6 ms·

The biggest problem with LVT is surprisingly simple: accurately assessing the value of land is very hard, and ensuring that the assessment process is fair is th

by scythe 4y ago

The biggest problem with LVT is surprisingly simple: accurately assessing the value of land is very hard, and ensuring that the assessment process is fair is therefore extremely hard. LVT experiments in history tend to run into problems when people feel that their land has been valued incorrectly, leading to a vocal minority that despises the law. That results in something like this: https://nassimtaleb.org/2016/08/intolerant-wins-dictatorship-small-minority/ https://nassimtaleb.org/2016/08/intolerant-wins-dictatorship...

markdown 4y ago
Could you tell us where these experiments were held, and how far they went? For example, were other taxes eliminated at the same time?
- notacoward 4y ago
  See my sibling comment to yours. The most notable examples are in New Zealand, Australia, and several towns in Pennsylvania. Some of those ran into problems with execution, others were abandoned for purely ideological/selfish reasons, but overall it's not a bad record.
bee_rider 4y ago
Huh. Property tax is already a thing of course, but I guess if the LVT was going to replace all taxation the stakes would be much higher. In an urban setting, it seems to me that the land value should be... reasonably uniform, unlike property, which should make assessing much easier, right? But that's just getting the number. Whether people are happy with the number is a whole 'nother problem.
- its_ethan 4y ago
  I would have assumed exactly the opposite in terms of urban land being uniform in value. 10 acres that are 30 minutes from Des Moines, IA are going to be very similar in value (price people are willing to pay) compared to 10 acres that are 10 miles down the road. Rural land is generally quite uniform and more likely to be functionally the same. In an urban area, say Los Angeles, 10 acres in Malibu (an area with very high demand for property) is going to have a totally different value (again, price people are willing to pay) as compared to 10 acres 10 miles away in skid row. The problem, that other people have highlighted, is how do you (the government/IRS/agency in charge) determine the value of each of those land areas? Letting some city planners in LA decide that those two areas should have the same LVT, or allowing them to determine what tax each should have, is gifting a lot of power to people who may or may not be qualified, and may or may not experience any sort of consequence for poor decision making/ biased value assessment/ etc. The exact way that sort of value/tax-setting would play out would be very interesting, but the unintended consequences could end up being pretty bad. I've always thought it was interesting that property tax assessments don't just use the previous purchase price, and instead rely on a relatively arbitrary valuation. That could be one way to more accurately determine an LVT - make it a set percent of the previous purchase price of the land, that would allow the taxes to be priced in to land transactions. I still just don't love the idea at its core.
  - colinmhayes 4y ago
    Now you've brought the horror that is prop 13 to a tax that is supposed to replace all other taxes. Things change in value, we have to account for that.
  - bee_rider 4y ago
    With a land value tax we could at least come up with pretty straightforward equations, right? Some starting value from being in town, then add something for oceanfront property, then add something some extra bump based on distance from some set of amenities provided by the community (parks, subways, etc). It is at least possible to come up with something, unlike, what, the assessor's gut feeling about how nice your house is? This seems like it is putting much more arbitrary power in the hands of some random person.
    - its_ethan 4y ago
      > Some starting value from being in town, then add something for oceanfront property, then add something some extra bump based on distance from some set of amenities provided by the community (parks, subways, etc). How do you know you weren't also supposed to take the floor plan or exterior paint color into consideration? How do you account for the value lost from having obnoxious neighbors? What happens when, in the future, a nice bookstore/coffee shop is opened up down the street, or alternatively a liquor store? Ultimately, how do you know if whatever equation you've constructed is exhaustive or "correct"? It might sound like "well then you just adjust the equation" but this wouldn't be without consequence. One outcome of getting that equation incorrect is that a home is valued at a point where the imposed tax prices out anyone from purchasing the home - it would sit empty/foreclosed for as long as it takes a local government bureaucracy to come in and attempt to re-assess its value. So you could effectively be removing houses from a competitive home buying market, which is going to increase the price of other homes until they too have priced people out of the area. Multiply that by entire zip codes, and while you're working on adjusting that equation, you could end up having a real shit show on your hands with a bunch of people being displaced or in worse financial positions. > It is at least possible to come up with something, unlike, what, the assessor's gut feeling about how nice your house is? This seems like it is putting much more arbitrary power in the hands of some random person. I agree with the point that a home assessment is strange and arbitrary, but you're really just saying we should replace the assessor who goes and visits a property with a group of assessor's that just come up with an equally arbitrary equation that gets blanket applied to entire cities? Why is that preferable to something like just using the previous home sale price or, honestly, just staying with the current system that we know is generally very functional?
