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Georgism and Distributism is interesting but short of a plan to actually transition the tax infrastructure in that direction this article reduces to an unaction

by TimPC 4y ago

Georgism and Distributism is interesting but short of a plan to actually transition the tax infrastructure in that direction this article reduces to an unactionable history lesson. Still worth reading, but not powerful enough for those who want economic change. I'd argue that transitioning is an extremely hard problem. The Georgist system taxes property at extreme rates. In particular, the taxes on property ownership are supposed to capture the entire value of renting the property. This means that people owning property with a mortgage would suddenly be forced to sell their property at the near zero prices that Georgism is designed to foster. This is likely to lead to many unhappy homeowners as well as significant loss of capital for all the entities banks sell mortgages to. I think this problem is severe enough that in order to transition to a Georgist society a government might need to absorb every mortgage in the country. Mortgage debt in the US is currently estimated at 17.6 trillion dollars, slightly more than half of the 30.5 trillion US national debt. Such an expense would be vaguely possible, but extremely sizeable.

brightly-salty 4y ago
I think you might misunderstand Georgism, or maybe I did a poor job explaining it. Georgism does not propose taxing improvements (buildings etc), only the actual land. So many peoples tax burden would be decreased, and if the bank owns the land as in a mortgage, they are the ones paying the tax, not the people taking out the mortgages.
- TimPC 4y ago
  I get that Georgism doesn't tax the improvements. I think we have a fundamental disagreements about how mortgages work. A mortgage doesn't make the bank the owner of the land. Even if we strangely ruled that it did, that would lead to strange situations where as long as people were paying a mortgage they could live tax free on their land. But the minute that mortgage disappeared they'd be on the hook for the tax value. 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".
  - geocon 4y ago
    This is a good point but it's not a problem with georgism per se so much as the transition to get there. There are a multitude of policies that can be used to ameliorate the change from a system based on taxation of labor and capital to that of land; a common one is giving tax credits equivalent to mortgages so that lendees are not underwater. But any shift to land value taxation will be gradual anyways, so it would be less dramatic than people imagine.
  - pyradius 4y ago
    These are not show-stoppers, nor are they something that Georgists have failed to consider. "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_Land_as_Ethics_and_Efficiency 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-stimulus-case-shifting-taxes-land 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-american-georgist-1964.htm https://cooperative-individualism.org/bille-frank_danish-ame...
- TimPC 4y ago
  Total Federal US Tax Revenues in 2021: $4.05 trillion Total US Mortgages in 2021: $17.1 trillion 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.
  - TimPC 4y ago
    To be clear I'm not saying that Georgist taxes are based on the mortgage value I know they are not. I'm comparing the two quantities to establish a rough estimation of how expensive property in a Georgist society that provided a similar level of services would be. If government needed to generate a certain amount of tax revenue comparable to current tax revenue they likely need to charge homeowners an average tax on their unimproved land value that would roughly amount to 15+% of the value of the mortgage, across all levels of government.
    - geocon 4y ago
      Except that's not how Georgist tax structure is decided, it is 100% of the land's rental value. If you want a good overview I recommend this exhaustive and data-heavy series of articles: https://gameofrent.com/content/progress-and-poverty-review https://gameofrent.com/content/progress-and-poverty-review
      - TimPC 4y ago
        Okay some things don't add up. You can't have a Georgist tax as a single revenue source for the government and calculate it off something other than what the government needs for revenue. Either you calculate the Georgist tax rate on the unimproved land value, you add other taxes to government or you slash and burn through government spending to deal with the capped revenue. It's living in fantasy land to say Georgist land value taxes, calculated in precise accordance with this metric and not adjusted upward or downward by revenue needs will be a single source of revenue for all levels of government.
- skybrian 4y ago
  Uh, you might want to learn about tax incidence. 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.
  - brightly-salty 4y ago
    Yeah, I think I misunderstood both the above point and who owns the property in a mortgage. Essentially I think that the land value of the property, which is used in calculation of the property, would go to zero no matter who is paying the tax, reducing mortgages by an equivalent amount if the individual is in charge of paying it, or raising mortgage rates by an equivalent amount if the bank is responsible. Either way it does come out of the individual’s pocket, but mortgages don’t necessarily raise their prices.
