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Encyclopedia > Land value tax

Land value taxation (LVT), or site value taxation, is the policy of raising state revenues by charging each landholder a portion of the value of a site or parcel of land that would exist even if that site had no improvements. Shortcut: WP:CU Marking articles for cleanup This page is undergoing a transition to an easier-to-maintain format. ... This Manual of Style has the simple purpose of making things easy to read by following a consistent format — it is a style guide. ... In economics, land comprises all naturally occurring resources, such as geographical locations, mineral deposits, and even portions of the electromagnetic spectrum. ...


It is a sub-type of property tax. There are three species of property: Land, Improvements to Land (immovable manmade things) and personal property (moveable things). Real estate is the term used to encompass the combination of land and improvements to land. The traditional property tax, usually taxes real estate value (i.e. the combined value of land and improvements). In some cases, the property tax also falls on personal property. LVT is an ad valorem tax that falls only on the value of the land, without regard to the improvements to the land or any personality property which might be in the improvements or on the parcel (for example, an automobile). Property tax is an ad valorem tax that an owner of real estate or other property pays on the value of the thing taxed. ...

Contents

Background

One of the main arguments for LVT is that it discourages speculative bubbles in land markets, while encouraging the efficient and productive use of land, particularly in urban areas - one estimate of the efficiency gain puts it at £15,000 a year per person[1]. An additional argument for LVT is that increases in land market values are created mainly by changes that are not the result of the landowner's own effort; for example, the creation of new infrastructure, or a re-zoning, can dramatically change the value of a piece of land. An LVT encourages government development of infrastructure by providing a way of recouping some of the windfall changes to land values that occur as a result of such investment, placing less of the burden on taxpayers who don't benefit. The tax works in reverse also. If a development has a negative impact on land values (the closing of a nearby transport link, for example), the owner of a site is compensated by an automatic reduction of the charge on the property. An economic bubble occurs when speculation in a commodity causes the price to increase, thus producing more speculation. ...


The tax is often said to be justified for economic reasons because, if it is implemented properly, it will not deter production, distort market mechanisms or otherwise create deadweight losses the way other taxes do. It is also said to be justified for reasons of fairness by asserting that the tax is equivalent to a fee for protection of land ownership, which is the responsibility of most governments. It is a cheap (and therefore efficient) tax to administer or pay because much less effort is required to track land ownership than to track income, deductions, capital gains, sales transactions, etc. Tax evasion on land is much more difficult than on financial wealth. For the same reason, it is also much more effective than a development or planning gain tax, which can be avoided by failing to develop. A tax (also known as a duty) is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (e. ... Face-to-face trading interactions among on the New York Stock Exchange trading floor Economics or oeconomics is the study of human choice behaviour. ... In economics, a deadweight loss (also known as excess burden) is a permanent loss of well being to society that can occur when equilibrium for a good or service is not Pareto optimal, (that at least one individual could be made better off without others being made worse off). ... This article contrasts tax evasion, tax avoidance, tax resistance and tax mitigation. ...


As well as these pragmatic arguments, LVT may be justified with the philosophical premise that the natural world was originally the common property of all persons, and therefore the LVT is not really a tax, but simply the collection of rent on behalf of the proper owners (the community). A consequence of this argument is that land should be taxed to the maximal extent and all proceeds should be equally distributed to each citizen as a citizen's dividend. This implementation of the LVT amounts to a moderate form of land reform. The most influential advocate of this position was the political economist and activist Henry George. Many contemporary American advocacy groups trace their heritage back to his thoughts and writings. It has been suggested that this article or section be merged with rental agreement. ... Citizens dividend is a proposed state policy based upon the principle that the natural world is the common property of all persons (see Georgism). ... Land reform (also agrarian reform, though that can have a broader meaning) is an often-controversial type of government-initiated or government-backed real estate property redistribution, generally of agricultural land. ... This article contains information that has not been verified and thus might not be reliable. ...


