The article is about (among other things) Henry George, and his ideas about a single land value tax being the best way to fund government. Interestingly, modern economics is quite favourable to his ideas. In particular, research on the economics of taxation has shown that land taxes are the most efficient taxes with the lowest deadweight losses.
And when it comes to actual economists, Krugman "agrees that land value taxation is the best means of raising public revenue", but has questioned if it would raise enough; many other economists have suggested that it would. Rothbard (a leading an-cap/Austrian economist) attacked it, but I don't think many people ever agreed with him. Milton Friedman (a very widely respected economist of the Chicago school) said it was the "least bad" tax for raising government revenues. Hayek (another Austrian and also a Nobel prize winner), was an early proponent but later feared it would be unfair in practice. Robert Solow and Joseph Stiglitz are also on record as being in favour. Some of George's contemporaries suggested that distinguishing land from capital made no sense, but (as above) modern research has shown otherwise.
And Marx hated the idea, viewing it as "Capitalism's last ditch". In other words, he was afraid it would work, and thus delay to inevitable onset of world socialism. (I think on balance that should be counted as a vote in favour of Georgism?)
In short, it's an idea supported by research and with the backing of a glittering array economists from the far left to the far right (including several winners of the Nobel prize), a few prominent politicans (Churchill in Britain and two US presidents), numerous jouranlists and pundits, etc. And yet it's never been tried. (I don't count the few experiments at the local government level, since national taxes still applied.)
Kind of odd. Of course, it would be an enormous change to enact, which I suppose explains it.
I don't get land value tax. The idea is theoretically supposed to be that you only pay tax on the value of the land, but the value of the land is because of what's on/around it. There is plenty of perfectly good land in rural Texas or Iowa but it isn't as valuable as land in San Francisco because there isn't a city right there.
So you have somebody who is going to build a factory and they pick a nice piece of low value rural land. But once there is a factory, people build housing for the workers and stores and so on, and now you have a whole town centered on the factory and the value of the land goes up. But the reason the value of the land goes up is because of the factory.
So the next thing you know the factory owners realize they're sitting on a "high value" piece of land, so they put all the machinery on trucks and carry it fifty miles down the road where the land is still cheap and they don't have to pay high taxes. And then the process repeats.
It seems like the result would be a preposterous amount of urban sprawl and inefficiency. Anything that doesn't actually care about its location but attracts other investment would keep getting moved, which would destroy the value of the third party investment.
Third parties would then respond by making their investments mobile (e.g. living in mobile homes or selling food from food trucks instead of building houses or restaurants). Every time the taxing authority said the piece of land where everybody is has significantly more value than the piece where nobody is, everything moves down the road again.
And that's the extreme case but you get the same thing in the suburbs. You don't want a house which is near anything because the land value will be higher which is now a liability, so build it a little further out and you'll have a longer commute but your taxes will go down by $10,000/year.
Because it isn't the land that has value, it's the people and the stuff. If you tax land highly non-uniformly then the people and stuff will spread out.
Actually what happens is without land value tax, you get land speculation. In practice with Land tax, you'd have cheaper land than without it because there is no incentive to speculate and hold productive land out of use hoping its value will go up (which is where most of the price of real estate comes from -- it's a "safe bet" that land values increase as long as the area's population increases, so there is no incentive NOT to speculate and drive prices way up).
> there is no incentive to speculate and hold productive land out of use hoping its value will go up
It is possible to speculate without holding productive land out of use: You buy it and then rent it out. Which land value tax would presumably have little effect on (except insofar as it increases sprawl and therefore reduces city center land values) because the tax would be passed on to the renter(s).
The reason people buy land in cities and then don't use it for anything is often because they own enough other property in the same city that withdrawing rental units from the market will increase the rents for the other units by enough that the strategy is net profitable. Which seems like it ought to be illegal, but anything nefarious that has the consequence of increasing property values tends to get overlooked "for some reason."
What your link is getting at is if you increase the tax on property/land value, it instantaneously reduces property values to account for the net present value of the future tax payments. So passing it is one-time very bad for current property owners.
Because the housing market is extremely efficient. Rents are essentially property value * current interest rate + taxes + property maintenance costs. But rents are also set from the other side by what renters can afford to pay. So if you increase the tax, the property value goes down to compensate. Anyone who buys the property after the tax is already in place is unaffected.
So there are two ways of looking at it. One is the renter pays the tax (i.e. the formula for rent has "the entire amount of taxes on the property" as a component) and the other is the tax is paid entirely by whoever owned the property when the tax was enacted, via a large reduction in property value. It depends which point in time you're looking at it, the moment when the tax is enacted or rent paid by tenants in the future as a percentage of then-present property values.
But in any case the tax isn't paid by speculators who didn't already own the property in year zero of the tax being enacted.
>It is possible to speculate without holding productive land out of use: You buy it and then rent it out. Which land value tax would presumably have little effect on
If a georgist LVT were assessed accurately, the rental income of unimproved land would equal the tax.
Thus there would be no point in speculation. If the land value went up so would the tax and vice versa.
You almost make a good point, the problem with it is that if land use tax actually only assesses the value of the land, you'll still have speculators speculating on the value of the buildings increasing for the same reason that the land does. Because the value of the building is also dependent on the location.
