think that "Fails to solve the issue of War Existing" is a particularly valid critique of Georgism (Or any other economic theory--Our current economic system has also failed to solve the issue War Existing and has arguably made it worse).
And in case it wasn't clear, I don't think sending Jeff Bezos to space is a good use of resources. More generally, I don't think we would be discussing Georgism like this article does if the status quo was fine actually.
So, when presented with the choice between Georgism on one hand (Which admittedly doesn't fix the problem that War Exists) and the status quo, you seem to be making positive-ish remarks about Bezos and all the new business he might start (Maybe one will fix that pesky War Exists issue!). So my read on your take is that the status quo is preferable. And from this I'm extrapolating that you don't think a better world is possible. If you did, surely you would advocate for that vision instead of for Jeff Bezos. Does this make sense?
It's certainly not *clear* that states spend money in more socially beneficial ways than individuals, but the point of a democratic governance system is that the community has input in how the state spends money, while the community has no input in how private individuals spend money. If you think that a person is at least by default better at deciding how money could be spent to benefit them than someone else, then we should expect that by default, money spent by the state will be better spent on the interests of the public than money spent by private individuals. That's the general reason to assume governments will spend better than private individuals.
That is some really twisted logic. We should expect people in the government to spend money on other people's wellbeing better than the people themselves, because we think that a person is at least by default better at deciding how money could be spent to benefit them than someone else.
You have Milton Friedman's argument exactly backwards. Even before you stop to consider how much input individuals actually have in how governments spend money.
Oh, I thought you were claiming that a random landowners is going to spend money to benefit the people more than the state would spend money to benefit the people. That was the case being discussed. It would be best if each individual got to spend their own money (as in the citizen's dividend) but if it has to be some random landowner who decides how to spend the money, then it's better for the people if that landowner has their decisions controlled by the people (i.e., the landowner is a democratic state) than if the landowner is just a random individual.
1: "The people" have very little control over how state money is spent.
2: The government spends money on very bad things sometimes, things that individuals are incapable of spending money on.
3: In both cases, state and individual wealthy guy, the money gets spent such that it goes to individuals, who then spend it on themselves*. Both targets of spending are possibly strange, but the next step is "lots of individuals spend that money on what makes them happy." We might care who those individuals are, but generally things get pretty diffuse pretty quickly.
So yea, to the extent that the state does things like spend money on wars, spy on its citizens, and do other actively negative things, yes, I think a billion dollars in the hands of someone like Bezos (for whom I have no great love) is probably better than the same money in the hands of, say, the NSA.
*Well, except when the state uses it to give money directly to other states...
Usually the idea is that LVT gets levied instead of other taxes which are more distorting (e.g. income tax), so there would not be any additional net transfer from individuals to the state – only a shift in which individuals pay the tax.
Whether you believe that such a shift is actually politically feasible without increasing the tax burden, 🤷♂️
Even if the state continues squandering the money, which is the most likely outcome, at least the incentives and disincentives implied by the new tax are better aligned with the interests of the economy compared to the status quo.
I don't know if I'm pointing out the obvious or being dumb here, but wouldn't this kind of policy immediately result in maximum exploitation of all land (i.e all natural) resources? Surely we're already making enough of a mess of the Earth, between contamination, climate change and biodiversity depletion... I'm a bit skeptical of the wisdom of a global policy that would make it impossible virtually for anyone to hold land without exploiting it to the max.
People already try to exploit the land/resources they own to the max. Georgism tries to recapture the value of that exploitation for all people in society instead for those who were lucky enough to inherit land.
This isn't how we persuade people. It's just meant to be a statement of the truth.
Land is not a thing that landowners did *anything* to create. To the extent that there is value, that value is capital created by the *user* of the land (who in many cases happens to be the same person as the owner of the land, but it is the *capital* they have added that has the added value, and not the land itself).
As long as the economic land use meets the minimum amount charged as tax, LVTs are fine. If land is not being used for economic purposes at all, for instance unused forest, then it's a cost on the owner. Because the tax rates are supposed to be set on the value of the land if it were being used, it encourages people to sell their land if they aren't using it economically, because the costs are prohibitive against holding it for non-economic use. This is often billed as one of the main explicit purposes of LVTs, to eliminate land holding speculators. Therefore that unused forest will be sold to someone who can use it economically, which will generally be loggers, who will clear the land of the forest. That seems to be exactly what skaladom is concerned about.
How can Georgists disincentivize holding land (speculation) without causing that effect that skaladom is concerned about? If you set the LVT too low, people can hold land and speculate (as they do now with current property taxes). If you set it at the land use value (which is what Georgists say should happen), then land will be put to economic use even if that destroys the environment.
You're talking about permanent resource extraction and the degradation of land value. The Georgist literature talks about severance taxes for this case, which is beyond the scope of this series but is an important subject.
It depends on whether loggers can use that land economically enough to pay the taxes. If they can't, then the loggers won't buy the land either, but will just let it revert to the state.
Thus, the state gets to speculate, instead of private individuals.
Not entirely. One of the points of the land value tax as opposed to a property tax is that, for instance, someone who owns a downtown lot may decide to leave it as a surface parking lot for a decade, hoping that they'll be able to profitably build a ten story building there later, rather than building a profitable five story building right now. Under a property tax, building the five story building increases their tax burden, and thus might be unprofitable compared to keeping the parking lot. But under a land value tax, building the five story building does nothing to their tax burden, and thus would be pure profit. The property tax discourages certain exploitation of land.
This discouragement effect is strongest on land whose exploitation requires heavy investment (i.e., urban land) and is weakest on land whose exploitation requires little or no investment (wilderness parkland or resource extraction).
>>>"People already try to exploit the land/resources they own to the max." No, they don't. Individuals use their own property in the manner that best pleases them. Even hard core libertarians don't assume economic returns are the be all and end all of human activity.
New York City is spending a lot of money keeping Central Park as a park instead of changing it into skyscrapers. I don't see how that changes under an LVT.
If we want to protect the environment we should do that explicitly using pigouvian taxes/subsidies rather than economic rents. In any case, car-centric suburban sprawl and ground-level car parks in cities are much more 'underutilised' from the Georgist perspective than a rural wetland is so the overall outcome may end up being positive for the environment.
Wyatt mentioned an issue that you touched on very briefly, but seems quite central to the overall claims.
You say "With a Land Value Tax, the owner has to pay that tax every month whether they have a tenant or not. They're already charging the highest amount the market will bear, and as we've already shown, they are unable to change the supply of land."
But the supply of [usable/used] land does change. In a small urban country this is harder to see, but in a large rural country this is actually quite obvious. Consider a brand new town/city (Chicago in 1833 for instance). At the time Chicago was formed, it was an alternative to other places where people may have lived, but we can see even more so that it became a better alternative over time, and the very small central core expanded over time into more and more land. "Chicago" was very small - 4,000 people in 1837 - and more land was added to "Chicago" over the years as the population expanded. I put the name in quotes because people in the 1840s would not have considered the full boundaries of modern day Chicago as part of the town back then - in other words the town expanded to include more land and the supply of land in "Chicago" increased! Right now there are rural areas with completely unused land. The land isn't even a national park or held by a mining company, but may just be completely unused land. Not to say it's not owned, but it's being put to no productive use at all. The LVT on the land would have to be $0, based on current use. Think of the very top of a high mountain, deep within a mountain range or a patch of desert far from any human habitation, if you can't envision anything less severe (though less severe does exist). Over time, humans may find reasons to move closer to this unused land, thereby moving it from "this is worthless land that nobody would ever pay rent to use" to "this land has some rent value" and therefore the supply of land is increased. As a more extreme but more obvious example, consider Mars. If humans were ever to colonize Mars, we would significantly increase the amount of land available.
To push this back towards your point, if the supply of land can change, then we are no longer in a rigid system where taxes can be raised without recourse. This may be approximately true in a developed urban area, so an LVT for Manhattan may be able to work approximately as you describe. Even then, there are alternatives available. Consider the real life example of a significant expansion of New York City residents moving to Connecticut. They are close enough to the city to interact with it as they need, but not deal with the problems of living in the city. In other words, "New York City" actually expanded its supply of land! And we know that happened in the past as well, with northern New Jersey acting as an overflow for NYC proper for many years. If the cost to live in a place is too high (as with your tobacco examples), then the supply of land can actually decrease as well. Consider Detroit, which has significantly contracted from its population peak, and land has gone fallow even within what used to be known as the city proper.
If the supply of land can change, which I think I've demonstrated it both can and does, then it no longer follows that a tax on land behaves differently than other taxes and that it cannot be passed on to tenants. In retrospect I think it's pretty obvious why this would happen. It's the same reason people want to live in cities in the first place, and why urban costs increase so much compared to rural areas. Being close to your job, or city amenities, or whatever reason people want to live in a city, means people will pay more for land within that area, and less for land elsewhere. You can raise taxes on living in a popular city and still see people paying more to live there. Local to me, the best school district in the county has housing prices significantly more than similar houses in worse school districts. Property taxes are also higher in the district with better schools. People still want to live in the more expensive area - in other words the prices are passed on to tenants who want to live in that particular place.
Again, I think LVTs make a lot more sense in dense urban areas, and approximately resemble the theory. But, considering how cities expand and even contract over long periods of time, it's simply not true that the Georgian theory can hold over a long period of time without causing distortions similar to other taxes.
I think that there are too many alternative explanations to be sure what they conclude. If you raise a price, you would expect less people to purchase an item, which would result in lower prices. If you raise a tax, I would expect housing prices to drop to compensate, but the overall cost of living there to be approximately equal (less mortgage, more taxes). I think both of those results are shown in your studies, which mostly just reinforces supply and demand.
The landlords make money, but not so much that they can eat a large increase in taxes. In theory, landlords need to raise rents to offset their losses, or go bankrupt. It may be that bankrupting current landlords is acceptable/preferable to Georgists, but it sounds like a pretty severe problem. An existing LVT may encourage lower land prices (though the equilibrium price to live there seems unlikely to change, being offset by the taxes), but switching to an LVT runs right into current landlords and their efforts to compensate without going bankrupt.
If we move labor taxes into land taxes, then the landlords can get more money from tenants (who used to spend it in labor taxes) and can freely raise rents to compensate. Because all land would all be taxed at the same time, then there are no alternative housing options and people are stuck with higher rates at all rentals. The only alternative to paying higher rents is for people to stop renting in that particular market, moving to cheaper areas. Doing so would reduce both the land values and rental values, which could be nice, but only happens if you've raised prices to the point that people are choked out of the market. Looking at popular cities like SF, this point has not been reached and it seems that heading towards that point is a major reason to look at Georgism, so it's counterintuitive to raise prices now so that they go down later.
>If we move labor taxes into land taxes, then the landlords can get more money from tenants (who used to spend it in labor taxes) and can freely raise rents to compensate. Because all land would all be taxed at the same time, then there are no alternative housing options and people are stuck with higher rates at all rentals.
All land is taxed, but not at the same rate: and even in an area where land is taxed at roughly the same rate, not all housing units are "taxed" at the same rate. On my parcel of land there are 3 homes: on an adjacent parcel of comparable size there are 20.
Suppose the land tax on each parcel is $X. Now, my landlord has already set rents at the highest level he thinks he can without having to worry about losing money on units sitting empty: if he raised the rent, I would just move (in practice he could raise it a little and I might not bother, but too much and I would definitely relocate). My landlord would incur a cost of $X/3 per unit. Even if he could pass some of that on to me, he cannot pass all of that on to me. This is because there are other units in the area where the land tax results in an increased cost to the landlord of only $X/20 per unit. So it seems like, to avoid having to deal with finding new tenants and running the risk of a unit sitting empty, he could at most only raise the rent $X/20 (to say nothing of the possibility that I might just relocate to a different neighborhood).
This is all setting aside the fact that an LVT includes relaxing the tax on improvements, which (to a first approximation) is a flat tax on each unit, so units on better-developed land end up even cheaper in comparison, further limiting my landlord's ability to hike my rent.
I'm not understanding how any of this involves changes in the supply of land. This involves changes in the value of the land, but the land is still there whether it is valued or not. A property tax falls on both the value of the land and the value of the structures you build on it, and thus discourages owners from doing anything to increase the value of the land or anything to increase the value of the structures. A land value tax falls only on the value of the land, and thus discourages owners from doing anything to increase the value of the land, but does nothing to discourage owners from increasing the value of structures. To the extent that the growth of Chicago increases the value of land outside of Chicago, that means that landowners outside Chicago will not want to contribute to the growth of Chicago. But as landowners of one parcel outside Chicago, they can't do much to affect the growth of Chicago.
If you have a small number of landowners, who own both land within Chicago and land outside it, then you'd get distorting effects, because those people will be discouraged from doing things with their Chicago land to increase the value of their suburban land. But this is much less than the distortionary effect of a tax on structures, where the person who builds the structure is the person who pays the tax on it.
That gets back to the question of the various components of "land value" as discussed in Part 1, and subject to discussion in more detail in Part 3.
The point made by many comments here (e.g., Alex Godofsky's insightful points) and to Part 1 is that land value as observed in the U.S. is a mix of "raw land value", legal development rights/restrictions, and positive externalities from nearby development. In the third case, that's a complicated mix of government provided infrastructure/services and positive externalities from nearby private development. In some cases the observed reality is that developers undertake large-scale development to internalize positive externalities. There are also feedback loops - whether or not activity is explicitly coordinated - where building on Parcel A increases the value of nearby parcels B, C, and D, and then subsequent construction on those parcels increases the value of Parcel A.
So, if we think of land not as "a physical piece of dirt" but as "all value of a property other than some measure of the construction cost of the improvements located on that property", then human activity clearly can change the supply of land. If we tax land value under that second definition - which is the direction of the cap rate discussion in Part 1 - then "supply of land" isn't fixed. It's therefore clearly possible that land value taxes have negative incentive effects.
Yes. This absolutely seems right to me, and very much complicates the clean theoretical Georgist picture. This set of effects probably causes very deep problem for the "single tax" view or a 100% land value tax proposal, but the effects are likely so much smaller than the disincentive effects of property tax that they can be mostly ignored when considering smaller policy changes aiming to shift more property taxes towards land value taxes without getting anywhere close to the theoretical Georgist maximum.
You haven't demonstrated that the supply of land changes. The supply of land can change, for instance when filling in water with sand or draining swamps, but these are really uncommon and are almost always public works projects which aren't really relevant for the analysis of land in general.
The "supply of land" as you're defining it is fundamentally different from how Lars, George, and economists define the supply of land. You are defining it as the amount of land in a political boundary, which of course can change over time. Economists are defining the supply of land as the amount of land in a specific geographical area, usually the entire world, which does not change over time, outside of some niche cases. It is a categorical error to ascribe conclusions drawn from the economic definition of supply as being equally applicable to your definition of land.
Washington D.C. was built on a swamp, so I wouldn't discount the growth of land from that cause. More importantly to me, as cities expand, unused land in surrounding areas becomes more and more urbanized and land values go from (nearly zero) to (arbitrarily high). In the Chicago example, a town of 4,000 people in 1837 became a city of nearly 10 million in the metro area. Urbanization has spread to 30+ miles away from the city center. Someone who wanted to build in "Chicago" in the 1850s could build very close to modern day downtown, but could not build 5 miles away from downtown and still be in "Chicago" - meaning that the land was not worth building on due to lack of local interest. Now, five miles from the original core is dense city, where it's extremely expensive to buy land. What happened? The land in "Chicago" expanded! There was more land in "Chicago" that people wanted to live in, making it economically viable to build in more areas.
We can be overly literal and limit ourselves to the maximum possible supply of land, as you appear to be doing. That's why I mentioned the Mars example - we really could greatly expand even that pedantic meaning of land, but that's less important than the economic reality. In any way that we actually care about (which boils down to demand for land), the supply of land actually does increase all the time. Every time a city expands, there is more viable and valuable land in that city. Nobody cares that there is open worthless land in the west Texas desert (I looked some up, $50 an acre!), not even Georgists saying that the total amount of land is capped. What matters is whether there is demand for building in a particular place. That's why Las Vegas is valuable and Loving, Texas, is not.
> Georgists assert that landlords cannot pass Land Value Tax (LVT) on to their tenants
Right off that bat, I don't get why I care about this at all. Lots of taxes are "passed on," whether efficient or inefficient. LVT seems efficient to me, so I don't care much if it's passed on or not.
The price of land going down with a LVT seems quite intuitive (why buy land if you can barely make a profit from its rents). However, one of my initial main concerns with a true 85%+ LVT was that the price of land would drastically plummet. This drop seems like it would overwhelm any improvements in the surrounding area made by governments flush with cash.
Governments typically try to avoid harshly punishing a specific area of investment without suitable compensation. Would the solution be to very slowly increase to a very high rate (like over the course of 50 years) and compensate current owners proportional to their current land? Or am I missing something entirely?
Even the most radical Georgists admit that an 85% LVT policy ain't happening overnight. If and when it comes to pass it would almost certainly be gradual. I envision something like this:
1. Improve the quality of assessments in existing property tax states
2. Shift existing property taxes onto land and off of buildings, but collect the same tax
Thanks, although my main concern was the sudden loss of land value (e.g., your $500k plot would become worth just $75k, since its value is based on your ability to extract profit from rents). Even LVT was implemented gradually, telling people that their land will eventually be taxed at 85% would immediately and drastically drop its value (?). I guess this could be made up by just compensating them though, which could also be done slowly over time.
In my ideal world, the 85% LVT would be phased in over the course of 100 years or so but as a constitutional amendment.
The uh, more "funny" way of going about it is letting BlackRock/whoever buy up all of the land in a county and then have all of the renters in the county form a political party/ballot initiative that implements an LVT+Basic Income at the same time. Its certainly provocative.
that's assuming that Georgists had total control of government and everyone had full certainty in those changes. The most likely scenario is a gradualist approach starting from local areas and moving upwards from there. Even if it makes steady progress I don't perceive an instant capitalization overnight.
Hmm, about starting from local areas, do you think LVT would make communities more or less competitive relative to other communities? My worry would be that it somehow leads to them becoming less competitive, which would yield a Molochian/coordination problem scenario. However, I don't have any intuition about whether it would help or hurt them. My only thought is that it could help since it would lower the cost of buying land and thus lowers the initial costs needed to build something?
My (testable) hypothesis, is that if you were to establish LVT on a community of sufficient size (probably bigger than a small town, but perhaps not necessarily as large as a big county) then you would see increased investment, greater housing density, and an increase in land values (even if the actual land prices are close to zero due to capitalizing in the collected land rents). To the degree that rising land values represent people's increasing willingness to live there, I would further predict that this would be a nice place to live.
Actually I have the opposite concern compared to Paul B: if LVT were implemented on the city level, the city would become more attractive to (prospective) residents because of the government services the tax can fund. Nice, right? But it means people would try to move to the city, so demand for land would increase, so rents and home prices would increase. (So it doesn't hold that the tax can't be passed on to tenants once movement between municipalities is taken into account.)
Then, at the next reassessment, the city tries to collects the extra rent as LVT. Then it provides even more services, creating even more demand, raising rents and home prices even further, and so on, with rents and taxes rising without bound.
Or, assuming a 85% LVT, they rise until the remaining 15% is as much as the 100% is today (while the sky-high rents and taxes add a great deal of volatility).
> Governments typically try to avoid harshly punishing a specific area of investment without suitable compensation.
There's an ambiguity in the word "investment". It can either mean spending money to acquire a valuable good, or it can mean spending resources to create wealth. Landowners have done the former, but they have not done the latter, the way that people who create capital do (whether that capital is the material capital of building a factory or machine, or the social capital of getting an education).
It's clear that you shouldn't punish investment of the sort that creates value. But it's not so clear that you shouldn't punish the former kind of investment, where someone just pays to acquire a purely passive income stream from someone who did nothing to create that income stream. One moral view says that the latter sort of thing has no social value, and thus we can legitimately destroy it. Another moral view says that whether or not this has social value, we shouldn't destroy anyone's ownership without compensation. Which view to take is a debate within Georgism but not settled by the economic questions.
I can't speak much to this, but I'm thinking about how when the British abolished slavery near the start of the 19th century, they compensated all the (mostly wealthy) slaveowners at market value. This amounted to 5% of their national income at a time when total government tax collection was just a couple percent of the national income. France took on a similar approach when they abolished slavery too. Of course, his old example shouldn't have any bearing on what we do today, but it just got me thinking.
In terms of LVT, I don't think it's really fair to say that landowners should be punished or are doing something knowingly immoral. Most middle class and upper-middle class assets are in real estate and they would be taking a large fraction of the hit, while the upper class is more invested in financial assets.
Yes, this example is a good parallel, particularly because the property being expropriated in that case clearly was morally problematic. I don't know that there would be a moral obligation to compensate people for the taking, but there does seem to be at least a pragmatic reason to do so to make the transition easier. (Though I think other changes in regulations or taxes aren't always compensated.)
> It's just an illustration meant to make a rhetorical point, but now I'm curious to see a real-world version of this superimposed over, say, Houston or Philadelphia or New York City, and based on actual data.
The big problem with this argument is that it is very, very misleading. The tax will get passed on to the tenants, but that doesn't mean their rent will increase necessarily, as the value of the land will drop to the point that the rental income from charging rent plus the value of the tax is equal to the discounted income stream land owners are willing to accept.
The tax gets passed on to the tenants because so long as they want to rent land, they are going to rent the land that pays the tax, and "what the market will bear" goes both ways. Land owners rent at as high a price as the market will bear, and renters rent at as low a price as the market will bear. BOTH matter. Just as you can claim that land owners are already charging as much as possible, it is equally true that renters are paying as little as possible.
Now, if you put an X% tax on all land rental, the price of land will drop as owners sell it to other owners because the cash flow is not high enough to justify owning it. No one is going to rent land at a loss, not for long, so any rental fees are going to include the tax. If the land owners needs to profit 100$ a month to make the price of the land worthwhile instead of buying a stock or something, the tenants are going to have to pay 100/(1-X) every month. (In the case where X%= 85%, tenants have to pay $666.66 a month for the landlord to get 100$.)
Where the new rental equilibrium will be, whether higher monthly rents or lower, no one can know ahead of time. That number is going to depend on how many other investment options land owners have, their relative returns, the opportunities and abilities to change the structures on the land (changing apartments to single homes to commerce, etc.) and all that. No one can claim to know what the new prices will look like without being a liar.
Would an LVT be better than all other forms of taxation? Possibly, although assessment is a real bear.
Is it a magical tax whereby the cost isn't born partly by the sellers and partially by the buyers? Of course not! There is a fixed amount of land to own, and everyone has to live somewhere on it (barring owning a house boat) so people can't change their behavior to avoid the tax much, outside of moving out of high assessment areas. The plus side to that is that it is less distortionary, since people are still going to own and rent land. It does NOT however mean that the renters are not going to be paying those taxes; tax incidence relies on relative elasticity, and land owners have a lot more flexibility in investment vehicles than renters have in whether or not to live on land, so land owners are not going to be the one paying the bulk of the tax.
The studies seem to mostly say "The value of land goes down if you raise the tax on the land's income stream." That sounds about right, because landowners have other investment vehicles to choose from in addition to land, and renters can move sites if prices go up because the changes are not nationwide.
Remember, though, the value of land going down isn't the same as "the tax doesn't get passed on to the renters." The value of land to a land owner is the profit they make off owning it. If the taxes go up on that income, the profits go down and the value drops. If the rent stays the same, that means that the Rent/Price of Land merely goes up. So whereas before you paid say 100$ per month to rent land it would cost you 1 million to buy, now you are paying 100$ per month to rent land it would cost you half a million to buy. Yay?
Or consider the limit, a 100% land tax, in effect, the taxing government owns all the land. Who pays the tax? Well, 100% of the rent is taxed, and the renter pays the rent, so... the renter pays 100% of the tax.
So what happens when you tax all land at the same %? The price of land drops such that the cost of owning that discounted value stream is roughly the same as other assets with similar profiles for liquidity, value growth, etc. while the rental costs equal whatever it takes to make the income from the land portion of the land + building stuff equal the income stream less the taxes. The result is a one time very large wealth transfer from those who currently own land (small homeowners and giant developers alike) to the government via a collapse in land valuations, and then some wiggling around in rent prices which might result in the same buildings having higher cost of rent, lower cost, or the same. The people the renters pay most of the rent to changes from landowners to the government, but otherwise... hard to say what happens. Maybe more intense land use like some of the articles point out, maybe less depending on how much people WANT to pay for more intensely used space. It will also depend on zoning laws and regulations about what you can do on the land. Also, of course, on solving the problem of getting reasonable assessments of value of the land separate from the improvements for an asset that tends not to change hands frequently.
Would you be more convinced by studies that directly observe changes in rents? I think at least some of them do this but it's been a while since I read them all.
I think there's a confusion in/of terms going on. When people say they're worried about the tax being passed on, I think the concern is "I have to pay my current rent _and_ the new costs of the LVT" and this is what you're disproving. However, @Doctor Hammer is talking about how the renter still ends up paying the LVT in the end, because they're ultimately having to pay rent still.
Right, and this is simply a confusion about producer vs consumer surplus. Economists are agreed that land value taxes come out of the producer surplus (see Samuelson), because a tax on land comes out of their bottom line rather than the renter's. Is the money the renter pays to the landlord the same money that pays the tax? Well, it can be, but it doesn't matter because raising the tax never affects how much the renter pays one way or the other. It only affects what proportion of rents go into the landlord's pocket and what proportion go to the treasury of the commonwealth.
Both of you are assuming there is a lot of supplier surplus and very, very little consumer surplus when it comes to rent. That might be true, but there isn't any reason to believe it inherently. Unless rental prices are fixed, or renters are perfectly elastic in their demand for land in an area (which... no), some of the tax will be paid by renters, every time.
The trouble is that there are a LOT of confounders in rent prices, such that you aren't going to get far in empirical studies. Economics in general suffers a lot from this, such as when judging the effects of minimum wage laws. I don't think a study could really exist that would prove it either way, or even present a lot of really good evidence, without being like the Seattle minimum wage study, and that was a BIG undertaking and still has people debating it.
The big question is what the underlying supply and demand curves need to look like to get no tax paid by renters. That requires a perfectly elastic demand function which requires a lot of alternatives to living on land. Seeing as how most people have to exist on land, that's not likely.
Landowners, however, don't have to be landlords; many other investments will do. Lots of elasticity there, so little tax incidence.
But... someone has to own the land, even if it is government. So we will either see land rents that are horribly muddled with building rents and so prevents the land only part from going to zero by virtue of bundling the two, or government owns all the land and charges arbitrary tax amounts on the people who own the buildings.
I wasn't much, no. I really don't think that in principle we are going to be able to observe the effects in the real world, no matter how fancy the statistical work. There is just too much going on that affects the blob of rental prices, land values and building values to control all the things changing them.
Now, if some country said "Fuck it! Let's rock some Georgeism and only have one tax!" it would be really interesting to see what happens next in terms of patterns. Even if rent prices went up EXACTLY as much as the LVT you would still have people saying "Oh, that's because the money freed up from not having other taxes went to bidding up the price of real estate!" or "The increased efficiency improved the economy so much that all land prices went up because people are spending more in general." If rents dropped people would complain that you didn't account for changes in population growth, or increased density and urbanization, the liberalization of zoning laws, or the recession from the Zircon variant. If prices stayed the same people would blame all of the above.
That's just how economics is. We almost never have empirical results that change people's minds. Hell, people still think Communism is a great idea, despite 30+ years of economics text books predicting the USSR would overtake the USA in GDP per capita in 5-10 years. The reason so many economists recommend not messing with markets is exactly because they work so well, we understand things so little, and just about every time we try to make significant changes in market processes we make them worse.
So yea, I think my field is pretty much doomed to slinging theory back and forth forever, with rare "Holy shit, you REALLY screwed that up" natural experiments changing some minds.
What if the Land Value Tax is precisely equal to the current land rent? Land owners get zero profit, so they won't invest in it, so they will let the land revert to the state, which then collects the current land rent. Why is this not an equilibrium?
I think that is the eventual equilibrium: the state de jure owns all the land and taxes people to use the land at whatever rate they think they can get away with.
I don't think that is going to do much to help renters, because governments are useful to enforce contracts between renters and landowners, protecting both. When the government IS your landlord, then there is a conflict of interest, to say the least. Good luck getting help if and when your landlord decides to screw you over.
> I think that is the eventual equilibrium: the state de jure owns all the land and taxes people to use the land at whatever rate they think they can get away with.
I agree, but I think that this is a good thing.
> I don't think that is going to do much to help renters, because governments are useful to enforce contracts between renters and landowners, protecting both. When the government IS your landlord, then there is a conflict of interest, to say the least. Good luck getting help if and when your landlord decides to screw you over.
In the current situation, if you have some county where 100% of the people living in the county are renting, there is absolutely nothing they can do to increase the supply of housing (and thereby lower rent) unless their landlords want increase the supply of housing. And the landlords have no motivation to increase the supply of housing to actually match the demand, let alone increase the supply to the point that rents might actually go down.
That is contrary to basic economic theory. Why wouldn't one of those landlords want to increase HIS supply of housing and capture more of that rent at the expense of other landlords? He has plenty of motivation to add more housing to his stock so long as the dip in price doesn't lower his total profits (which generally won't happen in the case of him acting alone.)
For collaboration like you describe to work, there needs to be an enforcement mechanism to make sure no one cheats and adds more housing. As it turns out, government is all too happy to provide such an enforcement mechanism in the form of zoning laws and limitations on building. Do you think government will do away with those laws when they are the primary benefactor of those high rents?
> That is contrary to basic economic theory. Why wouldn't one of those landlords want to increase HIS supply of housing and capture more of that rent at the expense of other landlords? He has plenty of motivation to add more housing to his stock so long as the dip in price doesn't lower his total profits (which generally won't happen in the case of him acting alone.)
Yes, but building housing is... tricky? Even if there was 0 red tape wrt zoning and permitting, the process of building additional units sucks for the landlord, since the whole time during construction you're missing out on income. (I think in an LVT system this could be ameliorated by waiving the LVT for standard expected construction length). So if demand for the area is going up anyway and you can charge more and more rent every year, it would be strange for me as a landlord to give up some year (or more) of rental income to build more units on a plot.
> As it turns out, government is all too happy to provide such an enforcement mechanism in the form of zoning laws and limitations on building. Do you think government will do away with those laws when they are the primary benefactor of those high rents?
Yes, but that is how it is in the _current_ system, so that's a very bizarre argument to make..?
I think when you say 'government' you're not really being specific enough? Ie: the zoning issues you're talking about are a result of local government, which is the people in county/community, using 'government' to benefit themselves. However, in California, "government", as in the state government, is trying to override the local government's zoning restrictions because they're bad for the state as a whole, right? So just saying 'government' is not specific enough.
> Do you think government will do away with those laws when they are the primary benefactor of those high rents?
Those high rents would at least go towards building infrastructure instead of into landlord's pockets? And yes, I think once everyone is equally impacted by the LVT, then reform would be more likely to take place. Currently, renters subsidize SFH owners/landlords.
1: Housing is tricky, but only in the sense that many, many investments involve spending now for benefits later. Already tons of money has to be paid up front to build things, generally long before any income rolls in. That's standard, yet lots of buildings get produced (eventually) and renovations get done, etc.
2: Yes, in the current system local governments harm renters to benefit landowners. If rents in your area are too high, you should probably blame your local government for selling out the interests of renters to landlords. They are the ones who are supposed to wield guns to defend you, and instead are using them in favor of the landlords. Changing to an LVT isn't going to change your local government's willingness to sell you out. If it did, I wouldn't expect the government to let such a change happen.
3: Will the government build infrastructure, as opposed to say hiring lots of cronies for do nothing jobs that add nothing to society? What percent of spending actually goes to building infrastructure? And why do those infrastructure projects always cost orders of magnitude more than when private organizations do them on their own?
It sounds like you live in California. Do you really believe your state is well run, with efficient government officials doing their best to solve problems and serve the interests of their people? The state has an incredibly rich and educated population, yet is beset by brown outs, water shortages, infrastructure problems, psychotic housing prices, etc. Do you think the local government in San Fran is unique, or is the whole state San Fran city councils all the way down?
I have a few questions which probably exposes my lack of understanding.
First, Part 1 showed that all the land being used is really valuable and that a consistent LVT could pay for a lot of really great things. If a severe LVT were imposed though, I think that a lot of people would just stop owning land? Which is obviously the whole point to reduce speculation, but then if nobody wants the land because of the tax burden, then who would pay the LVT to fund the Citizens' Dividend and other nice stuff?
Second, if everyone is selling off their land because they have to pay LVT on it, that seems like it would crash the price of land around it, reducing the value of the land to begin with. So how can we know that the land values calculated in Part 1 would remain accurate (and thus be able to fund all the nice things we want) after a huge LVT is implemented?
Third, wouldn't Georgism applied at scale to a country like the USA result in a huge redistribution of wealth away from urban areas and towards rural areas? Are we ok with that? I think people would be upset about that.
> If a severe LVT were imposed though, I think that a lot of people would just stop owning land? Which is obviously the whole point to reduce speculation, but then if nobody wants the land because of the tax burden, then who would pay the LVT to fund the Citizens' Dividend and other nice stuff?
I think you're missing the cause-effect for how land is priced (and yeah since there are administrative costs and you want the market to still work, its why most georgists want like an 85% LVT). The current price of the land is because of the rent you can extract from it by doing something productive with it. Price isn't the same thing as value. An increase in the LVT reduces the _price_ of something, because it takes longer to break even on a given investment of capital. The _value_ however, doesn't change, because the productive thing you'd do on the land would still produce just as much revenue as before the LVT increase.
> An increase in the LVT reduces the _price_ of something, because it takes longer to break even on a given investment of capital. The _value_ however, doesn't change, because the productive thing you'd do on the land would still produce just as much revenue as before the LVT increase.
This is really a key point to Georgism that needs to be driven home. Yes, you would have to pay more in taxes on the land, but the net effect is that you get all of the wealth that YOU generate using the land, which rewards you for using land efficiently in a way that other taxes like income or sales cannot do.
If you start a company in a city, you need land for servers, or production equipment, or offices. You could theoretically start that company in the middle of farmland, but you probably wouldn't for the same obvious reason that other companies don't move to rural Iowa to reduce their tax benefit: there is no one there to do productive work for the company. Land in San Francisco is worth more than land in Iowa because of the people who live and work there, and you just cannot produce as much value in Iowa as you can in San Francisco. This value in productivity is captured in land values, and the most efficient method of taxation is to capture the value from land and transfer it to the community writ large.
> Third, wouldn't Georgism applied at scale to a country like the USA result in a huge redistribution of wealth away from urban areas and towards rural areas? Are we ok with that? I think people would be upset about that.
Georgism is a redistribution of unearned rents from landlords back to the community. I'm not sure why you think it would flow from urban to rural.
> I'm not sure why you think it would flow from urban to rural.
It pretty obviously would flow from urban to rural, as New York City would lose a few trillion in real estate value, while the community 100 miles away isn't losing anything close to that.
New York City would lose real estate value, but it wouldn't lose any of its current economic activity, or any value of the buildings, education, vehicles, machines, or any other productive things that it has. To the extent that landowners are urban rather than rural, it's a one-time transfer of wealth away from urban areas. But it's not going to result in any change in flow of income or economic activity, except insofar as more owners of rural land live in cities or more owners of urban land live in the countryside.
How is it a one-time transfer of wealth if there is an ongoing LVT assessed at the land's value? I think land in NYC is more valuable than land in the middle of nowhere. If the Citizens' Dividend is given out equally to all, then...
The one-time transfer of wealth is the reduction of land values from current value to zero. Future rent collection, instead of being transferred from (primarily urban) land users to landowners, is transferred to all equally.
An attractive proposal is to separate the land value tax into different components that would be handed out to different levels of government, e.g., the component that is due to city investment would go back to the city, but the component that is due to federal or state investment in infrastructure, the location of the city itself, etc. would go to the federal or state government.
Is all the money kept at the municipal level then, so NYC would have a way higher Citizens' Dividend than Spuds, Nebraska? How does that tie in with in Part 1 where the author talked about funding Medicare, defence, etc?
Most appraisal districts in states have a political process for divvying up funds between various jurisdictions: school district, county, city, etc. That political process would continue in a world where everything was funded by LVT and is one of the reasons I did estimates to see how much money LVT is capable raising across all levels of government, federal, state, and local.
> Second, if everyone is selling off their land because they have to pay LVT on it, that seems like it would crash the price of land around it, reducing the value of the land to begin with. So how can we know that the land values calculated in Part 1 would remain accurate (and thus be able to fund all the nice things we want) after a huge LVT is implemented?
Yeah, so same thing, price != value. If I want to rent some storefront to situate my business, I know how much I'm able to pay in rent for it to be worth it for me to do so and everyone else making the same calculation for their own businesses is whats setting the market-rate for rent. Whether the landlord then pays 85% of what they collect in tax to the county or whether they get to keep all of it, doesn't change how much me or anyone else trying to productively use land is willing to pay.
I'm sure I'm misunderstanding here, thank you for taking some time to correct me.
The idea of Georgism seems to be "use your land productively or sell it to someone who will." The whole point of this post is that LVT increases can't be pushed on to the tenant, so instead the landlord needs to add enough value to justify their existence on their own merits, or sell. I would expect a lot of people to sell? Like, if this is the only tax, it seems like a lot of people would rather just not pay it, and would move to a different line of work that doesn't require land, like the service industry or government work or opening an Etsy shop or something.
It seems to be a big deal for Georgism that the value of urban land goes up when there are other nice things nearby, like coffee shops and shopping malls and laser tag centers. If everyone is selling their land or moving to a rental model because they can't eat the LVT, that seems like it would decrease the value of all the land in the area by the same process in reverse.
All of those things you listed still require land. Etsy shops require a place to make stuff, land to extract the things from the natural world you make your etsy stuff from, logistics centers to ship your thing, physical infrastructure to support the internet.
Government work requires office space, and a lot of the other stuff that is similar to the Etsy thing.
If land didn't matter, we would have all spread out and homogenized our space requirements, but it does matter which is why we still have cities.
I'd be careful about talking about the current NZ economy because of the distortionary effect of Chinese capital controls. Buying real estate abroad is one of the easier ways to get money out of the country. The distances and size disparities involved mean that this has a big effect on NZ's housing market.
Really enjoying the series so far, thanks for posting these.
A lot of the arguments presented against an LVT strike me as isolated demands for rigor.
Tax laws get changed all the time and it seems entirely reasonable to slowly phase in an LVT. Sharper increases for less efficient taxes have occurred without catastrophic consequences.