Implementation

In reality, every jurisdiction that has a real estate property tax has a land value tax, because part of the ad valorem basis for real estate is, in fact, the locational or land value in addition to the improvement value. [2]


Pure LVT, apart from real estate or generic property taxation, is used in Taiwan, Singapore, Hong Kong and Estonia. It is currently being introduced in Namibia, and there are campaigns for its introduction to South Korea and Scotland. Many more countries have used it in the past, particularly Denmark[3] and Japan. Motto: (Latin for No one provokes me with impunity)1 Anthem: Multiple unofficial anthems Capital Edinburgh Largest city Glasgow Official language(s) English, Gaelic, Scots 2 Government Constitutional monarchy  - Queen Queen Elizabeth II  - Prime Minister of the UK Tony Blair MP  - First Minister Jack McConnell MSP Unification    - by Kenneth I...


Several cities around the world also use LVT, including Sydney, Canberra, and many other Australian cities; Mexicali and Fairhope, Alabama. The Sydney Opera House on Sydney Harbour Sydney (pronounced ) is the most populous city in Australia with a metropolitan area population of over 4. ... Canberra (pronounced [1]) is the capital city of Australia and with a population of just over 325,000, is Australias largest inland city. ... now. ... Fairhope is a city located in Baldwin County, Alabama. ...


Nearly twenty Pennsylvania cities in the USA employ a two-rate or split-rate property tax: taxing the value of land at one rate and the value of the buildings and improvements at another. This can be seen as a compromise between pure LVT and an ordinary property tax falling on real estate (land value plus improvement value). Alternatively, two-rate taxation may be seen as a form that allows gradually transformation of the traditional real estate property tax into a pure land value tax. Property tax is an ad valorem tax that an owner of real estate or other property pays on the value of the thing taxed. ...


LVT in Pennsylvania and The "Two-Rate" Experiments

Pittsburgh used this system from 1913 to 2001[4] when an ineffective property assessment system led to a drastic increase in assessed land values during 2001 after years of underassessment, and the system was abandoned in favor of the traditional single-rate property tax. Pittsburgh's tax on land was about 5.77 times the tax on improvements. Notwithstanding the change in 2001, the Pittsburgh Improvement District still employs a pure land value taxation as a surcharge on the regular property tax. Nickname: Steel City, Iron City, City of Champions, City of Bridges, City of Colleges Location in Allegheny County, Pennsylvania Coordinates: Country United States State Pennsylvania County Allegheny County Founded 1758 Mayor Luke Ravenstahl (D) Area    - City 151. ... Year 1913 (MCMXIII) was a common year starting on Wednesday (link will display the full calendar). ... This article is about the year 2001. ...


Harrisburg, Pennsylvania has taxed land at a rate six times that of improvements since 1975, and this policy is credited with reducing the number of vacant structures in downtown Harrisburg from about 4,200 in 1982 to less than 500. Location in Pennsylvania Coordinates: Country United States State Pennsylvania County Dauphin Incorporated 1791 Charter 1860 Mayor Stephen R. Reed (D) Area    - City 26. ...


Primarily as a result of technical assistance from the Henry George Foundation of America and the Center for the Study of Economics[5], nearly two dozen local Pennsylvania jurisdictions use two-rate property taxation in which the tax on land value is higher and the tax improvement value is lower. Local governments in Pennsylvania which use the two-rate tax system as of 2006 include: This article is about the U.S. State. ...


