As we are faced with surging wealth inequality, environmental disasters, over-extended infrastructure, and an ever more incompetent policy toolkit to manage it all, we find ourselves turning to new solutions. Although the concept of Land Value Taxation (LVT) is not particularly new and has found prolific support among economists for years, it is still largely ignored by the general public. Despite appearing as a narrow quibble, the debate over LVT spans across many meta-layers of discussion, touching on urban planning, environmental studies, ecology, and of course economics. In this paper, I will review these points of discussion and argue that Land Value Taxation is an effective policy that is more relevant than ever. The entry point of this debate will briefly cover the history of LVT leading in to the more technical side of the debate as it currently stands; here I will argue why I find the Georgist position—which regards LVT as a neutral tax—is the most reasonable, but still not necessary for LVT’s support. Then I will address some public concerns expressed about LVT, the target audience of these concerns, and how they may be swayed/rebutted in favor of LVT. By the end, it should be apparent that LVT finds both pragmatic and theoretical support.

Before we review the technical aspects it is conducive to look at the history of land taxation in general. Among economists, the concept dates back to the French ’physiocrats’ in the 18th century, but land taxes are actually the oldest form of taxation in nearly every country. This is primarily because inadequate record-keeping precluded the possibility of income taxes and sales taxes, which left land taxation as one of the only viable options (Cleveland 67). The taxation of land seemed intuitive as well: since land has a relatively fixed supply, no matter how high property taxes are, the supply of land will not change. Furthermore, since nobody created the land to begin with, it seems moral for society to take part in its fruits. The theoretical argument was further expounded upon by David Ricardo, who developed a “law of rents” (the term ‘rent’ refers to surplus generated from land) stating that land on the periphery of society—marginal land—is less valuable than land near dense cities (Cleveland 64). In other words, location matters, and land’s value heavily derives itself from situational variables. Then, in the 19th century Henry George formulated Ricardo’s law into a more radical proposition: George claimed that land’s value is directly proportional to the value of public goods, which is dependent on institutional conditions. This means that if the government were to increase spending on public goods, the value of land would be raised. So, if this fiscal spending were funded by LVT, then the tax would depreciate the value of land, but this would be offset by a corresponding appreciation from public goods spending. Thus, according to Henry George’s Theorem, LVT would be a completely neutral tax that does not distort incentives. 

So how is it regarded among specialists today? Urban economists support LVT because it reduces suburban sprawl and increases density, which is important since our infrastructure is overextended and twice taxable capacity, while also being underdeveloped and falling apart. Urban communities bear the brunt of this cost, and suburban rentiers receive its surplus. In the US, current property taxes are set up to tax estates and development that occurs on the land, so productive use of land is actually disincentivized. Furthermore, these current ‘building taxes’ discourage owners from renewing their buildings. At the local scale, these effects become mutually reinforcing and forecasted into the future, meaning the renewal of neighborhoods and cities may be deferred into perpetuity; these cities literally decay with no end (Gaffney “The Role” 869-873). This is a broader structural problem in the US, and extends to other policies (sales tax, zoning policies, free parking, tort reform, and so on) which benefit suburban rentiers at the expense of urban cities. LVT, on the other hand, only taxes the underlying value of land, so it eliminates this perverse disincentive (Chu). As a result it can easily be coupled with dezoning policies and other attempts to shift funds back toward urban development. Among economists in general, LVT finds support from all across the political spectrum, from F.A. Hayek and Milton Friedman, to Joseph Stiglitz. Proponents and opponents of LVT are general stratified into two groups: the Georgists, and non-Georgists. The Georgists follow the work of Henry George, and argue that Henry George’s Theorem (HGT) holds validity in todays economy. The most notable demonstration of this is found in Stiglitz and Arnott’s seminal paper, which uses the Cobb-Douglass production function to prove that the value of public goods are proportional to ground rents in real world conditions. This would mean that the value of land would stay neutral under LVT, balanced by depreciation from the tax and appreciation from government spending, thus corroborating HGT’s veracity (Arnott and Stiglitz). But even if Henry George’s Theorem doesn’t hold perfectly true, this is not necessarily a bad thing. We know that it is significantly more neutral than our current property tax system, and even if some of its burden can be passed forward, LVT would still disincentive the superfluous expansion to marginal land, and would actually provide an effective way to administer environmental externalities (Kunce and Shogren). So while HGT offers a strong defense of Land Value Taxation, it is not necessary to its proof of efficacy. 

There are a number of strong arguments in favor of LVT apart from Henry George’s Theorem or Ricardo’s law of rents. For example, we can investigate the roll that land/housing plays into the financial system. Surprisingly, land plays an active roll here, since it is often used as collateral backing credit and loans. As such, economic booms in the financial sector are typically correlated with speculation on land. When land becomes overpriced due to speculation or artificial restriction of supply (due to zoning policies), efficient land use is reduced and sprawl is incentivized. With the introduction of sprawl, marginal land is freed up to be used as collateral in the finance industry, but this comes at the expense of capital and labor, as production costs are dedicated to covering land prices and investments are shifted towards land. The result is a bubble that stretches across multiple sectors of the economy fueled by speculation in the land/housing market. We only have to look at our recent crisis in 2008 to see an example of this: a large portion of the credit expansion leading up to the crash was due to CDOs, MBSs, and other financial instruments being backed by mortgages (Gaffney “The Role” 863-869). Unfortunately our current system facilitates this behavior; I have already addressed the flaws with our current property taxation system, but it is also important to recognize that in the US we tend to emphasize interest rates as a charge for land, rather than taxation. LVT and interest rates are similar in that they both reduce the price of land (and thus sprawl), but interest rates are far from being egalitarian. In fact, they tend to be regressive—poor people tend to have lower credit ratings and thus pay higher interest rates. LVT, by contrast, is uniform and doesn’t award one group of people at the expense of another.