- markdown 4y ago
  Doesn't work that way. A subway gets built near your property. The benefit of greater access accrues to you more than it does someone 10km away. So your LVT has to go up. Now you can't afford the taxes, and you're forced to sell and move to somewhere with lower LVT. It's bought by someone who will put it to better use. Maybe an apartment block instead of your single family home. Over time, every piece of land is put to its most productive use. But before it gets there, there will be some pain for the individuals who choose (or are forced) to move because they can't afford to the improvements made to the infrastructure in their locality.
  - xboxnolifes 4y ago
    > Now you can't afford the taxes, and you're forced to sell and move to somewhere with lower LVT. It's bought by someone who will put it to better use. Maybe an apartment block instead of your single family home. > Over time, every piece of land is put to its most productive use. But before it gets there, there will be some pain for the individuals who choose (or are forced) to move because they can't afford to the improvements made to the infrastructure in their locality. Which is why I think it makes sense that the LVT shouldn't be re-evaluated on a rolling basis. It would only be re-evaluated (or at least put into effect) when it changes owners (sale, gift, inheritance, etc). Otherwise you get bad incentives for people to vote against improvements that price them out of living where they currently are. Corporate land ownership would likely need different rules, as the owner could theoretically be the same forever. Over time, land is still put to it's most productive use, there is just a delay introduced that considers the human condition.
    - TimPC 4y ago
      This is basically Prop 13 in California which the world outside of California conclusively thinks is stupid. It’s incredibly unfair to give people massive tax breaks for buying a long time ago. The alleged benefits don’t reflect the immense cost. In this case you’re trying to replace the majority of all taxation with a value that doesn’t change with time. People get massive economic incentives to never move. People get massive economic incentives to resist change. I’d rather deal with a range of options from people selling and moving to introducing liens upon the property due at sale than have to deal with the mess that is 50 year stale land values and the associated negligible taxes that result.
- dionidium 4y ago
  > Property tax is already a thing of course Yes, but note that property taxes are extremely unpopular: > America's most hated tax: Local property tax (42%) By far, America's most hated tax is your local property tax! It's almost ironic that your home, perhaps the single greatest source of taxable deductions on your federal income taxes, is also the greatest source of dislike when it comes to taxes in general among the American public with 42% responding that they felt it was the least fair tax of all. Source: https://www.fool.com/investing/general/2013/11/02/americas-5-most-hated-taxes.aspx https://www.fool.com/investing/general/2013/11/02/americas-5... It looks like that 42% number comes from this Gallop poll: https://news.gallup.com/poll/1714/taxes.aspx https://news.gallup.com/poll/1714/taxes.aspx They have a sort of purity and logic that appeals to economists, but they're intuitively hated by everyone else.
  - pessimizer 4y ago
    Lobbyists, PR professionals and the people who pay them own lots of property and pay property taxes. They're far harder for the wealthy to dodge than income or capital gains taxes. Of course the public has been trained to hate them, like they've been trained to hate estate taxes, and in some years public polls would show near-majorities against progressive taxation in general. edit: it seems obvious because of the thread topic, but property taxes are the most easily and intuitively justifiable tax. People with more property use more public services.
    - dionidium 4y ago
      I'm thinking of my buddy back in Missouri -- not wealthy; not a lobbyist, PR professional, or any kind of professional -- who told me (more or less): "It's unfair. It's the one tax you can't avoid. No matter what you do, you can't opt out. It's like you don't even own your own property. The government owns it. You never really own anything, as long as they can tax you just for existing on your own land." That's the intuitive, everyman objection.
      - bee_rider 4y ago
        It is a sort of silly objection -- you can avoid property tax by having no property, in the same way that you can avoid income tax by having no income. I guess it is probably easier to evade income tax, than property tax, though.
