Yves here. While some of the concerns in this post are specific to Australia, they can be readily translated to other property regimes. The part that is missing, however, is that the US relies on “real estate taxes” which includes the value of the buildings on the land. Michael Hudson has advocated taxing land much more heavily, since unlike taxing capital or labor, it does not burden the economy with higher costs . As he explains in a 2009 interview:
Our tax system favors debt rather than equity financing. By encouraging debt it has prompted a tax shift onto the “real” economy’s labor and capital. The resulting interest charge and tax shift mean that we’re not as efficient and low-cost producers as we used to be. This makes it hard to work out way out of our foreign debt.
You want to phase out the “tollbooth” economy that adds unnecessary charges to the cost of living and doing business – charges that have no counterpart in actual necessary cost of production. You want to avoid monopoly rent of the sort that Mexicans have to pay Telmex. And you want to avoid having the tax collector lower property taxes, leaving more revenue available to be pledged to banks as interest on higher mortgage loans. To get a lower-cost world, you have to counter political pressure from real estate owners and their bankers to shift taxes off rent-yielding properties onto labor and capital. Income and sales taxes add to the price of doing business, and hence reduce their supply and competitiveness. Most economists – even Milton Friedman – recommend that the more efficient tax burden is one that collects economic rent – property rent, fees charged for using the airwaves, monopoly rent, and other income that is basically an access charge. If you tax land rent, for instance, this doesn’t raise the price of housing or office space. The rent-of-location is set by the market place. Taxes – or interest charges to buy such property – are paid out of the market price for using this space or natural resource.
“Rent-seeking” charges are paid out of prices. So taxing economic rent doesn’t add to prices. It simply collects what nature or public infrastructure spending have provided freely – site value, the broadcasting spectrum, the rights to access the internet or other technology in cases where prices exceed the reasonable cost of production. Unfortunately, despite what Milton Friedman said, the economy today is increasingly about how to get a free lunch of this sort – and how to get the government to avoid taxing it, and shift the tax onto labor and industry instead. This loads down the economy with unnecessary costs and higher prices, especially when rent-yielding assets are bid up on credit. That’s the essence of this decade’s real estate boom….
What has really been fueling the rise in property prices in this country has been the fact that real estate has been untaxed. What the tax collector relinquishes is now free to be capitalized into debt service on higher loans to bid up real estate prices. In 1930 about 75% of state and local finances came from the property tax. Last year it was down to 16%, so that’s from 3/4ths down to 1/6. Cities have shifted the property tax onto wages and salaries – income and sales taxes that increase the price of business. Taxes used to fall on property and hence were progressive, but now have turned regressive. The result is that “tax deflation” now reinforces debt deflation. This threatens to aggravate the depression we’re entering.
By Leith van Onselen, Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. You can follow him on Twitter at @leithvo. Cross posted from MacroBusiness
The Economist over the weekend published a great primer on the benefits of broad-based land taxes:
Taxing land and property is one of the most efficient and least distorting ways for governments to raise money. A pure land tax, one without regard to how land is used or what is built on it, is the best sort. Since the amount of land is fixed, taxing it cannot distort supply in the way that taxing work or saving might discourage effort or thrift. Instead a land tax encourages efficient land use. Property developers, for instance, would be less inclined to hoard undeveloped land if they had to pay an annual levy on it. Property taxes that include the value of buildings on land are less efficient, since they are, in effect, a tax on the investment in that property. Even so, they are less likely to affect people’s behaviour than income or employment taxes. A study by the OECD suggests that taxes on immovable property are the most growth-friendly of all major taxes. That is even truer of urbanising emerging economies with large informal sectors.
Property taxes are a stable source of revenue in a globalised world where firms and skilled people can easily move. They are also less prone to cyclical swings. In the financial bust America’s state and local governments saw smaller declines in property taxes than other forms of revenue, largely because the valuations on which tax assessments are based were adjusted more slowly and less dramatically than actual prices. Property taxes may even restrain housing booms by making it more expensive to buy homes for purely speculative purposes.
Yet, despite these benefits, the average high income country, including all levels of government, raises under 5% of total tax revenue from annual levies on land or the buildings on it (including council rates):
Times are slowly changing, however, with The Economist reporting that some 20 countries that have recently introduced new property taxes, or are considering doing so. Ireland is a case in point. Following recent reforms, capital gains from rezoned land is now classified as windfall gain, attracting 80% tax.
While I would not like to see a broad-based land values tax (LVT) implemented on top of Australia’s other taxes, there are strong arguments for improving the efficiency and equity of the tax system by replacing highly distorting taxes, like stamp duties, with an LVT in a revenue neutral manner.
As argued previously, stamp duties are an inherently volatile source of taxation revenue in Australia, since they are critically dependent on both the volume of housing transfers as well as the price at which those homes transact. Stamp duties also unfairly penalise people that move to homes that better suit their needs, as well as hinder labour mobility since they discourage workers from relocating closer to employment.
In addition to the efficiency benefits purported above by The Economist, a broad-based land LVT would also assist in the provision of new housing via two main channels. First, an LVT would help make infrastructure investments self-funding for governments, since any land value uplift brought about through increased infrastructure investment (e.g. new roads, trains, etc) would be partly captured by the government via increased LVT receipts. Accordingly, governments would be more likely to facilitate development, rather than act to restrict it in a bid to save on infrastructure costs. Second, an LVT would penalise land banking and vagrancy, effectively increasing the supply of land in the process and bringing new homes to market more quickly.
Transitional issues in moving from stamp duties to an LVT, and concerns about double taxation, could be overcome by crediting all landowners with the amount of stamp duty paid and then deducting the hypothetical land tax they would have paid since the date of purchase. Asset rich, cash poor, retirees could also be permitted to accumulate their LVT liability, with the bill payable upon death (via the estate) or once the house is eventually sold (whichever comes first), with interest charged on any outstandings.
Requiring any LVT liability to be paid in smaller regular installments (e.g. once a month), rather than in a large annual or biannual lump-sum, could also assist in gaining community acceptance, since it seem like less of a burden.
The arguments for LVTs are well known. It’s just a shame that Australian policy makers will not even consider reform.
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I have recommended a land based ‘assessment’ tax in my proposal: $7.50/acre * state population density + $.10/sq ft of capital improvements. The difference is I would levy it upon the States (and they could offer different ways of raising the amount).
So you think taxing a ranch in Pueblo, Colorado the same amount as the ranch in Aspen is fair? I would rather see a tax system that does a better job of addressing the growing inequality in the US.
I think the Federal Government provides the same services to a ranch in Pueblo as to one in Aspen and therefore the tax should be the same. (local gov may give more services, but I am focused on the fed for the moment). What has the FED government done to deserve a greater share from Aspen?
I just see more ‘tax the wealthy’, progressive, UNEQUAL, demands….because inequality is fair?
Isn’t that the dilemma? Equal rarely means fair. That’s probably why there are 2 distinct words.
That’s right, equal is not always fair, but we don’t have a Constitution that guarantees fairness, only equality under the law. Because ‘fair’ is certainly relative.
And a guy that owns 1,000 acres (@ $900 each) is certainly in a different spot than Jesse’s neighbor with their $900,000 McMansion…
You have a good argument that equal services should have equal costs, but there are a number of other considerations.
We don’t actually get equal services, especially from the fed, where the judiciary favors the wealthy, puts white collar criminals under house arrest (or fails to prosecute them at all) and throws poor people in violent prisons to rot for smoking pot or being black. We get military protection, but only by providing our sons and daughters as cannon fodder while the wealthy send their children to Harvard and bank their war profits. Blah, blah, on and on…
You assume that taxes pay for services, yet at the federal level this is not so. We maintain an accounting fiction that taxes are essential revenue but as a monetary sovereign, the federal government could fully fund whatever services we chose for it to provide without collecting a dime in taxes (at least up until inflation becomes a real problem sometime after full employment).
