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October 25th, 2011 by Edward Miller

As anyone familiar with classical political economy knows, true property rights are rooted in self-ownership. You own yourself, and by extension you own what you make through labor or voluntary transactions thereof. Land, however, is not a fruit of labor.

One might reasonably suppose that land, being unlike other things that are called property, would have special economic characteristics. Classical economists recognized this to be the case, and spoke at length about the implications of it. Modern economists forgot this truth, and insist on lumping everything together under the solitary label of “property,” which serves to obscure these implications. They simply bicker about how best to achieve equilibrium and Pareto efficiency, given “value-free” analysis of the system that exists. Some might call that dispassionate analysis; others might call that bean-counting for elites.

Unlike the priesthood of the status quo, who have internalized its values under the false pretense of cold rationality, I am interested in making moral judgments about the system we live under.

We can eliminate taxes and debt, poverty and special privilege. Contrary to the dour pronouncements from the curators of the dismal science, we can have it all.

The Basic Properties of Land

In terms of political economy, “land” refers to access rights over everything that was here before us humans. When you buy land, what you are really buying is a bundle of rights, be they air rights, mineral rights, drilling rights, surface rights, spectrum rights, right of way, you name it. Such rights are necessary for all production, and even life itself.

Supposing the entire habitable globe to be so enclosed, it follows that if the landowners have a valid right to its surface, all who are not landowners, have no right at all to its surface. Hence, such can exist on the earth by sufferance only. They are all trespassers.


– Herbert Spencer, Social Statics

That is a simple illustration of the absurdity of the current system, when taken to its logical conclusion. Indeed, we aren’t far from that.

When land is made into a commodity, the progress of society, be it in terms of productivity, philanthropy, or the rule of law, tends to be encapsulated in land values.

…every improvement in the circumstances of the society tends either directly or indirectly to raise the real rent of land, to increase the real wealth of the landlord, his power of purchasing the labour, or the produce of the labour of other people.


– Adam Smith, Wealth of Nations

So the community as a whole is what generates all this value, and yet the windfall gains accrue only to the holders of these access rights. In fact, under feudalism land titles were the root of noble privilege, and although we have left behind the aesthetic trappings of feudalism, we have yet to be rid of the core component.

That means in practice the payments which can be demanded for these access rights are not like other sorts of payments.

Moreover, wages and interest, when there is no rent, are regulated strictly by free competition; but rent is a monopoly-charge, and hence is always “all the traffic will bear.”


– Albert Jay Nock, Henry George: Unorthodox American

Essentially, when private individuals get to levy a charge on others for the mere privilege of existing on the planet, this creates an endemic state of poverty for large masses of people. Just as land titles are the essence of noble privilege, so is landlessness the essence of serfdom.

It is through this logic that David Ricardo debunked Thomas Malthus’s “Iron Law of Wages.” He developed his own “Law of Rent” to show that when the produce obtainable on the best available rent-free land (the margin of production) is high, wages will also be high since everyone’s next best alternative to wage labor is improved.

When Malthus and Ricardo were debating, the Old World was all built up and many people were living in Dickensian squalor. Yet, the New World of America had lots of free land, and it witnessed growth rates comparable to those of China today. Unemployment wasn’t even part of the vocabulary. True, many homesteaders did not have an easy life, but everyone who was willing and able to work could simply go work. Why is that no longer possible?

Why Have Titles?

If we all have a right to access the Earth, then a reasonable question might be to ask, “Why do we have land titles at all?”

One proposal, called Occupancy and Use, advocates that people only be able to claim possession of that which they are currently using. This, in theory, could enable everyone to have some access rights over the Earth. Not equal rights. Some would be able to claim the best land, while everyone else is relegated to worse land. Yet, even if this were acceptable, problems abound.

“The mere abolition of rent would not remove injustice, since it would confer a capricious advantage upon the occupiers of the best sites and the most fertile land.”


