It's about incentives. In general, the best incentive scheme is one where people are incentivized to do things that other people find valuable. The worst ince

It's about incentives. In general, the best incentive scheme is one where people are incentivized to do things that other people find valuable. The worst incentive scheme is one where you get punished by a third party for doing things that others find valuable. Economists call this "deadweight loss", the number of beneficial transactions that do not happen because with the addition of a tax, the transaction is no longer beneficial for both parties. Ideally, the perfect tax is one where you are taxed on things that are negatively valuable for society (an externality or sin tax, as a way of disincentivizing you from doing those activities) or that you don't have control over (i.e. it doesn't alter your behavior at all), while not taxing any activities that are beneficial for others. LVT is very close in structure to this perfect tax. There is a finite amount of land available, and no way to make more of it; taxes on land don't disincentivize land production, they just take a cut of the rent that you get from having conquered that land first or bought it from someone who did. And the land value (exclusive of improvements) is usually set by its location - what else is nearby, what community improvements have been made, is it in a pretty place, is there lots of pollution or crime? These too are things that the owner has no control of; arguably they are reaping the benefits of things that the rest of the community has built, and so they should be taxed on it so the fruits of those labor go back to the community. By excluding the improvements, you let the land owner capture the fruits of their actual labor. So if they build a new apartment building and provide housing to those who need it, they can charge rent, and they won't be taxed on that rent, and so they capture the full benefit of those improvements. If it's a nice apartment building, they get to charge more in rent, and they can capture that money too.