The tax bill from an LVT wouldn't be much different from property taxes in the US today. Assuming land value is roughly 70% of property value, we target an 85% tax on land rent, and the market capitalization rate is 5%, an LVT would cost roughly the same as a 3% property tax (70% * 85% * 5%). This is higher than typical rates in the U.S. (~1%) but doesn't seem like it will have terrible effects, especially since it is more efficient than taxing the property directly. Sanity check: median property tax rates were 1.1% in the U.S. and generated $323 billion, something on the order of 3% property tax rates should raise $874 billion, consistent with the low end results in part I (because I'm using the lower market capitalization rate).
The key here is to consider the alternative to an LVT. Many forms of taxation are inefficient, arguments against a LVT have to demonstrate that the LVT is significantly worse than a different tax scheme.
More important than policy details, Georgism raises an interesting question. We can roughly divide everything of economic value into the downstream products of Labor and Land (wealth is labor+land, money is receipts on wealth, capital is invested wealth, etc.). How do we distribute these basic goods?
Distributing labor is pretty straightforward, everyone has a right to use as much or as little of their own labor as they want, in any way they choose (though we might redistribute this somewhat via income taxation).
But how do we distribute land? Land is this weird thing which surrounds us, is crucial to producing economic value, and which nobody has a natural claim to. Should we give it to those who manage it best? Share it equally? Redistribute it to the poor? What taxation scheme would achieve these goals?
I think these broader questions are more important than policy quibbles, especially considering the fact that "Land" applies to far more than just patches of dirt (energy, natural resources, air rights, broadband spectrum, etc.)
Interesting point on the tax bill. That arithmetic also challenges just how much other taxes could be replaced with LVT, however.
In 2019, U.S. total government expenditures were ~$7.3 trillion. Total receipts were ~$5.9 trillion, and net borrowing was ~$1.4 trillion. Those figures are consolidated, netting transfers between levels of governments (e.g., federal to state and state to local). Details are on pages 69-72 at https://apps.bea.gov/national/pdf/SNTables.pdf
This BEA report also shows total state and local property tax receipts of ~$600 billion. I'm not sure of the difference versus harsimony's total of roughly half that number.
Tripling that number - whether it's ~$600 billion or ~$300 billion - would be a big change from the current tax system. It would not, however, come close to funding overall government spending in the U.S. Using the higher number of ~$1.8 trillion, it would fund ~25% of overall government expenditures or, said differently, account for ~30% of overall government receipts.
Right, I think by looking at property taxes we can push back against both the "LVT will constitute a large and dangerous change" argument from detractors as well as the "single tax" argument from Georgists.
I think your ~$600 billion number is more accurate, it looks like I was using the revenue from single family homes ("In 2020 the average single-family home in the United States had $3,719 in property taxes, for an effective rate of 1.1%. This raised $323 billion in property taxes across the nation", https://www.mortgagecalculator.org/helpful-advice/property-taxes.php).
To be clear Georgists also argue for taxes on other types of economic land, like natural resource extraction- these broadly fall under the category of severance taxes. And most Georgists believe that a significant portion of land rents should be returned to the people in the form of a Citizen's Dividend (the original UBI). This has the effect of equally distributing the benefits of land, without having to actually divvy everything up and distribute it, which would be impossible.
If you want a real-world implementation of this, the Alaska Permanent Fund is one of the best examples of Georgist policy out there. Alaska auctions off its oil at value- a form of severance tax- and then redistributes that value equally to all its citizens. This writ large is essentially the Georgist vision.
I think it would be valuable to consider how to extend these same ideas (LVT, severance tax) to other domains as well:
- It seems like solar energy would also fall under economic land, perhaps there could be a system of "solar collection rights" which encouraged efficient use of solar energy while funding a UBI.
- I have heard people frame "natural talent" as a form of economic land, perhaps income taxation could be restructured to encourage investments in human capital while taxing away unearned advantages.
I also think its important to consider alternatives to equal distribution. For example, we could target the dividend towards low-income individuals. On the other hand, we could target productive individuals (and encourage more effort) using an income supplement. Which is best? I'm not actually advocating for either of these, just food for thought (though I agree that equal distribution is the simplest, most politically feasible approach).
Georgists get strong demands for rigor because they are making strong claims (such as an LVT being non-distortionary, or that landlords can't pass it on), not just that and LVT is less bad than other taxes. Some arguments against the strong claims don't necessarily question that it's less bad than many other taxes.
I'm very pro-LVT, but one thing has always bothered me: the claim that land scarcity is unresponsive to price signals (ie, supply curve is a vertical line). While true on its face, improvements can make a huge difference to economy of scale, by dividing land value over a larger number of people.
Take a large plot of land currently used for a single-family home; if the value of that land skyrockets (more people willing to pay a premium to live in that area), the market can respond to the new price signal by building multi-family housing, even a skyscraper that houses a thousand people.
The counterpoint would be: there is still a land-value underneath, whether calculated for one resident or a thousand residents. (A single resident who chose not to build a skyscraper would still have to pay LVT based on the opportunity cost, in the same way as an idle land speculator.) All the same: how we do reconcile the claim that land is unresponsive to the price signals of changing demand, when improvements can act as a force multiplier, providing land's location value to a vastly larger quantity of people?
Really been enjoying these posts, great research and writing!
I think it helps to consider them as two separate markets: one in which the rents (and therefore price) of the land is determined, and another in which improvements get built to various densities.
The land market has inelastic supply, with demand for location determining what the rent is at a given location. Then the improvement market determines the optimal density to build on top, given the upward-sloping supply curve (inputs being land & construction), and the downward-sloping demand for floorspace.
The tenants won't be paying the maximum the property is worth to them, and landlords will make more of an effort to get back what they're losing in tax.
Related - people/businesses work super hard to break even and make a small profit, they don't work as hard to make a bit more profit.
The whole concept of 'pass the costs to renters' is a red herring. Rental prices are a function of supply and demand almost entirely divorced from the cost of inputs.
The cost of inputs for the 'rents' in the Georgian scenario are going to be the LVT and the cost of capital to build/maintain improvements. LVT is obviously a new cost and the cost of capital is also going to increase (interest rates will be higher as land is no longer a relevant piece of collateral).
Given that the cost to supply 'rents' is going to increase dramatically I don't see how the supply of 'rents' doesn't also decline dramatically. How this effects actual rental costs will depend on how demand shifts in response.
"Rents' in this case means economic rents, not contract rents- it excludes things like renting/maintaining buildings, which are returns on labor and capital, not on land. Likewise whenever Georgists refer to 'landlords' they are referring only to owners of land in their capacity as such. Unfortunately in common use we- true to form- confute land and capital and include what should properly be termed 'buildinglords' in with landlords.
LVT does not affect the supply of land, which is fixed, and it does not affect demand for land; as such, it does not affect land values or rents.
I am explicitly talking about contract rents, not economic rents. The whole 'land is fixed' is also a red herring as you aren't changing LVT uniformly on all land. Just like oil producers don't invest in extracting oil that is more expensive than the market will bear, developers won't develop/own land that is more expensive than they can get a reasonable ROI.
If they are only developing land because they can get rents from it, they are by definition not being productive, and so we should want something else that would actually be sustainable for its productivity there rather than a merely extractive enterprise that profits off the value of the community rather than its own contribution of products or services.
We want people to do more of it where it is efficient. If developers are rentseeking it is because they are not developing intensively enough- they are building single family housing where under an LVT it would only be profitable to build townhomes or quadplexes. An LVT does not discourage development, quite the opposite. I'm not sure how you have managed to get this backwards.
My question is, why do Georgists seem to be so prevalent in right-libertarian circles? I know a lot of Georgists and I've met literally all of them in online libertarian capitalist spaces. Conversely, they seem to be almost non-existent in actual progressive and leftist spaces, despite the fact that their goals and plans should ostensibly appeal to people of a left-wing persuasion.
My guess is that it's because Georgism offers a solution for some of the problems with totally unregulated free-market capitalism without throwing out capitalism and markets altogether like the radical leftists want, and without all the taxes and regulations and market distortions inherent to center-left social democratic liberalism. Alternatively, it might be simply because Georgism and libertarianism are both heterodox ideologies that get attacked from the right, left, and center alike, which makes Georgists sympathize with libertarians and vice-versa.
All of the above, and more. I believe the basis of Georgism and libertarianism is an appeal to nature rights, while leftist theories are based on utilitarian philosophy.
Georgists believe land is the best and really only just tax, while many leftists will simply be like "yeah, that seems like another good tax we should have." But repealing income and capital gains tax is important for Georgism, though not as important as the LVT, of course.
I think you're close in your second paragraph. Minor caveats are that in my extensive experience online as an georgist (and progressive), I've found social democrats to be probably the most George-friendly community. Neoliberals as well. Right-libertarians tend to be fairly amenable, albeit skeptical that people can truly love taxes the way we do.
The reason we're not often in leftist spaces is that they're often very hostile to Georgism. Not so much because they disapprove of LVT, rather because we're not explicitly anti-capital. Marx said of us "they leave wage labour and therefore capitalist production in existence and try to bamboozle themselves or the world into believing that if ground rent were transformed into a state tax all the evils of capitalist production would disappear of themselves" and they wholeheartedly agree.
Yes, I agree with the above commentators that it is a heritage question. Henry George was a classical liberal and Georgist thought and language tends to mirror that kind of emphasis on natural rights, the purpose of government, and the nature of the economy. Where Georgism diverges from mainstream right-libertarianism is mostly that it has a comprehensive philosophy of the commons, which is present in most classical and medieval thought but rare in modern ideologies, which tend to divide strictly between individualism and collectivism.
As a right-libertarian who would see Georgism as justified in theory if it were to tax all land at its value as farmland:
The (purported) advantages of Georgism are likely to appeal to libertarians more than to others. One of the main consequentialist libertarian arguments against most taxes and regulations is deadweight loss. Other ideologies focus less on the concept.
And one of the main deontological libertarian arguments for property rights is, and against most taxes, is that if you've created something, you should have exclusive right to use it or decide who can use it: if creating something and then using or consuming it doesn't hurt anyone else, you shouldn't be punished for it. However, land isn't created by people, so this argument doesn't apply to it.
However, I don't see much of a libertarian justification for taxing city land based on its market value, thus at a much higher rate than its value as unimproved farmland. Doing so isn't free of deadweight loss, and it punishes people for something that doesn't hurt others (by taxing them higher for building a city on a land than for farming it). And taxing land based on its farmland value would bring so little revenue that it would do more harm by reducing investors' confidence in property rights than it's worth.
I come from the right-libertarian tradition, so I understand what you're saying and sympathize. Georgists, especially ones from right traditions, agree that labor and capital should not be taxed, as those are the fruits of your labor. George himself said this. But the value of land is not created by one's labor, it's created by the demand for the land.
The value of the land, not the improvement on top, is based on the demand for that particular piece of land, which is typically said to be representative of the activities of the community. If you go and build a skyscraper in the middle of the forest in Arkansas, you didn't suddenly create a very valuable piece of land. You put a very expensive building on top of a very cheap piece of land.
Since land is in fixed supply and requires no cost to produce there is no DWL from taxing it. If this isn't compelling, you'll have to go read the works of the multiple Nobel laureates and economists who said the same thing.
The libertarian justification for taxing land value is that the demand is essentially reflective of the fact that lots of people all want the same plot of land, which is what drives up its value, and there is no natural rights based solution to determining who should have it. The reason why lots of people want that specific piece of land is that its close to all the other people who make a community, exist as customers and laborers, and provide services and infrastructure to make our lives more fruitful and easier, i.e., value created by the collaborative efforts of lots of people that have existed as part of that community, not the labor of a given person.
It is most easily modeled by something like infrastructure spending. The Jubilee Train Line in England cost the public 3.5bn to build, and then produced 13.5bn in increased property values. The individual home owners who saw their property increase in value contributed as much as anyone else did, through their tax dollars, but they're going to be able to extract significantly more than their contribution, just by, in the best case, being lucky, while in the worst case actively rent-seeking.
> Since land is in fixed supply and requires no cost to produce there is no DWL from taxing it.
This holds if the tax depends solely on what pieces of land you hold, and nothing else. (More generally a tax doesn't create a DWL if the amount can't be changed in any way; a fixed head tax is another example.) Once the tax also depends on factors affected by human activity, it no longer necessarily holds.
At risk of appealing to authority, you'll have to cite some sources if you want to take your argument seriously, given the wealth of economic support behind the idea that taxing land comes with no DWL.
Besides that, I don't understand what you're trying to say. Can you elaborate?
1) Consider a developer that builds a nice neighborhood, then sells it off as parcels. This increases the land value of the parcels; some structures or infrastructure such as infrastructure wouldn't be profitable on their own, but they increase the land value of the rest of the neighborhood (and thus, the developer hopes, the price they fetch).
As long as the entire neighborhood is owned by the developer, there may be no tax increase compared to when the land was undeveloped, depending on how the tax is calculated*. However, once it's sold as parcels, the increase in land values is taxed away, this reduces the total price the neighborhood will fetch, so it may not be worth building the structures that aren't profitable on their own, or possibly the entire neighborhood; that's a deadweight loss.
2) Consider a homeowner association that makes an improvement to the neighborhood that increases property values. If the government taxes away the increase, it's not worth making the improvement; that's a deadweight loss. (From another angle, it's impossible to determine land values separately from the value of common property of the community if lots or homeowners in the neighborhood can never be bought or sold independently of a share of the common property.)
There is a strong reason a land tax can't cause a deadweight loss if it depends solely on physical properties of the land (such as ones that contribute to its value as farmland). Taxes cause deadweight loss by changing incentives. Taxes change incentives if different actions can lead to different tax levels (they disincentivize whichever actions lead to higher taxes), but not if human actions can't affect tax levels. There is surely ample support behind the notion that unchangeable land taxes don't create deadweight loss. But are you sure there is a consensus that a LVT can't create DWL even if it's based on market value, so e.g. city land is taxed much higher than farmland, and nice neighborhoods higher than bad ones?
Now, and LVT based on the unimproved land value of a parcel in a sort of middle ground. It's not affected by changes to that parcel, only by changes to surrounding land. However, the owner of a parcel can, in some cases, affect the surrounding parcels (and thus the land value of his own parcel), in ways such as owning them too (perhaps temporarily, such as in the case of a developer that builds a neighborhood) or through contracts with their owners (such as in the case of the homeowner association).
* If, for a piece of land with a single owner, the unimproved value is considered to be what it would be if the entire land were undeveloped, there is no tax increase until the land is sold to buyers as parcels. (This also creates a deadweight loss by incentivizing the developer to keep ownership of the entire neighborhood and rent the buildings out, instead of selling them.) If the "unimproved" value is calculated parcel-by-parcel even if they have the same owner, the tax increase occurs as soon as the neighborhood is built.
In the first case, this is an "enclosure" problem. If you tax land based on a common size, rather than parcel size (like every acre, for example) then it doesn't matter where the lot lines are drawn and who owns it. It is a legitimate criticism, its basically the "Disneyland" problem. Disney basically created an entire community and the demand for its existence.
In this case, I think most Georgist would be fine with the original owner capturing some of that initial economic rent, as a fee or payment, as one capitalist did truly create if not the entire value, nearly all of the value of the community by creating the attraction and the capability for people to be there and use it. But eventually as things grow up around it, the economic rent can't return to Disney forever in perpetuity, because eventually value of the land is not solely due to the existence of Disney.
In the second case, this is not true. The HOA made an improvement because they wanted the improvement, not because they wanted to improve their property values. It might be true that HOAs as entities wouldn't exist under an LVT regime, but people, including the government, would have incentive to make the area as desirable a place to live as possible.
I think I linked you the Jubilee Train Line thing already, that's how infrastructure spending in GeorgeTown would actually look. 3.5bn invested, 13bn taxed back to reinvest in other worthwhile communities projects. Not a bunch of stuff not getting paid for because its too expensive. The government should and will be incentivized to invest in things that make our lives better, because that increases land value.
All land value is common property, in the Georgist world view, so "separating them" isn't an issue, because all land value is created by human interaction.
In the state of nature, I can just go out where ever I want and provide subsistence for myself. Only when two humans contest the same area of land does the concept of "land value" come into existence.
Some numbers. For example, suppose a plot of land can be put to one use only; to bring it from the current state to a state fully suited for the purpose costs $X; this will then yield a rent, of which $Y/yr can be attributed to the land itself and $Z/yr to the improvement. Assuming 100% LVT, how to determine the price of this plot?
Hmm, on second thought, this question answers itself: I would value this as much as I would any other asset with the same level of risk that yields $Z/yr, less $X. That’s not $0, so this disproves my previous understanding that 100% LVT is the same as purely renting land from the state.
I'm sure someone else has already mentioned it, but there is a pretty easy (albeit indirect) sanity check that can be done using American states. In general, states with annual/biannual assessments on present value have both lower housing prices and more stables housing asset values than those with Prop. 13 like distortions. The main exceptions appear to be states like New Jersey that are adjacent to high land value urban centers.
The problem with this is that Prop 13 was passed precisely because real estate prices were skyrocketing, which was driving up taxes on people with fixed income, who voted in droves for Prop 13.
So, you're confusing cause and effect there - places with lower property values would be expected to have fewer Prop 13 like laws because Prop 13 was a response to rapid increases in real estate prices.
Prop 13 was passed because rich property owners saw an opportunity to cap their property tax payments and used the tried and true "grandmas being priced out of their homes" spiel.
As for your cause and effect: the real cause of the original price increases was the 1970s inflation due to the US closing the gold window, which in turn caused energy prices (and other things) to become expensive - but the "dramatic" price increases of the 1970s were nothing compared to the price increases in the decades to come.
A 2006 study on Prop 13 found that older voters, homeowners, and people expecting tax increases were the most likely to vote for Prop 13.
Moreover, a 2020 study found that support for raising taxes for things like local levees and bonds fell shortly in the decade prior to Prop 13's passage. Many lower income people were unhappy with regressive taxation that was being enacted even as the top tax rates were being cut, as property taxes, sales taxes, and similar were going up at the time to fund various programs, and people started attacking them. Prop 13 sharply limited these sorts of tax increases. This wasn't limited to white voters, either.
The notion that it was some sort of trickery is not really validated by evidence; Prop 13 was popular amongst voters because they saw it as benefitting them, as they were tired of higher taxes and wary of their taxes going up, especially as they retired.
It passed pretty overwhelmingly, as have other, similar things.
Californians love voting for lower taxes and more services.
I don't see how tax/cost isn't somewhat passed on to the tenant. If the cost of owning land in cities goes up, then all landlords will have to raise rents. Won't this policy drive people out of the city and into rural US? where land is cheap...
If I'm following the theory right, rent *can't* be raised any further because it's already at the maximum value that can be extracted from the land - raise prices any higher and tenants will rent somewhere else because they'll earn more there (even taking into account the fact that other locations might be less productive). In other words, if you raise prices enough to drive people out of the city, that means your land is producing no money in rent, and you don't want that because you've got taxes to pay.
So the landlord keeps the rent the same and has to eat the cost. This drives land values down (since there's less income to be made as a landlord), which should in turn drive down rents (since rent depends on property values).
This does discourage land ownership - if you don't think you can extract enough after-tax value to turn a profit, you'll have to sell to someone who can - but I believe Georgists see that as a feature, not a bug.
> rent *can't* be raised any further because it's already at the maximum value that can be extracted from the land
There is no reason to think this is the case in many (most?) real-world places. Rent has gone up like 200%+ in real-dollar terms over the last couple decades despite flat real wages in many jurisdictions. There is every reason to think that rent can go way, way up before tenants stop being able to pay.
> (since rent depends on property values)
There's no reason to think this. Rent depends on tenant's ability to pay rent vs their ability to acquire capital to buy land. In many places, it's not really possible for most wage earners to acquire enough capital to buy land, so they're just forced to pay whatever the rent is because they don't have any other option.
You have to pay this tax even if you *don't* find tenants.
It's not a tax on the transaction of you renting to them that you only pay if you do rent the land (which *would* make you much more reluctant to rent the land because it would be a new cost of renting the land relative to keeping it vacant). Instead, it's a tax that you pay unconditionally. If you don't manage to find tenants you still pay, while making no income.
Does this make you less willing to rent the land at a given price than you were before? Or more? Or the same?
It would make me raise my rent by the amount of the tax, or near enough. Not all at once, but certainly any new rentals would price the tax in to their rate, and once that starts happening, I can also raise my rent commensurately.
If you actually look at the studies, a number suggest that, in response to the increased property taxes, people increased density of construction - rather than prices going up on a per-unit basis, instead they increased the number of units.
Thus, they lowered unit quality to increase the number of units while selling them for the same price as they did previously - which is exactly what you'd expect to happen.
The flaw with all of these theories is that they ignore the fact that the cost of housing is relative to the price of it - if you increase the cost of housing, you might increase the cost of housing, or you might cause a decrease in the quality of housing while the price remains the same.
In an area where the price of housing is maximized, we would instead expect that the quality of housing would decrease, resulting in less space per person.
Thus you might see no increase in one measured quality (say, price per unit) but see an increase in another (price per square foot).
Moreover, making existing owners eat costs doesn't actually do anything against future owners - if the property is permanently worth less, then new owners will buy it for less money, but the new capitalization will be corrected for the lowered cost, so at best you are just applying a one-time penalty to present property owners, as future ones can compensate for the higher taxes.
> they lowered unit quality to increase the number of units while selling them for the same price as they did previously - which is exactly what you'd expect to happen.
Which is similar to what we're already seeing in places with hot markets like e.g. Toronto - prices are going up, square footage is going down, and build quality is going waaaaayyyy down.
If the market won't bear a higher price to account for the tax, the quality of the good will (and therefore the cost to the supplier) will go down. Which is a backdoor way of the tenant paying any increase in cost.
> With a Land Value Tax, the owner has to pay that tax every month whether they have a tenant or not. They're already charging the highest amount the market will bear, and as we've already shown, they are unable to change the supply of land. All the leverage is on the side of the tenants, which forces the landlord to eat the tax. The price to buy the land goes down, the price for a tenant to rent it goes down, but the total amount of income the land itself produces ("land rent") stays the same. A portion of it is just being collected by the taxing agency.
I've missed something here. We've stipulated that there is a market rent for the land which maximizes the revenue the land can bring in. Thus, if the land gets taxed, the tax cannot be passed on to renters, because raising the rent on the land would lower total revenue from the land, which is counterproductive for the landlord. This is a perfectly coherent model.
And I agree that it goes on to predict that after the institution of such a tax, the price of land would fall. The land is worth less, so its price will go down.
But how is the price for a tenant to rent it going to go down? If that happened, total pre-tax revenue from the land would fall, and the value of the land would drop even further. Our whole argument above was premised on the idea that the price the tenant pays to rent the land stays exactly the same come hell or high water. The price of _rent_ falling could only happen if the marginal rate of land value tax exceeded 100% at some point.
A more succinct version of my question would be: "The price for the tenant to rent the land and the income the land produces are the same quantity. How can one fall while the other stays constant?"
Eh, Hong Kong has the government control virtually the entire land supply, and charge megacorps incredible prices for very small lots - and yet the megacorps have proven fully able to pass the spiraling cost of land onto homeowners.
I spent so long thinking about this that I've completely missed the discussion. But I think it's worth inserting my comment late just in case anyone else is having the same feeling I am.
I can't work out what this second is arguing at all.
It says, "I'm a landlord...a Land Value Tax is imposed on me...why shouldn't I be able to pass on the tax to the tenant?"
But in fact, the tax should be "passed on" to the tenant (in the case of an ideal, correctly assessed 100% LVT). It should be passed on perfectly to the tenant. The landlord should be able to profit from their improvements to the land. They spend $1M building an office block on it, and now they collect $200,000 more in rent than they could for the bare land, so they profit after 5 years. But the value of the land itself is paid by the tenant to the landlord (as part of the rent); and is paid by the landlord to the state (as the LVT). There should be perfect, 100% pass-through.
So far as I can see, this entire post is arguing the very opposite to what the outcome is.
I *think* that this is a case of bad wording, and what author means is something like this: the use of an LVT does not create large and continuous opportunities for arbitrage which will allow landowners to capture increasing amounts of wealth on an ongoing basis. But I'm not sure, and the arguments below haven't made it clear to me, either.
If anyone else is as confused as me, please let me know; or tell me what I've misunderstood.
Georgism is fatally flawed, and while through painful analysis regarding whether it may "work" or not, the core issue to reflect upon is whether it's moral and thus even worth discussion. In my view it clearly fails for what should be obvious reasons. That this matter has not even been approached here leaves me cold.
I can think of a number of ways it won't work, and a number of ways it doesn't seem moral to me, but I'd be interested in why you think it isn't moral.
A short response will really not do on this, so I will reply in due course with a more thrill-throated discussion. In short, my view is that the most moral social system the world has ever known (and will ever know) evolved organically between, by and large, men of good will to satisfy their actual wants and needs fully equitably and it was not imposed by force by anyone, or any authority or authoritarian entity. Rather it is a natural evolution of the actual needs of man, qua man, and his ability to trade values. To the extent it has been implemented, notwithstanding the constraints placed upon it, it has produced the greatest advancements in every field of human endeavor,, and resulted in human flourishing to levels our ancestors would find utterly mind-blowing. It’s called capitalism, its premise is individual rights (property understood), and integral to individual rights are property rights. Given that the right to one’s individual life is the source of all rights, the right to property is the only rational means to its implementation. The Georgian approach, in my view, makes fundamental errors in not just the hierarchy of rights, but a formal understanding of rights. More later…
Here's two objections - a thought experiment, and a breakdown which demonstrates what seems like an even more fundamental flaw in your thought about landlords vs tenants paying for things.
So let's posit a small country. Let's call it Georgia (heh). It has a capital city, Georgetown, where most of the economic activity is, and a hinterland with farming, resource extraction, tourism, but not much else.
In Georgetown, on average, units rent for $1000/m. This covers the costs to landlords - mortgage, maintenance, insurance, property tax, risk of sitting empty, etc. along with a certain profit, let's say $500/month. The tenants are engaged in economically productive activity that allows them to pay this rent, and their other expenses. Vacancy rates are low because Georgetown is where the jobs are, unless you're a miner/farmer/hotelier.
We replace the property tax with an LVT that increases landlords in Georgetown's costs $100/m. They're now making $400/m. It seems that in your mind, this is where the story stops - landlord costs go up, landlord profit goes down. But why would they accept this?
Now, as units come available on the market, landlords start listing them at $1100/m. They want to maintain the profit level they had before. Tenants who need a place to live shop around, but it seems like pretty much every unit is more expensive than they were before (every landlord has the same idea, because all of their costs went up - no coordination required!). Tenants try to bargain, but the landlords won't budge - they know there are lots of tenants, and that moving out of Georgetown into the hinterland is either economic suicide or such a huge hit to quality of life due to the brutal commute that tenants are extremely averse to doing so. The landlords are willing to eat a month or two without rent in order to "lock in" a higher market rate to offset their increased costs.
Tenants who need a place to live start paying the new $1100/m, because they basically don't have a choice. They need a place to live. They can't move to the hinterland, or they wouldn't be able to work (or they'd have an awful commute that's worth paying $100/m to avoid). There was a previous market equilibrium at $1000/m, but you can't expect that market equilibrium to persist after changing the cost of the inputs.
Who is paying the new tax? The tenants...
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Let's look at this in an even more fundamental way. Let's break down some hypothetical costs to the landlord pre-LVT on a unit grossing $1000/m:
- mortgage - $300
- property tax - $50
- maintenance - $100
- insurance and other - $50
- profit - $500
Who is paying the mortgage? The tenant. Who is paying the property tax? The tenant. The maintenance? The tenant. Insurance and other? The tenant. The landlord's profit? The tenant. What is the landlord paying for? Nothing.
Now let's consider your proposed scenario where the LVT increases costs to the landlord, but for some reason the landlord can't just increase the rent:
- mortgage - $300
- LVT - $150
- maintenance - $100
- insurance and other - $50
- profit - $400
Who's paying the mortgage? Tenant. Who's paying the maintenance? Tenant. Who's paying the insurance? The tenant. Who's paying for the profit? The tenant. And key - who's paying the LVT? The tenant!
The tenant actually pays for *every single thing* to do with the unit. That's what being a tenant *is* - paying for everything to do with a property, but only enjoying the use of it, and not the ownership. The economic activity of the tenant is the only thing actually generating value in either scenario, and the only thing actually paying for anything.
At best, the LVT could decrease the *margin* the landlord gets from the property, but it can't shift the cost onto the landlord, because in a fundamental way, landlords don't pay any of the costs of the units they own - the tenants do. Landlords don't generate economic activity, they just leverage their capital to exploit the economic activity of tenants.
I think this comment is wrong, but is getting at the same idea I was trying to get at.
You're mistaken because you're ignoring other taxes. The Georgian idea, as I understand it, is that the LVT would be the only tax. So the landlords are no longer paying income tax on their income from the land. To maintain their same level of income, they no longer need to charge the same amount.
But I think you're right when you say that ultimately, the tenants have to pay all the LVT. This is necessarily true, because taxes must be paid out of the country's productive economic activity; and the landlords aren't doing any economic activity.
> So the landlords are no longer paying income tax on their income from the land. To maintain their same level of income, they no longer need to charge the same amount.
They may not *need* to, but why wouldn't they? It's essentially just a windfall if they don't lower their rents. And there's no need for them to lower their rents.
And if the tax they paid in income tax etc. is made up for dollar for dollar with the LVT, I don't really see why anything much at all would change.
@Angus - I'm still trying to understand this myself. Long post ahead.
So here's the interesting thing I see about your example. Let's suppose there are 100 landlords with 1 apartment to rent each.
Your example describes a situation where all 100 raise their prices from $1000 to $1100 and then settle into a new price point of $1100, and it continues to be the case that all 100 still have tenants. In other words, even the tenants would like to pay less, when it comes down to it, there are more than 100 tenants willing to pay $1100, however grudgingly, because it's still better than the hinterland. Or so you've declared to be the case by fiat in your example.
That would seem to imply that pre-LVT, all the landlords could have done this as well. They wouldn't have needed to coordinate either! Any number of landlords could have unilaterally raised their price to $1100 and continued to get tenants. If some random 5 of them try charging $1100 while the other 95 charge $1000, well the obviously the latter get rented first... but you've already supposed on the renter's side that there are >= 100 people grudgingly willing to pay $1100, so the former 5 apartments should still get rented, even if most renters still get the windfall of a cheaper apartment.
That means under your assumptions, $1000 was never the equilibrium price in your example to begin with, even without an LVT the landlords should have been charging more.
As I understand classical microeconomics, if you want to suppose $1000 to be the equilibrium market price to begin with, you are saying that a landlord who raises their prices to $1100 **won't** be able to find any tenant - that while there are at least 100 tenants willing to pay $1000, there *aren't* 100 tenants willing to pay $1100, so the apartment will just lie vacant. Since landlords are greedy and selfish and prefer to be making $1000 a month rather than nothing, they will lower their price back to $1000, where they can now get a tenant.
And if one, or five landlords raising their price to $1100 find they can't get any tenants at all, then all 100 raising their prices to $1100, should also end up with some landlords stuck with vacancies, literally unable to find any tenant, or at least unable to find any tenant for long enough that it is net worth it to them to do so. Because again that's what $1000 being the equilibrium price means.
So, let's suppose that $1000 is *actually* the equilibrium price at the start. Now let's add in a $100 LVT. What happens? Not much. If one, or five, or all of the landlords try raising their price to $1100, some of them will find their apartments vacant. Those landlords will be making -$100 (paying tax but having no tenant). Those landlords, being greedy, will be compelled to lower their prices back to $1000, where they can now make net $900 rather than $0.
Note that this is markedly *different* than the way a typical tax affects a market. For example say there are 100 pizza makers who charge $5 for pizza, and we suppose $5 is the equilibrium price. That means that there are fewer 100 customers willing to pay more than $5. Now suppose we put a $1 tax on flour. The usual classical micro economics story for how this tax gets priced in to the market is that some pizza makers rationally choose to stop making pizza because it's no longer profitable enough for them. Say 10 go out of business. The remaining 90 pizza makers start to raise their prices, there are now fewer 100 customers willing to pay... but that's fine, there are only 90 pizza makers not 100, so there are more than enough customers. The price rises to the point where only 90 people are willing to pay - and hence, the tax has caused the price to rise. (note: the higher price may attract some pizza makers back - the whole thing equilibriates at whatever higher price such that the number of people no longer willing to buy pizza equals the number of pizza makers driven out of business).
The difference between the flour tax and the land tax is that the flour tax falls on pizza makers if they make pizza, but *not* if they don't. "Make pizza" is taxed, but "not make pizza" is not taxed, so rationally some stop making pizza, and the ones who still make pizza use the pizza shortage as leverage to raise the price until the number of customers driven off equals the shortage (and no further, since anyone raising the price beyond that will not find customers, and will have to re-lower).
By contrast the land tax falls on the landlord regardless of whether they rent the apartment or not. "Rent it" is taxed, but "not rent it" is also taxed equally, so for every property where the former is more profitable than the latter pre-LVT, the former is still better than the latter post-LVT. No landlord is incentivized to change options, because *both* options got worse equally. They could try to exit the business entirely, but they continue to be taxed until they sell the property to another landlord... and the new landlord faces the exact same situation.
You wrote "at best, the LVT could decrease the *margin* the landlord gets from the property" which from the above arguments seems to be exactly what classical microeconomics implies will happen. To first order, rental prices stay the same, the margin the landlords get goes down.
Now, why am I *not* a Georgist and instead say I'm still trying to understand things myself? Because like you, I don't think classical microeconomics is a perfect model of the world. Maybe there are >= 100 tenants willing to pay $1100 and yet no small group of landlords could have charged $1100 pre-LVT because there is an extra "stigma" associated with being the landlord who overcharges that makes tenants stay away even when it is in their financial interest, and LVT knocks it out of this disequilibrium to a new equilibrium. What happens if a landlord simply goes bankrupt instead of being able to sell to someone else that the LVT can hit? Maybe there are complex secondary effects with how it changes land usage? Maybe landlords *can* use this as impetus to coordinate in places and charge more despite some being vacant, with the ones who rent taking turns compensating the ones who can't find tenants (this is e.g. how a monopolist can make more than uncoordinated sellers). Also renting and ownership changing of real estate has huge frictions, which is not modeled in the above naive microeconomics. How is LVT even assessed in a way whose incentives don't cause bad things downstream? Etc. etc. I am not expert enough to have even remotely close to the confidence to understand these things, and probably never will.
But here's the thing - normally one doesn't have to postulate coordination, or second order effects, or special market frictions, etc. to explain why taxes increase prices and why they impose a burden on a market and reduce economic productivity. Most taxes are like the pizza flour case, in which classical microeconomics does perfectly fine on its own to explain why taxes have bad effects. The fact that it *doesn't* do this for LVT and that you do need to turn to real world messiness, second order effects, etc to argue LVT is bad. certainly does increase my credence in LVT plausibly being "less bad" than other taxes and plausibly "harder to simply pass on to customers/tenants" than other taxes.
I'm also of course not convinced that my own classical microeconomics analysis is everywhere sound.
> They could try to exit the business entirely, but they continue to be taxed until they sell the property to another landlord... and the new landlord faces the exact same situation.
This is possibly the weakest part of the above - if we suppose that different landlords do have different tradeoffs/specialties regarding rental or usage of the same property, or if we consider frictions involved in this, etc. It still seems a bit different than pizza flour, because if you tax pizza flour, it doesn't have to go to someone else, there can just be less pizza flour total (and then the shortage causes prices to rise). But if you tax land *someone* in the end has to own the land and be hit by the tax. And that person sees the same incentives to first order between rent/no-rent/other-options as without LVT (since LVT still hits all options equally), so to first order it doesn't as directly cause a shortage and corresponding price rise like in the pizza flour case.
I do suspect LVT probably still has negative effects and isn't a magic fix to anything, and probably implementation details would have a big impact (like implementation details would for any govt policy). But I'm open to thinking it has fewer negative effects than other taxes, holding that constant.
I understand the naive microeconomic view you outline, but it's naive for a reason. That's why I posited low vacancy, which will be the case in the areas where we're concerned about high rents.
A landlord who raises their rent to $1100 (before any additional tax) will be able to find a tenant, but it will take longer. They're trading off getting a tenant sooner vs getting more rent. There's any number of reasons why they may prefer one or the other, but if the market has stabilized around $1000, then that's because there's enough landlords who value finding a tenant quicker vs making a bit more money.
But when you add an extra tax, that shifts their incentives. Now to get the same profit, they need to charge more, and it shifts the tradeoff. And since it shifts it for all of them at once, more and more landlords are going to start asking for $1100, and once enough of them start asking for $1100, then it's not a tradeoff anymore, because that's the new going rate.
A lot of this comes back to this simple fact - if a landlord can't find a tenant, they lose some money. If a tenant can't find a house, they are homeless, which carries massive stigma, and carries at least the risk if not the actuality of them not being able to work, lose their job, won't be able to find another job, become chronically homeless, and possibly even die.
It's a totally disproportionate power dynamic which means landlords have way more ability to set rent than tenants do.
At the end of the day, LVT is just a form of property tax, and what's observed in the real world is that at least some of property tax increases are passed on to tenants, depending on a number of factors.
> It's a totally disproportionate power dynamic which means landlords have way more ability to set rent than tenants do.
That cuts both ways, right? Post-LVT this could make it easier for landlords to set higher prices... but pre-LVT you could argue exactly the same, that if they had so much power to raise the price, they should have already, and the tenants would equally have no power to resist pre-LVT either. So it seems a bit odd to say that this is what it "all comes down to" that causes higher prices because it's not a thing that LVT changes. It must be a different fact that's doing the heavy lifting (and whose heavy lifting is only enabled by this fact), yes?
> But when you add an extra tax, that shifts their incentives.
How exactly are you imagining the incentives shift, mechanically speaking?
Pre-LVT, the tradeoff might be: rent at $500 net profit (if we suppose $1000 gross and $500 costs as you did), or wait a certain amount of time in expectation (making $0) to try to get $600 ($1100-$500).
Post-LVT of $100, the tradeoff might be rent at $400 net profit, or wait a certain amount of time in expectation (making -$100 at that time) to try to get $500.
Both before and after LVT, for any individual landlord's perspective, waiting for a tenant at $1100 instead of $1000 is basically them trading $500 in exchange for (hopefully) securing an extra ongoing $100 for some time thereafter, which is in terms purely cashflow terms is basically like buying a bond. The nominal monetary incentive is exactly the same both before and after LVT, it's just that the landlord is less wealthy as a baseline (since their property value and income as a whole just dropped).
