Land Value Taxation–A Proposal

An Open Letter to Coast Representatives:

For many years the state government and the people’s representatives have asked the people of Mississippi to foot the bill for state programs by increasing taxes and lessening programs. And for about 20 years I have tried to get the attention of lawmakers to consider a change in the way business is done in Mississippi. Now in this moment in history, with the ever worsening economy a new way of thinking is needed.  States like California are suffering from a deep recession and their programs are not be funded.  Their answer is to raise taxes.  Their plan would raise $9.3 billion to ease the state’s fiscal crisis by increasing sales taxes by three-fourths of a cent and gas taxes by 13 cents a gallon, starting in February. The plan would add a surcharge of 2.5% to everyone’s 2009 state income tax bill.  Other states are suffering also and their plans will be to raise taxes.  Even New York City has passed a bill to raise $1.2 billion with new  property taxes.  This would raise the homeowner’s bills by 7% as the city tries to head off shortfalls in an ever worsening economy and ever decreasing revenues.

Taxes?  Yes, the only way to generate the amounts of revenue needed to fund programs, but what do taxes really accomplish?

Payroll tax is a “fine” imposed on those who organize employment.

Income tax fines people who engage in production or render services.

Sales tax penalizes people for purchasing goods.

Customs tariffs fine people for buying goods produced in other countries. To do this is economic aggression, and invites reprisals which endanger peaceful relations and are a prelude to war.

Excise duties increase the cost of certain products, reduce demand for such, and worsen unemployment, as do all taxes.

A tax is a compulsory payment to a government unrelated to any direct penalty, voluntary service, or debt. Some payments to governments have the form of a tax, as compulsory payments, but not the substance, since the payment is for a service or rent for the use of property. When an oil company pays a lease for offshore oil fields, for example, this is a rental charge for property owned by the government on behalf of the people, so it is not a tax in substance. Likewise, the collection of land rent by a community may be tax in form as a compulsory payment once the land is obtained, but not in substance, since the ownership of land is voluntary and the payment is a rent for land if one agrees it is properly owned by the community.

These are the ways taxes are imposed on communities and Mississippi uses them as well as another state.  But taxes are not the answers, a single tax on the value of land is the only answer that is both equatable and prfitable for the state.

Mississippi has been on the lower end of all surveys, health, education, poverty, etc…..and each incoming administration and Congressional session changes have been promised and nothing has changed…Mississippi is still at the bottom and keeps sinking. The economic thinking of the state is flawed and not doing anything constructive.

Yes, the Coast is a bit immune from the economic crisis crippling the country…for now…but that will not continue. But the Coast is seeing the crisis approaching with a rise in bankruptcies and land values shrinking.

I offer this proposal for consideration, but only if the state is willing to think outside the box and make take a real stand on improving the lives of the citizens of Mississippi.

Mississippi may soon have to face the realities of the economic crisis and the opposite of what was promised to the voters of the state—Lower Taxes. Since taxes generate the revenue the state uses to fund programs, there is only one way to generate the needed funds..Raise Taxes.

Ever hear of Land Value Taxation (LVT)?

Land Value Taxation proposes that the rental value of land should be collected and used as the principal source of public revenue, as a replacement for present taxes on wages, profits, goods and services. Why? Nearly every country in the world is affected by poverty and unemployment; widening divisions between rich and poor; boom-slump cycles; housing shortages; inadequate infrastructure; and damage to the environment. These economic ills persist, seemingly intractably, despite unprecedented developments in science and technology. All of them are ultimately related to the different economic behavior of ‘land’ in contrast to man-made consumer and capital goods, whose supply can be, and normally is, varied and transported in response to demand.

But land is otherwise. No more can be produced: each plot of land is unique and immovable, and its total supply is fixed. Consequently, the market in land behaves differently from the market in products. Land value comes from the natural and man-made advantages of location, which derive from the presence and activities of the community as a whole. From this conclusion it follows that the value of land, its rent, is peculiarly suitable as the basic source of public revenue. Whilst this is not, in reality, a tax, but a payment for the right to occupy land and enjoy the benefits of occupation, this policy is usually referred to as “Land Value Taxation” It would operate as an annual charge on the rental value of land, assuming that each site was in its optimum permitted use. When this policy is applied, most of the problems mentioned in the first paragraph are mitigated or vanish completely. This proposal cuts across all political divisions and for this reason the Campaign has no party political affiliations.

In the strict public policy application, Land Value Taxation (also known as split-rate real property taxation, and two-tiered real property taxation) is a type of real property taxation.  Whereas the typical real property tax taxes both land and the improvements on the land at the same rate, land value taxation taxes land at a higher rate while simultaneously reducing, or even eliminating, the tax on improvements.

