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Arguments/background for and against

In the United Kingdom, LVT was an important part of the platform of the British Liberal Party during the early part of the twentieth century - David Lloyd George and H. H. Asquith proposed "to free the land that from this very hour is shackled with the chains of feudalism".

In the United Kingdom, LVT was an important part of the platform of the British Liberal Party during the early part of the twentieth century - David Lloyd George and H. H. Asquith proposed "to free the land that from this very hour is shackled with the chains of feudalism".[8] It was also advocated by Winston Churchill early in his career.[9] Labour's 1931 Budget included an LVT, but before it came into force it was repealed by the Conservative-dominated National Government that followed shortly after.

In 1990, several leading economists – including 4 Nobel Prize winners – wrote to then President Mikhail Gorbachev suggesting that Russia use Land Value Taxation in its transition towards a free market economy.

Claimed advantages

  • A correlation between high LVT and growing economic prosperity is predicted by Georgist theory, and has consistently been observed in practise.[11]
  • A natural source of public revenue. All land makes its full contribution to the government, allowing reductions in existing taxes on labour and enterprise.
  • A stronger economy. If labour, buildings or machinery and plant are taxed, people are dissuaded from constructive and beneficial activities and enterprise and efficiency are penalized. The reverse is the case with a tax on land values, which is payable regardless of whether or how well the land is actually used. LVT is a payment, based on current market value, for the exclusive occupation of a piece of land. In the longer term, this fundamentally new and different approach to revenue raising is expected to stimulate new business and new employment, reducing the need for costly government welfare spending.
  • Marginal areas revitalized. Economic activities are handicapped by distance from the major centres of population. Conventional taxes such as VAT and those on transport fuels cause particular damage to the remoter areas of the country. LVT, by definition, bears lightly or not at all where land has little or no value, thereby stimulating economic activity away from the centre - it creates what are in effect tax havens exactly where they are most needed.
  • A more efficient land market. The necessity to pay the tax obliges landowners to develop vacant and under-used land properly or to make way for others who will. Holding land idle becomes financially unsustainable.
  • Less urban sprawl. Because LVT deters speculative land holding, dilapidated inner-city areas are returned to productive use, reducing the pressure to build on green-field sites.
  • Less bureaucracy. The complexities of Income Tax, Inheritance Tax, Capital Gains Tax and VAT are well known. By contrast, Land Value Tax is straightforward. Once the system has stabilized, landholders will not be faced with complicated forms and demands for information. Revaluation will become relatively simple.
  • No avoidance or evasion. Land cannot be hidden, removed to a tax haven or concealed in an electronic data system.
  • An end to land speculative bubbles. Speculation in land value - frequently misrepresented and disguised as "property" or "asset" speculation - is the root cause of unsustainable booms which result periodically in damaging corrective slumps. Land Value Taxation, fully and properly applied, eliminates the speculative element in land pricing.
  • Impossible to pass on as higher prices, lower wages, or higher rents. Competition makes it impossible for a business producing goods on a valuable site to charge more per item than one producing similar goods on less valuable land - after all, producers and traders at different locations are paying different rents to landlords now, yet like goods generally sell for much the same price and employers pay their workers comparable wages. LVT cannot be passed on to tenants, as they are already paying the full market rent, and the tax doess not affect the economic rent of the land.
  • Lower natural interest rates in economy. In the present system, the value of land has to be paid fully during the purchase. This increases the demand for money in the economy to serve these lump-sum payments. In a pure LVT system, the amount paid to buy a house or start a business is less because the initial prices of land are low due to the anticipated LVT payments as long as the land is held. Thus in an LVT system, the demand for money is lower (other things being the same), lowering the natural interest rates. The availability of more money for productive capital investment acts as a further boost to the economy.
  • Fairness. Land (unlike goods and services) has no cost of production. If an ample supply of land of equal desirability were available everywhere, there would be nothing to pay for its use. In reality land acquires a scarcity value owing to the competing needs of the community for living, working and leisure space. Thus the unimproved value of land owes nothing to the individual efforts of the landowner and everything to the community at large. It belongs justly and uniquely to the community. Conversely, the reward for individual effort can belong only to the one who earns it, to spend, save, or give away as he or she may see fit.
  • Voluntary. The tax is completely avoidable. Anyone who does not wish to pay it need only rent land in place of owning it

Criticism/Arguments against

One of the biggest potential problems with a Land Value Tax lies in the valuation process. Under current property tax systems, the notional value for taxation purposes is often allowed to diverge from the actual market value. Some jurisdictions assess property value at a fraction (sometimes quite a small one) of actual market value, and others tax only a fraction of reasonably accurate appraisals. Different rates of assessment and/or tax for different classes of property and even different sorts of owner also abound. When such complications go too far, people may end up paying an unfairly high or low amount of tax. Sudden, large changes may occur in the tax amount, owing to the politically unpopular revaluations to market occurring in a single year after long periods of no change, rather than small changes occurring every year in step with changes in the true market value.

