Land Value Tax

Description

Economist:

"LAND prices mainly reflect location: farmers may till the soil, or drain it, but most increases in land’s value comes from the activity of other people. Nobody builds skyscrapers or shopping malls in the wilderness. Landowners, in other words, enjoy unearned income from the benefits bestowed by good transport links, and proximity to customers, suppliers and other businesses. Once they have bought their land, they keep this money.

But why not tax it?

Most taxes do not just depress economic activity; they also displace it—for example to offshore financial centres. The faster that tax collectors crack down on loopholes, the more clever accountants find new ones.

Land-value taxes, on the other hand, lack these perverse effects. They cannot reduce the supply of land, or distort decisionmaking. Instead they may even stimulate economic activity, by penalising those who hoard land and keep it idle (a big plus in desolate post-industrial cities where much land is vacant). The tax drives the land price down by the capitalised value of the future levies—theoretically even to zero—until someone finds a use for the land. Collection is cheap. Unlike profit, you cannot massage land away or move it to Luxembourg. If you do not pay, it can be seized and sold. Though nobody likes extra taxes, new land-value levies could be matched by cuts in other taxes, especially those paid by poor people.

Rich people tend to own a lot of land, poor people very little. For that reason it wins favour with economists who worry about inequality, such as the Nobel-prize winner Joseph Stiglitz. He argued in a recent paper that land and housing, rather than the distribution of income and productive capital, are the key to a fairer economy. When public investment improves the value of a site—for example by building a new road nearby—the benefit comes back to the community in the form of higher tax receipts, rather than ending up as a windfall in the pockets of the owners. Taxing the unearned income that landowners enjoy should curb the boom and bust cycle in land prices. Environmentalists like it because it limits urban sprawl: better to build upwards than outwards. In the New York metropolitan area, the price of land has risen five-fold between 1986 and 2014, according to research by the Lincoln Institute, a think-tank.

Other economists like it too. Adam Smith said “nothing could be more reasonable”; Milton Friedman termed it “the least bad tax”. Winston Churchill said scornfully that a landlord “contributes nothing to the process from which his own enrichment is derived”. The Organisation for Economic Cooperation and Development, a Paris-based thinktank for industrialised countries, supports the idea. So too did a recent working paper by the International Monetary Fund and the Mirrlees Review of British taxation by the Institute of Fiscal Studies. The mayor of New York City, Bill de Blasio, hopes that taxing vacant lots by value will help deal with urban blight in the Bronx and elsewhere." (http://www.economist.com/blogs/freeexchange/2015/04/land-value-tax)

History

Economist:

"That simple but revolutionary idea has deep roots. David Ricardo termed unearned income from land as a pernicious anomaly: “that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil”.

His best-known follower was Henry George, perhaps the only tax theorist in history whose beliefs have become the object of almost cult-like devotion. One of his fans invented the game now known as Monopoly, to exemplify the evils of untaxed rent. In a book called “Progress and Poverty”, published in 1879, George argued that land-value levies should replace all other taxation, leaving labour and capital to flourish freely, and thus ending unemployment, poverty, inflation and inequality.

His modern adherents rarely go that far, but land-value taxation (they prefer to call it a location fee) does have many theoretical virtues. Most taxes—on profits, value-added or income, say—dampen and distort economic activity by changing incentives on the margins. Property taxes on the value of buildings penalise improvement and are hard to assess. Britain’s residential-property tax, for example, is based on valuations from more than 20 years ago. A “mansion tax” on homes worth more than £2m ($3m), backed by Britain's Labour and the Liberal Democrat parties, faces a big hurdle in assessing which dwellings it will affect." (http://www.economist.com/blogs/freeexchange/2015/04/land-value-tax)

Examples

" * The "Four Tigers", 1940s.

Apologists for state planning and state partnership with big business point enthusiastically to Pacific Rim Asia but overlook the fact that all these success stories began on a firm footing of land reform. The city-state Singapore, founded on Georgist tax principles, reached a tax rate on land of 16%. Hong Kong existed only on crown land, funding 4/5 of their budget with 2/5 of site Rent (Yu-Hung Hong, Landlines, 1999 March, Lincoln Inst., Cambridge, MA). The city uses land rent, not subsidy, to fund their new metro and in its suburbs grows much of its own food. Hong Kong enjoys low taxes, low prices, high investment, and often the highest per capita salaries. The city is often voted the world's best city for business and the freest for residents.

