8 ms·

The value of the land in NYC is related to all the other stuff next to the land you’re valuing. Other people’s improvements make your land more valuable, becaus

by chipsa 3y ago

The value of the land in NYC is related to all the other stuff next to the land you’re valuing. Other people’s improvements make your land more valuable, because you’ve got the subway line nearby. And the pizza shop on the corner. And the bar across the street.

keiferski 3y ago
But why would any of this continue to exist if landowners have no interest in improving the value of the land? Lower Manhattan today is worth billions, but 50 years ago parts of it were empty enough to be used as lofts by squatting artists. Let’s say land value taxes are implemented in New York today. Suddenly companies have a real incentive to leave and move somewhere with cheaper land values - way more incentive than today, as in theory they will be taxed mostly on land value, not revenue. What’s to stop Manhattan from slowly becoming empty again as people leave, jobs leave, corner stores close, subway maintenance worsens due to less revenue, etc.?
- thfuran 3y ago
  People don’t currently choose to live in New York City because it’s cheap.
- BirdieNZ 3y ago
  Land value taxes have existed and do exist around the world (along with variations on the theme, such as leasehold land that is leased from the government for a long time). They don't result in the behaviour you describe. Most land value tax proposals are also revenue neutral (e.g. lower income tax in exchange for higher land value tax), so the balance sheet should end up looking the same for companies and individuals, but with higher land holding costs and lower land purchasing costs.
  - keiferski 3y ago
    But isn’t the proposal that land value taxes will replace income taxes? How is it not advantageous for a company to then reduce its tax burden by moving to a place with lower land taxes? I don’t think this happens today because income taxes are federal and not dramatically different between physical locations. The implementation of a land value tax as the primarily tax would seem to change this, no? To use a direct example: let’s say BigCo is paying 20% of revenue in taxes today. Tomorrow, this changes, and they are paying the same amount, except the source is not revenue, but the value of the land they occupy. They can now move to a location with lower land values and pay less than the the 20% equivalent + keep the current revenue without being taxed on it. Why would the company not choose to do this? That is my question: doesn’t this set up incentives for companies to continually move to lower land tax locations and minimize the land value that they currently own?
    - diordiderot 3y ago
      > How is it not advantageous for a company to then reduce its tax burden by moving to a place with lower land taxes? Forget all the numbers and try to answer the question: Why doesn't JP Morgan move their headquarters to Rawlins Wyoming?
      - keiferski 3y ago
        I think I already answered this: because their taxes would basically be the same. They won’t be avoiding 20-30% in taxes by moving there. And yes, of course there’s the factor of New York’s value as a cultural hotspot, base of workers, etc. but as I said, the growth of remote work will probably have a pretty serious effect on this. We’re already seeing panic signals from city governments trying to get people to stop working remotely. I don’t think it’s inconceivable that the JP Morgan of 2040 would have a predominately remote workforce and have no issues moving their headquarters to Rawlins if it means they avoid a massive land value tax. It doesn’t really need to be that extreme of an example, though: there are plenty of smaller cities in the NYC metro area that are more attractive and fulfill the same role as a low-tax zone (if taxes are based on land values.)
        db48x 3y ago
        Why would that be a problem? The tax revenue of Manhattan goes down because JP Morgan is no longer headquartered there, but Manhattan also doesn’t have to provide as many services. All of those employees who used to live in Manhattan needed roads to drive on and police patrols and tree trimming and whatever else the city of Manhattan does. That’s a lot of money that Manhattan saves by not having as many people living there. Now all of those people are working remotely, living wherever they want to live, and are no longer forced to live in Manhattan. They no longer have to commute, so they're not adding traffic at all. They still need services, but they’re paying property taxes in whatever place they live in, so those are still paid for. In fact, the “headquarters” is really just the CEO’s house, because now _everyone_ is working remotely. JP Morgan still needs bank branches all over the place, and some of those are in Manhattan. JP Morgan must pay the land–value tax for the land that those branches occupy, and that money pays for the city services required by the branches. They’ll still have the same number of branches before and after the move, so that won’t change. JP Morgan still needs datacenters. The largest ones will be located where the land value is the lowest, of course. However, it will still be necessary to interconnect with multiple backbones, and the best place to do that is in the city where many companies are very close to each other. That won't change either. I don't see how this would be a negative for anybody. People who want to live in a dense city still can. Businesses who want to operate in a dense city with lots of nearby customers will still do so, even if the land value taxes are higher; the revenue will be higher as well so it will be worth it.
- mdasen 3y ago
  I think another question would be: why are they in NYC today? Let's say that rents go up in NYC. Suddenly companies have a real incentive to leave and move somewhere with cheaper rents. What's to stop Manhattan from slowly becoming empty again... From my other comment: if you don't believe that location has value in a remote-work world, then companies are just doing something ridiculous renting expensive office space in cities. > But why would any of this continue to exist if landowners have no interest in improving the value of the land? Lower Manhattan today is worth billions, but 50 years ago parts of it were empty enough to be used as lofts by squatting artists. The disincentive that you see is in our current system, not Georgism. You note that Lower Manhattan has seen its value increase a lot due to improvements created on that land - improvements that you're afraid wouldn't happen with Georgism, yes? Under our current system, I pay $10,000/year in taxes on my $1M empty lot (it's all land value since it's an empty lot). If I build a 40-unit apartment building, the land is worth $1M and the building is worth $10M. Now I pay $110,000/year in taxes. I have a huge disincentive to improve the land. With Georgism, my taxes don't go up if I build something on my empty lot so I'm incentivized to build something on the empty lot. Now, you'll likely say that if I build something on my lot, the value of the land will rise because it's now in a nicer area. That's true, but the value of the land will rise a tiny bit compared to the value of the additions I've made to the land. Under our current system, I'll get taxed on the $10M building value plus the land value. If the land value goes up 10%, we're talking about taxes on $11.1M in our current system vs. $1.1M under Georgism. Again, even if you argue there's some disincentive under Georgism, it's way less disincentive than our current property tax