Most municipalities in the US tax property based upon assessed market value, which discourages more efficient use of land. If you knock down your single-family house and erect a multistory condo, the value of the improvement will swamp the value of the land, and you will be punished with much higher property tax.
Georgists (http://en.wikipedia.org/wiki/Georgism) explored the probable effects of land taxes extensively, though I don't agree with the premises of their reasoning.
For one, Henry George drew the supply curve for land as a vertical line, to reflect the idea that you can't make more land. But different areas of land have different suitability for any given purpose. It is true that you can't increase the surface area of the Earth, but you can still rank every hectare by how much effort it takes to reach it from the center of global trade. The economic projection of the world map is basically one huge ocean in the middle, a ring of port cities around it, roads and rivers spreading outward from there, and deserts and wilderness way out at the edges. Those peripheral lands are the ones that get used last, when land prices are highest, and that's why the supply curve for land is not vertical.
Besides that, it is difficult to separate the value of the land itself from the improvements on it, or even the improvements near it. Is it just for you to be taxed more when someone else builds a train station near your house? I think the way to levy a land tax that is least susceptible to abuse or political manipulation is to calculate it based purely upon surface area. A hectare in the furthest backwater of the jurisdiction is taxed at the same rate as one in the busiest urban center.
The land-value tax boils down to a tax on the site-value of land, which necessarily has to account things like proximity/distance to commercial centers.
You generally want people to increase their density, because that makes it possible to provide more efficient services with a distance, area, or volume component less expensively.
Electrically-powered commuter trains are more efficient movers of people than automobiles, but the capital requirements are such that you need a minimum population density to run the train profitably. The commuter train increases the desirability of property near the stations. Taxing that value discourages use of the train.
A hectare in the country is the same area as a hectare in the city. Land value usually has an inverse relationship with population density. You could either tax based on area alone, or try to cancel the value effect of increased density by dividing the land value by the density of the census tract.
The problem with a flat tax on land is that it provides no incentive to allocate land to the most productive uses. A flat land tax sufficient to encourage low-density suburban areas to convert to medium-density urban areas might still be low enough to permit vacant lots in high-density areas.
What?! It provides a direct incentive in the form of $/hectare-year. If your use of the land does not earn at least that amount, you lose money by owning it. If it does, the relative burden of the tax decreases as you make your use of the land more efficient.
A dense urban business district is incontestably a more efficient use of land than an agricultural field. If any land is removed from cultivation because the crop yields cannot support the tax, then the land with the lowest yields, and therefore least suited for agriculture, will be abandoned first. Those lands might be better suited for other purposes. In that sense, the tax is working exactly as expected.
And that farm-use consideration is vital for keeping the tax low. The government cannot use that tax to squeeze any particular type of person without devastating agriculture. If you try to use a tax as a sledgehammer rather than a speed bump, you end up with all sorts of nasty unintended consequences.
If you need a sledgehammer, you can simply write a zoning law that effectively abolishes new low-density residential neighborhoods. Or you could use eminent domain to take vacant urban lots. But those are going to cost a lot more money and public goodwill than a uniform tax on land surface area.
The owners of the land will be considering alternative uses for their land by how much additional revenue they could produce.
If the owner of a hectare of remote farmland decides to do something else with it other than tilling it as a flat field, it is far more likely to be building greenhouses, or burying drainage tile, or installing center-pivot irrigation and planting windbreaks, or just changing to a higher-margin crop rather than something like erecting a mid-rise AAA office building. Even building a vertical farm is unlikely.
If the hectare is in the middle of the fastest-growing city in the state, selling out or converting to a different use is increasingly likely, as the marginal increase in revenue over the marginal cost of making the improvement rises.
Consider also that a hectare in the suburbs is likely not directly producing any revenue for the owner at all. Its worth is almost entirely derived from opportunity costs. The owner of that land might decide to grow a vegetable garden in response to a tax, or raise rabbits or chickens in the back yard. Or they might decide to lease their mother-in-law apartment in the basement or garage. or they might just work a little harder elsewhere to pay the cost of not improving their land.
As I understand the last paragraph of your comment, you wish to see the owner of the vacant lot forced into a situation where he had to act in some way other than how he currently chooses to act.