mrob 4y ago
People who disagree with their assessed value should be given the option to declare whatever value they like. If they take this option, the state should have the option of buying their property at the declared value, plus some extra to cover transaction costs.
- colinmhayes 4y ago
  The problem is that most land has stuff on top of it. The government can't buy the land without the building that comes with it.
- CuriousSkeptic 4y ago
  At the surface it seems there should be a market solution for this. One approach might be to do something clever with mortages and property rights. Basically keep trying to keep the current mechanics of borrowing and just shifting around the parties involved so that the all the interest gets collected as LVT. Might even let the central bank handle both collection and dividends of it all. Another option might be to create economic incentives for some party to get the assessment right. Like insurance companies and banks loose either customers or revenue when getting it wrong. Perhaps can play with some margin for speculation such that lender and borrower get to share some profit. Or just make lenders outbid each other on who can extract most rent for the property. I guess one concern here is to make sure the commons have a representation, so that not all land get appropriated to private use
- bee_rider 4y ago
  This is a 'clever' solution to property taxes. But a land value tax specifically just taxes based on the value of the land. This is supposed to incentivize people to use their land as productively as possible -- with a property tax, any improvements you make increases your tax bill, with a land value tax, it doesn't. A moral argument for it is, if you own an empty lot which is gaining in value as the community grows around it, you are essentially leeching extra value from the community through no work of your own. This sort of behavior is punished heavily with an LVT, as your taxes go up but you don't get any extra revenue from your empty lot.
notacoward 4y ago
Focusing on that one issue presents an incomplete picture, to say the least. LVT has been tried many places, and has been no less successful than other tax systems. Here's a pretty thorough analysis and discussion of empirical results. https://www.lincolninst.edu/sites/default/files/pubfiles/assessing-theory-practice-land-value-taxation-full_0.pdf https://www.lincolninst.edu/sites/default/files/pubfiles/ass... Of course there are secondary and/or orthogonal problems that need to be solved. Of course there are some people who complain, either because they are truly being overtaxed or (more often) because they think they personally would do better under some other system. Just like literally every other tax system including the ones most of us live under right now. LVT is no panacea, but there are legitimate reasons to believe it's a fundamentally better starting point than the mishmash of income, sales, and property taxes we have now.
notahacker 4y ago
The biggest problem with it as presented in Progress and Poverty (i.e. as a Single Tax to fund the government budget, not some small supplementary levy to fund something like local services) is that the size of the tax bears relatively little relation to the ability of someone to pay it (at least, to pay it without selling their house). Turfing pensioners out of their house because the land it sits on gained in value faster than their pension whilst others earn millions virtually tax free obviously isn't a natural vote winner.
- TimPC 4y ago
  Most modern day versions proposed allow you to defer the tax until the sale of your home or pay it as part of the settling of your estate.
- zozbot234 4y ago
  > Turfing pensioners out of their house because the land it sits on gained in value faster than their pension This is a well-known canard. If someone can't pay their tax on a primary residence, you put a lien on the property that becomes enforceable when the ownership changes hands, whether by sale or inheritance. No one gets "thrown out" of their homes.
  - notahacker 4y ago
    Proposing children are kicked out of family homes isn't necessarily more politically palatable, and deferrals introduce revenue issues (especially if LVT causes land value to fall over time, which is often mooted as an advantage by Georgists...) But that's a minor issue compared with the second part of my post, which is that if a proposed tax reform reduces the tax burden on almost every corporation and high net worth individual (bar a few land speculators and domestic oil well owners), ordinary people have to pay more to the government or get less from the government. LVT might be perfectly viable as a tax, but as a Single Tax replacing the existing set of taxes (which arent exactly optimal from the point of progressitivity to start off with) it's a wealth transfer on an unprecedented scale from people whose wealth is mainly the property they bought (including the land it sits on) to people whose wealth is mainly the shares they own. The latter category is much richer than the former.
TimPC 4y ago
My city already does a two-factor assessment that includes land value and structure value for assessing my property tax. I don't think just doing the land value component is substantially harder although I do agree it's slightly harder.