The major points of a LVT:

•           A shift to LVT, even when structured in a revenue-neutral manner, usually results in net tax reductions for the vast majority of residents.

•           The problem of inaccurate or radically higher assessments is reduced because of the reduction in reliance on the building portion of the property tax.

•           The damage that taxes like sales and income taxes do to working families and local commerce can be lessened.

•           By reducing or eliminating the tax on improvements, there is a greater incentive to build, to build with higher quality materials, to maintain, to avoid blight, and to redevelop economically depressed areas.

•           Cities are almost always on the “short end of the stick” when economic development dollars are handed out.  This program helps achieve the same goals with no public investment.

•           When cities DO get permission to give out tax abatements, they lead to a revenue loss to the community with no assured payoff later.  LVT is purely revenue neutral to the city.  There is no tax shifting to citizens and property owners who have already done their bit.

•           A tax on land also has the advantage of being a “value capture tax.”  A new public works project may make adjacent land go up considerably in value, and thus, with a tax on land values, the tax on adjacent land goes up.  Thus, the new public improvements would be paid for by those most benefited by the new public improvements — i.e., those whose land value went up most.

•           A tax on land has been shown to result in better land use patterns and more in-fill development.  This has the benefit of reducing sprawl.

•           Several Nobel Prize winners in economics have stated their approval of government revenue being raised from taxes on land.

•           Support for LVT cuts across political lines.  Free-market economists like how it reduces distortions in economic decision-making.  Environmentalists like how it reduces sprawl and helps fund public transportation.  Developers appreciate how it makes new homes more affordable for their customers.  Citizens like the reduction in taxes.

Ad valorem taxes are increasing nationally.  The assessments were made when the market value of real estate was huge and now that it has lost almost 40% of its value, people will be paying a higher rate until the next assessment.

LVT is a logical and effective way to eliminate all other forms of taxation and still produce the revenue to fund all domestic programs.

A NATURAL SOURCE OF PUBLIC REVENUE. All land makes its full contribution to the government, allowing reductions in existing taxes on labor and enterprise.

  • A STRONGER ECONOMY. If we tax labor, buildings or machinery and plant, we discourage people from constructive and beneficial activities and penalize enterprise and efficiency. The reverse is the case with a tax on land values, which is payable regardless of whether or how well the land is actually used. It is a payment, based on current market value, for the exclusive occupation of a piece of land. In the longer term, this fundamentally new and different approach to revenue rising will stimulate new business and new employment, reducing the need for costly government welfare.

MARGINAL AREAS REVITALISED. Economic activities are handicapped by distance from the major centers of population. Conventional taxes such as VAT and those on transport fuels cause particular damage to the remote areas of the country. Land Value Tax, by definition, bears lightly or not at all where land has little or no value, thereby stimulating economic activity away from the centre – it creates what are in effect tax havens exactly where they are most needed.
A MORE EFFICIENT LAND MARKET. The necessity to pay the tax obliges landowners to develop vacant and under-used land properly or to make way for others who will.

LESS URBAN SPRAWL. Land Value Taxation deters speculative land holding. Thus dilapidated inner-city areas are returned to good use, reducing the pressure for building on green-field sites.
LESS BUREAUCRACY. The complexities of Income Tax, Inheritance Tax, Capital Gains Tax and VAT are well known. By contrast, Land Value Tax is straightforward. Once the system has settled down, landholders will not be faced with complicated forms and demands for information. Revaluation will become relatively simple.
NO AVOIDANCE OR EVASION. Land cannot be hidden, removed to a tax haven or concealed in an electronic data system.
AN END TO BOOM-SLUMP CYCLES. Speculation in land value – frequently misrepresented and disguised as “property” or “asset” speculation – is the root cause of unsustainable booms which result periodically in damaging corrective slumps. Land Value Taxation, fully and properly applied, knocks the speculative element out of land pricing.
IMPOSSIBLE TO PASS ON IN HIGHER PRICES, LOWER WAGES OR HIGHER RENTS. Competition makes it impossible for a business producing goods on a valuable site to charge more per item than one producing similar goods on less valuable land – after all, producers and traders at different locations are paying different rents to landlords now, yet like goods generally sell for much the same price and employers pay their workers comparable wages. The tax cannot be passed on to a tenant who is already paying the full market rent.