Which brings up a good question. There are plenty of places where there is a 50-unit ten-story apartment building on a lot of about the same size as the surrounding single family homes, e.g. because the houses have yards and the apartment building fills the entire lot. So what is the assessed value of the "land" supposed to be then? If it's anything the owners of the single family homes could afford then it wouldn't make the slightest dent in the rents collected by the owner of the apartment building.
It's actually a very hard problem. Because in theory any of the home owners could build a large apartment building on their lot and be collecting large rents but if they all did that then rents in that area would crash. But the land is equivalent between the apartment buildings and single family homes, so they "should" all be assessed at the same value.
>you'll still have speculators speculating on the value of the buildings
Congratulations, you just defined "fighting over scraps".
>Which brings up a good question. There are plenty of places where there is a 50-unit ten-story apartment building on a lot of about the same size as the surrounding single family homes, e.g. because the houses have yards and the apartment building fills the entire lot. So what is the assessed value of the "land" supposed to be then?
The assessed value of the land of your next door neighbor will be similar to yours.
If you're asking how it's calculated, check the wikipedia page (the answer is multivariate analysis using property sales).
> Congratulations, you just defined "fighting over scraps".
The difference in rents between a single family house and a multi-story apartment building is "scraps"?
Keep in mind that there is such a thing as market saturation. If there are already as many rental units in an area as their are prospective tenants, the value of land that "could" have an apartment building built on it is not anything like the value of the adjacent land that already has an apartment building on it, because actually building more apartment buildings would oversaturate the market and drive rents into the floor. So nobody will be willing to do that, even if the same person would spend even more money to buy one of the existing apartment buildings which doesn't increase the local supply of rental units.
> If you're asking how it's calculated, check the wikipedia page (the answer is multivariate analysis using property sales).
That's... what? You can't use property sales to calculate a tax which is supposed to devour the rent value of land. The sale price will have the tax built into it. If you have the tax calibrated correctly the sale price of an unimproved lot should be zero dollars and the sale price of a lot with a building should be only the value of the building.
And you couldn't even calculate it using the fact that someone paying money for land indicates that it's under-assessed, because if that was expected to work then no one would ever pay more than $0 as the value of unimproved land even if the current assessment was low, based on the expectation that the assessment will soon become accurate. But if no one is ever paying more than $0 as the value of unimproved land then what are you going to base your estimate on?
>The difference in rents between a single family house and a multi-story apartment building is "scraps"?
No, but if the land is densely populated and high value the potential stream of rental income from building an average house will be lower than the land taxes and you'll lose money building it.
"Scraps" is what speculating over the value of that housing will get you when the only rents to be derived are from the value you create as a property developer.
>And you couldn't even calculate it using the fact that someone paying money for land indicates that it's under-assessed, because if that was expected to work then no one would ever pay more than $0 as the value of unimproved land
Well, that's the point isn't it? If somebody does pay more than $0 for unimproved land (or land with buildings that are worth $0), that's a data point that you can use to adjust your model.
But this exists, today. You pay property taxes, everybody knows how it works and it does work.
The net effect on land use would be to sort land use into ... appropriately priced bands of use. People would, IMO, be less likely to spend as much time and energy in tax avoidance.
The initial concept of the income tax was very loosely based on Georgist taxation - if someone has a high income, chances are it's based on rents. It's a noisy, distorted measurement and asking people their income, is, frankly, rude.
If a Georgist tax replaced an income tax, then those who produce without charging rents would have an advantage. The theory goes than income that is not rents is consumer surplus. And you stop taxing labor.
That is the exact idea. People would occupy the cheapest land that can get away with. But for a given plot, there's no way to avoid those taxes.
If you think of people who work as service personnel as subsidizing those who own land in SanFran or NYC with their labor, then I think this gets clearer. If the landowners rather than the laborers paid the taxes, it seems much more equitable.
not really; low land value means there's less utility in building a home there. Build a house in the desert if you want, good luck selling it later. Georgism kills using houses as a store of value.
Roughly the same amount of land is required by everyone, if the only source of revenue is land then everyone pays the same amount of tax regardless of income.
Given that employees/retail customers would no longer have to pay income tax that same amount of money would be available for land lords to charge as increased rent or retailers in increased prices.
I really fail to see how in a realistic scenario that this really changes anything at all. I would hazard a guess that this would likely be the most regressive tax code we've seen in modern history as large landowners would charge everyone roughly what they are being charged now plus what they customarily pay in income tax, and then likely distribute their own tax burden amongst the tenants.
As a high income earner I whole heartedly support the idea that only land should be taxed, but I don't think it's going to play out like everyone thinks it will, given that land is not a particularly large store of wealth, 200 / 3000 trillion, or about 6%
I think the only thing this tax code would do is encourage wealthy people to build very tall towers and farms in remote areas, and sell each other their property at dirt cheap prices. Vertical farming would also probably become a thing.
I fail to see anything in your scenario that couldn't already occur with the current tax system
Currently: taxes are based on land+improvements
Proposed: taxes are based on land
Factories move because the value of their land is high under the current system as well.
The problem with the current system is that it disincentizes improvements. In my neighborhood of Boston, most of the 100-year old buildings used to be 5 stories. Now they are 3 stories. What happened? People literally dismantled the upper level floors of their buildings to reduce their taxes. In other parts of the country, it is fairly common to tear down a building to reduce the taxes on an unused property. That is what a land tax is designed to eliminate.