Gen. Douglas MacArthur, an admirer of Henry George, forced the Japanese provisional government to write land reform into their new democratic constitution that limited Rent paid by tenants to owners. South Korea adopted a similar Rent reform. Gen. Chiang Kai-shek likewise forced land reform on Taiwan (below). A 1980's World Bank study credited land reform with creating the basis for their economic miracles. Secure farmers can afford to consume manufactured goods. Soon successful industries can trade with other developed nations. Another World Bank report, in 1998 by Roy Prosterman and Tiom Hanstad, Chapter 10, “Land Taxation” by Jennifer Duncan: “Land tax is an important vehicle for transferring some of the benefits of land privatization to the public sector. Revenues from land tax can fund significant and increasing portions of infrastructure and social services, fostering public and local government support for privatization.” Today, to try to control their skyrocketing location values, both Japan and Korea have tried to tax land, tho' still minusculely.

• Taiwan, 1940s.

Old Formosa was mired in poverty and fast breeding. Hunger afflicted the majority of people who were landless peasants. Less than 20 families monopolized the entire island. Then the Nationalist Army, led by Chiang Kai-shek, retreated to Taiwan. General Chiang figured he lost mainland China in part by not reforming land-holding. Chiang did not want to risk losing his last refuge – east of that isle lay nothing but open ocean.

A follower of Sun Yat-sen, the father of modern China and an adherent of Henry George, Chiang knew of the Single Tax. Borrowing a page from George via Sun, the new Nationalist Government of Taiwan instituted its "land to the tiller program" which taxed farmland according to its value. Soon the large plantation owners found themselves paying out about as much in taxes as they were getting back as Rent. Being a middleman was no longer worth the bother, so they sold off their excess to farmers at prices the peasants could afford.

Working their own land with newly marketed fertilizers, new owners worked harder. They produced more, and after years of paying taxes to cover the onerous public debt, at last kept more and lived better. From 1950 to 1970 population growth dropped 40%, and hunger was ended. (Altho' Taiwan did receive a billion dollars from the US, it was mostly military aid, spread out over eight years.) Taiwan began to set world records with growth rates of 10% per annum in their GDP and 20% in their industry. (Fred Harrison, Power in the Land, 1983)

• Denmark

Denmark, 1950s. The Danes built on their land tax heritage. In 1957, the tiny Georgist Justice Party won a few seats and a role in the ruling coalition. Anticipating a higher rate on land, investors switched from real estate to real enterprise. One year later, inflation had gone from 5% to under 1%; bank interest dropped from 6.25% to 5%. By 1960, 100,000 unemployed in a country of just five million had found jobs and at higher wages, the highest widespread pay raise ever in Danish history. (The New York Times editorial, "Big Lesson From A Small Nation", 1960 October 2)

Tho' many people were better off, next election landowners spent enough money to convince people otherwise. The Justice Party lost its seats, the land rate lost its boost, and investors again became land speculators. Quickly inflation climbed back up to 5% and by 1964 reached 8%. Land prices began to sky-rocket, from 1960 to 1981 increasing 19-fold while prices of goods and services went up merely fourfold. (Knud Tholstrup, Dansk MP, A Third Way, 1986)

Denmark, 1960s. Before 1970, the annual income tax fell upon the previous year's income; in 1969, the government taxed 1968 income. Then parliament decided to tax income in the same year it's earned; in 1970, they taxed 1970 income. Earners realized that 1969 income would not be taxed. Their response, from 1968 to 1969, was to double the increase in production (4% to 8%), halve the inflation rate (8% to 3.5%), quadruple investment increases (5% to 20.5%), raise savings by a quarter (from 2.9 million kroner to 3.8), and employ nearly all workers. (Knud Tholstrup, A Third Way)

• Estonia, 1990s.

