7 ms·

The failure of the land value tax

45 points by eamag 2y ago

MrLeap 2y ago
I did a little maths on this at some point. If you divide the government's revenue by how many acres are in the US, it turns in to ~2,200$ per acre. Not too shabby. If you charge 3,000$ an acre, assuming everyone could pay it (big assumption), you'd be able to eliminate income tax and turn the budget deficit into a surplus of $290 billion with no changes to spending. Nice! The real number would be higher for reasons I glossed over like the fact >25% of the acreage in the US is probably unproductive for the purposes of an LVT (national parks, the plot your city hall sits on, etc.) Who loses? Well, Ted Turner big time. Many large farms probably wouldn't be thrilled. I don't feel _that_ bad for Ted but the farm thing might be concerning. I also think retirees/lower middle class rural folks would get absolutely shafted. Imagine this being instituted the year you retire. You've been paying 30% income taxes all your life, you move out to a dirt cheap 10 acre plot in the Missouri wilderness, and you _still_ have to pay 30,000$ a year. Your property taxes would have been about 200$ the year prior. Ouch. This would force a lot of rural poor onto smaller plots. I do not imagine this would be popular with them. So maybe you weight the price more towards the urban areas? Possibly could work. A big buff to van life arbitrage I guess lmao.
- loeg 2y ago
  It's a land value tax, not a land tax. Rural acres are worth a lot less and taxed a lot less.
  - deleted 2y ago
    [deleted]
- _dain_ 2y ago
  A simple average of total value / total amount of land is crazily misleading. LVT isn't about charging a flat rate per acre, it's supposed to scale with the unimproved value, hence the name. Land value per acre has a tremendously skewed distribution. The 10 acre plot in Missouri wilderness wouldn't pay very much under an LVT system, while a vacant lot in NYC would be on the hook for millions (probably).
  - MrLeap 2y ago
    I wasn't trying to mislead, just sharing my napkin math.
- leafmeal 2y ago
  This is a fun analysis, but that's not traditionally how a land value tax works. Land is taxed based on (surprise) its value. Land in cities is obviously more valuable than a big farm in Missouri. The general idea is that two plots of land in the middle of a city, one with a sky scraper, and its neighbor, a bare parking lot, are taxed the same. You don't pay more for development. This general scheme makes intuitive sense. It prevents speculation, and encourages development (if your parking lot costs the same in taxes as the sky scraper, you might as well get some more rent from it and make it more productive. It's nice from a "libertarian" perspective as well because it doesn't force you to develop your land. It just puts incentives in the right places. Finally, if land is taxed more uniformly, as you described, a landlord in the city, who owns their property outright, is collecting far more in revenue than one with a similar building somewhere more remote, simply because of it's location. Nothing the landlord did justifies the higher prices, it's the restaurants near by, the subways, the well employed people in need of homes that demands higher prices. Since all that value is produced by society, it makes sense to tax it and spend it on the public good. That value, is exactly the land tax.
  - MrLeap 2y ago
    Since you know more about this than me, are there any proposed methods to prevent manipulating value in order to reduce tax burden? I'm thinking of schemes like, and more sophisticated than, "I'm selling 250,000$ T-shirts, buy now and receive a free house on worthless land."
    - _dain_ 2y ago
      The land value would be determined by surveyors based on the characteristics of the plot itself, the values of the plots around it, and the values of similar kinds of plots elsewhere. So if you tried such a stunt it'd be pretty obvious because your plot would be a crazy outlier wrt everything around it for no good reason. Or you'd need to agree to some conspiracy with your neighbours to drive down the value. Of course this isn't a perfect system because surveyors can be wrong or corrupt. There would be a lot more litigation about fair land-values because more is at stake. This might or might not outweigh the reduction in legal fights over other kinds of taxes once LVT displaces them. Another strategy is to make it so that if you want your land to be worth X for tax purposes, you're not allowed to refuse a good-faith offer to buy it for some multiple of X (plus the value of improvements). Although, this amounts to an expansion of the idea of eminent domain, which is politically difficult. LVT is a dilution of what we currently understand as property rights. It would necessarily come with a lot more government oversight of what kinds of land sale agreements are legal, to prevent the kind of chicanery you mentioned. You wouldn't really "own" the land in the sense currently understood, it's more like "stewardship". You'd still own the things built on top of it though. I think this tradeoff is worth it (especially if other taxes are abolished), but it's important to admit the tradeoff exists and not everyone would like it.
