1. Estimates of the revenue that could be raised by an LVT in the US come out to 30-50% of federal and state tax receipts at a low rate. That’s significant!
As another estimate, US states use a ~1% property tax ($600B/yr), LVT proposals are about the size of a ~3% property tax ($1.8T/yr). And of course, this revenue can crowd out less efficient tax sources, improving growth.
2. Taxing natural resource extraction and taxing land possession are somewhat distinct issues in Georgism. It's rare that high value land in urban centers also has undiscovered oil. For natural resources, severance taxes are an established solution to taxing resource extraction but have some inefficiencies. Harberger taxes could work too.
3. Estimating the value of unimproved land sounds challenging but has a lot of solutions in practice:
Because Georgism aims to collect only 80% of the land value, there's a lot of wiggle room for inaccurate assessments.
4. For the hotel and stadium complementarities it’s helpful to walk through the example more fully. The owner starts by buying undeveloped or underdeveloped land at a certain price and then adds buildings to it. The price of the undeveloped land is a good estimate of the land value and any assessor should use that as the starting point for assessing the land, not the value after the buildings are built. Alternatively, using assessments on undeveloped areas nearby gives an estimate as well.
After the hotel and stadium are built, nearby land values rise, raising more taxes for local public goods or increasing the dividend that the hotel owner receives.
The end result is that raising local land values slightly reduces the owners incentive to build (since this will raise the value of the land they built on and thus raise taxes). But this distortion is probably lower than the property taxes we use today.
5. I think we agree that the Georgist proposals would probably be an improvement to tax systems even though they’re imperfect and fall short of a revolution. Still seems worth doing.
I think so. But one might become concerned about the disincentive effects if the land-value tax were to replace other taxes in addition to the property tax.
>What I think the most important criticism is is that a single tax breaks down when spillovers are due to a single agent....There are many types of public goods, though, and discovering what those public goods are is best done in a market.
I've been concerned about this for a while - LVT disincentivizes attempts by communities to produce positive rents they would normally capture. It creates a misalignment whereby a location's desirability, which is often improved intentionally by local agents working together to provision public goods (e.g. HOAs), is now nationalized by a taxing authority that lacks that rent-increasing incentive. High land rents are good! They're the closest price signal we have to everything that is otherwise impossible to price: air quality, community networks, how pleasant a view is, literally everything there is about living and working somewhere. We should want to maximize them. But I don't think this is a death knell for LVT, it just means we need to make slight adjustments and everything will become very well aligned.
1. Make the natural zone in which spillovers from investments occur (greater metropolitan areas ideally) the taxing authority.
2. Give the taxing authority an incentive tied to land rents - ideally they should be a single, for-profit firm that owns all land and has as much sovereign authority as can be secured without threatening exit rights. Reedy Creed Improvement District is one model of this.
3. Have a network of such entities with free movement between them such that a market is created for different bundles of public goods and different models of metro administration, as a more explicit version of tiebout sorting. I expect efficient entities will mirror this set-up internally for their satellite cities.
If done right this puts governments under market discipline to maximize land values, our closest proxy for "everything good about the place they're responsible for" while organically learning-by-doing the best methods for appraisal, HGT public good investment, and *the art of governing itself*.
Rather than seeing the problem you brought up as a challenge to Georgism, I think it leads us to something that might substantially improve upon the initial vision. You might even be able to keep much of the citizen's dividend 'social return of rents' elements of orthodox georgism if these firms are put under cash flow taxation.
A company town is a place where a single organization owns all the land and property. There's no competition between landowners, meaning the company can charge monopolistic prices. If it's surrounded by wasteland, there's not enough demand for the large variety of service dense urban centers have.
A dense urban center has a variety of land owners. This creates competitive pressure for landowners, making price controls much more challenging. These centers are surrounded by large urban and suburban areas, which creates the demand needed to sustain a high diversity of services.
Whenever I first heard about Georgism, the outcome seemed obvious. Large developers would by tracts of land in the middle of nowhere, fully developing them. All residents would be renters. The result would be almost no tax burden, since the surrounding land has no improvements the single plot would be considered almost valueless. Perhaps the landowner might pay his buddies to buy up the tracks of surrounding land and leave them undeveloped, or better yet turn them into an "environmental preserve for rare species".
So what Georgists think they are getting is dense urban cities woth public services; what they actually get are company towns surrounded by wasteland.
But remember, LVT *increases* the tax paid on empty land. Large developers would make more money today by developing tracts in the middle of nowhere than they would under an LVT. So why isn't that happening today?
What matters is the relative tax rates, not the absolute ones. Today's property taxes are on the land and it's improvements. LVT is just the land. That means an empty urban plot, surrounded by other people's improvements, would see a much larger increase in tax than a rural plot.
I suggest that the same amount of serious consideration go into the the personal consumption tax. You can still argue the DWL of the consumption/leisure distortion, but at least we are encouraging a more growth-promoting way of using income.
1. Estimates of the revenue that could be raised by an LVT in the US come out to 30-50% of federal and state tax receipts at a low rate. That’s significant!
https://www.astralcodexten.com/p/does-georgism-work-is-land-really
As another estimate, US states use a ~1% property tax ($600B/yr), LVT proposals are about the size of a ~3% property tax ($1.8T/yr). And of course, this revenue can crowd out less efficient tax sources, improving growth.
