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 th

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.