andrewla 2y ago
The devil is in the details here. A land value tax in the Georgeist sense relies on being able to determine the unimproved value of the land. This is impossible. So it always fails. I love markets, everyone loves markets. But markets only approach efficiency on a unit basis when there is a liquid market for fungible goods. Otherwise you can get aggregate pricing signals, but really no information about a specific item.
- James_K 2y ago
  The most obvious solution to this is to do away with land ownership entirely. If the land is state owned and the value of a lease on it is auctioned to the highest paying renter, the market price of the land is precisely the same as the tax paid on it.
  - ta1243 2y ago
    Why would I pay to improve the land if next year someone can simply outbid me and take the land off me?
    - dredmorbius 2y ago
      Long-term leases exist for this function. Often 99-year leases (e.g., Hong Kong to the UK). In practice, the tenant can typically break the lease with minimal consequence as the landlord (the government) can generally find new tenants, and diversifies risk over many landholdings.
      - some_random 2y ago
        That removes any benefit of confiscating all land and leasing it out while still retaining all the society destroying consequences of this idea. Basically at this point it's just a proposal to confiscate all land and resell it, for fun I guess.
        dredmorbius 2y ago
vslira 2y ago
There's a small note referring to Denmark applying an LVT that is "close to theory", and further down a comment that it comprises roughly 2% of total government revenue. On the linked article, the tax seems to be .5% up to a given value, then 1.5% above that (fairly hefty, imo), but excludes rented properties - which pay tax on the rent. This danish case study seems to me a better case study for the LVT: why does it raise so little?
- James_K 2y ago
  Putting tax down always seems to be more popular than putting it up. I think this is a prime tax for putting down as everybody pays it, so there's a case to be made, and rich people will pay a lot so they have the money to make that case.
  - anadem 2y ago
    > Putting tax always seems to be more popular I think you typo'd there, with initial 'P' intended to be 'C'
- robocat 2y ago
  2% sounds small but it isn't over time. Compare to our own investments where we really care about 1% (or commercial investments/funds where 0.1% matters) Paul Graham writes about the illusion here: https://paulgraham.com/wtax.html https://paulgraham.com/wtax.html (wealth taxes and land taxes have close similarities). Maybe needs more attention to inflation or capital gains. Discuss here: https://news.ycombinator.com/item?id=43357851 https://news.ycombinator.com/item?id=43357851 The argument about empty land remaining undeveloped seems rather vacuous when you think that empty land already has a holding cost [either (1) mortgage interest or (2) opportunity cost ≈investment_market_beta]. And city property taxes in New Zealand are low percent already. Land ownership is zero sum so that makes it wildly different from equity (although many people think of capital as zero sum too).
oramit 2y ago
As a fan of Georgism and Land Value Taxation I was hoping for a good rebuttal but I am mostly just left confused by this article. It spends a ton of time talking about the political environment (not entirely uninteresting) and almost nothing on the "failure" part. The two points raised were that it was too difficult to implement and less was raised than expected. LVT being too difficult to implement doesn't make any sense to me. We already have a property tax system in the United States that is really complicated. When property is sold that fact is recorded at your local county registrar. Property taxes are then calculated based on the most recent sales price, the rate, your tax districts, there's usually limits on how much it can increase, all sorts of deductions, etc. This is calculated down to the owner level for every plot already - how can LVT be more complicated than that? This line in particular stuck out to me: "What’s more, in line with Georgist theory, the tax was supposed to credit owners for improvements they made to the land" I think we're talking about different LVT systems here. The current property tax system takes land improvements into account (and charges you more for them). My understanding is that LVT should be a flat tax on acreage (different tax rates for different areas of course) that doesn't care about what is on it. This article is attacking a very different LVT than the one I know.
- ajb 2y ago
  In my reading, what it means by "What’s more, in line with Georgist theory, the tax was supposed to credit owners for improvements they made to the land" is that those improvements are excluded from the tax, IE that the tax is on unimproved value, exactly as you say. It's true that calculating the unimproved value is difficult. There is no obvious "ground truth" except in rare cases where the improved value has been destroyed and the owner will need to rebuild for some reason. And while there are probably enough such cases to get an estimate of the average in a large city, just taxing against the average would be distortionary (a burden to those with a below average plot, eg distant from metro stations or other amenities) . And to make a more detailed estimate makes the process subject to political maneuvering.
