So chipsa says that if you own a small plot of land in New York, you'll still pay a lot of property tax (on "unimproved value") because you're right next to the subway and that's part of the unimproved value of your land.
But if you own a large plot of land, the subway is just another improvement that doesn't get counted towards the value of your land. So once you've bought the subway, the unimproved value of your land is lower than it used to be.
I think it's weird to be so enthusiastic about a tax system with such fine dependence on the exact ownership structure of property. It's especially weird when the ownership structure the system is driving people toward is "a very small number of people each own truly massive quantities of land".
This is a highly unrealistic scenario though.
Land value tax does not need to pretend that none of the improvements exist, just that the improvements are not directly taxed.
That's precisely what land value tax must do. That is the definition of the tax. That is its only characteristic.
Imagine that things happen in the other order. You buy a bunch of undeveloped land somewhere. It has some assessed land value.
Now you build a city and a subway system on your land. Fifteen million people live on your land, work on your land, and commute by the subway that you dug on your land. Your land now has tremendous value. But, by definition, the land value is still the same as it was before there was anything there. The subway system didn't add to the land value. It added to the developed value.
You even slipped into your own reply: "Your land now has tremendous value."
The land of a 15M people city has huge value but low unimproved value.
Georgist believe that if you buy a piece of land and build value on it you should not be punished. Georgist taxation is meant to encourage individuals to develop their own land.
In practice likely the taxation would apply on a lot by lot basis, so you would have to count your huge land ownership as 150 thousand small lots each with significant unimproved value.
Another way to look at this is that you should tax a piece of land exactly the market value of renting that piece of land. So that the only value in owning land is the corresponding control and not the value extraction of ownership.
In this formulation you would pay a lot of taxes on the thousand of hectars the city is build on but no more and no less than you can get your tenants to pay you.
My main criticism of georgism is that it aggregate owneship to the rich, as you might not have the capital to make your land productive enough to cover its rent value.
E.g a small bed and breakfast in a scenic location could easily be developed into a 10 story hotel has an unclear undevaloped value.
> no more and no less than you can get your tenants to pay you
Tenants will pay you for both the use of the land and the use of the improvements, though, so if you're going to pin the tax to the rent value, the tax must be the lease value only of the use of the land. You are allowed to profit, untaxed, from the rent of buildings on the land.
This is exactly what I was addressing in:
> In practice likely the taxation would apply on a lot by lot basis, so you would have to count your huge land ownership as 150 thousand small lots each with significant unimproved value.
Let's play an experiment: in the middle of nowhere Alice and Bob each own two closeby land lots. Each lot by itself is worth essentially 0 dollars so neither Alice nor Bob pay any taxes on it.
One year Alice builds an hotel on her lot, her unimproved landvalue remains unchanged but Bob's increases to X dollars.
Another year Bob builds a restaurant on his lot, his unimproved landvalue remains unchanged at X but Alice's increases to Y dollars.
Honestly I am not sure how this would handle infrastructure development like a road or a railroad
---
For georgist taxation to work you need to set a sensible limit to how big or small a lot can be: an entire city is too big and a square foot is to small.
The possible failure mode of this taxation is that all but the most efficient use of land can become impossible, but right now I believe that the problem of excessive rent-seeking and "parked land" are more critical
It's having access to a subway, or having a hotel nearby, or a restaurant nearby that improves values, and they stack. There might be some adjustments on a lot level, but that's due to things like: water access might increase the value of the lots that have it, but not on the other side of the street that doesn't have access.
And here's the thing: cities already calculate the value of the land separately from the stuff on top. I do look at my property taxes, and they break it into the two values.
When left as swampland, Back Bay is essentially valueless, both in aggregate and lot-by-lot. Someone in the past came along and improved that condition to the current relatively firm earth.
> A land value tax (LVT) is a levy on the value of land without regard to buildings, personal property and other improvements upon it.
So if you were to own the lan under the Shamrock Pub in 501 E 8th St, Boston, MA 02127, United States you would pay taxes on that piece of land as if the Shamrock Pub was not there but obviously still considering the city around it.
Georgism asks you to not consider the improvements UPON your land, not to ignore those AROUND it.
The question of what that value is is quite easy to answer, it is the price of a similar empty lot in the same area, with the same developments around it.
No, it's massively higher. Just go look at the value of an empty lot in the middle of nowhere in Nebraska vs the value of a lot in Manhattan. Land in Manhattan is more valuable because more people want land in Manhattan. This is only incidentally related to the cost to build all the physical infrastructure, which is the only part that land value tax ignores.