In other words, you want to substitute your judgment for his, when it comes to the use of his property.
Again, I don't mean to be confrontational, but this is how I see the situation.
How do you see it?
If the people in a community have decided to spend a lot of their money to reduce crime, improve transit, improve schools, and improve the economy, every land owner benefits. Yet the way that we do taxes (based on the improved value of the land), means that those that sit on the sidelines and do nothing gain quite a bit of value by freeloading on those around them.
If we figured out the taxes based on the underlying value of the land, then the vacant lot owner would be paying as much as the person that just invested in building a new business next store. That seems fairer to me considering that the vacant lot is now worth more due to its proximity to a shiny new building.
The true underlying value is the value it would have if you picked up the land with a god's hand and plopped it down in the middle of nowhere, in a land devoid of people and far from roads or rivers. Does it have valuable natural or mineral resources on or under it? Does it have energy production potential? Fresh water? Historical significance?
No? It's worth zero. People drive the economy. Land only has value to the extent that it does not present barriers between you and your trade partners. No one wants to live atop the mountain if the funicular is not built. No one wants to live across the lake if there are no boats, docks, and piers. No one wants to live deep in the forest if the road into it has not yet been cleared.
How then do you calculate a land tax fairly? Surface area alone? Population density data from the census?
To address your more general critique, it might be better said that you are paying a location tax as opposed to a land tax. Specific locations have particular value and until we develop hand of god technology, putting multiple units of land in a given location will be impossible. So land vs. location is really just a semantic difference.
As such, that result still represents the improved value of land.
Roads increase the value of lands adjacent to the road, even if they are not on the land itself. Parks and greenways increase the value of land within a certain distance. Schools increase value. Shopping centers increase value. Police stations, fire protection stations, restaurants, theaters, museums, public transportation, and other improvements all affect the value of living near those improvements. There is even some value in living next door to an expensive-looking house rather than a shabby one, or an abandoned, empty lot.
I contend that if you factor out all those improvements-by-proximity--if you erect a magical barrier that prevents all human influence from passing it--the inherent value of a hectare in a city or suburb is about the same, or perhaps less, than a hectare in the middle of a cornfield--a field without an irrigation system, and far from any roads.
For the most part, the inherent value in land is as a place to put the improvements.
A location tax does not encourage efficient land use (by discouraging inefficient use). It discourages living closer to other people, which itself is a more efficient use of land. When home is where you hang your hat, people gather around the hatracks. As long as you are taxing desirable location rather than land area, you are addressing the movement of the people rather than the use of the limited resource.
If high-density housing is a more efficient use of land than low-density housing (a rhetorical conditional), then it is counterproductive to tax people for being closer together in more efficient cities, rather than less-efficient suburbs.
If a person makes an investment, and that investment goes up in value, even substantially, and even with no additional effort on the part of the investor, does that justify others taking some or all of the resulting value?
If I bought stock in Apple years ago, because I thought it was a smart thing to do, and I simply held the stock, should other people get a cut of my gains when I sell?
What if the stock goes down? Am I then entitled to someone else's gains?
To put it another way, if you own common stock, and later develop some of it into preferred stock, does the value of your remaining common stock also go up? If you have shares of Microsoft also, and those certificates are next to the Apple stock in your safe, does your Microsoft stock benefit from its proximity to Apple stock certificates rather than, say, Hewlett Packard? Suppose someone else places some of their Facebook stock in a safe next to your own. Do they benefit from their proximity to existing Apple stock? Do safes full of penny stock drag the value of your Apple stock down?
The fact that something is real property means that it has a direct impact on other peoples' property around it, especially in how it is developed(or not). I would say that there is an argument to be made for deincentivizing sitting on land as a "real estate investment" without using it to benefit the neighborhood it sits in.
You write that there is an argument to be made for discouraging sitting on land as a real estate investment, without using it to benefit the neighborhood that it sits in.
Let's say that you are right, that there is such an argument to be made. In other words, the neighborhood in which the property resides would benefit from some improvements to the property in question.
In this case, why should the affected parties not try to work together to accomplish it?
For example, if I own a vacant lot in the middle of a neighborhood, and my neighbors want to use the land for a park, I'd be happy to discuss selling some or all of it to a neighborhood association.