Normally this kind of second-order effect goes the *opposite* way from what you are proposing, right? On average when people become less wealthy they tend to invest less in things that cost money now but (riskily) make money in the future.
But waiting a bit longer does seem far more plausible when enacting the second case if we're thinking about how human psychology anchors to wanting your net income to be "sticky" downward but fluid upward. E.g. how wages and salaries can be sticky, how pay cuts are psychologically very different on morale and willingness to work than pay raises are beneficial to those things, etc. Landlords may "try" to re-establish their profit margin, even to the degree that it may be slightly economically "irrational", and this of course means supply does drop, and prices do rise.
Is that the incentive shift you are mainly referring to? It seems like a plausible way that psychology and incentives would shift at first sight to me, although were you thinking of something different?
If it is the human psychology or something similar, then out of curiosity: instead of taxing the landlords for land, suppose instead we have a magical curse on land that subtly causes 20% of landlords end up with very large unanticipated personal medical expenses all within a month noticeably impacting their wealth, but the fact that this happened all at once or that there is a curse at all somehow doesn't become common knowledge. Just like LVT, from any single individual's perspective, this would have *no effect* on the nominal cash differences between the ways they could price price or rent their holdings, and it would make them less wealthy. But it would not be "perceived" as being related to their landlordship. Would you expect average rental prices to also rise in this case, or could they even briefly fall as some landlords who were holding out before try to get tenants for shorter-term income and lower risk, at the cost of long-term income?
> At the end of the day, LVT is just a form of property tax, and what's observed in the real world is that at least some of property tax increases are passed on to tenants, depending on a number of factors.
So, in a way, LVT is like an inverse Pigovian tax: rather than paying the full cost of negative externalities you create, you pay the full value of *positive* externalities you *receive*?
I find fault with your assumption that speculation is bad. Several threads in the comments try to address this by making the claim that speculation creates no value.
A standard counter argument to this is that it creates liquidity, which is a form of value. Furthermore, it allows for price formation which is what allows (currently) to solve the coordination problem of deciding which land to improve - a value.
I think that the core false assumption of most arguments that distinguish speculation from investment is the assumption that there is infinite supply of labor and capital available for improving land. Clearly this is false.
Have you seen the movie Up? An old man is being hounded from his home by developers eager to make money. He just wants to live out his days in the house where he has fond memories of his late wife. How would LVT deal with this? Would he be forced to sell because of revaluation and tax hikes?
Your work is outstanding. I agree land is a big deal. I agree that land taxes will not be fully passed on to renters (though I disagree that none of it will be passed on - supply is not actually fixed in a country like the US with wide-open spaces). I agree that unimproved land value can be reasonably accurately assessed. I am in the process of working through the articles, but there is one glaring question that keeps distracting me from comprehending your work. Maybe this has already been addressed; I haven't read through all of the comments.
It is this: the value of the land to an investor is ultimately a function of the income it will return to that investor. If the government taxes 100% of it, then it is worth nothing (actually less than nothing, because it takes work to fill out tax returns). The classic formula for value = net income / interest rate minus growth (for a perpetuity), with net income being net of taxes and other carrying costs. If you live on it, then it is assessed by the rental cost of something identical to your residence. Land as pure speculation (no income) is a function of resale value, which is a function of rental income to future owners. There is some ambiguity over whether land is also a store of value, like bitcoin or gold, apart from other functions. But that is a debate for another day.
This doesn't necessarily mean that the price of land will go to zero, because there will be elevated demand for land in good locations. But the price will almost certainly be significantly reduced, because there will be no investor demand, except multi-unit operators that earn a spread between rental income and maintenance cost. Resident owners, most of whom are secretly investors (hence the popularity of NIMBYism), will work to avoid higher costs, though telecommuting or relocating.
This also appears to be a back-door nationalization of land - the government doesn't own formal title but claims all financial value. This opens the door to corruption.
"The price to buy the land goes down, the price for a tenant to rent it goes down," - why would rent go down?
In some comments here you seem to contradict this and say that the rents would stay the same - also in the preceding paragraph you seem to suggest that the rent relies only on productivity
"Without a Land Value Tax, the owner of that land can charge rent up to the difference between their land's productivity and the best freely available alternative, establishing the "margin of productivity." This means that as productivity rises, so does the rent. This phenomenon is known as Ricardo's Law of Rent."
Have you ever thought about making multiplayer games to test economic mechanisms like this one? I think it could be crucial. I'm not sure I'd be able to go ahead with Propinquity Cities, for instance, without running test games.
I have skimmed the comments but haven't found this topic addressed head-on: What protection can be put in place for low-income building owners in rapidly gentrifying areas? I understand the long phase-in approach, but they only solves part of the problem. While I'm pretty pro-georgism, I'd like to be able to address this question better. The specific example I'm thinking about is inherited properties in high-cost areas that may be the primary income stream AND place of living for some low-income families. While I agree that these rents are not economically efficient, what we're basically telling folks is that they either need to have the wherewithal to improve their land enough to justify the LVT, or eventually move. The effective result of this is that areas that start off with high LVTs edge out low income people. Not that it isn't happening now, but if you're going to change the status quo, it's sort of on the new system to address the issue
I enjoyed your book review and this series of articles. Thanks for all your work.
I am confused as to why there's no mention of elasticities in this article. If you want to talk about who "really" pays a tax, I think that elasticities is widely considered the most useful and correct foundation for that discussion. In fact, there exists a technical term for who is burdened by a tax: tax incidence. The Wikipedia article on tax incidence seems fine and you might find it useful; it's almost mostly about elasticities.
I think your arguments could be much stronger if you grapple with elasticities. Instead of making tenuous bathtub analogies, you could draw upon general economic principles that are universally recognized as solid. Your opponents would basically have to disagree with the basics of supply and demand, and even non-economists tend to accept supply and demand basics.
I already agree with you about LVT tax incidence, and even I was very doubtful of your bathtub arguments.
Saying that a LVT would almost entirely burden land suppliers doesn't require any specialized arguments that people only see in Georgist advocacy. You have super-basic-and-mainstream economics on your side, and talking about elasticities could show that to your audience.
Is this the book by Donald Hagman which you could not find? I found this by google searching "The Single Tax and Land Use Planning: Henry George Updated" and it is published by the UCLA law review.
Makes sense. But would be a lot easier to heavily tax inheritance. And that would fix the most egregious part of land wealth - that most of it is inherited. Simpler, politically easy, no drag... really wonder why the focus is not on that really.
So rents may not fall, but property prices (including land) would fall significantly? Because the present value of the land becomes zero, so the property is just valued based on the building?
> New Zealand [snip] over the course of the next century that figure dropped all the way to 0.5% in 1965 and 0.3% in 1970
The above completely ignores that land is taxed by the city, the quote is looking at national taxes only.
Example: Christchurch has rates $5,758.16 on $850k property value (land value $540,000 + value of improvements $310,000) and national GST(≈VAT) is $640 of those rates. Median national taxation is $10000. So:
A: Total LVT is $3658 (≈36% of all taxes),
B: national LVT is $406 (≈ 4% of all taxes).
City rates are based on valuation, and valuation is based on market rates, and land value is the free variable because building valuations don't vary across the city. Is that not an LVT?
> Please correct me if I am wrong. The whole basis of Georgeism seems to me to be "it isn't fair that some fat-cat landowners got lucky and own land and we need to redistribute the value to the people who aren't so lucky."
This is correct. Land is unlike other forms of wealth in that its value is not created by its owner. Therefore any wealth derived from it is pure ecenomic rent
> get really nervous when I see an income redistribution scheme buried in a lot of theoretical hand-waving and euphemisms. At least have the decency to come take it from me directly and honestly, so I can act accordingly.
Let me not hide it then. This is a redistribution sceme.
> In the first article the lede was "the rent is too damn high", which is a function of supply and demand, not exploitation. A true open market would allow a market solution for "the rent is too damn high", increasing supply to meet demand and lowering prices. How might we increase supply of land to meet buyers' demand?
Georgism does not interefere with the effficient market. The fact that rent is at its price is not a result of exploitation. But at the same time the fact that the proceeds of the rent goes to landlords bears no relation to any value they added to the economy. The value of urban land is the result of economies of agglomoration*. Therefore the just beneficiary of the land rent is the people that live in an agglomoration, not the land owner.
*https://en.wikipedia.org/wiki/Economies_of_agglomeration
A thing which confuses me is that the blog suggests that an LVT will not directly increase rents, although it might indirectly increase them if all the awesome benefits of an LVT increase the productive value of the land. Nothing here suggests that an LVT will directly or indirectly *decrease* rents, so it does nothing to solve the problem of the rent being too damn high.
Well Georgism doesn't propose LVT as a way to decrease rents, that is not the point. What it does is move taxation from being on productive activity (labor, investment) to unproductive activity (rent extraction). It doesn't make rents go down, but it does substantially better the economy, and while the renters don't pay any more or less in rent, they have now been relieved from all taxation. Perhaps most importantly, it reworks the incentive structure in place so that land speculation, which does drive prices up, becomes much more difficult or impossible. This also removes many incentives for NIMBYism from residents and governments, making it that much more likely for zoning reform to occur.
A property tax discourages people from constructing buildings on their land, because they have to pay tax on the value of the building, and thus don't get to keep the full profit. A land value tax doesn't discourage people from constructing buildings on their land. So property taxes discourage the construction of structures, and thus increase rent on structures. To the extent that you can replace a property tax with a land value tax, you thus decrease rent on structures (even though the rent on the land remains the same).
An LVT wouldn't technically decrease rents directly, but it would decrease the amount of other taxes the renter has to pay (or would be returned to the people generally in a "citizen's dividend"), so the renters would have more money in their pocket at the end of the month. It would also have the effect of encouraging land to be used for more economical usages, which would lead to more housing if the rent is still too high.
Then the lede should be "Income tax is too damn high!"
This isn't true. The LVT would encourage more development because vacant and underdeveloped lots would be put to use, which would make housing cheaper and increase wages (See Ricardo's Law of Wages), reducing both the true and relative cost of housing.
You increase the supply of land by making it not economically profitable to own but not use land up to its full potential. That's what an LVT does.
You could get the same impact if you simply collected the tax and then burnt it in a hole. Of course, that would not be sensible. So the next question, what to do with it? Well, that sort of relies on your politically persuasion and ethical framework. Georgists believe that land rent is a value derived by the community, as its essentially a reflection of how desirable that piece of land is to use, so it should be returned equally to everyone, essentially as a payment to everyone to respect that individual's claim on the rights associated with that piece of land.
Case 1:
Yes, because even single-family-home owners who don't have any tenants still benefit unfairly from landlordship. Here's an example:
Consider the case of your neighbor, who is renting a house with the same exact layout and lot size next to yours. The rent they pay includes the rent for the building itself and utilizing the underlying land. Lets say that the county decides to build a nice school in the neighborhood over. Both your taxes and the renter's rent go towards paying for it (as the rent paid must cover the property owner's taxes otherwise they'd be losing money). Once the school is built, your property would become more valuable as a result so you are capturing the benefits of the taxes you paid. However, even though the renter paid just as much as you did towards building the school, their best case scenario is that their rent doesn't go up more than usual now, while the benefits of the school go towards the property value of their landlord.
Otoh, with a high LVT, both you and your neighbor's landlord are paying the same LVT. Once the school is built, the land value might be reassessed to be higher. The renter's rent goes up just the same as in the previous case, because the newly provided infrastructure makes the land more valuable. However, now the single-family-home-owner is also charged for the improved infrastructure, whereas before they got it for "free".
If the state builds the school, it’s funded by the taxpayers in any case. The difference is that with LVT, it’s more directly funded by those same taxpayers who are in position (quite literally) to benefit from it (even if in reality they don’t care about the school).
Georgists adovcate for the abolition for nonland property taxes.
A property tax is a shitty version of an LVT, so yes, in current practice, the single-family-homeowner end up bearing of some of the cost while capturing back a lot of the benefit through increased land value as they already own the property.
However, if there was no property tax and no LVT, it would be clear that the infrastructure was paid for by income/sales taxes on the people of the county (30%-40% of them being renters on average), but the increase in land value was entirely captured by the 60-70% of landlords, even if some of those landlords are single-family-homeowners.
It seems the easiest way to move to LVT is to just keep tweaking property taxes until they only tax the land.
The Pennsylvania model seems like it would work well. Pennsylvania has a cool law that lets municipalities set different tax rates for land vs buildings. It worked really well for reducing urban blight in Harrisburg.
As a Pennsylvania property-taxpayer (though not in Harrisburg), I think "the Pennsylvania model" is pretty absurd, certainly as implemented.
My house has fluctuated substantially in value over the last ten years, but its appraised value hasn't changed since 2013, and indeed _can't_ change, by statute, unless I make substantial changes to the property. Municipalities adjust the revenue they collect by adjusting millages.
"as the rent paid must cover the property owner's taxes otherwise they'd be losing money"
Wait... wasn't the argument that the property owner's taxes won't get passed on in the form of higher rent to cover the property tax?
That hypothetical is presented in a context where there is no LVT, but the landlord is still charging the highest price they can. From that income, they pay whatever small taxes they owe on the property in the current system, which pay for the infrastructure improvements that they capture because they own the land. The issue is that the landlord hasn't actually created any value but are capturing a significant portion of the renter's created value (and yes, I'm aware that landlords do spend some portion on property maintenance and payment processing, etc, however, there exist property management companies that will do all of this for a % of your total rent income. In urban/suburban areas, the percentage of rent that goes towards actual maintenance is very small. Therefore, the money that the landlord gains after paying the property management company entirely value that was unfairly extracted by them.)
> the rent paid must cover the property owner's taxes otherwise they'd be losing money
If a landowner is allowed to surrender the land to the state, then it would be impossible for land value tax to exceed the rent on the land, because any landowner who found themself in this position would just surrender the land and continue as a land renter.
It would still be possible if the land was improved in any way (say by structures etc.) since they can't be separated from the land.
"because even single-family-home owners who don't have any tenants still benefit unfairly from landlordship" - just a note to say that this is not the tact to take if you actually want people to come over to your side. Also, your estimation of the contributions of the homeowner to the school quality and the rent rate if property values go up are both not correct - home owners contribute a greater share to local tax base over time and rent rates absolutely go up when property values go up.
"single-family-home owners who don't have any tenants still benefit unfairly from landlordship." - wait, that's not something you can just assume - you describe various reasons why the benefit is very valuable indeed, however, I benefit from it *fairly*, I just bought the benefit and paid for its full value, I have state guarantees on the land deed that it's mine now and if the state wants to take it away from me, the constitution requires the state to compensate me.
You can argue that the land value increases are earned unfairly and deserve to be taxed, fine, you can start taxing the future increases in land value from tomorrow. But simply taking away the *current* land value is not something the state has the right to do.
Case 1a:
Yes, they are taxed on the theoretical rent and yes it would be passed onto the owners, as the HOA consists of the owners of the land, and this is how it should be.
The location of this subdivision matters, right? Lets say that central park in NYC was abolished and a subdivision of 16 homes was built there each taking up 5% of the land, with 20% of the land left as a private park for those who owned houses in the new subdivision. Even though 20% is held by the HOA, it is democratically controlled the 16 home-owners. Therefore, even though their private lots are 5% of the property, they each own 1/16th of that private park and should therefore be taxed for it.
> The HOA is an entity unto itself, and even though I theoretically "own" a portion of the common land, I can't do anything with it, and receive debatable value from it.
This is because you willingly entered that kind of arrangement. Some people do actually 'value' using the land around them like that. Don't ask me to explain it because I'm certainly not one of them, but in so far as government goes, if you want a lawn, then you have to pay for it, regardless of whether its your private lawn or a lawn that you share with 16 people.
> Under Georgeism, are public spaces like Central Park taxed on their theoretical land-rent value?
Well, Central Park is kind of like the HOA example, except that instead of sharing it with your 16 neighbors, its shared with your closest 7 million neighbors that live in the city and pay taxes for its upkeep. I'm not sure about the exact details surrounding NYC's central park, but in principle, the people of the city through representative government _could_ decide that it is private and only allow access for people who live _in_ NYC, just like the HOA could vote to sell tickets to the park that they own.
The Connecticut State Supreme court ruled in 2001 that the city of Greenwich could not exclude non-residents from a city park/beach.
The stated rationale was that it violated First Amendment rights to assembly and speech.
Quoting from the decision:
"We note that, as a general matter, under the forum-based approach
adopted by the United States Supreme Court, courts do not conduct a
particularized inquiry into the manner in which the specific public
property at issue historically has been used. The inquiry, rather, is
whether, in light of the objective characteristics of that property, it is a
street, sidewalk or park in the traditional or conventional sense of those
terms. If so, the property is a public forum for purposes of First
Amendment analysis...
No particularized inquiry into the precise nature of a specific street,
sidewalk or park is necessary; all public streets, sidewalks and parks are
held in the public trust and are properly considered traditional public fora.
Public places historically associated with the free exercise of expressive
activities, such as streets, sidewalks, and parks, are considered, without
more, to be public forums."
http://mason.gmu.edu/~jkozlows/lawarts/10OCT01.pdf
This particular decision only applies in Connecticut, but the reasoning (First Amendment and U.S. Supreme Court precedent) would apply in all states if federal or other state courts agree with it.
Case 2:
Yes, the COA is taxed on the theoretical rent of the land. The COA passes this LVT onto the owners. This encourages good land utilization, because the taller you build the condo-tower, the more owners you have between which the LVT is split. If someone wants to build a single-family-home next to the condo tower, they have to pay the same amount of LVT as all of the condo owners do in total.
It's not passed on to renters - it is collected from the landlord's receipts of existing rents that the renters pay. Because the landlord has a fixed tax burden regardless of how many units they have on the land, they have an incentive to build more units so that they can collect additional rent while paying the same tax.
Right. The tax is baked into the market-set rents. The rents don't go up - just the amount of rent that goes to the landlord vs to the state goes down.
The landowner does nothing to make their land more worthy of rent than any other land, so they can only compete with each other on price, and on the intrinsic features of the land. The intrinsic features of the land stay the same under the LVT, so the landlord doesn't gain any new leverage against a tenant to require the tenant to pay more. It's not like the case where you tax some productive activity, so that all people who do that activity do a little bit less, so they now all have a bit more leverage to charge more from their consumers because there's a bit less supply to go around. The supply remains constant, and the demand remains constant, so the prices should remain constant.
A short answer to Case 1 is that, as an owner-occupier, you have the imputed income that results from not paying rent. This is a fairly standard point of economic accounting: your average Reserve Bank will calculate economic prosperity of a household by including the value of the unpaid rents of owner-occupiers.
Thank you for the article.
Loving this series.
Magnificent stuff.
What is "the liquidity effect" talked about in Bourassa (1987)?
It's not surprising that so many "rationalists" oppose Georgism. They fancy themselves intelligent creators but actually cannot prosper unless they're allowed to own something that makes them money without any real effort on their part.
Frankly, I had never heard of Georgism and find it intriguing. That said, it suggests a radical shakeup of the capital structure of the modern world. I think it is reasonable, given that humanity is better off than at any point in history, to put a strongish prior on radical changes being undesirable.
A large reason why we are better of now that ever is because of radical changes we underwent in the past. Yes some radical changes have worked out badly, but that's why you should judge each radical change on its own merits.
Also, it's only radical in the sense that the status quo is radically unfair. Making something radically unfair, fair, is a "radical" change.
Are there a lot of rationalist slumlords?
"no real effort on their part" - tell me you don't own a home, without telling me...
It's probably safe to say the top comment on the last article, where the guy just bought a $1.5mill home, was prospering just fine without owning land.
Sorry buddy, swing and a miss! I've owned three and sold two. Want to continue making assumptions and demonstrating your cluelessness?
I also am a well-off homeowner, and committed Georgist. (My spouse and I are both engineers for top-tier companies and we own a home close to both BART and Caltrain. We are winners under the current system. We just think the system should not be rigged to squash the economic prospects of people less successful than us. Our town should be a welcoming home to everyone involved in its local economy, both the folks in our "export" industries like tech, and the people who do local services -- baristas, yoga instructors, teachers, janitors, lawncare folks, whatever.)
The two critiques of LVT I find at least worth serious engagement are (a) the issue that we need to step up our game at assessments (which are known to be systematically distorted right now), and (b) the transition would create windfall gains and losses, and a lot of the losses would hit people who are middle class enough to own homes, but not up in the top 10% or so, where people enough wealth _outside_ real estate that a hit to their primary residence isn't that big a deal.
Addressing (a) is purely a technical problem. Between sales of vacant lots, and reasonable statistical methods applied to sales of non-vacant lots which then propagate implied changes in land value to adjacent areas, it really should not be THAT hard to build a model of the value of every square foot of land. This is actually a class of problem that the learning models of the past decade are _very good at_. So I agree it's a thing we have to do, as a pre-condition of trying to impose an LVT, but it's eminently do-able.
And hypothetically you can address (b) with some kind of phase-in process. Have the tax on structures phase out, while the tax on land steps up, over the course of 10 or 20 or 30 years. (On the one hand doing it over 30 is annoying, and you'd risk having the politics shift to reverse the process before you could see benefits. On the other hand, a 30 year phase in really is kind of fair, b/c it aligns to the standard 30-year mortgage. So anyone who bought last year will be able to pay down their original mortgage on the same time-frame that the tax change is phasing in. This is the same reason I'd favor structuring an elimination of the MID by having the cap on how much principal qualifies phase down in a pattern that lines up with the balance curve for a mortgage of the current qualifying amount, at a reasonable estimate of the prevailing rate.)
There is another critique, at least how I now see Georgism (I did not think of this before reading the comments): Georgism kind of replace private land owners by the state, the LVT can be seen as a land rent. This dissociate ownership of the land (that remain to the state) from ownership of private infrastructure built on this land (Houses, factories). This can happen under the current system, but it is not common: Infrastructure owner is often also the land owner. The reason why this is uncommon (I think) is the risk of infrastructure confiscation (by land rent increase), because infrastructures are impossible (or very difficult) to move. I would hesitate a lot (A LOT) building a house on somebody else land, and this somebody else being a state (even my own state) barely alleviate this hesitation compared to building on a private actor land. Expropriation is already something I despise (even if I was never the victim, and understand it's necessity)....
I think it's kind of instinctive too, master of your land/home and all. The fact that you are not on par with the state, basically owner and master of nothing if the state decide against, is not something nice to remember even if it's basically true. Part of the appeal of land/house ownership is this feeling to be in control there, at least. Maybe it's one of those illusion it's dangerous to break ;-)
All land is already, in a sense, owned by the government. It asserts sovereignty over it, and can (and does, all the time) pass laws that change what you may do on that land.
The only change would be who gets the land rent.
This is actually how the Austrian economist (nationality, not economic school) Silvio Gesell saw land reform. He advocated for the state seizing control of all land--with compensation for improvements--and then leasing back to land holders with a fair auction system. As far as I can tell this results in effectively the same situation as George's 100% LVT proposal, in terms of money changing hands.
(Gesell had some other, very complementary ideas for monetary reform which allow for capturing rents inherent in banking due to monetary policy as well. Gesell's "freigeld" demurrage money plus a 100% LVT would likely be enough to fund the full government without any deadweight taxes.)
Land value tax makes land a shared COMMONS not a state owned property.
I question the assumption that many rationalists oppose Georgism. I learned about it through this community and in no other social circle I'm in there's so much excitement and support for the concept.
Same. And I've been consumung quite a lot of left-wing media. Heard zero mentions of Georgism there.
I'm actually quite excited about it now. It helped perfectly unite both of my capitalist and socialist intuitions.
I know a bunch of both center-left and center-right YIMBYs who are Georgists.
Let's not be mean.
Before Lars' review I had never seen anyone *mention* Georgism in these circles, let alone oppose it. What are you responding to?
Thread OP is just throwing out boo lights, like they often do on Substack.
I'm responding to many of the comments on the first part of this series. There was a lot of "I'M SCARED CUZ THIS LOOKS JUST LIKE COMMUNISM WITH EXTRA STEPS!!!"
I wonder how many of these there actually were and to what degree they actually represent the community at large. Seems like a small number of people who are also responsible for a large volume of comments.
Hey, it's not like you hear about Georgism everywhere outside of the ratsphere, and only the rats oppose it. It's more like you almost never hear about it elsewhere, and the opinions in the rationalist community are... mixed.
It's probably because Georgism does not fit in the traditional political divide (and most people are cheering for their team instead of trying to figure out things). One one hand it is "tax and redistribute"; on the other hand it does *not* make the capitalists the bad guys... at least not per se, although I suppose that many capitalists actually understand the game and invest a lot in real estate, becoming also a part-time landlords. (Okay, so maybe this makes Georgism like 80% left-wing, but no one in the mainstream left cares, because they are now too busy making sure there are enough minority CEOs.)
Though there is the popular meme in rationalist circles that you should "rent, not buy", which always made me wonder, given that the best investments I have ever made were real estate and cryptos (and the latter are relatively recent and the jury is still out on their future).
Speaking about real estate and cryptos in one sentence, to me it feels like the land was kinda "Bitcoin, before Bitcoin was a thing". Limited supply, increasing value, unproductive speculative investment... you know, half of the things people say about cryptocurrencies, they actually apply to land, too. It's just that they somehow come as cool insights when talking about the cryptos, and meh what talking about land. Or to put it the other way round, cryptocurrencies are like a virtual land, in a virtual universe; whenever people coordinate on which virtual universe they want to live on, the price of the virtual land in that universe skyrockets.
I suppose that if Georgisms turns out to be true (and kinda obvious in hindsight), it will make many people feel stupid. It will mean that the things they spent large parts of their life optimizing for were not really that important in grand picture. That they could have made much better financially, if they just (at the right moment) took mortgage, bought some land, and sold it a few decades later. Oops, not sold, *rented*; and used the rent to buy more land, et cetera. (And things like "learning the latest JavaScript framework" make only economical sense as a way to get some starting capital, so that you can buy the land during the nearest mortgage crisis.)
"I suppose that if Georgisms turns out to be true (and kinda obvious in hindsight), it will make many people feel stupid. It will mean that the things they spent large parts of their life optimizing for were not really that important in grand picture."
Honestly, this is very likely the case for Rationalists regardless of whether or not Georgism is true. If Rationalists were truly optimizing themselves for success, then you'd expect that they would be dramatically more successful than the rest of the population, which doesn't seem to be the case at all.
This is a good point.
Minor point, "which doesn't seem to be the case at all" seems like an odd observation from where I'm standing. I see a lot of big names in the comment section of this blog and people mentioning that other big names very much read this blog and other stuff from the rationality community.
I grant this might be selection bias, I don't want to claim any kind of rigor -- after all, I'm not talking about the people in the comment section that aren't successful, the people who don't comment that aren't successful, or what the percentages of any of these are versus how they are in the rest of society -- but I did want to point out that I had the opposite *impression* you did.
(Of course, *even if* my impression were true, that doesn't prove causation, only correlation. It could be that very successful people are interested in rationality, not that rationality makes people successful, and I feel like there are good reasons to assume this would be true - successful people tend to have more time for intellectual pursuits, and rationality is one of them. Might be hard to untangle.)
I am extraordinarily successful and I read and comment on ACX mostly to make fun of "rationalists." It's amazing and sometimes amusing how irrational they are despite the label they claim.
Scott sometimes asks interesting and thought-provoking questions, but his followers are almost never on his level intellectually speaking. I suspect the "big names" you see are more likely to be people like me than those who actually believe themselves to be rationalists.
That's entirely possible (although I do rather doubt it, since I do know quite a few successful self-identifying rationalists personally - my social circle is just too small to be statistically relevant, since I'm an introvert). Case in your point, I don't really consider myself a rationalist but would also consider myself very successful - that said, I also think my shirking the label is probably at least partly a sleight of hand on my part. :)
I very much *don't* make fun of rationalists (nor much of anyone else, actually, to be fair, I like varied perspectives), am friends with a lot of them, very much enjoy getting inspired by them, very much enjoy attending the European LessWrong Community Weekends and reading science-fiction stories to the attendees (eh, it's just kind of my shtick), but just don't have the time or dedication to be invested in rationality in a way that would make me feel like I'm any proper part of the community. More stably orbiting at a distance. Does that make me a rationalist? Various people have said "yes". I'm shrugging and think it doesn't matter much either way; for transparency I continue to clarify I'm more in-orbit, though, whenever the topic arises, but arguments for either state can be made.
I take it you don't think you're a rationalist at all, by any measure? If you don't mind my curiosity (and feel free to tell me to shove off, or just ignore the question), what does that mean for you? Presumably you're not the polar opposite, either (I'm picturing 'the opposite' as someone who deliberately tries to increase their own cognitive biases).
> I take it you don't think you're a rationalist at all, by any measure?
...but simultaneously, do you assume that *everyone else* you see commenting on ACX *is* a rationalist?
How are we defining success? If we're talking about "successful people" in the sense of celebrities, politicians, famous billionaire CEOs, etc., then it's clear that no one in the Rationalist movement has anywhere near that level of wealth, power, influence, or fame. Bostrom might be the sole exception, as he's a famous academic who's written several award-winning books and is seen as a leader in his field. Hanson is likewise a very well-respected academic in his field, though not as famous as Bostrom. And Scott is the one who's closest to being a household name, since he has the most mainstream appeal of any of them. But Bostrom, Hanson, and Scott are far from representative of the average Rationalist, and most of their fame and prestige is for reasons unrelated or at best tangentially-related to Rationalism. Even Yudkowsky isn't on that level; he's famous within certain internet circles, extraordinarily influential within the Rationalist movement itself, and probably quite well-off by now, but he's still ultimately a big fish in a very small pond.
If we're using a more modest definition of success - for instance, just comparing their income, savings, assets, etc. to the rest of the populace - then I'd expect that Rationalists on average are probably a slight bit wealthier than the median person in their country, but only because they tend to work in STEM fields and those tend to pay well. Once you account for occupation, I'm reasonably certain that Rationalists wouldn't be better off than anyone else. In fairness, I really don't think they'd be worse off either (though if there *was* a significant difference in life outcomes between Rationalists and everyone else in one direction or another, then I find it considerably more likely they'd be worse off compared to others in the same line of work, rather than better off, just because people who subscribe to fringe ideologies and movements generally tend to be worse off than the average person). You could argue that adjusting for occupation isn't fair, since the fact that so many Rationalists work in STEM fields is a point for Rationalism in itself, but I find it more likely that Rationalism simply tends to appeal to people who already have STEM inclinations, rather than specifically encouraging them to go into STEM in the first place.
There are more abstract definitions of success too, like personal happiness, physical and mental health, robust social lives, and so forth, but those tend to be a lot harder to measure and quantify, especially on the group level. And my intuition tells me that Rationalists would not fare exceptionally well in those categories either, though it's really anyone's guess.
From the base rates perspective, the fact that e.g. "only a few rationalists become world-famous" is only important if the control group does better or at least just as well. -- Like, if everyone else's chance to become world-famous is 1:10000, but being a rationalist increases it to 1:1000, that would be awesome... and simultaneously, mostly invisible.
As you say, a fair control group would probably be controlled for profession, so like a random selection from population, proportionally weighted towards STEM.
We would also have to somehow measure the changes in profession that people make because they are rationalists. For example, who is a counterpart of "a software developer, later a rationalist, later an entrepreneur" -- an average software developer, or an average entrepreneur? Well, a certain fraction of non-rationalist software developers also becomes entrepreneurs; but how does this differ from the fraction of those who are rationalists?
So, doing exact numbers would be hard. And without exact numbers, the problem is that some things are difficult to see. Like, imagine that I have a magic button, and if I press it now, every rationalist will become 2× as rich, 2× as famous, and 2× as happy as they are now. Okay, I clicked the button... what do you observe? If you are one of them, you see a dramatic change in your life. If you are not one of them, you probably see nothing: the number of world-famous rationalists has not changed significantly, maybe it did not change at all. But if you couldn't even observe the effects of this magic button, how are you going to observe the effect of being a rationalist? You can perhaps say that it is smaller than a magical "10× everything" button, because that one would probably already be quite obvious from outside (e.g. after pressing such button, most rationalists would early retire, so there would be a lot of "so how do you guys enjoy your free time" in the comments).
+1 to Huluk's point. I also learned it from this community. And when I talk about it to people who've never heard of it, the biggest opposition comes from, in order of effected anger:
1. conservative-minded people that say "then what did my parents pay this house for"
2. marxist types that see it as perpetuating evil capitalist practices
3. standard-issue liberals that smile condescendingly and start talking about the importance of having many different taxes and fixing social problems with ad-hoc benefit programs
It suffers from the same problem as most syncretist ideologies, which is that people on the right view it as fundamentally leftist ("it's just a step away from collectivizing land entirely and that's literal communism!"), people on the left view it as fundamentally rightist ("it's just another attempt to reform a fundamentally cruel and unjust capitalist system!"), and people in the center just dismiss it for being a weird fringe idea.
Personally, a lot of the core assumptions of Georgism seem correct to me. The main reason I'm not an outright Georgist is because I don't see any clear path to get from the modern system to a Georgist one without dramatic changes that could risk destabilizing the entire economy. I would probably support attempts to implement Georgist ideas through a gradual series of incremental reforms, but I'm not entirely sure what that would look like.
I'm also rather skeptical of ideologies that claim all of the problems with society can be fixed with One Weird Trick (whether it's doctrinaire "free market will fix everything" minarchist libertarianism or Marxist communism), and Georgist claims pattern-match just a little too closely to that sort of mindset. It doesn't help that a lot of the Georgists I've spoken to have given off strong missionary vibes. But that's more of a personal intuition than any solid ground to dismiss Georgist ideas in themselves.
Alright, I'm going to try *really* hard to take this question in good faith and respond accordingly.
It's hyperbole, meant to play on the tendency of shady online advertisements to make dubious or outright false claims about how various ailments can be solved through "one weird trick." Obviously Marxism is not literally "one weird trick," nor is free-market libertarianism for that matter; these ideologies and their prescriptions for society are in fact incredibly complex. Nonetheless, at the core of these ideologies is the notion that a particular set of policies can be used to fix most or perhaps even all of the problems with our society, and beyond that, to fix most or all conceivable problems with any society (since these ideologies are designed to be fully generalizable and universalizable). This notion seems incredibly misguided to me, as human society is simply too complex for its problems to be addressed by *any* wholly theoretical framework. Furthermore, every society and time period has its own particularities that must be understood and addressed in their own right, so the idea of any system being fully generalizable and universalizable is itself extremely flawed. While this does not mean that improving society is impossible, it does mean that positive change will generally come through experimentation with different policies in different sets of circumstances, and not through a single set of policies designed in advance on theoretical grounds. Thus, from my perspective, the claims and prescriptions of Marxian economic theory can be viewed as analogous to the solutions proposed by those "one weird trick" advertisements and mocked accordingly.
Well, "capitalism" is a very broad term that can be applied to any economic system in which capital is privately owned, so capitalism (unlike Marxism) isn't inherently tied to a specific plan for how society should be arranged. That said, there are some capitalist ideologies that *do* propose a specific plan for optimizing society (such as the obviously Hegelian brand of globalist neoliberalism espoused by Fukuyama, or the free-market libertarian utopianism of Austrian School thinkers like Hayek and Mises), and I'm highly critical of those for the exact same reasons that I'm critical of Marxism.
As for experimentation with Marxist-Leninist policies, I don't see much need to experiment with systems that have already been proven to consistently and spectacularly fail, without exception. I don't think much good would come from experimenting with Nazi or Ba'athist ideas, for instance. Given the disastrous track record of Marxism-Leninism in the USSR, Maoist China, and elsewhere, I don't think much good will come from yet another attempt to implement those ideas either. And my support for political experimentation has its limits; I would oppose political experiments that would result in widespread violations of human rights, which was always the outcome of Marxist-Leninist regimes taking power.
I also think you're rather misunderstanding what I meant. My point was that *instead* of trying to change the whole system at once, we should experiment with policies a la carte, to see which ones work and which ones don't. Marxism-Leninism is explicitly built around changing the whole system at once, so you *can't* really try to experiment with it in piecemeal fashion. But if you're talking about "socialism" in a broader sense and not Marxism per se, then sure, there are probably some socialist policies that haven't really been tried on a large scale yet and could be implemented within the existing framework without totally overhauling the entire system at once.
> It doesn't help that a lot of the Georgists I've spoken to have given off strong missionary vibes.
Including many who have shown up in the comments here.
I don't get the point of Part II at all. It's like someone said at some LVT meeting "but the taxes will be passed onto the renters" and everyone panicked, because they love the renters and hate the landlords, and so they tried to justify that, no, relax, we are only hurting the outgroup with this.
If an LVT is efficient (and I think it is), it doesn't matter where the tax falls. But spending 1 of 3 parts to show that the oxen being gored are only those of the bad group is weird, probably wrong, and irrelevant.
I think the more realistic and honest answer is that, yes, in many cases, renters would bear a significant portion of the cost *in the short term*, but in the long term renters would be much better off in average. (In fact, if LVT works as well as Georgists claim, then *everyone* - including landowners - will be better off in the long term, but especially renters.)
Roughly half of adults own land, and a switch to an LVT would hurt them in obvious ways. If anything, you would want to convince people that lawn-owners aren't going to be especially screwed.
But from the Georgists who showed to infest the comments on part 1, lots of them would rather scream at land-owners than accomplish their goals.
And "would rather scream at their outgroup than accomplish their goals" might be the perfect description for minority political groups!
Just let them write off purchase price plus inflation in the lvt
If it were the case that the tax were passed on to the renters, then (1) that would by itself be a non-starter since people who rent largely can't afford the cost of living doubling overnight; and (2) it would undo all the proposed benefits of the LVT which derive from changing the distortive incentive structure about land speculation. With that in mind I think this is a very reasonable objection to devote an article to in the sequence.
Or, as Georgists themselves put it: https://i.redd.it/jtlvie0jdya61.png
Is there an established link between Georgists and Furries?
The kitty behaviour is in reference to "seeing the cat" https://www.henrygeorge.org/catsup.htm
Most of the folks I know in my local neolib circles, including the guy who runs the YIMBY Neoliberal account, are, if not actually Georgists, at least sympathetic to Georgism. I dunno if it's universal, but it seems like Twitter globe-with-meridian folks are majority at-least-friendly on Georgism.
Owning something that makes you money on itself is called investing. Or long time preference. You suggest banning investment to focus on immediate returns, i.e. short time preference. There are many societies built around such a principle, so moving to such a place is easy. Many enjoy nice warm weather too :-) Well, ,built around is maybe not the right formulation. Trapped there may be better...