LVT ignores the value created by the improvements on that piece of property. It does not ignore the value created by other land/improvements. If my neighbor makes an improvement to their land that makes my land have more value, that increase in value is subject to tax on my land. (Otherwise, the taxable value of land in a city would never increase.)
If I own the only subway station in a city, that's not particularly valuable. If someone else builds a second subway station and connects theirs to mine, the value of my land and the value of the land of my immediate abutters increases. If 40 other stations are built, that effect is further magnified. These physical improvements on other properties result in increases in the value of the land near subway stations, which in turn increases the value of the land of the subway station.
So far you've refused to answer this question many, many times in a row. It's not complicated. See this comment above you: https://news.ycombinator.com/item?id=37568145
So the 10 thousand square kilometers you own will probably be counted as a thousands of different independent lots.
And when I complain "why are we so excited about a system with such fine dependence on the exact ownership structure of land?", is "the dependence on the exact ownership structure is so sensitive that we don't even plan to look at it; we'll legislate a fictitious ownership structure instead" a convincing response?
Why is one division of lots less arbitrary than some other division of lots?
Finally, under the system you describe, let's say you own property that has been, in the government's wisdom, registered as two "tax lots", A and B.
You put a building on tax lot A and pay property taxes on it that get assessed against tax lot B.
Then you put a building on tax lot B and pay property taxes on it that get assessed against tax lot A.
How is this tax regime different from a bog-standard property tax regime in which, when you put a building on tax lot A, its property taxes are assessed against tax lot A, and when you put a building on tax lot B, its property taxes are assessed against tax lot B? You develop the land, and then you pay taxes on the developed value.
What happened to the concept of "if you buy a piece of land and build value on it you should not be punished"?
This means that it is very expensive to own a piece of land in manhattan and do nothing with it while you just wait for the price to raise, while it is significantly cheaper to start new developments in "less desirable" parts of town.
I agree with you that a 4 paragraph explanation is not a good practical tax policy, but overall georgism creates better incentives than property taxes.
> What happened to the concept of "if you buy a piece of land and build value on it you should not be punished"?
Yep, it is not perfect, or at the very least the way I understand it has some holes, I still think it is more fair than what we have now and less exploitable.
As noted in https://www.henrygeorge.org/caldes.htm
Edward Treadwell, the biographer of Henry Miller, the "Cattle King", noted: "for the smaller farmer irrigation districts are essential, but for the large landowners and cattlemen, they were deemed a menace. They compelled development... they transferred control from the large landholder to the populace. They invaded the liberty of action on which the land barons prospered."
The Chamber of Commerce in Modesto in the same year stated, "as a result of the exemption of improvements many of the large ranches have been cut up and sold in small tracts. The new owners are cultivating these farms intensively. The population of both country and city has increased... the new system of taxation has brought great prosperity to our district. Farmers are now encouraged to improve their property. Industry and thrift are not punished by an increase in taxes."
Fred Foldvary has an interesting paper called "Walt Disney World as a Rent-Funded Community" https://cooperative-individualism.org/foldvary-fred_walt-dis... in which he notes, "WDW obviously has had an impact on the development of Central Florida. The population in the greater Orlando area grew from 30,000 in 1965 to 450,000 in 1970 and 1.1 million in 1990. The labor force grew from 186,000 to 620,000 (Facts and Figures, 1990). With this growth, WDW has induced an increased land value in the area, but the surrounding developments in turn increase the value of its land, hence it is an open question how large the value received from external developments is, relative to the value exported to the region."
There's no secret power associated with 'buying up surrounding land and public works'. The cost and benefit are proportional, paying a tax or paying for the capital costs/upkeep/maintenance are commensurate.
See: Detroit.
Let’s say land value taxes are implemented in New York today. Suddenly companies have a real incentive to leave and move somewhere with cheaper land values - way more incentive than today, as in theory they will be taxed mostly on land value, not revenue. What’s to stop Manhattan from slowly becoming empty again as people leave, jobs leave, corner stores close, subway maintenance worsens due to less revenue, etc.?
I don’t think this happens today because income taxes are federal and not dramatically different between physical locations. The implementation of a land value tax as the primarily tax would seem to change this, no?
To use a direct example: let’s say BigCo is paying 20% of revenue in taxes today. Tomorrow, this changes, and they are paying the same amount, except the source is not revenue, but the value of the land they occupy. They can now move to a location with lower land values and pay less than the the 20% equivalent + keep the current revenue without being taxed on it.