  - yellowapple 4y ago
    > 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? 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).
    - skybrian 4y ago
      This is confused. If expenses are higher than revenue then there is no profit in the deal. And then, not making the loan is the bank's best choice.
      - TimPC 4y ago
        I think the problem is not with new loans though. As property value is reduced to structure value in the new system, many individuals will be able to own property without mortgages at all given the far lower cost of doing so. Some may still need mortgages and banks will have to provide a viable vehicle for doing so for the fraction of the population that needs them. 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.
- anamax 4y ago
  > if the bank owns the land as in a mortgage 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.
  - brightly-salty 4y ago
    I do understand that mortgages are on both the land and the buildings. We were talking about land only though. It is irrelevant to the question of who pays the land value tax that the mortgage also includes the buildings.
    - anamax 4y ago
      "Who pays" was relevant when the claim was that banks holding mortgages would pay. 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.
      - brightly-salty 4y ago
        I will admit that I misunderstand TimPC’s point about people having to pay the land value tax in addition to the mortgage; I misunderstood mortgages in terms of who really owns the land. 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.
clairity 4y ago
> "In particular, the taxes on property ownership are supposed to capture the entire value of renting the property." No. once again, invariably, multiple people make this mistake in every thread about the land value tax. 'economic rents' are not the colloquial 'rent' we pay for housing we don't own. economic rents are UNproductive, meaning simply income produced by ownership itself, rather than in the productive delivery of service (in this case, housing). LVT only seeks to tax away that unproductive part (economic rents). the productive part would include the costs of mortgage(s), insurance, utilities, upkeep, and a small profit (aka risk premium).
- TimPC 4y ago
  Agreed. This is an oversimplification. We'd attempt to tax away the value of the rent of the unimproved land which is less than the value of the improved land. Of course, taxes will actually be set in accordance with what the government needs for revenue since this is supposed to be a single tax. Elsewhere in the thread I've tried to estimate Georgist land taxes based on current revenue needs and found them to be quite high.
  - clairity 4y ago
    LVT has nothing to do with improved vs. unimproved land. both improved and unimproved land have productive and unproductive aspects. LVT is solely targeted at economic rents. this is the key to understanding LVT. otherwise, the idea that it's the most economically efficient tax will not make sense, and the tax itself will not seem to make sense. on the other hand, what the government will do tax-wise is political, not economic. constitutionally, the tax cat is out of the budget bag, so we have little hope of restraint there. politicians will always try to expand government because it benefits them, no matter what rhetoric they spout. (i.e., taxes are high because politics, not LVT.)
    - geocon 4y ago
      One of the nice things about LVT is that it aligns those incentives though, since what increases tax revenue the most is investment in public infrastructure and services. It's the Henry George Theorem at work: https://en.wikipedia.org/wiki/Henry_George_theorem https://en.wikipedia.org/wiki/Henry_George_theorem
lukifer 4y ago
> I'd argue that transitioning is an extremely hard problem. While you're completely correct, I don't think this is a reason to abandon the enterprise (other extremely hard problems: sending a human safely to the moon; democratic rule of law; the elimination of slavery). While I ideologically support the so-called "Single Tax" model, it is indeed extremely difficult to imagine how this would be implemented at the federal level (especially in our current gridlock climate). I'd instead advocate going the other direction, and implementing it locally: property taxes already exist at the level of states and municipalities. These local taxes can gradually migrate to being calculated based on unimproved value, rather than including improvements. This can include whatever necessary carve-outs to reduce unintended side effects (grandfathering existing owners, partial exemptions for owner-occupancy and retirees, etc). Under any model, the real tension is the zero-sum game between existing owners, and aspiring owners: the former want property values to go up, the latter want property values to go down. (We see the same dynamics at play in zoning laws, NIMBYism, etc.) As with any perverse incentive, or institutionalized rent-seeking, reform is extremely difficult, but by no means impossible.
