Progress and Poverty was once the most popular economics book ever written. The Georgist Theory in it, and the land value tax proposed by it is still endorsed by economists today.
This review clearly illustrates the ideas from George that land captures gains that in a more fair society we'd want to go to labour.
>"... the land value tax proposed by it is still endorsed by economists today."
Your comment is somewhat misleading, as it seems to suggest that all or most economists endorse Georgism, which is not true. Some vocal minority of economists are pro-Georgism, but I haven't seen any data suggesting it is the most popular taxation scheme.
It's hard to measure precisely how popular it was historically but he campaigned for Mayor of NYC as a Georgist and finished 2nd ahead of Teddy Roosevelt who finished 3rd. So Henry George at least was well liked.
The book itself was the best selling economics book of the 19th century. It inspired art demonstrations and some governments throughout the world even adopted LVT for a while. So yes, it was pretty popular.
Thanks for sharing this it's interesting. The first thing I've noticed is that his estimate of the tax revenue is far lower than other far more detailed estimates I've seen by economists.
But by far my biggest objection to his arguments is that he ignores the way density impacts land value over time. If we build huge skyscrapers in the countryside it's reasonable that businesses will spring up around them. Various economists have modelled this and land value increases in proportion to the income of its occupants. It's one of the reasons cities need to pay developers to get affordable housing. The allocation of people into housing that was once affordable in the market sense will naturally result in rising land values and rising rents. In no time and no place in history has density made land cheap.
If we choose to dot the countryside in huge towers the land on which those huge towers are built and the land of the shops immediately beside those huge towers will have a high value that tapers off quickly as you head further into the now empty countryside. You end up with a strange peaky distribution. In practice, the increasing land rents of the building and the decreased land rents of the countryside would encourage occupants to leave for greener pastures. And the developers would know this would happen before even building a huge building in the countryside because it is economically well understood.
He also makes far too big a deal out of the need for a negative land market. You can keep abandonment if you just have a 95% LVT instead of a 100% LVT and you now have a market where land values are overwhelmingly positive.
I'm actually doubtful this would end up being cheaper. Sure, such a building would only pay taxes equivalent to a suburban house, but the construction/maintenance cost of a 2000m building (the tallest building in the world is only 828m) would be insane and would obliterate any tax savings.
Economists generally consider LVT the best theoretical tax, but with significant practical challenges. There are several links in the first section of https://en.wikipedia.org/wiki/Land_value_tax as well as further down under Modern economists.
I may have to pick this up -- as someone with no economics training at all, a land value tax seems extremely appealing and intuitive to me. I'd already like to become a complete partisan in favor of this policy, but I guess it would make sense to read what the actual justification is, for it, haha.
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:
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.
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.
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.
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.
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.
> 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?
You don't know the equation you came up with is correct, but it is at least describable, so if someone doesn't like it they can live elsewhere I guess, or argue about it at the next town hall session. If a bad equation is designed, then that's a problem, but it is a general bad governance problem that effects everyone, rather than an arbitrary lightning-strike problem like a bad assessment.
Floor plan or paint color -- the point of a land value tax is that it is based on the value of the land. Floor plan and paint color would be improvements on the property, so they would be excluded.
The current system is not very functional. Housing is not very affordable in most cities due to speculative real estate investment and under-development. I mean, we clearly get by, but just because the alternative is being homeless.
Landowners decide for themselves what value their land has, and pay tax accordingly. But whatever they say the value is, someone else is allowed to buy it for.
It's certainly a fun game, but does that mean if I decide my property is worth $100,000, accurate or not, I am forced to sell it just because someone comes along and decides they want to buy it? Also, is this a game that happens every year to allow for appreciation?
For a realistic implementation, why not just use the fact that the landowner already decided what the value their land has when they purchased it and/or paid people to develop it. Why not just use those values?
This game is terrible because even yearly is too slow. The property market went up 30% in my city this past year. If I set a fair price at the beginning of the year I’m forced to sell my house at a loss. Only if guess that I should overpay by at least 30% at the beginning of the year does my house remain unsold.
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.
> 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.
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.
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.
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.
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."
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.
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.
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
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.
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.
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.
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.
> 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.
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 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 of person is much richer than the former.
"Corporations" don't bear the incidence of any tax, they merely pass it along to something else. And taxing high net worth individuals on their savings reduces investment significantly, making everyone worse off. That's why it makes sense to single out "land"-like assets for taxation in the first place. Much of the value locked in "shares" is itself land, and would of course be taxed. Unlike with ordinary corporate taxes, the impact of this would unambiguously fall on the owners.