After the break up of the Soviet Union, each newly separate republic had to find its own way of raising revenue. Estonia, across the gulf from Finland, found the tax for farmland. Because neither land nor its value can be hidden, it was the most feasible way for the new government to raise funds. Collecting from farmowners was vastly more successful than trying to collect from others, succeeding over 95% of the time. The low rate of 2%, which even governmental owners of public land had to pay, was still enough to spur efficient use of land. (The Economist, 1998 Feb 28)" (http://www.progress.org/geonomy/Numbers.html)

Policy

The Feasta Proposal

Excerpt:

Predistribution instead of Redistribution

"Let us now look more closely at how Michael Davitt might approach our current land and planning benefit question. According to him, the principle underlying all funding and spending based on natural resources (natural capital) should be that of 'equity' not 'charity'; i.e. a rights-based approach. No individual human can claim to have created natural capital by their labour and/or capital therefore natural capital is fundamentally different from other forms of private property. However, as the collective consciousness of the Earth, humanity can claim a sort of common right to it.

The equal right of all men and women to the use of land is as clear as their equal right to breathe the air. It is a right proclaimed by the fact of their existence. For we cannot suppose that some men and women have a right to be in this world and others do not. 10

This common right of each human being to benefit from the Earth's natural capital should be protected and respected by legitimate governments at the appropriate level. Service infrastructures created by the state out of taxation receipts are also part of a common inheritance and are inputs into economic activities. From this basic premise comes the legitimacy for common resource taxes/rents and charges. Equity is achieved by pro-rata taxation/rents/charges (that recognize environmental limits) for the benefits derived from common resources, which are then allocated universally on an equal per capita basis. 11

This is NOT a Marxist prescription of 'from each according to their ability, to each according to their needs' but 'from each according to their use of common resources, to each their equal share'. 12 This individual right to common resources and/or economic inputs is not mediated by government or society.

...the idea that an individual has "property" in land only to the extent that there is, in the words of John Locke, "enough, and as good left in common for others." In that sense, the right to land is not a collective right, but an individual right that exists independently of the collective (i.e. "society"). The equality of this right is merely a limitation that arises from the presence of others with like rights. By contrast, a collective right to land dictates that an individual does not have a right to use any land unless society - either explicitly or by omission - has granted him the right to do so. 13

This concept appears to be a very difficult distinction for many media and political pundits to understand. It marks the boundary between the old 'red' economic analysis and the new 'green' economics of sustainability. James Robertson, a seminal economist within the movement describes this new fiscal paradigm as follows ;

This will involve a shift from redistribution to the idea of predistribution. Whereas redistributive taxes aim to correct the outcomes of economic activity, predistributive taxes and charges will share the value of essential inputs to economic activity. Whereas redistribution is dependency reinforcing, predistribution will be empowering. It will correct any underlying cause of economic injustice, inequality exclusion and injustice. 14

Redistribution takes the form of a guaranteed income to every citizen that replaces existing subsidized state benefits and services 15 . It has been called variously a citizen's Income or basic income and has a long history of discussion by politicians but has never been achieved in practice. 16

It makes such good economic and social sense, that some neo-liberal economists have re-named it and claimed it as their own, without acknowledging its provenance. The following is an excerpt by UCD economist Constantin Gurdgiev in a recent critique of CORI's input into social partnership wherein he outlines his recommendation for a Personal Purchase Account (PPA) to counter the proposals of - as he puts it - 'our semi-professional equality pundits'.

A PPA system will see the government allocating a single annual payment to the individual or a family. The recipient of these funds will be free to spend on purchasing public and private services according to their choice. ...Ultimately, the government's role in managing PPAs should be reduced to ensuring the minimum quality of service provisions, allowing private providers to compete on price and quality options, while encouraging consumers to shop around. Jobs created in the process will benefit those willing to move out of dependency. 17

Any reader who can spot the essential difference of the PPA to a citizen income (see footnote ) has more critical discernment than I have.

Other economists or political scientists might respond to a CI in alarm and cite the impoverishing effects of the Speerhamland Poor Law in Britain, repealed to no one's regret in 1834. The economic lessons of Speerhamland were so powerfully engrained in the minds of many British politicians as to have delayed the desperately needed humanitarian aid for the famine in Ireland 18 . The main lesson from this misguided benefit system has been, wrongly drawn, as the absolute need to distinguish the 'deserving poor' from the merely poor when allocating the proceeds from land taxes. The true lesson should have been that all, not only the deserving and merely poor, should share in the commonwealth. 19

What does all this say to us about land ownership and its benefits in Ireland? Firstly it makes the question of who has possession of the land far less important than whether they are using it wisely and efficiently. With a significant part of the economic rent from the land remitted back to each citizen equally, freehold ownership loses much of its monopoly power. Secondly, the benefits of new fairer land and resource taxes should be passed as directly and as universally as possible to citizens. Transition to the new fiscal system of course, must take account of existing structures and leave time for adaptation. But a start should be made immediately to take advantage of the current review of local government finance.