by scythe 4y ago

markdown 4y ago

Could you tell us where these experiments were held, and how far they went? For example, were other taxes eliminated at the same time?

notacoward 4y ago
See my sibling comment to yours. The most notable examples are in New Zealand, Australia, and several towns in Pennsylvania. Some of those ran into problems with execution, others were abandoned for purely ideological/selfish reasons, but overall it's not a bad record.

bee_rider 4y ago

Huh. Property tax is already a thing of course, but I guess if the LVT was going to replace all taxation the stakes would be much higher. In an urban setting, it seems to me that the land value should be... reasonably uniform, unlike property, which should make assessing much easier, right? But that's just getting the number. Whether people are happy with the number is a whole 'nother problem.

its_ethan 4y ago
I would have assumed exactly the opposite in terms of urban land being uniform in value. 10 acres that are 30 minutes from Des Moines, IA are going to be very similar in value (price people are willing to pay) compared to 10 acres that are 10 miles down the road. Rural land is generally quite uniform and more likely to be functionally the same. In an urban area, say Los Angeles, 10 acres in Malibu (an area with very high demand for property) is going to have a totally different value (again, price people are willing to pay) as compared to 10 acres 10 miles away in skid row. The problem, that other people have highlighted, is how do you (the government/IRS/agency in charge) determine the value of each of those land areas? Letting some city planners in LA decide that those two areas should have the same LVT, or allowing them to determine what tax each should have, is gifting a lot of power to people who may or may not be qualified, and may or may not experience any sort of consequence for poor decision making/ biased value assessment/ etc. The exact way that sort of value/tax-setting would play out would be very interesting, but the unintended consequences could end up being pretty bad. I've always thought it was interesting that property tax assessments don't just use the previous purchase price, and instead rely on a relatively arbitrary valuation. That could be one way to more accurately determine an LVT - make it a set percent of the previous purchase price of the land, that would allow the taxes to be priced in to land transactions. I still just don't love the idea at its core.
- colinmhayes 4y ago
  Now you've brought the horror that is prop 13 to a tax that is supposed to replace all other taxes. Things change in value, we have to account for that.
- bee_rider 4y ago
  With a land value tax we could at least come up with pretty straightforward equations, right? Some starting value from being in town, then add something for oceanfront property, then add something some extra bump based on distance from some set of amenities provided by the community (parks, subways, etc). It is at least possible to come up with something, unlike, what, the assessor's gut feeling about how nice your house is? This seems like it is putting much more arbitrary power in the hands of some random person.
  - its_ethan 4y ago
    > Some starting value from being in town, then add something for oceanfront property, then add something some extra bump based on distance from some set of amenities provided by the community (parks, subways, etc). How do you know you weren't also supposed to take the floor plan or exterior paint color into consideration? How do you account for the value lost from having obnoxious neighbors? What happens when, in the future, a nice bookstore/coffee shop is opened up down the street, or alternatively a liquor store? Ultimately, how do you know if whatever equation you've constructed is exhaustive or "correct"? It might sound like "well then you just adjust the equation" but this wouldn't be without consequence. One outcome of getting that equation incorrect is that a home is valued at a point where the imposed tax prices out anyone from purchasing the home - it would sit empty/foreclosed for as long as it takes a local government bureaucracy to come in and attempt to re-assess its value. So you could effectively be removing houses from a competitive home buying market, which is going to increase the price of other homes until they too have priced people out of the area. Multiply that by entire zip codes, and while you're working on adjusting that equation, you could end up having a real shit show on your hands with a bunch of people being displaced or in worse financial positions. > It is at least possible to come up with something, unlike, what, the assessor's gut feeling about how nice your house is? This seems like it is putting much more arbitrary power in the hands of some random person. I agree with the point that a home assessment is strange and arbitrary, but you're really just saying we should replace the assessor who goes and visits a property with a group of assessor's that just come up with an equally arbitrary equation that gets blanket applied to entire cities? Why is that preferable to something like just using the previous home sale price or, honestly, just staying with the current system that we know is generally very functional?