Oh, land value tax is better in pretty much every way than property tax within a city (or pretty much anywhere that multi-story buildings are feasible). And property tax does cause urban sprawl etc. They're obviously very similar. But that's not the question.
The question is, should we have more property/land value tax and less sales/income tax or more sales/income tax and less property/land value tax?
an answer is yes, we should - the primary function of government is to defend claims on the use of land, and having the "land" pay directly for this is at least of a nice sounding symmetry. And theoretically, people would then be forced to productive investment rather than land speculation.
> the primary function of government is to defend claims on the use of land, and having the "land" pay directly for this is at least of a nice sounding symmetry.
Some claim that to be the primary function of government but it certainly isn't the primary element of the government budget.
> And theoretically, people would then be forced to productive investment rather than land speculation.
Thwarting land speculation is literally the same thing as not allowing land values to increase. LVT reduces land values because of the overhang of the future tax payments, but it also has various negative consequences. If you want to keep land values down, enact policies that encourage the construction and occupation of high density housing. In particular, don't explicitly impede it through zoning regulations etc.
The value increases. It's just gathered as taxes. Since what is to be done with the rents value is taken care of, you no longer have to concern yourself with it.
The improvements - buildings, the like - are still yours. The only thing that is taxed is the increase in value due to position of the land, due to proximity to other such improvements.
> The value increases. It's just gathered as taxes.
In other words, from the perspective of the land owner, the land value doesn't increase because the added value goes to the tax collector instead of the land owner. Which is true for both the owner/seller and prospective buyers of the land, so the value (meaning market value) of the land doesn't go up. Assuming the tax is perfectly calibrated and the land value estimate is correct before the existence of the tax reduces the market value of the land.
Here's the problem right now. Rents are too damn high and people can't afford to live in the city. You pass the land value tax and land market values decrease accordingly because property buyers won't pay as much for land they can't collect as much rent from. But the rents are still too damn high, they're just going to the tax collector instead of the land owner. And people can't build new housing to alleviate the high rents for the same reason they don't already, because zoning regulations prohibit it.
Suppose instead we change zoning regulations to allow builders to build several dozen new 50 story skyscrapers full of residential housing in the city. Supply goes up, price goes down. So property values go down and rents go down and now people can afford housing. How is that not better? It gives the "rents" to the tenants instead of the tax collector.
The interesting thing about land value/rents taxation is that it cannot be passed on to tenants. I think this covers that:
http://rationalwiki.org/wiki/Georgism
Hopefully, the rents that are too damn high go to the tax collector instead of an income tax. There is the Henry George "theorem" which states that land rents are always equal to the cost of government.
Curiously, I don't really know how this interacts with zoning. I suspect zoning would be completely different if there was no influence from land speculation.
I don't hold Geotaxation to be utopian. It's just interesting. Might be an improvement.
> The interesting thing about land value/rents taxation is that it cannot be passed on to tenants.
In theory. In practice the problem is that it gives governments a vested interest in rents remaining high to maintain their tax base, which makes them avoid policies that would lower rents (and thus the government's share thereof). But maintaining high rents is extremely regressive, regardless of whether the money goes to the government, because rents are paid like a poll tax.
> There is the Henry George "theorem" which states that land rents are always equal to the cost of government.
Things like that are weird because they have the potential to be "true" since a more prosperous country can afford to spend more on both government and housing, but then what is supposed to follow from that?
> Curiously, I don't really know how this interacts with zoning. I suspect zoning would be completely different if there was no influence from land speculation.
Well, it would turn the government into the land speculator, so they would be the ones trying to keep land values high and generate artificial scarcity.
I don't expect there's anything a government can do to manipulate the value of rents. SFAIK, the general case of county assessor's offices is that they're honest and transparent.
If taxes are too high here, I can move. That sets a mechanism for keeping equilibrium in prices.
> If taxes are too high here, I can move. That sets a mechanism for keeping equilibrium in prices.
Couldn't you say the same thing about rent, under the current system? If rents are too high, people can move to Des Moines or wherever; that fact hasn't made many people feel ok about how high the rents are (because of course not all places you could live are equally desirable).
What makes the land valuable to the factory? Serious question. You have the factory there, presumably a big factory was the best available use of that land.
Then people move to live around the factory. Are you suggesting that houses suddenly become the best available use? Because that doesn't make a lot of sense.
Of course the value does go up, but thats because the factory now has ready access to a population of employees. Did the factory build the houses around it that enabled that? No! So the amount the factories taxes go up from LVT is exactly equal to its net benefit from having a population near it ready to act as a labor pool. In other words, it has lost nothing from the tax, but merely failed to gain economic advantage simply from controlling the land.
>So you have somebody who is going to build a factory and they pick a nice piece of low value rural land. But once there is a factory, people build housing for the workers and stores and so on, and now you have a whole town centered on the factory and the value of the land goes up. But the reason the value of the land goes up is because of the factory.
Factories usually push down the value of land. Who wants to be next to a smokestack?
>Anything that doesn't actually care about its location but attracts other investment would keep getting moved
Which is all very well, except there basically isn't anybody who doesn't care about location and attracts investment. Location is important for everybody.
> Factories usually push down the value of land. Who wants to be next to a smokestack?
Factory workers. Then service workers who sell their food and cut their hair. Then doctors and nurses and police and firefighters and so on who are needed wherever people are concentrated. How do you think places go from being an empty field to a town?