The principle for the spending of the revenues raised by the various LVT measures should be to return that portion of the value-added back to the authorities that created it as far as possible, and that what is left, being the pure economic rent derived from the natural or locational quality of land, should be shared out equally as the beginnings of a Citizens Income (or Basic income) to be used to purchase public and private and third sector goods and services.

Value-added by national investment such as national roads, airports, railways, hospitals, third level colleges, decentralised government offices etc. could form the basis of a revised local authority block grant to be used to equalise revenues across local authorities. Apportioning this value is a political decision to be negotiated at national and local level. Value-added by the local business and social community investment should, by the same token, be assessed and spent by a representative partnership local body such as the City and County Development Boards (CDBs) through a 'participative budgetary' process. An independent source of funds for local sustainable development investment might prove just the thing to rescue these partnership structures from total irrelevancy." (http://www.feasta.org/documents/landhousing/coritax.html)

References at http://www.feasta.org/documents/landhousing/coritax.html

Discussion

Arguing for the LVT

Edward Miller:

"What if I told you there was a solution which transcends political divisions? Which is consistent with the ideals of our Founding Fathers? Which can be implemented anywhere on the local, state, or federal level? Which can increase our overall prosperity, reduce inequality, promote peace, and improve the environment all at the same time? Which can do all this without any major restructuring of our institutions?

Assuming such a remedy even exists, surely it would be controversial, right? Something which all the various political ideologies could never agree on? Well the remedy does exist, and it has been supported by principled people of nearly every political persuasion, including some of the greatest minds in history.

Remedy you say? That’s preposterous!

It goes by the unassuming moniker of the Land Value Tax (LVT), which was most famously promoted by the American political economist Henry George. It is based on the notion that people ought to own what they produce, but since land is not a fruit of labor, private land ownership has no basis in natural rights and is thus the ideal source of government revenue. The Land Value Tax preserves the land title system, but simply makes it expensive to hoard land in unproductive ways.

Unlike common property taxes, the LVT does not count improvements to the land, such as buildings. Buildings are man-made, but land isn’t. When you tax buildings, you discourage people from building. Yet, when you tax land, the amount of land doesn’t decrease. The supply is fixed.

The Land Value Tax is an idea that has united in support people who would generally be considered political rivals: William F Buckley and Ralph Nader, Joseph Stiglitz and Milton Friedman, Aldous Huxley and Henry Ford, Clarence Darrow and William Jennings Bryan, Winston Churchill and David Lloyd George, the list goes on.

By untaxing labor and shifting as much taxation as possible onto land values, we enhance the incentives for production as desired by fiscal conservatives. Yet, it provides a huge source of natural and community-generated wealth to tap into, which is the ideal funding mechanism for virtually any infrastructure project or social program desired by those on the Left.

Those of a more “geo-libertarian” bent would prefer that revenue be distributed as a Citizen’s Dividend, rather than used to fund bureaucracy. Yet, if the funding of bureaucracy is to come from somewhere, they would strongly prefer it come from land values. Milton Friedman called it the “least bad tax” for this reason, but really it is far more profound than that.

The LVT strikes at the heart of the land monopoly. In a powerful speech, Winston Churchill said, “Land monopoly is not the only monopoly, but it is by far the greatest of monopolies — it is a perpetual monopoly, and it is the mother of all other forms of monopoly.” It is the essence of feudalism and for all of our supposed social progress we’ve yet to be free from it. Unless and until the land monopoly is destroyed, the positive effects of virtually all economic reforms and even philanthropy is largely nullified.

MonopolyProfits that are above those necessary for the production process are called economic rents. One of the primary sources of rents is monopolization, and one of the greatest tools for achieving monopolization is actually government intervention on behalf of the monopolists. Historically, every major monopoly has been the beneficiary of enormous state-granted privilege. Whether it’s AT&T, Microsoft, or Standard Oil, the root of their power can invariably be traced to particular political privileges.