– Bertrand Russell, Why Men Fight

Usually this view is coupled with the idea that renting out land is immoral. The problem, however, is that there is no effective way to know whether someone is renting land or not without a very intrusive government. And even if that were acceptable, the entire concept is arbitrary. There is no objective standard by which to judge when a parcel has been abandoned. There is no objective standard by which to tell how much land someone is using, or how big a yard should be. How would joint enterprises work? It becomes dreadfully confusing to imagine how anyone would feel comfortable starting a business under conditions where land can just be considered unused for arbitrary reasons.

The reason land titles are appropriate is that exclusive land titles provide stable and well-defined rights by which individuals and organizations can plan around. They do not have to wonder whether it is legal to build in a certain spot.

The logic of well-defined rights, however, does not trump all other considerations.

“The land is the original inheritance of mankind. The usual, and by far the best argument for its appropriation by individuals is that private ownership gives the strongest motive for making the soil yield the greatest possible produce. But this argument is only valid for leaving to the owner the full enjoyment of whatever value he adds to the land by his own exertions and expenditure.”


– John Stuart Mill

Locke tried to compensate for this shortcoming of land titles by suggesting what became known as the Lockean Proviso. He claimed that appropriation of land could only occur “…at least where there is enough, and as good, left in common for others.” The problem, however, is that it is an impossible standard.

There is no objective basis upon which one could claim how much is enough or whether one parcel is as good as another. It also glosses over the fact that virtually all land currently under private ownership can be traced back to conquest. Even if such conquest had never happened, presumably, under this policy, early homesteaders could claim large swaths of land, and latecomers might be left with little, and these heritable land titles would quickly create a system like that described by Herbert Spencer, where many would find themselves without any rights at all to land.

The Remedy


The commodification of land itself is not the issue. Indeed, it makes great sense to have a well-defined system of access rights. The issue is who gets the benefits of the access rights. Anything less than an equal share is a violation of the Law of Equal Liberty, for any exclusive claim over natural opportunities necessarily reduces the opportunities available for everyone else. There is only one way to ensure equality of opportunity: for the community to recapture the value of land.

It is for these reasons that virtually all the notable classical liberal political economists supported the idea of the community recapturing the land values, using the discourse of taxation.

A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground.


– Adam Smith, Wealth of Nations

A tax on rent would affect rent only; it would fall wholly on landlords, and could not be shifted to any class of consumers. The landlord could not raise his rent, because he would leave unaltered the difference between the produce obtained from the least productive land in cultivation, and that obtained from land of every quality.


– David Ricardo, On the Principles of Political Economy and Taxation

When you impose costs on man-made objects, you see a reduction in supply. The supply of land, on the other hand, is fixed.

Income taxes discourage production, sales taxes discourage consumption (which drives production), tariffs discourage trade (which is really a form of production), but value capture only discourages the unproductive holding of land.

Instead of hampering production, it would boost it. Think of every vacant lot or surface level parking lot in a city, every abandoned building, every single-story fast food franchise amidst skyscrapers. Those are all examples of the waste and underdevelopment of the current system. These things occur simply because it is cheaper to sit on the land and hope others put in the work necessary to make it valuable, compared to the expense of undertaking a risky entrepreneurial venture.

Taxes? What Taxes? We Don’t Need No Stinking Taxes!

Landholding ought not be seen as a no-strings-attached sovereignty. A true libertarian position recognizes that landholding comes with obligations: obligations to internalize negative externalities, and obligations to respect the Law of Equal Liberty. Sure both of those things may be difficult to do, and may not be accomplished perfectly, yet we must try to achieve them one way or another.

My goal is not to say exactly how the land value should be recaptured. Whether this is done by a municipality, a nation-state, or a Charter City is not the topic of this paper. I only aim to spread a general recognition that it is an essential prerequisite for a just and sustainable socioeconomic order.

Value Capture is most commonly advocated as “Land Value Taxation.” However, it is a tax only in the sense that Pigovian “Taxes” are. It is not a tax on production, and thus there is nothing objectionable about it from the perspective of classical liberalism. Indeed, I’d argue that without it, classical liberalism is a cruel joke. Value capture is simply a reconceptualization of who owns the value of the access rights over the Earth.