All of this seems very positive for LVT, but what about the economists who are not so optimistic? While most economists support LVT in theory, many of them still remain skeptical about its range of capability as a policy and do not think it could completely replace other taxes (Bowman). I agree that LVT has its limits and should not be used as the sole form of taxation, but many these concerns underestimate the taxable capability of land. A sizable portion of these skeptical critiques are borne out of the IRS data for land value. However, this data is incomplete since it is taken from tax returns, which allow for write-offs and deductions for alleged depreciation in land value.  Furthermore, most businesses rent office spaces and roughly one-third of Americans rent their dwellings, so this amounts to a lot of unreported rent (Gaffney “The Hidden” 2009). Our current taxation system isn’t designed to truly assess the value of land, so it makes little sense to rely on this data to inform our evaluation. Furthermore, the scope of what exactly constitutes land taxation can be extended to encompass a wider array of resources and variable costs, such as severance and royalty taxes. (Gaffney “The Hidden” 2009). Perhaps a more valid concern expressed by economists is the lack of empirical evidence behind LVT. Since we live in a system that hasn’t rigorously implemented any form of LVT in recent times, the taxation of land seems an armchair theoretical argument. But as I have discussed before, land taxes are the oldest form of taxation in nearly every country, and to this day there are numerous examples of countries that successfully maintain LVT: Western Canada is an example of this in North America; for even more extreme examples there is Hong Kong and Singapore, where almost all land is publicly owned and rent flows directly to the state (Maxwell and Vigor 9). As such, many economists significantly underestimate the taxable capability of land and the empirical evidence of its efficacy.

Unfortunately, LVT isn’t regarded so well in the public sphere. Most people haven’t heard of LVT, and even among those who recognize it there are still a number of concerns expressed. One of the most common arguments against LVT is that its burden (‘incidence’) falls on the property holder at the time of taxation. This means that if property values change to compensate for the tax, later property buyers won’t be as negatively affected, whereas current property owners would experience a deleterious change in value (Blee). This argument can actually be made regarding nearly any tax, but markets typically end up anticipating taxes long before they are implemented; in other words, homeowners wouldn’t just experience a sudden cliff in land prices, and the resulting fiscal spending would balance a significant portion of this depreciation (recall Henry George’s Theorem). Likewise, if we truly want to avoid sudden depreciations in land value, we should work toward resolving our boom-bust cycle by taxing land. Another criticism is that LVT unfairly punishes people who choose to invest in land as opposed to stocks, bonds, and other financial assets (Blee). While the merit of financial profit incentives is a completely separate discussion, it should be noted that land is definitionally not created by anyone and its surplus (rents) is driven by institutional considerations regarding the provision of public goods. So earning rents off of land is not exactly a meritocratic pursuit to begin with. Another common concern is that LVT somehow forces land into use, but this confuses the causation behind it (Bowman). Our current system incentivizes dis-use, so by eliminating this, land will indeed be used more efficiently, but density does not increase across the board here. LVT will crowd rich areas, but also open up more land for poor areas as well (Gaffney “The Role” 879). It’s an equalization process that occurs after lifting our skewed taxation system.

If we are to convince the public that Land Value Taxation is effective, it is helpful to first know our target audience. In the US, LVT is primarily opposed by suburban land owners. This mostly has to do with our long history of the ‘American dream,’ and fantasies of living in the sanitized suburbs, as well as our institutions being founded on the notion of Lockean property rights (property is equivalent to life, liberty, and estate). So when these people hear of a tax on land or property, they feel like their fundamental rights have been violated, and that the government is trying to make them more dependent. This applies to rural areas as well, but strangely, this is largely a suburban phenomena. Even if we look at the UK, we saw a similar reaction when the Labour party added LVT to their platform. Among suburban conservatives, there was outrage over whether Jeremy Corbyn was trying to steal their gardens (the epitome of the suburban dream), so much so that LVT was deemed a “garden tax” (News 2U). The key to convincing these people is to couch this issue closer to home, so to speak; rather than taking a technocratic, patronizing approach, we should focus on how LVT will affect them personally and why it is moral. LVT is an intuitive policy that presents a real solution to wealth inequality, financial speculation, and environmental decay, and it should be presented as such.

Throughout history, land was viewed as a common resource and its fruits were distributed as such. But in the past century we have forgotten this fact. Perhaps as our population expands and we realize the need for dense urban centers, environmental care, institutional responsibility, and efficient infrastructure, we will reflect on the history of our institutions. Then we will see that the value of land is entirely dependent on our actions at the societal level, and it makes sense for society to demand a portion of this to provide public goods. By doing this, we help resolve many of the problems we face today, and avoid rewarding one class of people at the expense of another. It will be hard to bring LVT back into the lime light, but it can easily be combined with other policies to bolster political support. LVT is a morally intuitive policy that should not be overlooked any longer.
