Land value taxation

[The Idler]

Could land value taxation replace all other taxation?

[Dean]

Could land value taxation replace all other taxation?

It depends. If land vale is transformed into a direct reflection of the productive character of the land, its built improvements and all other income that manifests there, it could. But this would closely regard income value, and would effectively tie income to the land as a proxy-tax - an attempt to tax income via a third party "holding," that is the land.

I think it would be an incredibly obtuse and cumbersome way to tax. A tax code has to account for the real income and real costs associated with its constituency - if it simply focuses on land, property value would become incredibly disparate, and there really isn't any reason to attempt this.

[Die Neue Zeit]

Progress, Poverty, and Economic Rent in Land (http://www.revleft.com/vb/progress-poverty-and-t100661/index.html)

After reading my programmatic commentary above, it should be noted that I don't think all other forms of taxation can be covered. What can certainly be replaced entirely, though, are lower-bracket income taxes and regressive taxes like consumption taxes (as opposed to less-known-as-sales-taxes like financial transactions taxes or "Tobin" taxes - yes, they are sales taxes also, but they are not regressive).


if it simply focuses on land, property value would become incredibly disparate, and there really isn't any reason to attempt this

Care to explain this? The general theory is that it is land which appreciates and that whatever things are on top (buildings) depreciate.

[Dean]

Care to explain this? The general theory is that it is land which appreciates and that whatever things are on top (buildings) depreciate.

In order to maintain proper government funding, income would have to be factored into the value of land. If this didn't happen, government funding would be in massive decline, as the high-value land would be vacated for cheaper areas, and there would be widespread unpaid tax bills, since not accounting for income would put 1/2 acre of a working class home at the same tax burden as a lawyer working out of his or her 1/2 acre home office next door.

So land tax would have to account for the income of the holding firms. If it didn't, high income earners would quickly leave areas with high land value, in order to secure greater profits.

The land hasn't been the sole or primary provider of market value since the long before the industrial revolution. To tax it primarily would lead to a dearth of government funding, since income would no longer factor into taxation except through land as an intermediary.

So the taxes on the land that Pfizer holds a factory on will either be a relatively minor expense (and represent their entire tax liability!), or more likely, become incredibly valuable to reflect Pfizer's income.

So the value of income must be channeled to the land in order for the government to acquire adequate funding.

The value of land where people live will subsequently regress in comparative value, since the income value applied to the land would be so much lower per capita.

Furthermore, undeveloped land would be nearly worthless, since it doesn't have any applicable income to factor into its value. Opportunist holding firms would buy the land up like "hot cakes" just like the oligarchs purchased the vast shares of newly formed corporations in 1991 Russia. This land acquisition would further happen as a totally finance-capital based phenomenon, since they would apply financial algorithms to the land value in consideration of its potential future profit, and purchase the land when its value was low enough (remember, undeveloped land value would be falling) to justify it - but long before the working class had any reason to invest.


Furthermore, the purchase of recently closed factories would be incredibly rare, since their land value would be a massive hindrance to the buyer - if you can't use the factory to extract as much or more value, you will be dealing with a much greater tax burden-income ratio than the previous owners.

The simple fact is that it would be a massive clusterfuck.

[Die Neue Zeit]

In order to maintain proper government funding, income would have to be factored into the value of land. If this didn't happen, government funding would be in massive decline, as the high-value land would be vacated for cheaper areas, and there would be widespread unpaid tax bills, since not accounting for income would put 1/2 acre of a working class home at the same tax burden as a lawyer working out of his or her 1/2 acre home office next door.

In business valuations, land pricing is already calculated on that basis. Enterprise value depends a lot on the present value of future cash flows associated with capital assets and such.


So land tax would have to account for the income of the holding firms. If it didn't, high income earners would quickly leave areas with high land value, in order to secure greater profits.

Perhaps you are referring just to homeowners' land then? Their land prices almost always don't depend upon income.


The land hasn't been the sole or primary provider of market value since the long before the industrial revolution.

Um, the classical economists made this argument against the Physiocrats, yet insisted upon land value taxation as one of a few tax mechanisms.


or more likely, become incredibly valuable to reflect Pfizer's income.

