Land Value Tax – Overlooked?
The basic premise of a land-value tax is a simple one; a tax upon land, but only upon the unimproved value. Land is valued according to the surrounding area- a plot of land next to more amenities is valued higher than a plot near to less. The quality of the land, not the size, determines the value. Such a system is impossible to evade, land cannot be hidden, moved overseas or otherwise devalued. Such a taxation system can function as an additional or replacement tax, to provide a more efficient and just revenue raising technique. Land Value Tax (LVT) is currently being used across a variety of states- Denmark, Hong Kong and parts of Australia and the USA to name a few.
The point of this article however, is not to discuss LVT by itself, but rather its potential application in taxation reform, especially in states undergoing austerity measures and economic hardships. So, is LVT-based tax reform a good idea for Western states undergoing austerity and economic hardships? The most common criticism, echoed by economists such as Paul Krugman, is that the revenue raised simply would not be enough- LVT could never replace all taxes as envision by one of its earliest advocates, Henry George. Nevertheless, the benefits from limited LVT would arguably grant would allow states to recoup more tax from corporations and business and less from the citizens, providing a solution to scandals such as the relatively recent uncovering of massive tax evasion in the UK by companies such as Google or Amazon. More to the point, the use of LVT to replace corporation taxes and income tax is worthy of discussion. Through a look at the effects of LVT in states and regions where it has been or is being used, one can see the near-universal potential for LVT in Western-style states.
During the 1980’s, several cities in Pennsylvania, USA utilised a land tax, heavily taxing land whilst reducing taxation upon corporate activities, whilst Denmark has repeatedly utilised a land tax at varying periods of the 20th century. In addition to these, Hong Kong has used a system of land-rent which, putting the surrounding controversy aside, has helped its persistent revenue surpluses. In the case of Pennsylvania, Pittsburgh revitalised its urban core between 1980 and 2000 using the revenue gained from taxing land 6 times more than buildings- taxing land to give back to the community, whilst also raising revenue. In the case of Denmark, the Danish Justice Party’s policy of helping create a lower income tax by using a 6% land value tax exemplifies the potential use of LVT- enabling the government to recoup more revenue from corporations and less from its citizens.
This aspect is perhaps the most relevant and essential when considering the benefits of an LVT based reform/introduction. Both European and North American states are still suffering economically- The UK being under “austerity measures”, many European states relying on the European Financial Stability Facility and the US economy still being on wobbly ground, with recent fears over dollar stability. The policy responses to the economic downturn have been varied, but the states discussed have yet to attempt anything new or original. Bailouts, commitments to export increase, international aid mechanisms and pledges to crack down on tax evasion all these are common policies across the Western world. Yet there has been very little serious discussion about alternative measures- in this case, serious tax reform beyond expansion/reduction simply has not been a topic in policy debate.
There are good reasons for this- revamping and seriously changing tax systems is a policy requiring commitment and certainty that has no guarantee of success. It is this same reason that encourages governments to fall back on crutches- such as the ‘Help to Buy’ mortgage scheme in the UK or Obama’s recent attempt to bargain with corporations regarding taxation. Perhaps it is time to try a new approach, a new tactic to fight inequality and tax evasion. A limited introduction of a land value-based tax to replace easily evaded corporation taxes and to finance a lowering of income tax across the board is an option which has been wrongly overlooked. There are negative aspects to LVT, criticisms including limited revenue size, land ownership issues and value determination problems. These problems are created through a full-scale introduction of a land tax which replaces all other taxation. This is naturally not desirable- the alternative proposal here is that a limited land tax replaces most forms of corporation tax and income tax. This would allow the benefits of LVT- less tax evasion, more disposable income and less inequality whilst reducing the potential negative impact of introducing a completely new tax system.
Ultimately, any LVT reform would have to be tailored for each unique government system, it is impossible to advocate a standard, one-size-fits-all type reform. Nevertheless, the benefits would have the same effect wherever- as shown by the limited but extremely varied successful use of LVT across various periods around the world. LVT has been ignored by economists and policy makers possibly due to the fact that many supporters and campaigners ultimately wish for a complete replacement of all taxation with a single tax. Whilst such an idea holds ethical value, in terms of land and community ownership, its implementation would require an upheaval too large for most governments to contemplate. This is perhaps the reason why Land Value Tax reform has been overlooked- and wrongly. The solution is limited introduction, to provide an alternative solution to the economic problems that should be considered seriously amongst other, more traditional policy proposals.