One reason our tax system sucks is that it tends to punish exactly the kind of behavior we should be trying to reward.
Income taxes discourage workers from earning money. Investment taxes discourage innovation and savings. Property taxes discourage homeowners from building cool stuff.
But there's at least one great idea that doesn't appear to have any of these problems: the land value tax.
With a land value tax, the government would instead be raising money based on the size of land. That doesn't discourage anything we like: Land itself isn't helping the economy, you can't hide it in offshore accounts, and it's often a form of inherited wealth.
Many economists love the land value tax. Right now, it’s mostly theoretical — only a few towns have passed one, and it's a political non-starter at the federal level — but municipalities could implement it tomorrow in gradual but transformative ways.
On the latest episode of The Weeds, our podcasting hosts take a dive deep into the wonkland of this tax proposal — what it would do, who it would help, and how it could reorder America's economic landscape.
Here's Vox's Matt Yglesias, for instance, thinking through what it would mean if we could somehow magically replace our current federal income taxes with a land value tax:
If you're talking about the impact on people who live in the Houston area, they're all going to end up living in bigger, better houses because they’ll going to have bigger incomes and lower property taxes. …
The interesting question is what would happen in the big, coastal cities. Because right now, the economic logic would say: 'We should have a building boom in San Francisco and Arlington County and suburban New Jersey.' But the existing price of housing in those places also suggest that, but we don't because we have zoning rules that curb new construction.
The land value tax would essentially be, in a Leninist way, heightening the contradictions on this. Existing rules already constraining housing supplies would become an even bigger deal. So, one possibility is that it would be the straw that breaks the camel's back, and we'd have giant houses everywhere.
Another possibility is that expensive, coastal cities would become even more expensive — but it would be progressive, distributionally. The people who live in those expensive coastal areas are richer than average, and the money would be redistributed to people living in giant houses in Houston.
If this piques your interest — or you're the kind of person who loves the nitty-gritty of tax details — take a listen by subscribing to The Weeds on iTunes.
You can also stream the episode by clicking on the SoundCloud link above (the discussion about the land value tax goes from the beginning of the episode to the 26-minute mark).
- A breakdown by the Economist on the history of the land value tax.
- Another great Economist post about how 19th-century economic theorist Henry George popularized the idea.
- Vox's Tim Lee on his blog making a persuasive case against land value taxes.
Here's the core of Lee's argument, which is worth reading in full: "the economic efficiency of the land value tax comes from the fact that it operates by confiscating wealth accumulated in the past rather than taxing the accumulation of new wealth. This, too, is unfair. Society benefits when people defer gratification and save for the future."
- The Week's Jeff Spross arguing for the land value tax for many of the same reasons outlined by Yglesias — because it would tax the "income you earn by happenstance or luck rather than by actually creating new wealth."
- A research paper from two economists in the Federal Reserve Bank of St. Louis mostly casting doubt on the land value tax. (Page 370 bores into the real and substantial political economy obstacles to a land value tax in the United States.)
Among the problems they identify with the practicality of the land value tax: "valuing land accurately, determining the revenue potential of land value taxation, and providing sufficient public infrastructure to support the increased economic activity."
- Here's Yglesias in Slate, however, responding to that paper.
- A dispatch from a local newspaper in Altoona, Pennsylvania, where a land value tax was implemented in the early 2000s.
- A Financial Times profile in 2014 on Altoona's land value tax. The upshot: The tax "shows hints of the magic, but is also a case study in the political and practical obstacles to LVT fulfilling its promise."
- A birds-eye introduction from the Pacific Standard arguing for the land value tax.
- University of Pennsylvania student Ashok Rao's deep dive into the math on the land value tax, the upshot of which is that they actually could prove a game-changer.