Rent is not a tax. It is payment for the use of a location, determined by the higgling and haggling of the market, and it makes no difference to the land user whether he pays rent to the city fathers or to a private owner.


– Frank Chodorov, Out of Step

Under the current system, rent is like an extractive force upon laborers and capitalists, and that can only be fixed by preventing the private appropriation of land rent. I care not whether the person pocketing the rent is an ideal Lockean homesteader or Donald Trump, it is unjust either way, just as it would be unjust for either of them to unaccountably create negative externalities.

Given that the value of the Earth belongs to us all, justice demands that the land value must be recaptured to the fullest extent possible, not simply as a means for funding essential services. If the government is limited enough and well-managed enough to not require all of the land rent, it should still recapture all of it and distribute the surplus as a flat Citizen’s Dividend, since that value truly does belong equally to all. This dividend would not only be essential for justice, but would provide a strong incentive for all parties to keep public services lean and efficient.

That which makes public services more efficient would be of direct interest to citizens. That which makes land values higher, would be of direct interest to bureaucrats, which means their incentive would be to create value for the community, rather than to take from productive activity. The incentives between individuals and their community are aligned.

Steady Growth.

The ideal of steady growth is completely feasible. Monetary policy is not the root cause of the business cycle. Borrowing fuels speculation, but it isn’t the ability to borrow which creates the business cycle. That merely amplifies it. You have to ask why they are borrowing. If the borrowing were for normal productive purposes, the borrowing wouldn’t be inflationary.

No, the root cause of the cycles isn’t borrowing, it’s when we leave for the taking a giant pile of community-generated wealth. We shouldn’t find it unusual that people should want to pocket unearned wealth. Or even that they should want to undertake bouts of debt-fueled speculation. “Safe” unearned income sure beats working. Who wouldn’t want that? It is the system which is corrupt.

Land shouldn’t be seen as this “safe” investment, which grows over time with the progress of civilization. No other asset works like that. It ought not even be seen as an investment; if anything, it should be seen as a liability. That we have obligations when we take on the duty of landholding might come as a shock to some, but it is the only position consistent with liberty, and key to our success.

Though it isn’t calculated in official statistics like the CPI, rent is what drives much of the increase in living expenses, and why the working classes often never see a piece of their increased productivity during booms. What good is it that the GDP has risen if the general level of wages do not rise as well? That is not the sort of steady growth I’m interested in.

Unemployment during busts is a result of the market correcting for the inflated cost of production resulting from land speculation and other rent-taking. Remember, land is necessary for all production, and life itself. I don’t care if your business is all Internet-based, you and your employees still require access rights to the Earth, as do all the producers of the capital goods you consume. Conversely, if people have access to land, there can be no unemployment.

Really Smart Growth

Another cruel joke of the current system is the notion of Smart Growth. We cannot possibly curb sprawl as long as land speculation occurs. Let’s say a really nice community is developing. Businesses are sprouting up. This increases the land values. Before you know it, the land values exceed the ability for many people to pay. Even though the transportation infrastructure isn’t anywhere near capacity, and density living is far more ecologically efficient, people begin to go elsewhere in search of a place to live. It is simply too expensive in town.

They buy up land outside of town. Yet, before you know it, the new settlement is getting built up, the community is generating lots of value, and they begin construction on new infrastructure, and again before you know it the land values exceed the ability for people to pay. How could anyone believe that people would make different decisions simply because a few do-gooders built pedestrian friendly development? It is absurd to believe this process of sprawl can be halted through zoning, light rail projects, philanthropy, or any sort of central planning. It can only be halted through systemic change.

Land is artificially scarce under the current system of land tenure. We’ve already discussed the issue of vacant lots, abandoned buildings, and underdevelopment. Those are just the most visible signs. What about the things we don’t see?

