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I am so bad at not taking bait. And in this case for me it’s doing a Georgists/LVT debate. I believe they have a false-model of the world and there are higher deadweight costs than they think. Developers do need incentives and one of them is land appreciation. Best example I have is a developer had maybe 40 acres of land near a major US city. I lived in this development. The first 50-story tower was built in I think 1980. It’s now mostly finished and my guess is there are now roughly 25 fifty story towers with the most recent one being about 100 floors. A lot of their profits were land appreciation and the land appreciation incentivized them to add amenities and parks etc. It also makes sense to build 1 big building at a time instead of of fill the whole site with little buildings and then tear down the little buildings as land values go up that justify bigger buildings. I think land appreciation is an economic incentive to invest in a community. So taking that away is a dead weight costs.
I also think all taxes have a deadweight costs. But taxes are the price we pay for civilization so we must have them. So we should tax land. But we should also tax everything we can. But we should try to keep the taxes on everything low to minimize the disincentives of doing good things. I think income taxes are fine but should be lower. The PAT for NYC I think is fine because in a more globalized world more people are avoiding claiming residency in NYC and not paying the income tax. The rich do live in multiple locations now and many rich do spend 4 months of the year in NYC. They won’t claim NYC as their residence. But they should be taxed and their shouldn’t be an arbitrage of avoiding claiming NYC residency which many people do.
There's an important distinction between internalized land appreciation and externalized appreciation from other people. One of the reasons I consider myself tentatively Georgist and not a full member is because I'm not entirely convinced that all of them have a perfect solution to this, however
1: I think solutions can exist if you're clever and experiment with what works. 2: I think the benefits would be worth the costs even if some small inefficiencies resulted. LVT is the "least bad tax", because all taxes have deadweight costs but it seems to have the least due to the inelasticity of land.
If someone buys up a bunch of land and develops it all, then it doesn't make sense to raise their taxes to absorb the increased value. People should internalize as much of their products as possible. LVT already attempts to separate the land value and the improvement value and only tax the inherent land value, so a more sophisticated version of this could count local improvements directly made by a land owner as their own improvements and thus tax deductible.
However, if a hundred different people buy up a bunch of land and develop it all then they all improve each other's land. If all of the value of your land is derived from the efforts of the community around you, then that extra land appreciation rightfully belongs to the community. On a moral level, you are not responsible for it so you don't deserve it, and on an economic level if you are not causing it then taxing it has no deadweight loss because you're not the one raising your land value, other people are. Allowing land appreciation without your own developments being part of it are how we get land speculators who buy up land in areas they hope will get developed and just sit there and wait until other people do all the work and then sell it to the highest bidder despite not having contributed. We want to reward people for actually doing the developing, not people who squat.
And you can avoid a complete lack of incentives, and avoid overshooting if estimates are off, by making LVT like 60-90% of the assessed rent value instead of 100%.
I do think the more radical Georgists overlook some of the potential issues, and have gotten into many arguments of this sort on the subreddit for it. But I think an ideal system looks something like and 80-20 mix of Georgism and the way things are currently run, respectively, rather than 0% or 20-80.
I largely did a sole developer framework because it’s the cleanest. And was specifically referring to the New Eastside in Chicago was I believe was a golf course in the ‘70s. But you also have situations where a neighborhood get “hot” so everyone decides to do projects near each other. Many would call this gentrification. But it involves many developers and individuals deciding to invest in a community with expectations of appreciation. Everyone doing a new project here because it’s now a good neighborhood are contributing to making the belief that’s it’s now a good neighborhood becoming the truth that it is now a good neighborhood. The community would have free riders who just owned but also thousands of people doing some of the work of boosting property values. Who decides it’s PNL that should be internalized versus PNL that wasn’t their work? The local alderman? I don’t know of any accounting method to decided “earned” versus “unearned”.
Regardless LVT isn’t a realistic tax in politics. It’s only something people think about in San Francisco and only 4-5 areas in the States have land values high enough to consider it. And California already has the stupid proposition that fixes your property prices to when you bought it. So LVT in San Francisco needs to normalize property taxes before taking the next step of LVT.
IMO they also miss out that land speculation has value. Someone buying a rapidly rising land area and building a parking lot to sit on for 10-20 years can be good for the community. Brickell is an example of this. You do want to keep some parcels in a growing community not built so you can build bigger later without needing to tear down an expensive building.
I would disagree that going to 80-20 Georgian is a good idea. But it probably should be more than it is today.
I am skeptical of how much of it sounds too good to be true, but I think that if the theory holds it would be good. Ideally, to actually test it empirically, and to avoid shocks with suddenly crashing land prices, I'd like to see something like 1-2% increased LVT (and ~1-2% decrease in every other tax simultaneously) every year on an ongoing basis, and then we'll have decades to actually see how it works, what goes wrong and what doesn't. But I think the economic theory is very sound and needs to be actually tested in real life to actually verify or debunk, and to refine and see what epicycles it might need to avoid the possible problems that a naive version would cause that a clever version might not cause.
It can only really be done at the city level. You simply don’t have high land prices outside of a few locations. It’s basically not relevant for most of the US. You don’t have land appreciation in most places. I guess you could still do it elsewhere but then you would basically be doing wealth confiscation from farmers instead of assets in general.
San Francisco could do this and replace other taxes because land prices are a significant portion of wealth.
Isn’t a big part of this discussion the actual percent value of the LVT? Like the point of it is, I gather, cheaper property tax on heavily improved property in hot markets (because improvements aren’t taxed) but higher tax rate on unimproved property in hot markets. This makes sense to me, but it’s unclear to me whether Georgists are anticipating a base-rate LVT that is higher or lower than your typical county property tax rate, and what would be done with agricultural land.
If higher, then it seems both pointlessly punitive on “cold” markets where there is unlikely to be development regardless, where if it’s lower then it may not actually impact much at all.
Also seems important how assessment works, given that currently assessment mostly just doesn’t, at least where I’m at (properties often sell for several multiples of assessed value).
Old improved land is an area that I am not sure how they could deal with it. In Miami they just blew up the Mandarin Oriental Hotel which was like 10-20 stories to build something much bigger. But the physical investment in the Old hotel is still 100-300 million. Land values have been rising. What’s the tax rate on that? Land values went up enough that it makes sense to tear it down now. But for a while maybe the property was worth 300m with 200m in capex. Raw land was worth 280m. Now the raw land is worth 400m so you blow up the old building.
Even though they have 200m in capex in the property and it’s worth 300m would they be taxed at the raw land value of 280m? Which would have basically zeroed their 200m in capex.
Yeah it would work as you say, but that’s kind of the point, as it forces an even higher amount of development to justify the tax burden, thus pushing such valuable property to ever higher heights. Again whether or not this is crippling is a matter of the tax rate rather than the tax system I think
Wouldn’t the LVT discourage development in area with expected high land appreciation? Building too early in a neighborhood means your capex gets zeroed by rising land values
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