Arguments Against Land Value Taxation
|October 20, 2010||Posted by Fred Foldvary under Progress Report, The Progress Report|
Arguments Against Land Value Taxation
by Fred E. Foldvary, Senior Editor, 18 October 2010 l
In this forum there have been many articles explaining and promoting land value taxation, or public revenue from land rent. Opponents of LVT often bring up objections as though the advocates had never thought of them. The book Critics of Henry George rebuts these arguments. It seems useful to list the opposing arguments here in one place, to show that the advocates of LVT are well aware of them.
In opposition to the proposition that the supply of land is fixed, the critics counter that the supply of usable land is what counts, and usable land can be expanded by filling in water, clearing rocks and trees, and leveling the ground. They also say that the supply of land to the market is not fixed, as landowners can offer varying amounts of land for sale. Critics also say that even if the total amount of surface area is fixed, there is plenty of bare land, so land is not really an economic problem. Moreover, much of the value of land come from improvements attached to the land, such as roads, and so LVT would tax capital goods as well as the original land value.
In opposition to the geoist proposition that tapping the land rent for public revenue or for equal sharing would not hurt the economy and would even be better than neutral, promoting greater productivity and equity, critics say that the reduction of land price from LVT would be a great financial loss to millions of real estate owners. Many people have much of their asset value in land, and LVT would destroy this value. Taxing all of land value would create havoc in international financial markets, as much of bank lending is for real estate. Taxing all the rent and site value would remove land value as a collateral for loans, greatly diminishing the availability of credit to entrepreneurs to create or expand enterprise.
Many homeowners have a large mortgage on their land, so LVT would impose on them a double payment, both mortgage and land tax. They would not be able to afford these payments, and would default on their loan payments, making the foreclosure problem that much worse. If LVT were instead to be placed on the mortgages held by banks and other institutions, that would make these loans worthless, and many banks would fail, and firms such as insurance companies that held mortgage-backed securities would fail, causing another financial crisis.
Advocates claim that LVT would eliminate excessive land speculation, but the critics claim that speculation is a good and essential part of a market economy. Seeking the greatest possible profit, speculators are entrepreneurs who seek the best timing for development and redevelopment. LVT distorts the optimal timing, forcing a wasteful destruction of existing buildings, and premature redevelopment. Land taxers are right that LVT promotes development, but that is a problem, as LVT causes too much building.
Whatever the current land use exists is what is most profitable to the owners, so the market puts land to its best use without LVT. A parking lost seems wasteful, but that is the decision of the owner-entrepreneur, and there is no way to know that this was not the optimal use of land, given that we cannot predict with certainty the optimal use in the future.
Georgists say that LVT results in greater equality of income, but any redistribution of wealth and income is morally wrong. Redistribution takes income from those who have title to it and forcibly gives it to others. Inequality as such is not unjust. Life is not fair, and there is no way to make it completely fair. Indeed, some amount of inequality promotes economic growth. Critics also say that LVT is not fair to homeowners whose land goes up in value but whose wages do not rise. They get forced out of the homes they may have been living in for many years.
Land taxers say that wages are earned and rent is unearned, but the critics counter that it is not true. Wages often depend on luck, connections, and talents one did not get by work and study. And rent is often earned as landlords actively seek out the best tenants and the best use of a site.
Critics say that the tax burden should be shared by everyone, not concentrated on one portion of the population, the landowners. It is bad government to put all taxation only on one set of people. Tenants who have no tax burden will vote for bigger government and projects that benefit them but are not optimal for society.
Advocates say that LVT pays back the rental generated by governments public goods. Critics say this is best done by contract, such as with condominiums or landlord-owned apartments. The measurement of the rent generated by public goods is only a rough guess. In practice, LVT would take rent from those who have not really received much added value.
Critics of LVT say that the single tax on land is an antiquated concept. Modern economics has progressed beyond it. That is why few economists support LVT. George’s simplistic economics has been superceded by sophisticated modern economics.
Critics say that many developing economies do not have an established land market, so LVT is not feasible there. Taxing minerals, oil, and water promotes overuse and depletion. Critics say oil and minerals have no value until an entrepreneur explores and takes risks to extract it, so he is entitled to the gains. Taxing the gains discourages productive risk taking.
Critics say that property ownership promotes civic values and stability. LVT effectively makes titleholders into tenants rather than proud owners. Moreover, there is no precise way to separate out land value from building value. Appraisers and assessors can only make a rough guess, which can often be wrong. Also, the value of a property and location is subjective, and the market price may not reflect the value to the owners. Liberty requires complete private property.
Governments often spend wastefully and impose tyranny, so LVT supports tyrants and oppression. On the other side of the spectrum, socialists say that LVT leaves intact capital monopolies and inherited inequalities of wealth, so for complete justice, government should own the capital as well as the land.
These are some of the arguments used by critics of sharing rent or collecting rent for public revenue. The rebuttals are left as an exercise for the reader. To see this writer’s rebuttals, click here .
– Fred Foldvary
Copyright 2010 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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