What is Land Value Tax?

Submitted by webmaster on Thu, 07/06/2007 - 05:53.

Land Value Tax, usually known as "LVT", is a system of property taxation that taxes the unimproved value of "land". "Land" in economics is all natural resources that are in a fixed supply, and includes actual land - sites and locations of buildings and so on - but also in the theory includes things like airspace, the electromagnetic spectrum. Because the supply of land is fixed ("They ain't making it any more") it cannot increase to meet demand so its value changes.

Unlike other forms of property taxation, such as the Council Tax in the United Kingdom, LVT only applies to the value of a site regardless of what is or isn't built on it. It doesn't penalise the capital investment in improving or making more efficient use of a site. A site with the potential in planning to hold ten houses would be taxed at the same value whether it actually had ten houses built on it (and effectively the tax was split between ten home owners) or was a run down industrial site bringing negligible rental income to its owner. The owner of such a site would therefore have an incentive to develop the site to its full potential within its permitted planning use.

Because it doesn't distort decisions about the investment of labour or capital it has been regarded by many "free market" economists, such as Adam Smith and Milton Friedman, as a better form of taxation than taxing incomes or capital wealth, and it's most prominent proponent, the American Henry George, proposed that it be a "Single Tax" replacing all other taxes on economically beneficial processes such as income and investment.

Explaining about the Taxation of Land Values

Submitted by David Chester (not verified) on Fri, 14/12/2007 - 12:11.

The above explanation is very brief and it misses out one important point (at least). The so called land-value tax is not really a tax at all, although it is often convenient to think of ot in this way. It is the collection of some of the rent due to the land having a value.

Land values are the result of two kind of simultaneous acting factors, a) the population density with its associated infra-structure (which is the result of tax-payers previous investment) and b) the natural bounty of the land due to its situation, mineral, vegetable or animal content as well as the space and proximity to population centers that it provides.

Due to the relative degree of these things, the ability of a site to enable the production of useful goods and serviecs, will vary enormously. Some land is so remote that it is scarcely able to support its working occupier and this land is called "marginal". Other land that is in a better location can allow its user to make a profit from his efforts at production.

This profit is called natural or economic rent. The profit as defined here is what is left from the value of the produce after deducting the yield (wrongly called the "interest") return on durable investment goods or capital (such as buildings and machinery), and after deducting the wages return for labour. Both of these quantities are determined by the competition for their availability and use.

The actual rent may not be collected at all in the case when the land is not used, or it may be greatly exaggerated by the land-lord as a rack-rent, when there is competition for land and no alternative on the part of the land-less worker or peasent.

By collecting some of the rent as a revenue, to be paid for the right to land ownership (regardless of the actual use to which it may be put), the government encourages the proper use of the land. Simultaneously this stops land speculation and its non-use or inefficient use. The tax burden from income tax etc can then be eased. These two changes result in more production and consumption and less poverty, due to the greater opportunities provided when the land is properly used and the redistributed incomes, more comming to the worker and less to one who is (inaccurately) called the capitalist.

However this explanation itself is limited and the whole subject is actually macroeconomics for which present-day descriptions and models are somewhat limited in their availability and scope, many missing out completely the importance of the land-value in the resulting equations and analysis and consequently being unable to provide accurate forecasts and explanations for such phenomena as the business-cycle etc.

Such a full explanation is possible and the author of this comment has in fact provided on in an unfinished book, which includes a model for our macroeconomic system. Please write to him at chesterdh@hotmail.com for the 150 page explanation he has presently available.