This Land Is Your Land, This Land is My Land

Why Libertarians Should Support Land Value Taxes
by Ryan Hinds

“Tax reform” has been a term used by politicians of all flavors, especially in the wake of our struggling economy. For example, the Republican governor of Louisiana, Bobby Jindal, has sought to eliminate the state income tax by increasing the state sales tax, joining the ranks of Texas and Washington. To Democrat Mark Dayton, governor of my old home state, Minnesota, tax reform embodies California voters’ decision to raise income taxes on the wealthy; ironically, the governor wants to lower corporate taxes at the same time. However, these reform efforts are akin to rearranging the lifeboats on the Titanic. Many Americans see income and sales taxes as polar opposites. But, like our two major political parties, they are more similar than different.

Income taxes reduce your take home pay, which means that you have less money to spend or invest, both of which negatively affects the businesses around you. Consequently, fewer people are employed and the effect ripples throughout the economy. This is known as the “deadweight” cost of taxation. Sales taxes have the same effect, as they make everything you buy more expensive. Yes, I know you wanted a BMW, but you’ll just have to settle for a Toyota instead!

I used to be a big FairTax supporter. As an engineer with a sense of logic, the FairTax seemed like a dream come true. I mean, who wouldn’t want to get rid of the dreaded IRS and encourage corporations to expand in the US? I was so excited about the prospect of a national sales tax (Yep, I’m pretty nerdy!) that when my friend, an economics student at Santa Clara University, told me about the land value tax (LVT), I shrugged him off. Not until later did I realize that he was right and I was wrong.

Mark Twain accurately noted, “Buy land, they’re not making any more of it.” Land and natural resources, unlike income and sales, will not disappear when taxed. Consequently, LVTs have no deadweight costs, and for the same reason, cannot be evaded; I challenge you to hide your land in a Swiss bank account. Taxing land also helps revitalize inner-city neighborhoods, as landowners must maintain their property in order to pay the LVT. With cities a more attractive place to live and work, there is less pressure to develop outlying areas, minimizing infrastructure costs.

The LVT would not be difficult to implement, as most state and local governments already collect property taxes. It merely requires that improvements (which are already listed separately on your property tax statements) be exempt from taxation. Finally, you can add that pool you’ve always wanted without attracting the taxman! A certain portion of the proceeds would be submitted to the federal government, with the total tax paid not to exceed the land rent (which is based on the assessed value of the land).

Land and natural resources are required not only for sustenance, but economic growth. Because they cannot be artificially produced, for them to be unconditionally in the hands of a few people denies the notion of equal opportunity as espoused in the Declaration of Independence. Libertarians, such as Adam Smith and Thomas Jefferson, supported the LVT as a means to both protect the rights of the landowner (to maintain private property), and to compensate others for being excluded from his/her holdings (in the form of public services and/or a citizens’ dividend).

It is time for us as libertarians to adopt the land value tax and reject the big-brother approach to taxation, which requires confiscating the fruits of our labor to fund the government. The LVT, as it does not require the government to view confidential financial data, better fulfills the libertarian belief in individual privacy. For this reason, the LVT fits our vision perfectly and should be readily embraced by liberty-minded people.

Comments

  1. Mr Hinds captures what even many promoters of land value recapture fail to recognize — the reduction of government intrusion into the private lives of citizen taxpayers.
    Walter Rybeck

    1. Pardon my ignorance, maybe I’m misinterpreting the concept of LVT… Government has rarely, if ever, properly assessed the value of anything, whether it’s bread, gasoline, or gold. What makes you think it’ll properly asses the value of land being used efficiently?

      1. It doesn’t assess how efficiently land is being used, but just assesses the market value of the land itself. (Market value is distinct from personal utility.) Assessors and real estate appraisers generally agree that land values are much easier to assess accurately than improvement values.

    1. The short answer is yes, but the tax will only be on your land, so any improvements you make (home additions, renovations, etc.) will not raise your taxes. But low property taxes (especially those on land) are not as beneficial as they seem. For example, in California where I live, property taxes are capped by Proposition 13. Because of this policy, building restrictions, and limited space, property values have skyrocketed along the coast where most people live. Land cannot be produced, so lowering taxes on it will just raise the price (supply vs. demand), which is what happened in California. Texas, on the other hand, has high property taxes and some of the most affordable urban real estate.