> Which is all very well, except there basically isn't anybody who doesn't care about location and attracts investment. Location is important for everybody.
Then why do Boeing and Ford and GE build their factories in rural areas instead of in Manhattan?
>Factory workers. Then service workers who sell their food and cut their hair.
Except factories need workers too, and workers need haircuts so it doesn't make sense for a factory to be built in the middle of nowhere where there are no workers.
>How do you think places go from being an empty field to a town?
Rarely.
>Then why do Boeing and Ford and GE build their factories in rural areas instead of in Manhattan?
Boeing's factory is within easy commuting distance of Everett. GE's is in Flint. Neither one was built in rural Iowa or the Mojave.
They're not built in Manhattan because that would be prohibitively expensive given the amount of space they need.
you could counter some of this by having society assess and assign certain land value based on factors you mention. E.g. green-belt land should have an extremely high rent if you want it to remain green-belt. If you want to avoid sprawl, assign a function that raises rents as a function of distance to the nearest urban centre.
The biggest problem I see with it is not so much that it can't be made into a workable way of allocating land - it might even be good at that. But that it only catches value changes to the land, and we're going through a period where e.g. in IT the value creation is less and less dependent on land and more and more fluid.
There are many, many things government could do that are economically better, not just in areas of taxation, but pretty much every area. Also, I'm not talking about the things crackpot far left/right wing blog readers consider obvious, these are perfectly orthodox Econ 101 insights.
They aren't implemented because they are incompatible with political dogma (I won't even call it ideology, as this implies a level of intellectual consistency), and these issues are used as tribal rallying calls which are much more valuable to politicians than implementing better policy ever was.
Land use tax, no matter how economically efficient, won't get implemented because the villains of taxation these days aren't heavy land users. I can run a hedge fund from a few floors in a Manhattan sky scaper. It would have the land footprint of perhaps 10 large coffeeshops. Google and Apple have barely any land footprint compared to any factory of any size. Any land tax implementation that would see hedgefunds, Google and Apple "pay their fair share" (while raising enough revenue to replace income and sales taxes) would be grotesque and certainly not economically efficient.
> I can run a hedge fund from a few floors in a Manhattan sky scaper. It would have the land footprint of perhaps 10 large coffeeshops. Google and Apple have barely any land footprint compared to any factory of any size.
That hedge fund skyscraper is on a prime plot of land in Lower Manhattan. The factory is in an industrial zone in rural South Carolina. The hedge fund gets taxed more – LVT is not regressive.
First, I don't care if LTV is technically regressive, I care if political opponents of LTV can claim it is, and they can.
Second, I actually included meaningful comparisons. My hedge fund gets taxed the same per sqft as the coffee shop in the same building (probably less, because the storefront property is more valuable, a 56th floor coffeeshop doesn't get the same foot traffic as the street level one, my hedge fund works equally well whatever floor it's on). Also, I'd put my back office operation in SC, which is great for me and SC, but looks a lot like me dodging my fair share. This might be economically efficient but it's not politically efficient.
Googles datacentres are in the same industrial zones as those factories. Google's offices are right next to malls and cinemas who would get billion-dollar tax bills if Google were to be taxed "fairly".
The coffeeshop already pays more through conventional rent than the hedgefund in this example. Google also would pay substantially. More importantly, the people who have speculated the nearby city because of Google would pay a lot more.
Let's not forget the coffeeshop also make more money from being where it is.
The hedge fund would still pay less tax then the paper company in the adjacent office. And both would pay less than the coffee shop on the street which has really valuable real estate.
As Koolhaas points out in "Delirious New York", skyscrapers are a way of multiplying plot area. This does pose problems for a taxation scheme based on land use.
George didn't originally intend that, and he also intended for land tax to replace all other taxes. I'd be interest to hear a source on the desirability of "things like skyscrapers".
(Koolhaas argues that not only was the elevator essential for the development of the skyscraper, but the telephone was necessary too, since it obviated the need to leave the office during the day. Is the original requirement for density still valid today?)
I understood the steel frame was the critical technology. Brick could only go 20 stories high; then the walls on the bottom were so thick it was essentially a brick pedestal with no usable interior space.
Steel skeleton skyscrapers have the same issue, but with elevators. After 100 floors, the bottom floor becomes essentially an elevator plaza.
When you think about it's the perfect tax: it's regressive (and the people in power love regressive taxes) and it effects the middle classes (and the people in power don't care one bit about the middle classes, no-one I've heard of has ever said to him: "My ideal in life is to improve the condition of the middle class!" while I've heard of lots of people saying to themselves and others: "I want to eradicate poverty!").
A land tax would be regressive because it would have a bigger effect on middle class people compared to the 1%, because for a person representing the middle class a house purchase (which includes the land the house sits on) it's gonna be the biggest ever purchase from his/her life, while for a hedge-fund manager worth $5+ billion an extra money that he would have to pay on his Hamptons house is a blip in the ocean.
You mentioned a lot of economists, but you left out J.S. Mill, who at some point was strongly in favor of proportionally higher inheritance taxes. That kind of tax wold effect the hedge fund managers a little more, and it sounds fairer to the middle classes.
> When you think about it's the perfect tax: it's regressive
Not really. (Tax incidence is one of those things that trips people up if they're not quite familiar with the subject.) One of the attractions is that it is progressive, and very, very difficult to pass on. Also note that we are talking about the value of the land, not the buildings, and that housing is only one of many uses land is put to.