Sure, much of the value locked in shares is land or land-like assets but a much higher proportion of the value of the average middle class person's property is land. So as taxes go it's incredibly favourable to most one percenters, and ordinary homeowners are amongst those whose taxes must make up the difference. (And Single Taxers have to raise 1/3 of GDP from someone so its not like the possibility of the middle classes actually paying less tax providing they kiss goodbye to their homes and move into a high rise or rural Nevada is a solution and not a different category of problem)
Efficiency arguments that the average middle class homeowner would still be better off materially even with a much higher personal tax bill because the Zuckerbergs and Dorseys of this world would retain more untaxed profits and dividends to use their superior resource allocation skills to invest in land-free Bigger Adtech might appeal to the armchair neoclassical economist but for obvious reasons the public are more sceptical.
Even if you focus on real estate alone, land is a "much higher" portion of that value only in urban cores where owning one's residence would be relatively uncommon (and that for very sensible, rational reasons). The areas that are most commonly associated with middle-class real estate ownership have significantly lower land values. While it's hard to say whether a genuine "single tax" is actually feasible given modern trends in government spending, the overall incidence of LVT is really quite favorable to the middle class and especially to the lower class.
Land values vary from place to place, but I can't think significant pockets of middle class housing in developed countries where the value underlying land is as insignificant to the homeowners' net worth as natural resources are to Facebook's market cap.
If we plug in something approaching real data, the UK government statistics agency assesses that the UK has £6tr in land value (more than the value of the assets that sit on it!) of which two thirds is owned by householders. And there's an annual government budget of 1tr so those land value taxes are going to be a really high proportion of the total value of the land (and property that sits on it). Good luck convincing the average homeowner who takes 30 years to pay for their home from their salary and typically retires not long afterwards that the tax incidence of a Single Tax will be favourable to them
> Good luck convincing the average homeowner who takes 30 years to pay for their home from their salary and typically retires not long afterwards
But that's exactly the point - these people are glorified renters, they don't really structurally benefit when land values go up. The fact that a Georgist tax has to be introduced gradually in order not to be punitive towards those who happen to be holding land at any given time is well known. But we already have property taxes for a start, many countries have large one-time fees on real estate transactions etc. These are taxes that could quite easily be replaced by a shift to LVT.
Maybe Im heartless, but I don't see why people should be allowed to stay in a home they can't afford just because they've been there a while. Especially when the reason they can't afford it is because the community thinks it should support high density housing but they have a low density home.
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.
It seems extremely unappealing to me. It seems like something a wealthy apartment-dweller in a tall building in a dense city would come up with to move taxation from himself to the guy in the country with two acres and a mobile home.
The more I think about it, the more I'm sure that's the actual motivation.
Correct. Land "in the country" is worth zilch compared to a similar plot in a dense urban core. GP has it backwards, they're perhaps thinking of some flat tax on land based on square footage whereas LVT is based on assessed value.
I'm just going by the headline definition: "A land value tax is a levy on the value of land without regard to buildings, personal property and other improvements." That's the basic idea.
I think people need to keep in mind the actual purpose of taxation: One group is taking resources from another. Nobody is pushing this tax (or any) because it's "efficient" or whatever. They are pushing it because they will come out ahead.
A person who lives in a 600 square foot apartment in a 60 story tower will effectively be paying taxes on 10 square feet of actual land. That land might be very valuable, but I suspect no matter how you twist the numbers, it's going to be less than two acres anywhere in the country. Especially if you go by the spirit of the LVT, which is to ignore improvements.
I could be wrong. I'm just guessing at "who fucks over whom" here.
The more I read about LVT the more clear it is to me that it legitimately solves many, many problems society is currently facing. The housing price crisis is effectively solved by LVT. The "greedy landlord" meme is effectively solved by LVT. Income tax being distortionary is solved by LVT. NIMBYism caused by people wanting their home to be worth more is solved by LVT. Yes, some are better off, some are worse. It's not as clear as you think though. Rural land is worth very little compared to urban. The real losers are people who have single family homes in desirable areas.
Your assessment is correct. The fact that implementing such a simple scheme as LVT would lift up many societal issues suggests that the entire problem that it aims at is the society's bottleneck.
From system design we know that no matter how much we optimize other parts of the system, no gain in performance will be achieved because the flow still has to go through that bottleneck. So we should focus on removing that narrow part before even engaging in discussions about other economical topics such as minimum wages, healthcare or education funding etc.
