In 1909 a dangerous subversive explained the issue thus. “Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is effected by the labor and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived. … the unearned increment on the land is reaped by the land monopolist in exact proportion, not to the service, but to the disservice done.”(13)
Who was this firebrand? Winston Churchill. As Churchill, Adam Smith(14) and many others have pointed out, those who own the land skim wealth from everyone else, without exertion or enterprise. They “levy a toll upon all other forms of wealth and every form of industry.”(15) Land value tax recoups this toll.Monbiot.com
A Telling Silence: Why we need land value taxation
George Monbiot
Silvio Gesell considered the Henry George land tax to be a toothless tiger. From the turn of the century up till WWI it was freely discussed in Europe and even championed by some privileged people like Churchill. The rich grew comfortable discussing it because they knew it would never be enacted. Gesell, like Alfred Russell Wallace, preferred land nationalization. Everybody pays rent to the state. It could be likened to Joe Firestone's distinction between "small ball" and "big enchilada" coin seigniorage. Today's LVT advocates are very "small ball" indeed. They want to cater to the homeowner: "most people will pay less than they do now!"
ReplyDeleteI think we have to come to grips with the fact that if we're ever going to "euthanize the rentier" the sacred cow aka "the homeowner" cannot be spared. It is no less absurd to think that everyone can be a rentier than that every nation can be a net exporter.
I don't know. Property taxes in the USA haven't done much to prevent inequality or reduce rents paid to landlords. They have probably made it worse because the rentiers pass on the cost of the tax + extra profit to their renters.
ReplyDeleteConsider places like the midwest of the US, mostly inhabited by bigoted whites who think they are "enlightened." Their stereotypes of poor and non-whites cause them create racist property tax systems that have "special" assessments that effectively apply only to poor neighborhoods and almost never get applied to affluent neighborhoods. The effective tax rates for poor non-white owned property is much higher than for rich whites from Minneapolis to Memphis.
Here in LA (Lower Alabama) we have a Henry George Single Tax Colony still operating and it is one of the most desirable places to live in a 100 mile radius.
ReplyDeleteOTOH, in Alabama the property tax system is heavily tilted to the landed gentry who own the big farms and tree farms. We had a developer try to claim acreage in the middle of the commercial district as a tree farm. He lost in court. :)
Can somebody explain what is an appropriate amount of land tax relative to the increased value from public infrastructure, etc., (economic rent). Are we taxing away the whole gain, or a percent each year? This is the only part I'm unclear on.
It's politics, so I'd say all you can get away with adjusted for inflation. The rise in land value is chiefly due to public infrastructure improvement and improvements that other investors make. The intelligent thing to do is commit those unearned gain to further public improvements and social welfare.
ReplyDeleteLol, good point. Whatever the market will bear like the monopolists. I like it.
ReplyDeleteRyan,
ReplyDeletethink of it like a vegetable market. Every vendor pays a $15 fee for booth space. This is their "land tax." The vendors can't "pass on" the fee to the customers unless they collude together fix a higher price. They might try to do this, but one defector spoils the whole thing and there would be many advantages to be gained for the defector.
Of course there are problems as you point out. Property taxes are administered at a local level and are assessed in terms of both land and buildings. There are many ways for the local gentry to game these assessments. In general low property taxes (along with low interest rates) will be capitalized in higher prices. Thus higher "rent." LVT advocates hold that taxing sight values and untaxing building promotes development. This can bring its own problems. If the town becomes too attractive "tragedy of the commons" issues may appear:
In 1907 Cannan fired off a round at local rating of site values.1 It hit home. First he recited the logic of what today we call the "tragedy of the commons" (it was common coin long before Garrett Hardin).
Then he pointed out that a city taxing only site values to provide free public services would attract too many people and too much capital. A city is an "open economy," free to immigration of everything
but land, something like an open range or fishery. Even if all cities tax only site values, cities with more rents per head may support public services at higher levels, and so attract immigrants. This distorts locational decisions, attracting people to jobs of lesser productivity where they may gain from better public services. This is "Cannan's Law."
A Cannan hits the mark
The upshot: nationalize
"Are we taxing away the whole gain, or a percent each year? This is the only part I'm unclear on."
ReplyDeleteDepends. Here's the simplest example. The US Forest Service leases long-term parcels inside National Forests to tenants who build vacation cottages.
Now the govt has no claim to the improvements but can collect 100% of the rental value of the land. The USFS uses a cap rate of 5%, so if the FMV of the land is (say) $200,000, the annual rent should be $10,000.
Now if that $200,000 lot was private property (and assuming that improvements are untaxed), the question would be how much should the owner pay in land value taxes (state & local govts are rather protective of their lock on property taxes, so if the Feds ever taxed land values, it's a fair bet the money would be forwarded to the respective states)?
Let's say a county had a 1% property tax on land values, that would raise $2,000 a year.
On the other hand, if the federal govt taxed the imputed rental income from land at 20% (the rate at Churchill and Lloyd George wished to tax land), that would likewise raise $2,000.
A full land value tax would mean collecting the full $10,000, either with a 100% income tax on imputed rent or a 5% property tax on land (as you can see, these numbers shift if cap rate shifts). That seems a bit excessive, personally I think the best way would be by taxing imputed rent with progressive income tax rates (so with top rate of 39.5%, a wealthy land owner would pay an imputed rental tax of $3,950).
beowolf,
ReplyDelete"That seems a bit excessive, personally I think the best way would be by taxing imputed rent with progressive income tax rates"
Doesn't work due to speculative vacancies. I can walk around a near city area in Melbourne and see dozens of empty lots and derelict houses. Been that way for five years, but we supposedly have a housing shortage. A tax on land values (not the developments) would correct this in a hurry.
http://www.earthsharing.org.au/2012/08/28/housing-shortage-questioned-again/