- TimPC 4y ago
  I'm hesitant to implement locally without changes at larger levels. I feel like the system depends in a fundamental way on the removal of sales and income taxes on individuals to account for the increase in taxation for less improved land. Without the changes in the other forms of taxation I feel the change in property tax amounts to a wealth transfer from homeowners to condo developers.
  - geocon 4y ago
    I think you have a mistaken view of who is actually making money in this equation. Developers do not make all that much money from building housing, which is actually a productive contribution to society. Homeowners, on the other hand, make hand over fist by simply sitting on land absorbing rents: https://pbs.twimg.com/media/EyJN_g3UUAIW0f0?format=jpg&name=900x900 https://pbs.twimg.com/media/EyJN_g3UUAIW0f0?format=jpg&name=... https://www.wsj.com/articles/homes-earned-more-for-owners-than-their-jobs-last-year-11647518400 https://www.wsj.com/articles/homes-earned-more-for-owners-th...
Aunche 4y ago
I think to start with, we can end prop 13 and fix whatever loopholes that allow billionaire's row penthouses to be taxed a lower rate than regular apartments.
- geocon 4y ago
  Yeah there are lots of small reforms that can be done: transitioning property taxes to land value taxes, ending property tax caps like prop 13 that just allow landowners to extract rents, putting in place land value capture for public transit, and so forth
  - TimPC 4y ago
    Can you make a strong case for transitioning just property taxes to land value taxes without transitioning other forms of taxation? I'd argue that this would result in a fairly sizeable wealth transfer from homeowners to condo developers. To me it feels like the decrease in sales and income taxes underpins the whole structure to make it feasible for the average American.
    - geocon 4y ago
      I think you have a mistaken view of who is actually making money in this equation. Developers do not make all that much money from building housing, which is actually a productive contribution to society. Homeowners, on the other hand, make hand over fist by simply sitting on land absorbing rents: https://pbs.twimg.com/media/EyJN_g3UUAIW0f0?format=jpg&name=900x900 https://pbs.twimg.com/media/EyJN_g3UUAIW0f0?format=jpg&name=... https://www.wsj.com/articles/homes-earned-more-for-owners-than-their-jobs-last-year-11647518400 https://www.wsj.com/articles/homes-earned-more-for-owners-th...
      - TimPC 4y ago
        There are a number of big developers in my province most of which have generated substantial returns to their investors. In the current environment where property values are high and increasing holding onto land is quite profitable. All developers do this. They also create proposals to develop land and that activity has some returns to it as well. I agree that building housing is productive, I just see large numbers of proposals and projects in my region to the point that many stakeholders in the community want to see less development not more. Economic theory says developers are making enough money to continue to propose developments so I don't see why we need to change taxation laws to make those developers generate even higher returns at the expense of homeowners. Property tax in my region is a sizeable expense for many homeowners and seeing it undergo a sizeable increase would be a hardship for many in the community.
larsiusprime 4y ago
Two things: 1) "In particular, the taxes on property ownership are supposed to capture the entire value of renting the property." Not true. Only the unimproved value of land is meant to be taxed. This amounts to a complete exemption on taxes on buildings. The current proposal that is often on the table is not to go for classical 100% Georgist LVT, but to simply collect the exact same amount of property taxes we do now, but to shift the burden off of buildings and onto land. This can be done right now with existing property tax regimes. The burden would fall mostly on underutilized land, parking lots, and vacant lots in city centers, where the lion's share of land value is concentrated. Proposals for this sort of reform are in the works right now in various US cities. If you'd like to see a practical policy paper on the subject see here by Tideman, Kumhof, Hudson, and Goodhart (the Goodhart of Goodhart's Law, by the way): https://voxeu.org/article/post-corona-balanced-budget-fiscal-stimulus-case-shifting-taxes-land https://voxeu.org/article/post-corona-balanced-budget-fiscal... 2) Georgism is not just about real estate. It's about properly dealing with scarce economic assets that can't be created and which invite speculation Norway's sovereign wealth fund is an extremely successful example of applying Georgist principles to natural resources, for just one example: https://progressandpoverty.substack.com/p/norways-sovereign-wealth-fund?s=w https://progressandpoverty.substack.com/p/norways-sovereign-...
- TimPC 4y ago
