>After reading “Sticky red tape and stopgap rules that stay put” (Magazine, August 21) I’m astonished Tim Harford should say “few object to the principle” of income tax, in connection with it feeling “oppressive”. I would have thought “many” object.
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>I strongly believe it is iniquitous to tax an income, when what should be taxed more thoroughly is capital accumulation, not just capital gains tax but rentier-hoarded and speculative capital. As Henry George, the 19th century American economist, so convincingly argued, we could do with some form of land value tax.
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>Plumping for a tax that was likely to raise the least opposition, great though that was in 1799, I wonder if William Pitt the Younger wouldn’t rather have introduced an easier-to-administer tax on land, thus returning to the way William I raised revenue after 1066.
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>Through the centuries, thanks to the influential lobbying of the nobility and the gentry, land taxes had gradually been whittled away. To give just one instance of the distortions now apparent, purchasers of undeveloped land in and around urban areas can sit and watch its value increase as the demand for building land grows, without paying a penny in tax.
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>ADH Leishman Cape Town, South Africa
FYI you can get around most paywalls with this extension: https://github.com/iamadamdev/bypass-paywalls-chrome
As close to 100% of the rental value of land, as is practically possible, is the ideal.
Depends on what country you are in. Depends on whether or not the LVT is an additional or replacement tax. If a replacement, then rental values will rise because all taxes are incident upon those value to some degree or another.
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You need a methodology to calculate land values. The models to work out what the economic benefits might be can be applied to any tax, including a land. Only nobody has really bothered.
Exception being Prof N Tideman
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https://www.amazon.co.uk/Taxation-Georgist-Paradigm-Nicolaus-Tideman/dp/085683162X
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But in this case V is purely a function of Y. This exact framing is covered by Oates and Schwab in Land Value Taxation: Theory, Evidence, and Practice.
Setting tau to infinity drives V to zero in this formulation as well, and so they become equivalent. You seem to be starting from the precept that land values must be zero. It's more accurate to say that in order for land prices to be zero you'd have to charge an infinite tax rate. I don't know who you would expect to say that to and have it make any kind of intuitive sense, or why that would even be necessary.
A common objection to the naive direct tax on rents is that it eliminates any decentralized land use allocation mechanism. Of course, in the absence of a discount rate with tau is 1.0 and where there are zero costs to holding or allocating land to users, the tax revenue reflects 100% of ground rent and there is no distortion. However, if there is any other use of finance available where you could earn a risk-free 5% on an investment, a tax equal to Y would exceed the discounted value of rents. There is a disincentive to hold that land and so it would presumably revert to the state.
That might be fine, but it is not what George proposed in spirit. Taxing 100% of the discounted rent flow is absolutely in line with George's assertion that it is not necessary to confiscate land, only rents. Remember that Progress and Poverty predated the widespread use of DCF.
Cities and the Wealth of Nations, by Jane Jacobs - analysis of why certaion city-regions are poor and why some are rich. (She argues city-regions, instead of nations, are the right scale to talk about economics.) She boils it down to five factors which need to be balanced. The first chapter is debunking of mainstream economic theory.
The Magic Formula, by Nathan Lewis - very grand claim that the secret to economic success of countries can be boiled down to two ingredients: low taxes and stable money. Backed up by historical examples.
No, no.
https://www.geogebra.org/m/zPSMGzEt This might help you visualize it.
Land sale price is the capitalized value of the land rents. If there is a location that can return 10k a year, then the sale price is based on how much money someone would pay to get access to 10k/year.
So you use DCF (discounted cash flow) to determine that. I compared the returns to all the other returns I can get, and then determine my "capitalization rate" (how fast I want to pay off my initial investment) and that sets the sale price.
So if the land is making 10k/year and I think 5% is a reasonable rate of return relative to all the other stuff I can do, then I would be willing to pay 200k dollars for that piece of land.
Well, when you increase the tax, you're lowering the rate of return and therefore the amount I'm willing to pay is lower.
So each time you raise the percentage of the tax, the sale price of the land goes down. So if you put a 30% tax on land, the sale price would go down such that the 30% on the current value is equal to about a 15% tax on the present value of the land.
And that would equal 85% of the land rents.
> Then, what do you mean by total income?
All of the production that a unit of land can support given current technology and maximum possible employment of capital and labour.
In fact, here's a nice applet that we always link on here to help people understand this concept. All of the sliders and the button are interactable.