The purpose of taxation is not to collect needed revenue from which to provide services (though that may have been the case at one time). The purpose of taxation is to redistribute wealth and (hopefully) keep social unrest from interfering with business, and, perhaps, to undergird the value of the dollar (though that also may be an obsolete function).
I don’t have a ranch. But after living in apartments for years, I bought a house and second building on 9 acres in rural Pennsylvania. I let everything grow naturally because I want to encourage wildlife.
According to your logic, I’m supposed to pay the same rate as, let’s say, the motel down the road, which also doubles as a Western Union office? I already pay property and school taxes out of my meager Social Security, and just about every old person in PA is in the same boat. I think your idea would result in every lower-class person losing their home.
I think land should be taxed a percentage of what it was last sold for. That lets the market decide what the land is worth in rent, rather than applying a formula that may be based on an inaccurate model of land rent value.
This is a reasonable thing to look at. But I’m not convinced we have much separation between the housing industry and the rest of our commercial economy. I think they are very entwined. Housing has been incentivized forever, it is true, but if we hadn’t offshored all of our jobs to Asia, we’d be doing just fine. What we really need are fair trade protections, good jobs and good wages. Tweaking housing because there’s nothing left in the rest of the “economy” to tweak, is just the last straw – the last grab before we have no economy at all. As far as current taxing goes, at least where we live, county taxes are not small – and they are raised whenever money is needed for education, and other assessments are levied whenever we need a new water plant, or road, etc. Then capital gains upon the sale of a house are not insignificant. CGs go into federal coffers. I actually think “land” is being taxed at a pretty high rate already. And I always liked the idea of a VAT, abolishing the IRS and income taxes altogether. But that is considered too regressive and a burden on manufacturing and labor.
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…but if we hadn’t offshored all of our jobs to Asia, we’d be doing just fine. What we really need are fair trade protections, good jobs and good wages.
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Yes! From what I've been able to glean, that's the real bottom line. The rest, at this point, I fear, is just pushing figures around.
Last selling price is too easily gamed. To avoid stamp taxes in London, people were buying their expensive downtown condos with a shell corporation, then selling the corporation. Technically no change in ownership occurred, hence no tax.
A similar practice would spring up under your proposal. I would sell to a shell corp for a dollar, take the loss, and avoid property taxes in perpetuity. When I move , I sell the shell corp.
Good point. Almost the same thing that occurs in California under Prop 13.
It all comes down to dealing in good faith.
Nothing will get fixed as long as you don’t have this.
I hear you, but it’s not quite as bad as the stamp tax thing. Stamp tax is levied once, on the occasion of the transaction. No transaction = no tax. An annual tax levied on the last transaction would mean no transaction = tax levied on the transaction before that. That might be a dodge if the land has since risen in value, but at least it doesn’t get around the tax entirely.
Another dodge would be a back-and forth selling of the land for a dollar. Bingo, the “last sale” of the land was a dollar. Obviously we need to call bullshit on such things, just like we do now (or don’t but should). I want to avoid bureaucrats running around trying to assess what all the land is worth in rent, but I recognize that can’t be avoided completely. For instance, land inheritance is also a handover with no sale, but I’d want to trigger a re-assessment of the tax at that point too.
What I wouldn’t want to do is punish a new owner who takes low-rent land and invests money or work in it to turn it into something high-rent. Good on them, they’re like a sort of capitalist rather than a pure rentier. So the annual tax should stay unchanged from the day they acquired the land, even when the land pulls in more rent (or would).
That sounds like a horrible idea, speaking as someone from the fourth largest state in the union (by area)…which houses fewer than a million residents.
By modifying the per acre charge by population density, the result is that an acre in Wyoming is ‘roughly’ the same as an acre in NY or CA on a per capita basis (wyoming is much less than NY or CA).
Sounds like another tax piled on to California–third largest state by area, largest state by population, resulting in most densely populated state west of the Mississippi (10th most overall). No thanks, California is already highly taxed enough.
This is a very misleading article. It shows Britain having ‘property taxes’ as 12% of revenue raised. It isn’t the case. Britain has 3 so-called property taxes. (1) Stamp duty is effectively a sales tax on property transactions. Council tax is designed to finance local services. It has 2 forms. The burden of (2) Residential council tax falls on the householder of each housing unit. It may as well be called a poll tax as a land tax. Every enterprise must pay (3) Business council tax on their place of business (when it isn’t a residence). That’s a tax on having a business. In all 3 of these taxes the burden never falls on the rent collector. None of the 3 can be classed as LVT.
Complain to the Economist, who produced the chart.
Mark Pawelek
Check the Economist’s graph and you will see that it clearly specifies ‘recurrent taxes’ – i.e. not stamp duty which is levied only when property is sold.
For the rest there are two different recurrent taxes, (1) council tax which is levied on homes and (2) business rates which are levied on commercial properties. Neither is a Land Value Tax in the sense of this article since a vacant plot doesn’t incur either. Rather they are levied on the value of the buildings on the site using obscure and out-of-date metrics.
Interesting ideas for sure, but here in the States the issue seems to be one of gaming the system rather than a need for an additional tax. The “Ag” exemption for example is by far one of the most ridiculously gamed exemptions for U.S. property owners, many of whom are card-carrying members of the 1 percent. If we were to get rid of that gigantic loophole for all of the “recreational ranchers” in the United States, county budgets would see a major boost to revenues.
It’s the same with corporate tax revenues. For all the whining and bitching about a 35% tax rate, it’s interesting that a recent GAO Report found that the real effective rate for large profitable corporations was just 12.6%.
http://gao.gov/products/GAO-13-520
I can see the case for a Land Value Tax, but I’ve never seen a case explaining when and how to introduce it without taking great economic risks. The advocates should perhaps move on to that topic, which may not be an insoluble problem except in countries (such as … ahem) where vested interests reign supreme with the aid of corrupt politicians.
I don’t see this as a valid objection to the idea but certainly the practical application of this is a problem because of the nature of the political system at this time. We should be advocating not for this particular system but present it as a possible alternative to the current one and, most importantly, that if we can agree that society ought to be ruled on the basis of what’s best for most people and not just the elite then we could begin to deal with all the outstanding issues we have before us in a reasonable way.
In the US.I don’t see a shortage of monies raised in taxing property.I see misuse of those monies, after taxation.And with that mis-use,there is the overt attempt to allow everything from exemptions,and tax rebates to new infrastucture built for clients/benefactors which are called “incentives” for business.
Residential property taxes are going up everywhere.Mine have tripled in the past decade.
It is business property taxes that are seeming give-aways.
What I think could be truly important for the united states, and I think should be adopted as one of the planks of real reform, in this country.Is the “taxing”, of the rights to use “the commons”.Firstly, and most specifically, the broadcast spectrum.The fact that this is considered a common property,is the reason that the FCC has jurisdiction over what can be broadcast over these “waves”.
Rather than a money amount being required to use these waves.All “for profit”,media broadcasting entities, ought to “owe”, the people whose property they use as a necessary medium in their business,TIME.
This should be where we get “free” time to be used by those running for any office;national,state,or local.respectively being allotted time in a suitable venue,i.e.local radio station /low wattage gives local councilmen, whereas, any large corporation using broadcast spectrum bandwith withing the borders of the US, must give time for anyone who can file to run for an office.If not every day, every week.real time,not after the late-late show,for 5 minutes.We all know the media is filled with crap, so lets lose a twentieth repeat about who snooki married,and get an info-mercial of the political stripe.There should be no legal prevention to keep candidates from listing specific grievences against specific companies…let us call it “free speech hour”.Lets get the supreme court to declare candidates get to have “free speech”, just like any corporation.
