The author, Chuck Marohn, has previously made this video that explains how a Land Value Tax would affect the fiscal situation of a city (for the better):
He says at the end that nobody switches from Property Tax to Land Tax, because people who own underdeveloped land would vote against it due to an immediate increase in their taxes.
Are there no ways to make it happen? Maybe propose to switch it gradually over a long period of time? Or would that end just as poorly?
It's a classic story of special interests-- they're inherently more motivated than those championing the common good.
There are incremental solutions towards this, such as "split level" property tax in which the rates for land can be shaded upward. Pennsylvania has had this for decades.
But when you implement them, plan to see the special interests make their case. For instance, a recent proposal to implement LVT in Hartford, CT:[0]
> "We do have an important parcel," said Cheryl Chase, general counsel at Hartford-based Chase Enterprises. "We are developers. If we think there is a project to be built, we would build it."
> Chase, which developed downtown's Gold Building and two other downtown skyscrapers in the 1970s and 1980s, owns the parking lot where the Parkview Hilton stood until it was demolished in 1990.
One would think 26 years would be quite enough time to find a suitable use for a valuable downtown parcel, but this parking lot owner disagrees...
It can be done. Where I live, the 'state-level' government survived going to an election with an explicit policy of replacing 'stamp duty' (a tax on the value of property sales) with a land value tax increase. Actually, they've survived two so far. They approached it exactly as you supposed: the tax will be phased in over something like 10 years.
FWIW, the two 'political' lessons I got out of it were:
(a) Surprisingly, builders' associations (and the like) should theoretically be very supportive of a switch to LVT, particularly if it's replacing property value taxes (which tax the total value of land and improvements, rather than just the unimproved value of land). They were supportive in our case at any rate. Because a LVT results in high-value land being put to its most productive use (e.g. 'land-banking' becomes profit negative, it incentivises inner-city redevelopment etc.), it means more business for builders (and this would be sustained in the long-run).
(b) Special measures have to be taken to protect people on fixed incomes who occupy high-value land (i.e. pensioners/retirees still living in the family home). This is partially for political reasons: the most effective way to 'negatively campaign' on the issue is to talk about how the LVT will force granny out of the family home. But there are also legitimate fairness concerns too: people who happen to own high-value land during a switch-over will suffer a 'windfall loss'. Although there's a perfectly reasonable counter-argument to this (IMHO), it's way too complex to be politically useful (and far too long to go into here).
I think one approach could be a sort of 'reverse mortgage until death' transitional arrangment: anyone on a retirement pension (or whatever reasonable criteria) prior to the LVT becoming 'official policy' would only have to pay some manageable proportion of the total land-tax due each year. The rest would accrue as a liability against the person's property, to be collected either at time of sale (which would now be voluntary), or from their estate (i.e. when they die). Obviously it would have to be carefully worded, but I think it's a fair compromise that the public could understand.
The downside to this (or any other 'transitional arrangment') is that it would delay some of the economic efficiency gains from a LVT: namely, the efficient reallocation of land (i.e. a retired couple would otherwise have an incentive to 'downsize' from their mostly empty 5 bedroom house to a townhouse or apartment, allowing a family currently crammed into a 2 bedroom flat to move somewhere more appropriately sized).
On the purely 'heartless economic side', it's such a great tax because:
- It's one of the few taxes that results in a more efficient allocation of resources (most other 'large' taxes usually generate some amount of dead-weight loss e.g. income tax, company tax etc.)
- It's a very stable tax base, as the base is completely immobile (you can't live in the US from a property located in India) and the tax is very difficult to avoid (it's pretty difficult to hide a large block of land or sneak it off to a tax haven somewhere). Also, if the rate is set so that it only taxes 'land rents' (unearned profits that accrue to landholders, in the form of higher land prices, due to improved amenities in the surrounding area), then it can actually increase economically activity due to the improved allocative efficiency discussed above. Again, most other taxes do the opposite (excluding Pigovian taxes, most commonly known as 'sin' taxes).