Aliquippa, Allentown (since 1996)[6], Altoona, Clairton, DuBois, Duquesne, Ebensburg, Harrisburg (since 1975)[7], Lock Haven, McKeesport, New Castle ,Oil City, Pittsburgh Improvement District, Scranton, Steelton, Titusville, Washington, Pennsylvania Aliquippa is a city located in Beaver County, Pennsylvania. ... Nickname: The Queen City Coordinates: Country United States State Pennsylvania County Lehigh Founded 1762 Mayor Ed Pawlowski Area    - City 46. ... Altoona is a city in Blair County, Pennsylvania, United States. ... Clairton is a city in Allegheny County, Pennsylvania, along the Monongahela River and is part of the Pittsburgh Metro Area. ... DuBois (pronounced , not ) is a city in Clearfield County, Pennsylvania, 128 miles (206 km) northeast of Pittsburgh. ... Duquesne is a city located in Allegheny County, Pennsylvania. ... Ebensburg is a borough located in Cambria County, Pennsylvania 16 miles (26 km) west of Altoona. ... Location in Pennsylvania Coordinates: Country United States State Pennsylvania County Dauphin Incorporated 1791 Charter 1860 Mayor Stephen R. Reed (D) Area    - City 26. ... Lock Haven is a city located in Clinton County, Pennsylvania. ... McKeesport is a city in Allegheny County, Pennsylvania, USA, at the confluence of the Monongahela and Youghiogheny Rivers. ... New Castle is a city in Lawrence County, Pennsylvania, 50 miles (80 km) northwest of Pittsburgh, Pennsylvania; in 1910, the total population was 36,280; in 1920, 44,938; and in 1940, 47,638. ... Oil City is a city located in Venango County, Pennsylvania was, for many years, a center of the petroleum industry. ... The City of Scranton is the county seat of Lackawanna CountyGR6 in Northeastern Pennsylvania, USA. As of the 2000 census, the city had a total population of 76,415 (2003 estimate: 74,320). ... Steelton is a borough located in Dauphin County, Pennsylvania. ... Titusville is a city located in Crawford County, Pennsylvania. ... Washington is a city in Washington County, Pennsylvania, United States. ...


The following sites using actual assessment data have tax calculators showing how two-rate taxation (lower on improvements and higher on land value) might actually be implemented and the effect on parcel by parcel basis: Maryland Land Value Tax Project, New York Land Value Tax Project, Indiana Land Value Tax Project, Washington Land Value Tax Project, and New Jersey Land Value Tax Project.


Arguments/background for and against

In the United Kingdom, LVT was an important part of the platform of the British Liberal Party during the early part of the twentieth century - David Lloyd George and H. H. Asquith proposed "to free the land that from this very hour is shackled with the chains of feudalism"[8]. It was also advocated by Winston Churchill early in his career[9]. Labour's 1931 Budget included an LVT, but before it came into force it was repealed by the Conservative-dominated National Government that followed shortly after. This article is about the historic Liberal Party. ... David Lloyd George, 1st Earl Lloyd George of Dwyfor, OM, PC (17 January 1863 – 26 March 1945) was a British statesman who guided Britain and the Commonwealth of Nations through World War I and the postwar settlement as the Liberal Party Prime Minister, 1916-1922. ... Herbert Henry Asquith, 1st Earl of Oxford and Asquith, KG, PC (12 September 1852–15 February 1928) served as the Liberal Prime Minister of the United Kingdom from 1908 to 1916. ... Sir Winston Leonard Spencer-Churchill, KG, OM, CH, TD, FRS, PC (Can) (30 November 1874 – 24 January 1965) was an English statesman and author, best known as Prime Minister of the United Kingdom during the Second World War. ... The Labour Party has been, since its founding in the early 20th century, the principal political party of the left in the United Kingdom. ...


In 1990, several leading economists – including 4 Nobel Prize winners – wrote to then President Mikhail Gorbachev suggesting that Russia use Land Value Taxation in its transition towards a free market economy.[10] Nobel Prize medal. ... The President of the Soviet Union was the Head of State of the USSR from March 15, 1990 to December 25, 1991. ... Mikhail Sergeyevich Gorbachyov ( , IPA: , commonly written as Mikhail Gorbachev; born March 2, 1931) was the last leader of the Soviet Union, serving from 1985 until its collapse in 1991. ... A free market is an idealized market, where all economic decisions and actions by individuals regarding transfer of money, goods, and services are voluntary, and are therefore devoid of coercion and theft (some definitions of coercion are inclusive of theft). Colloquially and loosely, a free market economy is an economy...