  My default reaction to 1) is that I dislike it. I feel like the incentive to labour to accept the tax of unimproved land value instead of property tax is the removal of income and sales taxes that accompany it. Taxing unimproved land value instead of improved land value in a system as close as possible to the current one feels like a massive wealth transfer from homeowners to condo developers. As it is, condos represent a problem for many communities in that they are often taxed at lower percentage rates and have a lower market value than houses. This means communities consisting of more condos have lower tax revenue per capita compared to communities consisting of more houses. Suburbs resist densification because the decreased revenue per capita generally means declining services. I think this a fundamental cause of NIMBY that largely gets ignored.
  - geocon 4y ago
yellowapple 4y ago
> This means that people owning property with a mortgage would suddenly be forced to sell their property at the near zero prices that Georgism is designed to foster. Not necessarily. Relatively few homeowners occupy all that much land value; it's probable that most homeowners' dividends would entirely offset their tax burdens, in which case they stand to benefit if anything.
- TimPC 4y ago
  I think this is fundamentally untrue. It seems plausible for condo owners in large buildings where each unit represents a tiny portion of land. For single family residences consisting of detached or semi-detached homes on slices of valuable land in a city or suburb of a city that's almost certain not to be true. Most of the people you're taxing in a land value tax are residential uses. Taxing the money doesn't magically multiply it and it's impossible to return nearly all of the tax money to constituents since governments have substantial other expenses. My estimate is that a current home worth $1.5 million in a suburb of Toronto has land value of roughly $1.25 million and is likely to be taxed at 10% of land value. This suggests an LVT of $125,000. If the general trend of all residential real estate follows this government raises only 2.688 trillion dollars from residential property. To fund federal government we'd have to raise another 1.362 trillion and then we'd have additional amounts to raise for each other level of government. I'm not certain whether we can do this from the additional amounts on commercial and industrial property but it seems to be a close approximation. The point is the funds leave very little left for the citizen's dividend unless we want to vastly reduce existing government programs.
  - yellowapple 4y ago
    Sorry for the late reply. > Most of the people you're taxing in a land value tax are residential uses. You're forgetting the sheer quantities of land (and land value) consumed by commercial and industrial use; this land, too, would be taxed. Such land is arguably far greater (in terms of value) than most residential land; consider every office building, every factory, every warehouse, every store, every parking lot/garage, every mine, every farm, and you'd see how that 1.362 trillion (and then some!) would be possible. Another factor here is ATCOR (All Taxes Come Out of Rent), the idea that since non-LVT taxes suppress economic activity (because they tax things with elastic supply, artificially raising their prices), replacing all taxes with LVT would remove that suppression, spurring greater demand for land and therefore higher land values (and therefore higher LVT revenues). Basically: we're already taxing land indirectly and less efficiently, so we might as well just tax land directly. Further: > The point is the funds leave very little left for the citizen's dividend unless we want to vastly reduce existing government programs. Which is very possible. A citizens' dividend, like any other sort of UBI, makes a lot of existing welfare programs redundant. Most Georgists/geolibertarians (myself included) frown upon the insane amounts of "defense" spending here in the US, so that'd be another thing we'd push to cut.
goodpoint 4y ago
> I'd argue that transitioning is an extremely hard problem. The Georgist system taxes property at extreme rates. Forgive the naive suggestion, but tax rates on property can be be introduced progressively - few percentage points per year - for many decades.
- TimPC 4y ago
  Doing something progressive is probably the right way to go. I'm not sure how large a drop in property values merely announcing the policy would have. I'm also not sure how long a time window would be necessary. I think if the change is sufficiently gradual it might be possible to do so without compensation for either mortgage owners or property owners. Of course for that to be true it has to still make sense for current mortgage owners to pay their mortgages. I think that suggests a window size of larger than 25 years, but I'm not sure how much larger than that it would need to be.
imtringued 4y ago
It's a tough nut to crack. It only worked in Singapore. In my opinion the "homeopathic" land value tax in Baden-Württemberg is the only thing in recent history that was adopted without much violence or urgency. The German property tax is very low, well under $1k for the vast majority of the country so the switch isn't that big of a deal but it also won't have much of an effect on anything other than abandoned buildings/land in city centers. You gotta start small.