jlhawn 2y ago
Land value tax didn't destroy the British Liberal Party in the early 1900s. The flawed neoclassical economic consensus (capital vs labor) did. The Labour Party absorbed most of the ex-Liberal voters and then became the Conservatives' main rival. Then the wide adoption of technology like the automobile (which made it possible for many to simply commute to and from the city instead of be there all the time) eroded the political necessity to tackle difficult urban land issues for decades. "Drive until you can afford to live" only gets you so far though and we're hitting the limits of that in many places now.
pyrados 2y ago
This piece is kind of embarassing. It certainly attempts to lump a lot of blame on the feet of LVT, which is not too surprising given the author has a history of hostility to the idea. Notably in https://labouraffairs.com/2022/07/08/churchill-arguing-for-a-land-tax/ https://labouraffairs.com/2022/07/08/churchill-arguing-for-a... gets into a bit more detail: "With that in mind a 4,000 strong land valuation workforce was recruited. It was on the basis of that valuation that the tax was to be calculated on subsequent sales of land. However, from the start the collection of the new tax was confounded by problems. It took time to embark on a national land valuation programme. In the meantime, many local Tory councils proved to be unsympathetic and obstructive and tax judgments and valuations were regularly challenged by landlords in the courts. This meant that by 1914 only £612,787 had been collected. The war further complicated the land valuation programme as well as sales in land and then after the end of the war the Conservative-dominated post-war Coalition Government delivered the coup de grace to land taxation when all traces were removed from the statute book." None of this is actually remotely relevant to a modern day property tax system that focuses on land, but it just goes to show the intellectual dishonest framing of the author. Notably, Australia had a different experience: https://cooperative-individualism.org/dwyer-terence_taxation-the-lost-history-2014-oct.pdf https://cooperative-individualism.org/dwyer-terence_taxation... (p.276) The cost of compliance and of administration of a land value tax system may be comparable to or better than an income tax or property tax system. An income tax has a cost of collection of around 1 percent of revenues (Australian Taxation Office 1979: Table “Cost of Collection of Taxes Administered by Taxation Office”). By contrast, the cost of collecting the Australian Commonwealth Land Tax of 1910 was 1.25 percent (Scheftel 1916: 86). This was a federal tax from 1910 to 1952, comparable in scope to a national income tax. However, it should be noted: (a) The total cost of administration in 1910 was 3.5 percent, but that included the nonrecurring cost of setting up the land value tax system (Scheftel 1916: 86, 88). (b) The Australian federal land tax was on a progressive, not proportional, basis, which made its administration more complex and costly than a uniform ad valorem tax would have been (Bird 1960: 392). The average tax rate of 1.2 percent took about 25 percent of the income from landownership (assuming an interest rate of 5 percent and no land appreciation). With a higher tax rate and fewer loopholes for tax avoidance, the costs of collection and administration would have been a smaller percentage of total revenues."
mNovak 2y ago
Given that most (all?) of the US already collects property tax, this information is usually public, and (in my experience at least) includes land and property valuations, I'm curious if anyone has attempted a basic estimate of the needed LVT tax to fund some percentage of government spending? Many variables, sure, but I'm talking order of magnitude.
- fastball 2y ago
  Yes. https://gameofrent.com/content/is-land-a-big-deal#2-americas-land-rents-equal-a-sizable-of-government-spending https://gameofrent.com/content/is-land-a-big-deal#2-americas...
handsomegenius 2y ago
It's factually untrue that Land Value Tax was repealed in Australia. We have it right now here in Victoria. The valuation of unimproved land value doesn't seem to be a problem in that implementation.
ScottBurson 2y ago
The thing to understand about the LVT is that we are pretty much all already paying it; not to the city in which we live, but to the previous owners of the land we live on. When we buy a house, we have to pay the previous owner a certain amount for the land. That amount is the present value of the expected income stream that could, hypothetically, be realized by renting out the land. Divide by the number of months in our mortgage term and multiply by the interest rate, and the result is our effective monthly LVT. All George is saying is that that money should be going to the city (or other controlling locality) instead of the previous owner, because it's the city that created the value in the first place.

