Land Value Taxation
URL = International Union for Land Value Taxation: http://www.interunion.org.uk
"It is estimated that approximately 93% of taxes collected worldwide fall on labor and economic production. Removing the tax burden on all forms of labor and productive activity can greatly enhance private sector enterprise, especially small business. Freed from taxation, workers get increased purchasing capacity and investors more funds to invest.
Shifting taxation ONTO the economic base of land and natural resources has other positive consequences. Taxes would function as user fees for what is essentially common heritage resources. Investments in land speculation would be curbed, thus freeing funds for productive activities.
Taxing land sites according to land value promotes urban and rural land reform, providing affordable access to land for homes, businesses and farming. Sufficiently high resource rental fees, captured for public sector benefits, promote more careful and efficient use of natural resources by the private sector. Conversely, the undertaxation of natural resources leads to their over-exploitation. A high access cost for nonrenewable resources can also stimulate investment in renewable energy and other sustainable technologies, as less profit can be made on extracting irreplaceable resources.
The policy is to shift taxes OFF labor and productive capital (thus increasing everyone¹s purchasing capacity and wealth creation incentives) and ONTO land and natural resources (thus curbing speculation and private profiteering in the world¹s common heritage). Such a tax shift makes land prices affordable for housing, other basic needs production and infrastructure.
When we fail to tax land values adequately, as they rise during development, and tax wages instead, workers soon cannot afford housing and other basic necessities unless they work longer or go deeper into mortgage debt. What should be the true purpose of a market economy and development - to efficiently provide for the needs of all - is undermined. Under the current model which commodifies land and resources, land prices become a greater proportion of the costs of production as development proceeds.This primary cause of the widening rich/poor gap demonstrates the law of rent, a concept little understood even within the field of economics. As private profits accumulate from resource rents and interest payments, the gap between rich and poor keeps growing year by year.
Most "poor" countries are not poor. Rather, their people are poor, because the countries¹ valuable land and other natural resources are controlled by only a few. Land value taxation promotes both urban and rural land reform.
Land values rise because of population growth or concentration and because of infrastructure and other services provided by the public sector. Reducing taxes on wages and productive capital while recapturing the increase in land values (resource rents) BACK to the public sector assures both a fair and functional market economy and a continuing source of tax funds for the public sector.
The public fund can also be a source of low-interest loan financing to community members. Under this arrangement, the people themselves become beneficiaries of both resource rents and interest payments. The recapture of rises in land value and the revolving of loan monies all within the public sector enables countries to develop with less need for outside funds." (http://www.earthrights.net/docs/fin4devt.html)
"Harrisburg, the capital of Pennsylvania, was in 1980 on the Federal list as the second most distressed city in the United States. The city gradually reformed its municipal tax policy by shifting taxes OFF of buildings and ONTO land site values. Now taxes on buildings have dropped and land is taxed five times more heavily. With land sites freed from speculation and underuse and buildings less burdened by taxes, labor and capital went to work restoring the city, now considered to be one of the highest quality of life cities in the US.
Seventeen other municipalities in Pennsylvania have put this policy in place, all with proven benefits of economic regeneration as indicated by increased building permits and other criteria. This approach generates steady urban renewal in Sydney, Australia. Hong Kong and Singapore capture land rent primarily by nationalizing land and renting it out." (http://www.earthrights.net/docs/fin4devt.html)
Proposed creation of a Global Resource Agency
"A Global Resource Agency, similar to the Alaska Permanent Fund, could collect global resource rents for distribution and investment. This would provide a stable source of finance for UN expenditures for peacekeeping, environmental preservation and restoration, and to finance justice institutions such as the World Court and the International Criminal Court. Some of the revenue might be distributed to all nations according to their populations, reflecting the right of every person in the world to a "global citizen's income" based on an equal share of the value of global resources.
A Global Resource Agency with this mandate would:
- encourage sustainable development worldwide;
- provide substantial financial transfers to developing countries by right and without strings, as payments by the rich countries for their disproportionate use of world resources;
- help to liberate developing countries from their present dependence on aid, foreign loans and financial institutions which are dominated by the rich countries;
- reduce the risk of another Third World debt crisis; and
- recognise the shared status of all human beings as citizens of the world.
This land ethic and policy has potential to benefit all and has deep roots in the history of economic justice. A full Jubilee 2000 and beyond plan would not only reduce or eliminate debt, but would also promote systemic reforms in land tenure and taxation. This is the kind of "structural adjustment" the people of the world really need.
The Financing for Development process could further this tax shift approach by (1) worldwide education and information, (2) encouragement of implementation on the local and national level, and (3) creation of a body of experts to assist with the transition to this policy. " (http://www.earthrights.net/docs/fin4devt.html)
Responding to Critics
"To those who know and love Land Value Tax (LVT) the case for it seems self-explanatory, compelling and unanswerable. Yet strangely it all too often turns out to be a very hard sell. Present economic theory rests on false assumptions established so long ago that people have forgotten what they are. So the difficulty in explaining the immediate relevance of LVT is that one has to clarify first principles at the same time. This is not so easy. An audience waiting to hear how to revive the economy will not want to be asked to revise basic concepts they think they already know.
1. ‘Land’ is regarded as ‘capital’.