What do you mean? I already live in a place with overwhelming economic short time preference. It's called America.
Greg's argument was bad, but snarky comments like this aren't helpful either and only serve to further drag down the overall quality of discussion.
I'm somewhat critical of Georgism myself (see my posts above), but claiming that Georgists support "banning investment" is just obviously incorrect, to the point where your argument comes across as being in bad faith. At most you can argue that they support banning one particular type of investment, but even that's not quite right. It seems like you're just unfairly equating Georgism with Marxian communism on the basis of some perceived similarities.
I was reacting to a general criticism of buying stuff in the hope they will earn you money for nothing (i guess no or minimal work), which is indeed a definition of investing : consume resources now so that it will bring you more resource later.
By the way i agree with a later comment: it's tempting to differentiate investing (morally good) from speculating (morally bad) and i do it all the time.... But in fact it's extremely difficult to distinguish the two objectively : suppose you buy stuff because you think you can use it to earn you x per year. Now your neighbor think he can earn y>x per year with it, and want to buy your stuff, at a higher price obviously. You sell your stuff... Was you initially buying stuff speculation or investment? Seems you need to know if your initial estimation of earning x per year was in good faith or not, so not objectively decidable...
Now on georgism: it effectively replace private landlords by the state, in fact you can not really own land, just rent it. You then have to build stuff on rented land.... This is done, sometimes (ampheteotic rents of 99y, countries where foreigners can not buy land but can build, renters home improvement) but the risk of confiscation is so high that it is very uncommon. That's my 3rd argument againsr georgism...
1) fast transition to georgism is a fast and large regulation change, which is inherently unfair because people adapted to pervious regulation. Unstable regulation promote short time preference which kill investment and long term projects
2) Georgism in fact replace private landlords by the gouvernement. This may be a win if gouvernement is better in some sense than private actors, but it's an important concentration of powers and reduce choice of landlord... Which is very dangerous so bad.
3) it means improving or building on non-owned land, which is universally frowned upon due to large risk of confiscation of large non fluid assets.
"t's tempting to differentiate investing (morally good) from speculating (morally bad) and i do it all the time.... But in fact it's extremely difficult to distinguish the two objectively "
It's not. Investing creates something, which you hope will be valuable and earn you a return. Speculation does not create anything.
More accurately, it's a question of timing: if your asset evaluate, it's because the market believe it could earn more (or it's a bubble, but then it's speculator against other speculators - which is how I now see the stock market). So speculation is selling before your asset has the chance to produce, while investing is doing at least some production before selling? How much do you need to wait producing before selling to be considered a (good) investor instead of a (bad) speculator? And do you need to produce yourself, or other producing with your investment count?
Investing in a business carries risk, and investors ought to be rewarded for that risk. The risk-premium return of an investment is not rent-seeking.
Investing in land carries no risk inherent in the investment itself, as the reward of appreciating value is due to the external work of the community which surrounds it. Profiting off the appreciation of land is 100% an economic rent.
This distinction is critical.
Buying a thing on the theory that you will be able to _sell it again later for more money_ is not investment. It is speculation.
_Investment_ is buying a thing because you believe it will produce a stream of income, by way of producing goods or services that others will be willing to pay for, as an ongoing flow.
And Georgism does not ban land _investment_. If you think you can buy the land and put it to a use that will produce greater revenue -- e.g. buy a vacant lot, and put an apartment building on it, and charge rent for the apartments -- then great, invest in the land (and the apartments).
A Georgist LVT makes land _speculation_ un-profitable. Which is good, because the speculator adds no value to the economy, and deserves no reward for simply having been in the right place at the right time. The speculator's profit derives entirely from the rest of the community's investment in making the land location more desirable.
One might reference here Warren Buffet's comments on gold, which is a purely speculative asset:
<blockquote>
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.
Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?
Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything.
You can fondle the cube, but it will not respond.
</blockquote>
(Because of this quote, I often think of people who play up speculative bubbles as "cube fondlers".)
This is an excellent post.
It is a silly post because a terminal payment when you sell the asset is just as much a stream of income. There is no difference between investment and speculation. The latter is just a boo word.
If you can't understand the difference between an asset that is used to produce income _flows_, and an asset that is _purely_ a stock, well, that's on you.
This seems to commit us to saying that buying a zero-coupon bond is wicked in a way that buying an ordinary bond is not.
It is the same thing from a microeconomical perspective (i.e. when you're calculating a ROI). It's a very different thing from just about any other perspective.
No, snortlax is right : distinguishing the two is a moral judgement, and quite arbitrary. You needs to know the intention of the entity who buy then sell the stuff to decide off it's speculation (no plan) or investment (the bought stuff would be used somehow). Or even estimate if they would have bought it on the first place of further sell was impossible, like for art pieces for example...
I am not the last pesting against those damn speculators, but it's really a somewhat arbitrary moral judgement.
Investing creates - or tries to create - value. How does buying and selling an asset create any value?
- or tries to create - This caveat inherently makes investing very difficult to differentiate from speculating: you need intention, which is internal to the buyer. And a wise investment needs to factor residual value after production, else you can invest in things only if you plan to use them to death. Once that is done, speculating can be seen as investing with a too short use period....What is too short?
The gold example is also very interesting, as people buy gold not only because it could appreciate. It fact, they buy it (mostly? at least that's always the reason I thought about buying some) because it is somewhat resistant to catastrophic depreciation, like total loss either by bubble collapse, economy crash, or regulatory confiscation...
That's also a traditional reason to buy land...
and store cash, when negative interest rates or bank account freeze are looming...
hum, there is some common pattern, maybe also why I tends to become more frightened of Georgism the more I read the comments: The advantages are real, but you need trust in the government/system.
Regarding part III, there is a critical subtlety in the question of "can you measure the unimproved value of land cleanly", and how that relates to the idea that the tax has no deadweight loss.
The normal sense of "unimproved value of land" is: if I took this particular parcel of land and knocked down the building, what would it be worth?
A subtle feature of this definition is that the value of land is sensitive to parcel size and is not linear. That is, two separate parcels A and B are worth *more*, added together, than a parcel C combining them would.
The reasons for this is the same as the reason that the LVT notionally raises a lot of money with no deadweight loss: because most of the value of any specific parcel is spillover - a positive externality - from all the improvements on the neighboring structures and really most of the structures in the region. If someone builds an apartment building in one parcel, the neighboring parcel becomes more valuable because you can put retail on it. A developer that owned *both parcels* could internalize this externality by building both structures - but if the parcels are taxed separately, then the developer is actually paying a tax on its structures! It pays a tax on the retail by way of the apartment-land and on the apartment by way of the retail-land.
It's important to note that this is not a hypothetical. In general this sort of thing - buying adjacent parcels and building synergistic structures on them - is fairly common. (There is a lot of it going on in Tysons Corner in Northern Virginia, near where I live.) Even more specifically, this is a norm for the development of suburban subdivisions - a single developer buys up the land for the entire neighborhood, builds a bunch of houses (and amenities like pools, sometimes), sets up an HOA and so on, and then sells the houses. This is profitable because the houses are worth more in a nice little neighborhood than when built one at a time as stragglers off of a main road.
So: if you take parcels as fixed and immutable, there is actually a deadweight loss from an LVT.
Is there a way to get around this? Well, you could allow people to combine parcels for the purpose of appraisal, and try to revalue the combined parcel without *any* of the buildings on it. But this creates a straightforward tax strategy in which ownership of ever-larger contiguous regions is combined so that more and more spillover value gets subtracted out and the tax base is eroded. (In the limit you value the Earth as a single parcel with no buildings at all, and ask "what is the value of a square kilometer of Manhattan if no buildings exist in the entire world?")
The existence of nonzero (and nontrivial) deadweight loss really changes things. The general rule with deadweight loss of taxes is that, for a given tax, it's proportional to the square of the tax rate. So for an LVT with an extremely high rate, this could be quite serious. But in particular this informs the comparison with an equal-revenue property tax.
The LVT falls on land and the property tax falls on land+structures. So the property tax has a larger base and a lower rate, but the structures portion of the base has a big coefficient for the deadweight loss while land just has what we have above + whatever you get from other problems in land valuation. The result is that, unless you actually know all of the relevant parameters, it's ambiguous which of the two taxes has a higher total deadweight loss.
Finally: it's overlooked, but a large, large portion of the tax on structures *also* has no deadweight loss: the tax on structures that already exist. With the exception of a few structures that might actually be torn down, you cannot disincentivize the construction of a building that already exists. So simply eliminating property taxes is a windfall to that particular factor, and - why pay out a windfall? As long as we are doing estimates and approximations, I personally favor reforming existing property taxes to have abatements for new improvements rather than trying to go full LVT.
I probably should have drafted this somewhere other than the substack comment box before posting oh well.
It's good. I'd look forward to a compilation of these critiques in a future article by Lars. Maybe Q&A style.
Note to Lars: that'd be really cool of yah
I guess I know what I'm doing for the next few months
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.
It is not a false dilemma. Either your assessment method ignores most of the exist value of land, *or* it definitely falls partly on improvements and therefore has a deadweight loss. Realistically, every method would pick the latter - it will result in some people who would have internalized positive externalities facing a disincentive to building improvements.
Okay, is this a testable hypothesis that raising the rate of LVT, absent all other effects, will have a negative effect on, say, building density?
It's a theoretical argument on the same terms as the theoretical argument that the LVT has no deadweight loss. I have no interest in trying to come up with a sufficiently-powered study that you could do, particularly absent dictatorial control over tax policy.
Sure, but the point is we could look for it. And the thing is, many of the studies cited in this very article claim to have at least partial evidence for this very hypothesis.
So in other words, you are not willing to commit your theoretical critique of a tax endorsed by a list of Nobel laureates to any sort of real world implications which we can and have measured?
lmao buddy I don't care who endorses it. FWIW the entire empirical section of this post is irrelevant to me because I require no convincing that LVT falls on land not tenants.
There were a couple of threads in yesterday's post along these lines. For a long term residential owner living in their own house, they have an incentive to restrict what their neighbors build, because that could raise their own land value and therefore LVT. Over time this is quite common in real life, and we have a name for this type of behavior - Gentrification. It would be worse if we were attempting to gain more of our tax base from LVT instead of multiple sources. I personally don't have a problem with gentrification, but I also don't live in a city and don't have a stake in it.
Are you making a testable hypothesis that increased in LVT will lead to a roughly proportional increase in building restrictions and a consequent decrease in building density?
No, I think building density can and will increase with an LVT. I think it will do so at the expense of any current housing, which is often identified as a problem of gentrification on one end and NIMBYs on the other. NIMBYs try very hard to keep developers out, even though they would raise property values, and that's the behavior I am talking about. LVTs will make it harder for them to succeed, because it moves the question one step further back, to the land becoming more valuable (and more desirable) in the first place. NIMBYs win either way in the current system, as their property is worth more and they could sell or rent it for more than before, *or* (usually) choose to stay there. The property owners under an LVT can't choose to stay without paying huge penalties.
Looking into how real estate development I am not convinced about a plain assertion that " improvements don't increase the land value of the land on which they are built" in the general case. While this may be true in the case of a single small plot of land (e.g. a parcel for housing or a store) where all (or, which would be a crucial difference, *almost* all!) of the value created by the improvements would "spill over" to the neighbouring plots of land, this does not seem to be true for large plots of land.
For example, it's undisputable that the land value of all the land in a town is much higher than the land value of all that land before the town was built or an otherwise equivalent location which is not currently populated. In that regard, if someone owned a large plot of the land and developed it into a small town (or a gated community), the land value (and potential land value) of it would definitely increase. However, if they did it without dividing the land and selling it to the inhabitants but merely renting parcels it of it, then the land value (or the value of potential rent) would significantly increase, because all the "spillover" from improvements from one home to another, from a store or a park to the home and vice versa, all that interaction would happen inside of one (large) plot of land on which is owned by a single entity, and they would have directly increased the value of their land through these improvements.
This raises the question about whether subdivision affects things. In a hypothetical simplified example of only two neighbouring plots of land, building an improvement of one will often raise the value of the neighbouring land. Georgism proposes that plot A should be taxed on the unearned value increase created by the improvements on plot B; and plot B should be taxed on the unearned value created by the improvements on plot A. However, if someone owns *both* these plots, they effectively get taxed by the improvements they made on their own land, which IMHO can't be considered unearned income.
Subdivision of land is something that comes up in the literature. I don't think I addressed it head-on in part 3, but you can think of it as being something like zoning that has an effect on the land value because it changes how that land is practically able to be used.
That is to say, any method that uses multi-parameter hedonic regression can take land parcel size and shape into account during the assessment process.
The problem is that even if you assess the value of each parcel correctly, it's unfair and unproductive for the State to tax the owner of two properties for the value that their two properties give to each other. If a developer takes a field next to a freeway, builds 100 houses and a store, and tries to sell them out individually, the underlying value of the land on under each home has increased under his ownership, but clearly he is responsible for that. My understanding is that LVT would call him a thief for owning land that goes up in value, ignorant of the landowner's creation of that value, and tax it all away from him. Is that wrong?
Hm. I think "a thief" is putting it too strongly. Surely it's OK to simply recognize that the developer had a good plan and good follow-through and overall did a good thing, and as a result the land is now worth more and can be taxed more? If the developer wants to do all that work and then sit on empty houses, that seems like a bad thing, and to me it's fine that the LVT discourages it. If the developer wants to sell or rent those properties right away, that seems like a good thing, and to me it's fine that the LVT encourages it. When I hear about investors buying up new condos and keeping them empty, that to me seems like a sign that something is wrong with our economic system, something that an LVT might help fix.
Also, back to your example, isn't it the case that some, if not most ,of that extra value comes from the people living there? Imagine what would happen if you moved there, and then so did 99 of the worst people you've ever known or heard about, such that within an hour you are being literally eaten alive. As you are slowly turned over the spit, wouldn't you agree that the value of your property is less than that of a bare field of land in the middle of nowhere?
So, when the first person buys a chunk of that land with one of those houses, it seems to me that the increase in land value is best characterized as a form of speculation on the nature of the other people who will come to live there. My above example is obviously extreme, and the average case should have roughly average people (for that region). So I suppose a counter-argument might be that the extra value is created by the developer acting like a gate-keeper: even when they don't actively select the new owners, they restrict the pool of potential owners by simply building certain types of improvements and setting up the neighborhood a certain way and advertising a certain way.
"The law of society is, each for all, as well as all for each. No one can keep to himself the good he may do, any more than he can keep the bad. Every productive enterprise, besides its return to those who undertake it, yields collateral advantages to others. If a man plant a fruit tree, his gain is that he gathers the fruit in its time and season. But in addition to his gain, there is a gain to the whole community. Others than the owner are benefited by the increased supply of fruit; the birds which it shelters fly far and wide; the rain which it helps to attract falls not alone on his field; and, even to the eye which rests upon it from a distance, it brings a sense of beauty. And so with everything else. The building of a house, a factory, a ship, or a railroad, benefits others besides those who get the direct profits.
Well may the community leave to the individual producer all that prompts him to exertion; well may it let the laborer have the full reward of his labor, and the capitalist the full return of his capital. For the more that labor and capital produce, the greater grows the common wealth in which all may share. And in the value or rent of land is this general gain expressed in a definite and concrete form. Here is a fund which the state may take while leaving to labor and capital their full reward. With increased activity of production this would commensurately increase."
"Q6. If a land-owner builds, does not that increase the value of his land and consequently the amount of the tax he would have to pay? If so, would not he be taxed for his improvement?
A. No. Upon the value of the building he would never pay any tax. It is true that his improvement might attract others to the locality in such numbers as to make land there scarcer and consequently dearer. His own lot would in that case rise in value with the other land and be taxed more, just as the rest would be. But that would not take any of his labor in taxes; he would still have his building free of taxation. Thus: If on a lot worth $1000 a building worth $1000 were erected, making the whole worth $2000, the tax would fall only upon the $1000 which represents the value of the lot. If land then became so scarce that the lot rose in value to $1500 the tax would be raised. But the owner's improvement would be still exempt. When his property was worth $2000 he was taxed on $1000, the value of the lot, leaving $1000, the value of the building, free; and now, though he is taxed on $1500, the value of the lot, $1000, the value of the building, is still free." http://www.wealthandwant.com/themes/Neighbors%27_Actions.html
"If the developer wants to do all that work and then sit on empty houses, that seems like a bad thing, and to me it's fine that the LVT discourages it."
The point about deadweight loss is that the developer isn't simply going to plan to sit on empty houses. At the margin, the developer has less incentive to go forward with the development, because potential profits are heavily reduced by a high-rate LVT capturing much of the value increase in higher taxes.
The Danish study indicating that home prices capitalize the discounted present value of future land taxes into lower sales prices actually reinforces that point, because the price paid by homebuyers will reflect the post-development tax increase.
Most of your example is just the developer capturing the value created by the freeway which presumably links these 100 houses to some denser area were these future residents can work and pursue recreation. Adding a single store into the mix doesn’t change the game.
Plop that same 100 house development and store onto a cattle road in Nebraska and he will have created essentially no value.
There are a lot of fields next to highways. Should they all be, right now, land value taxed at the land value rate of the development that could be built on them ?
Yes
If what you say is true, then the value of large undeveloped plots next to the freeway would be identical or comparable to the total value of land after this development has occurred. This is not reflected in reality, there is a very large increase in land values.
My hypothesis is that this value is largely created by solving the coordination problem between these 100 people; they could just decide to settle there together at the same time and found a community (and capture the value increase themselves) but it's hard to do so, so it does not happen as much as people want, so people are willing to pay a premium to build on land where someone else has done this coordination and arranged the other 99 potential neighbours. And since they're demonstrably willing to pay a quite large premium for that, it indicates that this service is considered valuable and useful.
> This is not reflected in reality, there is a very large increase in land values.
I would be interested to see how you are supporting this assertion. 100 certainly does not seem to be enough people to move the needle on agglomeration effects increasing land value, and that really you are just including improvements like roads, sewer, utilities etc
Even independent of those I would pose the question of how much of a value difference would exist if half of the units sit vacant? It still seems that the value is added by the residents themselves, and not simply the structures and infrastructure provided by the developer.
I should add that Adam Ozimek has a variation of this critique here: https://www.forbes.com/sites/modeledbehavior/2015/03/29/the-problem-with-100-land-value-taxes/
Assuming taxes are assessed annually or every two years, perhaps this would incentivize faster more efficient development. Buy, develop, and flip before the reassessment.
"Finally: it's overlooked, but a large, large portion of the tax on structures *also* has no deadweight loss: the tax on structures that already exist."
Does this work? I mean, it seems like the same as saying "taxing candy bars has no deadweight loss, because you can't disincentivize making candy bars that are already made. So it can't decrease supply, so it can't affect price."
Isn't the expectation of a tax enough to disincentivize the construction of new buildings?
The portion of the tax that falls on new structures has a DWL. Just not the portion that falls on existing ones. The distinction is conceptually important because, first, it means that replacing the property tax with an LVT means some asset holders receive a windfall (which is suboptimal because it means you need higher rates than otherwise to pay for that windfall, at a given level of revenue), and second because property taxes can be modified to attempt to exclude new construction, if only partially. Many places offer abatements for new construction and this can substantially reduce the deadweight loss of the property tax.
I still feel like I don't fully understand. To define terms, by "new" we mean "after the tax was introduced" and by old we mean "before the tax was introduced"? Or do we mean something more like "built in the last 5 years" vs "older than that"?
Assuming the first, it sounds to me like, yeah, you can adjust taxes on things that already exist without retroactively affecting their existence. But you could only do that once. If you made a habit of starting to say "that building's old enough to be taxed" then it would incur a deadweight loss through the same expectation mechanism.
I'm having trouble thinking it through, but it feels to me like, for that reason, the windfall would only be a one time cost. So you could offset it just by charging a proportional fee, once, if that was important to do.
Yes, "new" means literally "anything built after the tax was introduced". And yes the time inconsistency problem is there. The intermediate solution is after new construction or improvement, you exempt the value of the new construction from the taxable value for a period of time. Thus there's still some disincentive from the tax but it's in the future so has a lower present value, and in the meantime you've mostly averted the uncertainty of "what if the government reneges on the deal".
An example that may be closer to the lives of the audience here than Tysons Corner is the Googleplex. Google owns offices on a huge swath of low-quality land in Mountain View. That land is now quite valuable, as it's in easy commuting distance from a high-paying company. And yet, if Google hadn't built it, it would just be crappy land near the salt flats of the southern SF Bay, where no one would want to live.
Right. Building a nice public restroom would count some towards the land value of the private land around it(as it isn't an improvement on any piece of private land) allowing the value of it to be recaptured by the public in the form of LVT.
If instead a private entity bought that same land and built the same set of restrooms as the above with private access only to their adjacent private plot of land, then all the spillover value would go to their adjacent private plot of land alone.
That spill over would now count as improvement value, and not count towards Land Value anymore and wouldn't be captured as LVT Revenue.
So there's an incentive to private individuals to turn public spillover into their land value into private improvement value
I think you are spot-on on the Land-subdivision-determines-Landvalue paradox. Tbh, it sounds more severe than any of the 3 counterarguments, that get a blogpost to refute them. I wonder if that is because it is not brought forth by so many people, or because there is not a good way to refute it.
OK but like, there's not enough houses in America being built to satisfy the demand. So the landlords can just charge whatever they want because there's not really anywhere for people to go? Maybe their property values decrease, so they don't want to sell their houses, but why should that have any effect whatsoever on rent prices? If you implemented this LVT tax, what prevents a landlord from passing it on to the tenant if every other landlord is also passing it on to the tenants, and no one is building new houses because building new houses is illegal? People have to live somewhere and moving is very hard.
I was really hoping this section would be convincing but I just can't see how this would concretely change the situation in America. I guess I just don't believe the Danish study because presumably it's not illegal to build houses there or something. Help me understand how this applies to America. Can you explain, concretely, how in a city where landlords are already gouging people on rents and their taxes go up, and it's illegal to build new houses, that they wouldn't just increase the rents further? What is supposed to happen to the people who are living in that city? What does the person who can never afford a house and is already spending 50% of their income in rent actually do that "gives them leverage"? They can't buy land or a house. Everyone is raising rents everywhere because of this new tax. I predict that in America, the tenants of that city would just eat it and spend 60% of their income on rent instead of 50%, and just give up on ever having kids. How, concretely, are you imaging it could be any different?
Especially if you're paying a "citizen's dividend" -- in the hypothetical city where building houses is illegal, why don't the landlords just snap up the full amount of that dividend?
> In the hypothetical city where building houses is illegal
You mean Berkeley?
Palo Alto is also a good guess.
I think this is actually a better point. Landlords already charge the most the market can bear, so they can't pass on an increase in their costs. But if tenants become richer, they can afford more rent, so if the housing supply is fixed, they bid up rents.
Of course with a 100% LVT, the increase in rent just equates to an increase in tax, and the cycle continues until enough tenants decide they'd rather take their (now massive) citizen's dividends to a cheaper location.
Keep in mind that the current tenants are not a fixed group either. San Francisco's population has been significantly replaced over several generations with a much more affluent tech-heavy population. You can certainly price out the current residents and replace them with others, so the market can theoretically bear the highest amount that *anyone* can afford to pay who might want to. The whole conversation about gentrification is about this.
> Landlords already charge the most the market can bear, so they can't pass on an increase in their costs.
Assuming we are talking about a build-constrained NIMBY city:
"What the market can bear" isn't fixed. If you increase the costs to all landlords in a living area by $200, then they will all tend to raise their prices by almost $200. A lot of that almost-$200 will come from increased wages that employers are required to pay.
There will be some friction as some people are required to leave the area because their skills aren't enough to afford living there, and some businesses as they are not efficient enough in their use of space to afford having a footprint there.
PS: there's lots of places in the country to build that aren't run by NIMBYs. Bidding up housing prices in NIMBY-run cities is rewarding NIMBY policies. Stop doing that.
You won't increase the cost equally on all landlords though - you'll increase the cost on landlords in proportion to how much of their rent comes from land rather than from the structure. That is, single-family landlords have a higher increase than apartment landlords.
Yes, the "almost-$200" is what happens on average. Certain people would be above or below that based on their circumstances.
> If you implemented this LVT tax, what prevents a landlord from passing it on to the tenant if every other landlord is also passing it on to the tenants, and no one is building new houses because building new houses is illegal?
Now this is a really interesting objection, and I believe this *would* happen if there was a sharp discontinuity; landlords forming a cartel, and basically agreeing to shift taxes to tenants, whether or not it's rational/prudent.
Now, in a competitive equilibrium, this would drive more units into production, and these landlords would get soaked, the end. But clearly we don't live in a competitive equilibrium‒instead, we would see landlords enjoying super-marginal rents to continue to enjoy a return, and landlord enjoying submarginal rents to lose all their tenants and have their units sit empty.
Let's assume the former case, and let's assume it happens everywhere: that is, landlords have defied theory, and successfully passed LVT onto their tenants. What is another way of framing this? Notably, this means that the *ground rents* that these parcels can enjoy is greater than previously thought. What does that mean? The LVT should be increased, thus effectively taxing away the super-marginal rent that the landlord gets. That is, they *can't* pass it on, after all!
We're now in a weird disequilibrium instead of a tidy equilibrium, but eventually it'll have to be resolved somehow... in any case, we can't sustainably see landlords shift their tax on.
This is not CONCRETE enough for me to understand what you're saying. That's why I asked for a concrete example. My mind just doesn't work with the abstractions you're using like "weird disequilibrium", "tidy equilibrium", and "super-marginal rent". I'm not trying to be difficult, I just can't really hold on to these concepts in my mind and make them do useful predictive work (and I suspect that you can't either).
I propose, concretely, that in a NIMBY city where you can't build more houses, that the clear outcome to LVT is that landlords will respond to any decrease in their bottom line by just raising rents. They don't want to lose any money and they have the power so that's what they'll certainly do. If it makes everyone renting miserable then so be it. The landlords already ARE effectively a cartel that is currently raising rents to unbearable levels anyway; they will just do it even more with LVT. Either way, the outcome is that people "just deal": they add more roommates, stop paying for healthcare, stop paying their student loans, give up on ever having families, etc, exactly as they are currently doing. It just happens faster with LVT.
Can you paint me a concrete picture of a NIMBY city where you introduce LVT and this doesn't happen? What does that look like? How to the people renting the houses derive more power from LVT so that the can use that power to get lower / the same rents? Power concedes NOTHING without a demand. So how do the renters make this demand from the landlords? And how especially does this work when the people are getting a "freedom dividend" and thus clearly have extra money that the landlords can just take?
I propose that if you can't paint a CONCRETE picture of a NIMBY city that at least sounds more probable than the one I just painted, then the argument against rent being passed on to tenants with LVT doesn't really work, it's just confusing economic words.
So here's the difference. Without any LVT or property tax, A NIMBY city/community is "sustainable" because once you own the property, the appreciation of the underlying land doesn't increase your taxes/costs. At worst, this creates an incentive to block new construction (as it would increase the supply of the commodity you're hoarding). (Prop 13 in California is the quintessential case that demonstrates this btw)
With an LVT, A NIMBY city/community is not "sustainable", because as the land appreciates, the rent goes up and owning the land doesn't protect you from this. At a certain point, people in the community will have to _pay_ for how unproductively they're using the land. Now, if its a community of multi-millionaires and billionaires, they probably can afford to have a SFH anywhere they want and will not need to increase density. However, since most communities are not composed of millionaires and billionaires, they will have to choose how much they're willing to pay to be a NIMBY, whereas before it cost them nothing to say "no".
This seems like an excellent theoretical point and I think I can add something concrete. I'm personally feeling fairly at sea in this whole thing but I feel there is a particular lighthouse that gives me a clear directional answer. In multiple of the studies this post mentions it was found that taxing land more relative to improvements resulted in more improvements
More improvements and construction activity means more stock and less rent / lower mortgages pretty surely. Whether or not a LVT can be in theory or in practice passed on to some degree it seems apparent that it cannot be passed on to the same degree that the current tax scheme is. Whether or not a deadweight loss exists in the LVT scheme is an academic question in relation to the question of whether or not any such loss is more or less than in the current tax structure. I'm seeing that the answer is definitely less and this should apply to a NIMBY community where as you say, they may still be NIMBYs but now there is a market force headwind against them that has been seen to occur in practical examples
If landlords can charge whatever they want, why aren’t they? If the landlords can all just get together and decide to increase prices if there’s an LVT, what do they need the LVT for?
The argument is more that an LVT doesn't magically escape the same problems that already exist. Housing/rent prices are already going up very quickly in popular cities, which means that landlords are in fact doing that. The alternative is to live somewhere else, which for some people is more possible than others. If you can't live anywhere else, then the rates can go up indefinitely to the carrying capacity of people's income. Judging by the highly paid professionals living with roommates in popular cities like SF, that capacity is still expanding beyond what we once thought of as reasonable limits.
The limit would be when Google decides that paying hundreds of thousands of dollars so that their developers can live in driving distance of the Googleplex isn't worth it, and opens a Googleplex #2 in another city where rent is cheap.
It appears that the limit is insanely high, more than you would expect a software developer job to be valued at, but nonetheless there has to be a limit in Google's budget somewhere.
Because "all just get together" is hard to do. Even OPEC has defectors.
(A common way to coordinate this "all just get together" is stuff like minimum lot sizes, required amenities, and NIMBYism.)
You may not have noticed, but the landlords in major metropolises have been doing this for decades. Rents have been skyrocketing.
They don't need to coordinate to all follow their own incentives to maximize rent.
Yes. I hate NIMBYism.
If I can make widgets for 1% cheaper than my competitors, I can capture the whole market. If I can rent my apartment for 1% cheaper than my competitors, I still only have 1 unit.
The LVT is an external factor that coordinates their behaviour without them having to "get together". They all see similar cost increases, and so all spontaneously have the same incentive to test whether the market will bear a somewhat higher rent, and suddenly the price at which landlords are willing to rent at has gone up across the board.
Since tenants have no ability to set the price (they NEED a place to live, one month without a unit is catastrophic and possibly fatal, whereas a unit sitting empty for a month is just an opportunity cost and whatever ongoing costs the unit incurs), they just have to pay the higher rate or leave the area. Or become homeless.
> what prevents a landlord from passing it on to the tenant if every other landlord is also passing it on to the tenants
This hypothetical happens with our current setup too! What if all landlords formed a cartel and they all agreed to raise prices?
They are? Housing has more than doubled relative to income over the last generation. Wealth inequality is skyrocketing. Black Rock is buying up massive amounts of houses and than immediately increasing the rents and cutting services. It's MUCH harder to actually start a family / have kids anywhere because of the rent being two damn high. Most young people have to live with roommates in the cities. It's no longer possible to even rent a house with a minimum wage job, virtually anywhere America. People have to drive for 3-4+ hours a day to get to their job in the city. And it didn't used to be this way, at least not as bad. I've seen people being squeezed more and more in my own personal life, everywhere I've lived, and I believe that the data supports these observations nationally.
We're literally seeing the wealthiest in society taking more and more of the houses and choke everyone else until they're miserable. You are accurately describing the current situation almost everywhere in America. The landlords as a group are clearly effectively working as a cartel that raises rent prices to the great disadvantage of the renting class. You might call it "what the market will bear" but it's severely damaging the quality of life of the next generation, and it seems like a LVT would just immiserate the renting class even more, the way the current power structures work, as it's passed on from the landlords. Power concedes NOTHING without a demand, and I don't see how LVT gives the renters the power to make any demands. And people's lives can always get worse: people can live 5 to a room instead of just 3 as they are now. They can live in their cars. They can drive 10 hours a day instead of just 6. They can give up, forever, any hope of having kids or owning a house. LVT seems like it's just going to exacerbate the already cartel-like behavior of landlords, which I why I asked for a concrete way that that wouldn't happen.
Do you have any evidence at all that this is the result of landlords forming cartels and not just from limited supply, or are you just speculating that rising house prices are the result of cartels because cartels also raise prices?
They don't need to form a cartel, their behavior is the same either way. Landlords in major cities ARE all raising their prices. They have all the power, and so can do as they please.
What do you think of the empirical results from the studies cited in this article?
They don't seem to address the ability of landlords to increase rent when their costs increase. Which, if the area they own in is desirable, they can. They couldn't in Denmark due to rent control, which is a whole separate issue, and so that study is not relevant to your argument unless you also propose universal rent control. The Denmark study seems to be the main plank in your argument, and it proves nothing except that rent control controls rental prices, which is not a particularly interesting result.
If all the landlord's costs go up, all the rents go up, and the tenants pay more or less 100% of the increase. Not anywhere close to 0% of the increase.
It could only possibly be true that the landlords eat the cost if there is minimal demand from tenants, but in that case, rent is not likely a big issue.
I don't believe that there's some literal cartel with formal agreements between members and such. But it's clear to me that most of the power belongs to the landlords, especially in NIMBY American cities. This imbalance of power is enough to make the landlords act like a cartel, simply by following their own interests. I don't see how LVT shifts this balance of power at all, and absent that the natural result is that the landlords as a group will pass on almost all of the LVT to the tenants. Do you think that LVT will significantly alter the current power balance between tenants and landlords?
One solution, which I like to plug as often as I can, is to move out of cities. I know, that sounds crazy to some people, but there is actual life outside of urban areas. There are places where you can buy a legit, livable house, with yards and trees, for less than $100,000 - in the US. That's even excluding the really run down former industrial towns, including Detroit, where you can get houses for almost literally $0.
I think people get hung up on the lower cash incomes of rural areas, but if you are spending 60%+ of your income on housing, and all of your other expenses are higher too, then only making half as much as you would in a city seems a lot more plausible. Sure, I could easily be making a lot more cash income in a city right now, but I would have a smaller home, no land, and less access to parks, trees, and everything that goes with it.
When I hear about how miserable people are living in cities, often due to high prices, I feel very inclined to point out this alternative. Not everyone wants to or can leave the cities, but everyone who does helps lower rental prices for those who can't.
If we want to go totally theoretical, there is a limit on how much rent landlords can charge before the tenants illegally refuse to pay, elect people who promise to make it legal to build more houses, or straight-up revolt and slaughter them. If the landlords have total control over the supply (which is implied by "building houses is illegal") the rent is already at that point, so it cannot be increased (without one of the aforementioned failure conditions). This excludes UBI, however.
With regard to UBI, there's one interesting thing about UBI as it relates to land rents - if you're living solely on UBI, you don't care *where* you are living. This allows entrepreneurs to build developments in the middle of nowhere and undercut city rents based on land value.
If there were a UBI and an LVT and the landlords still had a lock on zoning such that constructing developments in the middle of nowhere were illegal, then yes, the UBI would get eaten up by passed-on LVT, *but no more* because the UBI is literally all the extra latitude the landlords get before they're slammed back up against revolt. In that case there's little gained but also little lost.
Ah yes, Denmark, the famous urban libertarian paradise with no zoning laws...
> So the landlords can just charge whatever they want because there's not really anywhere for people to go?
NIMBYs rule most of the coastal cities, which is kind of independent of LVT or not.
But there are lots of places in the country you can build housing.
Tax is only one dimension of the problem that we have not enough housing, at least in my country and I imagine it's the same in yours. You do have to fix consenting structures and any other locally relevant blocks to allow more housing to be built. But - switching to this tax does help achieve that. Landholders can't rely on capital gains to generate return from their asset holding and have more a lot more personal incentive to build more housing units on their land. If you do the same for the consenting body and the relevant government agencies then you're getting somewhere and start shifting the supply deficit. Conversely, if you did all the consenting and government things but didn't do the tax part then the individual landowners wouldn't be incentivised to build more and you still wouldn't solve the problem. Necessary but not sufficient.
Lars, could Donald Hagman's 1965 book, "The Single Tax and Land Use Planning: Henry George Updated," actually be a journal article and not a book?
I couldn't locate a book by that title in several usual places, including WorldCat and AbeBooks. However, HeinOnline offers a preview of a paper in the UCLA Law Review by that author, with that title, in its 1964-65 edition.
https://heinonline.org/HOL/LandingPage?handle=hein.journals/uclalr12&div=49&id=&page=
Oooh thanks!
Got a DOI locator for that?
DOIs are clearly useful for online retrieval, interlibrary loan, and citations, among other purposes. But I couldn't readily find one for this particular article. (It does appear DOIs are being retroactively assigned to older articles from the pre-DOI era, but perhaps that's a gradual process?)
There are a number of DOI registration agencies, https://www.doi.org/registration_agencies.html, at least some of which may allow searching by metadata such as author and title. Crossref is one such registry that's frequently suggested. However my searches there for this article were fruitless: either not finding that piece or encountering "Internal Server Error" messages.
One byproduct of searching for "Donald Hagman" on Crossref, was that the first cites returned were to a couple of journals which published eulogies on his death in 1982, giving impressions of his life, outlook, background, and academic focus. As well, one of those lists titles for several of his other publications. (From this sampling, he does seem to have been well-liked and his work respected, but that obviously doesn't mean his research is beyond examination and criticism.)
Hmmm, bummer. I guess I'll have to talk to a librarian and so some old school sleuthing if I want to dig this thing up.
Very likely, alas.
Here's a text cite, if this helps:
Hagman, Donald G.
The Single Tax and Land-Use Planning: Henry George Updated [article]
UCLA Law Review, Vol. 12, Issue 3 (March 1965), pp. 762-788
The UCLA Law Review does offer online access to past issues, but only beginning with Volume 49 (2001): https://www.uclalawreview.org/archive/
If all else fails, HeinOnline (mentioned earlier) offers a 24-hour subscription that includes up to 5 downloads for US $29.95, but am thinking you might well be able to obtain a copy of this law review article at no cost, or at least at a considerably lower cost, through a local library.
I have access to it directly.
The quote from the "Valuer General" of New Zealand is... literally... a fictional quote. That is, Hagman made it up, as part of an explicitly fictional narrative where the Valuer General visited New Chicago, a city on Mars. Now, part of it *is* a real quote from a real person.
"The Valuer General of New Zealand, Earth visited New Chicago. He was asked why all of the land-use control benefits of landvalue taxation had not been obtained in New Chicago as they were reputed to have been in New Zealand. He admitted, however, that many of the New Zealand benefits were mythical. He indicated that New Zealand had adopted land-value taxation principally to break up the large landed estates and that the tax had accomplished this.* He also indicated that "there was no evidence that the tax would (1) control urban sprawl and speculation in land; (2) encourage the construction of 'better' buildings; (3) encourage growth; or (4) cause slums to disappear.""**
* fn 66: Bird, A National Tax on the Unimproved Value of Land: The Australian Experience: 1910-52, 13 NAT'L TAX J. 386 (1960), indicates that the dismemberment of large estates was also a major motive behind land value taxation in Australia.
