A tax we should all agree on
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Taxes suck. They really do. Trust me, I’m just as unhappy as you when I look at my paycheck and see that I actually earned X but I’m only being paid Y because Uncle Sam took it from me and there’s nothing I can do about it because, well, he’s America and I’m just a guy who sometimes puts his underwear on backwards.
In practical terms, we do it because not only the law demands we do but also because we know (or hope) it goes to making improvements in schools, roads, hospitals, our military and a myriad of other taxpayer funded institutions. However, the tax code of today is too complicated, ineffective and unfair to wholly serve its ideals. Want to hear about a tax that doesn’t suck? It’s called the land value tax, or LVT.
Now I know it doesn’t sound sexy but bear with me here folks. Real estate is all about location and most values in land increase from the activity of the outside world. Landowners profit off unearned income from proximity to good transit links, customers, supplies and other businesses. You can make huge amounts of profit just by sitting on your butt if you own valuable land. So why not tax this?
Economists have long expressed their love for the land value tax from Adam Smith who said “nothing could be more reasonable” to Milton Friedman who referred to it as the “least bad tax.” Yet none more so than Henry George whose 1879 work Progress and Poverty argued that a land value tax should replace all other forms of taxation thus allowing labor and capital to operate freely thus ending unemployment, inflation, poverty and inequality.
Most modern economists do not go this far but still support the idea strongly. The wonderful thing about the LVT is that nothing you do can affect the tax because it is entirely dependent on the value of the land itself. If you improve the structure of a building or add an extra story the LVT won’t raise like it would with a property tax, and if you make more money doing whatever you do with the land, the LVT won’t raise like it would with an income tax. The tax burden on you would only increase if the value of the land itself increased, which occurs when the local economy becomes more vibrant and productive, thereby attracting more people to work and live there.
If you are a landlord you will be able to charge more for people to live in your building and if you are a business owner it will increase sales and income thus allowing you the purchasing power to keep up with higher LVT payments. This would not totally solve gentrification in neighborhoods like the Mission or West Oakland, but there’s no doubt it could help tremendously.
Furthermore, the LVT would shift the tax burden from the individual to the productivity of the local economy itself. It would incentivise good economic behavior like development, improving or hiring more people instead of jacking up rents while you’re landlord turns into a fatter, less charming Rockefeller. It could even help alleviate urban sprawl by encouraging people to build up, which would certainly be a popular aspect amongst environmentalists. The LVT could help limit urban blight and land hoarding because it would encourage development since land value would be predicated upon economic productivity.
The tax could raise huge amounts of revenue that would allow for us to roll back and reform much of the present day tax code but more importantly that revenue could go toward a more generous social safety net in regards to things like Medicare or food stamps and perhaps even a universal basic income.
The land value tax seems like such a no brainer but those in Sacramento and Washington are unlikely to pass a LVT bill anytime soon. Big time real estate owners and developers have been getting rich off the status quo and have funded many a politician to ensure things stay as they are so don’t expect a LVT tomorrow. However, if we the public show enough support for the land value tax and demand our voices be heard the status quo will have to chang-ahhh who am I kidding? They’ll never pass this, it makes too much sense!
Update: The article has been updated with the correct writer name. 2:36 p.m. 12/9/2016