As for J.S. Mill, you might be surprised; he wrote that:
"Landlords grow rich in their sleep without working, risking or economizing. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title."
He and Henry George had many philosophical disagreements, but not about that.
> As for J.S. Mill, you might be surprised; he wrote that:
As far as J.S. Mill's economics works go I've only read his "Principles of Political Economy", so he might have had other beliefs later or earlier in his intellectual career, I agree. I'm too lazy to look for the exact quote, but I found a pretty good round-up of what I remember of having read in here (http://www.econlib.org/library/Essays/LtrLbrty/gryMTR2.html):
> Mill's remedy for this maldistribution, which he proposed in the first edition (1848) of the Principles, was the institution, not of an estates duty, but of what we would nowadays call an accessions or inheritance tax, to be levied on the recipient and not on the donor of capital. For Mill, the merit of such a tax was that, unlike other arrangements, it need not transfer wealth from private individuals to the state, since it was easily avoidable by the desirable expedient of dispersing one's wealth widely. Importantly, Mill favored a steeply progressive inheritance tax. This tax, though it would allow the transfer of a "modest competence," would destroy all great fortunes in a couple of generations.
"Quite simply: any tax is borne by whoever is less price sensitive, the quantity demanded by consumers or the quantity supplied by suppliers/producers.
"So a tax on tobacco (demand is little changed by increases in the total price, but suppliers have a minimum price which they need to receive in order to stay in business) is borne by smokers.
[...]
"Tenants are price-sensitive, they don't want to waste all their money on rent and will tend to choose the cheapest accommodation and will share if necessary. And the landlord? He cannot vary his output one jot, one home is one unit, either he rents it out at anything up to market rates (and we can safely assume that most of them do) or he demands more and receives nothing. If he is has fixed costs associated with that home (be it mortgage repayments or LVT) then he does not have the luxury of withdrawing the home from the market and leaving it empty, he has to rent it out for as much as he can (market rates).
"This is often expressed with supply-demand curves, see e.g. Wiki."
...But of course the landlord can vary his output---in aggregate. He can take the home off the rental market. (If he actually is losing money at current rental rates, he will have no choice to do otherwise, luxury be damned.) He can tear down the house and run livestock on the property. He can convert it to commercial use. He can sell it to someone as a primary residence (which does take the house out of the rental market while taking <1 tenant out of the market). Further, he can not buy or build further rental property. And at some point, rental rates will rise because tenants are hardly perfectly price-flexible: the maximum duration of a daily commute is significantly less than 12 hours.
Section b), "The Economic Theory" seems to be selectively ignoring economic theory.
"c) Logic
"We also know that rents are dictated by local average wages (after deducting PAYE and so on), plus extra if it's a nice area minus a bit if it's a grotty area. That is the beginning, middle and end of the matter. The landlord's actual cash costs are more or less completely irrelevant. As long as the actual or potential landlord can collect more in rent that it costs to provide and maintain the building he will rent it out (if not, he will abandon it).
"If the rent is more than the maintenance costs, the balance is the site premium (or the location rent or whatever you want to call it), so the tenant pays rent sufficient to cover the cash costs and the site premium on top. If the government now decides to tax away the site premium, that is between the government and the landlord, this does not increase the rental value of the home by a single penny; the amount of rent which the tenant will pay is the same and so the landlord bears the tax. His remaining rental income after tax is, by definition, still enough to cover the maintenance costs and so he stays in business."
But consider:
* "Workers in the San Francisco-San Mateo-Redwood City Metropolitan Division had an average (mean) hourly wage of $33.34 in May 2014, about 47 percent above the nationwide average of $22.71, according to the U.S. Bureau of Labor Statistics." [1]
* "As of December 2015, average apartment rent within 10 miles of San Francisco, CA is $3484." [2] (10 miles from San Francisco appears to include a bit of Oakland and about halfway to San Mateo.)
* "Median monthly gross residential rent in the United States was $905 in 2013 according to the Census ACS survey." [3]
So workers are paying roughly 40 hours in residential rent in the US and 105 hours in the San Francisco area. (Must be a really nice area.)
And for "The landlord's actual cash costs are more or less completely irrelevant," I believe that's a corollary of my conclusion to b). In fact, this entire article seems to be predicated on the idea that a rental property owner will continue to be a rental property owner no matter the economic consequences, although it does admit that "abandoning the property" is an option.
In fact, this discussion leads me to believe that LVT is designed to raise rent prices by reducing the availability of rental property.
You are absolutely correct. It may have been less regressive a century ago when capital was trapped in a particular geography due to the limitations of the banking and other systems.
Its pretty easy technically to restore progressivism.
- You introduce regulation to make it difficult and expensive to maintain shell companies.
- Make compliance difficult for anonymous corporations and LLCs in states like Nevada. Make it difficult to bank if the principals are unknown.
Remember that changing income taxes does not help with this, and anyone who tells you they're going to raise the top marginal income-tax rate is either deceiving you or doesn't understand how to accomplish their goal.
What you need, if you want to do this, is a multi-angle approach of raising the top marginal rate, skyrocketing the capital-gains rate (the uber-wealthy don't make their money in salary, they make it in investments), and adopting the harshest and most stringent possible enforcement mechanisms against people who try to hide money from the tax. Drone strikes on Caribbean banks need to be not out of the question if you want to make this really work.
