Sunday, March 29, 2015

Noah Smith — A misguided attack on Land Value Taxes

Noah doubles down on the LTV after his Bloomberg View post generated some critical response.

Henry George rules. Take that John Bates Clark.
John Bates Clark (January 26, 1847 – March 21, 1938) was an American neoclassical economist. He was one of the pioneers of the marginalist revolution and opponent to the Institutionalist school of economics....
In 1888 Clark wrote Capital and Its Earnings. Frank A. Fetter later reflected on Bates' motivation for writing this work:
"The probable source from which immediate stimulation came to Clark was the contemporary single tax discussion. ... Events were just at that time crowding each other fast in the single tax propaganda. [ Henry George's ] Progress and Poverty... had a larger sale than any other book ever written by an American. ... No other economic subject at the time was comparable in importance in the public eye with the doctrine of Progress and Poverty. Capital and its Earnings "... wears the mien of pure theory .... But ... one can hardly fail to see on almost every page the reflections of the contemporary single-tax discussion. In the brief preface is expressed the hope that 'it may be found that these principles settle questions of agrarian socialism.' Repeatedly the discussion turns to 'the capital that vests itself in land,'...[6]"
Tax away the land rent.

A misguided attack on Land Value Taxes
Noah Smith | Assistant Professor of Finance, Stony Brook University


Dan Lynch said...

Separating the value of a plot of land from the value of the structure built on top of it is a very difficult thing to do, since you can't usually observe the value of a piece of land both before and after the improvement is made. This implementation issue is the main problem with the LVT.

My state assess the land separate from the improvements, and both are taxed, though at different rates. Assessments are often SWAGs, and are often appealed, but the bottom line is that you end up with an assessment.

Since land value is already taxed, whatever miracle that is supposed to accomplish has already been accomplished.

In practice, it's a regressive tax, and it's environmentally unfriendly because it encourages "use" or "development" and discourages nature.

In practice, there are all sorts of exemptions, like the ag exemption, that favor the 1%, making the property tax even more regressive. There is no reason to believe that a real life LVT-only would be immune from such politically motivated exemptions.

One of the false assumptions behind the LVT is that "development" is good and fallow land is bad. But if you are an environmentalist, fallow land is good and development is bad. Or even if you are a kid, fallow land is good -- was I the only kid who often played in vacant lots?

I could go on and on. I just don't get the obsession with a LVT.

Tom Hickey said...

A great deal of the wealth inequality that has arisen can be traced to land rent resulting from urbanization.

The bulk of an LTV would fall on RE gains in large cities where the land values are huge and rising owing to the scarcity of new land, especially in geographically circumscribed areas like Manhattan. Or in the UK on London RE.

Jonathan Larson said...

Clark. The guy who first taught Veblen economics at Carleton. Veblen obviously thought him a fool for he spent much of his life refuting JBC.

Carleton used to hold their annual Veblen-Clark debates. Haven't seen them in a long time because, well, Carleton is now about as reactionary as U Chicago. Clark would have been so proud.

The Clark medal is still awarded to a promising young reactionary. Krugman won it when he was still a "free" trade mouth-breather.

Tom Hickey said...

Yeah, Clark isn't well known today but he was something like the Milton Friedman of his time.