Election/campaign finance reform, is our greatest problem. I say this because, the fact is money buys our politicians.Then these politicians write or un-write our laws.Then corporations follow the letter of the law,sometimes.
These politicians are lame-brained schmucks.But, they are talking about the same things the corporate media is broadcasting everywhere else, so as long as they stay within the confines of “polite discussion”,(meaning nothing important, or in any way against the wishes of some corporate fat cat),they get air time.In the normal way the producers are the ones who allow stories to be told.
A for instance would be the 2000 election year.
George bush was a moron. He didn’t really have anything to say. And what he did say , should have been followed up by the more than numerous examples of why it was either an untruth,or an assinine thing to say.Al gore ,well he had time.He was the VP of the US.he could have held a newsconference on any important issue.and not call it campaigning.But, Ralph NADER, would have been able to speak to the american people en-masse.Nader is a good speaker.He had so much information to say, his speaking events were filled from beginning to end with specific examples and laws and civic constraints.He was the only actual candidate,other than an incumbent(no matter what that means).If he were able to speak to the american people:
no way would bush have even been close enough to win to spark a wildfire that torched truth and justice.
Al gore, may have had to stand up and run against someone
If nothing else, real issues would be before the american people. And this was something the establishment was so afraid of as to deny him ;not only a place on stage at the presidential debates,but they wouldn’t even let him into the room(despite him having a seating ticket like all the other people who paid for one).
This Is the way to get better representation,on the ballot.no longer would out of touch republicans and democrats have a monopoly on reaching out to the american people.It wouldn’t cost the tax payers anything.It wouldn’t even cost the media operators anything.And yet could be the lynchpin of real change.It might even cut-off these superpacs,charity organizations,and all other things that pervert the election of representatives in this republic of ours.
+100 – agree with everything you just said
There’s been a nominal 6 year real estate bubble deflation in the overbuilt ‘third coast’ of the rocky mountains. In western Montana, we have NOT seen the in-theory-only quid-pro-quo reduction in real property taxes. Montana only has two of the ‘three-legged stool’ of tax base… we have no sales tax. Real property tax levies/revenues are increasing 10% per year, greater than the stated inflation rates, like clockwork. At some point, average property owners will be forced to sell due to an inability to afford the property taxes, and we will see another tier step-up of wealth aggregation to the richer among us. It’s like a black hole, or a funnel, where every loose penny or asset class heads into their gullet. Like increased food and fuel costs, every increase like property taxes will take discretionary pennies from ‘consuming’ other goods and or services. I think the authors are earning too much money, and out to lunch about real-world wages- and property taxes. I wonder if they have a property tax bill in their own life? I also think they are dreaming if they feel that increase in taxes will not be shifted over to the tenants in the form of higher rents. The bulk of a population can’t afford to buy goods and services. The 1% will never be able to buy the equivalent volume of goods, services, and thneeds. And it continues to spiral downward and self-reinforce. No free lunch… although if you are a debt-slave service-member eating MRE’s, at least you don’t need to imagine you have a can-opener….
You apparently read a very different article than I did. In the article I read, the author proposed a revenue neutral change in the tax method, not an increase in taxes. The article I read also made some distinction between taxing the land and taxing the investment in the land (buildings). Could you provide a link to the article you are commenting on? : )
Revenue neutral for whom? Do “they” intend to abolish income taxes? I’m just a little too bereft of trust to count on “them.”
Although I do favor the suggestion, I am not arguing in favor of the tax here. I am arguing in favor of a careful reading of the article.
“While I would not like to see a broad-based land values tax (LVT) implemented on top of Australia’s other taxes, there are strong arguments for improving the efficiency and equity of the tax system by replacing highly distorting taxes, like stamp duties, with an LVT in a revenue neutral manner.”
Seems pretty clear to me. Yes, if you increase taxes on land, to be revenue neutral, other taxes, such as the income tax would have to be lowered commensurately. I don’t think this is a matter of what “they” are going to do. It is a matter of what “we” would like to do. And “we” could, however unwieldy and unresponsive our political systems seem to be, suggest any proportion of exchange we desired, a tiny fraction to complete replacement. Do you have an analysis indicating this would be a bad move? I would love to see it as I am still forming my opinion on the matter.
Our tax system here in the US is such a godawful mess i get a frontal-lobe headache just typing “tax.” Everyone knows there is nothing equitable about our system. I bet it’s worse than yours. Interesting that the US and Australia have similar land situations – lots of development over the 20th century and now mostly developed. It’s almost like the horse is out of the barn. I think it is pointless to tax small ranchers. I think it is almost equally pointless to tax land developers who are just sitting on their acres waiting for the price to go up – because it could just as easily go down. I don’t want to be red-herringed about taxes. I want specific taxes that promote good jobs, and maybe very small local taxes that only take land levies for local projects. All things being equal, here in the US the ownership of land which helps the 99% maintain some wealth has not yet been replaced by any other wealth accumulating means. If they decide to do land taxes, they should offset them by abolishing the capital gains on land. That would be revenue neutral.
Can you give me an example of a specific tax that promotes good jobs?
“…here in the US the ownership of land which helps the 99% maintain some wealth has not yet been replaced by any other wealth accumulating means. If they decide to do land taxes, they should offset them by abolishing the capital gains on land. That would be revenue neutral.”
If I’m not mistaken, the bulk of the wealth you refer to is equity in houses. I don’t think the 99% are holding onto wealth by holding acreage. Maybe I’m wrong, I’m neither an economist, a real estate agent, nor a demographer.
What are the capital gains on land and how would you propose to abolish them? And how would that be revenue neutral? (not a rhetorical question) Your remark makes me wonder if we are talking about the same thing. Revenue neutral means no increase in revenue to the government due to the change, right? It does not mean everyone ends up paying just exactly what they are currently paying.
Oh, and you have a point about the uncertainty of land prices. There is always a risk they will go down. I don’t think that means it is just as likely, however. Historically, land prices tend to rise, and fairly predictably near urban centers. And again, one has to be careful not to confound land price and property value, which I may be doing here.
I might be dumb, but i’m with you. there is no way that owners who rent will not be passing on these costs to their tenants, thereby increasing the rent premiums and hurting those of us who aren’t making enough to put away a sufficient down payment due to the incredibly poor jobs out there. income taxes may be problematic, but at least if you don’t make hardly any income, you aren’t really taxed by them. replacing one for the other in MY world would increase my rental costs.
this also seems like, in the U.S. at least, a way of disincentivizing purchases or sales at all. why should a couple work their butts off for 15-30 years paying on a mortgage if their tax bill will represent the equivalent in rent into their old age? again, trading “income” taxes to pay tax “rent” into perpetuity, even when they are retired and not making income, makes money for the state but cuts into that already low fixed retirement income.
in one place, the argument is “well, if the states don’t absorb all of your excess money, the FIRE industry will find a way to. to save you from FIRE, we need to take your money away from you” is, even if true (that FIRE will find a way to soak up all excess purchasing power) a very wicked way to solve that problem. it may also “solve” the problem of the FIRE industries having more money than god to buy all of our politicians and laws, but it’s not going to make the average person’s life any better. so we work our butts off for the government and not for FIRE instead. what are we getting for all of this in the end, $1200 SSI monthly? health care which will tax your estate, or donut holes?
next up, soylent green.
I think you and diptherio are confusing property tax and land tax. Do you understand that the proposal is *not* to tax houses, but the land they sit on? Thus, if you buy a house for 50K and improve it over the years until it reaches a value of 500K that will not increase your tax. That is not the way property taxes currently work in Montana (or anywhere else in the U.S that I am aware of). If you think it through you may still find objections, but objections based on how current property taxes work in Montana are a little off kilter.