markdown 4y ago
Doesn't work that way. A subway gets built near your property. The benefit of greater access accrues to you more than it does someone 10km away. So your LVT has to go up. Now you can't afford the taxes, and you're forced to sell and move to somewhere with lower LVT. It's bought by someone who will put it to better use. Maybe an apartment block instead of your single family home. Over time, every piece of land is put to its most productive use. But before it gets there, there will be some pain for the individuals who choose (or are forced) to move because they can't afford to the improvements made to the infrastructure in their locality.
- xboxnolifes 4y ago
  > Now you can't afford the taxes, and you're forced to sell and move to somewhere with lower LVT. It's bought by someone who will put it to better use. Maybe an apartment block instead of your single family home. > Over time, every piece of land is put to its most productive use. But before it gets there, there will be some pain for the individuals who choose (or are forced) to move because they can't afford to the improvements made to the infrastructure in their locality. Which is why I think it makes sense that the LVT shouldn't be re-evaluated on a rolling basis. It would only be re-evaluated (or at least put into effect) when it changes owners (sale, gift, inheritance, etc). Otherwise you get bad incentives for people to vote against improvements that price them out of living where they currently are. Corporate land ownership would likely need different rules, as the owner could theoretically be the same forever. Over time, land is still put to it's most productive use, there is just a delay introduced that considers the human condition.
  - TimPC 4y ago
    This is basically Prop 13 in California which the world outside of California conclusively thinks is stupid. It’s incredibly unfair to give people massive tax breaks for buying a long time ago. The alleged benefits don’t reflect the immense cost. In this case you’re trying to replace the majority of all taxation with a value that doesn’t change with time. People get massive economic incentives to never move. People get massive economic incentives to resist change. I’d rather deal with a range of options from people selling and moving to introducing liens upon the property due at sale than have to deal with the mess that is 50 year stale land values and the associated negligible taxes that result.
dionidium 4y ago
> Property tax is already a thing of course Yes, but note that property taxes are extremely unpopular: > America's most hated tax: Local property tax (42%) By far, America's most hated tax is your local property tax! It's almost ironic that your home, perhaps the single greatest source of taxable deductions on your federal income taxes, is also the greatest source of dislike when it comes to taxes in general among the American public with 42% responding that they felt it was the least fair tax of all. Source: https://www.fool.com/investing/general/2013/11/02/americas-5-most-hated-taxes.aspx https://www.fool.com/investing/general/2013/11/02/americas-5... It looks like that 42% number comes from this Gallop poll: https://news.gallup.com/poll/1714/taxes.aspx https://news.gallup.com/poll/1714/taxes.aspx They have a sort of purity and logic that appeals to economists, but they're intuitively hated by everyone else.
- pessimizer 4y ago
  Lobbyists, PR professionals and the people who pay them own lots of property and pay property taxes. They're far harder for the wealthy to dodge than income or capital gains taxes. Of course the public has been trained to hate them, like they've been trained to hate estate taxes, and in some years public polls would show near-majorities against progressive taxation in general. edit: it seems obvious because of the thread topic, but property taxes are the most easily and intuitively justifiable tax. People with more property use more public services.
  - dionidium 4y ago
    I'm thinking of my buddy back in Missouri -- not wealthy; not a lobbyist, PR professional, or any kind of professional -- who told me (more or less): "It's unfair. It's the one tax you can't avoid. No matter what you do, you can't opt out. It's like you don't even own your own property. The government owns it. You never really own anything, as long as they can tax you just for existing on your own land." That's the intuitive, everyman objection.
    - bee_rider 4y ago
      It is a sort of silly objection -- you can avoid property tax by having no property, in the same way that you can avoid income tax by having no income. I guess it is probably easier to evade income tax, than property tax, though.