** fn 67: See Statement of Values General as reported in 27 ASSESSORS' NEWS LETTER 102 (1961).
I can provide the full PDF – DM me via Twitter @RikiScanlan
Interestingly, this link is literally the first result for me when I google "The Single Tax and Land Use Planning: Henry George Updated" (without any quotes, even). And I apparently have access to all of HeinOnline via MIT Libraries; let me know if there are any other articles you want access to around this stuff.
While this evidence is intriguing, I think you'd still need to red team the new rules to really make a compelling argument that they can't be gamed.
Suppose, for example, that one of the metrics used in practice to assess the value of the property is what other properties sell for versus what they previously sold. Great, that's hard data, even if it requires some interpretation; wear and work and so on. But you could easily imagine a degenerate case where only a couple properties were sold, and a cabal of property owners could gather and drive the prices down on those few sales so their taxes are artificially depressed; they then split the difference with the seller.
I want to believe that it's hard to just raise the rents and soak people, but having watched friends try to buy houses in the last year ... sellers' markets are rough for buyers.
And Goodhart's Law always looms.
For whatever it's worth, the Goodhart of Goodhart's law co-wrote this pro-LVT piece with Tideman:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3954888
A cartel can drive prices _up_ but I fail to see how a cartel can drive prices _down_. As soon as the price drops below the marginal productive value, someone outside the cartel will buy it.
Dumping is viable for some cases and coordinated dumping could exist, why not?
Isn't it a collective action issue? The ones doing the dumping lose out for a gain spread across the group
Picture a smaller group (two people, maybe brothers) if it's hard to imagine someone acting in the interest of their partners as well as themselves. If two people own all the rentals in a town, then it benefits them each significantly to play along and keep prices lower, even if one suffers more than the other through low price sales. This is always harder the more people involved, but the core concept may be sound.
There's a different idea called "Harberger taxes" which is an attempt to solve the valuation problem. Basically, everyone self-assesses their own property, *but* this assessment has teeth; the assessment is an offer to sell the property at that price. If I say my property is worth $4M, then anyone who wants it for more than $4M can just write me a check and get the deed (and presumably assess the value at whatever higher number they want).
This unfortunately doesn't line up with a LVT perfectly, because you're pricing both 1) value of the land, 2) value of the improvements that are hard to move, and 3) value of not having to move. As well, the stable scenario is one where all of the assessments are *overestimates*, not one where they're true estimates (rather than the 'market price', i.e. what it would cost when the owner is motivated to sell, they're the price when the owner is motivated to keep).
That's a really cool idea! It sort of reminds me of the supposedly ancient way of proving that you're poorer than someone else: offer to trade everything you have for everything they have and see if they refuse.
that's indeed exactly what it's based on, the ancient Athenian assessment of who was wealthy enough to be obligated to fund the navy
I think you could find a clever way around this problem. For example, you could say that buying the land gets you the land but not the improvements on it; the buyer is contractually obligated to set up equivalent improvements on ~equivalent land owned by the seller, of the seller's choosing. Or that the buyer does not get ownership of the improvements, and must either negotiate that separately or lease/rent the land to the seller or refrain from doing anything with the land but sitting on it and enforcing rules of who's allowed to leave and enter. (I imagine all of these can be gamed, but I imagine you can do a lot better, too.)
Such a degenerate case seems very unlikely in a large city, and I imagine that public auctions would tend to be weighted as more reliable evidence than off-market sales precisely because one can game the later to set a price of your choosing. Mind you, if stamp duty still exists in this world then false sales to manipulate valuations become very expensive!
So, I was thinking about the observation that Georgist and Pigouvian taxes both have no economic deadweight loss. On the surface this makes perfect sense: force actors to price in negative externalities, and don't let them benefit from things they did nothing to earn or create.
But the Georgist definition of land isn't just a matter of uncreated wealth, because the value of one parcel of land (especially in cities) is primarily a matter of all the other improvements humans have made to surrounding land. On its face a LVT prevents me from benefitting from those positive externalities, which, fine, I didn't create them. But to me this suggests a problem in regards to defining how large each taxed unit should be. If I own a plot of land and build a house on it, then sure, I have no right to earn higher rent just because someone else builds a mall or a highway or a better school nearby. But what if I buy up many plots and build a bunch of things on them that mutually increase the value of one another? It seems like unless I can somehow arrange for all the land I own to get assessed as a single unit, I'm being prevented from benefitting from positive effects of improvements I myself create. An edge case for sure, but developers do, in fact, sometimes buy up large tracts to build mixed use communities for exactly this kind of reason today.
This, while an edge case, remains a very interesting thing to consider. It was given some attention by William Vickrey in his article "A Modern Theory of Land-Value Taxation", a bit inconclusively: he recognizes a small distortion that arises among a set of parcels under common ownership, but believes that assessing them differently based upon whether they're under common ownership would violate neutrality.
In general, I tend to believe that this distortion within cities should be small enough not to matter, with the exception of whether the *city itself* is the common owner, in which case the distortion ceases to matter, insofar as the city itself is the recipient of the tax receipts.
It matters *quite a bit* in extremely unusual situations (Walt Disney establishing Walt Disney World), which is consistent with the general principle: LVT can be applied fairly regularly on urban land, but is hard to apply to rural/submarginal lands (which probably needs some sort of framework that balances the desire to see new development when appropriate, and preserve wilderness/low-intensity usage when appropriate).
The problem is that it's not actually that unusual; it's a very common development pattern.
It's tempting to respond "the common developments one sees here (exurban tract development, suburban shopping malls, etc) are rather undesirable and unsustainable (see Chuck Marohn on the suburban ponzi scheme), whereas the development that arises from assumptions of independent parcel ownership (less heavily planned urban developments from the first decades of the 20th century or earlier) are more consistent with vibrant and sustainable practices of urbanism", but that would be too reductive. Clearly, there is *some* worth in large-scale developments, and it may be too restrictive to believe that these should all be public projects. If we *really* wish to encourage these developments, we can jettison the constraint that taxes remain neutral and give a relative LVT exception in accordance to how much of the "positive externalities" are internalized into the project. I'm curious what people may think the downsides of such a policy decision would be.
This is a great response and also gets to one of the more useful qualities of imagining implemented georgism - the problems it asks us to solve are much more interesting than our current tax setup. to me that seems to be because it solves so many stupider first-order problems to start.
This is also the model used by private mass transit corporations in places like Japan and Hong Kong, as far as I know (and by similar corporations in New York and Los Angeles at the turn of the 20th century).
If the tax remains with the city, rather than goes to a higher-level (e.g. state or national) government, that creates another problem. The services (or outright cash payouts to residents) financed by the tax make the city an even more attractive place to live relative to rural towns with cheap land. This increases demand, and drives up land prices and rents even further (so, when movement between municipalities is possible, it doesn't hold that landlords can't pass on the tax, at least temporarily).
Then, at the next reassessment, the government raises the tax further, then it uses the revenue to fund even more services, leading to even more demand, and thus even higher rent, and so on. Rents and taxes both spiral towards infinity.
The root of the problem is that, today, high land prices and rents are the mechanism that cuts demand for land (in the sense of demand that is able and willing to pay) down to the level of supply. Georgism attempts to redistribute the land rent back to the tenants, in effect letting them rent below the market-clearing rent, removing the mechanism that creates a market equilibrium. And I don't see what mechanism would take its place.
I have been thinking about this objection, which Alex Godofsky also raised, and wondering whether it might apply to single lot builders as well, albeit indirectly. If I build, say, an apartment building on my plot of land, there is now more money to be made by surrounding it with grocery stores or office parks or Home Depots. That, in turn, should raise the land value of my plot. Technically this is a "second order" effect, but it's not at all clear to me that it should be small when added up over all the mutually beneficial developments nearby. Isn't that the driving force behind city building anyway?
Thanks for explaining it this way. I saw the other objections and wondered why this didn't already apply to single lot owners. The value of a city is not independent of the value of each improvement made within it. Times Square raises the value of nearby properties, but Times Square would not have been built if those other properties did not already exist and provide a lot of value.
Yes, as I was writing my comment, I was thinking first about offices in a skyscraper, but replaced it with a multiple-lots example because it felt cleaner to me.
If you own land and rent it as a mobile home park, and suddenly you have to pay an additional $25k/yr, and so does every other mobile home park owner in the country, then of course prices will rise. When labor costs rose over the past year I raised my bids to compensate for it, just like every other contractor did - and they're not making more labor(ers) on cue either. I didn't shrug and tell my gf we were living off rice and beans so that I could have the privilege of dealing with the physical and emotional stress of contrstruction, nor would I react this way to have the privilege of dealing with the stress of owning a mobile home park. If prices didn't rise, then services would be cut - the septic wouldn't be pumped on time and would back up into the trailers (this actually happened at a park down the road from where I grew up until after many years of complaints it was finally condemned), the well pump would burn out and be replaced by a hand pump, and so on. I don't understand how anyone can possibly think otherwise. And if rents do rise or costs are cut, then the tub and flow analogy doesn't hold water either because the flow is essentially cranked up commensurate with the amount siphoned off.
Yes, I think that any dramatic change is likely to introduce disequilibria that won't be easily resolved (in general, this has a resemblance to the sort of tug-of-war we saw between actors in the Stagflation era).
Perhaps the lesson is: avoid sudden, dramatic changes
I agree, if the anticipated threat of reassessment is looming, landlords will presumably not bother
The crucial thing with land is that cutting services isn't a viable option: you'll have to pay the tax anyway, and you can't take the land out of existence. So without a retraction in supply, there's no possible way to raise prices, and the land tax has to come out of your pocket instead.
You *could* try to get the tenants to pay substantially more than they previously have (if permitted by law); now, the theory would say that they're already paying as much as the market can bear... but given a sharp discontinuity, and if *all* landowners work in a loose cartel to tighten the screws, it's possible that tenants will realize that they *could* cough up more. (Ultimately, this is a question of power/coordination/organization)
Of course, in the long run, if the ground rents increase in this manner, it means that the LVT increases in the same manner, and we're back to square one. And it can't go on forever
It would certainly be strange for landlords to form a cartel to extract greater rents from their tenants knowing that their taxes will increase by the same amount
Tenants almost certainly could pay more under the full Georgist plan, as their labor taxes would go down. The money saved on labor taxes would, intentionally, go towards paying LVTs. That was a big part of the post yesterday. So landlords will capture that tax money and funnel it to government instead of employers capturing that tax money and funneling it to government.
Is this mobile home tenant going to tow their trailer down the road to a park owned by another owner, who is willing to live on rice and beans, or operate at a loss? Because human nature being what it is, I think the supply of those landlords is going to be mighty tight indeed. Or are they going to trailer it to the national forest and use an outhouse and a hand well pump?
No matter how you slice it, the reality is higher renrs or lower services.
You're relying on the mobility of the mobile home though, as it allows them to avoid the tax. But land isn't mobile, so you can't do that.
But it doesn't let them avoid the tax. They could - but they won't. No one in the 1st world is going to move to the woods and sh*t in a bucket, boil stream water to drink, and chop wood for heat, rather than pay the higher rent demanded by landlords to pay this new tax. There is plenty of land, but no one wants la d, they want electricity, and insulated walls, and running water, and wifi, and all the other things that require large amounts of capital to pay people like me to make it happen for them - and that generally comes from a landlord. Every single person who complains about rent-seeking, and there are millions of them, could avoid this by losing in the woods right now, but none of them do. They pay the rent.
Interesting that all of the things you mentioned are components of the improvements and not the land itself. The main thing they pay for is location, which is immobile and therefore can't be passed on. This is true in economic theory, and is supported by the evidence presented above.
Yes, but without the improvements, no one wants the location. They're inextricable
Land isn't movable, but it is fungible. If the price on the east side of town is too high, people can move to the west side of town (or a different town, or state, or country). This will be true up until the point that all of the land on earth is occupied, which is a long time from now.
I don't think land is fungible. Substitutable to some degree, maybe, but not fungible. Every dollar is the same as any other dollar, but some land is better or worse for some purposes than others. Even similarly sized pieces of land in the same neighborhood can have meaningful differences.
You're right, substitutable is a better word and less strong.
"No matter how you slice it". Are you some sort of economics genius? Almost every economist in history, from Adam Smith to Milton Freedman, agrees that a tax on land would fall entirely upon the owner of the land. Prices are set by supply and demand, the only way to increase price is to reduce supply. You cannot reduce the supply of land, so unless the demand for land increases, you cannot raise the price.
Your claim goes against both logic, if the landlord could raise prices why have they not already done so, and the prevailing theories of economics over the last 3 centuries.
And the empirical evidence in this paper. Unless there was something I missed.
You can also force higher prices by artificially raising input costs. As in the example I gave above, higher unemployment benefits forced business owners in, say, restaurants to pay their help more, which caused them to raise prices.
Currently landlords can't raise prices because market forces prevent it - but if all la dlords are suddenly subject to the same additional percent added to their bottom line, then they'll all raise rents, just like restaurants have raised prices over the past year.
You are missing the point- price is not a result of input cost, it is a function of supply and demand. It doesn't matter what input costs are if there is no one to buy it or a billion other identical goods for buyers to choose from. This is the most basic concept of economics. An LVT alters neither supply nor demand, ergo it does not alter the price.
As IV said elsewhere, above or below, for modern purposes housing - not land but the amenities like heat, waterproofing, electricity, etc that the landlords are really in charge of but can't distribute without land - are almost necessities. Let's say the gov decides to place a tax amounting to $5k/yr on the air we breathe. Now obv the amount of air isn't going to change, and some people would prob go to jail as conscientious objectors, but most people would probably roll their eyes and come to the tacit agreement that we'll all just increase what we pay each other and "inflate" the cost of this new air tax away. Easiest solution, no?
But the supply of land isn't actually fixed. Earth has millions of acres of unused land, and cities grow (and sometimes shrink!) all the time. More land is added to city boundaries constantly. What seems to be getting confused here is that a particular parcel of land, in say, NYC, can't be moved. That's not the same as saying that no new land can't get added to the system known as NYC. If there's a severe and intractable problem with a piece of land, people will use a different piece of land, which will increase the rent of that other land.
Do you have a citation for Adam Smith arguing that a tax on land would fall entirely on the owner of the land? I am fairly certain he said no such thing.
https://en.wikisource.org/wiki/The_Wealth_of_Nations/Book_V/Chapter_2
Relevant paragraph:
> Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground. More or less can be got for it according as the competitors happen to be richer or poorer, or can afford to gratify their fancy for a particular spot of ground at a greater or smaller expense. In every country the greatest number of rich competitors is in the capital, and it is there accordingly that the highest ground-rents are always to be found. As the wealth of those competitors would in no respect be increased by a tax upon ground-rents, they would not probably be disposed to pay more for the use of the ground. Whether the tax was to be advanced by the inhabitant, or by the owner of the ground, would be of little importance. The more the inhabitant was obliged to pay for the tax, the less he would incline to pay for the ground; so that the final payment of the tax would fall altogether upon the owner of the ground-rent.
[Incidentally, a habit I picked up in grad school reviewing papers (and which I heartily recommend) was 'check the citation'; often I would think "wait, isn't this contradicted by X / present in Y?", and rather than just saying that would pull up the citation and verify first, because it's super frustrating to get a review comment that says "this is in Y" and then not see Y there, especially if this means your paper doesn't get accepted because it's not original enough. Here, I just googled "adam smith land value tax" and had the citation within 15 seconds.]
Ahh thanks. That explains the confusion. The actually useful bit happens a few paragraphs earlier:
"The final payment of this tax, therefore, would fall partly upon the inhabitant of the house, who, in order to pay his share, would be obliged to give up a part of his conveniency, and partly upon the owner of the ground, who, in order to pay his share, would be obliged to give up a part of his revenue. In what proportion this final payment would be divided between them it is not perhaps very easy to ascertain. The division would probably be very different in different circumstances, and a tax of this kind might, according to those different circumstances, affect very unequally both the inhabitant of the house and the owner of the ground."
Smith assumes (a little strangely, really) that the rent of the house does not go up with the tax because he has fixed how much he is willing to spend on housing in his head, but that the renters (inhabitants) pay by way of convenience, paying by taking for a less nice house or more out of the way one for the same money. The inhabitant doesn't pay ALL the tax (tax incidence isn't 100% generally) but he does pay for the tax; not in money in Smith's case because he fixes that part of the budget, but in getting a lesser place for the same total spend on housing.
The rents on houses in your quote isn't raised because the total of house rent plus tax is fixed, but the quality of the house goes down. The tax is paid on other margins.
A modern look would not fix the total part of the budget spent on housing, but would consider the possibility of spending less on other areas of spending instead. So rents over all might go up (instead of spending 60L on rent a month the renter might spend 63L and buy fewer meals out or something) or they might stay fixed.
Smith does make a very strange assertion that a landowner has a monopoly on the land. That is sort of true, if you own LOTS of land, like the whole west side of the city say, which might be what he had in mind at the time. It is also sort of true in the sense that each plot of land is unique, and so you have a monopoly over it because only you can rent it, but you have to compete against every other unique plot of land. This is much the same as saying every worker is a monopolist because each person is unique; strictly true, but also entirely pointless because each person still has to compete against others.
If I understand the LVT argument correctly, the original owner is likely to go bankrupt if they have a mortgage on the property. The new owner won't be living on rice and beans because they will have bought it for a much lower price and thus will have an after tax Cap rate similar to the first owner before the LVT implementation.
If there was no mortgage, then either:
1. The LVT will be acceptably small since most of the value comes from the sweat and improvements of the owner and no alternate use would unlock more cashflow using less effort.
2. The LVT would put the park out of business because there is an alternative use that would be much more economically productive.
You could try to raise rents, but you'd be competing with a bunch of other mobile home parks that were picked up on the cheap in bankruptcy liquidations.
I agree this is one possibility, and maybe even the end result over time, forcing older generations into bankruptcy so younger generations can get cheap housing. Although I don't see why that's desirable... But at the same time, if prices increase overnight and 90% of landlords jack up their prices, there are going to be many fewer bankruptcies available for purchase than there are people looking so it seems like, at best, there would be a period of significant inequality, and most of the country would be absorbing the increase in their rents for a number of years. But if 90% of rents are higher than ever, even the landlords who bought cheap wouldn't rent for that much below market and leave it all on the table for someone else to grab, so the bankruptcy wave might peter out quicker than expected
^and stabilize not too far below the new higher price, including the cap'd tax
Do keep in mind that I am working off of your hypothetical. I believe that actual proponents would argue for something much more gradual and sans massive bankruptcy wave. I hope that the author sketches out what a potential transition plan would look like.
> I agree this is one possibility, and maybe even the end result over time, forcing older generations into bankruptcy so younger generations can get cheap housing.
The current state of forcing the young and old generations to pay higher and higher prices for housing to support a tiny percentage of extremely wealthy old people doesn't strike me as better.
"I agree this is one possibility, and maybe even the end result over time, forcing older generations into bankruptcy so younger generations can get cheap housing."
If their only wealth is land rent, then yes. This is a healthy thing, long term.
Obviously there is a transition problem, because society has made the insane decision to *encourage* the accumulation of wealth through land rent.
Do you have anything to say about the empirical studies themselves?
Well, I do disagree with the assessment here
"This just means that if you tax land, absent any other interventions, the price of land goes down. The rental income of the land available to the landlord goes down too, which means the landlord is eating the tax and can't pass it on to the tenant."
If the change is fully capitalized, then the price of land hasn't gone down, it's just being paid less to the bank and more to the local gov, or vice versa. The price is still essentially the same. And since the landlord is still paying essentially the same price I see no reason why the tenants would be paying any more or less either, and didn't see any mention of that in the study. Did they examine rents or just sales?
"Employing prices for home sales before and after the reform was announced and carried out and controlling for a number of other potentially important factors, we examine the effect of the tax changes upon home sales prices. The conclusion is very clear, indicating a statistically significant change in sales prices compatible with a 100 per cent capitalization of the future land tax changes using a reasonable discount rate. "
I am also interested in your comments on the other papers that support the Danish study's conclusion.
It seems like several deal with reinforcing the capitalization, which would be expected. The two below the Dutch study are somewhat vague but potentially interesting. So we see an increase in units with an increase in land taxes, are they just building higher to fit more rentals into the same footprint, or reducing the size of each unit? Either way, many would consider this to be a reduction in quality of life. The one below gets the same effect with an increased "intensity of land development". But is it another Manhattan, or more likely, another Jersey City? Choi below gets the same effect with greater population density. So the costs are being passed down via cuts in quality of life, at least in my opinion, tenants crammed in like tax-paying sardines. They get less land for their rental dollars.
Right, and I'd fully expect taxes to factor into sale prices. A .3% rate change is small enough to be potentially absorbable regardless, depending on property valuations, but without data on what happened to rents following this increase we can't say whether or not the cost was passed down. In this case it may not have been able to be, because the tenants could still move to the town that got a decrease, assuming supply. If a tax increase were large enough to cut into rent profitability where rents were raised, but the increase was nationwide, the tenants would have nowhere to move to, barring emigration.
What are the mechanisms preventing bad actors from artificially lowering the value assessment of the land they own for LVT calculation purposes?
Given that many landholders are already wealthy and powerful, wouldn't they find a way to game the system in their favour, through political influence or otherwise?
A lot sans improvements is perhaps easier to valuate comparing to the neighbouring lots, so if anybody in vicinity is selling, then it gives us a hint about the market price of lots in the area and helps us spot artificially lowered valuations?
I understand that it's not a new problem, because many current tax schemes may suffer from tax evasion, but if we base all taxation on just unimproved land value, doesn't it make it easier to evade?
For one, land can't move to the cayman islands, and for two, land assessments must be done in public and can be scrutinized by educated people. Neither can be done with other asset classes that are able to evade nearly all visibility.
Makes sense. Thanks for the article so far, looking forward to the third part :)
Hmm. I still don't buy the "can't pass on the tax" argument, at least on the theory side.
To begin with, a change in the tax rate seems like a perfect Schelling point for landlords to coordinate rent increases. If all rents go up by the same amount, do renters really have much of a choice? Neither supply nor demand immediately change when the tax rate changes...
More generally, my gut instinct would be that shifts in the the way landlords pay taxes would result in changes in rents, such that the landlord's income remains constant (at a minimum). That seems to be what happens when property taxes go up, anyway. So if the overall tax income of an area shifts toward being based on an LVT, then the LVT will increase and other taxes will decrease, and more and more of the tax income will be funneled through rent and landlords. Ultimately, in the case of all taxes being replaced with an LVT, a renter would pay their entire tax burden as part of their rent, passed through their landlord to the government(s). I can't quite imagine that the total tax burden would change too much, which means the result would be that everything we currently pay in income tax withholding and sales tax, would instead be added onto whatever we currently pay for rent. (Or paid directly, to the extent that we actually own some of the property that we use.) (I have no idea what social security withholding would look like.) The upshot being that although we pay the same amount in taxes, superficially it looks like rents go way up.
Is this sort of thing what you're talking about when you mention landlords passing on the LVT to their tenants? Or am I confused and you mean something else?
Another thing: it might be good to distinguish two financial functions of landlords. One is the "speculative" function of simply owning property and hoping that values increase. The other is the ongoing revenue stream from rentals, which is partly offset by maintenance, taxes, and that sort of thing. As I see it, the LVT ignores the second function and aims directly at that first function. So it seems like there'd still be room in that second function for someone to own property, charge rent, use some of that rental income to pay a property management company to handle the day-to-day stuff, and still keep enough of the rental income to be able to live without having to do much work. Right? But from what I've read, I get the impression that there's some confusion between the ideas of eliminating land speculation, and of eliminating the "rentier class" entirely. Which of these do Georgism and the LVT aim for?
It is true that an LVT could cause landlords to attempt to raise rents, and they might be able to in the short term (since obviously it takes time for changes in housing to occur)- just a price instability, essentially. But in order for those to last in the long term, landlords would need to form a cartel, which is impossible given the fragmented nature of the land market. Once an LVT got to 100% landlords would have no incentive to raise rents at all, since they would not gain anything from it, it would all be taxed away directly.
As far as the second point about the supposed rentier class, when you are talking about property, are you talking about land or buildings, or both? Georgism, when talking about 'landlords,' only refers to people who profit from the use of land, and is not referring to the colloquial usage of landlords for people who rent out apartments for example. We have no problem with people building, renting out, and managing buildings- those are returns on labor and capital, and that's why they are left out of the land value tax as improvements. Those people might be better termed 'buildinglords,' but unfortunately- true to current economic form- in general use we conflate people who extract rents from land and people who profit from managing and renting out buildings.
Your last paragraph is mere inches from Georgism. Landlords rent out two things at once: the Land and the Buildings. We think profiting from the former is illegitimate, but the latter is totally valid. So we only consider the former to be Rentierism.
Am I correct that the annual rates analyzed are all on the order of the Danish rates, which are annual taxes set at 2% to 3% of land value? In that case, the annual rates in some areas increased by an average of 0.34% and others decreased by an average of 0.26%. I'd be hesitant to assume that full capitalization of relatively small changes in this annual tax rate imply full capitalization of far larger tax rates.
You're correct, but a 1% tax on land sale price is equivalent to about a 17% tax on land rents. So those taxes aren't really that small.
I'm not convinced that 3% of land value isn't approaching a 100% LVT. Average UK rental yield is 3.63%, but that's a gross yield, which will equate to a net yield of just over 3%.
Those are good points from Robert and Stephen.
It's perhaps tangential to this blog, but understanding what happened in New Zealand seems quite important. It seems New Zealand achieved a full LVT in 1912, but it became progressively less relevant until it was abolished in 1991. So what went wrong, and how could we avoid repeating those mistakes? A quick Google showed me https://www.ethicaleconomics.org.uk/2017/02/a-history-of-land-value-taxation-in-new-zealand/.
Short version is that postwar pro-homeownership policy resulted in a majority of voters having their home be their primary asset, and slowly voting to lower their taxes.
This is a very relevant observation with respect to the political viability of georgism - it's pretty much a strawman argument to focus on how the renters will be affected, if a very large part of the community are homeowners.
Yeah, one of the awkward things about price distortions in general is that the more detached from reality it becomes, the more effort it makes sense to expend against fixing it.
Consider the housing situation in California, for example. Because land assessments have a capped increase, where the market land value does not, and in some cities for some properties rent increases are capped, whereas market rents are not, we're now facing a huge transfer that would happen if all assessments were updated to true values. And every year the transfer gets larger!
In America more broadly, the federal government promotes mortgage-backed land purchases, which is basically making a class of people who will be ruined by this change in tax policy (as they might have a $2M mortgage on a $2.5M property which, supposing 80% of the value is in land, will now be a $0.5M property, putting them $1.5M underwater).
I discussed this above: <https://astralcodexten.substack.com/p/does-georgism-work-part-2-can-landlords/comment/3961061>
In short, the Australian experience – and I will bet my hat that the NZ experience is the same – was explicitly designed to smash large landed estates that had accumulated across the nineteenth century. This was part of a populist movement against large landholders, which was a coalition of mercantile elites and working class people who wanted to acquire small landholdings as a means of achieving economic independence. By the post-war period, these factors had largely subsided in political relevance, whereas small property ownership (owner-occupiers) had begun the long march to dominance (and which then reversed after the 1980s/1990s).
> In fact, many of the strongest opponents of LVT seem opposed precisely because they agree that land is a big deal.
Hello.
> Well, I'm already charging as much as the market will bear. If I charge any more, my tenant will move out. [...] Price signals from the market are telling them to stop producing and do something else.
Yeah, no. The fact you don't respond to very basic economics like transaction costs or the idea that what the market will bear can change in response to taxation is such a fundamental flaw I'm tempted to stop. You don't even talk about demand elasticity! This theory section is really, really bad and ignores mainstream economics on the issue. The normal position is that while the supply of land is completely inelastic the demand is also highly inelastic. You can choose to stop buying cigarettes but you can't stop consuming land because you need to physically exist somewhere.
What determines who pays taxes is demand elasticity. If it's high then the producer eats it (because if they raise prices their customers go elsewhere) while if it's low then the consumer eats it because the producer can raise the price and the consumer has no choice but to pay it. The classic example of this is, and I swear I'm not making this up, rent.
> Even a dedicated cartel like OPEC can't enforce high oil prices by fiat. They do it by cutting off production and driving down the global supply of oil until people are forced to pay the price OPEC wants.
They could. They choose not to because it's cheaper to do it their way. We also do see landlords in aristocratic regimes (where landholders also hold political power) doing exactly that: coordinating to set higher rents. The idea "landlords can't coordinate to raise rents" is ridiculous. I mean, they can't now because it's a crime and the government investigates and prosecutes people for it. But "it's illegal" is different from "it's impossible."
> This phenomenon is known as Ricardo's Law of Rent.
Ricardo's Law of Rent is specifically concerned with land as a factor of production. Ricardo is explicitly excluding domestic land like homes. You are not. Yet you don't bring this up.
> All the leverage is on the side of the tenants, which forces the landlord to eat the tax.
If all the leverage in tenant-landlord relations is on the side of the renters then why don't we see tenants using that to renegotiate lower rents now? This is very opposite of most people's default intuition but you don't really justify it.
> One day, Denmark decided to redraw all its municipal boundaries. Regions that had been under one local government woke up the next day under a different one, immediately adopting a new set of local regulations and rules, including changed tax rates. This caused a large-scale, semi-random shuffling of Land Value Tax rates overnight.
This is extremely confounded. Firstly, Denmark has a huge amount of control over its housing market that would prevent a full free market response. Secondly, it's widely accepted that social services affect property rates. I haven't read the paper but you don't mention such compensation. Is it there? Further, even if it could be proved (and it probably could) that taxes decrease property value, this doesn't mean the rent goes down too. You assert this ("This just means that if you tax land, absent any other interventions, the price of land goes down. The rental income of the land available to the landlord goes down too, which means the landlord is eating the tax and can't pass it on to the tenant.") but I didn't see it in the paper. I'll read it more thoroughly later or you can point it out. But there's plenty of examples of high rent, low value areas. Rent is not a fixed portion of value by any means.
> land taxes do capitalize into land values, whereas the monthly rent level remains unaffected by the land tax.
In fact, one of your studies finds this is the exact effect it causes! (Though I haven't read the study, just your summary.)
> Wyatt cites another source (Pillai 1987) that claims that LVT hasn't worked in developing countries, but notes that the "LVT" imposed there was a flat tax based on land acreage rather than actual land market value.
How else would it be assessed unless you're taxing the value of improvements on the land too?
> That's according to a 1983 article originally published in Fortune Magazine. I don't know how Pennsylvania fares today, given it's been 38 years.
I do. Still bad. As are most of the states with higher property taxes. Those property taxes, by the way, are widely believed to drive up rents because landlords price them into rents. I don't know if it's true econometrically. But I know both tenants and landlords believe that and act as if it's true. Of course, Denmark (the example you give at the beginning) is rent controlled. They've been retreating from that policy but remember how I said that study was hugely confounded? Yeah.
> LVT proponents claim that an LVT can't be passed on to tenants, but Wyatt is saying that if you turn around and spend that LVT money on making your city better and more desirable, then the increased demand for land in your city might more than offset the negative capitalization of the tax into the sales price of land. That's a solid argument. Notice that Wyatt is here implicitly admitting to capitalization of land taxes into land prices; he's just also arguing that there are other effects in play. What Wyatt doesn't realize is that the natural policy conclusion here is...a 100% LVT that recaptures all the added gains to land value from public spending.
No, what you don't realize is that you're assuming public spending is the highest and best use of that money. This is another studied area: the whole crowding out theory, basically whether public or private spending gives better returns. If any tax, not just land taxes, give better returns than they cause in economic damage then they are net positives for society. So this is in no way a unique trait of land taxes. This is in fact the justification for property taxes: they are relatively less damaging and the money can be put to relatively good use. But as I understand it that's not Georgism, that's just mainstream economics. Georgism is the idea they are not damaging AT ALL if levied solely on land and so can be set high without bad economic effects. "Least bad" and "not bad" have a huge chasm between them.
This is true of the section that you can increase land prices by taxation. Yes, you can do that with anything that's positive sum. You can tax businesses and spend it on business incentives such that more businesses get created, for example. At least theoretically, the problem is often that the government can't actually manage to do that.
> Conclusion: Land Value Tax can't be passed on to tenants.
You've completely failed to support this. What you've shown is a bunch of mixed evidence with one example where rent control was in effect and a huge number of confounding social service changes occurred and apparently weren't controlled for.
> If land is truly chronically underassessed, than simply making land assessments more accurate across the board will give you a similar effect to raising the rate of LVT, without touching the nominal tax rate or changing any laws.
No, you couldn't because a lot of the adjustments are based on improvements. If you wanted a pure land tax you'd need to figure out some way to do adjustments and to ban reassessments for improvements. Otherwise the status quo, where building a pool leads to a reassessment and an increase in taxes, will continue. Which is not really all that Georgian.
If supply is perfectly inelastic then the elasticity of demand is irrelevant; the tax falls entirely on the supplier. If you want to link mainstream economists who argue that land tax isn't fully capitalised, or empirical evidence as such, feel free to add them.
Well, firstly, the supply of land isn't perfectly inelastic. Land can be created and destroyed. See: the Netherlands.
But secondly: your statement is incoherent. The phrase "elasticity of demand is irrelevant" means "the willingness of people to pay for something regardless of price has no effect on the price." This is such an absurd statement I don't know what to make of it. It's clearly untrue.
Also, as I said, economists generally agree the elasticity of demand and supply determines who bears a tax, not the elasticity of supply. This is such a basic fact I'm having trouble finding economists who say it because it's that obvious. There's a bunch of textbooks and resources though. Here's a website: https://www.investopedia.com/terms/t/tax_incidence.asp
"Tax incidence (or incidence of tax) is an economic term for understanding the division of a tax burden between stakeholders, such as buyers and sellers or producers and consumers. Tax incidence can also be related to the price elasticity of supply and demand. When supply is more elastic than demand, the tax burden falls on the buyers. If demand is more elastic than supply, producers will bear the cost of the tax."
Now, you might (and I am really reaching here to try and understand you) be saying the supply of land is infinitely inelastic while the demand is mostly but not totally inelastic. But this isn't true: they're both only highly inelastic. In fact, a landowner can choose to not bring land to market or to surrender ownership but a renter cannot choose to not exist in a physical space. They can, at best, downscale their expectations of how much land they want to occupy. Though even there there's limits.
If you want to make a sophisticated argument about elasticity then I'm all ears. But declaring half the equation irrelevant on shaky grounds is unconvincing.
the netherland's land reclamation gets into what we mean by 'economic land' vs 'ground rents'. from a georgist perspective, technology was invented that could make land (in this case, the water) more valuable, the same way a train makes suburban land more valuable because you can get more people to the city center.
if the buildings in that area were floating on magical 'plots' it would be easier to illustrate the three-factor model. but in any case, the making of land more valuable with massive public works projects is exactly what LVT incentivizes.
a key insight here to more directly answer your question: 'land value' is certainly inelastic *enough* compared to *other potential sources of revenue* that we should experiment with allowing it to bear a higher % of taxes than it currently is. georgism makes falsifiable predictions, we can ramp up a lvt and observe results to see if the assumptions are holding true. we don't need a utopian revolution.
> the making of land more valuable with massive public works projects is exactly what LVT incentivizes.
Don't you mean disincentivizes? It taxes land and/or the returns from land. Taxes disincentivize things. This is an astonishingly well established piece of policy.
> a key insight here to more directly answer your question: 'land value' is certainly inelastic *enough* compared to *other potential sources of revenue* that we should experiment with allowing it to bear a higher % of taxes than it currently is. georgism makes falsifiable predictions, we can ramp up a lvt and observe results to see if the assumptions are holding true. we don't need a utopian revolution.
It doesn't actually. That's part of the problem: You can't actually whether the taxes should be higher or lower because Georgism has no good way of determining them. Georgism generally thinks they're too low but I've never seen the math done as to why.
> Don't you mean disincentivizes? It taxes land and/or the returns from land
Govt collects the revenue from land in their jurisdiction, so govt is now incentivised to invest in public goods which maximise land value (which is considered the best route to Pareto-optimality, see Ricardo or Brueckner).
> a key insight here to more directly answer your question: 'land value' is certainly inelastic *enough* compared to *other potential sources of revenue* that we should experiment with allowing it to bear a higher % of taxes than it currently is. georgism makes falsifiable predictions, we can ramp up a lvt and observe results to see if the assumptions are holding true. we don't need a utopian revolution.
Oh, and just to add on: If all Georgism was were a sober argument about which taxes were least bad and placing land taxes there then I'd agree. But that's like saying Marxism is just an argument about having a welfare state. It's sanewashing. Georgism believes that land value taxes are good and have no negative economic effects as far as I can tell.
All you need to believe to be a Georgist is that a tax on economic land is, in the words of Friedman, "the least bad tax."
Then I am somehow a Georgist despite disagreeing with a huge amount of what's said by Georgists.
Paul Samuelson was pretty clear when he said in "Economics- an Introductory Analysis" that "Pure land rent is in the nature of a "surplus" which can be taxed without affecting production incentives." You can throw that on the pile with the endorsements of other such Nobel laureates as Friedman, Vickrey, Solow, and Stiglitz. But please, if you feel you are better equipped to understand land value taxation than they are, feel free to enlighten us on the subject.
This is a snarky response that quotes a book from 1948 and misattributes the views of several economists in a botched argument to authority.
Samuelson's Economics was the introductory economic textbook for decades, and as far as I know land has not become any more elastic in the intervening years,. As far as misattributing views of Nobel economists, please. Stiglitz created the Henry George Theorem and Vickrey founded a Georgist conference and wrote numerous papers on land value taxation; Solow was a fellow of the Lincoln Institute for Land Policy and wrote papers on land taxation and Henry George. They knew what they were about on the topic of land taxation and took it seriously.
Sources:
https://en.wikipedia.org/wiki/Henry_George_theorem
https://www.lincolninst.edu/sites/default/files/pubfiles/land-use-and-taxation-full.pdf
http://fmwww.bc.edu/ec-p/wp387.pdf
https://en.wikipedia.org/wiki/William_Vickrey
http://www.wealthandwant.com/themes/quotable_nobels.htm
> "you might be saying the supply of land is infinitely inelastic while the demand is mostly but not totally inelastic"
Correct, that is what I was saying.
So let's discuss elasticity
> Land can be created and destroyed. See: the Netherlands.
This doesn't make existing owners of land price-elastic in the slightest: each unit's marginal cost to bring their land to market remains zero. It may discourage the (highly uncommon) private land reclamation, but that's exactly offset by increased incentive for governments to reclaim land (as they get to keep the tax revenues from land they reclaim).
