I don't see a good way to get to Georgism without government absorbing the mortgages as the fallout to the economy of all that debt suddenly having little in the way of assets underlying it is a huge problem. I do agree I exaggerated with my claims of $0 since the improvements on the property would have some non-zero value, but land represents the majority value of most houses and the land value would be effectively reduced to zero by the change in value from the taxation. That would be enough to put most mortgages underwater and the asset would no longer sell for the cost of the mortgage. I don't see government doing this and just saying "too bad, investors absorb the loss".
"Another basis on which it is argued that greatly increased taxes on land are infeasible is that if land values were to fall precipitously, the financial system would collapse. It is true that many properties have mortgages that would exceed the value of the property if land taxes were increased significantly. This makes it necessary to think carefully about who should absorb the decline in aggregate asset value that would accompany a significant shift toward taxing land. Nevertheless, it is possible to plan for a restructured financial system that would have shed its dependence on land as collateral." http://www.wealthandwant.com/docs/Tideman_CTL.html#I._Taxing...
"Furthermore, as we discuss in more detail in our paper, the number of net winners from this reform would far exceed the number of net losers, who, if necessary, could be exempted or compensated at little budgetary cost. The winners would even include almost all of the very rich, who not only hold the vast majority of US land but who as a rule are also very well diversified, with land only accounting for a small share of their portfolios. They would benefit greatly from the countervailing cuts in labour and capital income taxes." https://voxeu.org/article/post-corona-balanced-budget-fiscal...
"It came as a quite natural development that also the question of incorporating these ideas into Danish Law was raised. From the very beginning, Jakob E. Lange was convinced that the problem of indebtedness, especially the mortgage debts, must be solved when the full Land Rent, or Ground Duty (in Danish "Grundskyld") were to be collected for a public revenue.
When in 1889 Henry George was on a speaking tour in England, Jakob E. Lange made use of the opportunity and went to England to meet him and to discuss the problem with him. The memoirs of Jakob E. Lange relate that Henry George completely accepted his standpoint; an eventual full Ground Rent which were to exceed the present property taxes ought to be proportioned between the title owner and the mortgage holder. This agreement between Henry George and Jacob E. Lange is also found expressed in the later correspondance between the two." https://cooperative-individualism.org/bille-frank_danish-ame...
As a first approximation, people would continue to hold title to the land to which they now hold title, and would continue to owe whatever money they now owe. But compensation could be sought on a case-by-case basis, by individuals who stood to bear the costs of the moral accident disproportionately and did not have substantial assets. Any financial institutional whose continued existence was threatened by the transition would be bailed out in exchange for a significant fraction of its equity. The costs of the compensation would be paid by a capital levy.
I don't think this proposal is feasible. Many people owe more than their entire net worth on their primary residence. The plan is to tax land to the point that the value of land for that residence goes to zero leaving only the value of the structure on that land. The structure value is often a small fraction of the total current value of the home. This puts people sizeably underwater and would result in a fair number of people forcibly vacated from their homes as banks sold the structures to pay the mortgages.
The bailouts of various financial institutions would be expensive, as would the system shocks from the various losers on the mortgage debt. Lastly, many people in old age sell their homes to pay for living in a nursing home until they die. This option would become infeasible if we drastically reduce the value of their homes and given their old age they would have no viable alternative to generate alternate capital.
His proposed solution to this is a vague and nebulous "case-by-case" compensation for disproportionate costs without adequate assets. Depending on your definition of inadequate assets and disproportionate costs the total cost of this compensation can range from nearly $0 to the vast majority of all current property values. Keep in mind that a sizeable percentage of the population owns a single family residence that is a disproportionate portion of their net worth and generally factors into their retirement plans. I'd argue that every such individual is disproportionately impacted and does not have adequate assets.
Zillow estimates the total residential property market in the US at $33.6 trillion dollars. I can't find good statistics for single family owners vs landlords but it's easy to assume that close to 50% of the market will be situations I described. This makes it quite possible for the homeowner compensation to be in the area of $16.8 trillion dollars.
Similarly, mortgage debt is often held by pension funds that would struggle to pay their pensions out if that wealth suddenly evaporated or was vastly reduced due to people abandoning their homes. The current US residential mortgage market is $17.6 trillion dollars. Assuming half of this qualified for hardship we'd have $8.8 trillion dollars of subsidies.
There are other institutions and individuals adversely effected and a program to adequately compensate them all may well cost as much as the current US debt which is currently $30.5 trillion dollars.