Again, hence business valuation. ;)


Furthermore, undeveloped land would be nearly worthless, since it doesn't have any applicable income to factor into its value. Opportunist holding firms would buy the land up like "hot cakes" just like the oligarchs purchased the vast shares of newly formed corporations in 1991 Russia. This land acquisition would further happen as a totally finance-capital based phenomenon, since they would apply financial algorithms to the land value in consideration of its potential future profit, and purchase the land when its value was low enough (remember, undeveloped land value would be falling) to justify it - but long before the working class had any reason to invest.

Huh?

Back in the day, land tax advocates already knew which land was arable and which wasn't. Undeveloped land could still be assessed on this basis.

If land is bought cheaply and sold at a huge price later on, there's indeed economic rent right there to be appropriated by government, but the mechanism for capturing this is not land value taxation. Instead, it is bumping up capital gains taxation. That is why I wrote "by first means of land value taxation." In the broader sense, "land value taxation" itself doesn't mean only the annual tax assessments.


Furthermore, the purchase of recently closed factories would be incredibly rare, since their land value would be a massive hindrance to the buyer - if you can't use the factory to extract as much or more value, you will be dealing with a much greater tax burden-income ratio than the previous owners.

Again, you've lost me. Recently closed factories would see their land value plummet, precisely because the factory can't be used to extract sufficient value.

[Dean]

In business valuations, land pricing is already calculated on that basis. Enterprise value depends a lot on the present value of future cash flows associated with capital assets and such.

But it doesn't represent a directly proportional calculation. The fact of the matter is that land value is defined by potential income primarily as itrelates to location and market stress (what the firm is willing to pay, which is affected by income, but is not directly proportional to income).

That is to say, the $2.223Tn in assets* held by Bank of America** are not reflected in the land value of their land assets (remember that mortgaged properties are not owned by BoA - they are owned by the borrower - BoA owns the debt on that property).

So if BoA sold all of its offices and held real estate, but retained its assets, the value of that sale would not equal $2.223Tn (it would be exponentially lower since I'm 100% certain that mortgages and finance products like CDOs make up the bulk of their held assets), so land value does not reflect the income of the residing firms - there tends to be a positive correlation between income and land value, but that correlation is not enough to provide enough value that, when taxed, will equitably provide for government funding.

*I know we were talking about income earlier, but held assets are also important criteria for any tax code - perhaps more because its much harder for corporations to transfer assets outside of the country to avoid taxes, which is what they do for income tax today - 1 to 2 thirds of large corporations (large=accrues more than $500Mn / year paid no income tax for 2009).
**http://en.wikipedia.org/wiki/Bank_of_America


Again, you've lost me. Recently closed factories would see their land value plummet, precisely because the factory can't be used to extract sufficient value.
Completely false, and the primary reason is that specialty factories still maintain productive value by nature of their architecture. Nearby in Sandston, a semiconductor factory held by Qimonda was recently purchased by another firm - Ebara Technologies described the deal as "a steal" because the layout of the building - including an interstitial level, proper architectural framework for a cleanroom, as well as large storage, holding spaces and human facilities - provided distinct capital which did not "go down in value" once the factory ceased operations (to any significant degree that is). The assessed value was far above what they payed, due to financial problems on the part of Qimonda. The new firm will need this clean room architecture to hold massive databases which will aggregate government information.***

***I'm sorry I couldn't find the article on this, it was in a local paper - maybe the Richmond Times Dispatch? It's probably worth checking out to see where all the information of people like you and me will be stored. Here is the street address: http://maps.google.com/maps?q=6000+technology+blvd+sandston+va

[Die Neue Zeit]

But it doesn't represent a directly proportional calculation. The fact of the matter is that land value is defined by potential income primarily as itrelates to location and market stress (what the firm is willing to pay, which is affected by income, but is not directly proportional to income).

You should have clarified this earlier.


The assessed value was far above what they payed, due to financial problems on the part of Qimonda.

Maybe I was vague here. When I said "Recently closed factories would see their land value plummet," I considered more the general real estate market than assessed values. That market can be seen as a relevant (accounting: predictive value + feedback value + timeliness) intermediary between assessed values and the final price paid on the relevant property.

Re. timeliness, the assessed value could also have been the value of the prior property taxation year. If I were assessed $5,000,000 and three months later the real estate market says $3,000,000, that assessed value is way off and is completely irrelevant.

In any event, within my LVT scenario Ebara Technologies would simply pay a higher land value tax later on based on a proper assessed value. Had it decided to flip, appropriate levels of the capital gain would have been captured.