by TimPC 4y ago

brightly-salty 4y ago

I think you might misunderstand Georgism, or maybe I did a poor job explaining it. Georgism does not propose taxing improvements (buildings etc), only the actual land. So many peoples tax burden would be decreased, and if the bank owns the land as in a mortgage, they are the ones paying the tax, not the people taking out the mortgages.

TimPC 4y ago
I get that Georgism doesn't tax the improvements. I think we have a fundamental disagreements about how mortgages work. A mortgage doesn't make the bank the owner of the land. Even if we strangely ruled that it did, that would lead to strange situations where as long as people were paying a mortgage they could live tax free on their land. But the minute that mortgage disappeared they'd be on the hook for the tax value. 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".
- geocon 4y ago
  This is a good point but it's not a problem with georgism per se so much as the transition to get there. There are a multitude of policies that can be used to ameliorate the change from a system based on taxation of labor and capital to that of land; a common one is giving tax credits equivalent to mortgages so that lendees are not underwater. But any shift to land value taxation will be gradual anyways, so it would be less dramatic than people imagine.
- pyradius 4y ago
  These are not show-stoppers, nor are they something that Georgists have failed to consider. "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_Land_as_Ethics_and_Efficiency 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-stimulus-case-shifting-taxes-land 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-american-georgist-1964.htm https://cooperative-individualism.org/bille-frank_danish-ame...
TimPC 4y ago
Total Federal US Tax Revenues in 2021: $4.05 trillion Total US Mortgages in 2021: $17.1 trillion 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.
- TimPC 4y ago
  To be clear I'm not saying that Georgist taxes are based on the mortgage value I know they are not. I'm comparing the two quantities to establish a rough estimation of how expensive property in a Georgist society that provided a similar level of services would be. If government needed to generate a certain amount of tax revenue comparable to current tax revenue they likely need to charge homeowners an average tax on their unimproved land value that would roughly amount to 15+% of the value of the mortgage, across all levels of government.
  - geocon 4y ago
    Except that's not how Georgist tax structure is decided, it is 100% of the land's rental value. If you want a good overview I recommend this exhaustive and data-heavy series of articles: https://gameofrent.com/content/progress-and-poverty-review https://gameofrent.com/content/progress-and-poverty-review
    - TimPC 4y ago
      Okay some things don't add up. You can't have a Georgist tax as a single revenue source for the government and calculate it off something other than what the government needs for revenue. Either you calculate the Georgist tax rate on the unimproved land value, you add other taxes to government or you slash and burn through government spending to deal with the capped revenue. It's living in fantasy land to say Georgist land value taxes, calculated in precise accordance with this metric and not adjusted upward or downward by revenue needs will be a single source of revenue for all levels of government.
skybrian 4y ago
Uh, you might want to learn about tax incidence. 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.
- brightly-salty 4y ago
  Yeah, I think I misunderstood both the above point and who owns the property in a mortgage. Essentially I think that the land value of the property, which is used in calculation of the property, would go to zero no matter who is paying the tax, reducing mortgages by an equivalent amount if the individual is in charge of paying it, or raising mortgage rates by an equivalent amount if the bank is responsible. Either way it does come out of the individual’s pocket, but mortgages don’t necessarily raise their prices.
- yellowapple 4y ago
  > 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? 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).
  - skybrian 4y ago
    This is confused. If expenses are higher than revenue then there is no profit in the deal. And then, not making the loan is the bank's best choice.
    - TimPC 4y ago
      I think the problem is not with new loans though. As property value is reduced to structure value in the new system, many individuals will be able to own property without mortgages at all given the far lower cost of doing so. Some may still need mortgages and banks will have to provide a viable vehicle for doing so for the fraction of the population that needs them. 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.
anamax 4y ago
> if the bank owns the land as in a mortgage 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.
- brightly-salty 4y ago
  I do understand that mortgages are on both the land and the buildings. We were talking about land only though. It is irrelevant to the question of who pays the land value tax that the mortgage also includes the buildings.
  - anamax 4y ago
    "Who pays" was relevant when the claim was that banks holding mortgages would pay. 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.
    - brightly-salty 4y ago
      I will admit that I misunderstand TimPC’s point about people having to pay the land value tax in addition to the mortgage; I misunderstood mortgages in terms of who really owns the land. 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.