Claimed advantages

  • A correlation between high LVT and growing economic prosperity is predicted by Georgist theory.[11]
  • A natural source of public revenue. All land makes its full contribution to the Exchequer, allowing reductions in existing taxes on labour and enterprise.
  • A stronger economy. If we tax labour, buildings or machinery and plant, we discourage people from constructive and beneficial activities and penalise enterprise and efficiency. The reverse is the case with a tax on land values, which is payable regardless of whether or how well the land is actually used. It is a payment, based on current market value, for the exclusive occupation of a piece of land. In the longer term, this fundamentally new and different approach to revenue raising will stimulate new business and new employment, reducing the need for costly government welfare.
  • Marginal areas revitalized. Economic activities are handicapped by distance from the major centres of population. Conventional taxes such as VAT and those on transport fuels cause particular damage to the remoter areas of the country. Land Value Tax, by definition, bears lightly or not at all where land has little or no value, thereby stimulating economic activity away from the centre - it creates what are in effect tax havens exactly where they are most needed.
  • A more efficient land market. The necessity to pay the tax obliges landowners to develop vacant and under-used land properly or to make way for others who will.
  • Less urban sprawl. Land Value Taxation deters speculative land holding. Thus dilapidated inner-city areas are returned to good use, reducing the pressure for building on green-field sites.
  • Less bureaucracy. The complexities of Income Tax, Inheritance Tax, Capital Gains Tax and VAT are well known. By contrast, Land Value Tax is straightforward. Once the system has settled down, landholders will not be faced with complicated forms and demands for information. Revaluation will become relatively simple.
  • No avoidance or evasion. Land cannot be hidden, removed to a tax haven or concealed in an electronic data system.
  • An end to land speculative bubbles. Speculation in land value - frequently misrepresented and disguised as "property" or "asset" speculation - is the root cause of unsustainable booms which result periodically in damaging corrective slumps. Land Value Taxation, fully and properly applied, knocks the speculative element out of land pricing.
  • Impossible to pass in on higher prices, lower wages, or higher rents. Competition makes it impossible for a business producing goods on a valuable site to charge more per item than one producing similar goods on less valuable land - after all, producers and traders at different locations are paying different rents to landlords now, yet like goods generally sell for much the same price and employers pay their workers comparable wages. The tax cannot be passed on to a tenant who is already paying the full market rent.
  • An established and proven system. Local government variants of Land Value Taxation, known as Site Value Rating, are accepted practice in, for example, Denmark and Australia.
  • Fairness. Land (unlike goods and services) has no cost of production. If an ample supply of land of equal desirability were available everywhere, there would be nothing to pay for its use. In reality land acquires a scarcity value owing to the competing needs of the community for living, working and leisure space. Thus land value owes nothing to individual effort and everything to the community at large. It belongs justly and uniquely to the community. Conversely, the reward for individual effort can belong only to the one who earns it, to spend, save or give away as he or she may see fit.Because of differences in positional advantages, fertility or natural resources, some locations are more desirable than others. Demand for access to these features gives land its rental value. Land Value Taxation, being assessed on these values, is fair in its incidence.

(Several of these advantages are from the Land Value Tax Campaign[12]) Henry George Georgism, named after Henry George (1839-1897), is a philosophy and economic ideology that follows from the belief that everyone owns what they create, but everything supplied by nature, most importantly land, belongs equally to all humanity. ... Urban sprawl (also: suburban sprawl), a term with pejorative implication, refers to the unplanned, rapid and expansive growth of a greater metropolitan area, traditionally suburbs (or exurbs) over a large area. ... Currier & Ives print on economic bubbles, 1875. ...


Criticism/Arguments against

One of the biggest problem alleged with the practice with Land Value Tax lies in the valuation process. The notional value for taxation purposes is often allowed to diverge from the actual market value. When this is allowed to go too far, it leads either to people paying an unfairly high or low amount of tax, or to sudden large changes in the level of the tax owing to the politically unpopular revaluations to market value occurring in a single year after long periods of no change rather than small changes occurring every year in step with changes in the true market value. In finance, valuation is the process of estimating the market value of a financial asset or liability. ... In economics, notional value is the face value of a financial instrument. ...