Why would the company not choose to do this? That is my question: doesn’t this set up incentives for companies to continually move to lower land tax locations and minimize the land value that they currently own?
It’s true that there’s federal income tax in the US, but there’s still significant variation in state and local taxes.
Forget all the numbers and try to answer the question: Why doesn't JP Morgan move their headquarters to Rawlins Wyoming?
And yes, of course there’s the factor of New York’s value as a cultural hotspot, base of workers, etc. but as I said, the growth of remote work will probably have a pretty serious effect on this. We’re already seeing panic signals from city governments trying to get people to stop working remotely.
I don’t think it’s inconceivable that the JP Morgan of 2040 would have a predominately remote workforce and have no issues moving their headquarters to Rawlins if it means they avoid a massive land value tax. It doesn’t really need to be that extreme of an example, though: there are plenty of smaller cities in the NYC metro area that are more attractive and fulfill the same role as a low-tax zone (if taxes are based on land values.)
Now all of those people are working remotely, living wherever they want to live, and are no longer forced to live in Manhattan. They no longer have to commute, so they're not adding traffic at all. They still need services, but they’re paying property taxes in whatever place they live in, so those are still paid for. In fact, the “headquarters” is really just the CEO’s house, because now _everyone_ is working remotely.
JP Morgan still needs bank branches all over the place, and some of those are in Manhattan. JP Morgan must pay the land–value tax for the land that those branches occupy, and that money pays for the city services required by the branches. They’ll still have the same number of branches before and after the move, so that won’t change.
JP Morgan still needs datacenters. The largest ones will be located where the land value is the lowest, of course. However, it will still be necessary to interconnect with multiple backbones, and the best place to do that is in the city where many companies are very close to each other. That won't change either.
I don't see how this would be a negative for anybody. People who want to live in a dense city still can. Businesses who want to operate in a dense city with lots of nearby customers will still do so, even if the land value taxes are higher; the revenue will be higher as well so it will be worth it.
I think it would be a large negative for NYC bond-holders and NYC pension holders.
Of course any random change could result in NYC dwindling away and not being able to pay it’s bond obligations any more. We don’t have to posit a radical change in how taxes are collected to imagine that, we just have to look at Detroit. The whole point of a bond is that when you purchase one you are betting that the city will still exist and still be able to pay the interest on the bond. That’s never guaranteed though.
And surely the pension holders would be fine, since those obligations will be funded from investments NYC has made whose performance is independent of its own revenue.
1. NYC funding sources will remain as they are today, or
2. NYC will transition entirely by 2038 to a land value tax?
To the extent and for the entirely rational reasons that you prefer #1, that's the negative to NYC bondholders.
> surely the pension holders would be fine, since those obligations will be funded from investments NYC has made
Assuming the pension was funded to 100% of projected obligations, this would be true. That is not the case; it's around 4/5ths funded.
Likewise pensions. My personal opinion is that anyone accepting a pension instead of better pay is not really doing themselves a favor; they’re taking on extra risk that the politicians won’t raid the pension fund or otherwise mismanage the city. I would rather just own the underlying securities myself, and eliminate the extra steps.
If you disagree, that's OK, but there's probably no way to make further progress in resolving that disagreement beyond a back-and-forth of "nuh-uh, yuh-huh".
But you are asking the right type of question, which is how the equilibrium will change if we change the tax system.
> Let’s say land value taxes are implemented in New York today. Suddenly companies have a real incentive to leave…
Not necessarily. Note that implementing a land–value tax means removing other kinds of taxes while collecting the same amount of money overall.
Suppose two companies both want the same plot of land in the city you run, and both want the existing building. Suppose that one company makes twice the profit as the other on the same expenses. That company is the one that you would want to invite into your city (assuming you couldn’t get both, of course), because it will make the most effective use of the land. If there are no taxes on income, then that second company has more money to spend bidding up the price of the land, and thus to spend on the land–value tax. Thus the current owner will prefer to sell to the more profitable company, which is the exact result that the city as a whole wants.
With a flat income tax, the ratio of profits after taxes between these two businesses will be the same 2×. Each company has less money available to spend on land, but one will still be able to outbid the other.
But most income taxes are progressive, meaning that the tax rate goes up the higher your company’s income tax is. That reduces the ratio of profitability between these two companies, making it less likely that the more profitable one will be able to expand into your city. If you make the taxes progressive enough, then highly–profitable companies would never be able to enter your city at all, because they would have less money available than less–profitable ones.