clairity 4y ago

> "In particular, the taxes on property ownership are supposed to capture the entire value of renting the property." No. once again, invariably, multiple people make this mistake in every thread about the land value tax. 'economic rents' are not the colloquial 'rent' we pay for housing we don't own. economic rents are UNproductive, meaning simply income produced by ownership itself, rather than in the productive delivery of service (in this case, housing). LVT only seeks to tax away that unproductive part (economic rents). the productive part would include the costs of mortgage(s), insurance, utilities, upkeep, and a small profit (aka risk premium).

TimPC 4y ago
Agreed. This is an oversimplification. We'd attempt to tax away the value of the rent of the unimproved land which is less than the value of the improved land. Of course, taxes will actually be set in accordance with what the government needs for revenue since this is supposed to be a single tax. Elsewhere in the thread I've tried to estimate Georgist land taxes based on current revenue needs and found them to be quite high.
- clairity 4y ago
  LVT has nothing to do with improved vs. unimproved land. both improved and unimproved land have productive and unproductive aspects. LVT is solely targeted at economic rents. this is the key to understanding LVT. otherwise, the idea that it's the most economically efficient tax will not make sense, and the tax itself will not seem to make sense. on the other hand, what the government will do tax-wise is political, not economic. constitutionally, the tax cat is out of the budget bag, so we have little hope of restraint there. politicians will always try to expand government because it benefits them, no matter what rhetoric they spout. (i.e., taxes are high because politics, not LVT.)
  - geocon 4y ago
    One of the nice things about LVT is that it aligns those incentives though, since what increases tax revenue the most is investment in public infrastructure and services. It's the Henry George Theorem at work: https://en.wikipedia.org/wiki/Henry_George_theorem https://en.wikipedia.org/wiki/Henry_George_theorem

lukifer 4y ago

> I'd argue that transitioning is an extremely hard problem. While you're completely correct, I don't think this is a reason to abandon the enterprise (other extremely hard problems: sending a human safely to the moon; democratic rule of law; the elimination of slavery). While I ideologically support the so-called "Single Tax" model, it is indeed extremely difficult to imagine how this would be implemented at the federal level (especially in our current gridlock climate). I'd instead advocate going the other direction, and implementing it locally: property taxes already exist at the level of states and municipalities. These local taxes can gradually migrate to being calculated based on unimproved value, rather than including improvements. This can include whatever necessary carve-outs to reduce unintended side effects (grandfathering existing owners, partial exemptions for owner-occupancy and retirees, etc). Under any model, the real tension is the zero-sum game between existing owners, and aspiring owners: the former want property values to go up, the latter want property values to go down. (We see the same dynamics at play in zoning laws, NIMBYism, etc.) As with any perverse incentive, or institutionalized rent-seeking, reform is extremely difficult, but by no means impossible.