Karl Marx

Marx's criticism of land tax (as anything more than one of the measures to be imposed during the move to communism) was relatively influential - he argues that "The whole thing is...simply an attempt, decked out with socialism, to save capitalist domination and indeed to establish it afresh on an even wider basis than its present one." He also opposes the way that land value tax emphasises the value of land - arguing that "Theoretically the man is utterly backward! He understands nothing about the nature of surplus value and so wanders about in speculations which follow the English model but have now been superseded even among the English, about the different portions of surplus value to which independent existence is attributed--about the relations of profit, rent, interest, etc. His fundamental dogma is that everything would be all right if ground rent were paid to the state."[13] This article contains information that has not been verified and thus might not be reliable. ...


However, in 1875 Marx changed his opinion on land taxation. In a letter, he wrote: "In present-day society the instruments of labour are the monopoly of the landowners (the monopoly of property in land is even the basis of the monopoly of capital) and the capitalists … the capitalist is usually not even the owner of the land on which his factory stands."[14]


Unequal taxation

In addition, the emphasis on land's value exceeds what many feel to be reasonable. Workers who do not need to own land, such as doctors or computer scientists, would feel little effect, while agriculture or manufacturing, for instance, would bear far more of the tax burden.


However, doctors and computer scientists are in need of central locations. The service industry usually faces high land values (and most likely rent/lease space from a landlord at market rate) while a farmer's plot, at the margin of society, is of little value. Thus, he pays comparatively a very low rent. Additionally, by using central locations more efficiently the pressure on farm land is lowered, leading to lower rent payments.


Herbert J. Davenport

Herbert J. Davenport, an early 20th century economist from the University of Missouri and Cornell University, was a major critic of the land value tax. Davenport sympathized with the goal of taxing the "unearned increment." However, he believed that efforts to do this by means of a land value tax would cause the land to be used less efficiently. For farm land, he thought that this was obvious. "The farmer", he said, "is continually renewing his land's fertility and other characteristics. A tax on one parcel of land will simply cause farmers to abandon it and to prepare and fertilize other untaxed land. And a tax on all agricultural land will simply be a tax on the production of farm goods." The result, he believed, would be a decreased supply of farm goods relative to other goods, higher prices of farm goods, and a fall in the amount of land on which crops are grown. Herbert Joseph Davenport (1861-1931) was an American economist. ...


However, these claims are highly contested. Most land tax proponents do not consider fertilization (and other improvements) in the value of land but rather classify it as natural capital. It is also nonsensical to claim that a land value tax would be a tax on the production of farm goods, as the tax would be exactly the same whether any goods were produced on any particular farm or not. Moreover, as land rent is defined as the most users would willingly pay for the advantages of using a particular land site, it is impossible for a tax that only recovers land rent to push useful land out of use (though it may lead to the abandonment of inferior land currently in wasteful use, as more productive land is brought into use instead of being kept idle for speculative gain). Davenport may have been confused on this point by the rare historical examples (such as in the Late Roman Empire) of land taxes that were not based on land value or land rent, that exceeded the land rent, and that consequently reduced the land's value to a negative quantity and drove it out of production. In economics, land comprises all naturally occurring resources, such as geographical locations, mineral deposits, and even portions of the electromagnetic spectrum. ... This article or section does not cite its references or sources. ...


Urban land is somewhat different, since its owners collect rents on site value. Nevertheless, Davenport claimed that any effort to tax such rents would lead owners to economize on the land by building higher buildings and deeper basements than would be economically efficient. [This contradicts standard economic analysis, by mistakenly conflating the roles of landlords and land users. Land users are willing to pay a premium in order to locate in economically beneficial areas. They pay for that benefit either directly to a private landlord, or by forgoing the income they would earn by selling or renting the parcel. LVT does not change these basic incentives; it improves economic efficiency by increasing market liquidity as well as avoiding the deadweight losses associated with property taxes and other taxes. Market liquidity is a business or economics term that refers to the ability to quickly buy or sell a particular item without causing a significant movement in the price. ... Property tax is an ad valorem tax that an owner of real estate or other property pays on the value of the thing taxed. ...


