Response to The Importance of Property in Land Part 2

Mr. Stolyarov raises several important objections with a Land Value Tax in part 2 of his essay on the vital importance of property in land.

I'm going to address what I can but I suspect I'm going to take a step back and look at the larger picture. The larger picture is that human actualization requires opportunity and access to opportunity in contentious situations must either be a right or a privilege. I believe that it should be one or the other depending on the circumstance; everyone should have a right to some access or compensation with access beyond their fair share being a privilege allowed and supported by their compensation of others.

The moral stance is that there are either equal human rights or total, unconditional, property rights in external things in situations of scarcity. There can't be both and I have chosen to side with everyone can have some property rather than some can have all property.

The problem with geoism has always been implementation though most of the arguments against it attack strawmen. Many of the people I've spoken to seem to want it to be a perfect solution before considering it at all. That's not a reasonable stance. A reasonable stance is asking the question is this better than the current system and does switching to it justify the costs of switching?


Though I am a geo-panarchist, I will argue from both a geo-panarchist and geo-statist position.

The Problem with Pigovian Taxes

I am not a supporter of a land-value tax (however it may be termed) or of Pigovian taxation in general. The idea of a Pigovian tax (however called) seems to me rather contrived, in that it assumes a perfect knowledge on the part of the taxing authority of not just which activities create negative externalities, but also the precise extent to which a particular instance of such activities creates those externalities – and, correspondingly, the precise extent of taxation needed to take the “social cost” of these activities into account. The economic distortions of taxation, relative to a tax-free free-market situation, cannot be avoided in practice, no matter what form the tax takes – though, admittedly, it can be said that some types of taxes produce greater distortions or different kinds of distortions than others. Furthermore, the idea of a Pigovian tax is unworkable in practice, because political incentives and the influence of special-interest pressure groups would surely distort the incidence of the tax to benefit those with lobbying clout. In other words, even if the exact “social cost” of every activity could be calculated, the influence of lobbyists on elected officials would result in the incidence of the tax departing from a proper reflection of that “social cost.”

Pigovian taxes are often better than the libertarian solution of property torts. It's currently unrealistic for many individuals to get together to get relief from a large defendant. If money was non-fungible, then that would be less of an issue. I'm not a fan of states imposing values but I'd prefer a state which deals with property violations or highly probable property violations even if some innocents get snared up. The bigger problem with letting states set Pigovian taxes, in my opinion, is that bureaucracies tend to become self-serving. This would almost assuredly be a problem even if anarcho-capitalists' beloved DROs were responsible for restitution for damage.

The bigger problem that the author points out stands: calculation. I feel that this applies far more to Pigovian taxes than it does to land value taxes. Land value taxes are about compensating others and, under a statist system, paying for public goods. Both situations can be handled fairly accurately by "voluntary" tax bids. If the state imposes costs, then there's no requirement for them to deliver something of comparable value. If people decide what it's worth to live in an area - knowing full well about the existing rules and taxes - then they prove they're ok with it by setting their own tax rate. The caveat is, of course, that other can come along and outbid them.

The Unavoidability of the Land Value Tax

Consider that certain kinds of taxes can be avoided by a property-owning individual entirely. He only needs to pay an income tax if he earns taxable income. He only needs to pay a sales tax if he purchases taxable goods. He can avoid gift taxes by not giving gifts (beyond the tax-exempt amounts). If he has enough money saved up to live on, grows/produces all of his own goods, and keeps his property largely to himself, he can avoid all such taxes in theory (even though, in practice, he would admittedly be part of a small minority of the population).

This is a common and powerful complaint, but it is ultimately hollow.

First, I can point out that yes, someone is always paying a land value "tax" unless they are the actual homesteader or the inheritor. Economic rent is capitalized into the sales price. Taxes, including property taxes and an LVT, come out of the sales price. If you're worried about taxes, why not just put what you would've spent in higher prices into an interest-bearing instrument and pay the taxes with that? Bonus is that it won't be a mortgage.

And, no, the taxes won't just be passed on because they fall on different economic land differently which puts sellers in competition with one another. David Ricardo's Law of Rent is a pretty iron clad law.

Secondly, good - taxes, if they need to exist, shouldn't be able to be dodged or passed on to others. That defeats the whole purpose and is the impetus for the growth of taxing agencies and their ability to monitor every aspect of one's financial life.

Thirdly, "castle libertarians" piss me off. I'm not saying that one has to interact with society and I'm certainly not conflating government with society. However, if people want the protection of others then they better be doing something useful for others. (I'll cover this more in a moment.)

The similarity among these taxes (no matter their other flaws, of which there are many) is that they do not reduce current wealth kept for personal use. Property taxes are different in that they are able to actually diminish a person’s stock of wealth without that person undertaking any positive action. As long as a person owns a house, or a commercial building, or even a stretch of land for recreational use, he cannot avoid the diminution of his wealth through taxation solely due to the passage of time. An income tax only reduces one’s potential earning opportunities. A sales tax only reduces one’s potential purchasing power if one chooses to make purchases. A property tax, however, reduces one’s existing stock of wealth, no matter what one chooses to do. Thus, with all other things (including the total tax collected) being equal, a property tax is more adverse to an individual because it compels him to engage in positive actions in order to maintain his present wealth, rather than merely discouraging the individual from undertaking certain additional activities that might be taxed to a greater extent than he might prefer.