      Proposition 13 was originally meant to provide tax relief for poorer individuals, especially seniors on a fixed income, but has been abused by wealthy individuals that use California property as an speculative investment and tax haven. A better idea would have been to allow seniors to deter their taxes until death or sale of their property. Meanwhile, young professionals such as myself get clobbered with high income taxes (a 9.3% tax bracket starting at $49,000), high sales taxes (8-9%), and struggle to enter the expensive real estate market. I think by abolishing income and sales taxes, most people would receive a triple benefit: property values in line with incomes, a reduced need for social services (due to economic growth from tax reform), and a citizens dividend to offset some, or most, of the LVT they would pay.

  2. It depends on where you are. In Pennsylvania, it has saved money for most home owners in every municipality we studied. However, residential land values in California have become so ridiculously high since Prop 13 that it would probably cost home owners more in most cases.

    The good news is that it would also cost idle landholders more. California should make it a local option, but it would require a Consitutional Amendment. Poorer, mostly absentee-owned communities would probably be the first to adopt it.

    1. Most of my friends work on the East Coast and own a summer home in California. They do not rent out their property for personal reasons. Maybe I’m misunderstanding LVT, but it seems protectionist against absentee investors.

      1. Depends on what you mean by “protectionist.” Usually the word refers to a tariff that makes foreign goods pay more than domestic goods. However land value tax makes no distinction between foreign and domestic landholders.

        It also depends on what you mean by “investor.” “To invest” used to mean “to put into,” as when you invest in your child’s education. However, it has become a euphemism for “to acquire.”

        If the absentee “investor” is actually putting something into the land, i.e., improving it, then those improvements are untaxed. If, on the other hand, he is merely holding land out of use, then, yes, he would undoubtedly pay more.

  3. I can’t believe I’m reading this on a Libertarian website! You’re inviting Government to punish private landholders with taxes? Taxing landlords does not revitalize urban neighborhoods, if anything, it hastens urban decay…. That’s why landlords were burning down their tenements in the Bronx in the late 1970’s.

    1. “You’re inviting Government to punish private landholders with taxes?”

      No, he is inviting government to charge landlords for the benefits they receive from government and society. Where do you think the unimproved value of land comes from? Why do you think land value is dramatically higher for parcels surrounded by a successful community than for parcels surrounded by blight?

      “That’s why landlords were burning down their tenements in the Bronx in the late 1970′s.” The Bronx did not have land value tax; it had was rent control and property tax. You do not escape land value tax by burning down buildings. What you escape is the portion of the property tax that falls on buildings (duh), which is the portion this article proposes to eliminate.

      California gets a smaller share of its state and local revenues from taxes on land value than any other state, and leads the nation in foreclosures and the declining rate of owner occupancy. (Thanks a lot, Howard Jarvis.)

      New Hampshire gets a larger share of its state and local revenue than any other state, and was chosen as the best state for libertarians to locate in by the Free State Project. That should make any thinking person reconsider before posting reactionary responses.

      LP Founder David Nolan called it the “least harmful” tax. LP News founder Karl Hess called it “the one tax to levy until the state is abolished entirely.” Milton Friedman called it “the ideal tax.” Albert Jay Nock, author of *Our Enemy, the State*, and founder of *The Freeman*, said of Single Taxer Henry George,

      “The only reformer abroad in the world in my time who interested me in the least was Henry George, because his project did not contemplate prescription, but, on the contrary, would reduce it almost to zero. He was the only one of the lot who believed in freedom, or (as far as I could see) had any approximation to an intelligent idea of what freedom is, and of the economic prerequisites to attaining it…. One is immensely tickled to see how things are coming out nowadays with reference to his doctrine, for George was in fact the best friend the capitalist ever had. He built up the most complete and absolutely impregnable defense of the rights of capital that was ever constructed, and if the capitalists of his day had had sense enough to dig in behind it, their successors would not now be squirming under the merciless exactions which collectivism is laying on them, and which George would have no scruples whatever about describing as sheer highwaymanry.”

      Of course, Nolan, Hess, Friedman and Locke (and dozens of other libertarian icons through history) could all be wrong, but I wouldn’t dismiss them out of hand.

