All this talk about better and more progressive taxation in diaries as of late makes me want to bring up a not often talked about mode of taxation. But the Land Value Tax - a very practical and progressive and efficient and effective mode of taxation thought up by the guy who invented the term "progressive"... Henry George. Not many people want to implement it 100% the way he thought about it, but it is a great foundation to get to the sort of tax code we all would want. Follow me for more info...
Henry George (1839-1897) is best known today for authoring Progress and Poverty the best selling econimic book of all time.
Henry George was mystified that such desperate poverty could exist amidst such tremendous wealth and progress. And while this progress was happening many became worse off. In 1879, George identified one cause for two great economic plagues: chronic poverty arising from insufficient demand for labor, and cycles of boom and bust
As George saw it, the cause arose from concentrated ownership of land, compounded by land speculation. Large landowners and speculators held the best land idle or underused, forcing labor onto marginal land and driving down wages
Now for George "land" meant exclusive rights to use natural resources in a specified territory. It included mining, water, fishing, and timber rights, road and rail rights-of way, and some patents. George emphasized the high value and productivity of urban land, which facilitated communication and trade
George developed a remedy: eliminate all taxes except for a tax on land values. The "single tax," as it later became known, would invigorate the economy by breaking up large idle holdings, making land available to those who would use it. And it would suck the air out of speculative bubbles, damping the boom and bust cycle. His line of thinking brought him great acclaim and put him in spheres of influence all around the world where he planted the seeds of a Land Value Tax.
While I am not advocating the "single tax" per se, taxing land is very progressive because land ownership is highly concentrated among the most wealthy, far more concentrated than income. A two tiered LVT (meaning a greater tax on land than on buildings upon the land) can be the start of effective change in taxation policy and effective and efficient use of land.
Why would you want to do this?
Taxing land is fair, because the community rather than the individual landowner creates land values. Over time the community of the world and of New York have decided that 42nd street in New York is an important and valuable location...more so than Paducah, Kentucky...
Taxing land is economically efficient, because the owner cannot avoid a land tax by choosing less-taxed options
A tax on land assessments cannot possibly reduce the supply of land
Taxing land and not production spurs economic activity
How Can this be implemented?
Repeal/Reduce some or all regressive taxes: sales, property, income, payroll and others that are a disincentive for businesses and individuals to be located in New York City, Baltimore, Dayton, or anywhere and replace with a tax on the land values. This can be tax shift calculated to be revenue neutral or revenue positive
It will encourage landowners to use their sites efficiently (or sell to someone who will) thereby causing new buildings and new jobs to sprout
Not a tax on business, since no business ever creates land or location, nor is it in any way a tax on business activities
Business people, if they are landowners, will pay any extra land value tax but the tax is not based on their business activities; this tax will, in fact, encourage business because land sites will have to be efficiently used and the taxes it replaces will be lower. These two changes will stimulate production.
When land assessments are taxed, land prices decline and stabilize (taking the speculators out of the equation), thereby making it easier for new businesses to get started
This tax will create jobs because jobs won't be taxed, neither will what job-holders produce be taxed as highly. If land-sites will be more fully used, jobs will actually be created because land-sites will have to be used more fully and efficiently (within zoning limits)
A tax on land assessments works oppositely from other taxes because land is limited in supply and is not a product of human labor. Whatever can be said about taxes on production, the exact opposite will be true of a land assessments tax. So as much as possible, tax land assessments not things produced
Common Objections
Wouldn't a land assessment tax be tough homeowners?
No, if only because they can be exempted or taxed at a lower rate. Many studies show that even without exemptions, homeowners get tax reductions with land assessment taxation. All other taxes raise the prices these politically important groups pay - but not a land value tax. This would be true for all voters. Poor people don't usually own much land . So if land values are taxed, poor people would have much less tax to pay
Would it undermine revenue neutrality?
Absolutely not. Whatever revenue you lose by not taxing buildings or other human-produced commodities or services, you can gain back by taxing land values more. Implementing a tax on land assessments will be kinder to poor people, the unemployed, homeowners, the elderly, even business - kinder, in fact, to most voters. Just to throw out a number...it is estimated that the value of just the land in the US is around $40 trillion dollars. Not that we should do it this way, but if suddenly switched to taxing only land and there was a 5% national tax on the value of your land we would be raising two trillion bucks in taxes...way more than we do now. The vast majority of people will be paying less, but those who pay more will be paying more because they have beena drag on communities that have built their wealth for them without doing work themselves.
Reasons why LVT accords with ability-to-pay issues
1. Land values are very unequally distributed. The income of most people comes mainly from everything but land values. This tax shift would reduce the burden on the poor. Because land values are more concentrated than general income, a tax on land values is even more based on ability-to-pay than is the income tax (which is the most ability-to-pay tax we have, although it is only about 40% of the total tax burden in the U.S.).
2. Empirical studies support the view that the land value tax is more in accord with ability-to-pay than any other tax. For example, in 1979, a study found that 1.5% of the biggest landowners in Indiana, Pa., a town of 15,001 population, paid 53.5% of the property tax on land values, but in that year the top 3% of income earners in the U.S. paid 30.6% of the federal income tax.In towns larger than Indiana, Pa., land assessment taxation is even more likely to be an ability-to-pay tax because the ownership of land value is so concentrated.
Decrepit buildings/areas- would tend to pay more with land value taxation. But a land value tax would get rid of poorly developed areas and down-tax poor people. Taxes on human-produced goods and services always increase prices for all consumers and particularly hurt poor people because such taxes reduce the supply of those goods and services. They make poverty more expensive. That isn't true for a tax on land values - it cannot in the long run be passed on as higher prices to poor people (and others) because the supply of land is fixed and a tax can't reduce its supply
3. By requiring all land-sites to be used efficiently, jobs and opportunity would be increased, to the great benefit of the unemployed
4. Poorer people are often tenants, and as such they will be greatly benefited from land value taxation. Their rents will be lower because there'll be less building tax passed on to them in the long run.
Where has this been used?
The most interesting place it was used was in quickly recovering San Francisco after the earthquake in 1906. Read about thathere and here.
but it has been used in the US most extensively but this shows success stories from around the world
Any talk of progressive taxation need to talk about the commons and land because any new system can easily miss the point that source of wealth for everyone is location. In my opinion other systems miss the core issue that we need a mode of taxation that is stable and dependable through boom and bust cycles. Taxation based on income will always be contigent on how much income is around.
So lets talk about this, for reals.