I don’t know about other states but here in Utah, where taxes are relatively high, the value of the house is itemized separately from the value of the lot and both values are then combined to assess the tax. This is done on a yearly basis.
So, imagine that land zoned ‘residential’ was taxed at a certain rate. There would be no assessment of the value of your house at all. It could be a stick hut or a palace and your tax wouldn’t change. You would pay tax based only on the size of your lot and its zoning. If you want a smaller tax, build on (or buy) a smaller lot.
Of course you would still have to police your government so that “they” didn’t tax you unfairly. A land tax would not replace the democratic process with an automatically fair system that can’t be gamed—there is no such thing. But I can’t imagine you would be worse off. This is not a scheme to lower taxes. It is an idea to use the tax code to promote rational land use.
And of course there are issues for low income and elderly people who would not see a huge compensating drop in income taxes. The article addresses that by suggesting a deferral (not an exemption) until death or sale of property. I think some fair arrangement could be hammered out. I don’t think the proposers intend to throw the elderly under the bus. I think a plus to the idea is there would be an incentive for elders to move to smaller places once the nest emptied, but I wouldn’t argue for the tax on that basis. It should not be a large incentive unless the tax were unduly burdensome, which it should not be.
So, a monetary sovereignty guy like Rodger Mitchell might rather argue for no tax at all. The federal government could fully fund the states, which in turn could fully fund the cities and counties. OK. It’s just as easy to abolish the land tax when that happens as to abolish the income and sales taxes. In the mean time…
As a fellow Montanan, I know where you’re coming from. My aunt my well have to move out of the house she’s lived in for decades due to raising property tax rates.
I think a good compromise (at least in our state) would be to not levy property tax on a person’s primary residence, but only on vacation homes and commercial properties. How much is Ted Turner paying in property taxes? Not nearly enough, I’m sure.
Leasing fees for grazing on public lands also need to be jacked up considerably, imho, at least for the large operators.
A progressive system could shield the little guy from some of the burden. If your first acre was taxed at a very low rate or exempt, increases could be designed to affect large landholders.
another part of “the commons” that ought to be taxed, are the aquifers/underground water supply.
Any commercial venture who uses large amounts of water in their business, ought to be taxed for that usage.
This seems to be the opposite of how it works now.Large industries, and golf courses pay the same water rates as low usage customers.
Now, If the water is being diverted from an above ground holding source,that is one thing money can buy. But the subsurface water supply ,is something money won’t help with if and when it runs out.So it should be taxed to prevent its over-use as much as possible.
after all, one of the things these globalist corporations are doing right now, is not having a value added to their costs for using local water supplies.Which is an intrinsic value.when you sell wheat, you are also selling water.If all you needed to grow wheat, was sun, there would be wheat fields all over iraq.When you are selling fracking derived natural gas, you are using and abusing water.
agree
Henry George lives! I’m not being sarcastic, his ideas are none the worse for being nineteenth century. Too many economic insights first achieved over a hundred years ago are just ignored by modern economists, without their actually rebutting them: they just blank them out.
Like how they love Ricardian Equivalence, which is wrong, because it suits their austerity arguments, but ignore Ricardo’s theory of rent, which is right, because it doesn’t suit their pro-rentier arguments.
Stopped reading at “unlike taxing capital or labor, it (taxing land) does not burden the economy with higher costs.
Really?
If I were a landlord and my taxes went up, I’d do my level best to pass that increase along to my tenants, either residential or commercial. If I was a farmer, I’d do my best to charge more for my crops, or at least push other production expenses down. I’d certainly explore automating and cutting jobs as a manufacturer. As a residential landlord, I’d push a new concept of 200 sq foot micro-apartments (see Bloomberg propaganda for details).
Let’s not forget how wonderfully efficient local, state, and Federal governments are at allocating tax revenues. Does anyone really think feeding these beasts more is a solution?!?
How do you stop the Banksters blowing land price bubbles and how do you stop the policians with their government staff distorting land prices for government spending revenue needs especially when it’s a value judgement separating out land value when combined with building or use value?
“Loans create deposits” but without government deposit insurance, reserves equal to those new deposits will quickly flee to a risk-free place, assuming there is one, such as a Postal Savings Bank.
Which is why the banks don’t like the idea of a Postal Savings Service – people might start to question the need for government deposit insurance.
With a serious land value tax (LTV) bubbles are very unlikely, since the tax goes up with the value. Henry George maintained that the LTV should equal the rental value of the land, so that there would be nothing gained by holding land for speculative purposes only. Confiscating rent might be a bit extreme, but adjusting the property tax to encourage improvements and to discourage speculation advances a number of social goals, the most obvious of which is to diminish low-density urban sprawl.
Go to google books and look for ‘Tax Facts – Published in the Interest of Sound Economics and American Ideals’
A series of a hundred or so articles published in the 1920’s – it covers exactly what the article describes above.
A couple of those articles below.
Some contributors include Albert Einstein.
In spite of the ingenious methods devised by statesmen and financiers to get more revenue from large fortunes, and regardless of whether the maximum sur tax remains at 25% or is raised or lowered, it is still true that it would be better to stop the speculative incomes at the source, rather than attempt to recover them after they have passed into the hands of profiteers.
If a man earns his income by producing wealth nothing should be done to hamper him. For has he not given employment to labor, and has he not produced goods for our consumption? To cripple or burden such a man means that he is necessarily forced to employ fewer men, and to make less goods, which tends to decrease wages, unemployment, and increased cost of living.
If, however, a man’s income is not made in producing wealth and employing labor, but is due to speculation, the case is altogether different. The speculator as a speculator, whether his holdings be mineral lands, forests, power sites, agricultural lands, or city lots, employs no labor and produces no wealth. He adds nothing to the riches of the country, but merely takes toll from those who do employ labor and produce wealth.
If part of the speculator’s income – no matter how large a part – be taken in taxation, it will not decrease employment or lessen the production of wealth. Whereas, if the producer’s income be taxed it will tend to limit employment and stop the production of wealth.
Our lawmakers will do well, therefore, to pay less attention to the rate on incomes, and more to the source from whence they are drawn.
Written around 1925
Laborers knowing that science and invention have increased enormously the power of labor, cannot understand why they do not receive more of the increased product, and accuse capital of withholding it. The employer, finding it increasingly difficult to make both ends meet, accuses labor of shirking. Thus suspicion is aroused, distrust follows, and soon both are angry and struggling for mastery.
It is not the man who gives employment to labor that does harm. The mischief comes from the man who does not give employment. Every factory, every store, every building, every bit of wealth in any shape requires labor in its creation. The more wealth created the more labor employed, the higher wages and lower prices.
But while some men employ labor and produce wealth, others speculate in lands and resources required for production, and without employing labor or producing wealth they secure a large part of the wealth others produce. What they get without producing, labor and capital produce without getting. That is why labor and capital quarrel. But the quarrel should not be between labor and capital, but between the non-producing speculator on the one hand and labor and capital on the other.
Co-operation between employer and employee will lead to more friendly relations and a better understanding, and will hasten the day when they will see that their interests are mutual. As long as they stand apart and permit the non-producing, non-employing exploiter to make each think the other is his enemy, the speculator will prey upon both.
Co-operating friends, when they fully realize the source of their troubles will find at hand a simple and effective cure: The removal of taxes from industry, and the taxing of privilege and monopoly. Remove the heavy burdens of government from those who employ labor and produce wealth, and lay them upon those who enrich themselves without employing labor or producing wealth.
Legal Gambling
The gloom is fading from the real estate situation. More nibbles during the last few weeks than the last three years. If January brings us good rains, this next year will open the door to the sunshine – a case of rain bringing the sun.