For instance, think about our industrialized agriculture system. It is probably the most land-intensive production there is. Wasteful production practices are essentially subsidized by this system. Why aren’t we moving towards more high-tech and efficient forms of production? You may have heard about the concept of vertical farming. People often ask why it isn’t common practice, and the answer given is that it is “not economically viable.” A primary reason why it isn’t viable is that holding lots of land is under our system is very cheap, and even profitable.

This insanity isn’t just contained domestically either. All the waste of the current system creates this compulsion to expand abroad, to continue fueling the land speculation Ponzi schemes. This creates international resource conflicts, and may even trigger war. It is no wonder that the Old World, where all the land was parceled out and the Commons long-enclosed, became the aggressors in the Scramble for Africa. Of course, eventually they gobbled up all of Africa, and finally turned inward on themselves in the form of the First World War.

What does this mean in practical terms?

You don’t have to be a political economist to see the common sense truth of the matter. Some people just care about practical or personal concerns, and value capture is just as relevant from this perspective. Through it we can replace income taxation with a straightforward, efficient, and non-invasive revenue source.

It doesn’t require teams of IRS auditors to snoop into every transaction you’ve ever made. You can’t hide your land in a Costa Rican bank account. The current “property tax” system in the United States isn’t even that different from a methodological perspective; it would only need to change in two ways. It would need to stop including improvements as part of the taxable value of real estate, and it must raise the rates up to near the full annual rental value of the location.

The one thing basically all economists agree on is that “incentives matter.” The shift in incentives under value capture would cause dramatic and positive changes in the relationship between citizens and their community.

Well, then, since natural, resource values are purely social in their origin, created by the community, should not rent go to the community rather than to the Individual? Why tax industry and enterprise at all–why not just charge rent


– Albert Jay Nock, Henry George: Unorthodox American

Our current system has very perverse incentives. Want to go build a restaurant? Pay up. Want to buy up a prime location and hold it out of production? We’ve done everything in our power to make sure you get to keep the full value of your precious title. Want to build a community center to help the poor? Congratulations, you’ve just raised the rents for all the landless people in the area, and may have just “helped” them right out of a home.

As a landless person you have essentially no stake in your community. I walked through a poor neighborhood once and was shocked to find a big pile of garbage sitting out in the open in a vacant lot. I then saw one of the local residents walk by and chuck yet more garbage into it. I was puzzled by why anyone would do such a thing, but it makes perfect sense now. Even caring for the cleanliness of one’s community is of little benefit to the landless. Cleanliness raises rents, and littering lowers them.

You can see the same thing with the contentious issue of gentrification. Have you ever wondered why gentrification is so despised? Why should people hate that their community is improving? They should be rejoicing! Right?

Well, they would be under any sensible economic arrangement, but now it merely causes displacement and hardship. Wouldn’t it be great if improving the community actually… you know… improved the community. What a thought!

Inequality

I do not claim that George’s remedy is a panacea that will cure by itself all our ailments. But I do claim that we cannot get rid of our basic troubles without it.”


– John Dewey, Steps to Economic Recovery

Given the fundamental nature of land, and access rights over it, unless the land question is taken into account, one of the primary consequences of any otherwise-positive economic reform, including the repeal of other special privileges, will be an increase in rent to landlords.

What has destroyed every previous civilization has been the tendency to the unequal distribution of wealth and power.


– Henry George, Progress and Poverty

Inequality is dangerous to liberty, and can enable vicious feedback loops of rent-seeking, which sets the stage for corporatism on one hand and state socialist counter-reactions on the other. Vast fortunes should not be worshipped by those who love liberty. They should be looked at skeptically, and seen as a red flag that something is amiss. Most great fortunes are not the result of voluntary interactions in the market, but by direct or indirect state intervention on behalf of the powerful. The mother of all those privileges is land speculation.

It’s time we heed the actual words of the classical liberals, so that we may create a system that works for everyone. No more compromises between prosperity and equality, freedom and justice. We can have it all.

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15 Responses to “We Can Have It All: The Beauty of Value Capture”

  1. This is wonderfully written. You have captured the logic of Georgist ideas so well…. Thank you for trying to spread the word!

