I understand the Land Value Tax. It’s an intriguing idea in that it would certainly change the mix of incentives that apply in the inner city. But it also has many, many drawbacks, which its proponents rarely seem to address.
For example, if this tax is to be a revenue neutral change, then the tax on the land itself will increase dramatically. That will force people to build only very high-value buildings on that property. More skyscrapers, BMW dealerships instead of used car lots, etc. This means you won’t have much of an economic mixture in the population. It will stratify into zones where the land rents are affordable. Today, at least a person of modest income can build a modest home in a nice neighborhood. In a land value tax world, that won’t happen, because the tax would be too high for a home for someone in that income level.
It’s regressive. If I build a house that’s worth $200,000 more than my neighbor, I pay more taxes. If the land itself is the only thing taxed, my neighbor has to pay more tax than I do. I’m wealthier, but my taxes go down and his go up (remember, we’re staying revenue neutral).
For that matter, you’ll find people trading land value for house value, so you’ll find big mansions out in the cheap rent areas. In fact, it seems to me that a scale of lowering taxation as you move away from the city center would act as a pretty big incentive to move as far away as you can.
Implementing it would cause a huge economic shock, because land values would plummet. Kind of like the current real-estate meltdown, only far worse, Also, the change in the mix of distortions going from one tax to the other would make our economy less efficient until it adapted, and maybe even then.
A land value tax is a rent. The implicit assumption is that the government, acting as an agent for society, owns all the land and rents it out to people to use. The theory says that if your business is profitable, it’s because of your close access to other people because you’re squatting on their valuable land. So they have a right to charge you rent for it. The problem is, this just makes society a rent-taker, and there’s nothing stopping them from doing what other rent-takers do, which is to raise the rent to the maximum level, leaving only enough marginal profit to make it slightly more cost-effective to maintain the business than to shut it down. I don’t believe in that form of government.
A tax is a payment to the government for services rendered. I own my property, I don’t rent it from ‘society’. But building my home means paying for my share of the roads that service it, of the city water and waste facilities, etc. This is fair. It’s also fair in that if I build larger facilities on the land, I’ll use more services and should be taxed more. Under a land-value tax, I have an incentive to use more of the city’s services. In that sense, a land value tax is less fair.
The Land Value Tax is an interesting idea, but I think there’s a reason why it’s rarely been implemented.
It may actually have the unintended consequence of preventing development in the inner city. If that becomes the highest taxed region,
It would be the same form of government we have now, tax rates being fixed through a democratic political process, not just whatever the bureaucrats want to charge.