TimPC 4y ago
I'm hesitant to implement locally without changes at larger levels. I feel like the system depends in a fundamental way on the removal of sales and income taxes on individuals to account for the increase in taxation for less improved land. Without the changes in the other forms of taxation I feel the change in property tax amounts to a wealth transfer from homeowners to condo developers.
- geocon 4y ago
  I think you have a mistaken view of who is actually making money in this equation. Developers do not make all that much money from building housing, which is actually a productive contribution to society. Homeowners, on the other hand, make hand over fist by simply sitting on land absorbing rents: https://pbs.twimg.com/media/EyJN_g3UUAIW0f0?format=jpg&name=900x900 https://pbs.twimg.com/media/EyJN_g3UUAIW0f0?format=jpg&name=... https://www.wsj.com/articles/homes-earned-more-for-owners-than-their-jobs-last-year-11647518400 https://www.wsj.com/articles/homes-earned-more-for-owners-th...

Aunche 4y ago

I think to start with, we can end prop 13 and fix whatever loopholes that allow billionaire's row penthouses to be taxed a lower rate than regular apartments.

geocon 4y ago
Yeah there are lots of small reforms that can be done: transitioning property taxes to land value taxes, ending property tax caps like prop 13 that just allow landowners to extract rents, putting in place land value capture for public transit, and so forth
- TimPC 4y ago
  Can you make a strong case for transitioning just property taxes to land value taxes without transitioning other forms of taxation? I'd argue that this would result in a fairly sizeable wealth transfer from homeowners to condo developers. To me it feels like the decrease in sales and income taxes underpins the whole structure to make it feasible for the average American.
  - geocon 4y ago
    I think you have a mistaken view of who is actually making money in this equation. Developers do not make all that much money from building housing, which is actually a productive contribution to society. Homeowners, on the other hand, make hand over fist by simply sitting on land absorbing rents: https://pbs.twimg.com/media/EyJN_g3UUAIW0f0?format=jpg&name=900x900 https://pbs.twimg.com/media/EyJN_g3UUAIW0f0?format=jpg&name=... https://www.wsj.com/articles/homes-earned-more-for-owners-than-their-jobs-last-year-11647518400 https://www.wsj.com/articles/homes-earned-more-for-owners-th...
    - TimPC 4y ago
      There are a number of big developers in my province most of which have generated substantial returns to their investors. In the current environment where property values are high and increasing holding onto land is quite profitable. All developers do this. They also create proposals to develop land and that activity has some returns to it as well. I agree that building housing is productive, I just see large numbers of proposals and projects in my region to the point that many stakeholders in the community want to see less development not more. Economic theory says developers are making enough money to continue to propose developments so I don't see why we need to change taxation laws to make those developers generate even higher returns at the expense of homeowners. Property tax in my region is a sizeable expense for many homeowners and seeing it undergo a sizeable increase would be a hardship for many in the community.

larsiusprime 4y ago

Two things: 1) "In particular, the taxes on property ownership are supposed to capture the entire value of renting the property." Not true. Only the unimproved value of land is meant to be taxed. This amounts to a complete exemption on taxes on buildings. The current proposal that is often on the table is not to go for classical 100% Georgist LVT, but to simply collect the exact same amount of property taxes we do now, but to shift the burden off of buildings and onto land. This can be done right now with existing property tax regimes. The burden would fall mostly on underutilized land, parking lots, and vacant lots in city centers, where the lion's share of land value is concentrated. Proposals for this sort of reform are in the works right now in various US cities. If you'd like to see a practical policy paper on the subject see here by Tideman, Kumhof, Hudson, and Goodhart (the Goodhart of Goodhart's Law, by the way): https://voxeu.org/article/post-corona-balanced-budget-fiscal-stimulus-case-shifting-taxes-land https://voxeu.org/article/post-corona-balanced-budget-fiscal... 2) Georgism is not just about real estate. It's about properly dealing with scarce economic assets that can't be created and which invite speculation Norway's sovereign wealth fund is an extremely successful example of applying Georgist principles to natural resources, for just one example: https://progressandpoverty.substack.com/p/norways-sovereign-wealth-fund?s=w https://progressandpoverty.substack.com/p/norways-sovereign-...