45 points by eamag 2y ago

I did a little maths on this at some point. If you divide the government's revenue by how many acres are in the US, it turns in to ~2,200$ per acre. Not too shabby. If you charge 3,000$ an acre, assuming everyone could pay it (big assumption), you'd be able to eliminate income tax and turn the budget deficit into a surplus of $290 billion with no changes to spending. Nice! The real number would be higher for reasons I glossed over like the fact >25% of the acreage in the US is probably unproductive for the purposes of an LVT (national parks, the plot your city hall sits on, etc.) Who loses? Well, Ted Turner big time. Many large farms probably wouldn't be thrilled. I don't feel _that_ bad for Ted but the farm thing might be concerning. I also think retirees/lower middle class rural folks would get absolutely shafted. Imagine this being instituted the year you retire. You've been paying 30% income taxes all your life, you move out to a dirt cheap 10 acre plot in the Missouri wilderness, and you _still_ have to pay 30,000$ a year. Your property taxes would have been about 200$ the year prior. Ouch. This would force a lot of rural poor onto smaller plots. I do not imagine this would be popular with them. So maybe you weight the price more towards the urban areas? Possibly could work. A big buff to van life arbitrage I guess lmao.

loeg 2y ago
It's a land value tax, not a land tax. Rural acres are worth a lot less and taxed a lot less.
- deleted 2y ago
  [deleted]
_dain_ 2y ago
A simple average of total value / total amount of land is crazily misleading. LVT isn't about charging a flat rate per acre, it's supposed to scale with the unimproved value, hence the name. Land value per acre has a tremendously skewed distribution. The 10 acre plot in Missouri wilderness wouldn't pay very much under an LVT system, while a vacant lot in NYC would be on the hook for millions (probably).
- MrLeap 2y ago
  I wasn't trying to mislead, just sharing my napkin math.
leafmeal 2y ago
This is a fun analysis, but that's not traditionally how a land value tax works. Land is taxed based on (surprise) its value. Land in cities is obviously more valuable than a big farm in Missouri. The general idea is that two plots of land in the middle of a city, one with a sky scraper, and its neighbor, a bare parking lot, are taxed the same. You don't pay more for development. This general scheme makes intuitive sense. It prevents speculation, and encourages development (if your parking lot costs the same in taxes as the sky scraper, you might as well get some more rent from it and make it more productive. It's nice from a "libertarian" perspective as well because it doesn't force you to develop your land. It just puts incentives in the right places. Finally, if land is taxed more uniformly, as you described, a landlord in the city, who owns their property outright, is collecting far more in revenue than one with a similar building somewhere more remote, simply because of it's location. Nothing the landlord did justifies the higher prices, it's the restaurants near by, the subways, the well employed people in need of homes that demands higher prices. Since all that value is produced by society, it makes sense to tax it and spend it on the public good. That value, is exactly the land tax.
- MrLeap 2y ago
  Since you know more about this than me, are there any proposed methods to prevent manipulating value in order to reduce tax burden? I'm thinking of schemes like, and more sophisticated than, "I'm selling 250,000$ T-shirts, buy now and receive a free house on worthless land."
  - _dain_ 2y ago
    The land value would be determined by surveyors based on the characteristics of the plot itself, the values of the plots around it, and the values of similar kinds of plots elsewhere. So if you tried such a stunt it'd be pretty obvious because your plot would be a crazy outlier wrt everything around it for no good reason. Or you'd need to agree to some conspiracy with your neighbours to drive down the value. Of course this isn't a perfect system because surveyors can be wrong or corrupt. There would be a lot more litigation about fair land-values because more is at stake. This might or might not outweigh the reduction in legal fights over other kinds of taxes once LVT displaces them. Another strategy is to make it so that if you want your land to be worth X for tax purposes, you're not allowed to refuse a good-faith offer to buy it for some multiple of X (plus the value of improvements). Although, this amounts to an expansion of the idea of eminent domain, which is politically difficult. LVT is a dilution of what we currently understand as property rights. It would necessarily come with a lot more government oversight of what kinds of land sale agreements are legal, to prevent the kind of chicanery you mentioned. You wouldn't really "own" the land in the sense currently understood, it's more like "stewardship". You'd still own the things built on top of it though. I think this tradeoff is worth it (especially if other taxes are abolished), but it's important to admit the tradeoff exists and not everyone would like it.

andrewla 2y ago

The devil is in the details here. A land value tax in the Georgeist sense relies on being able to determine the unimproved value of the land. This is impossible. So it always fails. I love markets, everyone loves markets. But markets only approach efficiency on a unit basis when there is a liquid market for fungible goods. Otherwise you can get aggregate pricing signals, but really no information about a specific item.

