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My understanding is that this is effectively an opportunity cost tax. I.e., if you are sitting on a valuable plat which could generate 10 M$ in rents with 1 M$ of improvements, the market value of the plat should be about 9M$, and you would be taxed on that value, even if you were only generating 100K$ of rents (including imputed rents).
This is economically very efficient, as it encourages land to be used for its most economically efficient purpose. However, this butts directly up against peoples' real-world desires to "settle" - to establish a home in a place and be able to stay there indefinitely. If, for reasons beyond their control, the price of their property increases, they can be financially forced from their homes, which is about as soulcrushing as being foreclosed upon, while also seeming much more unfair. It destroys a person's ability to make stable long-term plans regarding a very fundamental fact of life. It also destroys residential community, by creating a disincentive to make a community that people want to live in, which has the natural effect of increasing property value. These are already problems with existing property taxes, that would be greatly amplified by taxing away all of the land value (leaving only rents).
After all, most people recoil about applying the same logic in other contexts: should a person's income tax be based on the amount of money they theoretically could be earning, if they worked as much as possible in the most valuable field they are qualified for, in the location with the highest salary? Hard-core utilitarians have seriously proposed this, but the concept of being treated as an economic ends with no function other than to produce social benefit, rather than a sapient being with noneconomic needs and desires makes most people reject this with prejudice.
Is the windfall from selling a house + expensive land gone under Georgism? If my land goes from being worth 200K to being worth $5M, I still get to pocket that $4.8M, right? I think so because the check from the buy er has to so somewhere, but maybe LVT breaks this in a way I cannot understand.
No, you wouldn't get to keep that 4.8M unless you improved the land yourself, for instance built out a house/new wing or something similar. And then you'd only keep the portion which you improved.
The whole idea is that the 'land value' which drives most real estate speculation is taxed away.
Okay, so where does the money go?
At the start of 1990 I pay $100K+$100K for land+house by writing a check for $200K to the current owner of land+house.
Land value goes up kind of slowly for the first 15 years (say it goes from $100K to $400K, around 10% a year). I pay LVT of $5000 at the start and $20,000 at the end.
Then it really takes off, going up 50% per year. By 2010 the land is just over $3,000,000, and I decide "fuck this" at the $150K tax bill and sell.
So I sell for $3000K+$250K at the start of 2010 and get a check for $3,250,000 from the guy I sold the land to.
I still get that check. Even retroactively applied against all the back taxes, I come out ahead.
... Unless I decide to keep on living on the the $3 million land for 20 years. But I am choosing to leave nearly $3 million on the table for doing that. Being able to keep on living in one place is nice but not $3 million nice.
The Georgist LVT is 100%. Whatever the value is of that land, you're paying it to the government. So you should buy the $100K house + $100K land in 1990 from the previous owner for $100K. Over the course of the first year you pay whatever the value of holding a piece of $100K land is for a year in taxes. Same for each of the years after that, with the new value of the land. When you sell, you get the $250K for the appreciation of the house, but nothing for the land. Of course, most likely no one else wants a $250K house on land they can't afford to pay the taxes on, so in fact a developer takes it from you for a song or you abandon it to the government, and someone else who is going to fill the land with 400 square foot apartments develops it instead.
The hypothetical was that the land value was going way up. If no one wants to buy it then the value is not there.
They want the land, not the house.
I would think that in a lot of cases, the house would have negative value, since it would have to be demolished and cleared away in order to improve the land.
Correct, though in the case of a $5M piece of land, it's likely to be a fairly small negative value in the larger scheme of things.
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