Land Value Taxation Campaign

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Home Blog Responsorium 14 January #2

Responsorium 14 January #2

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I see a grain of truth in there, but this does not make it a valid or complete argument. In general, from an efficiency point of view one should tax those goods/service that respond the least (this, however, often clashes with equity considerations). Land, in an geographic sense, does not adjust.

Yes

However, in practice, there also a lot of margins of "productive land" that are affected by land taxes. For example, if my land produces less than the tax: I sell it to someone else, who then migrates, leaving the land without effective owner. And so, the land has no reverted back to no use (while it would have maybe produced marginally if I kept it). This is just to say that land is not necessarily so different....

A uniform land tax to pay for all government expenditure would drive agriculture to zero, and all landowners to bankruptcy. A geographically-varying land tax is really a tax of something else.

Land Value Tax is, as its name implies, a tax on the value of land. A uniform tax would be absurd. Land in Central London is worth thousands of times more, per unit area, than land in the Scottish Highlands. The substantive value of land is its annual rental value. The selling price is a derivative value. Selling price is indeed related to the rental value but depends on factors such as interest rates and expectations of changes in value and development possibilities. Land value tax, properly applied, is a tax on the annual rental value. The actual assessment is the gross annual rental value ie the market rental value plus any taxes payable on the property.

You are spot-on with your observation that tax cannot be more than the rental value of the land, otherwise the land will be abandoned. But this applies to all taxes payable – property taxes, income tax, corporation tax, fuel tax, VAT (the incidence is partly on the seller); you have to add them all together. That is why large tracts of most EU countries are now economic wastelands. The beauty of land value tax as a replacement for other taxes is that no tax is payable at the marginal site, so that production is optimised-.

Perhaps 3 centuries ago, a lot of productive land was in the hands of big landowners...

There is plenty of unused land today. Newcastle city centre, for example, is plastered with estate agents’ boards. Some of them have been there for many years. There are sites in the middle of Brighton which have been vacant for over thirty years, with planning consent for most of that time. You will find the same thing if you look around many industrial estates. You can see this for yourself if you take a walk round some of the more run-down areas where you live. Rents do not fall to market-clearing levels.

But perhaps the greatest argument against land tax is that is practically impossible to raise the amount of tax that is currently raised,  with land taxes alone. So, while on the margin one might consider raising taxes on land, it can never be the whole solution.

All taxes come out of land rent. This was first noted by the Physiocrats. It is a corollary of Ricardo’s Law of Rent. It has also been tested by studies such as those made for the Department of the Environment following the end of the 1980s Enterprise Zone scheme. In other words, if there is a reduction in tax, rents rise, in the aggregate, by about the same amount. So if all taxes were suddenly removed (for example, if a benevolent alien arrived from a distant planet and paid for all government expenditure), then total rents would rise by about the same amount as the tax that no longer had to be paid.

Because existing land values are depressed by taxation, you cannot project from these values and conclude that a land value tax could not raise sufficient revenue. On top of that is the issue that so much government expenditure consists of welfare payments needed to redress the collateral damage done by the tax system. It is not genuine expenditure, let alone investment. These are just transfer payments.

 

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