James_K 2y ago
The most obvious solution to this is to do away with land ownership entirely. If the land is state owned and the value of a lease on it is auctioned to the highest paying renter, the market price of the land is precisely the same as the tax paid on it.
- ta1243 2y ago
  Why would I pay to improve the land if next year someone can simply outbid me and take the land off me?
  - dredmorbius 2y ago
    Long-term leases exist for this function. Often 99-year leases (e.g., Hong Kong to the UK). In practice, the tenant can typically break the lease with minimal consequence as the landlord (the government) can generally find new tenants, and diversifies risk over many landholdings.
    - some_random 2y ago
      That removes any benefit of confiscating all land and leasing it out while still retaining all the society destroying consequences of this idea. Basically at this point it's just a proposal to confiscate all land and resell it, for fun I guess.
      - dredmorbius 2y ago

vslira 2y ago

There's a small note referring to Denmark applying an LVT that is "close to theory", and further down a comment that it comprises roughly 2% of total government revenue. On the linked article, the tax seems to be .5% up to a given value, then 1.5% above that (fairly hefty, imo), but excludes rented properties - which pay tax on the rent. This danish case study seems to me a better case study for the LVT: why does it raise so little?

James_K 2y ago
Putting tax down always seems to be more popular than putting it up. I think this is a prime tax for putting down as everybody pays it, so there's a case to be made, and rich people will pay a lot so they have the money to make that case.
- anadem 2y ago
  > Putting tax always seems to be more popular I think you typo'd there, with initial 'P' intended to be 'C'
robocat 2y ago
2% sounds small but it isn't over time. Compare to our own investments where we really care about 1% (or commercial investments/funds where 0.1% matters) Paul Graham writes about the illusion here: https://paulgraham.com/wtax.html https://paulgraham.com/wtax.html (wealth taxes and land taxes have close similarities). Maybe needs more attention to inflation or capital gains. Discuss here: https://news.ycombinator.com/item?id=43357851 https://news.ycombinator.com/item?id=43357851 The argument about empty land remaining undeveloped seems rather vacuous when you think that empty land already has a holding cost [either (1) mortgage interest or (2) opportunity cost ≈investment_market_beta]. And city property taxes in New Zealand are low percent already. Land ownership is zero sum so that makes it wildly different from equity (although many people think of capital as zero sum too).

oramit 2y ago

As a fan of Georgism and Land Value Taxation I was hoping for a good rebuttal but I am mostly just left confused by this article. It spends a ton of time talking about the political environment (not entirely uninteresting) and almost nothing on the "failure" part. The two points raised were that it was too difficult to implement and less was raised than expected. LVT being too difficult to implement doesn't make any sense to me. We already have a property tax system in the United States that is really complicated. When property is sold that fact is recorded at your local county registrar. Property taxes are then calculated based on the most recent sales price, the rate, your tax districts, there's usually limits on how much it can increase, all sorts of deductions, etc. This is calculated down to the owner level for every plot already - how can LVT be more complicated than that? This line in particular stuck out to me: "What’s more, in line with Georgist theory, the tax was supposed to credit owners for improvements they made to the land" I think we're talking about different LVT systems here. The current property tax system takes land improvements into account (and charges you more for them). My understanding is that LVT should be a flat tax on acreage (different tax rates for different areas of course) that doesn't care about what is on it. This article is attacking a very different LVT than the one I know.

ajb 2y ago
In my reading, what it means by "What’s more, in line with Georgist theory, the tax was supposed to credit owners for improvements they made to the land" is that those improvements are excluded from the tax, IE that the tax is on unimproved value, exactly as you say. It's true that calculating the unimproved value is difficult. There is no obvious "ground truth" except in rare cases where the improved value has been destroyed and the owner will need to rebuild for some reason. And while there are probably enough such cases to get an estimate of the average in a large city, just taxing against the average would be distortionary (a burden to those with a below average plot, eg distant from metro stations or other amenities) . And to make a more detailed estimate makes the process subject to political maneuvering.

