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What would happen if California enacted a pretty serious land value tax? For example, what if California replaced its income tax (and also its 1% property tax)

What would happen if California enacted a pretty serious land value tax? For example, what if California replaced its income tax (and also its 1% property tax) with a land value tax? Land value tax means a tax on the market value of the land, but not on the value of the buildings, only the land is taxed. So imagine two neighboring plots of land in an expensive urban area. The plots are identical except that one has a single family home with a lovely vegetable garden, and the next plot has a ten-story apartment building. Both plots would be taxed the same amount, because the tax is not on the buildings, it is only on the land. With a tax like this, the owners of the single family home would have an increased incentive to develop their land, or sell it and move to an area more suited to single family homes. Another apartment building could then go up, helping to alleviate the housing shortage. What's more, replacing the income tax would incentivize the creation of more jobs.

epistasis 9y ago
LVT is a really popular idea with most YIMBYs. If you were to be heard uttering such policy ideas on NextDoor, you'd probably be added to a list so that they can do background on you to dig up at future meetings, or attempt to discredit you. In any case you'll probably be called a shill for greedy developers. Happened to me! California local tax policy is extremely regressive. High sales tax as a replacement for extremely low property taxes adds greatly to wealth inequality.
- namlem 9y ago
  Property tax isn't exactly great for fixing inequality either. Poor municipalities can't raise enough from property tax to fund infrastructure or schools.
  - epistasis 9y ago
    The problem with schools there is tying funding to a tiny geographic area, rather than over wider ones. That's the de facto state of the Bay Area where there are tons of tiny and disconnected municipalities. Whether those municipalities raise money via sales tax (hugely regressive) or property tax (less regressive), that structural problem will remain for schools.
  - malloryerik 9y ago
    Which is why it should happen at the state level (as a land value tax), to decouple school quality from real estate value, one of the deeper reasons for inequality in the United States. Meanwhile, sales taxes could be replaced or lightened by a tax on carbon.
wahern 9y ago
What would happen? The same thing that has happened everywhere else LVT has been tried: it quickly becomes watered down until the tax treatment of most property owners (especially homeowners) effectively returns to the status quo ante. LVT isn't politically viable, particularly in contexts (such as the U.S.) where property taxes are principally used by state and especially local government for revenue. Note that Prop 13 largely passed because 1) people were concerned about seniors being forced out of their homes and 2) the informal practice of property assessors undervaluing the homes of seniors resulted in a perception of unfair and capricious assessments. LVT is a radical move in the completely opposite direction. The Obamacare debate has shown how irrationally attached people are to specific doctors, and how reactionary they get when you expose them to market forces in an attempt to improve overall welfare. But that's nothing compared to the reaction that happens when tax policy systematically and (more importantly) visibly forces people to move out of their homes. Even if LVT was in practice Pareto Optimal--all people forced to move were objectively better off (e.g. significantly richer)--people would never perceive it that way. If something isn't politically viable, theoretical arguments are pointless. That we've discounted, forgotten, and even rejected that basic truism of governance--politics is the art of the possible, the attainable--explains much about today's divisive and ineffective politics. A corollary is that you can't separate politics from economics. Political power is a form of currency--votes in a democracy being the most obvious medium--used for exchange just like money. It's just that what people are exchanging (favors, policies, dreams) is much less concrete than physical goods or interpersonal services. More than most economic policies LVT utterly fails to account for this aspect of market behavior. LVT only efficiently internalizes costs and benefits if we ignore politics. But it should be obvious that the character of taxation and process of assessment would result in people very quickly diluting LVT. Taxation and property assessment are entirely government functions, LVT invites voters to effectively rent seek en masse, LVT provides no market mechanism whatsoever to compensate, so an LVT regime is unsustainable where you have a free political market.
- astrange 9y ago
  > Note that Prop 13 largely passed because 1) people were concerned about seniors being forced out of their homes and 2) the informal practice of property assessors undervaluing the homes of seniors resulted in a perception of unfair and capricious assessments. LVT is a radical move in the completely opposite direction. Indeed, it's in such an opposite direction that I think LVT is illegal under Prop 13. You're welcome to try repealing that one…

epistasis 9y ago

LVT is a really popular idea with most YIMBYs. If you were to be heard uttering such policy ideas on NextDoor, you'd probably be added to a list so that they can do background on you to dig up at future meetings, or attempt to discredit you. In any case you'll probably be called a shill for greedy developers. Happened to me! California local tax policy is extremely regressive. High sales tax as a replacement for extremely low property taxes adds greatly to wealth inequality.

namlem 9y ago
Property tax isn't exactly great for fixing inequality either. Poor municipalities can't raise enough from property tax to fund infrastructure or schools.
- epistasis 9y ago
  The problem with schools there is tying funding to a tiny geographic area, rather than over wider ones. That's the de facto state of the Bay Area where there are tons of tiny and disconnected municipalities. Whether those municipalities raise money via sales tax (hugely regressive) or property tax (less regressive), that structural problem will remain for schools.
- malloryerik 9y ago
  Which is why it should happen at the state level (as a land value tax), to decouple school quality from real estate value, one of the deeper reasons for inequality in the United States. Meanwhile, sales taxes could be replaced or lightened by a tax on carbon.

wahern 9y ago

What would happen? The same thing that has happened everywhere else LVT has been tried: it quickly becomes watered down until the tax treatment of most property owners (especially homeowners) effectively returns to the status quo ante. LVT isn't politically viable, particularly in contexts (such as the U.S.) where property taxes are principally used by state and especially local government for revenue. Note that Prop 13 largely passed because 1) people were concerned about seniors being forced out of their homes and 2) the informal practice of property assessors undervaluing the homes of seniors resulted in a perception of unfair and capricious assessments. LVT is a radical move in the completely opposite direction. The Obamacare debate has shown how irrationally attached people are to specific doctors, and how reactionary they get when you expose them to market forces in an attempt to improve overall welfare. But that's nothing compared to the reaction that happens when tax policy systematically and (more importantly) visibly forces people to move out of their homes. Even if LVT was in practice Pareto Optimal--all people forced to move were objectively better off (e.g. significantly richer)--people would never perceive it that way. If something isn't politically viable, theoretical arguments are pointless. That we've discounted, forgotten, and even rejected that basic truism of governance--politics is the art of the possible, the attainable--explains much about today's divisive and ineffective politics. A corollary is that you can't separate politics from economics. Political power is a form of currency--votes in a democracy being the most obvious medium--used for exchange just like money. It's just that what people are exchanging (favors, policies, dreams) is much less concrete than physical goods or interpersonal services. More than most economic policies LVT utterly fails to account for this aspect of market behavior. LVT only efficiently internalizes costs and benefits if we ignore politics. But it should be obvious that the character of taxation and process of assessment would result in people very quickly diluting LVT. Taxation and property assessment are entirely government functions, LVT invites voters to effectively rent seek en masse, LVT provides no market mechanism whatsoever to compensate, so an LVT regime is unsustainable where you have a free political market.

astrange 9y ago
> Note that Prop 13 largely passed because 1) people were concerned about seniors being forced out of their homes and 2) the informal practice of property assessors undervaluing the homes of seniors resulted in a perception of unfair and capricious assessments. LVT is a radical move in the completely opposite direction. Indeed, it's in such an opposite direction that I think LVT is illegal under Prop 13. You're welcome to try repealing that one…