  2. Ed, nice article. As you know, I’m more focused on legal recognition of a property right in human labor, but it appears to me that once this legal distinction is made, it could lead to the Georgist ideas you’re describing. Still wondering how a Georgist tax structure would work, though. Since we have a dual federal/state citizenship, do you think there would be 2 land taxes? Also, am I correct that Georgists don’t believe in taxing structures, only the land?

  3. Rick,

    Your point about property is well taken, and you are correct, we only think it is proper to tax land, not buildings.

  4. What I find bizarre is that today when we say the word “property” people usually think of their real estate, car, etc., but the only real absolute property right we have is in our bodies, minds and labor, but most people find that kind of property to be conceptually incorrect.

    So, in other words, what property really is, we don’t think it is, but what is really not capable of being property, we DO think it is.

  5. EM,

    I have written a counter argument to your argument with regard to the land tax. As it is very long, it can be found here on my blog.

    http://leduc998.wordpress.com/2011/12/05/henry-george-land-tax-again/

    jog on
    duc

  6. […] via the Renegade Economist, some excellent LVT advocacy by a guy called Edward Miller.  Interestingly, in the comments is a link to an attempted rebuttal. […]

  7. Rick, back to the topic of collection of the tax, I believe that the tax should be shared across all jurisdictions that levy it, and that “land collective” should share the revenues across all the jurisdictions. Collection should be done at the municipal level and then get contributed up the chain, with states and federations auditing that their subsidiary jurisdictions are assessing the taxes consistently with their sibling jurisdictions. The exact apportionment should in a way be per capita, and LVT will allow easy relocation, so in some sense it’s right to have them compete to draw people to their communities. I think the amount of money should scale with age… effectively, you’re granted one more share of the commons with each birthday. This discourages “welfare queenism”, provides retirees with a solid income stream, and gives the older and wiser and less hasty of us more control over the deployment and distribution of capital.

  8. Rahul, the system architect. 🙂

    This is why programmers should work to create social systems, not just computer systems.

    No idea if the age thing is a good idea, but I love the way you think. We more people thinking about the long-term and high-level best interests of society.

    We should also use the rent to create prizes for the technological commons that can help people live longer and hopefully become wiser.

    For inspiration, look into these prizes:

    The M Prize
    The Gada Prize
    The PETA cultured meat prize

  9. Shouldn’t everyone get an exemption for rent at least equal to the citizens dividend. Otherwise, people become serfs to the state. They are beholden to a state check that might be withheld.

  10. One way to conceive of the citizens dividend is as a rebate/exemption on the land dues, but doing that is inferior to a cash payment because it would mean only landowners would get the dividend. The whole point is to discourage landownership by those who have no use for land… not to actually create incentives for people to buy land they have no use for.

  11. The most popular theory with regard to both, taxation and rent, is that everything is well where they are low, and amiss where they are high. Misleading comparisons are drawn between the proportions of the total produce that go to rent and wages in new and old countries. In new countries wages are high and rent is low. If a man is a hermit, if he is completely shut off from society, his wages will be 100 per cent, of the total produce in his hands. If he lives and works in a settled and well-governed district, where he has the daily use of public roads, railways, post office, telephones, water and drainage, in turning out his produce, his wages may be 55 per cent, of the total produce, while rent and taxes may be 45 per cent. This increase in the proportion of rent to wages is not an evil, if 45 per cent, of the produce is the fair value of the work done by the community in its production.

    There are two methods of using land imposed on men by necessity. In one case they take particular portions of land, detach them from the places where they are fixed, and make them into houses, furniture, clothes, and food, which may be moved about at will. In the other case men must use land as a site for their various activities. It must remain in its actual situation in space, and, in order that men may use it for their satisfaction in this form, they must join together and bring certain services to the land to assist them in production, such services as roads, water-supply, sewers, gas, electric light and trams.