On the other hand, if the neighbors are going to get together and petition the local city council to confiscate my property, say through eminent domain, that seems like an unreasonable intrusion on property rights.
I understand that people want things. However, I think we'd all be better off it we sought to work things out through voluntary cooperation and free trade – in an environment where individual rights are respected – rather than empowering politicians to pass laws that grant special favors to certain groups.
I personally think land taxes are better than as-built property taxes because they encourage investment. If you assume that lower taxes are an incentive, we currently are giving land owners an incentive not to invest in their property. Society as large actually wants land owners to invest in their properties.
If you want to argue that land owners shouldn't be taxed at all, fine, but they are currently being taxed.
You are correct, of course, that land owners are taxed.
I don't expect to live to see the day when most people realize that initiating force against others is counterproductive. But I do think it's helpful to look into the essentials of things.
Thank you for a good discussion. It has helped me to clarify my own thinking.
Without the state (or society, if you prefer) exercising, or threatening, the use of force against people who would otherwise infringe on your property rights, your 'ownership' of your land is worthless.
So it follows the state (or society) expects something in return, as your exclusive use of your land is necessarily a cost to the rest of society.
Yes, I understand that people look to the state to protect property rights.
Unfortunately, it seems like we have not yet avoided the situation where the state itself becomes a frequent and massive violator of property rights, and people's individual rights in general.
Perhaps we will someday discover other ways in which the protection of individual rights can be accomplished.
Does my right to it outweigh society's interest in using a portion of its' value to repair the effects of the gang's activities?
2. No, but you can use the losses to offset future gains without paying tax (you aren't penalized for an asset depreciating then re-appreciating)
They already do, indirectly, through cap gains taxes
I've noticed that anti-tax and anti-government folks tend to focus on rights that are "natural", yet it seems to me that, if we accept the notion that the "naturalness" of certain rights is both real and a measure of their value, the right to broad access to most land currently held as private is more "natural" than the right to buy far more land than one can personally use while preventing all others from using it in any way, unless (maybe) they pay you for the privilege.
The fact that money changed hands and some papers were signed seems irrelevant to the "naturalness" of exclusive access to land, to me—then again, I consider concerns over and arguments revolving around "naturalness" to mostly be a distraction when it comes to figuring out which freedoms I'd prefer to preserve over which others, so maybe I'm a bad judge of these things.
If that act is justified as taking under utilized resources then we are certainly justified in using the more mild pressure of taxation to fix an obviously broken system.
Maybe the best idea rather than the impossible task of finding the true owner to create policies that make the world a less effective place, we should tweak land ownership patterns in the interests of efficiency and maximization of net wealth or quality of life.
> In other words, you want to substitute your judgment for his, when it comes to the use of his property.
It is not unambiguously his property and when there is grotesque under or mis-utilization, yes another judgment is desperately needed such as taxing the owner to compensate for the loss the rest of us are carrying until that loss stops.
But taxation policy is something that people talk about all the time, to nudge people to do one thing or another, whether it be to save for retirement or whatever. Taxes on externalities are certainly a better way of handling things than explicit regulations, for example.
As for "taking other people's property without their voluntary consent," yes, from one private citizen to another, that is true, stealing is wrong.
Extending that idea to cover taxation is also wrong; taxation isn't stealing. Taxation is paying the bill you incur by living in a place with a government that provides you with a wide variety of services.
There are any of a number of things the owner could be doing with the property. For instance, he could build an urban farm and help provide the area with more food. There are property tax incentives for doing as such, but when you're paying less than $1000 a year for property taxes why would you go to the effort? So instead of using the land for something useful, it's blocked off with a chain link fence and laying unused.
I agree, there are many things the owner could be doing with his property. I see that as entirely his choice, as long as he is not violating the rights of others.
Could you perhaps try talking to the owner of the vacant lot? Maybe you and he (or her) could find a good solution to the problem you perceive.
Knock! knock! Oh Hi Mexico...
Toc! Toc! Hola Ohlone Native Americans...
Possession is nine-tenths of the law. The law is man-made.
What is actually right and wrong, in my view, is based on the nature and requirements of human life.
