If you want to tax properties, why not taxing both the land and what is build upon it?
And wardrobes, tables, books or computers (every year) but that's another story.
And wardrobes, tables, books or computers (every year) but that's another story.
The arguments for an LVT fall into both economic & moral categories. The economic argument is that the elasticity for land is zero. It's always there, always will be there, and no human action is going to change that (barring things like landfill, which are a literal edge case that doesn't matter much in the grand scheme of land area). The only economic questions are "Who owns the land?", "What kind of returns can be generated from it?" and "How is it distributed?" As a result, a tax on land has zero deadweight loss. Most taxes reduce economic activity by disincentivizing the transaction they're taxing; as a result, productive activity that would've occurred without the tax never occurs. Land is different. The land will still be owned, just by different people, regardless of how high it is taxed. That means that the government can raise revenue without curtailing economic activity.
The moral argument is that nobody built the land out of their own labor, they only conquered it. And so what right do they have to monopoly returns from its ownership? Land was commons that existed before humanity, and so returns from ownership of it should go back to the commons, in the form of funding (presumably democratically elected) government and public-sector improvements that raise the value of the land for all.
Property on the land is different, in that it is built through human labor & ingenuity, and the returns to doing that should accrue to the people who actually do it (or compensate them for creating the built infrastructure).
And this is a fantasy. Some land is marginal: Taxing it more would reduce the profit anyone could make from it to nothing, leading to empty lots that aren't owned by anyone because the last owners were delinquent on taxes to the point the local government took the land from them and is now trying to auction it off. Look at houses in Detroit being sold for a dollar for an example of this. The city makes no money from those.
https://99wfmk.com/detroits-one-dollar-houses/
> It sounds like a good deal...a dollar for an old decrepit house – but then what? Then you have to pay for all the repairs, renovations, excavation (if needed), property taxes, lawn work.....so you fork out just one whole dollar but you wind up spending no less than six figures getting it in shape. Whether you plan to keep it or sell it is a moot point. You're still out that money.
Plus:
> The moral argument is that nobody built the land out of their own labor, they only conquered it.
Turn a piece of land into a farm and say that.
https://news.ycombinator.com/item?id=37913341
> The idea is that you tax the land only as if it was being used for best use - so that every property is encouraged to develop to maximum density.
So by definition, the "best use" isn't very valuable. I suppose the definition doesn't strictly include residential usage, but it's not hard to see that some land is inherently less valuable for residential as well, because location matters.
"Tax the land as if was being used for best use" is an oversimplification. The government can't realistically know what the best use of land is, or what value that would command. That's for the market to decide. But the point of an LVT is that you're taxed on the base value of the land (as measured by how much profit your neighbors are making off it), and so only usages of the land that are better than average remain profitable. If none of your neighbors can turn a profit on it either, tax will be negligible.
If land is in a city, that gives it a high value and revenue earning potential due to no work or expenditure from the land owner, but ongoing costs to the taxpayer to provide the infrastructure and services that give it this value and potential. Roads, schools, hospitals, etc. these are very costly to the public but increase the value of nearby land.
The land value tax gives the owner an incentive to invest in improvements and get the maximum economic return on the land, and dissincentivising sitting on land in order to benefit 'for free' from it's improving value. So it's about making sure the public gets the maximum benefit from it's investments that improve the value of the land. Taxing improvements directly would have the opposite effect.
Let's say because of rising taxes, a bakery or a shop has closed and a lawyers office has opened in that spot. Who exactly us "the public" in this case and what are the "maximum benefits" that they are getting from that change? Because if I actually lived nearby, I sure wouldn't be happy about my favorite vakery/shop being closed.
And don't say "increased tax base" - for that, you can tweak existing system and increase income taxes so you collect more from the lawyers while still keeping bakeries alive.
The current property tax system makes it more likely that (in your example) the law firm will push out the bakery. Because improvements are taxed adding more commercial space means paying more taxes, which makes it less likely to happen.
With an LVT, expanding the building (up or out) to add a second store/office is cheaper so you’re more incentivized to provide space for both
The important thing isn't that the lawyer's office makes more money. That's just correlated with the important thing, which is that the lawyer's office is willing to pay more rent. Note the lawyer isn't operating a charity for property owners here; they're only going to pay as much for rent as required for the market.
If prevailing rent is high enough such that only lawyers get retail square footage, then clearly property should be taxed as such. That's the value of the land. But then more development will happen, eventually reaching an equilibrium.
Taxes will rise in neighborhoods where improvements have happened. To determine the neighborhood is improving, we need a metric, for instance traffic. We expect the donut shop in an improved neighborhood to see increased traffic and more sales. If traffic doesn't increase then land value hasn't actually increased and the taxes have been applied inappropriately. Maybe we can come up with a better indicating mechanism for land value, I admit I have not read Henry George's work.
Empty land isn't using any of those things. Any future improvement would use those things and be taxed accordingly. If you're concerned about infrastructure costs, the. You want to use a per capita tax or the current property tax that taxes the improvements (where people work or live) since they are using the infrastructure.