TimPC 4y ago
My default reaction to 1) is that I dislike it. I feel like the incentive to labour to accept the tax of unimproved land value instead of property tax is the removal of income and sales taxes that accompany it. Taxing unimproved land value instead of improved land value in a system as close as possible to the current one feels like a massive wealth transfer from homeowners to condo developers. As it is, condos represent a problem for many communities in that they are often taxed at lower percentage rates and have a lower market value than houses. This means communities consisting of more condos have lower tax revenue per capita compared to communities consisting of more houses. Suburbs resist densification because the decreased revenue per capita generally means declining services. I think this a fundamental cause of NIMBY that largely gets ignored.
- geocon 4y ago

yellowapple 4y ago

> This means that people owning property with a mortgage would suddenly be forced to sell their property at the near zero prices that Georgism is designed to foster. Not necessarily. Relatively few homeowners occupy all that much land value; it's probable that most homeowners' dividends would entirely offset their tax burdens, in which case they stand to benefit if anything.

TimPC 4y ago
I think this is fundamentally untrue. It seems plausible for condo owners in large buildings where each unit represents a tiny portion of land. For single family residences consisting of detached or semi-detached homes on slices of valuable land in a city or suburb of a city that's almost certain not to be true. Most of the people you're taxing in a land value tax are residential uses. Taxing the money doesn't magically multiply it and it's impossible to return nearly all of the tax money to constituents since governments have substantial other expenses. My estimate is that a current home worth $1.5 million in a suburb of Toronto has land value of roughly $1.25 million and is likely to be taxed at 10% of land value. This suggests an LVT of $125,000. If the general trend of all residential real estate follows this government raises only 2.688 trillion dollars from residential property. To fund federal government we'd have to raise another 1.362 trillion and then we'd have additional amounts to raise for each other level of government. I'm not certain whether we can do this from the additional amounts on commercial and industrial property but it seems to be a close approximation. The point is the funds leave very little left for the citizen's dividend unless we want to vastly reduce existing government programs.
- yellowapple 4y ago
  Sorry for the late reply. > Most of the people you're taxing in a land value tax are residential uses. You're forgetting the sheer quantities of land (and land value) consumed by commercial and industrial use; this land, too, would be taxed. Such land is arguably far greater (in terms of value) than most residential land; consider every office building, every factory, every warehouse, every store, every parking lot/garage, every mine, every farm, and you'd see how that 1.362 trillion (and then some!) would be possible. Another factor here is ATCOR (All Taxes Come Out of Rent), the idea that since non-LVT taxes suppress economic activity (because they tax things with elastic supply, artificially raising their prices), replacing all taxes with LVT would remove that suppression, spurring greater demand for land and therefore higher land values (and therefore higher LVT revenues). Basically: we're already taxing land indirectly and less efficiently, so we might as well just tax land directly. Further: > The point is the funds leave very little left for the citizen's dividend unless we want to vastly reduce existing government programs. Which is very possible. A citizens' dividend, like any other sort of UBI, makes a lot of existing welfare programs redundant. Most Georgists/geolibertarians (myself included) frown upon the insane amounts of "defense" spending here in the US, so that'd be another thing we'd push to cut.

goodpoint 4y ago

> I'd argue that transitioning is an extremely hard problem. The Georgist system taxes property at extreme rates. Forgive the naive suggestion, but tax rates on property can be be introduced progressively - few percentage points per year - for many decades.

TimPC 4y ago
Doing something progressive is probably the right way to go. I'm not sure how large a drop in property values merely announcing the policy would have. I'm also not sure how long a time window would be necessary. I think if the change is sufficiently gradual it might be possible to do so without compensation for either mortgage owners or property owners. Of course for that to be true it has to still make sense for current mortgage owners to pay their mortgages. I think that suggests a window size of larger than 25 years, but I'm not sure how much larger than that it would need to be.

imtringued 4y ago

It's a tough nut to crack. It only worked in Singapore. In my opinion the "homeopathic" land value tax in Baden-Württemberg is the only thing in recent history that was adopted without much violence or urgency. The German property tax is very low, well under $1k for the vast majority of the country so the switch isn't that big of a deal but it also won't have much of an effect on anything other than abandoned buildings/land in city centers. You gotta start small.