It is to be hoped, however, that there will never be another boom. The crash of the boom of 1923 was due to the same causes that wrecked the wall street stock market. People sold what they did not own. They made a payment down in the hope of getting the property off their hands before it began to burn. Real estate fell into the hands of sharp-shooting gamblers who had no interest in land. To them it was just a pile of blue chips on a roulette wheel.
He isn’t really a big time crook unless you must let him alone to prevent the loss of public confidence.
However, the evolutionary process by which monkeys made men of themselves was considerably slower than the reverse process.
Look up “Tax Facts – In the Interest of Sound Economics and American Ideals” in Google Books
In describes exactly what the article above describes in 100 or so articles
Excerpts below
However, the evolutionary process by which monkeys made men of themselves was considerably slower than the reverse process.
Legal Gambling
The gloom is fading from the real estate situation. More nibbles during the last few weeks than the last three years. If January brings us good rains, this next year will open the door to the sunshine – a case of rain bringing the sun.
It is to be hoped, however, that there will never be another boom. The crash of the boom of 1923 was due to the same causes that wrecked the wall street stock market. People sold what they did not own. They made a payment down in the hope of getting the property off their hands before it began to burn. Real estate fell into the hands of sharp-shooting gamblers who had no interest in land. To them it was just a pile of blue chips on a roulette wheel.
In spite of the ingenious methods devised by statesmen and financiers to get more revenue from large fortunes, and regardless of whether the maximum sur tax remains at 25% or is raised or lowered, it is still true that it would be better to stop the speculative incomes at the source, rather than attempt to recover them after they have passed into the hands of profiteers.
If a man earns his income by producing wealth nothing should be done to hamper him. For has he not given employment to labor, and has he not produced goods for our consumption? To cripple or burden such a man means that he is necessarily forced to employ fewer men, and to make less goods, which tends to decrease wages, unemployment, and increased cost of living.
If, however, a man’s income is not made in producing wealth and employing labor, but is due to speculation, the case is altogether different. The speculator as a speculator, whether his holdings be mineral lands, forests, power sites, agricultural lands, or city lots, employs no labor and produces no wealth. He adds nothing to the riches of the country, but merely takes toll from those who do employ labor and produce wealth.
If part of the speculator’s income – no matter how large a part – be taken in taxation, it will not decrease employment or lessen the production of wealth. Whereas, if the producer’s income be taxed it will tend to limit employment and stop the production of wealth.
Our lawmakers will do well, therefore, to pay less attention to the rate on incomes, and more to the source from whence they are drawn.
Written around 1925
Laborers knowing that science and invention have increased enormously the power of labor, cannot understand why they do not receive more of the increased product, and accuse capital of withholding it. The employer, finding it increasingly difficult to make both ends meet, accuses labor of shirking. Thus suspicion is aroused, distrust follows, and soon both are angry and struggling for mastery.
It is not the man who gives employment to labor that does harm. The mischief comes from the man who does not give employment. Every factory, every store, every building, every bit of wealth in any shape requires labor in its creation. The more wealth created the more labor employed, the higher wages and lower prices.
But while some men employ labor and produce wealth, others speculate in lands and resources required for production, and without employing labor or producing wealth they secure a large part of the wealth others produce. What they get without producing, labor and capital produce without getting. That is why labor and capital quarrel. But the quarrel should not be between labor and capital, but between the non-producing speculator on the one hand and labor and capital on the other.
Co-operation between employer and employee will lead to more friendly relations and a better understanding, and will hasten the day when they will see that their interests are mutual. As long as they stand apart and permit the non-producing, non-employing exploiter to make each think the other is his enemy, the speculator will prey upon both.
Co-operating friends, when they fully realize the source of their troubles will find at hand a simple and effective cure: The removal of taxes from industry, and the taxing of privilege and monopoly. Remove the heavy burdens of government from those who employ labor and produce wealth, and lay them upon those who enrich themselves without employing labor or producing wealth.
Tom,
The speculator is not the only “exploiter”. The speculator is not the only non-productive element in society. In fact the speculator is relatively harmless when compared to another.
The speculator does not steal at the behest of others who are often driven by envy and other petty motivations. In fact, the speculator does not have this power, as the use of force is not legally available to him. As Tom states, the speculator does not employ others, but at least he does not employ others who do harm to our society and the world. He does not make these employees an elite, giving them incredible and unsustainable benefits, the funding of which is gained at the point of a gun.
While the speculator may be able to profit from war, he does not have the means to start or engage in war. Only a government has that power. Anything that increases the power of a government to tax increases its power to do evil in its country and the world. The article under discussion encourages just that.
I pretty much object to the income tax for a variety of reasons one of which is that we spend too much time and money on meeting its requirements–any tax is better. We should have some kind of property tax and VAT system–that’s my preference.
But, having said that, we live at a time when any sane system or any sane reform of the system in any sector is not just impossible as a practical factor but, as the system is currently constructed, impossible. The power elite have a highly robust system where they win and the rest of us lose ad infinitum. The mainstream media seems to have convinced the American people that no matter how f!!ked up things get there is no alternative but this system in every detail.
I have often said that the tragedy we live with today is that never before have we had more information and, indeed, knowledge available to us, never before have we come up with better solutions to real problems, never before have there been so many well-thought out new ideas, new technology, new paradigms, new and fresh approaches to almost every aspect of our lives—and, never before has a system been more gamed and made immune from these ideas. Something has to give.
Also killing the goose that laid the golden egg:-
http://www.guardian.co.uk/business/2013/jul/07/high-street-retail-business-rates
Agreed, except that a person’s lot on which his home is built should be free of taxes–otherwise he doesn’t own his home, the gov’t does, the tax being a kind of rental payment, which is not paid entails the loss of a person’s home. Not good for old and the unemployed. So a “lot” could be defined as a quarter acre or a half acre, whatever. Anything larger would be taxable, thus large estates would be taxable, except for the core acreage. A distinction would also have to be made for density of population and property values. A home sitting on 5 acres in Iowa countryside is one thing; a home on 5 acres on the Hudson is quite another.
At any rate, the essential idea, which is to tax rental income, monopoly income, toll booth income, income from private monopolization of the commons resources, is excellent. Telmex is a perfect example of governmental corruption colluding with monopolists. Mexicans seem to agree that the system is rotten and that Mr. Slim is a swine. It is all thanks to that arch-crook Salinas de Gortari. Amazing he hasn’t been jailed.
I support the general concept of land tax but the devil is in the details.
— as others have pointed out, agricultural exemptions make our existing property taxes very regressive. The biggest bang for the buck is to simply get rid of the ag exemption
— this article assumes that it is in society’s best interest to develop land. I strongly disagree and in fact, I advocate a conservation exemption for undeveloped land. The catch is that conservation land should have some degree of public access — in order to claim the exemption, you would have to allow the public on your property for hiking, hunting, etc..
— agree that a land tax should be in place of, not in addition to, our current assortment of regressive taxes (sales, payroll, booze, smokes, gas, etc..)
— note that if we did these things, the 1% would shift their wealth out of land and into other forms of wealth — art, financial assets, etc.. So IMHO, you should tax *ALL* wealth, not just land. Progressively, of course.
The only adjustment that I would make to your program would be to maintain the ag exemptions for small farmers. Cargill and Monsanto, and all the other large landowners who do not work the land themselves should receive no exemptions, of course, but I would want to see a carve-out for actual family farms.
I am a staunch ecologist, so I sympathize with your desire for conservation. However, I think a land tax promotes building “up” over sprawl, which means in the long run that land is developed more efficiently. That may not be as good as no development at all, but it is certainly better than what we’ve got now. I wouldn’t support any exemptions because there would be nothing to prevent a speculative land developer from hoarding land for future development under the claim that it is a nature preserve. I think it is one of the best features of the land tax that it discourages people from owning land they have no immediate use for. I can imagine a situation where local, state and national parks grew tremendously as land that is currently locked up in speculation is divested.