All human government is an attempt to manage human wickedness. If we were not wicked we would need no laws.
Imagine high land taxes in the middle of the desert. Is it an incentive to build? Quite the contrary.
The site-value of unoccupied desert is pretty low, so the land-value taxes on it would be low, which gives incentive to build there rather than elsewhere. Whereas an empty lot on valuable real estate in the city would face not merely the opportunity cost but also a high land-value tax.
A lot of tax policy in John Locke and Henry George's day was about getting "unused" land into "productive" uses.
If someone sees a better potential use of the land (able to get more value out of it), he can propose to buy it at a higher price.
A land-value taxes is just a multiplier of the opportunity cost, but without any real economic foundation (no one is proposing to buy the land at a higher price).
What you can say, however, is that humans prefer the statu quo. (Or as you would say, the cost of measuring opportunity costs.)
Any transaction need to provide at least some additional benefit to be considered worthwhile.
For example, I won't sell you my car for only 5% over the market value because it's not worth it for me.
You coming every day and breaking a mirror, a whipper, or steeling a wheel would not correct any economic calculation 'error'.
I see land-value tax as the same economic mechanism applied to vacant lots. There should be some penalty to sitting on land and simply watching its value accrue. Why aren't we treating the land crisis like a deflationary spiral currency crisis?
And perhaps for many properties in the mid-range of site value, the opportunity cost is masked by high information costs, which a land-value tax could make more clear.
Imagine a world where if you take a day off (or just slack off). You not only don't get paid, but also receive a negative salary because 'punishment'. The punishment would also be proportional to the salary of comparable individual (not you, other people). The more they work, the more you must pay for not working in addition of not getting paid.
All this in the name of maximizing your contribution to society... How would you feel about that? Wouldn't you say that 'not getting paid' is plenty already?
In general I dont understand why people think that government must act (that too via taxation) when they are not getting what they think they are entitled for. None of us are entitled for any cheap land. If someone is spending his own money and hoarding it I have no business complaining about it either.
Hoarding of natural resources is actually well studied and theorized concept in economics and is best explained by using the example of Oil. We all know that as time passes by Oil supply will only go down. But does that necessarily imply that prices of Oil will shoot through the roof ? Not necessarily. Any Oil producer will reduce the supply today if he thinks it can fetch him more value tomorrow. But more he hoards, the future availability goes up and hence the expected prices of Oil in future go down. This is a fine balance that all the people in this business understand and play accordingly. Not to mention the other sources of energy compete for the price too.
Same if true for land. The reason why people keep the land unused is because they think they can get much higher value in future when the land is even more scarce. But the very fact they keep the land vacant ensures supply of land in future and/or at sufficiently high price. If somehow the person if forced to sell of his land today, whatever reduction in land prices we get today, we will have to pay it back in future by even higher real estate prices.
So, if he believes that the value of a certain area will increase by 50-100% over the next decade, and he can borrow against it for cheap, it actually wouldn't be advantageous to sell it.
If land taxes would be higher, he would probably sell it.
Can't build something more profitable then the land taxes? Then sell it, or give it back to the state.
http://www.forbes.com/sites/anthonynitti/2013/12/31/tax-geek...
It's about capital-gains tax vs income tax. Because the rates are dramatically different and the case law is so convoluted, people who hold land as an investment don't touch it.
If they touch it in the wrong way, the sale of that land is taxed as regular income instead of capital-gains. In America, regular income tax is DOUBLE capital-gains tax.
Also, taxation is meant for government to run to do its primary duties and not affect the market forces.
I don't think this is the case for every tax. Look at the different carbon tax systems. This is a tax to try to drive the market towards greener solutions/products.
I guess an argument could be made that the tax is a way to quantify damage to the environment done and the money it's going to take to repair it, but I don't think that's the way most people see it.
This is a very hard problem to solve and taxation may not be one of those. If US government puts stronger restriction on US companies, they lose the competitive edge against Chinese and Indian who do not have to pay any such tax.
+1000
Living in West Oakland next to a vacant lot, I think there's a lot of merit to this idea. As it stands right now, there's no harm to the owner of that lot to just let it lay vacant for a decade. If it cost the owner some money, people might actually do something with these kinds of lots.