Henry George had it right: Use land value tax to fund UBI. Abracadabra, all the birds get killed with one stone: Real estate prices calm down, income inequality calms down, environmental costs are valued into use, and poverty is eliminated.
There are grandmas around me in the bay area who own houses worth $1mm they bought for $100k. That means they made $900k. They can afford to pay the $10k in property taxes for 90 years, as long as we give them the option to defer paying until they sell the property and cash in.
If it’s a $10k land value tax, they can construct an ADU on the property and not have their taxes go up. Seems like a good incentive structure to help the housing shortage.
Property taxes are calculated on the value of the land and the value of the structures. So current land value taxes would be about $2000. If a state were to pass a land value tax, it would calibrate it so that it offsets a reduction in the tax on structures. The granny would probably pay $5000 in land tax and $5000 in improvements tax. Only in an extreme case would she pay something very different, like maybe she lives right next door to a train station. In which case, she could probably sell her property for $10mm. I’m sure policies could be designed such that she would not be forced out until she died and then some of that $10mm gain would be collected in back taxes.
But that's not how a land tax would work. The idea is that it captures most of the value of the land (removing the rent seeking ability). So the tax would be at a level that makes owning the land itself not very profitable, it's the improvement upon the land that offering return on investment.
So you'd likely see a $1M plot of land taxed at $100,000+ per year. It would make zero sense to sit on the empty plot or build a single family home. It would incentive someone to building a $10M building on it.
Ideally, IMO. Simply owning land is not a meaningful contribution to society. Rent from land ownership therefore disincentivizes meaningful contributions to society by creating reliable sources of income to those that don't contribute, disproportionately among the rich (who otherwise have the best means to contribute) because they disproportionately own land from which they can extract rent.
> If they sell it won't that just mean they have to pay 800k in taxes on their 1m house and then have to find another house for $1m?
Well, if land value was taxed on sale, grandma could just sit on the property until she died and not be affected by the policy at all. This is IMO not ideal because much of land value will then be lost until the next generation comes along. LVT should instead be collected on a regular basis.
Ideally, with single-tax LVT, land value is completely consumed by taxes. Any money grandma makes on the sale will be from the value of her own development and the excess value over land value the buyer expects.
That said, I believe that there are important criticisms that can be raised against Georgism. I believe that it would have to be accompanied by strict zoning laws to avoid displacing people and exploiting natural resources. I'm less concerned about grandma's little house than I am about a tax that makes things like fracking or deforestation to extract what makes the land valuable inevitable.
Say Grandma bought that house in 1960 for $100,000 (it's a really nice house). With inflation, that $100,000 is $870,935 today. Maybe that's still a return on investment, but not really that much. If Grandma had put even 1/10th of that into Apple stock, she'd be a billionaire today. I don't know where I'm going with this.
Also, she doesn't actually have the money. She has to live somewhere. Sure she could downsize, but I think it's considered pretty mean to make old people move house just because property prices got expensive around them.
This is trivially solved with a home equity loan. (If this proposal were broadened, non-recourse home equity loans for purposes of paying this tax would need to be expanded.)
I think it's worse to force somebody to sell chunks of the house to the bank, just so they can pay taxes on it, until eventually they don't own the property at all anymore. The bank then sells it to somebody else and you have nothing. You'd be better off downsizing and just avoid the tax.
> it's worse to force somebody to sell chunks of the house to the bank
You're selling part of the upside. That's the point of the land value tax. Someone who owns a $1mm house from a $100,000 purchase didn't do $900,000 of productive work. Those gains are rents, in the economic sense, not income. Giving those up--or downsizing, as you suggest--isn't ridiculous and is the point of the land value tax.
That's called inflation. Its not her fault that properties became so expensive. All she wants is a 3 bedroom house. Downsizing is not ridiculous no, but we do generally consider it unfair to push old people out of the houses they lived in their whole lives for ideological reasons.
I would rather we deflate house prices by making it unprofitable to own a home that you don't live in, and have a massive oversupply of new homes.
If she's living on a prime plot, yes. "I was here first!" only sounds fair to toddlers. She'll be able to live in comfort (probably with more comfort) elsewhere with the proceeds from the sale.
In my state of Louisiana, there is a homestead exemption where if the property is your primary residence, you are exempt from a good chunk of property taxes. It doesn't always make it zero and it doesn't stop taxes from rising at a somewhat reasonable rate (though some would disagree), but it keeps it from having the California problem of taxes being essentially fixed at the purchase price while still protecting owner occupants. There are lots of other variations on this that work just fine.
But that’s not the discussion. A land value tax captures pretty much all the value of the land. So a prime spot in a major city might cost $500,000 but have annual property taxes of $100,000.
The goal is to make the land unattractive unless you optimize the use of the land and build high density.
> The goal is to make the land unattractive unless you optimize the use of the land and build high density.
That's right and it should be that way. The value of the land is a function of the success of the local community - it shouldn't be captured by a private investor while workers continue to pay income taxes to service and improve that land.
But if your only objection is that elderly/disabled landowners shouldn't be pressured to pay taxes many states already have laws like that in place, eg
https://www.state.nj.us/treasury/taxation/ptr/
I don't know how the numbers work out but I imagine there are enough people using property as an investment that the above could be implemented with an exception for 1 single family home per tax household, and still generate a lot of money.
I agree it sucks to force people out of their primary residence, even if they would be nicely compensated. But residential property should be more focused on the residential part than it is these days.
Grandma moves to an apartment, her children move to apartments, her grandchildren move to apartments. Apartments are now actually affordable.
Otherwise your argument is "children and grandchildren of her everybody else pay $50,000 annual tax so she can keep living in this single family home and god forbid it were a multi-family or apartment building".
Yeah, this is currently a big problem with property tax in some places and a land value tax would only make it worse. I think it would accelerate the move to big multi-story apartment buildings that can get more revenue per sq.ft of land. Which I guess if you're worried about the housing crisis could be a good thing.
If people really want, there are common provisions in laws that protect old people who have lived in a place for a long time, but still has these land taxes.
You are assuming people actually make money on rental properties. I have had 3 rental properties and you don’t make a profit until the mortgage is paid off which is practically never. What you propose would hurt more people than it helps.
It's disingenuous to claim you are not making money as landlord.
You are building equity - maybe your monthly profits are 0 early on, but your total value is increasing m/m. You can sell your rental property once your mortgage is paid off. If you back calculate your monthly profit is essentially ~ (selling price) / months owned.
Or, just abolish any ownership of property except demonstrated by active personal (or organizational) use. We could have been planning cities decades ago and avoided the current real estate hellscape.
Or don’t do any of that, create a ridiculously simple tax (LVT) that has no dead weight loss, incurs no inefficiency, distorts no prices, reduces no ones freedoms, has no additional overhead (these values are already assessed/taxed in many places), and get all the same benefits.