It’s true that land was never intended as a long term benefit. It was granted to intrepid pioneers to be used. Not to be hoarded. But there is a gray area here. Use could legitimately be considered a hedge against inflation, for instance. Otherwise hedge funds should also have to pay BIG taxes. But no, no, no. Not that! Are you as sick of this crap as I am? I mean really. Elvis has left the room ladies and gentlemen; you can reclaim your underpants on the way out.
So I have 40 acres that have all native fauna and flora. I don’t harvest any of them. I don’t have any industry using the land. The land is what 1 out 200,000 people want because it is remote. The trees make air, the species aren’t under pressure and 100,000 times more water rolls downhill to feed the creek, then river, then ocean, than I ever use.
And I am somehow not paying my taxes while promoting the dwindling health of the planet.
Fit me into this argument and wonder at why I protest when I have no profit except mankind’s future.
As other commenters have pointed out, it’s all about details. You should get a conservation exemption. I would also like to see exemptions for primary residences, so that land taxes won’t drive anyone to homelessness.
I agree that the devil is in the details. And I support anyone who argues the tax must be just, and not burden small land holders. But I don’t understand the impetus for granting exemptions (unless it’s simply that you are conditioned to expect that, one way or another, you are going to be screwed).
Since the idea being proposed is revenue neutral… that should mean the small farmer pays a land tax instead of an income tax but that overall his taxes don’t change, or change insignificantly. An exemption on top of that is a subsidy. If you want to subsidize small farmers, OK, fair enough. But that is not a reason, as far as I can see, to oppose the land tax. What we need is a mechanism to make it uneconomical to build sprawling suburbs on prime farmland, pushing the farmer into the desert, which is better done through zoning than through tax exemptions in my opinion.
I take revenue neutral to be a ‘macro’ term referring to the overall impact of the tax changes on the government’s balance sheet, not (necessarily) revenue neutral for any individual person, if that makes sense.
Yes, perfect sense. It is revenue neutral, not burden neutral. The final amount assessed would not necessarily be exactly the same as under the current system, which is why I said “significant”. I assume a normal distribution and that means *most* people pay taxes now and would pay similar taxes under a revenue neutral scheme. The distribution of who pays exactly how much would change, but the biggest changes would fall on the people furthest from the mean of the normal distribution (the outliers). An “ordinary” small farmer should not see much of a change. Nor should an “ordinary” home owner. But a land speculator holding millions of acres would be forced to divest or pay a huge tax (not a higher rate). A business planning new construction might ask the architects to build up rather than sprawl out. Businesses that sprawled out when economic conditions favored sprawl would take a hit. Concerns (such as ranches) that added acreage because every additional acre was added subsidy dollars, would become less profitable. But if production + subsidy is high enough, they could continue to grow. Take out the subsidies, and ranches would only grow to the extent that the owner could actually work the land (rather like Locke intended). Poor people who inherited land and have no other wealth or income would take a hit as well. They would be forced to sell down to the level of taxation they could afford. And that’s unfortunate, but it would free up the land for others to use, including conservation groups who want to put it in trust. The idea is not that every acre has to have a house on it. The idea is that acres that are not being used (conservation is a use) are returned to the market. If the poor person can actually get a living from the land they should be able to afford the tax.
If only 1 person in 200,000 would want the land, its price and assessed value should be quite low. So your tax would be low, as well.
+1
And then you have the bozo who owns and hoards all the land along the highways for decades who gets to pay the same tax.
When corruption is rampant throughout all parts of government, it’s hard to come up with structural solutions.
his is one of the smartest comments ever on this blog.
There can be no structural solution to the “money pit” aka USA.
“When corruption is rampant throughout all parts of government” – Brooklin Bridge
skippy… Nay… the world mate… as reality is a shared delusion… trickle down thingy… cloistered priests gone mad stuff… how about the Free Market is a lie… and anything or one that has a dog in that hunt… is a priest gone insane… private or public~~~
I’ve been dreaming about buying ~10-20 acres purely for subsistence farming (incl chickens and hogs) in order to quit contributing my labor in service of so many other immoral people. A non-trivial property tax on land? For me, there goes that dream.
My original proposal had no exemptions for anyone (except that federal land was not included) – but if individual states wanted to collect the tax differently, that was up to them (this also encourages the Fed Gov to return land within state borders)
Those that want to attach the tax to the value, why? The services the Federal Government provides does not vary based on the value of the land. If you tax value, people will figure ways to ‘adjust’ the value. If you tax based on usage, then you are taxing activity – meaning some activities will be encouraged by government and others will be penalized. That is using taxation for social engineering.
Yes, farmers will pay much more than an apartment dweller in the same state – if that is the way the state collects the tax. I don’t see much difference between the rent collected by the landlord (the production of his land) and the income a farmer generates (the production of his land).
I didn’t expect the plan to be revenue neutral. Government gets too much money now for doing to many things it should not. The tax collected increases when capital improvements are made – whatever purpose those improvements are.
“That is using taxation for social engineering.”
Yes, but there *is* no other purpose for taxation. And this proposal, at least, allows for a market mechanism to do the engineering instead of a council of elders or unresponsive representatives.
Of course there is another purpose for taxation, the ONLY purpose for taxation is to provide the funds necessary for government to provide the services WE authorize it to do so. Using government to change society is tyranny, pure and simple.
That is true for local and state (non monetarily sovereign) governments, but not for the federal government.
Oh, and building roads and bridges is social engineering. It changes society. Do you think the national highway system was ordained by god? It was a policy choice to invest in roads and automobiles instead of rail transport and it has had a huge effect on society. Funding a police statin is social engineering. Building a fire station is social engineering (not that the federal government does these things). Building courts and jails is social engineering. There is no “service” the government can provide that is not social engineering. Typically, in my experience, people who cry “social engineering!” simply mean “I don’t like that policy!”
“That is true for local and state (non monetarily sovereign) governments, but not for the federal government.”
The Federal government has a small and clearly defined set of authorities and none of them deal with individual choice.
Yes, building a road is an authorized act of government that should be funded by taxation. If EVERYTHING that impacts society is ‘societal engineering’ then I choose to minimize that impact and limit it’s effects. I do not need to repair Union Station in NY, nor should my taxes be used to do so. If New Yorkers want to repair Union Station, let them pay for it LOCALLY, not via federal taxation. If Kentucky and Ohio want to have a bridge over the Ohio, then let them pay for it. If Alaska wants a bridge to nowhere, let them pay for it. If people want a national opera company, let them donate to it.
If a community wants to enforce standards upon it’s members, then let that community decide.
You mean like “provide for the general welfare”?
+1
“provide for the general welfare of THE UNITED STATES”, not the general welfare of the individual citizen. The Constitution is a document between the Federal Government and the States.
And Jamie….the idea that government can just print money and provide whatever people want is the surest way to destroy the economy….
Yes, I see where you’re coming from. But you can make the same arguments against the income tax. You are simply saying you want less taxes and a greater consensus on how we spend, limiting ourselves to basics that (almost) everyone can agree on. Both things would be good, I agree. But that leaves open the question of whether an income tax or a land tax is a better tax. People talk about ‘revenue neutral’ to highlight that this is not a scheme to increase the taxes collected (not a hidden tax increase, obscured by the big change). If you want to talk about an overall decrease in taxes, that’s fine. There’s still the question of which is better, a land tax or an income tax, for collecting that decreased tax. (Income taxes are also social engineering, don ‘cha know.) : )
As a practical matter, it is easier to sell it (we think—it hasn’t been sold yet) as revenue neutral. That way you only have to convince people of one thing: that it’s a better tax. The other way you have to convince them both that it’s a better tax, and that the taxes need to be lowered generally. That seems like it would be a harder thing to do.