Taxing such privilege causes no disincentive for production because rents have nothing to do with production, they are a result of imbalances in power and imperfections in the market. Land, and the fruits of nature generally, is necessary for all production and even life itself. Therefore, when access to it is concentrated into the hands of a few, the rest have essentially no bargaining power.

If you owned all the money in the world, and I owned all the land, how much could I charge you for your first night’s rent? Think about that for a second.

If all land on Earth is owned by a subset of the population, then the landless attain a status akin to that of trespassers on the Earth. If – as our moral instincts inform us – we all have a birthright to access the Earth, then this realization must be reflected in our political institutions. A Land Value Tax system recognizes that land titles are a practical way of allocating land use rights, but that the proceeds from such monopolization over locations on the Earth must be returned to their rightful owners, the community as a whole.

Really it isn’t a tax at all, in the usual sense of confiscating that which one produces. On the contrary, by allowing eternal sovereignties over our common inheritance without any repayment to society, one has essentially granted a subsidy to the landlords. Whenever anyone in the community does anything to improve the region, the land values rise. This occurs no matter what the intentions were. If a do-gooder builds a community center in an impoverished area, the land values and rents increase. Instead of helping the poor tenants in the region, the do-gooder may have just helped them right out of a home. Whilst the landlord could have been sleeping through the whole thing, and in the end see his land values rise.

The same is true of government infrastructure projects, welfare programs, and anything else which makes the region attractive. If activists fight hard and turn the region into a bastion of civil liberty which attracts people from all around, it doesn’t matter if the landlords were sleeping or actively opposing the activists, they will see their land values rise, and the tenants will see their rents go up.

...

While not everyone bases their political views on principles, I am confident that most do. In the case of LVT, it isn’t Right vs Left, but the principled vs the corrupt. Any serious political view, short of misanthropy, has every reason to support it.

- If you are an environmentalist, you should support Land Value Taxation in order to spark more efficient use of land. We’d still require all the usual mechanisms to internalize externalities, but the LVT alone would encourage all the more sensible agricultural practices promoted by environmentalists, such as permaculture and vertical farming. Industrial monoculture and factory farming is highly land-intensive. If holding land becomes expensive, then the markets would more accurately reflect the social costs of such massive landholding.

- If you are a humanitarian, you should support Land Value Taxation you should support it primarily because until the land monopoly has been defeated, no amount of philanthropy can possibly stop the trend of wages tending towards subsistence.

- If you are a Very Serious technocrat, you should support LVT in order to reduce unemployment, increase wages, and promote peace. On a local scale there is evidence of all of this, including reduced crime rates. I have no doubt that if countries follow this model, we will see many former enemies become prosperous interdependent trading partners.

- If you believe in natural rights, you should support Land Value Taxation in order to end the confiscation of honest income and interest, and return that which belongs in the commons. The concept of the LVT really has its roots in the writings of people like Adam Smith, Thomas Paine, and others who passionately believed that labor is the sovereign property of the individual, but that the Earth is our common inheritance.

...

It hardly seems possible that a concept which was supported by many of the original free market capitalist ideologues could be a progressive one. Yet, if you are a progressive, you absolutely should support Land Value Taxation, not as a small footnote of a larger platform, but as a central tenet.

The ideas of Henry George and the Single Tax Movement were one of the original inspirations of the Progressive Movement in the early 20th Century. Progressives like John Dewey were awestruck by the power of the arguments of Henry George in his masterpiece Progress and Poverty.

Of Henry George, Dewey wrote, “No man, no graduate of a higher educational institution, has a right to regard himself as an educated man in social thought unless he has some first-hand acquaintance with the theoretical contribution of this great American thinker.” To this day, some of the most principled progressives like Dennis Kucinich and Ralph Nader have drawn inspiration from him.

When you look at any vast fortune, you will virtually always find the heavy hand of government as part of the essential underpinning. Whether it is through regulatory capture, patents, state-sponsored licensing cartels, corporate personhood, or any other sort of state-sponsored privilege. Yet, as long as the mother of all monopolies remains, it would make no difference how many of those other privileges were struck down. The land monopoly would absorb all the of the difference that the elimination of privilege might otherwise have made.