See also

Value capture refers to a type of innovative public financing in which increases in private land values generated by a new public investment are all or in part “captured” through a land related tax to pay for that investment or other public projects. ... Henry George Georgism, named after Henry George (1839-1897), is a philosophy and economic ideology that follows from the belief that everyone owns what they create, but everything supplied by nature, most importantly land, belongs equally to all humanity. ... Property tax is an ad valorem tax that an owner of real estate or other property pays on the value of the thing taxed. ... Land reform (also agrarian reform, though that can have a broader meaning) is an often-controversial type of government-initiated or government-backed real estate property redistribution, generally of agricultural land. ... This article contains information that has not been verified and thus might not be reliable. ... In economic theory, economic rent is an analytic term employed to distinguish the difference between the income earned by an input or factor of production, and the cost of the factor of production. ...

External links

References

  1. ^ New Statesman - The case for taxing land
  2. ^ [http://www.findarticles.com/p/articles/mi_m1316/is_n10_v29/ai_19898072 See, Ginsberg, S. "Two cheers for the property tax: everyone hates it, but the property tax has some good attributes that make it indispensible", Washington Monthly, (Oct, 1997).]
  3. ^ Glass Wings - Denmark
  4. ^ The Progress Report - Some States Already Have Two-Rate Site Value Tax Enabling Laws
  5. ^ Pennsylvania's Success with Local Property Tax Reform -- The Split Rate Tax
  6. ^ Hallwatch.org - Land Tax for Philadelphia
  7. ^ The Progress Report - Land Reform versus Sprawl
  8. ^ New Statesman - A revolutionary who won over Victorian liberals
  9. ^ Winston Churchill: Land Price as a Cause of Poverty
  10. ^ CounterPunch - Standard Schaefer: An Interview with Michael Hudson on Putin's Russia
  11. ^ The Progress Report - Property Tax Shift Successes
  12. ^ Land Value Tax Campaign - What is Land Value Taxation?
  13. ^ Karl Marx - Letter to Friedrich Adolph Sorge in Hoboken
  14. ^ Karl Marx - Critique of the Gotha Programme

Print sources

  • Tax shift now! - Regaining our common wealth, By Tony Vickers in Free Think Center Forum, 2005, 57 pages, Word Document
  • Land-value taxation is deeply rooted in Denmark American Journal of Economics and Sociology, The, Dec, 2000 by Ole Lefmann, Karsten K. Larsen
  • Geo-Rent: A Plea to Public Economists, F. Foldvary, Econ. Journal Watch, Vol. 2, No. 1., pp. 1-12
  • Land Value Tax : Unfinished business, Emer Ó Siochrú, November 2004. Foundation for the Economics of Sustainability. Dublin, Ireland
  • "The case for taxing land", Dave Wetzel, New Statesman, 20 September 2004
  • LVT: Cure For Poverty And Unemployment, by Pat Aller. International Research Foundation for Development, Inc.. June 2000
  • Maryland Land Value Tax Project
  • Jamaican Land Value Tax, By David L. Sjoquist (sjoquist@gsu.edu) March 2005
  • Elements of Land Taxation, R. T. Ely and E. W. Morehouse, (1924)
  • Land-Value Taxation Around the World, H. Brown et al., ed., (1955)
  • An Alternative Tax Regime for the Bahamas, 2005
  • Land Tax Reform Proposed For Iowa, 2004
  • Philadelphia Champions Of Tax Reform Spoke At 2005 CGO Conference, August 2005
  • Davenport, H. (1910), "The Single Tax in the English Budget", Quarterly Journal of Economics, (February): 1910.
  • Davenport, H. (1911), "The Extent and Significance of the Unearned Increment", American Economic Review 1: 322-332)
  • Davenport, H. (1914), Economics of Enterprise, New York: Macmillan.
  • Davenport, H. (1917), "Theoretical Issues in the Single Tax", American Economic Review 7 (March): 1-30.
  • Gunning, J. Patrick (1997) "Herbert Davenport on the Single Tax." American Journal of Economics and Sociology. 56: (4): 565-574.

 
 

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