From my other comment: if you don't believe that location has value in a remote-work world, then companies are just doing something ridiculous renting expensive office space in cities.
> But why would any of this continue to exist if landowners have no interest in improving the value of the land? Lower Manhattan today is worth billions, but 50 years ago parts of it were empty enough to be used as lofts by squatting artists.
The disincentive that you see is in our current system, not Georgism. You note that Lower Manhattan has seen its value increase a lot due to improvements created on that land - improvements that you're afraid wouldn't happen with Georgism, yes?
Under our current system, I pay $10,000/year in taxes on my $1M empty lot (it's all land value since it's an empty lot). If I build a 40-unit apartment building, the land is worth $1M and the building is worth $10M. Now I pay $110,000/year in taxes. I have a huge disincentive to improve the land. With Georgism, my taxes don't go up if I build something on my empty lot so I'm incentivized to build something on the empty lot.
Now, you'll likely say that if I build something on my lot, the value of the land will rise because it's now in a nicer area. That's true, but the value of the land will rise a tiny bit compared to the value of the additions I've made to the land. Under our current system, I'll get taxed on the $10M building value plus the land value. If the land value goes up 10%, we're talking about taxes on $11.1M in our current system vs. $1.1M under Georgism. Again, even if you argue there's some disincentive under Georgism, it's way less disincentive than our current property tax system.
What Georgism does is account for where land is becoming more valuable/popular - and maybe for you "popularity" is a better way of thinking about it since you might be skeptical of "value" if you have a very strong bias toward remote work. At some point, Lower Manhattan started becoming more popular. Why? That doesn't matter. While Lower Manhattan was cheaper than it is today, there were so many other parts of the planet way cheaper than Lower Manhattan so people had incentives to go somewhere else, but still chose Lower Manhattan despite the cost.
As Lower Manhattan became popular, Georgism would have provided more incentive to improve properties. If you own a vacant lot in an area that's becoming popular, you see your taxes rise fast. If you own a $1M vacant lot that becomes worth $5M and the $1M vacant lot next to you became worth $5M and put up a $250M office building, you both pay the same taxes. The person who built the office building gets lots of money for that building so the taxes are pretty low. You'd want to put up an office building or housing or whatever so you can take advantage of that too!
Land value taxes provide a much greater incentive to improve the land than property taxes since property taxes will be based on the land value plus the improvements. By not improving the land, you save money with property taxes. With Georgism, you pay the same taxes whether the land is improved or not. Maybe your improvements do increase the land value somewhat, but when everyone around you is improving the land, that's a much larger impact than just the improvements on your land.
But wouldn't that disincentivize everyone from improving their land? Again, property taxes are a much larger disincentive. Georgism means that if you improve your own land, maybe your raise the value of your land (and everyone around you) by a marginal amount. Property taxes mean that the amount you pay in taxes will go up many times higher when you improve your property rather than by a tiny amount. Property taxes mean that you could see your taxes go up 10-100x rather than maybe go up 1-10% due to your impact on the land value.
Again, why aren't companies leaving NYC today? Most companies are paying rent on their office space, not owning it. As such, the underlying tax structure doesn't impact them. Companies already face rising rents giving them a real incentive to move somewhere with cheaper rents. Why don't they move to 100% remote? Why is Google paying tons of money for offices in NYC when they could just have remote workers or open offices in the middle of nowhere? It's because Google sees value in having those offices. You might disagree, but the reality of our world today is that people are valuing those spaces highly.
All of the incentives that you worry about would be less under Georgism than under our current system. Under Georgism, people have a bigger incentive to improve land than our current system. Under our current system, companies already face high rents incentivizing them to leave cities - but they see more value in staying.
Now, there are some businesses that might own their building/land in NYC. Think a garment company that's been around for a hundred years or a kosher food processing business that's been around for a hundred years. They might have a one-story building in what is now a very expensive part of NYC. However, they already face huge incentives to leave NYC for the suburbs as developers are willing to pay more for their land than their entire business is worth. With Georgism, the incentive could be higher since they're currently facing low property taxes since their land is barely improved (by NYC standards). However, Georgism can actually make it easier for companies like this to stay in expensive areas - in a slightly modified form. They can't have a one-story building by themselves, but it would be cheaper for them to have one story inside a larger building.
Georgism is about incentivizing better land use in popular areas.
Environment wise, isn't that an incentive to build every last square meter?
In places where land values are very high, yes. Presumably leading to denser cities and less suburban sprawl, which would be a nice benefit for the environment.