This applet demonstrate Ricardo's Law of Rent. The population sets the market rate of wages and interest, and the total number of bushels on a given plot of land is how much is produced on that land. However, only the yellow part goes to the labourers and owners of capital, and the whole of the red part goes to the landlord, as she can always demand everything up to the margin of production due to the scarce nature of land.
And your questions don't sound dumb at all, John Stuart Mill called the law of rent the <em>pons asinorum</em> of Economics, i.e. a concept that even experienced economists wouldn't always be expected to completely understand.
Hi David, I saw your post about the zoom call on reddit: great idea! I'm in the UK so timings don't work for me, but I just "read" Progress and Poverty as a free audio book which I found easier as I could listen on a podcast app on long lockdown walls. It is read by Tim Macarios and is a librivox recording in the public domain, it is available in podcast apps and is absolutely free.
If you like what you heard here, more of the audiobook can be found at this link.
If you didn't like what you heard, try turning the volume up.
30% of the purchase value might seem too much if you compare it with current prices. But, under a georgist system land will not cost that much in the first place and 30% of the value of land will be faar less.
https://www.geogebra.org/m/zPSMGzEt This gives an estimate of the value under a georgist system of the undeveloped land I occupy and it comes to be around 35K USD. This will mean that 30% of 35K is around 10K$ taxes per year.
I earn around 75K and pay around 22K on taxes. This is certainly good for me if LVT reduces my taxburden.
Yep.
https://www.geogebra.org/m/zPSMGzEt
You can mess around with the sliders, but from what I'm seeing at 5% interest rate a 30% tax on land prices would mean the original value of land falls to around 13% of the untaxed value.
So your $250K land would now be worth approx $32K, of which you would pay 30% tax per year, so around $9,600.
Progress and Poverty is also available as a free audiobook on LibriVox, where you can listen to it, chapter by chapter. The text of P&P is also available at the Online Library of Liberty. English is not my first language, and I sometimes have a hard time focusing. So I listened to it, and when I encountered a particular difficult part, I would pause and go look at the text, or even listen while looking at the text.
I used diagrams.net to create it, but reddit won't let me share the direct link to edit it on diagrams.net. (The link is too long, apparently?)
You can download the .drawio file here
https://cryptpad.fr/file/#/2/file/mjIbAK6OyA4iqvcnS90Nj2dQ/
and open it with a diagrams.net editor. (I used the desktop version, but the web client should work fine)
Democracy 3 is alright, it's more a politics simulator and keeping all of the interest groups happy, but a good way to do that is having a strong economy.
NationStates is an oldie but a goodie. Also a bit more political than economic, but still pretty fun. The actual game isn't much, just making periodic decisions on policy prompts, most of the depth comes from the community and the social / role-playing aspects.
> This has nothing whatsoever to do with demand. If the demand for land in a sector doubles overnight, productivity is still precisely the same, as are rents.
I don't think that's true. Although the productivity of each piece of land is often considered fixed for simple illustrations, in reality their optimal productivity depends on the demand for their products.
If an increase in demand causes an increase in price, then the optimal productivity of a unit land can increase, and rent with it. Whether its better to get more land or to apply more labor/capital to existing land is more complicated.
That's how I understand what's going on in this geogebra applet
>Also, natural resources (trees/minerals) are not allowed to be private property or something. Please explain this part. As far as I am concerned any resources on your private property are yours to do with as you wish. However, it seems geoism has a different outlook.
They still are. Common pool resources are still capital, not land, but the rent on the immobility of those common goods is by definition captured by land rents, so the system is kind of a positive feedback loop, especially when all capital remains 100% privately owned.
>Im also having a hard time understanding what "land rent" is.
I always send this Geogebra applet to people, hope this clears things up in a pedagogical way. :)
>Question wise, I wanted to know what sort of punishment/recompense would be dispensed concerning people who refuse to pay thier tax.
Same as what we do now? If they fail to compensate the rest of society for their monopolisation of a parcel of land, you just expropriate and liquidate their assets. (Take their land and put it up for sale at the same price that they owe in taxes, at least ideally.)
>What if the population drops and land value decreases because of this, would this effectively stop revenue? I got to be honest either I am severely misunderstanding geoism or this is a huge flaw.
Perhaps, but the decreased revenue should still be more than enough to provide public services to all people who remain, due to ATCOR. Again, the Georgist system is a self-optimising system, because it combines market forces with government intervention to elegantly counteract and balance out all (most) market failures.
As others have mentioned, South Africa has had some mention of Land Value Taxation in its land reform debate. It doesn't seem the ruling parties are very interested, but it is being advocated for.
A recentish book written by Stephen Mientjes advocate a full Georgist shift.