mrob 4y ago

People who disagree with their assessed value should be given the option to declare whatever value they like. If they take this option, the state should have the option of buying their property at the declared value, plus some extra to cover transaction costs.

colinmhayes 4y ago
The problem is that most land has stuff on top of it. The government can't buy the land without the building that comes with it.
CuriousSkeptic 4y ago
At the surface it seems there should be a market solution for this. One approach might be to do something clever with mortages and property rights. Basically keep trying to keep the current mechanics of borrowing and just shifting around the parties involved so that the all the interest gets collected as LVT. Might even let the central bank handle both collection and dividends of it all. Another option might be to create economic incentives for some party to get the assessment right. Like insurance companies and banks loose either customers or revenue when getting it wrong. Perhaps can play with some margin for speculation such that lender and borrower get to share some profit. Or just make lenders outbid each other on who can extract most rent for the property. I guess one concern here is to make sure the commons have a representation, so that not all land get appropriated to private use
bee_rider 4y ago
This is a 'clever' solution to property taxes. But a land value tax specifically just taxes based on the value of the land. This is supposed to incentivize people to use their land as productively as possible -- with a property tax, any improvements you make increases your tax bill, with a land value tax, it doesn't. A moral argument for it is, if you own an empty lot which is gaining in value as the community grows around it, you are essentially leeching extra value from the community through no work of your own. This sort of behavior is punished heavily with an LVT, as your taxes go up but you don't get any extra revenue from your empty lot.

notacoward 4y ago

Focusing on that one issue presents an incomplete picture, to say the least. LVT has been tried many places, and has been no less successful than other tax systems. Here's a pretty thorough analysis and discussion of empirical results. https://www.lincolninst.edu/sites/default/files/pubfiles/assessing-theory-practice-land-value-taxation-full_0.pdf https://www.lincolninst.edu/sites/default/files/pubfiles/ass... Of course there are secondary and/or orthogonal problems that need to be solved. Of course there are some people who complain, either because they are truly being overtaxed or (more often) because they think they personally would do better under some other system. Just like literally every other tax system including the ones most of us live under right now. LVT is no panacea, but there are legitimate reasons to believe it's a fundamentally better starting point than the mishmash of income, sales, and property taxes we have now.

notahacker 4y ago

The biggest problem with it as presented in Progress and Poverty (i.e. as a Single Tax to fund the government budget, not some small supplementary levy to fund something like local services) is that the size of the tax bears relatively little relation to the ability of someone to pay it (at least, to pay it without selling their house). Turfing pensioners out of their house because the land it sits on gained in value faster than their pension whilst others earn millions virtually tax free obviously isn't a natural vote winner.

TimPC 4y ago
Most modern day versions proposed allow you to defer the tax until the sale of your home or pay it as part of the settling of your estate.
zozbot234 4y ago
> Turfing pensioners out of their house because the land it sits on gained in value faster than their pension This is a well-known canard. If someone can't pay their tax on a primary residence, you put a lien on the property that becomes enforceable when the ownership changes hands, whether by sale or inheritance. No one gets "thrown out" of their homes.
- notahacker 4y ago
  Proposing children are kicked out of family homes isn't necessarily more politically palatable, and deferrals introduce revenue issues (especially if LVT causes land value to fall over time, which is often mooted as an advantage by Georgists...) But that's a minor issue compared with the second part of my post, which is that if a proposed tax reform reduces the tax burden on almost every corporation and high net worth individual (bar a few land speculators and domestic oil well owners), ordinary people have to pay more to the government or get less from the government. LVT might be perfectly viable as a tax, but as a Single Tax replacing the existing set of taxes (which arent exactly optimal from the point of progressitivity to start off with) it's a wealth transfer on an unprecedented scale from people whose wealth is mainly the property they bought (including the land it sits on) to people whose wealth is mainly the shares they own. The latter category is much richer than the former.

TimPC 4y ago

My city already does a two-factor assessment that includes land value and structure value for assessing my property tax. I don't think just doing the land value component is substantially harder although I do agree it's slightly harder.