Always wondered how this works on modern times, where income per square foot varies wildly per industry.

Let's say because of rising taxes, a bakery or a shop has closed and a lawyers office has opened in that spot. Who exactly us "the public" in this case and what are the "maximum benefits" that they are getting from that change? Because if I actually lived nearby, I sure wouldn't be happy about my favorite vakery/shop being closed.

And don't say "increased tax base" - for that, you can tweak existing system and increase income taxes so you collect more from the lawyers while still keeping bakeries alive.

Density.

The current property tax system makes it more likely that (in your example) the law firm will push out the bakery. Because improvements are taxed adding more commercial space means paying more taxes, which makes it less likely to happen.

With an LVT, expanding the building (up or out) to add a second store/office) is cheaper so you’re more incentivized to provide space for both

Income per square foot in _rent_.

The important thing isn't that the lawyer's office makes more money. That's just correlated with the important thing, which is that the lawyer's office is willing to pay more rent. Note the lawyer isn't operating a charity for property owners here; they're only going to pay as much for rent as required for the market.

If prevailing rent is high enough such that only lawyers get retail square footage, then clearly property should be taxed as such. That's the value of the land. But then more development will happen, eventually reaching an equilibrium.

Saying rent isn't quite right. These land value taxes are usually taxed on potential as zoned. Empty land isn't bringing in rent. The whole point of these land value tax schemes is to tax it based on its highest zoned value so you force (re)development of the highest use case.

> Let's say because of rising taxes, a bakery or a shop has closed and a lawyers office has opened in that spot.

Taxes will rise in neighborhoods where improvements have happened. To determine the neighborhood is improving, we need a metric, for instance traffic. We expect the donut shop in an improved neighborhood to see increased traffic and more sales. If traffic doesn't increase then land value hasn't actually increased and the taxes have been applied inappropriately. Maybe we can come up with a better indicating mechanism for land value, I admit I have not read Henry George's work.

In your example, bakeries usually don't own land in highly desirable cities, they lease it from the owner. I think that's fine. The incentives here are against huge capital behemoths that can buy land and afford not to develop it, costing the cities in potential consumer revenue, population growth, broken windows theory, etc. Lawyers might own the building and be able to afford the tax. I think it's fine to expect bakers cannot afford buildings in very expensive cities (unless you're some luxury brand). If owners are incentivized to develop and lease their properties, there should be more supply for a cheaper rental market.

"but ongoing costs to the taxpayer to provide the infrastructure and services that give it this value and potential"

Empty land isn't using any of those things. Any future improvement would use those things and be taxed accordingly. If you're concerned about infrastructure costs, the. You want to use a per capita tax or the current property tax that taxes the improvements (where people work or live) since they are using the infrastructure.

We already tax utility users based on “usage”, but the cost to provide service is more like y=mx+b with a very large b and small m. Charging based on usage is just a way to allocate the large fixed costs amongst your users. (Electricity may be the exception with higher variable costs, but still significant fixed costs.)

But even if you’re not using them, the utility services (water, power, sewer) still have to pass by the property. Power lines and poles are there, they have to be maintained, your water main can’t be leaking, etc. There are real costs to do all that.

> Empty land isn't using any of those things

It doesn't have to use them to benefit from their proximity. Land in the middle of a barren desert is usually worth far less than a similar piece of land near a populous city.

Sure, your point? The government benefits on the higher sale tax revenue too. It's only a true benefit when something is realized. The densest areas of many cities are seeing decreases in population, so maybe that infrastructure isn't the main driver of value.

The point of a land value tax is to incentivise that realisation. In prosperous cities the reduction is inner city population is due to land being used commercially, and maybe up to a point that's fine. You can always adjust the value tax based on type of actual usage. The important thing is that it's used efficiently in a way that benefits the community.

"In prosperous cities"

Yeah, but we are seeing that many cities are not prosperous and are seeing population reductions. You can't will the creation of value. Just because it gets taxed like the land will create value doesn't mean it actually will.

"in a way that benefits the community."

These taxes don't guarantee this at all. There could be any number of uses, many of which could be detrimental or wasteful (and this will vary based on perspective as not everyone wants the same thing).

So we're paying for all those facilities, infrastructure and so on, and it's going to waste. That's inefficient. We want that land being used productively, contributing to the economy, making profits which pay taxes, to pay for these services.

You're leaving out the usage/ capacity side. If you actually fill all the empty spaces, you'll need to add additional facilities. Current facility usage is usually near capacity already.

That's not universally true. The sewer system in my town was overbuilt in anticipation of a development that fell through. That's why sewer / water bonds are typically up for vote separately from property taxes because there's such an interplay with development.

That's still cheap when you're looking at the whole picture. Sewer is much cheaper than police, EMS, road construction/maintenance, schools, etc.

Sure, to some extent, but overall it's clearly in our interests to have that land be used productively. If we want some land to be fallow, as policy, again there are better options than it just being underdeveloped, such as park land or gardens.

"but overall it's clearly in our interests to have that land be used productively."

Sure, but the real question is what does one consider productive enough? Should we tax a single family home at the rate of an apartment building just because the zoning changed? My opinion is that this type of scheme will be abused to force some people out of their homes in the name of benefiting society. My guess is developers and apartment companies can "persuade" politicians in many areas to change zoning to force people out, possibly the "wrong" kinds of people.

If you want productive uses, then you'd be better off charging a vacancy tax to already developed property. You wouldn't be able to fill all those spaces because the physical economy has shrunk, or people don't want to live/work in a rundown area, etc. There's plenty of open commercial real estate around me. The problem is you don't have customers to support the businesses that already exist.

If you really want to micromanage property types you could always adjust the land value tax based on actual usage.