2. Taxing natural resource extraction and taxing land possession are somewhat distinct issues in Georgism. It's rare that high value land in urban centers also has undiscovered oil. For natural resources, severance taxes are an established solution to taxing resource extraction but have some inefficiencies. Harberger taxes could work too.
3. Estimating the value of unimproved land sounds challenging but has a lot of solutions in practice:
https://www.astralcodexten.com/p/does-georgism-work-part-3-can-unimproved
To the above discussion I would add my auctions proposal:
https://splittinginfinity.substack.com/p/some-thoughts-on-using-auctions-for
Because Georgism aims to collect only 80% of the land value, there's a lot of wiggle room for inaccurate assessments.
4. For the hotel and stadium complementarities it’s helpful to walk through the example more fully. The owner starts by buying undeveloped or underdeveloped land at a certain price and then adds buildings to it. The price of the undeveloped land is a good estimate of the land value and any assessor should use that as the starting point for assessing the land, not the value after the buildings are built. Alternatively, using assessments on undeveloped areas nearby gives an estimate as well.
After the hotel and stadium are built, nearby land values rise, raising more taxes for local public goods or increasing the dividend that the hotel owner receives.
The end result is that raising local land values slightly reduces the owners incentive to build (since this will raise the value of the land they built on and thus raise taxes). But this distortion is probably lower than the property taxes we use today.
5. I think we agree that the Georgist proposals would probably be an improvement to tax systems even though they’re imperfect and fall short of a revolution. Still seems worth doing.
The concern in (4) is that the owner’s incentive to build is reduced because it raises the value of the *other* land she owns.
Agreed. Any large building can raise local land values and raises your taxes. So there is a deadweight loss here.
Though I would guess this disincentive is smaller than the disincentive created by property taxes right?
I think so. But one might become concerned about the disincentive effects if the land-value tax were to replace other taxes in addition to the property tax.
>What I think the most important criticism is is that a single tax breaks down when spillovers are due to a single agent....There are many types of public goods, though, and discovering what those public goods are is best done in a market.
I've been concerned about this for a while - LVT disincentivizes attempts by communities to produce positive rents they would normally capture. It creates a misalignment whereby a location's desirability, which is often improved intentionally by local agents working together to provision public goods (e.g. HOAs), is now nationalized by a taxing authority that lacks that rent-increasing incentive. High land rents are good! They're the closest price signal we have to everything that is otherwise impossible to price: air quality, community networks, how pleasant a view is, literally everything there is about living and working somewhere. We should want to maximize them. But I don't think this is a death knell for LVT, it just means we need to make slight adjustments and everything will become very well aligned.
1. Make the natural zone in which spillovers from investments occur (greater metropolitan areas ideally) the taxing authority.
2. Give the taxing authority an incentive tied to land rents - ideally they should be a single, for-profit firm that owns all land and has as much sovereign authority as can be secured without threatening exit rights. Reedy Creed Improvement District is one model of this.
3. Have a network of such entities with free movement between them such that a market is created for different bundles of public goods and different models of metro administration, as a more explicit version of tiebout sorting. I expect efficient entities will mirror this set-up internally for their satellite cities.
If done right this puts governments under market discipline to maximize land values, our closest proxy for "everything good about the place they're responsible for" while organically learning-by-doing the best methods for appraisal, HGT public good investment, and *the art of governing itself*.
Rather than seeing the problem you brought up as a challenge to Georgism, I think it leads us to something that might substantially improve upon the initial vision. You might even be able to keep much of the citizen's dividend 'social return of rents' elements of orthodox georgism if these firms are put under cash flow taxation.
A company town is a place where a single organization owns all the land and property. There's no competition between landowners, meaning the company can charge monopolistic prices. If it's surrounded by wasteland, there's not enough demand for the large variety of service dense urban centers have.
A dense urban center has a variety of land owners. This creates competitive pressure for landowners, making price controls much more challenging. These centers are surrounded by large urban and suburban areas, which creates the demand needed to sustain a high diversity of services.
Whenever I first heard about Georgism, the outcome seemed obvious. Large developers would by tracts of land in the middle of nowhere, fully developing them. All residents would be renters. The result would be almost no tax burden, since the surrounding land has no improvements the single plot would be considered almost valueless. Perhaps the landowner might pay his buddies to buy up the tracks of surrounding land and leave them undeveloped, or better yet turn them into an "environmental preserve for rare species".
So what Georgists think they are getting is dense urban cities woth public services; what they actually get are company towns surrounded by wasteland.
But remember, LVT *increases* the tax paid on empty land. Large developers would make more money today by developing tracts in the middle of nowhere than they would under an LVT. So why isn't that happening today?
What matters is the relative tax rates, not the absolute ones. Today's property taxes are on the land and it's improvements. LVT is just the land. That means an empty urban plot, surrounded by other people's improvements, would see a much larger increase in tax than a rural plot.
These in the last sentence sound one and the same?
I think my friend has a good proposal on this: https://thewaywardaxolotl.blogspot.com/2023/07/natural-resource-taxation.html
I suggest that the same amount of serious consideration go into the the personal consumption tax. You can still argue the DWL of the consumption/leisure distortion, but at least we are encouraging a more growth-promoting way of using income.
You are correct on both points. The first I consider positive; the second at foreseeable rates of near zero importance.