system. What Georgism does is account for where land is becoming more valuable/popular - and maybe for you "popularity" is a better way of thinking about it since you might be skeptical of "value" if you have a very strong bias toward remote work. At some point, Lower Manhattan started becoming more popular. Why? That doesn't matter. While Lower Manhattan was cheaper than it is today, there were so many other parts of the planet way cheaper than Lower Manhattan so people had incentives to go somewhere else, but still chose Lower Manhattan despite the cost. As Lower Manhattan became popular, Georgism would have provided more incentive to improve properties. If you own a vacant lot in an area that's becoming popular, you see your taxes rise fast. If you own a $1M vacant lot that becomes worth $5M and the $1M vacant lot next to you became worth $5M and put up a $250M office building, you both pay the same taxes. The person who built the office building gets lots of money for that building so the taxes are pretty low. You'd want to put up an office building or housing or whatever so you can take advantage of that too! Land value taxes provide a much greater incentive to improve the land than property taxes since property taxes will be based on the land value plus the improvements. By not improving the land, you save money with property taxes. With Georgism, you pay the same taxes whether the land is improved or not. Maybe your improvements do increase the land value somewhat, but when everyone around you is improving the land, that's a much larger impact than just the improvements on your land. But wouldn't that disincentivize everyone from improving their land? Again, property taxes are a much larger disincentive. Georgism means that if you improve your own land, maybe your raise the value of your land (and everyone around you) by a marginal amount. Property taxes mean that the amount you pay in taxes will go up many times higher when you improve your property rather than by a tiny amount. Property taxes mean that you could see your taxes go up 10-100x rather than maybe go up 1-10% due to your impact on the land value. Again, why aren't companies leaving NYC today? Most companies are paying rent on their office space, not owning it. As such, the underlying tax structure doesn't impact them. Companies already face rising rents giving them a real incentive to move somewhere with cheaper rents. Why don't they move to 100% remote? Why is Google paying tons of money for offices in NYC when they could just have remote workers or open offices in the middle of nowhere? It's because Google sees value in having those offices. You might disagree, but the reality of our world today is that people are valuing those spaces highly. All of the incentives that you worry about would be less under Georgism than under our current system. Under Georgism, people have a bigger incentive to improve land than our current system. Under our current system, companies already face high rents incentivizing them to leave cities - but they see more value in staying. Now, there are some businesses that might own their building/land in NYC. Think a garment company that's been around for a hundred years or a kosher food processing business that's been around for a hundred years. They might have a one-story building in what is now a very expensive part of NYC. However, they already face huge incentives to leave NYC for the suburbs as developers are willing to pay more for their land than their entire business is worth. With Georgism, the incentive could be higher since they're currently facing low property taxes since their land is barely improved (by NYC standards). However, Georgism can actually make it easier for companies like this to stay in expensive areas - in a slightly modified form. They can't have a one-story building by themselves, but it would be cheaper for them to have one story inside a larger building. Georgism is about incentivizing better land use in popular areas.
- db48x 3y ago
  A tax on the value of your building didn’t incentivize the construction of the building, and there is already a huge cost incentive to leave Manhattan. Costs there are already pretty high, and people only stay due to inertia and the higher incomes available there. But you are asking the right type of question, which is how the equilibrium will change if we change the tax system. > Let’s say land value taxes are implemented in New York today. Suddenly companies have a real incentive to leave… Not necessarily. Note that implementing a land–value tax means removing other kinds of taxes while collecting the same amount of money overall. Suppose two companies both want the same plot of land in the city you run, and both want the existing building. Suppose that one company makes twice the profit as the other on the same expenses. That company is the one that you would want to invite into your city (assuming you couldn’t get both, of course), because it will make the most effective use of the land. If there are no taxes on income, then that second company has more money to spend bidding up the price of the land, and thus to spend on the land–value tax. Thus the current owner will prefer to sell to the more profitable company, which is the exact result that the city as a whole wants. With a flat income tax, the ratio of profits after taxes between these two businesses will be the same 2×. Each company has less money available to spend on land, but one will still be able to outbid the other. But most income taxes are progressive, meaning that the tax rate goes up the higher your company’s income tax is. That reduces the ratio of profitability between these two companies, making it less likely that the more profitable one will be able to expand into your city. If you make the taxes progressive enough, then highly–profitable companies would never be able to enter your city at all, because they would have less money available than less–profitable ones.
thaumasiotes 3y ago
And when you buy the subway line, the pizza shop, and the bar, the value of your land will go back down?
- thfuran 3y ago
  If you tear all that down, it likely would.
  - keiferski 3y ago
    It doesn’t need to be torn down, just abandoned. The tear down process can happen decades later. See: Detroit.
  - thaumasiotes 3y ago
    No. The concept is that you get taxed on the unimproved value of your land. So chipsa says that if you own a small plot of land in New York, you'll still pay a lot of property tax (on "unimproved value") because you're right next to the subway and that's part of the unimproved value of your land. But if you own a large plot of land, the subway is just another improvement that doesn't get counted towards the value of your land. So once you've bought the subway, the unimproved value of your land is lower than it used to be. I think it's weird to be so enthusiastic about a tax system with such fine dependence on the exact ownership structure of property. It's especially weird when the ownership structure the system is driving people toward is "a very small number of people each own truly massive quantities of land".
    - thfuran 3y ago
      The unimproved value of land next to a subway stop is greater than the unimproved value of land far from the nearest subway stop regardless of who owns the subway.
      - nine_k 3y ago
        You don't get it. Imagine owning the entire subway. Then the subway system is an improvement on your land, not something adjacent to it, and should not be counted. (Yes, this would require buying most of all the five boroughs.) This is a highly unrealistic scenario though.