Natural opportunities (presumably) provide continuous value, so, if taxes are set voluntarily and continuously then it should be a fair trade. The problem is one of liquidity. When one earns money, the government doesn't directly tax that money again while it stays with the person. (I don't think that situation is much better because of the inflation tax and the ability for sales or income taxes to change later which reduces the purchasing power of already-taxed money.)

The primary difference with an LVT is that one would have to find a way to pay the tax - they would need to earn money. This view presumes a few things. It presumes an involuntary government which takes a chunk of the LVT and that the public goods provided by that government don't benefit those who would otherwise be forced to work by something like welfare. It presumes that people don't get a dividend from which they can pay their taxes so long as they claim exclusive ownership over less than indicated by The Lockean Proviso. 

-- TODO AFTER THIS

Giving up on Land Ownership

A Georgist land-value tax is different from the current American property tax in that it taxes the land only and not the manmade improvements on that land. In this respect, the land-value tax is superior. It would probably encourage significant vertical building by landowners/occupants in order to increase the amount of improvements per unit of land. However, it would also probably result in large stretches of land being unoccupied and unused, because there would be a sub-optimal level of interest in developing that land, as the owners/occupants would be responsible for paying tax. This may make the unfortunate phenomenon of urban congestion common even in less populated areas.

Furthermore, one can conceive of a supremely sub-optimal outcome of the single land-value tax, which would be the result of a perverse incentive indeed. This is the scenario where most individuals decide that it is not worth the trouble to own land (or partially own it or “rent” it from the community – however this might be described legally). Instead, large landholding corporations would emerge and purchase most or all of the land. Their owners (probably a lot of dispersed shareholders beholden to an entrenched management and thereby subject to numerous principal-agent problems) would be willing to absorb the costs of the land-value tax in exchange for collecting rents from everyone else who lives and works on that land. Many ordinary people might think that they are getting a good deal by avoiding all legal incidence of taxation – but in reality, the amount of rent they would pay to the landholding corporations would be higher to reflect the taxes those corporations have to pay. In other words, the cost of the land-value tax would be at least partially passed on to the renters/majority of people in the community by the landholding corporations. Economically, this is identical to the scenario that the Georgist proposal seeks to avoid – the situation where (whether or not this is indeed the case) it is alleged that most of people are beholden to a minority of landowners or lienholders by means of payment of rent or repayment of expensive mortgages.

Supercharged Homeowners Organizations

One significant downside of this scenario, relative to the status quo, is that the possibility of “free and clear” ownership of property would be more definitively off-limits to everybody – even in theory. Another even greater concern is that the landholding corporations would essentially behave like supercharged homeowners’ associations – with even more power to micromanage people’s lives and impose arbitrary restraints on the use of personal property and the improvement of land. They would be able to conduct this abuse with impunity, because there would be fewer of them in any given geographical area, compared to today’s homeowners’ associations. This would give the landholding corporations the oligopoly (and sometimes monopoly) power that enables many similar entities to disregard consumer preferences and extract large amounts of unearned money.

Economic Distortions

The reality is that the market always seeks to correct for economic distortions that are the result of confiscatory or redistributive policies. The correction is always imperfect, because real wealth is in fact appropriated through taxation. However, changing the tax structure cannot, by itself, solve the whole distortion – without addressing how much wealth is kept by private citizens and what they are legally able to do with that wealth. There may, however, be a valid argument for changing a tax structure if this inherently results in a lower total proportion of tax collected, relative to the wealth that exists among the general population. This, of course, depends on thereal rates of tax selected for each alternative under consideration. For instance, I would wholeheartedly support (as an unambiguous directional improvement relative to the status quo) a single land-value tax whose entire collections would be a mere 0.5% of the Gross Domestic Product. Irrespective of any concerns about the incentive effects of the tax, those would be dwarfed by the sheer amount of wealth that individuals would be able to keep compared to today’s tax regime. In this situation, though, I would still strongly prefer that the legal concept of full ownership of land be retained and that the land-value tax be administered similarly to today’s property taxes – as opposed to treating the occupant of the land as a “tenant” who owes a “rent” to “the community.”

There may also be a valid argument for changing a tax structure if doing so results in more wealth-generating behavior and increased productivity. However, I cannot find a system that allows for the diminution of current wealth through taxation to be more encouraging of productivity than a system that merely takes a share of future active production or consumption. If one cannot be guaranteed the peaceful and total enjoyment of the wealth one has already earned, then earning more seems less attractive from a psychological (in addition to a purely economic) perspective. Productivity is simply not as enjoyable if one views it as a chore to be done in order to remain in one’s present situation and prevent a decline – rather than an ambitious endeavor of self-improvement and possible enrichment.

Conclusion