To be an effective source of revenue, land value tax must be about 30% of rental value at the outset. This is between 1% and 1.5% of selling prices, and that is part of the difficulty.
- First, selling prices include an element of hope value.
- Second, a tax on selling prices is "lumpy" because it is a percentage of a large figure - small variations in the tax rate produce large differences in both the amounts payable and in the yield.
- Third, it is a tax on a value which cannot be realised except on sale, and therefore unfair in principle. (unlike a tax on rental values which can either be realised immediately or are an imputed income).
- Fourth, the tax results in a reduction in the capital value of land, and so to tax it is like sawing oneself off the log one is sitting on.
Capital values or annual values
This is probably one reason why LVT is always fought hard over even when it is in operation. It is perceived as unfair because in a sense it actually is unfair - it is the rental value that is constantly being sustained by the community, day by day. That is the value we want to tax. Not the hope values built into speculative expectations, reflected in the price of land titles, of what will happen to this rental income stream in the future.If one is starting LVT from scratch, or existing property taxes are on annual values, as in the UK, why use selling prices for the assessment when they are a derivative and secondary value?
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