jlhawn 2y ago

Land value tax didn't destroy the British Liberal Party in the early 1900s. The flawed neoclassical economic consensus (capital vs labor) did. The Labour Party absorbed most of the ex-Liberal voters and then became the Conservatives' main rival. Then the wide adoption of technology like the automobile (which made it possible for many to simply commute to and from the city instead of be there all the time) eroded the political necessity to tackle difficult urban land issues for decades. "Drive until you can afford to live" only gets you so far though and we're hitting the limits of that in many places now.

pyrados 2y ago

This piece is kind of embarassing. It certainly attempts to lump a lot of blame on the feet of LVT, which is not too surprising given the author has a history of hostility to the idea. Notably in https://labouraffairs.com/2022/07/08/churchill-arguing-for-a-land-tax/ https://labouraffairs.com/2022/07/08/churchill-arguing-for-a... gets into a bit more detail: "With that in mind a 4,000 strong land valuation workforce was recruited. It was on the basis of that valuation that the tax was to be calculated on subsequent sales of land. However, from the start the collection of the new tax was confounded by problems. It took time to embark on a national land valuation programme. In the meantime, many local Tory councils proved to be unsympathetic and obstructive and tax judgments and valuations were regularly challenged by landlords in the courts. This meant that by 1914 only £612,787 had been collected. The war further complicated the land valuation programme as well as sales in land and then after the end of the war the Conservative-dominated post-war Coalition Government delivered the coup de grace to land taxation when all traces were removed from the statute book." None of this is actually remotely relevant to a modern day property tax system that focuses on land, but it just goes to show the intellectual dishonest framing of the author. Notably, Australia had a different experience: https://cooperative-individualism.org/dwyer-terence_taxation-the-lost-history-2014-oct.pdf https://cooperative-individualism.org/dwyer-terence_taxation... (p.276) The cost of compliance and of administration of a land value tax system may be comparable to or better than an income tax or property tax system. An income tax has a cost of collection of around 1 percent of revenues (Australian Taxation Office 1979: Table “Cost of Collection of Taxes Administered by Taxation Office”). By contrast, the cost of collecting the Australian Commonwealth Land Tax of 1910 was 1.25 percent (Scheftel 1916: 86). This was a federal tax from 1910 to 1952, comparable in scope to a national income tax. However, it should be noted: (a) The total cost of administration in 1910 was 3.5 percent, but that included the nonrecurring cost of setting up the land value tax system (Scheftel 1916: 86, 88). (b) The Australian federal land tax was on a progressive, not proportional, basis, which made its administration more complex and costly than a uniform ad valorem tax would have been (Bird 1960: 392). The average tax rate of 1.2 percent took about 25 percent of the income from landownership (assuming an interest rate of 5 percent and no land appreciation). With a higher tax rate and fewer loopholes for tax avoidance, the costs of collection and administration would have been a smaller percentage of total revenues."

mNovak 2y ago

Given that most (all?) of the US already collects property tax, this information is usually public, and (in my experience at least) includes land and property valuations, I'm curious if anyone has attempted a basic estimate of the needed LVT tax to fund some percentage of government spending? Many variables, sure, but I'm talking order of magnitude.

fastball 2y ago
Yes. https://gameofrent.com/content/is-land-a-big-deal#2-americas-land-rents-equal-a-sizable-of-government-spending https://gameofrent.com/content/is-land-a-big-deal#2-americas...

handsomegenius 2y ago

It's factually untrue that Land Value Tax was repealed in Australia. We have it right now here in Victoria. The valuation of unimproved land value doesn't seem to be a problem in that implementation.

ScottBurson 2y ago

The thing to understand about the LVT is that we are pretty much all already paying it; not to the city in which we live, but to the previous owners of the land we live on. When we buy a house, we have to pay the previous owner a certain amount for the land. That amount is the present value of the expected income stream that could, hypothetically, be realized by renting out the land. Divide by the number of months in our mortgage term and multiply by the interest rate, and the result is our effective monthly LVT. All George is saying is that that money should be going to the city (or other controlling locality) instead of the previous owner, because it's the city that created the value in the first place.