Perverse Incentives

Another practical objection to an LVT system is that there would be a strong incentive for landowners to find appraisers that ascribed more of the real estate value to improvements than to the land itself. Thus the actual sale price of a parcel would remain unchanged and the relative valuation of land vs. improvements would shift towards improvements.

Since an LVT increases the value of improvements and penalizes dispersed land use, it could create strong incentives toward high intensity land use. For example, in large cities a pure LVT may not have adequate provision for open spaces in a densely populated city. Any parkland in a city would have an economic value higher than its usage as a park, leading to parks being removed and the city losing out in the process due to lack of open spaces.

A land tax may lead to dynamic economic inefficiencies by distorting timing decisions with regards to development. A land tax might induce an owner to develop a vacant land parcel earlier than he might otherwise (rather than extract delayed income streams), even though instances could arise where latter the decision to delay development yields a higher net present value in the absence of the tax. So, although a current market value land tax reduces incentives for speculation, it may lead to suboptimal decisions favoring improvements solely for the sake of placing non-taxable value on the parcel.

Karl Marx

Marx's criticism of land tax (as anything more than one of the measures to be imposed during a transition to communism) was relatively influential - he argued that "The whole thing is...simply an attempt, decked out with socialism, to save capitalist domination and indeed to establish it afresh on an even wider basis than its present one." He also criticized the way land value tax theory emphasises the value of land - arguing that "Theoretically the man is utterly backward! He understands nothing about the nature of surplus value and so wanders about in speculations which follow the English model but have now been superseded even among the English, about the different portions of surplus value to which independent existence is attributed--about the relations of profit, rent, interest, etc. His fundamental dogma is that everything would be all right if ground rent were paid to the state."

However, in 1875 Marx changed his opinion on land taxation. In a letter, he wrote: "In present-day society the instruments of labour are the monopoly of the landowners (the monopoly of property in land is even the basis of the monopoly of capital) and the capitalists... the capitalist is usually not even the owner of the land on which his factory stands.

Unequal taxation

In addition, the emphasis on land's value exceeds what many feel to be reasonable. It is claimed that workers who do not need to own land, such as doctors or computer scientists, would feel little effect, while agriculture or manufacturing, for instance, would bear far more of the tax burden. The tax would have a greater impact on people whose assets are more concentrated in land, and such people would have difficulty paying the tax without selling or mortgaging their property.

Herbert J. Davenport

Herbert J. Davenport, an early 20th century economist from the University of Missouri and Cornell University, was a major critic of the land value tax. Davenport sympathized with the goal of taxing the "unearned increment." However, he believed that efforts to do this by means of a land value tax would cause the land to be used less efficiently. For farm land, he thought that this was obvious. "The farmer", he said, "is continually renewing his land's fertility and other characteristics. A tax on one parcel of land will simply cause farmers to abandon it and to prepare and fertilize other untaxed land. And a tax on all agricultural land will simply be a tax on the production of farm goods." The result, he believed, would be a decreased supply of farm goods relative to other goods, higher prices of farm goods, and a fall in the amount of land on which crops are grown.

Loss of Asset Value

Land value is the discounted present value of expected future after-tax rents; so LVT, by increasing the taxation of those rents, would reduce the value of all real estate owners' holdings. A rapid reduction of real estate values could have profoundly negative effects on banks and other financial institutions whose asset portfolios are dominated by real estate mortgage debt, and could thus threaten the soundness of the whole financial system. Rapid introduction of LVT must therefore be considered a somewhat irresponsible approach, and most LVT advocates consequently favor a long phase-in process lasting at least a decade, and potentially much longer.

If land's value were reduced to zero or near zero by recovering effectively all its rent, as many LVT advocates propose, total privately held asset value could decline by as much as 1/4 or even more, a massive reduction of private citizens' wealth.

All text of this article available under the terms of the GNU Free Documentation License (see Copyrights for details).

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