      1. Let’s take this step by step. I’m more a fan of Murray Rothbard than Henry George, so naturally we’re going to disagree on this. George believed that rent of land should be owned by society and not privately. I think private ownership is the greatest motivator for success and inviting government to impede is not the answer….

        “No, he is inviting government to charge landlords for the benefits they receive from government and society.”

        When you invite Government into anything, you expand it PERMANENTLY. Instead of creating a new tax bureaucracy, cut all government subsidies to begin with and allow people to WORK for and KEEP their private wealth.

        “Why do you think land value is dramatically higher for parcels surrounded by a successful community than for parcels surrounded by blight?”

        Blighted areas in this country often have the highest tax and government regulations because they are less business friendly which prolongs blight.

        “The Bronx did not have land value tax; it had was rent control and property tax.”

        And adding another tax will decrease profit margins further. Ex: Most casino hotels on the Vegas Strip maintain only 20% occupancy rate in between tourist seasons, should we force them to pay higher taxes to government because of this? How do you think that will effect their business?

        “New Hampshire gets a larger share of its state and local revenue than any other state, and was chosen as the best state for libertarians to locate in by the Free State Project. That should make any thinking person reconsider before posting reactionary responses.”

        New Hampshire has the 7th LARGEST debt of all the states in the Union. Fiscally atrocious considering it only has 1.3 Million people.

        Something to think about.

        Government has rarely, if ever, properly assessed the value of anything, whether it’s bread, gasoline, or gold. What makes you think it’ll properly asses the value of land being used efficiently?

        1. “Instead of creating a new tax bureaucracy, cut all government subsidies to begin with and allow people to WORK for and KEEP their private wealth.”

          LVT creates no new bureacracy. It just simplifies the assessment of real estate taxes, and replaces taxes on work and on privately created wealth.” So, you are arguing against yourself here.

          “Blighted areas in this country often have the highest tax and government regulations because they are less business friendly which prolongs blight.”

          Nice dodge, but I was comparing successful and blighted areas within a taxing jurisdiction.

          “And adding another tax will decrease profit margins.”

          Nobody proposed adding another tax. To the contrary, the proposal is to eliminate many other taxes, and also to eliminate much of the spending that is made necessary by the effects of taxes on productivity.

          “Most casino hotels on the Vegas Strip maintain only 20% occupancy rate in between tourist seasons, should we force them to pay higher taxes to government because of this? How do you think that will effect their business?”

          We were called to Clark County to study this. Shifting to land value tax will reduce their taxes in most cases.

          “New Hampshire has the 7th LARGEST debt of all the states in the Union. Fiscally atrocious considering it only has 1.3 Million people. Something to think about.”

          Actually, something to fact check. (I’m accustomed to Rothbardians pulling facts out of thin air.) According to usdebtclock.org, New Hampshire has the tenth LOWEST debt, ranks 26th in terms of lowest debt to GDP ratio, and 31 in terms of per capita debt.

          1. “New Hampshire has the tenth LOWEST debt”

            Wrong. http://www.mainstreet.com/slideshow/moneyinvesting/news/states-most-burdened-debt

            “We were called to Clark County to study this. Shifting to land value tax will reduce their taxes in most cases.”

            Oh, and what cases was that? Send me a link/proof of your study please.

            “To the contrary, the proposal is to eliminate many other taxes…”

            Yes, Government has a great track record of eliminating unnecessary taxes!

            “Nice dodge, but I was comparing successful and blighted areas within a taxing jurisdiction.”

            Successful and blighted areas is an oxymoron. What is an example of a successful and blighted area? How does Government decide who is productive with their land?

            “LVT creates no new bureacracy. It just simplifies the assessment of real estate taxes, and replaces taxes on work and on privately created wealth.” So, you are arguing against yourself here.”

            I am pretty concrete in my idea that people should work for, and enjoy the fruits of their labor in every aspect of life, INCLUDING real estate which obviously you and other Georgians want Government punishing those perceived to be successful.

            btw, Stop condescending me with “I’m used to Rothbardians pulling facts out of thin air” Nothing I came up with is BS. We’re here to have a civilized discussion, thanks.