Land buildings are on tends to become extremely valuable due to all the surrounding businesses that emerge due to a high density of people. If you look at land value maps of cities you get very noticeable spikes in cities.
I’ve seen land as cheap as $489 an acre and land as expensive as $6,000,000 for a half-lot. Even assuming $12,000 an acre in the countryside in California which can be found now on the internet, it’s quite believable that 10 square feet of land beneath a skyscraper is going to be worth more than $24,000. That 10 square feet is an underestimate as well because the unit will be responsible for more than 1/60th of its floor plan.
That sort of assumes that the owner of the apartment-dweller's property doesn't just increase their rent (pass along that tax).
As other people pointed out, there should/would have to be some mechanism to value the land for the LVT. The land the apartment building is built on in the city would have a higher value than some 2 acres out in the country. The owner of that land would have to pay the LVT, and the rent for an apartment on that land would reflect that - ultimately making everyone who lives in the apartment pay that tax, if indirectly.
Interestingly because the supply of land is inelastic its supply curve is a straight vertical line. If you charge the tax directly to tenants they lose say $20,000 in LVT tax. This lowers their demand for land by $20,000. Because the supply curve is a straight vertical line the intersection of the supply and demand curve is now $20,000 lower. They literally pay $20,000 less for land rent. This doesn't work with anything that has elastic supply like buildings where the tax would lower the supply and the new intersection of the supply and demand curves would result in the tenant and owner sharing the tax. But it's well understood and accepted in the economic literature that landlords end up paying the tax not tenants.
> Interestingly because the supply of land is inelastic its supply curve is a straight vertical line. If you charge the tax directly to tenants they lose say $20,000 in LVT tax. This lowers their demand for land by $20,000.
This might sound good in theory, but it is a very hard sell to say that's how it pans out in practice. You even say: "This doesn't work with anything that has elastic supply like buildings" - so as soon as you put a building (apartments) on the property, this theory goes out the window.
> But it's well understood and accepted in the economic literature that landlords end up paying the tax not tenants.
I don't dispute that there would be some competition among landlords as to how much of their LVT they can pass off to tenants - it wouldn't be 100%. But to claim that there would be no impact to tenants strikes me as hilariously naive.
No the building on the property isn’t taxed. You pay $0 more in taxes for building it.
If you have a fundamental objection to how the established theory of supply and demand curves works I can’t really help you. Large parts of economics have shown it to be successful and I certainly trust it over anecdotal arguments about how landlords will pass on the tax.
Based on the demand curve any attempt to pass on the tax will result in empty land and less overall revenue due to the mispricing. This at a minimum means some landlords will be very unhappy.
The land value tax incentivizes the owner of scarce, valuable urban land to put it to good social use, such as building apartments for hundreds of people to live in. You would have to be astronomically wealthy to own two acres in a dense city and keep it solely for your own enjoyment. If you want two acres all to yourself, you can move to the countryside, where land is cheap, and one person can conceivably pay the property taxes on an engineer's salary.
Absolutely! The biggest advantage for most, particularly readers of HN, is described in part II (http://gameofrent.com/content/can-lvt-be-passed-on-to-tenant...): "...landlords cannot pass Land Value Tax (LVT) on to their tenants..." Renting an apartment in SF would therefore both be cheap, because the LVT encourages high-density, and tax-advantaged, especially if the LVT is (as it is supposed to be) the only tax.
The bottom line is that this idea has literally no downside.
Renting the apartment in SF will not be cheap because the land has extremely high value. It's just the government will capture the high value of that land instead of landlords and that high value land capture will be used to remove other taxes like income tax and property tax. Land prices in SF would fall slightly as the LVT removes most speculation. So likely rents go from $6000/month to something like $5400/month. But the government might capture $4500 of that to reduce other taxes.
If we still had 1870's small government the idea would be to put most of the LVT into a Citizen's Dividend which functions like a UBI and helps people pay for their cost of living (including some of the land taxes).
They probably would decrease somewhat, because there's no longer an incentive for landowners to prevent people from building housing to keep the supply low.
This is something I’ve been wondering about with LVT. Wouldn’t they still have an incentive to stop people from building more dense housing near them? Even more of an incentive than now, in fact? Because the more people that can live and work in the immediate area near them, the more valuable the land is, and the more they’ll pay in tax.
> Commentators disagreed on whether it was the largest funeral in New York history or the largest since the death of Abraham Lincoln. The New York Times reported, "Not even Lincoln had a more glorious death."
This review clearly illustrates the ideas from George that land captures gains that in a more fair society we'd want to go to labour.
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