I think Tideman vastly understates the problem. The introduction of LVT would arguably be the largest wealth transfer within a nation in human history and by his own admission mostly transfers wealth from the old to the young. It has sizeable risk of transferring wealth people can't spare, particularly transferring wealth away from those no longer work and cannot easily generate new wealth.
Fred Foldvary also discusses the transition and who would ultimately need compensation in https://www.progress.org/articles/the-transition-to-land-val...
I see no evidence that it would be difficult in the slightest to disentangle such things but I’m willing to be convinced otherwise by those who have done an actual analysis of the issue.
Of course, as Foldvary notes, “First of all, compensation for the loss of land value is not morally required. The typical landowner has been receiving an implicit subsidy from the government, as public goods generate higher rent and land value. One could argue that justice requires the title holder to pay back the past subsidies.”
What you see as a problem is not an ethical or economic problem merely a potentially political problem.
The current real estate system on the other hand is a fundamentally different beast. Everyone who doesn’t want to be homeless has to participate as either a renter or purchaser. Years and years of government policy have made the former decision ill advised as the financial benefits to ownership are quite large. Despite this I’d agree with the proposal if all that was being done was the removal of a subsidy.
The government is not merely removing a subsidy in this case though. They are intentionally cratering the housing market. Years of government policy has encouraged over-participation in that market. For those who want to change things to argue the government is 0% morally culpable and the individuals are 100% morally culpable is disingenuous. His argument seems to be that the financial culpability follows from the moral culpability.
He even argues that individuals participating in a system owe backwards subsidies because the government did the morally wrong thing. This amounts to intentionally bankrupting most home owners, including depriving them of funds needed for retirement. This is done in a single sentence hand waving fashion without any sort of impact analysis.
I’d argue there is a substantial problem here that spans the ethical, economic and political categories. But you seem to believe the government is 0% culpable and the individuals responding to incentives are 100% culpable. I’d argue it seems more likely you don’t actually believe that just don’t want to pay for the costs of a fair transition.
This is an absurd standpoint. You're going to ask 64.8% of the population that own homes, a quarter of who are nearing retirement age, to pay back what for all intents and purposes is their retirement fund? If you want to talk about morals and ethics this is clearly an immoral position. Even if we consider the assumption that the increase in value of their property is some form of subsidy, they entered into this contract in good faith as a way to provide for themselves and their families as they age and eventually retire or are no longer able to do productive work from which they can earn a living. To strip them of this and say with a hand wave that they were in the wrong for thinking that a system of ownership, that has existed for hundreds of years and was generally agreed upon by the vast majority of society, would continue to exist and that they would benefit from by lawfully participating in it... I honestly can't imagine you or anyone saying this to someones face, it's just baffling. It's on par with demanding collectivization at the expense of landowners and it would probably have the same consequences.
Perhaps we should just convert all inherited land into 20 year leases with a land value tax being introduced after the lease expires?
Some land owners should have to eat losses. Thats the whole point. If you live on a portfolio of land inherited through your 15th century duke great grand uncle you should be getting a job at McDonalds rather than living off the labor of others.
The problem is less technical and more political. Try to deprive large scale land holders of their property and they will bankroll a fascist uprising and launch a coup while foreign leaders in hock to property owners elsewhere will back the coup and enact punishing sanctions to prevent it from being seen to work.
It'll happen one day probably but the transition will be bloody and violent as it always has been when land is redistributed.
It’s all well and good to say some land owners will have to eat losses. Which land owners? How severe losses? The fact of the matter is that expensive housing in major cities has forced a substantial portion of the middle class to misallocate their portfolios and put far too large a percentage of their funds into real estate in order to have a primary residence. If you feel this group should eat losses without compensation you’re basically saying the government should financially doom them. More broadly it’s not uncommon to see a house in many neighborhoods become 50+% of a retirement plan. Cratering the value of homes without compensation dooms many people to less than half the standard of living they were expecting in retirement.
I agree with you that the transition you want would have to be bloody and violent. It would also have to be authoritarian. Simply put the groups you want to impose huge financial penalties on will oppose you and without them you lack the votes to pass this democratically.
Once you add the taxes for other jurisdictions of government I can see taxes reaching 30% of total mortgage value. It's fairly clear to me that owning land is extremely expensive in a Georgist society that needs to generate the levels of taxation that fund current government. If land value tax replaces income tax it needs to be fairly large, taking over 20% of mortgage value for just federal costs.