(and of course there's no way in hell anyone would pass all of that)
I think the income tax system works pretty fairly until it starts hitting the 250-300k range, where the net taxation drops as people at this range have more options to avoid taxation. (The story of Warren Buffet's effective rate vs. his secretary)
So I think you need the ratchet the percentage higher and higher as you climb up.
The confusion here is that you're misusing the word "regressive". In the context of taxes, "regressive" means that the poor pay a higher percentage than the rich. That's because it's the opposite of "progressive", which means "super-linear", i.e. the rate progresses with your income.
I think that what you actually meant was "progressively tax ultra high incomes".
The regressiveness of the tax can be fixed. Most countries with land taxes have them so you only pay tax on land that is not part of your main residence. So in that case the middle class only starts paying the tax when they start investing some of their savings into real estate.
It would also put an undue burden on those who still live off their own land. While their acre of vegetables & poultry may feed their family, they are not wealthy in the same way as an owner of 1 acre in a city.
Yeah, just because one tiny fraction edge case might be affected, we should do absolutely nothing. The status quo of land ownership being an enabler of a rentier class pales in significance to the plight of subsistence farmers, which I have a hard time believing exist in any substantial number in developed countries.
It's not like we could define classes of protected persons to balance out such effects?
But no, it's better to do absolutely nothing on the off chance someone, somewhere might be negatively affected in the next millennium.
Better the devil we know, right? No matter the imbalance and injustice to society, property rights and protection of capital derived from ownership, are sacrosanct.
I hear this argument all the time, and without fail it's a Boomer who benefited from massive capital gains, or someone who bought when it was low. The Fuck You, Got Mine crowd.
FWIW, I'm a homeowner, so in theory if I didn't care that we're creating a disenfranchised group on a massive scale, I should be against such a tax.
But don't come here and pretend you really care at all about this contrived population of people who would suffer unduly.
It might be more "economically efficient" whatever that means but it is only taxing a small percentage of wealth owners (those invested in land). I don't see how that is politically viable given that they aren't the only ones benefiting from all that government and society provide.
It seems to me that this only made sense when land was the main form of wealth for any given estate at the time.
> It might be more "economically efficient" whatever that means
It means it has smaller [deadweight loss from taxation](https://en.wikipedia.org/wiki/Deadweight_loss) than most other common taxes (which are mainly based on income or transactions).
> I said of it in 1847, in my work against Proudhon: “We can understand that economists like Mill” (the elder, not his son John Stuart, who also repeats this in a somewhat modified form) “Cherbuliez, Hilditch and others have demanded that rent should be paid to the state in order that it may serve as a substitute for taxes. This is a frank expression of the hatred which the industrial capitalist dedicates to the landed proprietor, who seems to him a useless and superfluous element in the general total of bourgeois production.”
Basically, the concept of paying land/ground rents was well established in many European countries, only usually the recipients would be land owners that were often the nobility, rather than the state. So replacing ground rents to one of the large estates with taxes to the state to replace other taxes was naturally attractive to the capital-owners in countries where this was widespread. Marx recognised elsewhere that George and others were going further, but saw it basically de-facto as a means for the capitalists to rip the rug out under the last of the landed nobility and make them rather than the bourgeoisie the source of funding for the state. So yes, a delay for socialism, and that may be one reason for Marx to dislike it, but I read his criticism more as disdain over basically dragging up an old idea as a halfway house when in his eyes there were already far better alternatives on the table.
But this history of ground rents also gives you the reason it has not and will not be enacted anytime soon: Many of these land owners were, and still are, tremendously powerful. And many new large land-owners have arisen. In the UK, for example, large parts of central London is in the hands of a handful of large estates which still collects ground rent or rents out land on a shorthold basis, after they eventually managed to reverse the decline that followed the introduction of estate taxes. Many of these major London estates are still in the original family ownership (e.g. Grosvenor, Portman, Cadogan, Bedford) - and you will find similar estates if not often of the same age - all over the place. The vested interests in fighting such a tax regime is in most countries vast and extremely well connected. It is a fight few would want to take.
George's intent was to replace most other taxes with it. That has as far as I know not been tried. Many have had some form of land value tax as part of a wider tax system, but that may counteract many of the claimed benefits of it.
The general objection is that it's pretty unfair to farmers. And well, all land owners. What's special about land? What's the difference between someone with a million dollars worth of gold and a million dollars worth of land? The first pays no tax.
And maybe they shouldn't, if you aren't earning anything or spending on anything. Income tax fairly taxes everything that is earning money. It distributes taxes over the whole economy rather than specific parts, which is why it's the most politically acceptable solution.
Property tax includes the value of what's ON the land, land tax is the value of just the unimproved empty lot. IE, the location.
Creating value on the land is yours to keep, capturing value the community created (the location value) should go to the community. Otherwise you profit and rent seek from value you didn't create.
Except for the fact that land taxes are regressive and extraordinarily evil toward the bottom ~50%, the people that have by far the most difficulty affording their property taxes each year.
Ted Turner isn't having a problem paying his property taxes. The rich will never have a problem paying their property taxes. It's the poorest that struggle with it. Fully distributed land value taxes discourage property ownership by the non-wealthy, which will increase wealth inequality.
If you then plan to create exclusion lines based on wealth or income, that drop people out of having to pay property taxes - well then you're just going to create a lot of other problems in which you're punishing people just above that line that can hardly afford the tax either.