Today’s economic thought assumes a bi-polar world of Labour and Capital only. Books on economics never mention ‘Land’. When people hear about ‘Land Tax”, they might think of a rural economy, because the advantages and disadvantages of different tracts of land to farming are fairly obvious, and indeed often taught. But most will usually fail to see how the land factor is relevant to urban industrial and trading economies, which have no obvious link with the natural resources inherent in land.
Land was deliberately removed from the economist’s vocabulary in the early twentieth century. Landed interests, alarmed by growing clamour for raising public revenue from land value, obscured the issue by founding university courses in economics that deliberately conflated ‘Land’ with ‘Capital’.
Helped by Adam Smith’s definition of ‘Capital’ as ‘that part of man’s stock from which he could derive an income’, they taught that because one could derive an income from land, it should be treated as ‘Capital’.
To Classical economists of the nineteenth century the terms ‘Land’ and ‘Capital’ were quite distinct. Labour interacted with land to produce wealth. ‘Capital’ meant any item of wealth [e.g. factory buildings, lorries, machine tools] intended to assist in further production. ‘Land’ was a gift from Creation. ‘Capital’ stemmed from enterprise and effort.
Crises in banking might be more easy to avoid were ‘Land’ and ‘Capital’ properly distinguished from each other. Borrowing by a gifted designer to produce an efficient wind turbine is one thing; borrowing to speculate on rising land values is quite another. At present both are covered by the worthy-sounding phrase ‘Capital Investment’.
2. Few see how radical Land Value Taxation’s benefits would be.
Many can accept that land values benefit when local infrastructure is improved and that site-owners should contribute. But LVT is often seen as no more than a useful ‘add-on’ to existing taxes – a way, perhaps, of targeting tax more fairly on those who benefit from government capital spending.
But what is usually missed is that raising public spending from land value, if carried to the full, deters anyone from holding more land than they actually wanted to use. Land would cease to be a privatised capital asset producing an income by being let to others or yielding speculative gains. Again, through LVT, marginal land of little value would no longer be driven out of production by the present weight of taxes on labour and enterprise.
Many do not realise just how much useful land is currently kept out of use by this unholy combination of private claims on public wealth in land and the ‘flat earth’ tax practices of charging the same PAYE and VAT everywhere. In London’s Mayfair it was recently reported that forty major residential properties stood empty. Battersea Power Station, and 25 acres of surrounding land, has remained out of use since it was decommissioned in the 1980′s. In other conurbations similar instances occur, and nationwide over half a million residential properties lie empty.
It takes time to get people to realise the immense benefits that the release of such land would cause. It would largely end unemployment by which wages are forced to minimum levels. Government spending to relieve poverty could then shrink and taxation be significantly reduced. Crucially, it would begin to re-establish the notion of preserving ‘Common Land’, by which land not wanted for immediate use would remain available for any natural growth of population or new immigrants. Without ‘Common Land’, nations inevitably see population growth as a source of internal stress, often leading to conflict with neighbours over territory and resources.
3. Other common objections.
a. ‘Poverty is inevitable so why bother?’
Dysfunctional economics have probably been with us since 1066 when the feudal system replaced the land taxes collected in Saxon times. Over the centuries, the public mind has come to see the resulting poverty as inevitable and many elegant and popular theories (e.g. Malthusianism) have been devised to explain and justify it.
b. ‘Current reforms will work eventually’.
Even when poverty is not considered inevitable, people are convinced that present economic reforms (e.g. common currencies, banking reform) will eventually bring prosperity, so there is no need to consider LVT.
c. ‘I will lose’.
Some fear LVT will leave them worse off. At present the distribution of wealth is much more uneven than it should be. But LVT would reduce the disparities, not by confiscating from the rich and giving to the poor, but more by eliminating poverty at its source. Everyone could be as wealthy as they wanted to, provided they worked for it. Of course the whole ethos of society would change, and perhaps the extravagancies that currently grip the minds of the super-rich might lose some of their appeal.
d. ‘LVT is too difficult to implement.’
Some say LVT is too radical to implement without disrupting society. The truth is of course that society is already disrupted precisely because of the lack of LVT.
Nevertheless, reform would need to be applied carefully step by step, beginning with registration of land and its valuation according to best permitted use [as opposed to current use]. The next step could be putting Uniform Business Rates onto a site value basis, as is current Liberal Democrat policy. Transitional arrangements would be needed for poor people occupying valuable land.
To fully accept LVT, people have to abandon many current beliefs about economics, which is especially hard for the experts. However the present crisis has been a wake-up call for many, and those in academia or in power are perhaps more ready to listen." (http://smarttaxes.org/2012/10/17/why-people-fail-to-understand-land-value-taxation/)
For further information about these policy approaches and how they can be implemented contact the authors of this statement: In the US, Alanna Harzok (717-264-0957 or email: [email protected]) and Pat Aller (212-496-8256), UN NGO representatives for the International Union for Land Value Taxation and in the UK, James Robertson, author, co-founder of New Economics Foundation, and consultant on alternative futures, economic & social change. Email: [email protected]
- Land Value Taxation Around the World, Second Edition, edited by Robert V. Andelson, 1997, published by Robert Schalkenbach Foundation, http://www.schalkenbach.org