    Labour and capital are thus divided into two kinds, private or individual, and public or common, and these two kinds of labour produce on the basis of land two forms of wealth – wages and interest, the return to private enterprise, and rent and taxes, the product of public enterprise. If there are no roads, no common services in the backwoods, and no market accessible for the settler’s produce, there ought to be no rent, as no one helps him to produce.

    The distribution of wealth is not a matter of chance ; it is determined in the conflict among the landowners and the Government, the capitalists and labourers, for their respective shares. The capitalist, as the occupier of land and organizer of production, receives and holds the total produce first of all. If he does not own the land he occupies, the landlord as well as the Government comes to him from one side, and both demand the part of the wealth which they claim to have been produced by common services. From the other side come the labourers for payment of their services. There is little sentiment in the struggle which each party makes to secure as much as possible for itself. Bargaining and argument come first; then evictions and forced sales by the landowners and Governments, lock-outs by the capitalists, and strikes or emigration by the labourers. Everything about this apparatus through which wealth is distributed is clear, certain and firm. The measures and scales used to serve out economic rent, interest and wages to their different recipients are not cast from pewter, or any other metal, in a mould, and stamped with the Government mark, but they are exact measures all the same. When the landlord and Government cut into the existing shares of capital and labour, the dullest and most degenerate capitalists and labourers wince and kick as if a bodily wound were inflicted on them.

    While the occupiers of land, the producers of wealth, know in a negative way what taxation and rent are, and protest as soon as their payment exceeds the proper limit, they have not been able to state positive reasons, or adopt positive means, for securing the strict observance this limit. The economic rent or gross value any piece of land, taken now partly by governments in the form of taxes, and partly by landowners in the form of rent, is the value of public services which assist the occupier to produce wealth, plus the value of public services which provide him with a market for his produce. Or, to express this in a more general form, economic rent is that part of wealth which has been produced by the expenditure of private capital and labour in common services, as distinguished from interest and wages, those parts which have been produced by the expenditure of private capital and labor.

    This definition of rent is not to be taken as a statement of the laws of rent, a subject which has generally received much more attention. It differs in substance as well as in form from that of Ricardo, which has been most widely accepted. “Rent,” says Ricardo, “is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil.”

    Ricardo’s capital mistake is that he offers a definition which is not economic at all. The error is not due to a casual lapse in expression; it is a defect in a chain of thought. Ricardo, and other economists before and since his time, have treated political economy, not as a purely mental, but as a physical or chemical science. Instead of confining themselves to man’s activities in producing wealth as the subject-matter of their study – and it is a sufficiently wide field – they concern themselves with activities in the soil which are properly the groundwork of chemical science.

    The essential error, therefore, is that we are given a definition of rent with reference to chemical activities instead of with reference to economic activities. There may also be definitions with physiological and moral references, but they are not economic definitions at all. The phenomena which they are intended to represent must be translated into their economic character and terminology before they are treated in the science, before they can be of the slightest use. They cannot otherwise serve as the basis for reasoning, or for the formulation of laws.

    The precedent set by Ricardo in adulterating the basis of political economy has been largely followed. Mill and Marshall have gone beyond the scope of their own definitions of the science. Instead of finding the cause of rent in the economic phenomenon of the division of labour and capital for increasing the value of those portions and kinds of land which seem best to them, a phenomenon whose existence is indisputable, they find it in the alleged chemical phenomenon of a falling off in the supply of chemical powers available for man’s use. They see the explanation of a surplus in a deficit.

    http://www.cooperativeindividualism.org/orr-john_taxation-of-land-values-1912-03.html

  12. Thank you for your comment, that was an interesting piece, though I think it was overlooking some important things.

    Ricardo’s idea was that rent is a differential between the land in question and the best available rent-free land. This is not a “chemical science,” but a statement of fact.

    Secondly, while I agree in general that landlords and states are functionally equivalent, of those only the state is at all subject to democratic will. Furthermore, when there is a state, landlords, simply in their role as landlords, offer no service whatsoever. It is only when they use the rent for other purposes and take on a different role that they may be said to perform services.

    So I am not denying that rent exists, or objecting to its existence. Rent is a fact of life. Even with land value taxation, the rent does not go away. Georgists simply demand that this rent be shared.