Some number of homes are owned outright and no longer have mortgages so the mortgage number may be a bit misleading. If we account for this we might get to a level that suggests 10% of mortgage value in taxes federally, raising to 15% of mortgage value when accounting for other levels of government. Such numbers suggest you'd need to be able to pay for your current property with an 8-year mortgage in order to pay the Georgist taxes on it.
I think a modern society that kept existing levels of government spending would see widespread downgrades in housing quality in a Georgist society.
In any case, there is lots of room for experimentation at the margins and any Georgist reform won't be complete or overnight. Any shift from taxing labor and capital will result in a better and more efficient economy, so don't get too caught up in the abstract end state.
That fixes my biggest complaint about Georgism.
Take Google, for instance. What is the basis of their income? It's not the land they own or occupy. It's that they own google.com.
Where does IBM's money come from? Not from the land they own in upstate New York. It comes from their patent portfolio.
Natural resources are consumed inputs and don't generate rents (extraction rights, which are a subset of property rights in land, do); intellectual property isn't land in the usual economic sense (it is not naturally occuring, so not land; it is durable and created, and therefore capital in the classic division.) It does generate rents, but that's typical of capital goods generally.
(In modern use it's more typical to expand the use of “capital” to include land and thereby encompass durable, rent-generating subjects of property rights than to expand “land”.)
And yes, neoclassical economics classes land under capital and that is a fundamental disagreement of Georgist economists with neoclassical economists.
Perhaps, but your proposed construction (I’m not familiar enough with Georgism to know if it is the standard there) seems to be equivalent to that in equating classical categories of land and capital, but simply reversing the terminology, making durable (and thereby serving as rent-producing property) non-human factors of production, whether natural (and thus classically “land”) or created (and thus classically “capital”) all “economic land”.
As for levies on externalities, these should be more accurately seen as correcting a market failure, the social cost that society must pay that the consumer/producer do not pay.
Notably, Frank Ramsey and A.C. Pigou can be considered crypto-Georgists -http://blog.lvrg.org.au/2013/09/ramsey-and-pigou-crypto-geor...
"As we shall see, Ramsey not only formulated a rule that leads directly to a “single tax” on land, but also anticipated the so-called Laffer curve in cases where the “single tax” is not employed. Moreover, Ramsey's rule was to be applied after any externalities had been internalized by means of appropriate taxes and bounties."
Georgists are a bit like libertarians when it comes to income taxes. It's very difficult for government to demonstrate a moral basis for interfering in work markets to generate taxation. Libertarians argue that if you are forced to pay 57% income tax you're 57% a slave. I'm not sure Georgists would go that far, but it seems unlikely you'd see implementation of taxes that are both economically less efficient and ethically more dubious than taxation of economic rents.
I agree there are some other things you can tax. I presume those are also taxed at precisely the economic rents they create? My point is that government needs some sort of tax with a knob that they have the ability to tweak upwards or downwards based on shifting revenue needs. It seems to me the only things in a Georgist system are taxed at precise values and fail to give government that knob. Do all Georgist societies have some sort of services cap because their tax revenues are capped?
In any case, Georgism produces a very different financialization of governance than the current tax system, because public goods pay for themselves via increases in land value- see the Henry George Theorem by Nobel laureate Joseph Stiglitz: https://en.wikipedia.org/wiki/Henry_George_theorem. This means that rather than adjusting taxation to meet desired investment, desired investment is adjusted to produce optimum public returns- which has the beneficial side effect of incentivizing good and proper governance.
You already see this in areas that don’t prop 13 tax rates - as land values rise the land gets redeveloped.
I'd be very concerned about governments undertaking the necessary actions to drive land value taxes up by 22% over a four-year window. I think such policies would lead to many people being forced to vacate their land.
Even things like health care, which arguably keeps me healthy enough to work isn't distributed in any sort of uniform way so the productivity increase from it isn't likely to match the land value tax increase.
I think there are a lot of things that can increase land value 22%. I think some of them might even raise average wages 22%. I think almost none of them will raise each individual wage by 22%.
You have a thousand acres of farm farmed by your family and another say - ten workers in total.
The government builds a rail line and highway along one side of your farm and suddenly a portion of the thousand acres is better used as a small town - which now houses tens of families and perhaps a hundred workers.
Even if your personal income didn’t raise, the income of the area did.
Have we accounted for the fact that with LVT it's possible to get less tax revenue from land becoming vacant because the taxes become too high for users?