Land value tax has an excellent track record in the 17 Pennsylvania taxing jurisdictions (mostly cities) that levy it. It not only has no economic drag, but leads to more stable land prices and greater economic development. In every jurisdiction, most home owners pay less than they would under a conventionally property tax and *much* less than they would pay under a local income tax.
savingcommunities.org/issues/taxes/landvalue
Backs are broken turning sod and laying bricks. We build capital as land broken for agriculture, houses to make homes, factories and on. Once this is done why does anyone own it at all? It should all be social capital with a maintenance cost. In the process of building such reward is either spent or goes to fund other capital projects like renewables and ‘getting off this planet’. The rest is froth.
We are not bees needing to provide royal jelly to a hierarchy to maintain our gene presence in future generations. We need to sequester the rich in a way that increases general motivation. We are so scared of looking at what this means that we tinker with property tax. I’d ask how those countries bombed extensively in WW2 actually recovered and how anyone there has shelter. Then why we have housing shortages now that are nothing to do with destruction in WW2.
We should establish what the social projects are across nations, sequester the rich and get on with the job.
Finally a comment that talks to me. Creative property taxes are worthless to me.
We need to limit the inheritance of those currently in charge and take that money into the public commons for general purpose.
It is time to level the class system of our social organization by lopping off the top’s control acquired through inheritance.
“A pure land tax, one without regard to how land is used or what is built on it, is the best sort. ”
Are you out of your mind? So here I am, retired and living on a modest fixed income, in a small house on a small plot of land I bought for $82,500 in 1978. (And which I worked my ass off to pay for.) Two new houses across the street, SAME SIZE LOT, just sold for $920,000 each to 30-something couples with (evidently) great, high paying jobs. I drive a 13 year-old Chevy which I bought used. The owners of these two other houses drive (all late model): a Hummer, a Saab SUV, a Benz, and a Lexus SUV.
And we’re supposed to pay the same property tax? F#^* you.
Sure you both should. Why not? Just because they paid more? Will the Fire Department respond FASTER to a fire in their house? Police respond quicker? Is there more road to repair in front of their home than yours? Are there considerably more people living there (more need for judicial support)? Does the US Military need more money to defend your property versus their property?
What exactly is government providing in greater quantity to them? Nothing. You just want them to pay more. Very ‘equal under the law’ of you….
You ignore the ability to pay element of the equation. I’ve lived over half my life in this house. During that time I’ve paid taxes that have helped pay for the top-flight school district and good public safety services that make this a desirable place for them to live and raise their families. And since you raised the question of more people living there than at my house, yes, you’re correct. Those two houses are home to four adults and one child, with more children planned.
Returning to the ability to pay aspect: this plan would tax virtually all retired people out of their homes, destabilizing neighborhoods, creating an undeserved financial bonanza for real estate brokers, and make more children responsible for caring for their parents at the exact time when they’re trying to build their own households.
And in CA where I live there wouldn’t be any overall lowering of the tax burden, not when the state still faces an annual $28 billion revenue shortfall AND our unfunded public employee pension liabilities range between $200 and $500 billion, depending on whose numbers and projections you believe.
Property taxes based on the purchase value and use of the property simply make those taxes means-tested. People with more money who can afford more lavish homes pay more taxes. You know, progressive taxation and all that.
“Returning to the ability to pay aspect: this plan would tax virtually all retired people out of their homes”
No, you already pay property tax. We are not talking about raising your property tax by adding a land tax on top. We are talking about replacing your property tax (the tax on the value of your house, which if the neighbors just paid ~1 mil for theirs must have considerably increased over the years) with a tax on the size of your lot. Well, if you live in a tiny house on a very large lot, I can see why you wouldn’t like that. But there is noting unfair about it. And there is no reason to think that if you manage to pay the current property tax you would not be able to pay it as a land tax instead. You are assuming that you and all retired people will get some hugely increased tax bill. That is not a valid assumption.
The cost of providing the authorized services of government goes up – taxes must also go up. If retired people can’t afford the taxes necessary to support their property, then they can’t afford their property. CA is an example of government services run amok and part of that is the valuation = tax rate consequence. I don’t support a never ending increase in taxes to support a never ending increase in services .
I’m glad you are explicit in that rich should pay more, by that token, poor should receive less.
“People with more money who can afford more lavish homes pay more taxes. You know, progressive taxation and all that.”
Yes, you have a good point. But consider also that means that people with little disposable income cannot afford to live in decent homes. The wealthy have to pay higher taxes, but they get huge and lavish homes in exchange. And the not-so-wealthy people can live in hovels and not pay much tax. Wouldn’t it be better if the not-so-wealthy could live in *smaller* but still elegant homes? If you bought a small house on a small parcel and worked for years making it comfortable and nice… even lavish… your taxes would not go up just because you improved your living condition. Only the size of the lot (and its zoning) matters.
BTW, I would add that the argument that an LVT would increase the production of housing and infrastructure ignores the fact that in many areas the problem is too much building density, too many people crammed into too little space. Many of us do not wish to live in vertical canyons of concrete, steel, and glass (i.e. NYC). To say nothing of the fact that what we need here in the US is replacement of aging and fragile infrastructure for use by the people already living in the area, not new infrastructure to facilitate greater population density. All this more building for more building is part of the resource consumption problem known as “never-ending growth”.
“…the argument that an LVT would increase the production of housing and infrastructure ignores the fact that in many areas the problem is too much building density…”
2 things. First I think the argument being made is that a land tax increases the efficiency of land use, not a simple increase in every direction. Second, density is and is not a problem. We have evolved to thrive in a natural environment, not in concrete boxes, and some of us are sensitive to our surroundings such that we place a high value on space and greenery. Such people may pay a premium to have space and greenery, but not necessarily. Density in some places allows space and greenery in others, and not everyone is going to place the same value and importance on it. The converse, people spread out evenly across the landscape, positively destroys space and greenery, and is maximally inefficient land use.
A properly instituted land tax should encourage more building on *less* land, leaving more land for space and greenery. Of course we have an historical pattern of land use that is inherited from a time when efficient land use was not a consideration. A land tax can help keep this from getting worse. But it cannot reverse it or fix it, at least not quickly. New York already exists and a land tax won’t make it go away. Also, no matter how much you wouldn’t like it, some people chose to live there.
Re: So IMHO, you should tax *ALL* wealth, not just land. Progressively, of course.
No. The principle here is not to tax “wealth,” but to tax rental (monopoly, toll booth including actual and potential rental income from land. Parasitism, monopoly, injustice, is what one is trying to eliminate.
Agreed that a primary residence should not be taxed, assuming a reasable amount of land–“reasonable” varying according to density of population, and so on.
Re: What we need is a mechanism to make it uneconomical to build sprawling suburbs on prime farmland, pushing the farmer into the desert, which is better done through zoning than through tax exemptions in my opinion.
Yes. Agreed. Zoning is critical. Land use classification is critical; essential aspect of the public weal and purpose.
Corporate activity–as in farming, for instance–is a big difficulty. The corporate “person” has to be eliminated; the corporation has to be accountable to the community in which it is located, and this includes the executives. Corporations that go abroad for purposes of labor arbitrage should be declared illegal and broken-up. The domestic economy is the priority, hence higher wages.
However, until the monstrosity of big banking and the armament-Pentagon-security industry is stopped nothing will change.