by chipsa 3y ago

keiferski 3y ago

But why would any of this continue to exist if landowners have no interest in improving the value of the land? Lower Manhattan today is worth billions, but 50 years ago parts of it were empty enough to be used as lofts by squatting artists. Let’s say land value taxes are implemented in New York today. Suddenly companies have a real incentive to leave and move somewhere with cheaper land values - way more incentive than today, as in theory they will be taxed mostly on land value, not revenue. What’s to stop Manhattan from slowly becoming empty again as people leave, jobs leave, corner stores close, subway maintenance worsens due to less revenue, etc.?

thfuran 3y ago
People don’t currently choose to live in New York City because it’s cheap.
BirdieNZ 3y ago
Land value taxes have existed and do exist around the world (along with variations on the theme, such as leasehold land that is leased from the government for a long time). They don't result in the behaviour you describe. Most land value tax proposals are also revenue neutral (e.g. lower income tax in exchange for higher land value tax), so the balance sheet should end up looking the same for companies and individuals, but with higher land holding costs and lower land purchasing costs.
- keiferski 3y ago
  But isn’t the proposal that land value taxes will replace income taxes? How is it not advantageous for a company to then reduce its tax burden by moving to a place with lower land taxes? I don’t think this happens today because income taxes are federal and not dramatically different between physical locations. The implementation of a land value tax as the primarily tax would seem to change this, no? To use a direct example: let’s say BigCo is paying 20% of revenue in taxes today. Tomorrow, this changes, and they are paying the same amount, except the source is not revenue, but the value of the land they occupy. They can now move to a location with lower land values and pay less than the the 20% equivalent + keep the current revenue without being taxed on it. Why would the company not choose to do this? That is my question: doesn’t this set up incentives for companies to continually move to lower land tax locations and minimize the land value that they currently own?
  - diordiderot 3y ago
    > How is it not advantageous for a company to then reduce its tax burden by moving to a place with lower land taxes? Forget all the numbers and try to answer the question: Why doesn't JP Morgan move their headquarters to Rawlins Wyoming?
    - keiferski 3y ago
      I think I already answered this: because their taxes would basically be the same. They won’t be avoiding 20-30% in taxes by moving there. And yes, of course there’s the factor of New York’s value as a cultural hotspot, base of workers, etc. but as I said, the growth of remote work will probably have a pretty serious effect on this. We’re already seeing panic signals from city governments trying to get people to stop working remotely. I don’t think it’s inconceivable that the JP Morgan of 2040 would have a predominately remote workforce and have no issues moving their headquarters to Rawlins if it means they avoid a massive land value tax. It doesn’t really need to be that extreme of an example, though: there are plenty of smaller cities in the NYC metro area that are more attractive and fulfill the same role as a low-tax zone (if taxes are based on land values.)
      - db48x 3y ago
        Why would that be a problem? The tax revenue of Manhattan goes down because JP Morgan is no longer headquartered there, but Manhattan also doesn’t have to provide as many services. All of those employees who used to live in Manhattan needed roads to drive on and police patrols and tree trimming and whatever else the city of Manhattan does. That’s a lot of money that Manhattan saves by not having as many people living there. Now all of those people are working remotely, living wherever they want to live, and are no longer forced to live in Manhattan. They no longer have to commute, so they're not adding traffic at all. They still need services, but they’re paying property taxes in whatever place they live in, so those are still paid for. In fact, the “headquarters” is really just the CEO’s house, because now _everyone_ is working remotely. JP Morgan still needs bank branches all over the place, and some of those are in Manhattan. JP Morgan must pay the land–value tax for the land that those branches occupy, and that money pays for the city services required by the branches. They’ll still have the same number of branches before and after the move, so that won’t change. JP Morgan still needs datacenters. The largest ones will be located where the land value is the lowest, of course. However, it will still be necessary to interconnect with multiple backbones, and the best place to do that is in the city where many companies are very close to each other. That won't change either. I don't see how this would be a negative for anybody. People who want to live in a dense city still can. Businesses who want to operate in a dense city with lots of nearby customers will still do so, even if the land value taxes are higher; the revenue will be higher as well so it will be worth it.
mdasen 3y ago
I think another question would be: why are they in NYC today? Let's say that rents go up in NYC. Suddenly companies have a real incentive to leave and move somewhere with cheaper rents. What's to stop Manhattan from slowly becoming empty again... From my other comment: if you don't believe that location has value in a remote-work world, then companies are just doing something ridiculous renting expensive office space in cities. > But why would any of this continue to exist if landowners have no interest in improving the value of the land? Lower Manhattan today is worth billions, but 50 years ago parts of it were empty enough to be used as lofts by squatting artists. The disincentive that you see is in our current system, not Georgism. You note that Lower Manhattan has seen its value increase a lot due to improvements created on that land - improvements that you're afraid wouldn't happen with Georgism, yes? Under our current system, I pay $10,000/year in taxes on my $1M empty lot (it's all land value since it's an empty lot). If I build a 40-unit apartment building, the land is worth $1M and the building is worth $10M. Now I pay $110,000/year in taxes. I have a huge disincentive to improve the land. With Georgism, my taxes don't go up if I build something on my empty lot so I'm incentivized to