There are both equity and efficiency arguments for land value taxation. The equity argument is that land is given by nature and the value of the land was not created by human effort. Furthermore, increases in the value of land are caused by public services and economic development in the neighborhood, not by the effort of the landowner. For example, the construction of an interstate highway will increase the value of land near a highway interchange as this becomes a more desirable site for business development. Therefore, it is argued, because the landowner has done nothing to deserve the gain from his ownership of land, the government should capture this gain through taxation and use it for the benefit of all members of society. However, as discussed in section IV below, there are also equity arguments against replacing the current system of property taxation with a tax only on land values.

The efficiency argument for land value taxation is that, unlike almost all other taxes, it does not discourage productive activity or distort choices among consumer goods. A tax on wages discourages work effort. The property tax on improvements discourages construction and other improvements. Tariffs on imported goods discourage international trade. But the supply of land is fixed, given by nature. A tax on the value of land (based on its potential use), will not discourage the landowner from making the land available. The owner must pay the same tax regardless of what he does or does not do with the land. It should be noted that the method of assessing land values is crucial; changes in the market value of land attributable to permanent improvements to a site should not be included in the taxable land value.

There are both equity and efficiency arguments for land value taxation. The equity argument is that land is given by nature and the value of the land was not created by human effort. Furthermore, increases in the value of land are caused by public services and economic development in the neighborhood, not by the effort of the landowner. For example, the construction of an interstate highway will increase the value of land near a highway interchange as this becomes a more desirable site for business development. Therefore, it is argued, because the landowner has done nothing to deserve the gain from his ownership of land, the government should capture this gain through taxation and use it for the benefit of all members of society. However, as discussed in section IV below, there are also equity arguments against replacing the current system of property taxation with a tax only on land values.

The efficiency argument for land value taxation is that, unlike almost all other taxes, it does not discourage productive activity or distort choices among consumer goods. A tax on wages discourages work effort. The property tax on improvments discourages construction and other improvements. Tariffs on imported goods discourage international trade. But the supply of land is fixed, given by nature. A tax on the value of land (based on its potential use), will not discourage the landowner from making the land available. The owner must pay the same tax regardless of what he does or does not do with the land. It should be noted that the method of assessing land values is crucial; changes in the market value of land attributable to permanent improvements to a site should not be included in the taxable land value.

In conclusion, the best tax is one which creates the least distortion of market incentives. A tax on the value of land meets this criterion. Furthermore, the benefits of local government services will be reflected in the value of land within the locality. Therefore, it may be deemed fair that landowners pay taxes to finance these services in proportion to the value of the benefits they receive. Although Henry George advocated a tax on land values as the “single tax” to replace all other taxes, a tax on land value seems especially appropriate for municipal governments. If a complete shift from the current property tax to a tax on land value alone seems too radical, municipal governments might reduce the property tax rate on improvements while imposing a higher tax rate on the value of land.

These ideas are those put forth by 19th century American economist, Henry George and has been upheld by many others over the years such as Lindy Davies and Hanno Beck, two people I am acquainted with.

  1. 4 January 2009 at 10:14 am

    I, for one, hope your message reaches a broad audience. Our current economic crisis has as its primary cause an 18-20 year credit-fueled cycle of speculation in land all across the nation. The only means to stabilizing land markets is to capture the annual rental value of locations by means of taxation (whether administered locally, by the state or even the federal government).

    State governments might consider imposing a surtax on assessed land values to raise needed revenue to replace falling revenue from income and sales taxes.

    As a transitional measure, however, I advocate imposition by the state of a progressive tax on individual incomes that shifts the burden of taxation from income earned by those who produce goods and provide services to those whose income comes primarily from passive and speculative investment. The starting point would be to exempt all individual incomes up to the state median income. Then, above that amount, higher ranges of income would be taxed at an increasing rate.

    As the state moves more and more in the direction of a land-only property tax base and collects a higher percentage of location rental values (i.e., land values), the tax rates on income can be lowered and the amount of income exempted from state taxation can be increased.

    Edward J. Dodson, Director
    School of Cooperative Individualism

    • 5 January 2009 at 2:11 am

      THanx for the participation Edward and thanx for the support. I will be offering a proposal to the city council this year, actually this month and will be sending it to the reps in the state capital also. I hoppe to find those who will listen and hopefully see the necessity for this proposal. Thanx again.

  2. 29 January 2009 at 4:22 pm

    Let us lend a hand if we may. Our organization makes recommendations to governments on land value tax to make sure it si optimally implemented.

    • 30 January 2009 at 12:52 am

      Hello Joshua and thanx for the offer any and all help is appreciated……so far the reps have pretty much ignored me…..I will be sending the City Council a proposal next month…this month they are pretty busy with the mayor being federally indicted…oops…..

    • 30 January 2009 at 12:53 am

      On the other side I have been in contact with Lindy Davies and he has offerd up a few suggestions also. Thanx for all the help in advance……Chuq

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