> demand is mostly but not totally inelastic
It's more elastic than you're giving credit for: when land prices are high, consumers reduce their consumption of land, as demonstrated by every apartment building.
> a landowner can choose to not bring land to market
Sites held out of use are still in the land market, they're just serving their current highest & best use: speculation. Land tax fixes this.
Also, you might read what FAZA wrote.
I think it's not appropriate to go from "there's a fixed amount of land" to "land supply is perfectly inelastic". Supply of land literally means the quantity of land offered for rent given a certain price.
Not all land that could be rentable is part of the land supply; people may choose not to do so (leaving the land unrented and not using it themselves productively) for all kinds of reasons - in fact, the fact that this happens and that this is important is a key part of George's thesis! One of the proposed goals of Georgian LVT is to stimulate the land use, effectively increasing it's supply. It's also clear that the supply of land at the price of 0 is very low, because there's a certain transaction overhead and nobody would bother to handle a rental contract if there is no benefit expected. So IMHO it's quite clear that land supply (in the economic sense) is *not* perfectly inelastic, far from it.
You're misunderstanding the supply and demand issue. There is very little reason to think LTV increases the demand for land, which is what would be necessary for land rents to increase. If supply is inelastic the only way for the price to increase is for demand to increase (assuming a competitive market).
Nope. Sorry. It's you who doesn't understand supply and demand.
Elasticity of supply is, essentially, how quantity supplied responds to shifts in the demand curve. An accross-the-board increase in demand (a rightward shift of the demand curve) for land rentals (of whatever sort) will not cause the number of units on offer to increase meaningfully (because the amount of land is finite, construction is expensive, and time-consuming), so it will translate into a higher price for much the same quantity being supplied (plus, a bunch of unfulfilled demand).
That's one way to raise rents. The other is shifting the supply curve. This means a lower quantity offered at *any* price.
Shifting the supply curve has nothing to do with supply curve elasticity. The shifted curve may well be just as elastic/inelastic as previously.
The effect of shifting the supply curve on market price will depend on *demand* elasticity - which, as has already been pointed out, is *also* inelastic when it comes to rents.
The proposition - which I find perfectly plausible - is that LVT shall decrease suppliers' (land-owners) willingness to offer land for rent at the previous prices, because now their costs are higher. You might still find units being offered at the previous market price, but there will be fewer of them (a leftward shift of the supply curve).
With inelastic demand, this shakes out to a somewhat smaller equilibrium quantity sold, for a significantly higher equilibrium price. Renters who balk at the higher prices don't really have many options, because all landlords have a higher cost now.
Funnily enough, inelasticity of supply actually also contributes to higher prices, albeit in an indirect fashion. In a different market, a supplier left with a smaller profit per unit sold (as with LVT, and any sort of tax on sales), might consider keeping prices at their pre-tax level and ramping up the quantity supplied, in order to capture customers fleeing his competitors that chose to raise prices. With inelastic supply, however, this isn't an option, so raising the price is the only viable option (other than landlords willingly taking that bullet, which I would neither expect, nor applaud).
+1
> With inelastic demand, this shakes out to a somewhat smaller equilibrium quantity sold, for a significantly higher equilibrium price. Renters who balk at the higher prices don't really have many options, because all landlords have a higher cost now.
Question: suppose that indeed the quantity sold is only mildly smaller because demand is relatively inelastic - i.e. prices rise, and for some landlords there is no longer an overlap between what the price are willing to receive in exchange for renting their land and what marginal renters are willing to pay, but that number is relatively small due to demand inelasticity.
Still - that mild quantity of landlords, what are they doing with that land then? They're still getting taxed *regardless* of whether they rent the land or not. If they're at all self-interested, they had better lower the price they're willing to receive until they get *someone* to rent. Or sell the land to someone else who is willing to do the same.
As I understand it, a typical tax on suppliers in a market has the property where you pay the tax when the good is exchanged, but not when you don't. That difference has an impact on suppliers' relative incentives between the two options - for any particular price, they are less willing to offer the good now at that price than before because they pay the tax if they transact the good, but don't pay the tax if they don't transact. In other words, the supply curve shifts. And I think you're totally right on the analysis of that situation.
I think there's a miscommunication though. The Georgists are advocating for an implementation of LVT where landlords are taxed if the good is exchanged (i.e. they rent the land)... but ALSO they are taxed exactly as much if they don't rent the land! Since they pay the tax equally regardless of whether they rent their land or not, their relative willingness to rent the land or not at a given price, to first order, doesn't change, or so the Georgists argue. The supply curve (of the renting market) doesn't shift in the first place.
And I'm much less sure on this, but maybe the Georgists are also presuming that the landlord continues to be taxed until the point they can find someone else to buy the land from them - that they are forcibly not allowed to simply disclaim ownership to avoid the tax (which *would* allow the supply curve to shift as land actually exits the market).
Or I guess maybe they can be allowed to entirely disclaim the land, but somehow the LVT is magically never over-assessed (heh, which might be hard in the real world) such that its economic value after tax is still positive and rapidly someone else will rationally claim the land and be willing to pay the tax.
I have no idea if that implementation is practically possible, but I think that's the terms on which you need to engage them - that you are talking about a tax (or the practicality thereof) that falls on landlords *even if they choose not to rent the land*, and that therefore attempts to create no differential incentive impacting their willingness to rent at a given price because they pay the tax either way, and that landlords cannot escape from either because either they cannot disclaim the land: they or whoever they sell it to will still get taxed.
>The proposition - which I find perfectly plausible - is that LVT shall decrease suppliers' (land-owners) willingness to offer land for rent at the previous prices, because now their costs are higher. You might still find units being offered at the previous market price, but there will be fewer of them (a leftward shift of the supply curve).
Landlords are consumers of land, not suppliers. Only God can change the supply of land (or Saudi princes spewing sand into the Red Sea, but that's a fringe case). But okay, suppose the LVT results in some rental units no longer being profitable, because the landlord eats the tax and their costs now exceed their potential rental income. The landlord has options, including selling the land to an owner-occupier or developing further (and development would be much faster in the absence of bureaucratic red tape, zoning regulations, etc.--any Georgist who opposes upzoning is a crank).
So you might end up with some units on severely underdeveloped land disappearing from the rental market. In the short term you could think of this as a contraction in the urban "margin" of cultivation and a limiting case in which the tax does get "passed on" due to decreased supply. On the other hand, the incentive to develop, as well as relaxation of other taxes (e.g., property tax), would lead to lower rents in the long run.
The idea that landowners will not want to use their land for anything, when there is a high LTV, is extremely unlikely. It is not economically viable in such a situation for landowners to simply withdraw their land from the market. I should have written that the supply of land is fixed (which it is), it does not simply have a low elasticity. So again, you clearly do not understand how to analyze this issue properly.
The quantity of land existing in the world is not the same as the economic supply of the land, so a fixed quantity of land does not imply that the supply of land is fixed.
There's a certain ration of landowners that will withdraw their land from the market. I fully agree with you that with a high LTV that ratio will be very low - but still not zero! And the ratio would be dependent on the offered price; if the offered rent price is much higher than the LTV, then some of the holdouts would be convinced to offer it for rent, and if the offered rent is very low compared to LTV then more people would refuse to rent and just leave it unused.
I mean, if someone has an unused plot of land and is paying thousands of dollars of property tax on it (no matter if it the current system or georgian LTV), if they would get an offer to rent it out for a single dollar, they would most likely refuse and just let it go unused, and if they would get an offer to rent it out for good price, they would most likely agree - that is evidence of at least some price elasticity, that the quantity of land supplied depends on the price offered.
It is fundamentally wrong to consider that supply of land is fully inelastic; it absolutely *does* have an elasticity, and a key argument of LTV is that it changes that elasticity, adding some extra motivation for full usage; I would concede that a high LTV makes supply less elastic - but still not fully elastic; no matter how high taxes are, getting rent offers that are considered insultingly low will result in no deal, so the supply curve is clearly there, we can only argue about its slope.
>What determines who pays taxes is demand elasticity. If it's high then the producer eats it (because if they raise prices their customers go elsewhere) while if it's low then the consumer eats it because the producer can raise the price and the consumer has no choice but to pay it. The classic example of this is, and I swear I'm not making this up, rent.
I don't see how. My landlord is already charging the highest rent he thinks he can, weighted against the risk that, if he raises the rent, he'll have to deal with the unit sitting empty, costing him money and effort on finding a new tenant. If he raised the rent (say) $100, I might stay put (the rental market is very frictional and relocating is a pain). If he raised it (say) $300, I'd move. This is true whether he raised the rent to cover a tax imposed on him or just for shits and giggles. Nothing in the structure of the land value tax allows the landlord to not reckon with the consequences of arbitrary rent increases.
One potential flaw in this argument is that if the rent everywhere were increased, "just move" would not be a viable way to avoid the tax getting "passed on" to me. But the land tax will not fall homogeneously either on locations or on housing units. The parcel of land I live on is severely underdeveloped: there are three units where one might plausibly have ten (more if the land were upzoned). A landlord in a similar location, with a similarly-sized parcel that hosts more units, would not have as much tax to "pass on" per unit. So it seems like the absolute worst thing my landlord could do without increasing the risk of a unit sitting empty would be to raise the rent by an amount corresponding to the lowest (theoretically) "passed on" rent increase in the area.
N.b., I don't think either Ricardo or Smith thought the landlord could evade the burden of a tax on land-rents, even on residential land. Per Ricardo: "Taxes on houses are of this description; though laid on the occupier, they will frequently fall by a diminution of rent on the landlord. The produce of the land is consumed and reproduced from year to year, and so are many other commodities; as they may therefore be speedily brought to a level with the demand, they cannot long exceed their natural price. But as a tax on houses may be considered in the light of an additional rent paid by the tenant, its tendency will be to diminish the demand for houses of the same annual rent, without diminishing their supply. Rent will therefore fall, and a part of the tax will be paid indirectly by the landlord."
>If all the leverage in tenant-landlord relations is on the side of the renters then why don't we see tenants using that to renegotiate lower rents now? This is very opposite of most people's default intuition but you don't really justify it.
If all the leverage is on the side of the landlord, why isn't my landlord charging me $10,000/month in rent?
>Ricardo's Law of Rent is specifically concerned with land as a factor of production. Ricardo is explicitly excluding domestic land like homes. You are not. Yet you don't bring this up.
Ricardo at least seemed to think the law of rent applied equally to rural land, whose value is a function of its "natural properties", and urban land, whose value is a function of its relation to amenities, work, etc. In a sense, urban land that is used to build housing "produces value" in the form of rent collected by the landlord: in another sense, it "produces value" by attracting labor for nearby businesses, and when the rent is too high, those businesses end up in the awkward position of having to subsidize their employees' sky-high rent, and then you end up with software engineers in San Francisco making six-figure salaries but still needing roommates.
>How else would it be assessed unless you're taxing the value of improvements on the land too?
Assessing the market value of land (not just acreage) is not only possible but something that's already regularly done. Many municipalities in Pennsylvania, for example, tax land and improvements separately, with land taxed at a higher millage (it generally spurs development, punishes speculators and holders of severely underdeveloped land, and doesn't result in rent increases).
> My landlord is already charging the highest rent he thinks he can, weighted against the risk that, if he raises the rent, he'll have to deal with the unit sitting empty, costing him money and effort on finding a new tenant.
I've already explained this. The idea that your landlord is charging all the rent they can in the current market does not mean that they're charging all the rent they can in the market Georgist taxes create. This argument gets repeated a lot by Georgists but it's just wrong. If you imposed a tax on every landlord they would spontaneously coordinate to raise prices so long as demand elasticity was low enough that you needed to rent somewhere. You cannot exit the market but they can so their elasticity is actually lower than yours, despite what Georgists say.
> If all the leverage is on the side of the landlord, why isn't my landlord charging me $10,000/month in rent?
You give me your answer first and then I'll give you mine.
> Ricardo at least seemed to think the law of rent applied equally to rural land, whose value is a function of its "natural properties", and urban land, whose value is a function of its relation to amenities, work, etc.
Yes? You've not read what I said very closely. I said as a factor of production. Rural land is a factor of production in food. Urban land, in Ricardo's time, of factories. In these cases he's referring to it not as a consumable for persons but for industries. It might well hold up in the domestic market too. But that detail at least needs to be addressed.
> Assessing the market value of land (not just acreage) is not only possible but something that's already regularly done.
I'm aware. I've had this argument with a dozen people at this point and not found any of you very convincing. As I've said: I have sat in, at this point, on hundreds of land assessments in and around Philadelphia and eastern Pennsylvania (and some of the nearby states). So please feel free to explain to me, IN DETAIL, how you think these assessments are done well and have the results you claim. Feel free to use technical terms! Feel free to get as wonky as you like! I'll understand it if you can speak to the actual level of implementation.
> (it generally spurs development, punishes speculators and holders of severely underdeveloped land, and doesn't result in rent increases).
That's what you claim but I haven't seen any evidence.
No tax is imposed by the public collection of rent. Rent is a surplus, not a charge. The state, acting as the ultimate landlord in its domain is simply taking what it had previously delegated to private landowners to collect. It is not simply Georgists that make this claim, pretty much every economist recognizes this fact going back through history, even those that were critical of Henry George.
"All economists agree that a tax on pure rent cannot be shifted. Mr. George was right in his contention with Mr. Atkinson. The tax on rent, as it does not reach the no-rent land at the margin of cultivation, cannot increase the cost of the marginal product which fixes the price of produce, and thereby the height of rents." https://www.jstor.org/stable/1008912?seq=10#metadata_info_tab_contents
http://www.wealthandwant.com/themes/Not_Passed_On.html
"More recently, I find only one source that is true to Ramsey and Pigou: Joseph Stiglitz, 1986, Economics of the Public Sector, (NY & London: W.W. Norton):
P.404, "Ramsey taxes are proportional to the sum of the reciprocal of the elasticity of demand AND SUPPLY: (emphasis mine)"
He puts this in the form of a simple equation (also found in Pigou, p.108, evidently taken directly from Ramsey).
NOTE THAT IF THE ELASTICITY OF SUPPLY (OR DEMAND) IS ZERO, TAX RATES MAY BE AS HIGH AS YOU PLEASE.
In practical terms, what does this mean? There is no commodity for which the demand is inelastic for all possible prices. For most items, this is obvious at all prices. Suppose, though, there is something so essential, and buyers so obsessive (like serious drug addicts), that they are frantic to get the item "at any price." Is this then a source of infinite tax revenues? No, because if you raise the tax-price high enough, buyers will run out of money. Think compensated demand curves.
With supply, it is another story. The supply of land is absolutely inelastic, at any price. The Ramsey Rule, therefore, tells us plainly that, to repeat Pigou:
"When one source of production yields an absolutely inelastic supply, ... A given revenue can be raised with less sacrifice by concentrating taxation upon this use than by imposing uniform rates of tax on all uses."
"... if there is any commodity for which ... the supply is absolutely inelastic, the formula implies that the rate of tax imposed on every other commodity must be nil, i.e. that the whole of the revenue wanted must be raised on that commodity." -pp.105, 108."
https://cooperative-individualism.org/gaffney-mason_a-c-pigou-on-supply-demand-and-taxation-2008-mar.htm
>I've already explained this. The idea that your landlord is charging all the rent they can in the current market does not mean that they're charging all the rent they can in the market Georgist taxes create. This argument gets repeated a lot by Georgists but it's just wrong. If you imposed a tax on every landlord they would spontaneously coordinate to raise prices so long as demand elasticity was low enough that you needed to rent somewhere. You cannot exit the market but they can so their elasticity is actually lower than yours, despite what Georgists say.
I genuinely don't see how. If the idea is that landlords are intentionally not conspiring to raise rents now and instead are politely waiting for a land value tax to be introduced, well! How considerate of them!
Again, I can see how a land tax being applied to all land in the city might cause the rent of housing units, the smallest component of which is due to land-rent, to rise. But I just flat out do not see why landlords would be able to pass on the full amount of the tax. Smith and Ricardo didn't, either.
In fact there is a clear reason for landlords NOT to collaborate and raise rents. If my landlord suddenly raised the rent without any commensurate improvements to my building, and he was still able to find tenants, that would be a clear indicator that the site was undervalued, i.e., the rent increase is an increase in land-rent. No assessor is gonna be able to tease out these effects on individual buildings. But if all the landlords in a neighborhood start hiking rents to pass the LVT on to tenants, the market will notice and respond by buying vacant parcels in the area for a higher price. This WILL be noticed by an assessor, result in increased land value assessments, and thus capture the increase in rent as land-rent, leaving landlords no better off than they were before.
They would be as Mrs. Frisby's housewives, who forsook their brooms in favor of vacuum cleaners, thus creating more demand for coal, depositing more soot in everyone's homes, so that in the end the housewives could only keep their homes almost as clean as they did when they were using brooms.
>You give me your answer first and then I'll give you mine.
Well, because if my landlord raised the rent to $10,000/month, I'd move out and he'd never be able to find a tenant willing to rent at that price. He's a profit maximizer and would profit much more by setting a lower rent.
In another market, with much higher demand for housing (effectively, a higher land value) and a lower vacancy rate, he might be able to get away with this. In fact, in many cities there's an incredibly clear negative correlation between rental vacancy rates and year-over-year rent changes (with high enough vacancy rates, average rents can actually decrease). This is the vehicle by which tenants "negotiate with" landlords: landlords being profit maximizers, they quickly learn that if they increase rents too aggressively, tenants simply relocate, and they have trouble finding replacement tenants.
>Yes? You've not read what I said very closely. I said as a factor of production. Rural land is a factor of production in food. Urban land, in Ricardo's time, of factories. In these cases he's referring to it not as a consumable for persons but for industries. It might well hold up in the domestic market too. But that detail at least needs to be addressed.
I'm still not seeing the issue. One, it's not obvious to me that the law of rent only applies to factors of production: you could consider the difference in rental income due to a tower of apartments in the beating heart of NYC (where you will be able to collect a very good rent) versus the middle of Kansas (where you will have to set the rents low and probably still have trouble filling units) as the ground-rent. Two, even if it does, housing can be thought of as a sort of capital insofar as workers need places to live: with no housing in the area, they won't be producing much of anything at all.
>I'm aware. I've had this argument with a dozen people at this point and not found any of you very convincing.
Okay, so it sounds like you're already well aware that assessing land and improvements separately is a thing that's done! I'm not sure why you're asking me to explain a thing you already know.
>That's what you claim but I haven't seen any evidence.
Two well-known case studies in Pennsylvania are Allentown and Harrisburg, both of which implemented a split-rate tax with land at a much higher millage and saw decreases in blight and commercial vacancy, an exodus of owners of severely underdeveloped land (e.g., car dealerships), and increases in development. Pittsburgh benefited from a split-rate tax for a while, until a combination of sticker shock due to infrequent assessment and a concerted disinfo campaign by LVT's opponents torpedoed it.
> But I just flat out do not see why landlords would be able to pass on the full amount of the tax.
Because they all raise their rent by the amount of the tax... This is extremely simple.
You say you'd move if your landlord raised your rent by $300, but if every other landlord did the same, you would have to accept a worse unit in a worse location to recoup that $300.
Landlords aren't raising their rents now because they've balanced the rate they charge against their costs and the risk of vacancy. If their costs go up, that equation changes, and they change their rent.
> the market will notice and respond by buying vacant parcels in the area for a higher price.
No, it won't, because the net income from rent will be the same, and the parcels will not be any more or less desirable than before.
> Those property taxes, by the way, are widely believed to drive up rents because landlords price them into rents.
I think this is the wrong way to think about it. HIgh prices (property taxes) will reduce the supply of housing. The reduction in supply is what causes the high rents - not landlords pricing in the property taxes.
Exactly, well-said. I was wholly unconvinced by the article's argument for largely the reasons you outline.
The whole line of argument seems pretty much absurd.
I can potentially see the argument working for land rents. But presumably when people complain about rents, it's usually about their housing, not their land? And *here*, the supply isn't constant. The cost of housing *will* be driven up - either, the landlords can raise rents outright (which might well work, as everyone has to do it), or there will simply be less housing built until the rents are driven up by scarcity.
Also, is land actually constant in any way that matters? In mere total area, I guess it mostly is (the Dutch would disagree), but is that the important measure? Farmland isn't a constant, for instance - you can create new farmland, or plant forests on your old ones when it doesn't pay. There are remarkably few things that depend exclusively on total land area in a nation, as opposed to what it's for, and what it might be fit for at the margins when the situation changes.
I think Lars' post has pretty-compellingly shown that the land tax can't be passed into raised rents.
In terms of the portion of rent coming from the floorspace, LVT should bring those down as well. By punishing passive speculation, it will nudge owners towards developing their property as much as possible, increasing supply of floorspace.
Again, the difference between land rents and housing rents is crucial here.
Yes but the differences make the case for taxing land much stronger than for housing, no?
My point is that people who think that The Rent Is Too Damned High typically mean the cost of their housing, not the land rent.
I think they are typically conflating both components.
If that were the case then all people renting eyewateringly expensive studio flats in the bay would move into much bigger, cheaper houses in the rural midwest. (or rather more expensive houses on much cheaper land)
Except they can't, because their employment is in the Bay Area, and they would have nothing to pay rent with in the Midwest...
Farmland is not increasing in the US - housing & commercial development is increasingly consuming the most productive land. When farmland is 'created' (aside from the Dutch method) it means taking wilderness land out of sequestration (or relative sequestration, if used for grazing/hunting/logging). This isn't impossible to solve, but it does mean making a choice for society - not guns vs butter, but butter vs birds vs bedrooms.
land value tends to follow a normal distribution from city centers, with bumpy increases on fertile land (still dwarfed by the value of urban land), and around public goods.
The concept that landowners of different parcels who are using them for different purposes (one has a large garden & orchard, one has a shop, one has several rental units) are going to be each taxed (equally) enough to support the city & state & federal taxes necessary to support the wants of a larger renter class - even disregarding the "eat the rich" and "fuck the landlords" attitude thick in the comments to these posts - doesn't pass the smell test. All the words in the articles aren't really helping - I feel like something major is being ignored or glossed over.
Not sure what your complaint is exactly. The revenue estimates are in Part I.
I've read part I. (Also: "do your homework" is a crap way to convince people to favorably consider your proposed upending of society as we know it.) Take my example - three different parcels, with three different families of landowners, and lets say four families of renters, and walk me through how the taxes work out.
I also hate the "do your own research" type of argumentation, but I do think that if you're skeptical of how much revenue can be raised, Lars' Part I is probably a good place to start.
If you're talking about three identical plots of land, side by side, just with different activities on top, then yes they would face the same tax under what georgists propose.
So you want all orchards and gardens to be sold off and turned into stores and apartment buildings, unless the owners are privately wealthy enough to pay the elevated tax. This is a lousy idea and I hate it.
Parks & gardens are public goods so are best provided by the municipality. With land tax they'll have optimal incentives to do so, as it boosts their revenue from nearby properties. Bonus is that the value of those public goods is no longer captured by land owners.
I want all private sites to be used for their highest best use. In cities this may well mean that many parking lots or private gardens get converted to houses for humans to live in, seems fine by me. Or at the very least, when folks are deprived of those houses in lieu of a private garden in the middle of a city, the land owner can compensate society for the privilege.
You're conflating the landowner qua owner of the land (who engages in zero productive activity) with the landowner qua user of the land (who does any productive activity that occurs on the land). Some landowners intentionally rent out their land to other people, while other landowners "rent out their land" to themself (who may use it to build and operate a building, which they then occupy or further rent out), which doesn't show up under standard accounting, but easily could be accounted if one wanted, by each landowner creating two shell companies - one holding the land and collecting land rent from the other, which does whatever productive activity that goes on on the land (including building or maintaining structures).
For any landowner that actually rents out their land, as long as the amount of the land value tax they pay is less than the land rent they collect, they'll hold on to their land, and still continue to profit from pure inactivity. But if the amount of the land value tax is more than the land rent they collect, they would dump the land. For the landowners that use their land, separating them into these two companies leads to the same principle - if the land value tax is less than the imputed land rent they are collecting from their user self, then they'd continue to hold onto the land, but if the land value tax is greater than the imputed rent, then they would again dump the land and join the renter class.
In any case, the landowner class continues to profit (on literally zero effort) unless the land value tax is set high enough to equal or exceed the amount of land rent (actual or imputed).
One ideal type of Georgism says the land value tax should be set to exactly equal the land rent (actual or imputed). The net result is that all current landowners keep their productive business that they operate on the land, and dumps the landownership on the state. Now there are no private landowners, and everyone just rents land from the state.
Now the claim is just that the sum total of rent on the land is sufficient to support the wants of the population. This is exactly what it means for the sum total of land value taxes to support the wants of the renter class. Obviously, not *every* want can be supported this way. But if there is an investment the state can make that increases economic activity by more than it costs, then the state can collect that back in rent, and thus will be able to support it. And this seems like the sort of wants that the state *should* support, rather than the wants that *can't* be paid for in this way.
"everyone just rents land from the state" - I get it now - this is a backdoor way to make everyone literal serfs and wards of the government.
This is as horrid a fix to the "renting sucks" problem as single payer healthcare is to high medicine bills and food stamps are to hungry kids. This sucks and I hate it.
Everyone already de facto just rents land from the state. That's what sovereignty means. You may do with "your" land only what the state permits you to do. They are the sovereign.
The only change would be that rent would go to the state rather than the landowner.
Coming down on single-payer healthcare (which works quite well in practice, whatever your philosophical objections) is not really helping your case.
I find two things unconvincing about this article:
1. The studies cited show LVT rate changes being capitalized into the price, which is supposedly theoretically consistent with no rent increase, but there’s no direct demonstration of no rent increase afaict. So the argument that rent wouldn’t increase under an extreme LVT seems still theoretical. (Also, as some other commenters mentioned, some of the studies were in jurisdictions with rent control. If raising rent is illegal, then of course it won’t fall on renters.
2. In practice, property tax rate changes _are_ passed onto renters. It seems a priori unlikely that taxing only the land and not structures would have a different outcome. It should take strong evidence to move off this prior, and the provided evidence is indirect at best,.
On net, this article reduced my credence in Georgism due to the above two factor.s
1. You're right that the studies don't analyse rent directly, but I'm curious why you don't think that full capitalization implies rents being unaffected?
2. Afaik the economic literature is quite strong on even property tax being fully capitalized (see the Hilber paper above, for eg). And the case would be even stronger for land because land supply is perfectly inelastic (property is not).
> Note the "per mille" – 20.6 per mille = 2.6 per cent, etc.
*2.06 per cent
I don’t get how the tax doesn’t get passed on to tenants. Suppose in a 100% LVT world two landlords build identical buildings, one in the middle of nowhere and another one in a desirable location. Wouldn’t the tenants pay vastly different rents, in each case consisting of the part due to the building (the landlord pockets it) and the part due to the land (the landlord collects it and repays it as the tax)?
If I understand it correctly, not only does the 100% LVT get paid 100% by the tenants, Georgism doesn’t preclude rent hikes in gentrified areas either. The difference is whose pockets those hikes go into, which is no longer the landlords but the state.
> If I understand it correctly, not only does the 100% LVT get paid 100% by the tenants, Georgism doesn’t preclude rent hikes in gentrified areas either. The difference is whose pockets those hikes go into, which is no longer the landlords but the state.
It is true that the rents aren't lower under Georgism as under the status quo. The point is they aren't higher either. It is better that land rents go to the state rather than landlords, because now everyone benefits, not just those who hapen to own land.
I think they might go lower if the reevaluation happens rapidly.
You can lower rents and attract more customers, if this also lowers tax by a similar amount there is no reason not to lower the rent.
The limit being when the rent just covers the improvements cost.
Reality won’t be this simple. But it is a force that feels relevant, and one that I suspect ratchets down over time.
you can lower rents if you build densely on a parcel of land roughly the same value and size as a competing landlord (which is why LVT needs zoning reform as a first order reform to work - and vice versa)
The rent you charge bears no relation to the tax you pay. The tax is determined by the competative market rent, determined by supply and demand.
I think it’s complicated. If rents go up, the state has to check whether that’s due to land value going up and whether reassessment is in order.
"It is better that land rents go to the state rather than landlords, because now everyone benefits, not just those who happen to own land."
That is a really big assumption. It is not at all clear that states spend money in more social beneficial ways than individuals, and in many cases it is quite obvious they do so in much worse ways (war, secret police, generalized oppression.) There is little reason to assume governments will spend better, and a lot of reason to assume they will spend the money in worse ways.
So it's your claim that we have a choice between war and secret police in one hand, and sending Jeff Bezos to space in the other? No better world is possible?
How about war *and* sending Bezos to space?
No. My claim is that Jeff Bezos does not spend his money on wars or secret police, so far as I am aware, while governments do. Governments also send people to space. I think spending the money on sending people to space is better for society than wars and secret police, no matter who does it.
The fact that Bezos might also spend the money to build a new business that helps people by producing what they want and all is a big plus too. Governments don't do that sort of thing.
My local government does not spend money on wars or secret police, though they do spend money on police.
Either you've misunderstood me or you're dodging the question.
Yeah, governments do a War sometimes. Governments do most of War nowadays, unsurprising given what a modern War requires. I don't think that "Fails to solve the issue of War Existing" is a particularly valid critique of Georgism (Or any other economic theory--Our current economic system has also failed to solve the issue War Existing and has arguably made it worse).
And in case it wasn't clear, I don't think sending Jeff Bezos to space is a good use of resources. More generally, I don't think we would be discussing Georgism like this article does if the status quo was fine actually.
So, when presented with the choice between Georgism on one hand (Which admittedly doesn't fix the problem that War Exists) and the status quo, you seem to be making positive-ish remarks about Bezos and all the new business he might start (Maybe one will fix that pesky War Exists issue!). So my read on your take is that the status quo is preferable. And from this I'm extrapolating that you don't think a better world is possible. If you did, surely you would advocate for that vision instead of for Jeff Bezos. Does this make sense?
It's certainly not *clear* that states spend money in more socially beneficial ways than individuals, but the point of a democratic governance system is that the community has input in how the state spends money, while the community has no input in how private individuals spend money. If you think that a person is at least by default better at deciding how money could be spent to benefit them than someone else, then we should expect that by default, money spent by the state will be better spent on the interests of the public than money spent by private individuals. That's the general reason to assume governments will spend better than private individuals.
That is some really twisted logic. We should expect people in the government to spend money on other people's wellbeing better than the people themselves, because we think that a person is at least by default better at deciding how money could be spent to benefit them than someone else.
You have Milton Friedman's argument exactly backwards. Even before you stop to consider how much input individuals actually have in how governments spend money.
Oh, I thought you were claiming that a random landowners is going to spend money to benefit the people more than the state would spend money to benefit the people. That was the case being discussed. It would be best if each individual got to spend their own money (as in the citizen's dividend) but if it has to be some random landowner who decides how to spend the money, then it's better for the people if that landowner has their decisions controlled by the people (i.e., the landowner is a democratic state) than if the landowner is just a random individual.
1: "The people" have very little control over how state money is spent.
2: The government spends money on very bad things sometimes, things that individuals are incapable of spending money on.
3: In both cases, state and individual wealthy guy, the money gets spent such that it goes to individuals, who then spend it on themselves*. Both targets of spending are possibly strange, but the next step is "lots of individuals spend that money on what makes them happy." We might care who those individuals are, but generally things get pretty diffuse pretty quickly.
So yea, to the extent that the state does things like spend money on wars, spy on its citizens, and do other actively negative things, yes, I think a billion dollars in the hands of someone like Bezos (for whom I have no great love) is probably better than the same money in the hands of, say, the NSA.
*Well, except when the state uses it to give money directly to other states...
Usually the idea is that LVT gets levied instead of other taxes which are more distorting (e.g. income tax), so there would not be any additional net transfer from individuals to the state – only a shift in which individuals pay the tax.
Whether you believe that such a shift is actually politically feasible without increasing the tax burden, 🤷♂️
Yes, I am not arguing about the type of tax, just against the idea that money going to the state is better prima facie than money going to landlords.
Even if the state continues squandering the money, which is the most likely outcome, at least the incentives and disincentives implied by the new tax are better aligned with the interests of the economy compared to the status quo.
I don't know if I'm pointing out the obvious or being dumb here, but wouldn't this kind of policy immediately result in maximum exploitation of all land (i.e all natural) resources? Surely we're already making enough of a mess of the Earth, between contamination, climate change and biodiversity depletion... I'm a bit skeptical of the wisdom of a global policy that would make it impossible virtually for anyone to hold land without exploiting it to the max.
People already try to exploit the land/resources they own to the max. Georgism tries to recapture the value of that exploitation for all people in society instead for those who were lucky enough to inherit land.
This isn't how we persuade people. It's just meant to be a statement of the truth.
Land is not a thing that landowners did *anything* to create. To the extent that there is value, that value is capital created by the *user* of the land (who in many cases happens to be the same person as the owner of the land, but it is the *capital* they have added that has the added value, and not the land itself).
As long as the economic land use meets the minimum amount charged as tax, LVTs are fine. If land is not being used for economic purposes at all, for instance unused forest, then it's a cost on the owner. Because the tax rates are supposed to be set on the value of the land if it were being used, it encourages people to sell their land if they aren't using it economically, because the costs are prohibitive against holding it for non-economic use. This is often billed as one of the main explicit purposes of LVTs, to eliminate land holding speculators. Therefore that unused forest will be sold to someone who can use it economically, which will generally be loggers, who will clear the land of the forest. That seems to be exactly what skaladom is concerned about.
How can Georgists disincentivize holding land (speculation) without causing that effect that skaladom is concerned about? If you set the LVT too low, people can hold land and speculate (as they do now with current property taxes). If you set it at the land use value (which is what Georgists say should happen), then land will be put to economic use even if that destroys the environment.
You're talking about permanent resource extraction and the degradation of land value. The Georgist literature talks about severance taxes for this case, which is beyond the scope of this series but is an important subject.
It depends on whether loggers can use that land economically enough to pay the taxes. If they can't, then the loggers won't buy the land either, but will just let it revert to the state.
Thus, the state gets to speculate, instead of private individuals.
Either way, under this system, the forest is lost because someone (not a land owner) values money more than anything else. This is a bad system.
Severance taxes are a good solution for penalizing permanent degradation of land you want to protect. LVT is not the sole policy lever of Georgism.
Not entirely. One of the points of the land value tax as opposed to a property tax is that, for instance, someone who owns a downtown lot may decide to leave it as a surface parking lot for a decade, hoping that they'll be able to profitably build a ten story building there later, rather than building a profitable five story building right now. Under a property tax, building the five story building increases their tax burden, and thus might be unprofitable compared to keeping the parking lot. But under a land value tax, building the five story building does nothing to their tax burden, and thus would be pure profit. The property tax discourages certain exploitation of land.
This discouragement effect is strongest on land whose exploitation requires heavy investment (i.e., urban land) and is weakest on land whose exploitation requires little or no investment (wilderness parkland or resource extraction).
>>>"People already try to exploit the land/resources they own to the max." No, they don't. Individuals use their own property in the manner that best pleases them. Even hard core libertarians don't assume economic returns are the be all and end all of human activity.
New York City is spending a lot of money keeping Central Park as a park instead of changing it into skyscrapers. I don't see how that changes under an LVT.
If we want to protect the environment we should do that explicitly using pigouvian taxes/subsidies rather than economic rents. In any case, car-centric suburban sprawl and ground-level car parks in cities are much more 'underutilised' from the Georgist perspective than a rural wetland is so the overall outcome may end up being positive for the environment.
Wyatt mentioned an issue that you touched on very briefly, but seems quite central to the overall claims.
You say "With a Land Value Tax, the owner has to pay that tax every month whether they have a tenant or not. They're already charging the highest amount the market will bear, and as we've already shown, they are unable to change the supply of land."
But the supply of [usable/used] land does change. In a small urban country this is harder to see, but in a large rural country this is actually quite obvious. Consider a brand new town/city (Chicago in 1833 for instance). At the time Chicago was formed, it was an alternative to other places where people may have lived, but we can see even more so that it became a better alternative over time, and the very small central core expanded over time into more and more land. "Chicago" was very small - 4,000 people in 1837 - and more land was added to "Chicago" over the years as the population expanded. I put the name in quotes because people in the 1840s would not have considered the full boundaries of modern day Chicago as part of the town back then - in other words the town expanded to include more land and the supply of land in "Chicago" increased! Right now there are rural areas with completely unused land. The land isn't even a national park or held by a mining company, but may just be completely unused land. Not to say it's not owned, but it's being put to no productive use at all. The LVT on the land would have to be $0, based on current use. Think of the very top of a high mountain, deep within a mountain range or a patch of desert far from any human habitation, if you can't envision anything less severe (though less severe does exist). Over time, humans may find reasons to move closer to this unused land, thereby moving it from "this is worthless land that nobody would ever pay rent to use" to "this land has some rent value" and therefore the supply of land is increased. As a more extreme but more obvious example, consider Mars. If humans were ever to colonize Mars, we would significantly increase the amount of land available.
To push this back towards your point, if the supply of land can change, then we are no longer in a rigid system where taxes can be raised without recourse. This may be approximately true in a developed urban area, so an LVT for Manhattan may be able to work approximately as you describe. Even then, there are alternatives available. Consider the real life example of a significant expansion of New York City residents moving to Connecticut. They are close enough to the city to interact with it as they need, but not deal with the problems of living in the city. In other words, "New York City" actually expanded its supply of land! And we know that happened in the past as well, with northern New Jersey acting as an overflow for NYC proper for many years. If the cost to live in a place is too high (as with your tobacco examples), then the supply of land can actually decrease as well. Consider Detroit, which has significantly contracted from its population peak, and land has gone fallow even within what used to be known as the city proper.
If the supply of land can change, which I think I've demonstrated it both can and does, then it no longer follows that a tax on land behaves differently than other taxes and that it cannot be passed on to tenants. In retrospect I think it's pretty obvious why this would happen. It's the same reason people want to live in cities in the first place, and why urban costs increase so much compared to rural areas. Being close to your job, or city amenities, or whatever reason people want to live in a city, means people will pay more for land within that area, and less for land elsewhere. You can raise taxes on living in a popular city and still see people paying more to live there. Local to me, the best school district in the county has housing prices significantly more than similar houses in worse school districts. Property taxes are also higher in the district with better schools. People still want to live in the more expensive area - in other words the prices are passed on to tenants who want to live in that particular place.
Again, I think LVTs make a lot more sense in dense urban areas, and approximately resemble the theory. But, considering how cities expand and even contract over long periods of time, it's simply not true that the Georgian theory can hold over a long period of time without causing distortions similar to other taxes.