build something on the empty lot. Now, you'll likely say that if I build something on my lot, the value of the land will rise because it's now in a nicer area. That's true, but the value of the land will rise a tiny bit compared to the value of the additions I've made to the land. Under our current system, I'll get taxed on the $10M building value plus the land value. If the land value goes up 10%, we're talking about taxes on $11.1M in our current system vs. $1.1M under Georgism. Again, even if you argue there's some disincentive under Georgism, it's way less disincentive than our current property tax system. What Georgism does is account for where land is becoming more valuable/popular - and maybe for you "popularity" is a better way of thinking about it since you might be skeptical of "value" if you have a very strong bias toward remote work. At some point, Lower Manhattan started becoming more popular. Why? That doesn't matter. While Lower Manhattan was cheaper than it is today, there were so many other parts of the planet way cheaper than Lower Manhattan so people had incentives to go somewhere else, but still chose Lower Manhattan despite the cost. As Lower Manhattan became popular, Georgism would have provided more incentive to improve properties. If you own a vacant lot in an area that's becoming popular, you see your taxes rise fast. If you own a $1M vacant lot that becomes worth $5M and the $1M vacant lot next to you became worth $5M and put up a $250M office building, you both pay the same taxes. The person who built the office building gets lots of money for that building so the taxes are pretty low. You'd want to put up an office building or housing or whatever so you can take advantage of that too! Land value taxes provide a much greater incentive to improve the land than property taxes since property taxes will be based on the land value plus the improvements. By not improving the land, you save money with property taxes. With Georgism, you pay the same taxes whether the land is improved or not. Maybe your improvements do increase the land value somewhat, but when everyone around you is improving the land, that's a much larger impact than just the improvements on your land. But wouldn't that disincentivize everyone from improving their land? Again, property taxes are a much larger disincentive. Georgism means that if you improve your own land, maybe your raise the value of your land (and everyone around you) by a marginal amount. Property taxes mean that the amount you pay in taxes will go up many times higher when you improve your property rather than by a tiny amount. Property taxes mean that you could see your taxes go up 10-100x rather than maybe go up 1-10% due to your impact on the land value. Again, why aren't companies leaving NYC today? Most companies are paying rent on their office space, not owning it. As such, the underlying tax structure doesn't impact them. Companies already face rising rents giving them a real incentive to move somewhere with cheaper rents. Why don't they move to 100% remote? Why is Google paying tons of money for offices in NYC when they could just have remote workers or open offices in the middle of nowhere? It's because Google sees value in having those offices. You might disagree, but the reality of our world today is that people are valuing those spaces highly. All of the incentives that you worry about would be less under Georgism than under our current system. Under Georgism, people have a bigger incentive to improve land than our current system. Under our current system, companies already face high rents incentivizing them to leave cities - but they see more value in staying. Now, there are some businesses that might own their building/land in NYC. Think a garment company that's been around for a hundred years or a kosher food processing business that's been around for a hundred years. They might have a one-story building in what is now a very expensive part of NYC. However, they already face huge incentives to leave NYC for the suburbs as developers are willing to pay more for their land than their entire business is worth. With Georgism, the incentive could be higher since they're currently facing low property taxes since their land is barely improved (by NYC standards). However, Georgism can actually make it easier for companies like this to stay in expensive areas - in a slightly modified form. They can't have a one-story building by themselves, but it would be cheaper for them to have one story inside a larger building. Georgism is about incentivizing better land use in popular areas.
db48x 3y ago
A tax on the value of your building didn’t incentivize the construction of the building, and there is already a huge cost incentive to leave Manhattan. Costs there are already pretty high, and people only stay due to inertia and the higher incomes available there. But you are asking the right type of question, which is how the equilibrium will change if we change the tax system. > Let’s say land value taxes are implemented in New York today. Suddenly companies have a real incentive to leave… Not necessarily. Note that implementing a land–value tax means removing other kinds of taxes while collecting the same amount of money overall. Suppose two companies both want the same plot of land in the city you run, and both want the existing building. Suppose that one company makes twice the profit as the other on the same expenses. That company is the one that you would want to invite into your city (assuming you couldn’t get both, of course), because it will make the most effective use of the land. If there are no taxes on income, then that second company has more money to spend bidding up the price of the land, and thus to spend on the land–value tax. Thus the current owner will prefer to sell to the more profitable company, which is the exact result that the city as a whole wants. With a flat income tax, the ratio of profits after taxes between these two businesses will be the same 2×. Each company has less money available to spend on land, but one will still be able to outbid the other. But most income taxes are progressive, meaning that the tax rate goes up the higher your company’s income tax is. That reduces the ratio of profitability between these two companies, making it less likely that the more profitable one will be able to expand into your city. If you make the taxes progressive enough, then highly–profitable companies would never be able to enter your city at all, because they would have less money available than less–profitable ones.

