Three objections to the Land Value Tax
I used to be quite positive about the Land Value Tax, but though it seemed like a decent tax without deadweight losses (because the supply of land is fixed, you don’t discourage any production of anything as many taxes do) some problems have gnawed away at me. These are:
- LVT supporters say that an LVT would encourage more productive use of land. But is this desirable? Land owners already have an incentive to do something with the land – opportunity cost. In other words, if I have an acre of land that I’m doing nothing with, but that I could profitably let a bunch of houses be built on, the cost to me of doing nothing is that house profit. An LVT would just add to this. But is that a good thing? Making every resource we have produce as much as possible isn’t necessarily efficient or desireable – we could similarly tax people for not working, but we don’t want everyone to work! We could tax gold ownership so that it was only used in industrial processes, but that would be crap for people who like looking at gold! Similarly with land there are obviously some uses that might not be viable if we were trying to raise lots of revenue by taxing it. We don’t necessarily want to make every single thing produce as much money as possible, there are lots of other ways things can be valuable.
- LVT supporters talk about the economic rents that accrue from land ownership, and suggest that these rents need correcting with an LVT. But I’m not convinced. The price of a given piece of land, sold today, will reflect whatever future profit its buyer and seller expect it to make. And last time that piece of land was sold it will have reflected all the future profits its buyer and seller expected it to make then. And so on. Of course these expectations will often turn out to be wrong, but are they any more likely to underestimate than overestimate things? Why would they be? I’ll grant that anyone who themselves or whose families acquired the land, whether by homesteading it or by violently stealing it, has enjoyed an undeserved windfall, but once it’s sold, land is surely going to be priced like any other asset.
- Even the argument that once convinced me doesn’t seem so good anymore. So there is zero disincentive to the ‘production’ of more land, because the supply of land is fixed. But wouldn’t this be the case from any credibly once-off tax on any asset? I’m being a little weasely, because maybe no tax is credibly once-off, but LVT seems less special when you think of it like that. OK, land will be cheaper in the future (because returns from land are lower, because you have to pay a tax if you own land), which sounds great, but who pays? We haven’t increased the supply of land. We’ve just redistributed from current land-holders to future land-users. Maybe that’s good, maybe that’s bad, I don’t know.