...

Land, however, cannot be hidden. It would therefore be much harder for individuals to evade. Thus, compared to many other economic reforms, it is fair, efficient, and straightforward. Our current system of real estate assessment would not even need to change drastically, and it could obsolete certain agencies like the IRS.

Income taxes cannot be truly progressive, by their nature, no matter what sorts of brackets are in place. Taxing income does not change the fundamental market power of individuals, and as such the burden of taxes are just passed around until the income distribution reflects market power. Again, it wasn’t income taxes that created the modicum of equality after WW2, it was merely labor scarcities, and those can only do so much.

Additionally, we are suffering under the volatility of speculative land bubbles, like the recent mortgage crisis, which are a byproduct of the land monopoly. People like to point to all sorts of things like CDOs, derivatives, credit default swaps, and so on, yet they ignore that each of these are predicated on the ability to speculate on land. The LVT would change all that in a truly progressive manner, and end the volatile land bubbles. It would reshuffle market power in favor of productive activity and away from unproductive hoarding of land. Most importantly, it would allow us to actually benefit from other sorts of reforms, and as such must be the top priority. Until then we’re merely reshuffling deckchairs on the Titanic.

...

The LVT has been experimented with in many times and places, and it has always succeeded to the extent that it was tried. It holds the potential for uniting principled minds of every persuasion, if only we can break free of ignorance espoused by the talking heads who tell us that the only remedies available are painful and complex." (http://embraceunity.com/?p=641)

Benefits of LVT

"1. Eliminates the need for Income and Sales Taxes. Income and Sales Taxes take money out of circulation in the economy. By taxing only the rental value of the land and natural resources a person monopolizes governments would be more than able to fund their legitimate functions without. The Land Value Tax or Single Tax system only taxes what no one person may claim an exclusive right to - land, water, minerals, air, etc. and does not presume to seize what people create for themselves.

The Land Value or Single tax would be the ONLY tax because everything you earn would be yours to keep as the function of your labor. You would only be "taxed" on the annual rental value of what is not yours or anyone person's but which you monopolize and deprive others the use of. Overall, this would be a lower tax than they sum of all the taxes you currently pay.

2. Eliminates "Property" Taxes. The Land Value Tax or Single Tax is a tax on what no man can own, i.e. what God has created and left us stewards of in nature. "Property" taxes are taxes not on Land Value for the most part, but taxes on structures and improvements which were created by land users and - in George's system - rightfully belongs to them!

3. Eliminates The Tax Collection Bureaucracy. Government is already set up to collect local taxes on property. This would eliminate most Federal and State revenue offices and officers.

4. Puts People To Work. This tax levels the playing field. There is no incentive to artificially boost the rental value of land because that is what is taxed! This gives more individuals and businesss more access to land and the opportunity to do business. In turn more people go to work and are able to escape poverty.

5. Reduces Tax Evasion. People can't wire land overseas to a secret bank account. Landowners (even "slum lords") either pay their "fair share" or the use of the land is made available to others who will.

6. Eliminates Land Speculation. Under this system there is no incentive to speculate on land values. The market rental value of the land is paid as "tax" annually whether the land is sitting idle or in productive use. Under this system the land will be used in a productive fashion if only to pay the taxes or otherwise made available for others to use productively

7. Reduces The Federal Bureaucracy and Encourages Local Government Control. The Federal Bureaucracy is so strong because it "has the money". In this system, local governments collect the money and then (may) distribute it upwwards. This restores a balance of power to Local and State Governments." (http://hubpages.com/hub/Why-A-Land-Value-Tax)

More Information

• = Henry George concluded that Land Speculation barred the entry of the poor from productive labor. He demonstrated time and again how a "Land Value Tax" or "Single Tax" would eliminate vast disparities of wealth by eliminating the unearned financial leverage some used to milk the wealth of others. [1]

• Proposal by Feasta in Ireland: Land Value Tax : Unfinished business. By Emer Ó Siochrú, November 2004

[2]

• Book: Land-Value Taxation Around the World. Robert V. Andelson (Editor). Wiley, 2001

• Documents collated via http://files.uniteddiversity.com/Money_and_Economics/Land_Value_Tax/