But even if you’re not using them, the utility services (water, power, sewer) still have to pass by the property. Power lines and poles are there, they have to be maintained, your water main can’t be leaking, etc. There are real costs to do all that.
It doesn't have to use them to benefit from their proximity. Land in the middle of a barren desert is usually worth far less than a similar piece of land near a populous city.
Yeah, but we are seeing that many cities are not prosperous and are seeing population reductions. You can't will the creation of value. Just because it gets taxed like the land will create value doesn't mean it actually will.
"in a way that benefits the community."
These taxes don't guarantee this at all. There could be any number of uses, many of which could be detrimental or wasteful (and this will vary based on perspective as not everyone wants the same thing).
Sure, but the real question is what does one consider productive enough? Should we tax a single family home at the rate of an apartment building just because the zoning changed? My opinion is that this type of scheme will be abused to force some people out of their homes in the name of benefiting society. My guess is developers and apartment companies can "persuade" politicians in many areas to change zoning to force people out, possibly the "wrong" kinds of people.
If you want productive uses, then you'd be better off charging a vacancy tax to already developed property. You wouldn't be able to fill all those spaces because the physical economy has shrunk, or people don't want to live/work in a rundown area, etc. There's plenty of open commercial real estate around me. The problem is you don't have customers to support the businesses that already exist.
I suspect that in actual use it would end up having a small to no effect.
Similar arguments would go for rural municipalities that might want to encourage multi-generational agricultural living, for example, if that's what you're getting at.
Having un-utilized land in your family generation after generation codes as noble, but economically this is much worse than owning an AirBnb or a vacation home or being a Chinese investor who collects vacant luxury condos, or any of the other boogeymen of housing discourse. These people hold one unit off the market, and in the meantime they maintain it or finance its construction. The landowner builds and holds wealth for nothing but parasitism.
Being told you can't live in your house anymore because it is now zoned commercial gets people riled up, and being told the same because it's now too expensive does the same.
It's a hot-button issue but you can defuse it by putting safeguards in, though they're not always successful - see eminent domain scandals.
But this is more of a straw man than a real objection; as there are various and sundry ways to resolve this (for fixed income, you can have property tax deferral until sale-after-death, you can have homestead exemptions, etc etc).
I fail to see why that’s a problem. Those taxes go to fund local services (like schools, police, fire, etc.) whose costs likely scale when the local cost of living and land values scale. Buying land doesn’t mean you should get to lock in the price you pay for these services for perpetuity.
If anything a pure land value tax should be more predictable than a property tax, I got hit with a major property tax increase and looked into it, the town had calculated the new property tax based on an incorrect square footage and number of bedrooms for my house. After filing an appeal and going to court I got it fixed, but that was a more capricious process than if it was simply based on the value of the land under the house.
Then simply enact that, and the voters won't care because their taxes will stay the same (they probably will never actually decrease).
You won't get an absolutely black and white one sentence solution from it, but it is thought-provoking and contains some really useful ideas, IMO.
LVT would exclusively take from people and corporations who own land. This in turn will allow more people to own their home.
That sounds perverse in itself, especially since an economy needs diversity to function, and if everyone is incentivized to chase a single thing per region you end up with overproduction of that and underproduction of everything else.
I don't see why this would encourage economic homogenization.
Besides:
> Empty lots, parking lots, and other unimproved land would pay more tax.
Believe it or not, we need ranches and farms. Taxing them out of existence would be bad.
Maximum value, not maximum density.
They may tend to be the same thing, but that's not necessarily the case.
A tax purely on the land has the same justification as a windfall tax. The value goes up or down independently of any action of the owner. i.e. They didn't do anything to deserve the increase in their wealth. The value comes from what the land is surrounded by.
It could instead leave you on the hook for increases in the desirability of the neighborhood which you have no say in. So it would mean that homeowners get screwed even harder if their neighborhood gets gentrified.
The steelman for it is that society should incentivize denser development of more desirable land, by disincentivizing maintaining sparse development of it.
Meaning, their land value and therefore wealth has gone up. Many people would love to be "screwed" like this, and in fact very hard at getting into the position amenable to "screwing."
As a class, real property owners are wealthier and have means relative to people who don't own real property. The idea that they're some oppressed underclass is ridiculous.
That is exactly what a land value tax does, in a negative way. It disincentivizes buying land in a desirable neighborhood and then doing nothing with it, waiting for prices to rise.
With capital value taxation (the other alternative), a person doing that pays less tax than someone providing buildings for people to live in or businesses to operate in. So they can do it for longer.
Because any buildings on the land are not taxed, construction is not disincentivized. Well, it wouldn't be, if permitting were not insane...
Cheekiness aside, you'll find the overlap of people who support both a land value tax and a wealth tax to almost be a circle.
Though popularised by George it was first rigourously analysed by Adam Smith in the Wealth of Nations.
We are, ultimately, all tenants of our sovereign. Our sovereign protects us from enemies both foreign and domestic. They do not protect our incomes, or our assets but by and large most societies do agree that it is a matter of fact that can be arbitrated in a dispute as to who owns which piece of land.
That's Detroit's plan.
Thank God we are far from reaching that point.