  13. Edward, this is very interesting. I’m not an economist, so some of the theory eludes me. Can you help me visualize a real-world application in a rural community? Where I live, we own a house on a few acres outside of a very small town. We’re surrounded on every side by rich farmland that now, because of high demand by landowners, sells for from $10,000-$15,000 per acre (we bought before that happened!). Our use of our land is purely residential. The landowners around us either farm the land they own (some, of course, using its high value as collateral for farm business loans) or rent it to other farmers for planting crops or raising livestock, which is making it very hard for non-owning farmers to farm, as rents escalate.

    I think I understand you to say that everyone would only pay tax on the value of our land, not on our improvements to it. But how would land value be assessed? Would ours be assessed at the escalated value of the land around it, because it could theoretically be used agriculturally? How would the value of the farmland be assessed, apart from the currently frenzied demand that drives its current value? The cost of what is produced varies, sometimes radically, from season to season (corn, beans, hogs, cattle), which makes land one of the more durable investments (for now, until the high assessments become untenable) for farmers. Yet, as corporate farmers buy up land, many family farmers are struggling to find land they can afford to farm. Your thoughts? Again, thanks for your article and any attention you might give to my amateur questions… Kelly

  14. Great questions.

    Assessment currently takes place using professional assessors, and there is a whole field of people dedicated specifically to this task, in both the public and private sector. Almost all states have some property tax system in place, even in places like California, even though the rate there is close to nothing as a result of Prop 13 (no coincidence why California was hit hardest in the latest foreclosure crisis). The assessments already separate out land value and improvement value.

    The way the assessments work is by monitoring the surrounding rental values and real estate transactions. Arriving at a reasonably accurate assessment, especially in this day and age, isn’t so difficult. Technologies like GIS software have made this even easier than before, and this is why it is even possible for a single company like Zillow.com to provide estimates for virtually the entire nation.

    Although you didn’t bring it up, let me first make it clear that under almost any sort of shift towards land value taxation, average people will be paying much less in taxes. You may have seen the foreboding statistics regarding the income distribution in the US. Well, the value of land is distributed far less equally than income.

    https://www.facebook.com/photo.php?fbid=552394661458474

    If the stats seem shocking, remember that we are considering land by value, and the vast majority of land value is actually in urban areas. A single lot in a city can be worth the price of thousands of acres of farmland. This is why, although it seems like rural folks lead a more land-centric life, they would actually come out ahead under LVT in terms of tax burden. Not to mention the effects at the macro level, which we would all benefit from.

    Regarding the uses of land, assessors do indeed need to factor in all the possible use cases, but zoning restrictions often limit the uses. If your area has no such restrictions, then the land would be assessed according to something approximating the market value of the land regardless of the use. When land rent is charged fully, titleholders become essentially leaseholders, or tenants. And you don’t see very many tenants taking out leases for the purpose of letting a parcel sit idle. Indeed, not even “underproductive” activity would be economical.

    It seems weird, but when thinking about economic efficiency, you need to see that owner-occupiers have two roles, and are in a sense paying rent to themselves. That is “imputed rent.” And in that sense, there can be efficient homeowners or inefficient ones. Inefficient ones, who use a lot of land which doesn’t contribute much to their livelihood would end up feeling like the heavy land use is a burden, much like a person living alone would feel like if they are renting a 5 bedroom house.

    Accuracy, however, is indeed important. There are many ways that it could be handled, in theory. Traditional assessment using public assessors is a tried and true method, but the assessors need to be chosen in very much the same way as we should ideally choose judges. You need them to be as impartial as possible, and free from the corrosive effects of politics. I realize that judges are not chosen in an ideal way, since our world is not ideal in general, but it is clear that we need judges, and we need assessors too.

    Places which have more up-to-date and accurate assessments will be more prosperous, and thus will attract more residents.

  15. Thanks, Edward. You explain it very well. I appreciate taking part in your discussion…
    LIve well,
    Kelly

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