Just over a year ago, I wrote a somewhat invective essay entitled “Georgism is Insane“. If there is any testament to writing controversially or attacking people and ideas, it is that this post received more responses than any other post I have made here. It also appears to be one of the most viewed articles here, and was thoroly fisked by a blog called Blue Republik. I thanked and continue to thank all the responses to this, and I am not sure why Blue Republik was unable to reply here or the comment was deleted. I will check the spam filter.
In light of all this, and further reading into Georgism, an update is required. I should clarify that I write from the perspective of statelessness. In a stateless society, there should be no land tax or any tax. Land ownership is recognized by the general community. This would vary by locale, and even in the same locale. Presumably, there would be private registries that work together where necessary. This is how it works with website domain registration. There are many registries, all private, and they dont overlap each other. There are open questions as to if you can own vacant land forever and never use it. At what point can it be considered abandoned? However, that is not the nature of this post.
Nonhuman animals and plants recognize land ownership privately without government, so it is not clear why some humans cant accept the same. I once had a page called Ancap Squirrel Memes or something, and the concept will be illustrative here. Squirrels dont go crying to other squirrels that they are denied access to a certain tree, and dont demand compensation in acorns for exclusionary use of a tree. Almost all animals exert exclusionary use of land or sea, why should humans not?
In any case, it is worth noting that there are some merits to land value tax that I knew of at the time, but neglected to mention, and that is from a nonstateless perspective. Which is to say, compared to what we have now. Indeed, there is good theory and evidence that land value tax is one of the least bad taxes! This was noted by many economists across the spectrum, and allows almost any ideology to add geo- as a prefix. Taxes are always a disincentive against what is being taxed. For so-called sin taxes, this is intentional: a tax on cigarettes is meant to curtail consumption, and seems to have been sadly effective in areas with higher levies, such as New York City and Chicago. Commonly, income and corporate tax opponents criticize such because the taxes are a punishment for making more money. Sales taxes certainly discourage sales, and as a New Hampshire resident, I can tell you that I try very hard not to buy anything when I am in another state (except prepared food because NH has a 9%(!) tax on that). Sorry “Fair”Tax proponents. Its a good idea, but it has problems too!
Property taxes are common local taxes in the United States (I dont know about other countries) and are cited by almost all economists as one of the best. This is because its steady and predictable. It doesnt rise and fall with the economy like income and sales/VAT do. Certainly, it can, but it has to be reassessed to a higher or lower rate. There are much fewer surpluses and deficits with property tax. It is for this reason, that people tend to hate property taxes and want to get rid of them, with constant complaints in New Jersey, New Hampshire, California (which restricted them), and elsewhere. People do not like to be slammed with a big bill where they have to cut a check. With income tax, it used to be, and for some states still is, that you had to pay at the end of the year. Infamous genius Milton Friedman persuaded the IRS to switch to a withholding system, where estimated taxes are deducted from your paycheck. The next spring you file for a refund of any excess, or pay if not enough was taken. People like this because instead of making out a payment, they get a big refund that they then splurge on frivolity. The IRS likes this because its more compliant and they get interest free loans from taxpayers. Yes, many many people are giving interest free loans to the government for as long as a year. This is why its important to fill out your forms accurately. Your refund should be in the low hundreds and never above $1000.
Getting back to the point, land value tax is a simplification of property tax. Instead of paying tax on the land and the improvements, you only pay tax on the land. What effect does this have? For that, its best to go to New Hampshire, which struggles with low housing stock, and many hideous old buildings that are deteriorated on the outside and continually patched together for decades. Why is this? Because if any changes are made or the outside looks better, the assessment goes up. If the improvement tax portion is eliminated, this disincentive goes away. People are free to build whatever they want (provided regulations and such are followed). Another apparent problem here in the Granite State is that we are heavily reliant on property tax because there is no income or general sales tax. There is a 5% interest and dividends tax and a 9% rooms and meals tax. Thus, people often get shafted across the board and this is one of the biggest complaints by residents.
But it can be fixed: With a land value tax! Only the land value is taxed. The rates for everyone will go up, but the net tax for most people will go down at least somewhat, and it can be done to be close to revenue neutral. How does this work? By shifting the tax burden to inefficient use of land: vacant lots, dilapidated buildings, parking lots. Anyone, especially in dense areas, who takes up land, but doesnt use it, currently isnt paying much. They would be under a land value tax. A vacant lot is often assessed at one-third or less the value of an improved lot. The improved lot pays more, but the vacant lot is an eyesore and can hurt land prices. If there are too many, land prices collapse, but in other cases, they cause land and housing prices to go up because they arent being used. With a land value tax, a vacant land owner suddenly has a much higher tax bill, so he either sells it to someone or develops it. This brings in the income necessary to pay the land value tax. Thus, a land value tax incentivizes development and efficient use of land.
This has been borne out in places like Singapore and Taiwan, where land is at a premium and efficient use is critical. And it has also been shown to improve blighted cities like Pittsburgh. In the 90s, Pennsylvania enacted a law that essentially allowed cities there to switch to a more land value tax focused system. This forced absentee landlords on vacant properties and lots to develop them or sell them to those who will. And it worked. Vacancies declined greatly and the municipalities that enacted it got much better. Georgists point out that New York City, with its many many vacant areas, ought to switch to LVT, which would force speculative developers to develop and rent.
Contrary to what many think, this does not abolish landlords per se. Georgists, especially of the mutualist variety, like to heap scorn on landlords, as we all often do. In fact, landlords as property managers would still exist. Their income would be generated almost entirely from material improvements, not from the use of the land. Rents would probably decline, and this would probably help out most landlords by lowering their costs and pressuring them to be more efficient. Instead of squatting, they have to invest and develop. Rent does not go away, instead you pay to directly to whatever improvement and to the LVT the owner is assessed.
Some questions still remain: would this be unfair to farmers and rural landowners? Perhaps not. Land value is cheaper in those areas. The net effect of an LVT is that the denser, more infrastructured areas pay more for that. In most cases, that works out. Again, almost everyone pays less except vacant lot and inefficient owners. I took a look at this by comparing the price of an undeveloped rural acre ($10,000) to the land assessment in a city ($65,000, adjusted to $400,000 an acre). An urban acre is worth 40x a rural acre. With say, a 5% land tax, the rural owner pays $500 a year and the urban acre owners pay $20,000 together. Most people would not be concerned about a $500 bill for that, but the urban owners would be sure to justify their usage is maximized.
There is some concern that this would cause spiralling density. There may be some truth to this, and Georgists point out that sprawl is disincentivized. This is probably a good thing. Rural areas arent really affected as much. It would be interesting to see how this would pan out in a rural village like my own. Does the small center of town area end up paying more under this system?
And what of things like parks and other facilities that do not produce any income? This would tend to favor government ownership. But perhaps the code would be structured so that private parks and gardens were exempt or reduced. However, that opens a can of worms itself. However, none of this should preclude the very true notion that a land value tax is indeed better than almost any other tax. It is more efficient than a traditional property tax. Could this solve property tax woes in states like New Hampshire? I think so, if done right.
Many questions remain. Who determines the value of land? Assessors do that now, but that is always an opinion. As I said in my original post, different people value things differently. Should other physical resources be taxed if they are scarce? Blue Republik says no, but notes some geoists say yes depending on the resource. A rare element should be, but a common one isnt worth the fuss. While I still have many criticisms of land value tax from a stateless perspective, it does have merits when there is a state.
Again, I welcome any comments from Georgists and hope that they are more satisfied with this update!