    2. Tony, I think you are mistaken to call my article anti-libertarian. Libertarians need not be anarcho-capitalists. I am a minarchist, as I think that government has a duty to uphold the non-aggression principle by protecting us against murder, theft, fraud, etc. In my opinion, this is what maximizes freedom for the largest number of people (which is the goal of libertarianism, isn’t it?). While some support a Rothbardian perspective, I think that many libertarians believe in a constitutionally limited government. Now back to the subject…

      I was brought up to think that all taxes are bad, but there is an exception to every rule. Many leftists believe that government should tell people what they can build, where they can build it, etc. (Agenda 21/smart growth policies). Rightists, on the other hand, prefer a laissez-faire approach, but the homesteading (I call “dibs”) approach to land does not work, as there is not more of it for the next generation (plus, land was not even created by man in the first place, so how can we unconditionally claim it?).

      As a libertarian, I want to remove privilege from our society in some of the ways that you probably do: eliminating subsidies, reducing regulations, and dismantling the central bank. But holding land unconditionally is the epitome of privilege and there is no better way (that I’ve found at least) to make sure that everyone has an equal opportunity to use Earth’s resources (which are required for not only survival, but economic growth). Dan and I have pointed out the many benefits that land value taxes would have. If you want smaller government, besides cutting actual spending (which is clearly needed), this is the best way to reach that goal. Thank you for your detailed responses. I would have given a more detailed rebuttal, but Dan got to it first.

      1. Thank you Ryan.

        I agree with 95% of what you said. We need a civil courts system to settle disputes, a military to defend our shores, etc. However, I have a huge problem with Government officials assessing the productivity value of land. Government already has the power of Eminent Domain, levying a tax will only hurt businesses, tenants, and landowners who all have a right to profit off the land.

        Yes the Earth’s resource are heavily concentrated into the hands of a few but how can government truly allocate these resources in a fair way? It can’t. It can’t value the price of bread, gasoline, or gold, so how can it assess the productivity of land? Not everyone can live on the beach of California, but there’s plenty of land for sale elsewhere in the states for cheap.

        My biggest question, is what is stood to be gained with an LVT that can’t be gained through individuals conducting private exchange?

        1. Tony, you do not like the idea of a land value tax, yet have not proposed an alternative, given that you say government should exist. I have already discussed why income and sales taxes are poor ways to raise revenue, and tariffs are just sales taxes on foreign goods (which are illegal anyway at the state and local levels under the Constitution). Wealth taxes do not distinguish between earned/invested wealth (cash, stocks, bonds, buildings), and inert wealth (land and natural resources). Donations are also not a good way to fund the government, as they present a clear conflict of interest. The privileged will be able to contribute the most (everybody else will be stuck paying land rent to their landlords rather than the government), and the consequences of such will be negative.

          Assessing land values is not difficult, as Dan and I have detailed below. People have the right to challenge poor assessments, as they should. And competition between local governments will ensure that taxpayers are not ripped off. Many times, such as in real estate transactions, the government will not even need to be involved, as valuations are already part of the process. Resource allocation will never be truly fair, but all people should be at least given an equal opportunity to use what was provided to us (and not created by man in the first place).

          LVT is the most free market method of ensuring that land is used productively; it does not require the government to set rigid criteria for “efficient land use”. If someone has the funds to purchase land, it does not mean that he/she will be able to use it efficiently. And because land is fixed in supply, if someone underutilizes land, it is to the chagrin of everyone else who has a better, alternate use for the property. This does not mean that everyone can have beachfront property in southern California, but individuals and small businesses with few liquid assets but a profitable venture may find it beneficial to pay higher taxes to be on the water.

          LVT also would minimize the use of eminent domain, as people who do not benefit from new infrastructure will voluntarily vacate, or be forced to pay higher taxes as a result. See the following link for more information: http://www.progress.org/2007/fold493.htm.

          1. I associate fiscal conservatism with economical success. Ideally speaking, I would get rid of every form of income, corporate, property, and capital gains tax and replace it with a flat 1% local sales tax on every good (not service) sold. To me, it is the least discriminate form of tax.

            Tbh, I’ll look more into LVT though….

            Half the revenue generated would go to public infrastructure and the other half would go to necessary bureaucracy; courts, police, firefighters, etc. There would be no “general fund.”