What do you think of the empirical studies?
I think that there are too many alternative explanations to be sure what they conclude. If you raise a price, you would expect less people to purchase an item, which would result in lower prices. If you raise a tax, I would expect housing prices to drop to compensate, but the overall cost of living there to be approximately equal (less mortgage, more taxes). I think both of those results are shown in your studies, which mostly just reinforces supply and demand.
The landlords make money, but not so much that they can eat a large increase in taxes. In theory, landlords need to raise rents to offset their losses, or go bankrupt. It may be that bankrupting current landlords is acceptable/preferable to Georgists, but it sounds like a pretty severe problem. An existing LVT may encourage lower land prices (though the equilibrium price to live there seems unlikely to change, being offset by the taxes), but switching to an LVT runs right into current landlords and their efforts to compensate without going bankrupt.
If we move labor taxes into land taxes, then the landlords can get more money from tenants (who used to spend it in labor taxes) and can freely raise rents to compensate. Because all land would all be taxed at the same time, then there are no alternative housing options and people are stuck with higher rates at all rentals. The only alternative to paying higher rents is for people to stop renting in that particular market, moving to cheaper areas. Doing so would reduce both the land values and rental values, which could be nice, but only happens if you've raised prices to the point that people are choked out of the market. Looking at popular cities like SF, this point has not been reached and it seems that heading towards that point is a major reason to look at Georgism, so it's counterintuitive to raise prices now so that they go down later.
>If we move labor taxes into land taxes, then the landlords can get more money from tenants (who used to spend it in labor taxes) and can freely raise rents to compensate. Because all land would all be taxed at the same time, then there are no alternative housing options and people are stuck with higher rates at all rentals.
All land is taxed, but not at the same rate: and even in an area where land is taxed at roughly the same rate, not all housing units are "taxed" at the same rate. On my parcel of land there are 3 homes: on an adjacent parcel of comparable size there are 20.
Suppose the land tax on each parcel is $X. Now, my landlord has already set rents at the highest level he thinks he can without having to worry about losing money on units sitting empty: if he raised the rent, I would just move (in practice he could raise it a little and I might not bother, but too much and I would definitely relocate). My landlord would incur a cost of $X/3 per unit. Even if he could pass some of that on to me, he cannot pass all of that on to me. This is because there are other units in the area where the land tax results in an increased cost to the landlord of only $X/20 per unit. So it seems like, to avoid having to deal with finding new tenants and running the risk of a unit sitting empty, he could at most only raise the rent $X/20 (to say nothing of the possibility that I might just relocate to a different neighborhood).
This is all setting aside the fact that an LVT includes relaxing the tax on improvements, which (to a first approximation) is a flat tax on each unit, so units on better-developed land end up even cheaper in comparison, further limiting my landlord's ability to hike my rent.
I'm not understanding how any of this involves changes in the supply of land. This involves changes in the value of the land, but the land is still there whether it is valued or not. A property tax falls on both the value of the land and the value of the structures you build on it, and thus discourages owners from doing anything to increase the value of the land or anything to increase the value of the structures. A land value tax falls only on the value of the land, and thus discourages owners from doing anything to increase the value of the land, but does nothing to discourage owners from increasing the value of structures. To the extent that the growth of Chicago increases the value of land outside of Chicago, that means that landowners outside Chicago will not want to contribute to the growth of Chicago. But as landowners of one parcel outside Chicago, they can't do much to affect the growth of Chicago.
If you have a small number of landowners, who own both land within Chicago and land outside it, then you'd get distorting effects, because those people will be discouraged from doing things with their Chicago land to increase the value of their suburban land. But this is much less than the distortionary effect of a tax on structures, where the person who builds the structure is the person who pays the tax on it.
That gets back to the question of the various components of "land value" as discussed in Part 1, and subject to discussion in more detail in Part 3.
The point made by many comments here (e.g., Alex Godofsky's insightful points) and to Part 1 is that land value as observed in the U.S. is a mix of "raw land value", legal development rights/restrictions, and positive externalities from nearby development. In the third case, that's a complicated mix of government provided infrastructure/services and positive externalities from nearby private development. In some cases the observed reality is that developers undertake large-scale development to internalize positive externalities. There are also feedback loops - whether or not activity is explicitly coordinated - where building on Parcel A increases the value of nearby parcels B, C, and D, and then subsequent construction on those parcels increases the value of Parcel A.
So, if we think of land not as "a physical piece of dirt" but as "all value of a property other than some measure of the construction cost of the improvements located on that property", then human activity clearly can change the supply of land. If we tax land value under that second definition - which is the direction of the cap rate discussion in Part 1 - then "supply of land" isn't fixed. It's therefore clearly possible that land value taxes have negative incentive effects.
Yes. This absolutely seems right to me, and very much complicates the clean theoretical Georgist picture. This set of effects probably causes very deep problem for the "single tax" view or a 100% land value tax proposal, but the effects are likely so much smaller than the disincentive effects of property tax that they can be mostly ignored when considering smaller policy changes aiming to shift more property taxes towards land value taxes without getting anywhere close to the theoretical Georgist maximum.
You haven't demonstrated that the supply of land changes. The supply of land can change, for instance when filling in water with sand or draining swamps, but these are really uncommon and are almost always public works projects which aren't really relevant for the analysis of land in general.
The "supply of land" as you're defining it is fundamentally different from how Lars, George, and economists define the supply of land. You are defining it as the amount of land in a political boundary, which of course can change over time. Economists are defining the supply of land as the amount of land in a specific geographical area, usually the entire world, which does not change over time, outside of some niche cases. It is a categorical error to ascribe conclusions drawn from the economic definition of supply as being equally applicable to your definition of land.
Washington D.C. was built on a swamp, so I wouldn't discount the growth of land from that cause. More importantly to me, as cities expand, unused land in surrounding areas becomes more and more urbanized and land values go from (nearly zero) to (arbitrarily high). In the Chicago example, a town of 4,000 people in 1837 became a city of nearly 10 million in the metro area. Urbanization has spread to 30+ miles away from the city center. Someone who wanted to build in "Chicago" in the 1850s could build very close to modern day downtown, but could not build 5 miles away from downtown and still be in "Chicago" - meaning that the land was not worth building on due to lack of local interest. Now, five miles from the original core is dense city, where it's extremely expensive to buy land. What happened? The land in "Chicago" expanded! There was more land in "Chicago" that people wanted to live in, making it economically viable to build in more areas.
We can be overly literal and limit ourselves to the maximum possible supply of land, as you appear to be doing. That's why I mentioned the Mars example - we really could greatly expand even that pedantic meaning of land, but that's less important than the economic reality. In any way that we actually care about (which boils down to demand for land), the supply of land actually does increase all the time. Every time a city expands, there is more viable and valuable land in that city. Nobody cares that there is open worthless land in the west Texas desert (I looked some up, $50 an acre!), not even Georgists saying that the total amount of land is capped. What matters is whether there is demand for building in a particular place. That's why Las Vegas is valuable and Loving, Texas, is not.
> Georgists assert that landlords cannot pass Land Value Tax (LVT) on to their tenants
Right off that bat, I don't get why I care about this at all. Lots of taxes are "passed on," whether efficient or inefficient. LVT seems efficient to me, so I don't care much if it's passed on or not.
Others seem to care a lot about it and asked me to write about it. Feel free to ignore this post if it's not relevant to you.
But I learn a lot about the Georgist movement because they're worried about this.
The price of land going down with a LVT seems quite intuitive (why buy land if you can barely make a profit from its rents). However, one of my initial main concerns with a true 85%+ LVT was that the price of land would drastically plummet. This drop seems like it would overwhelm any improvements in the surrounding area made by governments flush with cash.
Governments typically try to avoid harshly punishing a specific area of investment without suitable compensation. Would the solution be to very slowly increase to a very high rate (like over the course of 50 years) and compensate current owners proportional to their current land? Or am I missing something entirely?
Even the most radical Georgists admit that an 85% LVT policy ain't happening overnight. If and when it comes to pass it would almost certainly be gradual. I envision something like this:
1. Improve the quality of assessments in existing property tax states
2. Shift existing property taxes onto land and off of buildings, but collect the same tax
3. Gradually raise LVT over time
Thanks, although my main concern was the sudden loss of land value (e.g., your $500k plot would become worth just $75k, since its value is based on your ability to extract profit from rents). Even LVT was implemented gradually, telling people that their land will eventually be taxed at 85% would immediately and drastically drop its value (?). I guess this could be made up by just compensating them though, which could also be done slowly over time.
In my ideal world, the 85% LVT would be phased in over the course of 100 years or so but as a constitutional amendment.
The uh, more "funny" way of going about it is letting BlackRock/whoever buy up all of the land in a county and then have all of the renters in the county form a political party/ballot initiative that implements an LVT+Basic Income at the same time. Its certainly provocative.
that's assuming that Georgists had total control of government and everyone had full certainty in those changes. The most likely scenario is a gradualist approach starting from local areas and moving upwards from there. Even if it makes steady progress I don't perceive an instant capitalization overnight.
Hmm, about starting from local areas, do you think LVT would make communities more or less competitive relative to other communities? My worry would be that it somehow leads to them becoming less competitive, which would yield a Molochian/coordination problem scenario. However, I don't have any intuition about whether it would help or hurt them. My only thought is that it could help since it would lower the cost of buying land and thus lowers the initial costs needed to build something?
My (testable) hypothesis, is that if you were to establish LVT on a community of sufficient size (probably bigger than a small town, but perhaps not necessarily as large as a big county) then you would see increased investment, greater housing density, and an increase in land values (even if the actual land prices are close to zero due to capitalizing in the collected land rents). To the degree that rising land values represent people's increasing willingness to live there, I would further predict that this would be a nice place to live.
Actually I have the opposite concern compared to Paul B: if LVT were implemented on the city level, the city would become more attractive to (prospective) residents because of the government services the tax can fund. Nice, right? But it means people would try to move to the city, so demand for land would increase, so rents and home prices would increase. (So it doesn't hold that the tax can't be passed on to tenants once movement between municipalities is taken into account.)
Then, at the next reassessment, the city tries to collects the extra rent as LVT. Then it provides even more services, creating even more demand, raising rents and home prices even further, and so on, with rents and taxes rising without bound.
Or, assuming a 85% LVT, they rise until the remaining 15% is as much as the 100% is today (while the sky-high rents and taxes add a great deal of volatility).
> Governments typically try to avoid harshly punishing a specific area of investment without suitable compensation.
There's an ambiguity in the word "investment". It can either mean spending money to acquire a valuable good, or it can mean spending resources to create wealth. Landowners have done the former, but they have not done the latter, the way that people who create capital do (whether that capital is the material capital of building a factory or machine, or the social capital of getting an education).
It's clear that you shouldn't punish investment of the sort that creates value. But it's not so clear that you shouldn't punish the former kind of investment, where someone just pays to acquire a purely passive income stream from someone who did nothing to create that income stream. One moral view says that the latter sort of thing has no social value, and thus we can legitimately destroy it. Another moral view says that whether or not this has social value, we shouldn't destroy anyone's ownership without compensation. Which view to take is a debate within Georgism but not settled by the economic questions.
I can't speak much to this, but I'm thinking about how when the British abolished slavery near the start of the 19th century, they compensated all the (mostly wealthy) slaveowners at market value. This amounted to 5% of their national income at a time when total government tax collection was just a couple percent of the national income. France took on a similar approach when they abolished slavery too. Of course, his old example shouldn't have any bearing on what we do today, but it just got me thinking.
In terms of LVT, I don't think it's really fair to say that landowners should be punished or are doing something knowingly immoral. Most middle class and upper-middle class assets are in real estate and they would be taking a large fraction of the hit, while the upper class is more invested in financial assets.
Yes, this example is a good parallel, particularly because the property being expropriated in that case clearly was morally problematic. I don't know that there would be a moral obligation to compensate people for the taking, but there does seem to be at least a pragmatic reason to do so to make the transition easier. (Though I think other changes in regulations or taxes aren't always compensated.)
> It's just an illustration meant to make a rhetorical point, but now I'm curious to see a real-world version of this superimposed over, say, Houston or Philadelphia or New York City, and based on actual data.
Check out https://www.officialdata.org/ca-property-tax/#37.83470860338346,-122.26070885080847,17 ; many San Francisco numbers are nuts (and hugely variable, as you would expect from Prop 13)
The big problem with this argument is that it is very, very misleading. The tax will get passed on to the tenants, but that doesn't mean their rent will increase necessarily, as the value of the land will drop to the point that the rental income from charging rent plus the value of the tax is equal to the discounted income stream land owners are willing to accept.
The tax gets passed on to the tenants because so long as they want to rent land, they are going to rent the land that pays the tax, and "what the market will bear" goes both ways. Land owners rent at as high a price as the market will bear, and renters rent at as low a price as the market will bear. BOTH matter. Just as you can claim that land owners are already charging as much as possible, it is equally true that renters are paying as little as possible.
Now, if you put an X% tax on all land rental, the price of land will drop as owners sell it to other owners because the cash flow is not high enough to justify owning it. No one is going to rent land at a loss, not for long, so any rental fees are going to include the tax. If the land owners needs to profit 100$ a month to make the price of the land worthwhile instead of buying a stock or something, the tenants are going to have to pay 100/(1-X) every month. (In the case where X%= 85%, tenants have to pay $666.66 a month for the landlord to get 100$.)
Where the new rental equilibrium will be, whether higher monthly rents or lower, no one can know ahead of time. That number is going to depend on how many other investment options land owners have, their relative returns, the opportunities and abilities to change the structures on the land (changing apartments to single homes to commerce, etc.) and all that. No one can claim to know what the new prices will look like without being a liar.
Would an LVT be better than all other forms of taxation? Possibly, although assessment is a real bear.
Is it a magical tax whereby the cost isn't born partly by the sellers and partially by the buyers? Of course not! There is a fixed amount of land to own, and everyone has to live somewhere on it (barring owning a house boat) so people can't change their behavior to avoid the tax much, outside of moving out of high assessment areas. The plus side to that is that it is less distortionary, since people are still going to own and rent land. It does NOT however mean that the renters are not going to be paying those taxes; tax incidence relies on relative elasticity, and land owners have a lot more flexibility in investment vehicles than renters have in whether or not to live on land, so land owners are not going to be the one paying the bulk of the tax.
What do you think of the studies?
The studies seem to mostly say "The value of land goes down if you raise the tax on the land's income stream." That sounds about right, because landowners have other investment vehicles to choose from in addition to land, and renters can move sites if prices go up because the changes are not nationwide.
Remember, though, the value of land going down isn't the same as "the tax doesn't get passed on to the renters." The value of land to a land owner is the profit they make off owning it. If the taxes go up on that income, the profits go down and the value drops. If the rent stays the same, that means that the Rent/Price of Land merely goes up. So whereas before you paid say 100$ per month to rent land it would cost you 1 million to buy, now you are paying 100$ per month to rent land it would cost you half a million to buy. Yay?
Or consider the limit, a 100% land tax, in effect, the taxing government owns all the land. Who pays the tax? Well, 100% of the rent is taxed, and the renter pays the rent, so... the renter pays 100% of the tax.
So what happens when you tax all land at the same %? The price of land drops such that the cost of owning that discounted value stream is roughly the same as other assets with similar profiles for liquidity, value growth, etc. while the rental costs equal whatever it takes to make the income from the land portion of the land + building stuff equal the income stream less the taxes. The result is a one time very large wealth transfer from those who currently own land (small homeowners and giant developers alike) to the government via a collapse in land valuations, and then some wiggling around in rent prices which might result in the same buildings having higher cost of rent, lower cost, or the same. The people the renters pay most of the rent to changes from landowners to the government, but otherwise... hard to say what happens. Maybe more intense land use like some of the articles point out, maybe less depending on how much people WANT to pay for more intensely used space. It will also depend on zoning laws and regulations about what you can do on the land. Also, of course, on solving the problem of getting reasonable assessments of value of the land separate from the improvements for an asset that tends not to change hands frequently.
Thank you for your thoughts!
Would you be more convinced by studies that directly observe changes in rents? I think at least some of them do this but it's been a while since I read them all.
I think there's a confusion in/of terms going on. When people say they're worried about the tax being passed on, I think the concern is "I have to pay my current rent _and_ the new costs of the LVT" and this is what you're disproving. However, @Doctor Hammer is talking about how the renter still ends up paying the LVT in the end, because they're ultimately having to pay rent still.
Right, and this is simply a confusion about producer vs consumer surplus. Economists are agreed that land value taxes come out of the producer surplus (see Samuelson), because a tax on land comes out of their bottom line rather than the renter's. Is the money the renter pays to the landlord the same money that pays the tax? Well, it can be, but it doesn't matter because raising the tax never affects how much the renter pays one way or the other. It only affects what proportion of rents go into the landlord's pocket and what proportion go to the treasury of the commonwealth.
Both of you are assuming there is a lot of supplier surplus and very, very little consumer surplus when it comes to rent. That might be true, but there isn't any reason to believe it inherently. Unless rental prices are fixed, or renters are perfectly elastic in their demand for land in an area (which... no), some of the tax will be paid by renters, every time.
The trouble is that there are a LOT of confounders in rent prices, such that you aren't going to get far in empirical studies. Economics in general suffers a lot from this, such as when judging the effects of minimum wage laws. I don't think a study could really exist that would prove it either way, or even present a lot of really good evidence, without being like the Seattle minimum wage study, and that was a BIG undertaking and still has people debating it.
The big question is what the underlying supply and demand curves need to look like to get no tax paid by renters. That requires a perfectly elastic demand function which requires a lot of alternatives to living on land. Seeing as how most people have to exist on land, that's not likely.
Landowners, however, don't have to be landlords; many other investments will do. Lots of elasticity there, so little tax incidence.
But... someone has to own the land, even if it is government. So we will either see land rents that are horribly muddled with building rents and so prevents the land only part from going to zero by virtue of bundling the two, or government owns all the land and charges arbitrary tax amounts on the people who own the buildings.
I take it you weren't impressed with the Danish study, then.
Do you think its possible to ever observe these effects in the real world in principle? Are we doomed to just slinging theory back and forth forever?
(Genuine question)
I wasn't much, no. I really don't think that in principle we are going to be able to observe the effects in the real world, no matter how fancy the statistical work. There is just too much going on that affects the blob of rental prices, land values and building values to control all the things changing them.
Now, if some country said "Fuck it! Let's rock some Georgeism and only have one tax!" it would be really interesting to see what happens next in terms of patterns. Even if rent prices went up EXACTLY as much as the LVT you would still have people saying "Oh, that's because the money freed up from not having other taxes went to bidding up the price of real estate!" or "The increased efficiency improved the economy so much that all land prices went up because people are spending more in general." If rents dropped people would complain that you didn't account for changes in population growth, or increased density and urbanization, the liberalization of zoning laws, or the recession from the Zircon variant. If prices stayed the same people would blame all of the above.
That's just how economics is. We almost never have empirical results that change people's minds. Hell, people still think Communism is a great idea, despite 30+ years of economics text books predicting the USSR would overtake the USA in GDP per capita in 5-10 years. The reason so many economists recommend not messing with markets is exactly because they work so well, we understand things so little, and just about every time we try to make significant changes in market processes we make them worse.
So yea, I think my field is pretty much doomed to slinging theory back and forth forever, with rare "Holy shit, you REALLY screwed that up" natural experiments changing some minds.
What if the Land Value Tax is precisely equal to the current land rent? Land owners get zero profit, so they won't invest in it, so they will let the land revert to the state, which then collects the current land rent. Why is this not an equilibrium?
I think that is the eventual equilibrium: the state de jure owns all the land and taxes people to use the land at whatever rate they think they can get away with.
I don't think that is going to do much to help renters, because governments are useful to enforce contracts between renters and landowners, protecting both. When the government IS your landlord, then there is a conflict of interest, to say the least. Good luck getting help if and when your landlord decides to screw you over.
> I think that is the eventual equilibrium: the state de jure owns all the land and taxes people to use the land at whatever rate they think they can get away with.
I agree, but I think that this is a good thing.
> I don't think that is going to do much to help renters, because governments are useful to enforce contracts between renters and landowners, protecting both. When the government IS your landlord, then there is a conflict of interest, to say the least. Good luck getting help if and when your landlord decides to screw you over.
In the current situation, if you have some county where 100% of the people living in the county are renting, there is absolutely nothing they can do to increase the supply of housing (and thereby lower rent) unless their landlords want increase the supply of housing. And the landlords have no motivation to increase the supply of housing to actually match the demand, let alone increase the supply to the point that rents might actually go down.
That is contrary to basic economic theory. Why wouldn't one of those landlords want to increase HIS supply of housing and capture more of that rent at the expense of other landlords? He has plenty of motivation to add more housing to his stock so long as the dip in price doesn't lower his total profits (which generally won't happen in the case of him acting alone.)
For collaboration like you describe to work, there needs to be an enforcement mechanism to make sure no one cheats and adds more housing. As it turns out, government is all too happy to provide such an enforcement mechanism in the form of zoning laws and limitations on building. Do you think government will do away with those laws when they are the primary benefactor of those high rents?
> That is contrary to basic economic theory. Why wouldn't one of those landlords want to increase HIS supply of housing and capture more of that rent at the expense of other landlords? He has plenty of motivation to add more housing to his stock so long as the dip in price doesn't lower his total profits (which generally won't happen in the case of him acting alone.)
Yes, but building housing is... tricky? Even if there was 0 red tape wrt zoning and permitting, the process of building additional units sucks for the landlord, since the whole time during construction you're missing out on income. (I think in an LVT system this could be ameliorated by waiving the LVT for standard expected construction length). So if demand for the area is going up anyway and you can charge more and more rent every year, it would be strange for me as a landlord to give up some year (or more) of rental income to build more units on a plot.
> As it turns out, government is all too happy to provide such an enforcement mechanism in the form of zoning laws and limitations on building. Do you think government will do away with those laws when they are the primary benefactor of those high rents?
Yes, but that is how it is in the _current_ system, so that's a very bizarre argument to make..?
I think when you say 'government' you're not really being specific enough? Ie: the zoning issues you're talking about are a result of local government, which is the people in county/community, using 'government' to benefit themselves. However, in California, "government", as in the state government, is trying to override the local government's zoning restrictions because they're bad for the state as a whole, right? So just saying 'government' is not specific enough.
> Do you think government will do away with those laws when they are the primary benefactor of those high rents?
Those high rents would at least go towards building infrastructure instead of into landlord's pockets? And yes, I think once everyone is equally impacted by the LVT, then reform would be more likely to take place. Currently, renters subsidize SFH owners/landlords.
1: Housing is tricky, but only in the sense that many, many investments involve spending now for benefits later. Already tons of money has to be paid up front to build things, generally long before any income rolls in. That's standard, yet lots of buildings get produced (eventually) and renovations get done, etc.
2: Yes, in the current system local governments harm renters to benefit landowners. If rents in your area are too high, you should probably blame your local government for selling out the interests of renters to landlords. They are the ones who are supposed to wield guns to defend you, and instead are using them in favor of the landlords. Changing to an LVT isn't going to change your local government's willingness to sell you out. If it did, I wouldn't expect the government to let such a change happen.
3: Will the government build infrastructure, as opposed to say hiring lots of cronies for do nothing jobs that add nothing to society? What percent of spending actually goes to building infrastructure? And why do those infrastructure projects always cost orders of magnitude more than when private organizations do them on their own?
It sounds like you live in California. Do you really believe your state is well run, with efficient government officials doing their best to solve problems and serve the interests of their people? The state has an incredibly rich and educated population, yet is beset by brown outs, water shortages, infrastructure problems, psychotic housing prices, etc. Do you think the local government in San Fran is unique, or is the whole state San Fran city councils all the way down?
I have a few questions which probably exposes my lack of understanding.
First, Part 1 showed that all the land being used is really valuable and that a consistent LVT could pay for a lot of really great things. If a severe LVT were imposed though, I think that a lot of people would just stop owning land? Which is obviously the whole point to reduce speculation, but then if nobody wants the land because of the tax burden, then who would pay the LVT to fund the Citizens' Dividend and other nice stuff?
Second, if everyone is selling off their land because they have to pay LVT on it, that seems like it would crash the price of land around it, reducing the value of the land to begin with. So how can we know that the land values calculated in Part 1 would remain accurate (and thus be able to fund all the nice things we want) after a huge LVT is implemented?
Third, wouldn't Georgism applied at scale to a country like the USA result in a huge redistribution of wealth away from urban areas and towards rural areas? Are we ok with that? I think people would be upset about that.
> If a severe LVT were imposed though, I think that a lot of people would just stop owning land? Which is obviously the whole point to reduce speculation, but then if nobody wants the land because of the tax burden, then who would pay the LVT to fund the Citizens' Dividend and other nice stuff?
I think you're missing the cause-effect for how land is priced (and yeah since there are administrative costs and you want the market to still work, its why most georgists want like an 85% LVT). The current price of the land is because of the rent you can extract from it by doing something productive with it. Price isn't the same thing as value. An increase in the LVT reduces the _price_ of something, because it takes longer to break even on a given investment of capital. The _value_ however, doesn't change, because the productive thing you'd do on the land would still produce just as much revenue as before the LVT increase.
> An increase in the LVT reduces the _price_ of something, because it takes longer to break even on a given investment of capital. The _value_ however, doesn't change, because the productive thing you'd do on the land would still produce just as much revenue as before the LVT increase.
This is really a key point to Georgism that needs to be driven home. Yes, you would have to pay more in taxes on the land, but the net effect is that you get all of the wealth that YOU generate using the land, which rewards you for using land efficiently in a way that other taxes like income or sales cannot do.
If you start a company in a city, you need land for servers, or production equipment, or offices. You could theoretically start that company in the middle of farmland, but you probably wouldn't for the same obvious reason that other companies don't move to rural Iowa to reduce their tax benefit: there is no one there to do productive work for the company. Land in San Francisco is worth more than land in Iowa because of the people who live and work there, and you just cannot produce as much value in Iowa as you can in San Francisco. This value in productivity is captured in land values, and the most efficient method of taxation is to capture the value from land and transfer it to the community writ large.
(With apologies to any Iowans I've offended)
> Third, wouldn't Georgism applied at scale to a country like the USA result in a huge redistribution of wealth away from urban areas and towards rural areas? Are we ok with that? I think people would be upset about that.
Georgism is a redistribution of unearned rents from landlords back to the community. I'm not sure why you think it would flow from urban to rural.
> I'm not sure why you think it would flow from urban to rural.
It pretty obviously would flow from urban to rural, as New York City would lose a few trillion in real estate value, while the community 100 miles away isn't losing anything close to that.
New York City would lose real estate value, but it wouldn't lose any of its current economic activity, or any value of the buildings, education, vehicles, machines, or any other productive things that it has. To the extent that landowners are urban rather than rural, it's a one-time transfer of wealth away from urban areas. But it's not going to result in any change in flow of income or economic activity, except insofar as more owners of rural land live in cities or more owners of urban land live in the countryside.
How is it a one-time transfer of wealth if there is an ongoing LVT assessed at the land's value? I think land in NYC is more valuable than land in the middle of nowhere. If the Citizens' Dividend is given out equally to all, then...
The one-time transfer of wealth is the reduction of land values from current value to zero. Future rent collection, instead of being transferred from (primarily urban) land users to landowners, is transferred to all equally.
Transferred to all equally, but isn't the LVT collected disproportionately more in big cities, since that is where land is more valuable?
Sure, NYC would continue to exist -- perhaps in an even more efficient form, presuming that the LVT has replaced other, more distorting taxes.
But people in NYC, more or less, own billions of dollars of land, and with a strong LVT that assets becomes worth only a fraction of what it is.
An attractive proposal is to separate the land value tax into different components that would be handed out to different levels of government, e.g., the component that is due to city investment would go back to the city, but the component that is due to federal or state investment in infrastructure, the location of the city itself, etc. would go to the federal or state government.
Is all the money kept at the municipal level then, so NYC would have a way higher Citizens' Dividend than Spuds, Nebraska? How does that tie in with in Part 1 where the author talked about funding Medicare, defence, etc?
Most appraisal districts in states have a political process for divvying up funds between various jurisdictions: school district, county, city, etc. That political process would continue in a world where everything was funded by LVT and is one of the reasons I did estimates to see how much money LVT is capable raising across all levels of government, federal, state, and local.
> Second, if everyone is selling off their land because they have to pay LVT on it, that seems like it would crash the price of land around it, reducing the value of the land to begin with. So how can we know that the land values calculated in Part 1 would remain accurate (and thus be able to fund all the nice things we want) after a huge LVT is implemented?
Yeah, so same thing, price != value. If I want to rent some storefront to situate my business, I know how much I'm able to pay in rent for it to be worth it for me to do so and everyone else making the same calculation for their own businesses is whats setting the market-rate for rent. Whether the landlord then pays 85% of what they collect in tax to the county or whether they get to keep all of it, doesn't change how much me or anyone else trying to productively use land is willing to pay.
I'm sure I'm misunderstanding here, thank you for taking some time to correct me.
The idea of Georgism seems to be "use your land productively or sell it to someone who will." The whole point of this post is that LVT increases can't be pushed on to the tenant, so instead the landlord needs to add enough value to justify their existence on their own merits, or sell. I would expect a lot of people to sell? Like, if this is the only tax, it seems like a lot of people would rather just not pay it, and would move to a different line of work that doesn't require land, like the service industry or government work or opening an Etsy shop or something.
It seems to be a big deal for Georgism that the value of urban land goes up when there are other nice things nearby, like coffee shops and shopping malls and laser tag centers. If everyone is selling their land or moving to a rental model because they can't eat the LVT, that seems like it would decrease the value of all the land in the area by the same process in reverse.
All of those things you listed still require land. Etsy shops require a place to make stuff, land to extract the things from the natural world you make your etsy stuff from, logistics centers to ship your thing, physical infrastructure to support the internet.
Government work requires office space, and a lot of the other stuff that is similar to the Etsy thing.
If land didn't matter, we would have all spread out and homogenized our space requirements, but it does matter which is why we still have cities.
I'd be careful about talking about the current NZ economy because of the distortionary effect of Chinese capital controls. Buying real estate abroad is one of the easier ways to get money out of the country. The distances and size disparities involved mean that this has a big effect on NZ's housing market.
Really enjoying the series so far, thanks for posting these.
A lot of the arguments presented against an LVT strike me as isolated demands for rigor.
Tax laws get changed all the time and it seems entirely reasonable to slowly phase in an LVT. Sharper increases for less efficient taxes have occurred without catastrophic consequences.
The tax bill from an LVT wouldn't be much different from property taxes in the US today. Assuming land value is roughly 70% of property value, we target an 85% tax on land rent, and the market capitalization rate is 5%, an LVT would cost roughly the same as a 3% property tax (70% * 85% * 5%). This is higher than typical rates in the U.S. (~1%) but doesn't seem like it will have terrible effects, especially since it is more efficient than taxing the property directly. Sanity check: median property tax rates were 1.1% in the U.S. and generated $323 billion, something on the order of 3% property tax rates should raise $874 billion, consistent with the low end results in part I (because I'm using the lower market capitalization rate).
The key here is to consider the alternative to an LVT. Many forms of taxation are inefficient, arguments against a LVT have to demonstrate that the LVT is significantly worse than a different tax scheme.
More important than policy details, Georgism raises an interesting question. We can roughly divide everything of economic value into the downstream products of Labor and Land (wealth is labor+land, money is receipts on wealth, capital is invested wealth, etc.). How do we distribute these basic goods?
Distributing labor is pretty straightforward, everyone has a right to use as much or as little of their own labor as they want, in any way they choose (though we might redistribute this somewhat via income taxation).
But how do we distribute land? Land is this weird thing which surrounds us, is crucial to producing economic value, and which nobody has a natural claim to. Should we give it to those who manage it best? Share it equally? Redistribute it to the poor? What taxation scheme would achieve these goals?
I think these broader questions are more important than policy quibbles, especially considering the fact that "Land" applies to far more than just patches of dirt (energy, natural resources, air rights, broadband spectrum, etc.)
Interesting point on the tax bill. That arithmetic also challenges just how much other taxes could be replaced with LVT, however.
In 2019, U.S. total government expenditures were ~$7.3 trillion. Total receipts were ~$5.9 trillion, and net borrowing was ~$1.4 trillion. Those figures are consolidated, netting transfers between levels of governments (e.g., federal to state and state to local). Details are on pages 69-72 at https://apps.bea.gov/national/pdf/SNTables.pdf
This BEA report also shows total state and local property tax receipts of ~$600 billion. I'm not sure of the difference versus harsimony's total of roughly half that number.
Tripling that number - whether it's ~$600 billion or ~$300 billion - would be a big change from the current tax system. It would not, however, come close to funding overall government spending in the U.S. Using the higher number of ~$1.8 trillion, it would fund ~25% of overall government expenditures or, said differently, account for ~30% of overall government receipts.
Right, I think by looking at property taxes we can push back against both the "LVT will constitute a large and dangerous change" argument from detractors as well as the "single tax" argument from Georgists.
I think your ~$600 billion number is more accurate, it looks like I was using the revenue from single family homes ("In 2020 the average single-family home in the United States had $3,719 in property taxes, for an effective rate of 1.1%. This raised $323 billion in property taxes across the nation", https://www.mortgagecalculator.org/helpful-advice/property-taxes.php).
To be clear Georgists also argue for taxes on other types of economic land, like natural resource extraction- these broadly fall under the category of severance taxes. And most Georgists believe that a significant portion of land rents should be returned to the people in the form of a Citizen's Dividend (the original UBI). This has the effect of equally distributing the benefits of land, without having to actually divvy everything up and distribute it, which would be impossible.
If you want a real-world implementation of this, the Alaska Permanent Fund is one of the best examples of Georgist policy out there. Alaska auctions off its oil at value- a form of severance tax- and then redistributes that value equally to all its citizens. This writ large is essentially the Georgist vision.
I think it would be valuable to consider how to extend these same ideas (LVT, severance tax) to other domains as well:
- It seems like solar energy would also fall under economic land, perhaps there could be a system of "solar collection rights" which encouraged efficient use of solar energy while funding a UBI.
- I have heard people frame "natural talent" as a form of economic land, perhaps income taxation could be restructured to encourage investments in human capital while taxing away unearned advantages.
I also think its important to consider alternatives to equal distribution. For example, we could target the dividend towards low-income individuals. On the other hand, we could target productive individuals (and encourage more effort) using an income supplement. Which is best? I'm not actually advocating for either of these, just food for thought (though I agree that equal distribution is the simplest, most politically feasible approach).
Georgists get strong demands for rigor because they are making strong claims (such as an LVT being non-distortionary, or that landlords can't pass it on), not just that and LVT is less bad than other taxes. Some arguments against the strong claims don't necessarily question that it's less bad than many other taxes.
I'm very pro-LVT, but one thing has always bothered me: the claim that land scarcity is unresponsive to price signals (ie, supply curve is a vertical line). While true on its face, improvements can make a huge difference to economy of scale, by dividing land value over a larger number of people.
Take a large plot of land currently used for a single-family home; if the value of that land skyrockets (more people willing to pay a premium to live in that area), the market can respond to the new price signal by building multi-family housing, even a skyscraper that houses a thousand people.
The counterpoint would be: there is still a land-value underneath, whether calculated for one resident or a thousand residents. (A single resident who chose not to build a skyscraper would still have to pay LVT based on the opportunity cost, in the same way as an idle land speculator.) All the same: how we do reconcile the claim that land is unresponsive to the price signals of changing demand, when improvements can act as a force multiplier, providing land's location value to a vastly larger quantity of people?
Really been enjoying these posts, great research and writing!
I think it helps to consider them as two separate markets: one in which the rents (and therefore price) of the land is determined, and another in which improvements get built to various densities.
The land market has inelastic supply, with demand for location determining what the rent is at a given location. Then the improvement market determines the optimal density to build on top, given the upward-sloping supply curve (inputs being land & construction), and the downward-sloping demand for floorspace.
Does that help?
In the real world and the short-medium term..
The tenants won't be paying the maximum the property is worth to them, and landlords will make more of an effort to get back what they're losing in tax.
Related - people/businesses work super hard to break even and make a small profit, they don't work as hard to make a bit more profit.
(All for Georgism, though)
The whole concept of 'pass the costs to renters' is a red herring. Rental prices are a function of supply and demand almost entirely divorced from the cost of inputs.
The cost of inputs for the 'rents' in the Georgian scenario are going to be the LVT and the cost of capital to build/maintain improvements. LVT is obviously a new cost and the cost of capital is also going to increase (interest rates will be higher as land is no longer a relevant piece of collateral).
Given that the cost to supply 'rents' is going to increase dramatically I don't see how the supply of 'rents' doesn't also decline dramatically. How this effects actual rental costs will depend on how demand shifts in response.
"Rents' in this case means economic rents, not contract rents- it excludes things like renting/maintaining buildings, which are returns on labor and capital, not on land. Likewise whenever Georgists refer to 'landlords' they are referring only to owners of land in their capacity as such. Unfortunately in common use we- true to form- confute land and capital and include what should properly be termed 'buildinglords' in with landlords.
LVT does not affect the supply of land, which is fixed, and it does not affect demand for land; as such, it does not affect land values or rents.
I am explicitly talking about contract rents, not economic rents. The whole 'land is fixed' is also a red herring as you aren't changing LVT uniformly on all land. Just like oil producers don't invest in extracting oil that is more expensive than the market will bear, developers won't develop/own land that is more expensive than they can get a reasonable ROI.
If they are only developing land because they can get rents from it, they are by definition not being productive, and so we should want something else that would actually be sustainable for its productivity there rather than a merely extractive enterprise that profits off the value of the community rather than its own contribution of products or services.
you are using the economic term rent to refute my use of contract rents.
Building and maintaining places for people to live is useful - we want people to do more of that. Taxing it will lead to lower supply.
We want people to do more of it where it is efficient. If developers are rentseeking it is because they are not developing intensively enough- they are building single family housing where under an LVT it would only be profitable to build townhomes or quadplexes. An LVT does not discourage development, quite the opposite. I'm not sure how you have managed to get this backwards.
There is nothing that you get more of when you tax it.
People have lots of alternative uses of their capital, the system you are proposing reduces ROI and increases risk. How does that lead to more supply?
My question is, why do Georgists seem to be so prevalent in right-libertarian circles? I know a lot of Georgists and I've met literally all of them in online libertarian capitalist spaces. Conversely, they seem to be almost non-existent in actual progressive and leftist spaces, despite the fact that their goals and plans should ostensibly appeal to people of a left-wing persuasion.