thaumasiotes 3y ago

And when you buy the subway line, the pizza shop, and the bar, the value of your land will go back down?

thfuran 3y ago
If you tear all that down, it likely would.
- keiferski 3y ago
  It doesn’t need to be torn down, just abandoned. The tear down process can happen decades later. See: Detroit.
- thaumasiotes 3y ago
  No. The concept is that you get taxed on the unimproved value of your land. So chipsa says that if you own a small plot of land in New York, you'll still pay a lot of property tax (on "unimproved value") because you're right next to the subway and that's part of the unimproved value of your land. But if you own a large plot of land, the subway is just another improvement that doesn't get counted towards the value of your land. So once you've bought the subway, the unimproved value of your land is lower than it used to be. I think it's weird to be so enthusiastic about a tax system with such fine dependence on the exact ownership structure of property. It's especially weird when the ownership structure the system is driving people toward is "a very small number of people each own truly massive quantities of land".
  - thfuran 3y ago
    The unimproved value of land next to a subway stop is greater than the unimproved value of land far from the nearest subway stop regardless of who owns the subway.
    - nine_k 3y ago
      You don't get it. Imagine owning the entire subway. Then the subway system is an improvement on your land, not something adjacent to it, and should not be counted. (Yes, this would require buying most of all the five boroughs.) This is a highly unrealistic scenario though.