Do you think society would be better with a Land Value Tax?

Question

I'm interested in whether any of you think that your country would be better off if it used a Land Value Tax (LVT) to replace income taxes? The basic idea is the income tax is really terrible because it punishes people from working hard to earn and income, while a tax on land value doesn't change the supply of land. This shift would improve productivity and make our countries more wealthy overall.

There are difficulties in transitioning to this system, for example a 1% LVT would instantly reduce land values by about 15%, hurting property investors. But it would also be enough to cut income taxes by about a fifth.

What do y'all think? Would you support such a change to tax policy if it happened gradually over time? Or a sudden shift towards it if landlords were compensated for the reduction in the value of their property?

Ben Jamin' · Answer

Land is defined as everything not supplied by human effort. Its productivity varies from location to location giving it an exchange value. Given that, those that are excluded from its use are harmed by those that exclude them. The value of that harm being land's rental value. As we are all equally excluded, in a civilised society, we should all receive an equal share of land's total rental value. Whether that compensated is collected/re-distributed/spent by the state is a separate issue.

If people are not compensated on the "harm done" principle, we bake in excessive inequalities and resource misallocation. This is why for the other two factors of production, labour and capital we pay for work done or goods/services received. Unfortunately, this principle is not currently extended to natural resources with some devastating consequences.

Firstly, it leads to the taxation of output in order to mitigate the excessive inequalities cause by landowners not compensating those they exclude. Not only does this not fully deal with these excessive inequalities, but puts a deadweight around the neck of the economy, leading to compound lower growth, which is a disaster for those in the future.

Secondly, in not fully dealing with excessive inequalities, we get symptoms like housing affordabilty issues. A 100% tax on land's rental value drops its selling price to zero, with a concomitant effect on HP's, precisely because it transfers incomes back to those that find housing affordable now.

In conclusion, LVT seeks to cure a fundamental injustice. If humans do not share the rental value of land as equals, they do not share this world as equals. There are other issues that need addressing, but this is by far the biggest, and in principle easy to solve.

Seth Borman · Answer

I'm a huge proponent of the land value tax, but there are a few things that you need to understand about it.The biggest is that you are taxing rent and that means you need to tax patents, government monopolies or licenses, frequencies, etc. Not just land rent. There isn't enough money there.The next thing you have to understand is that some (not all) landlords will take a bath during the transition. So obviously they'll be against it. Construction workers, managers and developers would do much better. So don't expect a lot of positive feedback here.If you want to use the LVT to get rid of a tax, the most obvious is property taxes and the second is sales taxes. Don't expect income taxes to go anywhere any time soon.

Eamonn McElroy · Answer

@Stephen Hoskins

I think the chances of a land value tax replacing income tax (assuming both individual and corporate here) is a hard sell to taxpayers.

If we assume somewhere around $2.0-2.4 trillion was collected via income taxes for 2018 and all real property in the US is valued at $20-30 trillion we're talking a 7-12% annual federal property tax on all property in the USA -- residential, commercial, industrial.

What if a couple of retirees don't have the income to pay the federal property tax?  Are they supposed to sell their house?

There's no doubt a land value tax of that magnitude would create downward pressure on real estate prices.

Your costs as a landlord just went through the roof as you've traded a beneficial income tax structure that allows deductions, particularly depreciation to modify your taxable income to zero or below zero for one in which no deductions are allowed and you owe every year...

Not good for those who own rentals in my opinion.

Eamonn McElroy · Answer

@Todd Rasmussen

A single, flat income tax rate with no deductions is theoretically the most fair income tax system to all taxpayers.

However, because the way income is earned and the timing of how income is earned differs among sectors and industries it's very difficult to implement in practice.

Stephen Hoskins · Answer

OK thanks Todd but you've not really responded to the content of my post at all.

Todd Rasmussen · Answer

My vote is for a flat rate income tax (Total Annual Federal Expenses)/(Total Personal and Corporate Income) = Tax Rate.

Everyone pays that percent of income as tax, and your return is five lines. Higher income households pay a greater $ amount, but everyone pays an equal proportion. Also, everyone's taxes go up, because there is no longer deficit spending and stops voting for the big two because both parties perpetuate big government in different ways.