            In SoCal we have reach the limits of horizontal expansion, yet we have infinite ability to expand vertically and make the business climate more attractive to land developers. Vertical expansion allows more people to live in a compact area; I.E. 2.5 million people live on the small island of Manhattan. To me, that would be the free market answer to making living space more affordable.

            Bro, I just want to be clear that it’s been Good talking with you and Dan. There’s no hate from this end.

  4. Real estate agents make assessments all the time (companies have to know the value of the land they purchased as an asset on financial statements). Individuals can even make fair-market assessments of their property, provided they agree to take offers above that. Governments, on the other hand, would use independent appraisers, and citizens reserve the right to challenge the valuation in an appeals process. And to answer your question, bureaucrats have no say in how the land will be used and whether it is being used “properly”. Many supporters of the LVT also propose leaving 20% or so of the land value untaxed to generate a sale price and leave a margin of error for assessments.

    1. In the better states, assessors predict subsequent sales within a standard deviation of 10%, and are even closer to market value than that. Many people confuse the actual selling price for market value, when in fact market value is the typical selling price for parcels with comparable attributes. Thus, estate sales tend to give up property at around 70% of market value, and people moving into an area and buying quickly tend to pay around 110% of market value. So, while some people declare things to be true because dogma dictates them to be true, the inability to assess real estate accurately is largely a myth.

      Also, the more land value is taxed, the less erratic the market, because a taxed land market is dominated by land users instead of land speculators. Failure to tax land value is why California real estate prices shot up after Prop 13, and why California had the worst housing bubble in the nation.

      Prior to Prop 13, the “affordability index” (median house price / median income) was about 10% higher in California than in the rest of the country. In 2005, the year of the real estate price peak, it was about 320% higher. 23 of the 25 most unaffordable cities in the nation are in California.

      Pennsylvania’s land-taxing cities had very small drops in this “great recession.” Some cities even gained value as businesses fled places where land was undertaxed and overpriced.

      Texas and California were the two fastest-growing cities in the second half of the last century, yet 4 of the 6 most affordable cities are in Texas. Austin, the most unaffordable city in Texas, is still far more affordable than Bakersfield, the most affordable city in California.

      http://savingcommunities.org/issues/taxes/property/affordabilityrank.html

  5. “New Hampshire has the 7th LARGEST debt of all the states in the Union. Fiscally atrocious considering it only has 1.3 Million people.”

    First of all, “considering it only has 1.3 million people” implies that this was total debt.

    I cited http:usdebtclock.org, which gives the actual debt of each state, the per capita debt, and the debt as a percent of state GDP. It is a recognized authority that is widely cited, and According to what I looked up, Tony’s figures were wrong. It is generally recongized as staying on top of debts pretty closely.

    Now he cites a 2011 slide show, and, what do you know, it wasn’t total debt at all, but per capita debt, rendering the statement, “”considering it only has 1.3 million people” as pretty pointless. In any case, his bogus statistic has nothing to do with the correlation between the share of revenue collected from land and the effects on economic freedom.

    Hong Kong gets a higher share of revenue from land than any other country, followed by Taiwan and Singapore. All of the indices of economic freedom list Hong Kong first, followed by Taiwan and Singapore.

    I just Googled “state debt per capita.” Again, noting like what Tony was saying.

    First link, http://www.governing.com/gov-data/economy-finance/state-debt-per-capita-figures.html

    Putting the cursor over each state in the map, and moving from west to east, 6 of the first 8 states had higher per capita debts than New Hampshire. I don’t want to do Tony’s homework for him again, but it is clear that New Hampshire’s per capita debt is about average. California’s per capita debt is well over three times as high.

    The next two Google links also shows him to be wrong, with New Hampshire’s debt below the national average, and the third lists the top ten states for per capita debt, and New Hampshire is not there.

    http://www.statebudgetsolutions.org/publications/detail/state-debt-more-than-37000-per-private-worker-13000-per-capita

    http://www.usgovernmentspending.com/state_debt_rank

    http://www.huffingtonpost.com/2011/10/24/states-debt-combined-may-exceed-4-trillion_n_1029162.html

    As Ryan Hinds noted, “Tony, you do not like the idea of a land value tax, yet have not proposed an alternative.” I think that is something we can all agree on.

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