My guess is that it's because Georgism offers a solution for some of the problems with totally unregulated free-market capitalism without throwing out capitalism and markets altogether like the radical leftists want, and without all the taxes and regulations and market distortions inherent to center-left social democratic liberalism. Alternatively, it might be simply because Georgism and libertarianism are both heterodox ideologies that get attacked from the right, left, and center alike, which makes Georgists sympathize with libertarians and vice-versa.
All of the above, and more. I believe the basis of Georgism and libertarianism is an appeal to nature rights, while leftist theories are based on utilitarian philosophy.
Georgists believe land is the best and really only just tax, while many leftists will simply be like "yeah, that seems like another good tax we should have." But repealing income and capital gains tax is important for Georgism, though not as important as the LVT, of course.
I think you're close in your second paragraph. Minor caveats are that in my extensive experience online as an georgist (and progressive), I've found social democrats to be probably the most George-friendly community. Neoliberals as well. Right-libertarians tend to be fairly amenable, albeit skeptical that people can truly love taxes the way we do.
The reason we're not often in leftist spaces is that they're often very hostile to Georgism. Not so much because they disapprove of LVT, rather because we're not explicitly anti-capital. Marx said of us "they leave wage labour and therefore capitalist production in existence and try to bamboozle themselves or the world into believing that if ground rent were transformed into a state tax all the evils of capitalist production would disappear of themselves" and they wholeheartedly agree.
Yes, I agree with the above commentators that it is a heritage question. Henry George was a classical liberal and Georgist thought and language tends to mirror that kind of emphasis on natural rights, the purpose of government, and the nature of the economy. Where Georgism diverges from mainstream right-libertarianism is mostly that it has a comprehensive philosophy of the commons, which is present in most classical and medieval thought but rare in modern ideologies, which tend to divide strictly between individualism and collectivism.
As a right-libertarian who would see Georgism as justified in theory if it were to tax all land at its value as farmland:
The (purported) advantages of Georgism are likely to appeal to libertarians more than to others. One of the main consequentialist libertarian arguments against most taxes and regulations is deadweight loss. Other ideologies focus less on the concept.
And one of the main deontological libertarian arguments for property rights is, and against most taxes, is that if you've created something, you should have exclusive right to use it or decide who can use it: if creating something and then using or consuming it doesn't hurt anyone else, you shouldn't be punished for it. However, land isn't created by people, so this argument doesn't apply to it.
However, I don't see much of a libertarian justification for taxing city land based on its market value, thus at a much higher rate than its value as unimproved farmland. Doing so isn't free of deadweight loss, and it punishes people for something that doesn't hurt others (by taxing them higher for building a city on a land than for farming it). And taxing land based on its farmland value would bring so little revenue that it would do more harm by reducing investors' confidence in property rights than it's worth.
I come from the right-libertarian tradition, so I understand what you're saying and sympathize. Georgists, especially ones from right traditions, agree that labor and capital should not be taxed, as those are the fruits of your labor. George himself said this. But the value of land is not created by one's labor, it's created by the demand for the land.
The value of the land, not the improvement on top, is based on the demand for that particular piece of land, which is typically said to be representative of the activities of the community. If you go and build a skyscraper in the middle of the forest in Arkansas, you didn't suddenly create a very valuable piece of land. You put a very expensive building on top of a very cheap piece of land.
Since land is in fixed supply and requires no cost to produce there is no DWL from taxing it. If this isn't compelling, you'll have to go read the works of the multiple Nobel laureates and economists who said the same thing.
The libertarian justification for taxing land value is that the demand is essentially reflective of the fact that lots of people all want the same plot of land, which is what drives up its value, and there is no natural rights based solution to determining who should have it. The reason why lots of people want that specific piece of land is that its close to all the other people who make a community, exist as customers and laborers, and provide services and infrastructure to make our lives more fruitful and easier, i.e., value created by the collaborative efforts of lots of people that have existed as part of that community, not the labor of a given person.
It is most easily modeled by something like infrastructure spending. The Jubilee Train Line in England cost the public 3.5bn to build, and then produced 13.5bn in increased property values. The individual home owners who saw their property increase in value contributed as much as anyone else did, through their tax dollars, but they're going to be able to extract significantly more than their contribution, just by, in the best case, being lucky, while in the worst case actively rent-seeking.
> Since land is in fixed supply and requires no cost to produce there is no DWL from taxing it.
This holds if the tax depends solely on what pieces of land you hold, and nothing else. (More generally a tax doesn't create a DWL if the amount can't be changed in any way; a fixed head tax is another example.) Once the tax also depends on factors affected by human activity, it no longer necessarily holds.
At risk of appealing to authority, you'll have to cite some sources if you want to take your argument seriously, given the wealth of economic support behind the idea that taxing land comes with no DWL.
Besides that, I don't understand what you're trying to say. Can you elaborate?
1) Consider a developer that builds a nice neighborhood, then sells it off as parcels. This increases the land value of the parcels; some structures or infrastructure such as infrastructure wouldn't be profitable on their own, but they increase the land value of the rest of the neighborhood (and thus, the developer hopes, the price they fetch).
As long as the entire neighborhood is owned by the developer, there may be no tax increase compared to when the land was undeveloped, depending on how the tax is calculated*. However, once it's sold as parcels, the increase in land values is taxed away, this reduces the total price the neighborhood will fetch, so it may not be worth building the structures that aren't profitable on their own, or possibly the entire neighborhood; that's a deadweight loss.
2) Consider a homeowner association that makes an improvement to the neighborhood that increases property values. If the government taxes away the increase, it's not worth making the improvement; that's a deadweight loss. (From another angle, it's impossible to determine land values separately from the value of common property of the community if lots or homeowners in the neighborhood can never be bought or sold independently of a share of the common property.)
There is a strong reason a land tax can't cause a deadweight loss if it depends solely on physical properties of the land (such as ones that contribute to its value as farmland). Taxes cause deadweight loss by changing incentives. Taxes change incentives if different actions can lead to different tax levels (they disincentivize whichever actions lead to higher taxes), but not if human actions can't affect tax levels. There is surely ample support behind the notion that unchangeable land taxes don't create deadweight loss. But are you sure there is a consensus that a LVT can't create DWL even if it's based on market value, so e.g. city land is taxed much higher than farmland, and nice neighborhoods higher than bad ones?
Now, and LVT based on the unimproved land value of a parcel in a sort of middle ground. It's not affected by changes to that parcel, only by changes to surrounding land. However, the owner of a parcel can, in some cases, affect the surrounding parcels (and thus the land value of his own parcel), in ways such as owning them too (perhaps temporarily, such as in the case of a developer that builds a neighborhood) or through contracts with their owners (such as in the case of the homeowner association).
* If, for a piece of land with a single owner, the unimproved value is considered to be what it would be if the entire land were undeveloped, there is no tax increase until the land is sold to buyers as parcels. (This also creates a deadweight loss by incentivizing the developer to keep ownership of the entire neighborhood and rent the buildings out, instead of selling them.) If the "unimproved" value is calculated parcel-by-parcel even if they have the same owner, the tax increase occurs as soon as the neighborhood is built.
In the first case, this is an "enclosure" problem. If you tax land based on a common size, rather than parcel size (like every acre, for example) then it doesn't matter where the lot lines are drawn and who owns it. It is a legitimate criticism, its basically the "Disneyland" problem. Disney basically created an entire community and the demand for its existence.
In this case, I think most Georgist would be fine with the original owner capturing some of that initial economic rent, as a fee or payment, as one capitalist did truly create if not the entire value, nearly all of the value of the community by creating the attraction and the capability for people to be there and use it. But eventually as things grow up around it, the economic rent can't return to Disney forever in perpetuity, because eventually value of the land is not solely due to the existence of Disney.
In the second case, this is not true. The HOA made an improvement because they wanted the improvement, not because they wanted to improve their property values. It might be true that HOAs as entities wouldn't exist under an LVT regime, but people, including the government, would have incentive to make the area as desirable a place to live as possible.
I think I linked you the Jubilee Train Line thing already, that's how infrastructure spending in GeorgeTown would actually look. 3.5bn invested, 13bn taxed back to reinvest in other worthwhile communities projects. Not a bunch of stuff not getting paid for because its too expensive. The government should and will be incentivized to invest in things that make our lives better, because that increases land value.
All land value is common property, in the Georgist world view, so "separating them" isn't an issue, because all land value is created by human interaction.
In the state of nature, I can just go out where ever I want and provide subsistence for myself. Only when two humans contest the same area of land does the concept of "land value" come into existence.
> if lots or homeowners in the neighborhood can never be bought or sold independently of a share of the common property
I meant *lots or homes*
Article Part IV Request:
Some numbers. For example, suppose a plot of land can be put to one use only; to bring it from the current state to a state fully suited for the purpose costs $X; this will then yield a rent, of which $Y/yr can be attributed to the land itself and $Z/yr to the improvement. Assuming 100% LVT, how to determine the price of this plot?
Hmm, on second thought, this question answers itself: I would value this as much as I would any other asset with the same level of risk that yields $Z/yr, less $X. That’s not $0, so this disproves my previous understanding that 100% LVT is the same as purely renting land from the state.
I'm sure someone else has already mentioned it, but there is a pretty easy (albeit indirect) sanity check that can be done using American states. In general, states with annual/biannual assessments on present value have both lower housing prices and more stables housing asset values than those with Prop. 13 like distortions. The main exceptions appear to be states like New Jersey that are adjacent to high land value urban centers.
The problem with this is that Prop 13 was passed precisely because real estate prices were skyrocketing, which was driving up taxes on people with fixed income, who voted in droves for Prop 13.
So, you're confusing cause and effect there - places with lower property values would be expected to have fewer Prop 13 like laws because Prop 13 was a response to rapid increases in real estate prices.
Prop 13 was passed because rich property owners saw an opportunity to cap their property tax payments and used the tried and true "grandmas being priced out of their homes" spiel.
As for your cause and effect: the real cause of the original price increases was the 1970s inflation due to the US closing the gold window, which in turn caused energy prices (and other things) to become expensive - but the "dramatic" price increases of the 1970s were nothing compared to the price increases in the decades to come.
A 2006 study on Prop 13 found that older voters, homeowners, and people expecting tax increases were the most likely to vote for Prop 13.
Moreover, a 2020 study found that support for raising taxes for things like local levees and bonds fell shortly in the decade prior to Prop 13's passage. Many lower income people were unhappy with regressive taxation that was being enacted even as the top tax rates were being cut, as property taxes, sales taxes, and similar were going up at the time to fund various programs, and people started attacking them. Prop 13 sharply limited these sorts of tax increases. This wasn't limited to white voters, either.
The notion that it was some sort of trickery is not really validated by evidence; Prop 13 was popular amongst voters because they saw it as benefitting them, as they were tired of higher taxes and wary of their taxes going up, especially as they retired.
It passed pretty overwhelmingly, as have other, similar things.
Californians love voting for lower taxes and more services.
I don't see how tax/cost isn't somewhat passed on to the tenant. If the cost of owning land in cities goes up, then all landlords will have to raise rents. Won't this policy drive people out of the city and into rural US? where land is cheap...
If I'm following the theory right, rent *can't* be raised any further because it's already at the maximum value that can be extracted from the land - raise prices any higher and tenants will rent somewhere else because they'll earn more there (even taking into account the fact that other locations might be less productive). In other words, if you raise prices enough to drive people out of the city, that means your land is producing no money in rent, and you don't want that because you've got taxes to pay.
So the landlord keeps the rent the same and has to eat the cost. This drives land values down (since there's less income to be made as a landlord), which should in turn drive down rents (since rent depends on property values).
This does discourage land ownership - if you don't think you can extract enough after-tax value to turn a profit, you'll have to sell to someone who can - but I believe Georgists see that as a feature, not a bug.
> rent *can't* be raised any further because it's already at the maximum value that can be extracted from the land
There is no reason to think this is the case in many (most?) real-world places. Rent has gone up like 200%+ in real-dollar terms over the last couple decades despite flat real wages in many jurisdictions. There is every reason to think that rent can go way, way up before tenants stop being able to pay.
> (since rent depends on property values)
There's no reason to think this. Rent depends on tenant's ability to pay rent vs their ability to acquire capital to buy land. In many places, it's not really possible for most wage earners to acquire enough capital to buy land, so they're just forced to pay whatever the rent is because they don't have any other option.
Put yourself in the shoes of the landlord.
You're being hit by this tax.
You have to pay this tax even if you *don't* find tenants.
It's not a tax on the transaction of you renting to them that you only pay if you do rent the land (which *would* make you much more reluctant to rent the land because it would be a new cost of renting the land relative to keeping it vacant). Instead, it's a tax that you pay unconditionally. If you don't manage to find tenants you still pay, while making no income.
Does this make you less willing to rent the land at a given price than you were before? Or more? Or the same?
It would make me raise my rent by the amount of the tax, or near enough. Not all at once, but certainly any new rentals would price the tax in to their rate, and once that starts happening, I can also raise my rent commensurately.
You missed the forest for the trees here.
If you actually look at the studies, a number suggest that, in response to the increased property taxes, people increased density of construction - rather than prices going up on a per-unit basis, instead they increased the number of units.
Thus, they lowered unit quality to increase the number of units while selling them for the same price as they did previously - which is exactly what you'd expect to happen.
The flaw with all of these theories is that they ignore the fact that the cost of housing is relative to the price of it - if you increase the cost of housing, you might increase the cost of housing, or you might cause a decrease in the quality of housing while the price remains the same.
In an area where the price of housing is maximized, we would instead expect that the quality of housing would decrease, resulting in less space per person.
Thus you might see no increase in one measured quality (say, price per unit) but see an increase in another (price per square foot).
Moreover, making existing owners eat costs doesn't actually do anything against future owners - if the property is permanently worth less, then new owners will buy it for less money, but the new capitalization will be corrected for the lowered cost, so at best you are just applying a one-time penalty to present property owners, as future ones can compensate for the higher taxes.
Great points.
> they lowered unit quality to increase the number of units while selling them for the same price as they did previously - which is exactly what you'd expect to happen.
Which is similar to what we're already seeing in places with hot markets like e.g. Toronto - prices are going up, square footage is going down, and build quality is going waaaaayyyy down.
If the market won't bear a higher price to account for the tax, the quality of the good will (and therefore the cost to the supplier) will go down. Which is a backdoor way of the tenant paying any increase in cost.
> With a Land Value Tax, the owner has to pay that tax every month whether they have a tenant or not. They're already charging the highest amount the market will bear, and as we've already shown, they are unable to change the supply of land. All the leverage is on the side of the tenants, which forces the landlord to eat the tax. The price to buy the land goes down, the price for a tenant to rent it goes down, but the total amount of income the land itself produces ("land rent") stays the same. A portion of it is just being collected by the taxing agency.
I've missed something here. We've stipulated that there is a market rent for the land which maximizes the revenue the land can bring in. Thus, if the land gets taxed, the tax cannot be passed on to renters, because raising the rent on the land would lower total revenue from the land, which is counterproductive for the landlord. This is a perfectly coherent model.
And I agree that it goes on to predict that after the institution of such a tax, the price of land would fall. The land is worth less, so its price will go down.
But how is the price for a tenant to rent it going to go down? If that happened, total pre-tax revenue from the land would fall, and the value of the land would drop even further. Our whole argument above was premised on the idea that the price the tenant pays to rent the land stays exactly the same come hell or high water. The price of _rent_ falling could only happen if the marginal rate of land value tax exceeded 100% at some point.
A more succinct version of my question would be: "The price for the tenant to rent the land and the income the land produces are the same quantity. How can one fall while the other stays constant?"
Eh, Hong Kong has the government control virtually the entire land supply, and charge megacorps incredible prices for very small lots - and yet the megacorps have proven fully able to pass the spiraling cost of land onto homeowners.
I spent so long thinking about this that I've completely missed the discussion. But I think it's worth inserting my comment late just in case anyone else is having the same feeling I am.
I can't work out what this second is arguing at all.
It says, "I'm a landlord...a Land Value Tax is imposed on me...why shouldn't I be able to pass on the tax to the tenant?"
But in fact, the tax should be "passed on" to the tenant (in the case of an ideal, correctly assessed 100% LVT). It should be passed on perfectly to the tenant. The landlord should be able to profit from their improvements to the land. They spend $1M building an office block on it, and now they collect $200,000 more in rent than they could for the bare land, so they profit after 5 years. But the value of the land itself is paid by the tenant to the landlord (as part of the rent); and is paid by the landlord to the state (as the LVT). There should be perfect, 100% pass-through.
So far as I can see, this entire post is arguing the very opposite to what the outcome is.
I *think* that this is a case of bad wording, and what author means is something like this: the use of an LVT does not create large and continuous opportunities for arbitrage which will allow landowners to capture increasing amounts of wealth on an ongoing basis. But I'm not sure, and the arguments below haven't made it clear to me, either.
If anyone else is as confused as me, please let me know; or tell me what I've misunderstood.
Thank you!
Georgism is fatally flawed, and while through painful analysis regarding whether it may "work" or not, the core issue to reflect upon is whether it's moral and thus even worth discussion. In my view it clearly fails for what should be obvious reasons. That this matter has not even been approached here leaves me cold.
I can think of a number of ways it won't work, and a number of ways it doesn't seem moral to me, but I'd be interested in why you think it isn't moral.
A short response will really not do on this, so I will reply in due course with a more thrill-throated discussion. In short, my view is that the most moral social system the world has ever known (and will ever know) evolved organically between, by and large, men of good will to satisfy their actual wants and needs fully equitably and it was not imposed by force by anyone, or any authority or authoritarian entity. Rather it is a natural evolution of the actual needs of man, qua man, and his ability to trade values. To the extent it has been implemented, notwithstanding the constraints placed upon it, it has produced the greatest advancements in every field of human endeavor,, and resulted in human flourishing to levels our ancestors would find utterly mind-blowing. It’s called capitalism, its premise is individual rights (property understood), and integral to individual rights are property rights. Given that the right to one’s individual life is the source of all rights, the right to property is the only rational means to its implementation. The Georgian approach, in my view, makes fundamental errors in not just the hierarchy of rights, but a formal understanding of rights. More later…
Here's two objections - a thought experiment, and a breakdown which demonstrates what seems like an even more fundamental flaw in your thought about landlords vs tenants paying for things.
So let's posit a small country. Let's call it Georgia (heh). It has a capital city, Georgetown, where most of the economic activity is, and a hinterland with farming, resource extraction, tourism, but not much else.
In Georgetown, on average, units rent for $1000/m. This covers the costs to landlords - mortgage, maintenance, insurance, property tax, risk of sitting empty, etc. along with a certain profit, let's say $500/month. The tenants are engaged in economically productive activity that allows them to pay this rent, and their other expenses. Vacancy rates are low because Georgetown is where the jobs are, unless you're a miner/farmer/hotelier.
We replace the property tax with an LVT that increases landlords in Georgetown's costs $100/m. They're now making $400/m. It seems that in your mind, this is where the story stops - landlord costs go up, landlord profit goes down. But why would they accept this?
Now, as units come available on the market, landlords start listing them at $1100/m. They want to maintain the profit level they had before. Tenants who need a place to live shop around, but it seems like pretty much every unit is more expensive than they were before (every landlord has the same idea, because all of their costs went up - no coordination required!). Tenants try to bargain, but the landlords won't budge - they know there are lots of tenants, and that moving out of Georgetown into the hinterland is either economic suicide or such a huge hit to quality of life due to the brutal commute that tenants are extremely averse to doing so. The landlords are willing to eat a month or two without rent in order to "lock in" a higher market rate to offset their increased costs.
Tenants who need a place to live start paying the new $1100/m, because they basically don't have a choice. They need a place to live. They can't move to the hinterland, or they wouldn't be able to work (or they'd have an awful commute that's worth paying $100/m to avoid). There was a previous market equilibrium at $1000/m, but you can't expect that market equilibrium to persist after changing the cost of the inputs.
Who is paying the new tax? The tenants...
---
Let's look at this in an even more fundamental way. Let's break down some hypothetical costs to the landlord pre-LVT on a unit grossing $1000/m:
- mortgage - $300
- property tax - $50
- maintenance - $100
- insurance and other - $50
- profit - $500
Who is paying the mortgage? The tenant. Who is paying the property tax? The tenant. The maintenance? The tenant. Insurance and other? The tenant. The landlord's profit? The tenant. What is the landlord paying for? Nothing.
Now let's consider your proposed scenario where the LVT increases costs to the landlord, but for some reason the landlord can't just increase the rent:
- mortgage - $300
- LVT - $150
- maintenance - $100
- insurance and other - $50
- profit - $400
Who's paying the mortgage? Tenant. Who's paying the maintenance? Tenant. Who's paying the insurance? The tenant. Who's paying for the profit? The tenant. And key - who's paying the LVT? The tenant!
The tenant actually pays for *every single thing* to do with the unit. That's what being a tenant *is* - paying for everything to do with a property, but only enjoying the use of it, and not the ownership. The economic activity of the tenant is the only thing actually generating value in either scenario, and the only thing actually paying for anything.
At best, the LVT could decrease the *margin* the landlord gets from the property, but it can't shift the cost onto the landlord, because in a fundamental way, landlords don't pay any of the costs of the units they own - the tenants do. Landlords don't generate economic activity, they just leverage their capital to exploit the economic activity of tenants.
I think this comment is wrong, but is getting at the same idea I was trying to get at.
You're mistaken because you're ignoring other taxes. The Georgian idea, as I understand it, is that the LVT would be the only tax. So the landlords are no longer paying income tax on their income from the land. To maintain their same level of income, they no longer need to charge the same amount.
But I think you're right when you say that ultimately, the tenants have to pay all the LVT. This is necessarily true, because taxes must be paid out of the country's productive economic activity; and the landlords aren't doing any economic activity.
> So the landlords are no longer paying income tax on their income from the land. To maintain their same level of income, they no longer need to charge the same amount.
They may not *need* to, but why wouldn't they? It's essentially just a windfall if they don't lower their rents. And there's no need for them to lower their rents.
And if the tax they paid in income tax etc. is made up for dollar for dollar with the LVT, I don't really see why anything much at all would change.
@Angus - I'm still trying to understand this myself. Long post ahead.
So here's the interesting thing I see about your example. Let's suppose there are 100 landlords with 1 apartment to rent each.
Your example describes a situation where all 100 raise their prices from $1000 to $1100 and then settle into a new price point of $1100, and it continues to be the case that all 100 still have tenants. In other words, even the tenants would like to pay less, when it comes down to it, there are more than 100 tenants willing to pay $1100, however grudgingly, because it's still better than the hinterland. Or so you've declared to be the case by fiat in your example.
That would seem to imply that pre-LVT, all the landlords could have done this as well. They wouldn't have needed to coordinate either! Any number of landlords could have unilaterally raised their price to $1100 and continued to get tenants. If some random 5 of them try charging $1100 while the other 95 charge $1000, well the obviously the latter get rented first... but you've already supposed on the renter's side that there are >= 100 people grudgingly willing to pay $1100, so the former 5 apartments should still get rented, even if most renters still get the windfall of a cheaper apartment.
That means under your assumptions, $1000 was never the equilibrium price in your example to begin with, even without an LVT the landlords should have been charging more.
As I understand classical microeconomics, if you want to suppose $1000 to be the equilibrium market price to begin with, you are saying that a landlord who raises their prices to $1100 **won't** be able to find any tenant - that while there are at least 100 tenants willing to pay $1000, there *aren't* 100 tenants willing to pay $1100, so the apartment will just lie vacant. Since landlords are greedy and selfish and prefer to be making $1000 a month rather than nothing, they will lower their price back to $1000, where they can now get a tenant.
And if one, or five landlords raising their price to $1100 find they can't get any tenants at all, then all 100 raising their prices to $1100, should also end up with some landlords stuck with vacancies, literally unable to find any tenant, or at least unable to find any tenant for long enough that it is net worth it to them to do so. Because again that's what $1000 being the equilibrium price means.
So, let's suppose that $1000 is *actually* the equilibrium price at the start. Now let's add in a $100 LVT. What happens? Not much. If one, or five, or all of the landlords try raising their price to $1100, some of them will find their apartments vacant. Those landlords will be making -$100 (paying tax but having no tenant). Those landlords, being greedy, will be compelled to lower their prices back to $1000, where they can now make net $900 rather than $0.
Note that this is markedly *different* than the way a typical tax affects a market. For example say there are 100 pizza makers who charge $5 for pizza, and we suppose $5 is the equilibrium price. That means that there are fewer 100 customers willing to pay more than $5. Now suppose we put a $1 tax on flour. The usual classical micro economics story for how this tax gets priced in to the market is that some pizza makers rationally choose to stop making pizza because it's no longer profitable enough for them. Say 10 go out of business. The remaining 90 pizza makers start to raise their prices, there are now fewer 100 customers willing to pay... but that's fine, there are only 90 pizza makers not 100, so there are more than enough customers. The price rises to the point where only 90 people are willing to pay - and hence, the tax has caused the price to rise. (note: the higher price may attract some pizza makers back - the whole thing equilibriates at whatever higher price such that the number of people no longer willing to buy pizza equals the number of pizza makers driven out of business).
The difference between the flour tax and the land tax is that the flour tax falls on pizza makers if they make pizza, but *not* if they don't. "Make pizza" is taxed, but "not make pizza" is not taxed, so rationally some stop making pizza, and the ones who still make pizza use the pizza shortage as leverage to raise the price until the number of customers driven off equals the shortage (and no further, since anyone raising the price beyond that will not find customers, and will have to re-lower).
By contrast the land tax falls on the landlord regardless of whether they rent the apartment or not. "Rent it" is taxed, but "not rent it" is also taxed equally, so for every property where the former is more profitable than the latter pre-LVT, the former is still better than the latter post-LVT. No landlord is incentivized to change options, because *both* options got worse equally. They could try to exit the business entirely, but they continue to be taxed until they sell the property to another landlord... and the new landlord faces the exact same situation.
You wrote "at best, the LVT could decrease the *margin* the landlord gets from the property" which from the above arguments seems to be exactly what classical microeconomics implies will happen. To first order, rental prices stay the same, the margin the landlords get goes down.
Now, why am I *not* a Georgist and instead say I'm still trying to understand things myself? Because like you, I don't think classical microeconomics is a perfect model of the world. Maybe there are >= 100 tenants willing to pay $1100 and yet no small group of landlords could have charged $1100 pre-LVT because there is an extra "stigma" associated with being the landlord who overcharges that makes tenants stay away even when it is in their financial interest, and LVT knocks it out of this disequilibrium to a new equilibrium. What happens if a landlord simply goes bankrupt instead of being able to sell to someone else that the LVT can hit? Maybe there are complex secondary effects with how it changes land usage? Maybe landlords *can* use this as impetus to coordinate in places and charge more despite some being vacant, with the ones who rent taking turns compensating the ones who can't find tenants (this is e.g. how a monopolist can make more than uncoordinated sellers). Also renting and ownership changing of real estate has huge frictions, which is not modeled in the above naive microeconomics. How is LVT even assessed in a way whose incentives don't cause bad things downstream? Etc. etc. I am not expert enough to have even remotely close to the confidence to understand these things, and probably never will.
But here's the thing - normally one doesn't have to postulate coordination, or second order effects, or special market frictions, etc. to explain why taxes increase prices and why they impose a burden on a market and reduce economic productivity. Most taxes are like the pizza flour case, in which classical microeconomics does perfectly fine on its own to explain why taxes have bad effects. The fact that it *doesn't* do this for LVT and that you do need to turn to real world messiness, second order effects, etc to argue LVT is bad. certainly does increase my credence in LVT plausibly being "less bad" than other taxes and plausibly "harder to simply pass on to customers/tenants" than other taxes.
What do you think?
I'm also of course not convinced that my own classical microeconomics analysis is everywhere sound.
> They could try to exit the business entirely, but they continue to be taxed until they sell the property to another landlord... and the new landlord faces the exact same situation.
This is possibly the weakest part of the above - if we suppose that different landlords do have different tradeoffs/specialties regarding rental or usage of the same property, or if we consider frictions involved in this, etc. It still seems a bit different than pizza flour, because if you tax pizza flour, it doesn't have to go to someone else, there can just be less pizza flour total (and then the shortage causes prices to rise). But if you tax land *someone* in the end has to own the land and be hit by the tax. And that person sees the same incentives to first order between rent/no-rent/other-options as without LVT (since LVT still hits all options equally), so to first order it doesn't as directly cause a shortage and corresponding price rise like in the pizza flour case.
I do suspect LVT probably still has negative effects and isn't a magic fix to anything, and probably implementation details would have a big impact (like implementation details would for any govt policy). But I'm open to thinking it has fewer negative effects than other taxes, holding that constant.
I understand the naive microeconomic view you outline, but it's naive for a reason. That's why I posited low vacancy, which will be the case in the areas where we're concerned about high rents.
A landlord who raises their rent to $1100 (before any additional tax) will be able to find a tenant, but it will take longer. They're trading off getting a tenant sooner vs getting more rent. There's any number of reasons why they may prefer one or the other, but if the market has stabilized around $1000, then that's because there's enough landlords who value finding a tenant quicker vs making a bit more money.
But when you add an extra tax, that shifts their incentives. Now to get the same profit, they need to charge more, and it shifts the tradeoff. And since it shifts it for all of them at once, more and more landlords are going to start asking for $1100, and once enough of them start asking for $1100, then it's not a tradeoff anymore, because that's the new going rate.
A lot of this comes back to this simple fact - if a landlord can't find a tenant, they lose some money. If a tenant can't find a house, they are homeless, which carries massive stigma, and carries at least the risk if not the actuality of them not being able to work, lose their job, won't be able to find another job, become chronically homeless, and possibly even die.
It's a totally disproportionate power dynamic which means landlords have way more ability to set rent than tenants do.
At the end of the day, LVT is just a form of property tax, and what's observed in the real world is that at least some of property tax increases are passed on to tenants, depending on a number of factors.
Thanks for the reply!
> It's a totally disproportionate power dynamic which means landlords have way more ability to set rent than tenants do.
That cuts both ways, right? Post-LVT this could make it easier for landlords to set higher prices... but pre-LVT you could argue exactly the same, that if they had so much power to raise the price, they should have already, and the tenants would equally have no power to resist pre-LVT either. So it seems a bit odd to say that this is what it "all comes down to" that causes higher prices because it's not a thing that LVT changes. It must be a different fact that's doing the heavy lifting (and whose heavy lifting is only enabled by this fact), yes?
> But when you add an extra tax, that shifts their incentives.
How exactly are you imagining the incentives shift, mechanically speaking?
Pre-LVT, the tradeoff might be: rent at $500 net profit (if we suppose $1000 gross and $500 costs as you did), or wait a certain amount of time in expectation (making $0) to try to get $600 ($1100-$500).
Post-LVT of $100, the tradeoff might be rent at $400 net profit, or wait a certain amount of time in expectation (making -$100 at that time) to try to get $500.
Both before and after LVT, for any individual landlord's perspective, waiting for a tenant at $1100 instead of $1000 is basically them trading $500 in exchange for (hopefully) securing an extra ongoing $100 for some time thereafter, which is in terms purely cashflow terms is basically like buying a bond. The nominal monetary incentive is exactly the same both before and after LVT, it's just that the landlord is less wealthy as a baseline (since their property value and income as a whole just dropped).
Normally this kind of second-order effect goes the *opposite* way from what you are proposing, right? On average when people become less wealthy they tend to invest less in things that cost money now but (riskily) make money in the future.
But waiting a bit longer does seem far more plausible when enacting the second case if we're thinking about how human psychology anchors to wanting your net income to be "sticky" downward but fluid upward. E.g. how wages and salaries can be sticky, how pay cuts are psychologically very different on morale and willingness to work than pay raises are beneficial to those things, etc. Landlords may "try" to re-establish their profit margin, even to the degree that it may be slightly economically "irrational", and this of course means supply does drop, and prices do rise.
Is that the incentive shift you are mainly referring to? It seems like a plausible way that psychology and incentives would shift at first sight to me, although were you thinking of something different?
If it is the human psychology or something similar, then out of curiosity: instead of taxing the landlords for land, suppose instead we have a magical curse on land that subtly causes 20% of landlords end up with very large unanticipated personal medical expenses all within a month noticeably impacting their wealth, but the fact that this happened all at once or that there is a curse at all somehow doesn't become common knowledge. Just like LVT, from any single individual's perspective, this would have *no effect* on the nominal cash differences between the ways they could price price or rent their holdings, and it would make them less wealthy. But it would not be "perceived" as being related to their landlordship. Would you expect average rental prices to also rise in this case, or could they even briefly fall as some landlords who were holding out before try to get tenants for shorter-term income and lower risk, at the cost of long-term income?
> At the end of the day, LVT is just a form of property tax, and what's observed in the real world is that at least some of property tax increases are passed on to tenants, depending on a number of factors.
Sure, seems reasonable.
So, in a way, LVT is like an inverse Pigovian tax: rather than paying the full cost of negative externalities you create, you pay the full value of *positive* externalities you *receive*?
Cool
Thanks for the interesting articles.
I find fault with your assumption that speculation is bad. Several threads in the comments try to address this by making the claim that speculation creates no value.
A standard counter argument to this is that it creates liquidity, which is a form of value. Furthermore, it allows for price formation which is what allows (currently) to solve the coordination problem of deciding which land to improve - a value.
I think that the core false assumption of most arguments that distinguish speculation from investment is the assumption that there is infinite supply of labor and capital available for improving land. Clearly this is false.
Have you seen the movie Up? An old man is being hounded from his home by developers eager to make money. He just wants to live out his days in the house where he has fond memories of his late wife. How would LVT deal with this? Would he be forced to sell because of revaluation and tax hikes?
Your work is outstanding. I agree land is a big deal. I agree that land taxes will not be fully passed on to renters (though I disagree that none of it will be passed on - supply is not actually fixed in a country like the US with wide-open spaces). I agree that unimproved land value can be reasonably accurately assessed. I am in the process of working through the articles, but there is one glaring question that keeps distracting me from comprehending your work. Maybe this has already been addressed; I haven't read through all of the comments.
It is this: the value of the land to an investor is ultimately a function of the income it will return to that investor. If the government taxes 100% of it, then it is worth nothing (actually less than nothing, because it takes work to fill out tax returns). The classic formula for value = net income / interest rate minus growth (for a perpetuity), with net income being net of taxes and other carrying costs. If you live on it, then it is assessed by the rental cost of something identical to your residence. Land as pure speculation (no income) is a function of resale value, which is a function of rental income to future owners. There is some ambiguity over whether land is also a store of value, like bitcoin or gold, apart from other functions. But that is a debate for another day.
This doesn't necessarily mean that the price of land will go to zero, because there will be elevated demand for land in good locations. But the price will almost certainly be significantly reduced, because there will be no investor demand, except multi-unit operators that earn a spread between rental income and maintenance cost. Resident owners, most of whom are secretly investors (hence the popularity of NIMBYism), will work to avoid higher costs, though telecommuting or relocating.
This also appears to be a back-door nationalization of land - the government doesn't own formal title but claims all financial value. This opens the door to corruption.
A key benefit is that NIMBYism will evaporate.
"The price to buy the land goes down, the price for a tenant to rent it goes down," - why would rent go down?
In some comments here you seem to contradict this and say that the rents would stay the same - also in the preceding paragraph you seem to suggest that the rent relies only on productivity
"Without a Land Value Tax, the owner of that land can charge rent up to the difference between their land's productivity and the best freely available alternative, establishing the "margin of productivity." This means that as productivity rises, so does the rent. This phenomenon is known as Ricardo's Law of Rent."
Have you ever thought about making multiplayer games to test economic mechanisms like this one? I think it could be crucial. I'm not sure I'd be able to go ahead with Propinquity Cities, for instance, without running test games.
I have skimmed the comments but haven't found this topic addressed head-on: What protection can be put in place for low-income building owners in rapidly gentrifying areas? I understand the long phase-in approach, but they only solves part of the problem. While I'm pretty pro-georgism, I'd like to be able to address this question better. The specific example I'm thinking about is inherited properties in high-cost areas that may be the primary income stream AND place of living for some low-income families. While I agree that these rents are not economically efficient, what we're basically telling folks is that they either need to have the wherewithal to improve their land enough to justify the LVT, or eventually move. The effective result of this is that areas that start off with high LVTs edge out low income people. Not that it isn't happening now, but if you're going to change the status quo, it's sort of on the new system to address the issue
I enjoyed your book review and this series of articles. Thanks for all your work.
I am confused as to why there's no mention of elasticities in this article. If you want to talk about who "really" pays a tax, I think that elasticities is widely considered the most useful and correct foundation for that discussion. In fact, there exists a technical term for who is burdened by a tax: tax incidence. The Wikipedia article on tax incidence seems fine and you might find it useful; it's almost mostly about elasticities.
I think your arguments could be much stronger if you grapple with elasticities. Instead of making tenuous bathtub analogies, you could draw upon general economic principles that are universally recognized as solid. Your opponents would basically have to disagree with the basics of supply and demand, and even non-economists tend to accept supply and demand basics.
I already agree with you about LVT tax incidence, and even I was very doubtful of your bathtub arguments.
Saying that a LVT would almost entirely burden land suppliers doesn't require any specialized arguments that people only see in Georgist advocacy. You have super-basic-and-mainstream economics on your side, and talking about elasticities could show that to your audience.
Is this the book by Donald Hagman which you could not find? I found this by google searching "The Single Tax and Land Use Planning: Henry George Updated" and it is published by the UCLA law review.
https://heinonline.org/HOL/LandingPage?handle=hein.journals/uclalr12&div=49&id=&page=
Makes sense. But would be a lot easier to heavily tax inheritance. And that would fix the most egregious part of land wealth - that most of it is inherited. Simpler, politically easy, no drag... really wonder why the focus is not on that really.
So rents may not fall, but property prices (including land) would fall significantly? Because the present value of the land becomes zero, so the property is just valued based on the building?
> New Zealand [snip] over the course of the next century that figure dropped all the way to 0.5% in 1965 and 0.3% in 1970
The above completely ignores that land is taxed by the city, the quote is looking at national taxes only.
Example: Christchurch has rates $5,758.16 on $850k property value (land value $540,000 + value of improvements $310,000) and national GST(≈VAT) is $640 of those rates. Median national taxation is $10000. So:
A: Total LVT is $3658 (≈36% of all taxes),
B: national LVT is $406 (≈ 4% of all taxes).
City rates are based on valuation, and valuation is based on market rates, and land value is the free variable because building valuations don't vary across the city. Is that not an LVT?
Oops, I mean LVT is say 25% of taxes, and national LVT (via GST) is say 3% of taxes.