If you want to use a very finely graduated property taxation approach, good luck fairly managing it across a nation as large and diverse as the US in terms of incomes / land values / standards of living / et al.
If you make a person pay $3,000-$4,000 annually on their homeowners taxes per year, with said person having a median income in a house valued at the median, then what you'll accomplish is every ten years you're guaranteed to have completely wiped out all value gain created by that person owning their home and paying down their mortgage.
Property taxes are just about the most regressive taxation device ever implemented. The only thing worse is the basic income, in which the rich are given a welfare hand-out.
We're talking about a land value tax, not a property tax. They're quite different, and if you're curious about the logic behind them then by all means read the original article, or the Wikipedia article on Georgism, both of which go into some detail. Also, note that a land value tax would be progressive, not regressive.
Also, while obviously they could be wrong, if Krugman and Stiglitz think it's a good idea, and Marx was afraid it would help the proletariat out so much that it would delay the revolution, it's probably a sign that it's not as obviously "extraordinarily evil toward the bottom ~50%" as you seem to imagine.
I think it's likely that 'adventured' understands the difference, and chose Turner as the example because he owns 2,000,000 acres (~100000 hectares) of mostly unimproved ranch land: http://www.tedturner.com/turner-ranches/
This makes him the second largest landowner in North America, after John Malone.
completely wiped out all value gain created by that person owning their home
Think about this for a second: where does this value come from? Most capital assets depreciate. We're too used to property as an eternally appreciating asset.
There are vast amounts of land, even within American cities, that is very cheap. The amount of usable land for urban purposes might as well be infinite.
Land is only expensive in a few select locations that have specific infrastructure and industries. It is the infrastructure and industries that provide the value; even the most picturesque accessible fertile land is quite cheap if it's not in a city.
The article ends with the comment that the automobile broke the land ownership monopoly by creating suburbia. It took about fifty years to fill out surburbia, but that's been done.
Henry George's single tax plan has been implemented in two cities in the US. One is Fairhope, AL.[1] The Fairhope Single Tax Corporation owns most of the land in the town, including the downtown area, and rents it out on 99 year leases. The ground rent cover all property taxes, plus some public facilities the Single Tax Corporation runs. The corporation sets the rent based, as Henry George wanted, on the most productive use of the land. This encourages development. This just covers the land; you can build, and own the building, but must keep up the rent payments on the land to continue owning the building.
What you can't do in Fairhope is buy land and wait for it to become more valuable. You cannot get a capital gain out of owning land there. So no one can become rich by owning land.
"What you can't do in Fairhope is buy land and wait for it to become more valuable. You cannot get a capital gain out of owning land there. So no one can become rich by owning land."
Couldn't you ? I have no idea if this is workable in Fairhope, specifically, but ... if this is the main feature of a land tax regime, it seems like you could fairly easily game this ...
You gain control of the land (either through purchase or 99 year lease or whatever) and then you create an option to buy (or option to assign lessee) that is transferable to a third party and then you can camp on that appreciating "asset" just like people now do with the land itself.
I'm sorry if it's a bit imprecise or hand-wavy, but you get the idea - you only need to create a derivative of the property (which should be trivially easy) in order to work around the inability to sit on appreciating land.
A corporation is implementing the taxation model described by George. Note that "corporation" is any incorporated body, and need not be a for-profit enterprise. In many parts of the US, towns are corporations ("incorporated") already. I'm not familiar with the governance of Fairhope's corporation, but incorporation need not require unaccountability.
As for central management of core elements of an economic system, look up the role of the Texas Railroad Commission (hint: it didn't regulate railroads) and prepare to have your mind blown.
Well the suburbs were made out of ticky tacky and they all looked just the same. Their adoption was also driven by racism.
As long as people are interested in eating, drinking, partying, culture, socializing and having casual sex - cities as most desirable places to live are inevitable.
The gentrification could be viewed as a very subtle form of segregation - that you could just price out people you don't want to mix with from the places you deem desirable.
> As long as people are interested in eating, drinking, partying, culture, socializing and having casual sex - cities as most desirable places to live are inevitable.
Eating, drinking, partying and casual sex are just that - culture. Culture is subject to change.
And this isn't what drives urbanization. More simple optimization with regards to commute time and employment opportunities dominate this preference, except maybe in very select areas with high density of youth with enough money to have post-materialistic consumption behaviours.
I think venomsnake was onto something a little more than you're giving credit for. I would rephrase it a little:
Diversity and plentifulness of nutrition, social/sexual opportunity, and economic opportunity are strong attractions of cities rooted in our core biological needs.
That more general form combines the ideas that the two of you present (I think efficiency is significantly enough intertwined with economic opportunity that it makes sense to treat them as a single factor). Different people may emphasize differing core attractions as reason for wanting to be in a city, but I think all of these factors are core to what attracts significantly large groups of people to cities, and I think you lose a large part of the attractions of cities by leaving out any of these factors.
edit: oops, originally cited the wrong commentor, also fixed a typo
You're right. To disambiguate, I was saying the pragmatic/economic effect "dominates", which economists use to imply being stronger, not even necessarily by much, but enough to override culture at the margin.
> all of these factors are core to what attracts significantly large groups of people to cities
And these things can change. Or more precisely, technological or social shifts may change these preferences drastically, which is why real estate and land ownership in general has a black-swan style long-tail risk, which is seldom mentioned.
