"A 100% Land Tax Yields Zero Revenue (Laffer Curve)"

The Objection

The Laffer curve is the standard argument, popularized by economist Arthur Laffer in the late 1970s, that tax revenue is not a monotonically increasing function of the tax rate: at a 0% rate revenue is zero, at a 100% rate revenue is also zero (because no one has any incentive to engage in the taxed activity), and somewhere in between lies a revenue-maximizing rate. Applied to a Georgist "single tax" approaching 100% of land rent, the objection runs: if the tax rate on land climbs toward 100%, landowners' incentive to hold, develop, or declare the value of land collapses, so revenue must eventually fall rather than rise, just as with any other tax pushed to its statutory limit. In Kris Feder's postscript to Mason Gaffney and Fred Harrison's The Corruption of Economics, this argument is attributed to Richard Grant, a Free Market Foundation researcher who used it (among a battery of other objections, following Frank Knight) to attack a 1994 proposal to make rent the primary source of public revenue in post-apartheid South Africa.

Why People Worry About This

The Laffer curve is intuitively appealing and widely cited in tax-policy debate, and its 0%-and-100%-both-yield-zero framing is easy to pattern-match onto any tax discussion, including proposals to tax land at very high rates. Because Georgists themselves describe the single tax as aiming to capture the full economic rent of land, a proposal explicitly framed around "100%" invites exactly the kind of Laffer-style skepticism that greets any other tax pushed to its statutory extreme — reasonable in general, since most tax bases genuinely do shrink as behavior adjusts to escape a rising rate.

The Response

The Laffer curve's revenue-collapse mechanism depends on the taxed activity having a supply response: workers reduce hours, investors withhold capital, businesses under-report income, as the after-tax return falls. Feder's reply to Grant is that a land value tax does not have this property, because it is levied on a lump-sum-like charge on a factor whose physical supply is fixed rather than on an activity conditioned on effort or investment: the quantity of land does not shrink because the owner is taxed more heavily on its rental value. Mainstream public finance treats a pure land value tax the same way: because land supply is (near) perfectly inelastic, the Chicago Fed's 2023 explainer on land value taxes notes that the tax's incidence "falls entirely on the supplier of the good with no change in equilibrium output" — the owner receives lower after-tax rent, but the land remains supplied and used exactly as before.[1][2] The behavioral channel the Laffer curve relies on for the "100% rate ⇒ zero revenue" result — taxpayers walking away from the taxed activity — has no land-specific analogue, so the curve's standard shape does not straightforwardly transfer to a tax on land rent.

Limits and Caveats

The rebuttal applies most cleanly to a tax on pure, unimproved site rent. Most real-world property taxes billed as "land value taxes" also fall partly on buildings and improvements, which behave like ordinary elastically supplied capital: over-taxing improvements at very high rates plausibly can discourage construction and maintenance in the way the Laffer curve describes, so the objection has more force against any actual mixed land-and-improvement tax than against the theoretical pure-rent case Feder is defending. Separately, at rates approaching 100% of rent, land's capital (sale) value does fall toward zero even though its rental value and physical supply do not — a related but distinct valuation problem, since assessors lose the market sale-price evidence they would otherwise use. No jurisdiction has ever levied a true 100% tax on land rent, so the claim that revenue would not collapse at the theoretical extreme remains a matter of economic reasoning about inelastic supply rather than an empirically observed outcome.

Net Assessment

Grant's specific Laffer-curve argument against a full rent tax rests on treating land as though it had the same kind of elastic, effort-conditioned supply as labor or ordinary capital, which it does not; Feder's lump-sum-charge reply, echoed in modern public-finance treatments of land taxation, is a sound answer to that particular argument. The objection retains real force only insofar as an actual land value tax proposal also taxes improvements, or insofar as it is really a restatement of the separate (and more defensible) concern about land's capital value and assessability disappearing as the tax rate approaches 100%.

See Also

• Land Value Tax — the policy this objection is directed against
• Deadweight Loss — the efficiency-cost concept the Laffer curve is built on, and why a tax on perfectly inelastic land supply creates none
• Tax Capitalization — the related mechanism by which a rising land tax lowers land's capital (sale) value even as rental value and supply persist
• The Corruption of Economics (book page) — the discovery source containing Feder's postscript rebuttal of Grant's objections
• Mirrlees Review — the mainstream UK public-finance review cited elsewhere on this wiki for the same inelastic-supply argument for land taxation's neutrality

Sources

1. Mason Gaffney, Fred Harrison & Kris Feder, The Corruption of Economics (London: Shepheard-Walwyn / Centre for Incentive Taxation, 1994), Postscript, "South Africa 1994: Countdown to Disaster" — the discovery source; used for Richard Grant's application of a Laffer-curve-style argument against a full rent tax, and Feder's reply that a land tax is a lump-sum charge not conditioned on productive activity, unlike the taxes the Laffer curve was formulated to describe. wiki summary
2. Elizabeth Kepner & Rick Mattoon, "Land Value Taxes—What They Are and Where They Come From," Chicago Fed Letter No. 489, Federal Reserve Bank of Chicago, November 2023 — used for the mainstream public-finance explanation of why a pure land value tax creates no deadweight loss and falls entirely on the landowner without reducing the quantity of land supplied, the same inelastic-supply logic underlying Feder's reply to Grant. chicagofed.org
3. "Laffer curve," Wikipedia — used for the general definition and standard 0%/100%-both-yield-zero framing of the Laffer curve that motivates the objection. Wikipedia