It’s really difficult to tell how applicable this Australian article is to the United States (vs. Australia), when the accompanying chart provides no information on the percentage of tax revenues which Australia derives from “recurrent taxes on immovable property”. What it does show is that the United States derives 16.8% of its overall tax revenue from such sources, which is (squinting to compare the graph with the chart, since the chart doesn’t give the OECD average numerically) apparently 3-4 times the average for OECD countries and 3.7 times the average for “high-income” countries. I have no idea whether Australia falls above or below this average, but it’s certainly quite likely that it falls well below the United States. Whether the level of land taxation in the US is more or less than the optimum is certainly open to debate. However, strictly by comparison to other rich OECD countries it would appear that “immovable property” in the US is “overtaxed”. This is, most probably, a peculiarity of the American Federal system where most local entities other than major urban hell-holes derive virtually all their revenues from property and sales taxes. The Federal government which quite possibly lacks the constitutional authority to tax real property at all derives essentially no revenue from such sources.
This raises a practical problem with increasing the overall amount of revenue from such sources in the US – it would most likely require something akin to the 16th Amendment to give the Federal Government (which, after all, is the most revenue-hungry entity in the US – empire ain’t cheap) authority to partake. This, in turn would require a two-thirds vote of both Houses of Congress, and ratification by three-fourths of the state legislatures.
I’d place the likelihood of this happening at pretty close to zero, no matter how much high-income, non-property-owning folks might like “free” (i.e., completely paid by someone else, who will then recover the costs through increased rents and food prices) government services. I suspect such a proposal would die in the Senate, where agricultural states would certainly have the clout to strangle the proposal in its crib. Failing that, I would expect it to fall well-short of ratification, as municipal and county governments (fearful of the Feds horning in on “their” revenue stream), joined farmers, ranchers, and fixed-income homeowners in opposition.
Such practical considerations aside, I have to dispute the notion that “[a] pure land tax, one without regard to how land is used or what is built on it, is the best sort”, chiefly because of the distortions it would introduce in the prices of agricultural commodities. Consider the notion of the US Federal Govenment raising all of its revenues on the basis of “[a] pure land tax, one without regard to how land is used or what is built on it”. There are (http://www.ers.usda.gov/media/249896/eib14_reportsummary_1_.pdf) a little less than 1.4 billion acres of privately held land in the US. The Administration’s budget proposal for FY2013 was $3.803 trillion, which would require “[a] pure land tax, one without regard to how land is used or what is built on it” of about $2700/acre. This is a negligible amount for residential real estate in Manhattan. It’s devastating for agriculture. Let’s take wheat farming as an example. The average wheat yield in the US was 46.6 bushels/acre in 2012 (http://www.caes.uga.edu/commodities/fieldcrops/gagrains/documents/2012_13WheatProductionGuideComplete.pdf). “A pure land tax, one without regard to how land is used or what is built on it” would impose a land tax burden of $58.29 on every bushel of wheat, if that were the sole source of Federal revenue. That’s over 8 times the current farm price for wheat ($7.18/bushel). The impact is less severe for higher-priced fruits and vegetables, of course, since they have much higher returns on a dollar-per-acre basis than grain crops.
You are right to criticize the statement “[a] pure land tax, one without regard to how land is used or what is built on it, is the best sort”. It is a careless construction that does not describe a Georgian land tax at all.
One does not arrive at the tax on a parcel of land by dividing the number of parcels into the desired budget in a Georgian tax scheme. Land is taxed at its rental value, that is according to the value of its potential uses as set by the market. This doesn’t mean potential as in anything goes, but potential as in what is this land zoned for? Farmland would be taxed at the rental value of farmland as set by the (presumably fair) market value for land zoned to be farmland in a given locality. This obviously is not a tax “without regard to how land is used”.
And you want to avoid having the tax collector lower property taxes, leaving more revenue available to be pledged to banks as interest on higher mortgage loans. Dr. Michael Hudson
This assumes that “loans create deposits.” Indeed they do but to get away with deposit creation on a large scale requires government privileges such as government deposit insurance, a legal tender lender of last resort, lack of a Postal Savings Service, etc. Otherwise, reserves will drain out of banks almost as fast as the corresponding deposits are created. That’s a feature, btw, not a bug since government-backed deposit creation is theft of purchasing power.
@beardos tutelage: Purchasing Power – nomenclature aka sometimes retroactively called adjusted for inflation.
Or more distinctly expressed:
“As Adam Smith noted, having money gives one the ability to “command” others’ labor, so purchasing power to some extent is power over other people, to the extent that they are willing to trade their labor or goods for money or currency.”
skippy… personally methinks its more a case of everyone wants to be Gawd, but, their not… system architecture defect thingy~
Yep, money can “command” those who need it which is just one reason (the abolition of slavery) why debt-based money should be discouraged, or at least not encouraged by government.
Perhaps some people need to be “enslaved” for their own good which would explain why Deuteronomy 23:19-20 allows usury from foreigners but I see nothing in Scripture that allows THEFT from foreigners. So even if we happen to view some of our fellow countrymen as “foreign” that does NOT justify stealing from them via what is essentially a government-backed counterfeiting cartel.
personally methinks its more a case of everyone wants to be Gawd, skippy
Especially if one thinks the position is not already filled.
55% seems a bit much for taxes?
Depends on what kind of society you want… inclusive or neoliberal hell.
skippy… kinda like *why* do so many feel the need for guns and why is this feeling increasing and not diminishing in the face of more argent policing and imprisonment… eh.
Hmmm, looking at my calander its not April 1st here… SO why the bad joke about land taxation? Suppose I was a farmer, farming say 640 acres, which is quite small by todays standards. You asses want to tax me whether I make any money or not. There are after all droughts, hail, insects, etc. Many ways to not get a crop to sell. And sometimes what you do have to sell, won’t bring what you have invested in growing it. What is the matter with a tax on income???? Thats the only tax there is thats even close to being fair. Its asses with high wages living in an apartment that propose bullshit like this. Or your calender is off a few months…
Britain has always been reluctant to tax land as its where the government’s friends park their surplus capital.
France is more democratic since the Revolution and it works there to keep property prices down. Germany took a middling course of raising its revenue half / half from land / labour and profits. The French approach is clearly fairest and they have had two centuries to iron-out the difficulties. Many of the naysayers on this thread have already been answered.
A “Federal Property Tax?”
I thought the Feds could only tax income.
Are the Feds glomming on to state tax assessments?
What about disparate state taxing procedures? Equal Protection problems?
I have feared this for years.
Excellent article, but depressing to see all the usual “Killer Arguments Against LVT, Not” being trotted out in the comments, all of which I have merrily debunked at some length on my separate blog (click my name for index page).
Adam Smith and the Physiocrats understood it.
You can only tax three types of income, the wages of labour, the profits of stock or the rent of land.
Only one of them does not hide in offshore bank accounts, stop working or breeding or rust away.
For a short overview statement of the arguments see in –
http://isslerhall.org/drupal/sites/default/files/Latvia_Renewed_2010.pdf
@ MP, I think the Economist chart is based on Council Tax and Business Rates only (= about £50 billion = about 12% of UK government tax revenues).
Council Tax is as you say a Poll Tax with a small “building size” surcharge.
But Business Rates is actually pretty close to LVT as it taxes the annual rental value, although it includes rental value of building as well (not just the land). And unfortunately derelict and vacant sites are exempt.
So for a given total revenue, Bus Rates are too high in low rent areas and too low in high rent areas, but by and large, the average business in the average area would pay the same in LVT as it does in Business Rates (assuming the two were swapped £ for £ on a national level).
And any tax on (or subsidy to) buildings always falls mainly on the land element.
Land taxes might have been a good idea in the 17the or 18th century when nations were owned by kings and lords and nouveau capitalists/bankers wanted to gain ownership of the lands and resources. Mission accomplished. Ownership of the Earth has been transferred from kings to capitalitsts. Meanwhile, some of us peasants have gained title to patches of the Earth. We live here, on our patch of Earth. You want to tax us for having feet that touch the surface of this planet? You want to charge me rent for the piece of ground I live on? Whose side do you think you are on?