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 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.