Thank you for posting this, I’ve been looking for counter-arguments to the land value tax (LVT) for awhile
Some thoughts about your arguments (speaking in theory unless otherwise noted):
You say the LVT is: “[T]he worst tax policy ever, except for all the others that have been tried”. The LVT is not the least bad tax, it’s one of a tiny handful of taxes that’s a good tax (if economic growth is good). All taxes raise money for the government, but most have a balance of negative externalities. For example, sales tax inhibits economic growth by making buyers pay more and/or sellers receive less for the good/service the sales tax is applied to. This ultimately reduces the supply of goods and services subject to a sales tax. Income tax is basically a sales tax on labor and has a similar effect. If the income tax is applied to rent earned from non-land capital, that distorts the market for capital, reducing the amount of capital produced. The LVT is different because unlike sales, labor, and non-land capital, the supply of land is fixed and therefore won’t change because of tax levied on it. This causes the LVT to have a balance of positive externalities: Because land is a finite but necessary resource, there is an incentive to buy and own land without building on it, because the surrounding economic growth will cause the value of the land of appreciate without the owner doing anything. This is a common problem in video games. Levying a tax on the rental value of land reduces this incentive (or removes it entirely if the tax is exactly 100% of the rental value). This has multiple positive outcomes, but the most important for this argument is that it incentivizes the landowners to either use the land productively or sell it to someone who will. Therefore, by reducing/removing the incentive for unproductive and speculative uses of land, the LVT causes economic development. It raises money and grows the tax base at the same time!
On the argument that the LVT discourages searching for new land uses: I don’t entirely understand your argument around innovative and creative uses of land (do you have examples?), but I understand your example of oil exploration. The thing is, the ownership of the oil and it’s associated mining rights could be separated from the value of the land it’s in/on. That way the mining rights can be sold separately from the land and the explorer can be compensated for their labor and risk without having to deal with increased land rents. Of course, oil and similar resources are finite and probably should also be taxed similarly to land. See Norway’s Sovereign Wealth Fund.
On the argument from Charles Hooper about the landowner owning multiple plots: It doesn’t make sense that a development on one plot would cause the rental value of an adjacent lot (or lots) to go up more than the rental value of the development itself. Yes, developing the first lot would make the value (and thus taxes) on the second lot go up, but the landowner is still better off having developed the first lot.
As far as assessing the rental value of land, it is true that a government could have a closed-door appraisal process with rampant corruption and no recourse, but that is true for all taxes. While no perfect method of assessment exists (yet), there are a few different methods of assessment that could approximate the rental value of land. A government could own and lease strategic plots of land and lease them out in an auction and use those prices to determine land rent values across the community. Or you could just ask the community how much they think the land is worth. Assessments that reflect rental values of land is an area of LVT that needs more research, but I don’t think it’s inherently harder than assessing income or sales.
I am aware that commenters are asked to reason probabilistically, but I don’t think we have enough information (research etc) to say with any confidence whether or not LVTs could replace today’s income heavy tax regimes (Do we really have any idea how much (or little) of an economic drag income taxes are? No one has tried it!).
While I disagree with your points, I thank you again for your thoughtful critiques of the LVT.
Thank you for posting this, I’ve been looking for counter-arguments to the land value tax (LVT) for awhile
Some thoughts about your arguments (speaking in theory unless otherwise noted):
You say the LVT is: “[T]he worst tax policy ever, except for all the others that have been tried”. The LVT is not the least bad tax, it’s one of a tiny handful of taxes that’s a good tax (if economic growth is good). All taxes raise money for the government, but most have a balance of negative externalities. For example, sales tax inhibits economic growth by making buyers pay more and/or sellers receive less for the good/service the sales tax is applied to. This ultimately reduces the supply of goods and services subject to a sales tax. Income tax is basically a sales tax on labor and has a similar effect. If the income tax is applied to rent earned from non-land capital, that distorts the market for capital, reducing the amount of capital produced. The LVT is different because unlike sales, labor, and non-land capital, the supply of land is fixed and therefore won’t change because of tax levied on it. This causes the LVT to have a balance of positive externalities: Because land is a finite but necessary resource, there is an incentive to buy and own land without building on it, because the surrounding economic growth will cause the value of the land of appreciate without the owner doing anything. This is a common problem in video games. Levying a tax on the rental value of land reduces this incentive (or removes it entirely if the tax is exactly 100% of the rental value). This has multiple positive outcomes, but the most important for this argument is that it incentivizes the landowners to either use the land productively or sell it to someone who will. Therefore, by reducing/removing the incentive for unproductive and speculative uses of land, the LVT causes economic development. It raises money and grows the tax base at the same time!
On the argument that the LVT discourages searching for new land uses: I don’t entirely understand your argument around innovative and creative uses of land (do you have examples?), but I understand your example of oil exploration. The thing is, the ownership of the oil and it’s associated mining rights could be separated from the value of the land it’s in/on. That way the mining rights can be sold separately from the land and the explorer can be compensated for their labor and risk without having to deal with increased land rents. Of course, oil and similar resources are finite and probably should also be taxed similarly to land. See Norway’s Sovereign Wealth Fund.
On the argument from Charles Hooper about the landowner owning multiple plots: It doesn’t make sense that a development on one plot would cause the rental value of an adjacent lot (or lots) to go up more than the rental value of the development itself. Yes, developing the first lot would make the value (and thus taxes) on the second lot go up, but the landowner is still better off having developed the first lot.
As far as assessing the rental value of land, it is true that a government could have a closed-door appraisal process with rampant corruption and no recourse, but that is true for all taxes. While no perfect method of assessment exists (yet), there are a few different methods of assessment that could approximate the rental value of land. A government could own and lease strategic plots of land and lease them out in an auction and use those prices to determine land rent values across the community. Or you could just ask the community how much they think the land is worth. Assessments that reflect rental values of land is an area of LVT that needs more research, but I don’t think it’s inherently harder than assessing income or sales.
I oughta wind up before I link to every article on Lars Doucet’s substack
I am aware that commenters are asked to reason probabilistically, but I don’t think we have enough information (research etc) to say with any confidence whether or not LVTs could replace today’s income heavy tax regimes (Do we really have any idea how much (or little) of an economic drag income taxes are? No one has tried it!).
While I disagree with your points, I thank you again for your thoughtful critiques of the LVT.