- LVTs are also a 'cycle-neutral' tax. Property taxes and stamp duties, on the other-hand, are pro-cyclical (i.e. when the economy is booming, tax receipts rise considerably, and when the economy is in recession, tax receipts fall). In practice, I think this results in boom-bust cycles that have much higher peaks and much lower troughs, simply because politicians will spend the money if it's there, but seem to be highly averse to taking on debt (so pro-cyclical taxes mean the economy is more overheated during boom-times, and more depressed during busts because of the contraction in government spending).
- [This is my own crazy opinion that other LVT proponents may very well disagree with] I think LVTs would improve macroeconomic-stability and increase economic productivity in the long-run. So much private capital investment gets poured into totally unproductive property speculation; capital that could otherwise be put towards some productive use (e.g. business investment via loans of equities etc.). And if you look at the past-century of economic history, you'll notice that an alarming number of recessions and depressions occurred because speculative bubbles in property markets popped (the 1890s depression, for example). Although speculative bubbles can form for other reasons, my view is that rising land prices are one of the primary triggers of property market speculation (or, at the very least, these rising land prices cause speculation to be more intense and prolonged).
I was for a land value tax (because people with more wealth in the form of land would pay more taxes in theory) but after watching the video I am now against it. It hinges on the definition of improving land, and from an environmental standpoint human improvement of land is an externality that as often as not creates negative value through exhaustion of resources, waste and unsustainability. Also IMHO there is far too much investment in construction, when buildings are already sitting idle. As we keep moving forward with tech and automation, this spending will become more superfluous.
It's becoming more clear to me that we should be thinking about proportions, not arithmetic. Money is a construct, so hard numbers like the size of the money supply and debt are meaningless. It makes more sense to imagine the median global income as being a unit of 1 (per day, per year, it doesn't matter) and then measure individual assets and debts against that. Americans get a score of 5 ($50k median household income), 5 billion people in the world get a score of 1 or less as they earn under $10,000 per year. Millionaires ($100k per year or more) get a score of 10, billionaires get a score of 10,000, etc.
Yes yes there are taxes and expenses but the orders of magnitude remain the same. Dealing at the abstraction level allows seeing patterns that aren't normally visible. The biggest anomaly is the level of work people are willing to maintain while getting paid substantially less than a small minority. The other one is why is so much work nonproductive, for example why do people pay half a billion dollars for a TODO website when 3% of the population can grow all the world's food? It's like there is so much wealth in a few hands that it doesn't know where to go except to try to expand itself. Wouldn't it make more sense to invest that money to automate the other industries to get to a 3% level and let the other 97% of the population work in research or health or space travel, anything really? Solving problems once and for all so that we can have both money and time (actual wealth) rather than having to choose one (phantom wealth). For real solutions to these seemingly intractable problems I highly recommend looking into modern monetary theory (MMT):
Improvement isn't always worse for the the environment. Is converting a forest to a parking lot a net negative from an environmental point of view? Yes. Is converting a parking lot to a 5 story residential building a net negative? No, because the parking lot wasn't environmentally friendly to begin with, the residential building doesn't damage the environment any more than the parking lot, and provides much more value to the public than the parking lot for the same environmental cost.
> Also IMHO there is far too much investment in construction, when buildings are already sitting idle.
Unfortunately all the idle buildings are in the wrong places. LVT, plus tax credits for reclaimed materials would at least move them to where they can do the most good.
To help the environment, it's important to avoid sprawl. And to avoid sprawl, you need building on the intensive margin (infill) to be more attractive than building on the extensive margin (sprawl). Land-use policy without LVT precludes infill, so there's every reason to say that LVT is an environmentally-friendly policy.
That said, you don't want all land being elevated to its highest use, including sub-marginal land. That's why enacting a floor to how low a land tax could be makes sense-- it would serve to protect wilderness.
https://www.youtube.com/watch?v=ok2uR3btMrE