Primary draws of the city may become weaker with better technology. And we might find [more striking and concrete evidence for] significant drawbacks, especially in term of health effects.
And certainly there are examples of individual cities that have become less desirable over time (e.g. much of Detroit)--as well as periods when there was net flight (at least among certain income groups) from many cities generally in the US.
Amateur at this point. Majored in the topic at uni, and have maintained a significant interest.
As Cutler's article goes on to explore, George may have been on to a good point, but fettishising land over productive foundations may be an error. I found Cutler's mention of Carlota Perez to be of interest, I'm reading the cited book currently.
As for Fairhope:
1. How land values vary relative to comparable areas with different taxation bases.
2. Overal equity / equality. Comparing economic mobility for those of differing parental family wealth, for example.
3. Overall economic activity. Does Fairhope do better or worse than comparable regions.
I've got a hankering suspicion that differences may be too small to measure / matter.
"A missing piece of Perez’s work, that often goes underemphasized by the private investment community, is the role of government in creating an equitable framework that allows everyone to participate in benefits of technological change. This is not an argument in favor of big government for big government’s sake; it’s to point out that when technology changes the complexity or structure of society, citizens have to push public institutions to transform themselves too."
This highlight explains something that the Californian investment mindset seems to ignore - capitalism is good at creating wealth, but it tends to concentrate a lot of power in the hands of a few; efficient government is needed to distribute that wealth, so that an enough amount is shared and most of society benefit from it.
So what is the difference between a land tax and property tax? After all I looked at my tax assessment recently and there is a value for the land and a value for the house itself?
George advocated a land value tax; that is a tax on the unimproved value of the land.
This might seem like a minor difference but it actually isn't, because taxes generally cause changes in behaviour. Sometimes those changes are desirable: Carbon taxes, "sin" taxes, etc. More often the change is undesirable (as when we tax investment, wages, or consumption). (And, very frequently, those changes in behaviour results in the actual burden of the tax shifting. Payroll taxes are levied on businesses, but nobody actually thinks they pay them.)
Tax housing, and you'll get less housing. Since people like housing (that's why they build it), that's considered a Bad Thing. Tax land, and you'll...get the same amount of land. With a few very minor exceptions, the amount of land is fixed. No distortions, no deadweight costs, and no real ability to shift the economic burden of the tax.
What? It is trivial to shift the economic burden. As en employer I only hire remote: my employees now have to waste space having a home office.
As a home owner I want a garden, but I don't want to pay for it so I build it on top of my house and make a basement to put my car in - I now shifted something like 8/10 of my tax burden because I use less land.
You have shifted the burden by giving up on a resource that is valuable to society around you. That may well be an equitable trade. The point is you won't get rid of the tax without giving something back to society in return.
Now, I don't believe that this is sufficient as an alternative to all other taxes, but it does have many desirable properties, and your suggested behavioural changes are amongst them: Optimizing usage of land.
Yeah but I have done that by lowering my tax contribution too. In fact if I move into one of the new mega-super-skyscrapers that this will surely result in I may end up paying so little in taxes (because so many people will share the ground) that it won't be enough to pay for the police and fireservices, which surely will go up because it is more expensive and difficult to fight fires in so tall buildings.
So in effect I have shifted most of my tax-burden off to others, land will have very little value (because it will have to be taxed more and more heavily).
Of course you can mix it with older taxes, but then you have the problems you had with them too.
It's relative to the value of the land though. The value of the small area your skyscraper occupies in downtown Manhattan or wherever is probably extremely valuable. Thus, high land taxes to be split among the occupants. It's hard to say whether your tax burden would go up or down without hard numbers, though.
Keep in mind that the land value would be the factor determining your proportion of the the overall tax income. If tax receipts go down, then the amount of tax charged per unit of land value would go up. At some point you will be unable to use less land without incurring far higher costs - e.g. tacking on ten floors on that skyscraper will require complex enough construction methods to not be cost effective. That's before considering any kind of planning consent.
I think the title is fair, because it is meant as a literary or rhetorical reference, not as a sensational headline meant to draw you in to some ho hum news article.
And when it comes to actual economists, Krugman "agrees that land value taxation is the best means of raising public revenue", but has questioned if it would raise enough; many other economists have suggested that it would. Rothbard (a leading an-cap/Austrian economist) attacked it, but I don't think many people ever agreed with him. Milton Friedman (a very widely respected economist of the Chicago school) said it was the "least bad" tax for raising government revenues. Hayek (another Austrian and also a Nobel prize winner), was an early proponent but later feared it would be unfair in practice. Robert Solow and Joseph Stiglitz are also on record as being in favour. Some of George's contemporaries suggested that distinguishing land from capital made no sense, but (as above) modern research has shown otherwise.
And Marx hated the idea, viewing it as "Capitalism's last ditch". In other words, he was afraid it would work, and thus delay to inevitable onset of world socialism. (I think on balance that should be counted as a vote in favour of Georgism?)
In short, it's an idea supported by research and with the backing of a glittering array economists from the far left to the far right (including several winners of the Nobel prize), a few prominent politicans (Churchill in Britain and two US presidents), numerous jouranlists and pundits, etc. And yet it's never been tried. (I don't count the few experiments at the local government level, since national taxes still applied.)
Kind of odd. Of course, it would be an enormous change to enact, which I suppose explains it.