As for the tax being too high, if people started to vacate land that would mean the tax rate is over 100% of the land value (if it's at 100% people won't vacate, they won't be able to extract rents from it but it won't be an economic loss). Governments have every incentive not to tax land over 100% value because they actually lose money from doing so, so that's a pretty good security that it won't happen.
I worry that the overtaxation causing vacation mechanism isn't very efficient because if the tax takes a small part of the land value improvement it seems that the government gets additional unearned revenue while only land with little to no improvement would be vacated. I think people only vacate if the taxes cut into their additional revenues too steeply. I'm not sure exactly where the too steep point is, but I think governments would have an incentive to overestimate the value of land.
The question is to whom should this payment go, and "fee simple" is an entirely inappropriate mechanism for payment.
Everyone has an equal right to the use of land, limited only by the equal rights of others to use land. What the state does not need for the provision of public goods & services should still be collected and returned to the people on a per capita basis, as a simple matter of social & economic justice.
Yes this does mean that renting/owning low density housing will be more expensive but your income will be much higher to begin with as it isn't taxed.
For example 20% VAT and 30% income tax mean 56% of your money can be spent on housing. Without those taxes you will have almost twice as much money to spend which means you can afford higher land value taxes and if you decrease the amount of land you use, your effective tax burden will go down but so do the costs to maintain infrastructure and other public services.
Currently most property taxes are local, not federal. You're also missing the bit about a citizen's dividend which seeks to offset some of this.
If the bank pays the tax, why wouldn't they pass it on to the mortgage holder in the form of higher interest rates or other fees?
There are exceptions when businesses are investing for growth and expenses are paid by investors, but normally no business is going to agree to a contract where they lose money. The money to pay expenses comes from customers.
Because land has an inelastic supply, and therefore its value is driven entirely by demand. Banks already charge as high an interest rate as they can get away with (i.e. one commensurate with the buyer's credit rating and the value of the land); trying to raise it to account for LVT would immediately backfire due to the resulting profit loss (in this case, from people being less willing to take out such mortgages).
The bigger issue is what happens to current mortgages. If I paid 25% down on a 1.5 million property and have paid my mortgage down further so that it's now sitting at $1 million and the value of my land is $1.25 million and the value of my house is $250,000 when the government adopts Georgist policies the value of my land goes to $0 which means my property is now worth $250,000 and I owe $1 million on it. I'm obviously going to walk away from the loan so the debt holder for my mortgage gets an asset worth $250,000 instead of the $1 million of money they were owed, a loss of $750,000. I also lose the $500,000 I had build up in my home since I walked away entirely.
I think that would be true for any reform that's actually effective in driving property values down.
You're comparing a roughly 80% reduction in house prices with a promise that taxation will absorb further rises in the asset price of land to a 30% reduction in house prices with a promise that the market will eventually recover and grow to new heights. The first effect is nearly triple the second one, the change in future conditions makes it even more extreme.
In the US at least, mortgages are on both the land and the buildings.
Getting easy details like this wrong suggest that you don't actually understand how property works.
I get that you have a theory with properties that you and some equations, but that doesn't imply that your equations accurately reflect reality.
As the saying goes, reality has a surprising amount of detail.
Let's review: "if the bank owns the land as in a mortgage, they are the ones paying the tax, not the people taking out the mortgages."
You don't understand mortgages in a way that is essential to your argument. Banks holding mortgages don't own the property. At most, they own the right to grab the property if they're not paid, which is a very different thing.
But the point still stands. If the land value tax is paid by the homeowner, the sales price of the land is zero (under a 100% LVT), so the mortgage rates are lowered by an equivalent amount. So there is no additional burden upon the homeowner. If we flip the model and say the bank owns the land, they will pay the land value tax until it is paid off. In this case also, the sales price also drops to zero so the mortgage just incorporates the land value tax and the building payment. In all possible arrangements, there is no additional burden on the homeowner until the mortgage is paid off.
In this system, the homeowner loses any value they had accumulated in their house and the mortgage holder loses a large portion of the mortgage. This is what I'm saying the problem is.
I let that bit of bogosity slip by me.
The sales price of valuable land will never be 0.
Govt may not see the price, but it will be paid.
You've convinced me that Georgists don't have any experience with actual people or economies. They just have a theory unmoored to reality.
Suppose that I own a building. I may, or may not, pay for the land it sits on.
In the "land value is taxed 100%" regime, it doesn't make sense for land owners to charge rent because govt takes the "land rent".
%100% of 0 is 0.
I'm pretty sure that they'll figure out some way to get compensated. If they can't, no one will bother to own land.