Land Value Taxation: Six Steps to Meet Objections
[Reprinted from Land & Liberty, May-June,
Hundreds of land reform experts, from many countries as well as from
the United Nations, have urged the adoption of a heavier tax on land
values in place of as many other taxes as possible.
The land value tax can claim many advantages.
It has already been adopted in a number of places in the world and
with marked success.
- The higher the tax, the more the incentive for landowners to
utilize their land effectively in response to the demands of the
market (and as limited by land use plans). Who could afford to
keep land vacant, or in partial use, if he had to pay the full
annual land rent in taxation?
- The higher the tax, the less individual labour and capital
investment need be penalized by taxes. This could provide a
powerful incentive for an economic surge, particularly in the
agricultural and construction sectors.
- A high tax discourages absentee landownership. Who would want
to collect rent from a tenant, only to pay it over to the
government at the end of the year?
- If eventually the tax on land values becomes substantially
high, then it will deter land speculation and, by reducing the
taxes on labour products which are passed on to the consumers, it
will reduce consumer prices.
- Because land prices would be lower, investment money which
would have gone into the purchase of land would be diverted into
the production of machinery and buildings. Land, no matter how
highly taxed, cannot be reduced in supply (in fact, if taxed, land
previously held off the market would be released for productive
These are only the economic reasons for taxing land more,
labour and capital less.
There are compelling moral reasons also; a landowner qua
landowner produces nothing, so whatever return he gets must come out
of the labour of others. A landowner reaps, but he does not sow.
Furthermore, land values are created by the community when it
provides roads, schools, hospitals, police and fire protection, jobs
and shopping facilities.
Shouldn't the community tax what it creates -- land values --
before it taxes the value of wages and investments which individuals
DESPITE all the clear advantages which the land value tax affords,
there are some short-run or special-case problems which must be
seriously considered before it can be introduced.
Here are six alleviations of those problems:
1. National Land Rent Dividend.
Land values are very unequally distributed among the population so a
tax on land values would be very much in accord with the
Nevertheless, there may be some hardship cases. Some small farmers
would pay more taxes than they are now paying, as would some poor
elderly homeowners. While it could be said with some justice that if
they can't pay the tax, they are not using their land efficiently and
should sell it to someone who can, still, humanitarianism requires
that we help them over their short-run plight.
Also, good politics requires it - my experience in trying to spread
land value taxation in western Pennsylvania indicates clearly that
such people are numerous and powerful enough to obstruct the adoption
of such a tax.
Even those who would pay less under a switch of taxation on to
land oppose it out of sympathy for the losers.
Fortunately, there is an easy solution. The government could levy a
slightly higher land tax rate than it would otherwise require, it
could then distribute the extra revenue on an equal basis to all
voters in the country (that should get the voters out to the polls!).
This could be called the National Land Rent Dividend.
The dividend should not be so high as to encourage shiftlessness --
it should be like a Christmas bonus.
The dividend would immediately create a strong pressure group in
support of the land value tax.
Because land ownership is so unequally distributed, fully 95 per cent
of the population would get back more in dividend than what they would
pay in extra surtax to finance the dividend.
Could this possibly fail to guarantee popular support for the land
value tax, especially since it is one way by which all people can
share equally in the opportunities afforded by nature?
2. Agricultural Land Tax Index.
Farming is a risky business. In some years, the harvest is good, in
others not. Commodity prices rise and plummet. In bad years, many
farmers might be hard put to pay their land value tax -- unless tax is
indexed to agricultural production and prices.
If the total value of sugar production, let us say, falls off 20 per
cent from normal, then the land value tax which sugar farmers are
required to pay should be reduced by 20 per cent, or perhaps 30 per
cent. If the total value of sugar production is 10 per cent above
normal, then the land value which sugar farmers pay should be
increased 10 per cent, or perhaps 15 percent.
If the government finds that its revenue from an indexed land tax is
too uneven, it could set aside a small amount of the land tax each
year (bigger amounts in above-normal years), and draw on that extra
fund in below-normal years.
3. Tax Deferral.
In cities, elderly poor homeowners might be hard put to pay the land
value tax. So the government should allow them to defer their land
value tax, in whole or in part, until they sell or bequeath their
property. At time of sale or bequest, the back taxes must be paid out
of the value of the estate.
This is how it could work: if the land value tax on the residential
property of a poor elderly homeowner is more than, say 10 per cent of
his total income, then the excess plus reasonable interest is deferred
as a lien against the property to be collected by the government when
the property is sold or otherwise transferred.
The amount of deferral should not exceed the amount of the
unmortgaged part of the property value, and the mortgage payment
precedes the tax deferral lien. Such a deferral could be extended for
a one-year period to unemployed landowners and to other landowners
subject to special hardships.
4. LVT Instalment Payment.
Hardships would be created if the land value tax fell due in one big
annual lump sum. Many taxpayers would be caught short of ready cash.
Tax bills could be issued quarterly, perhaps monthly. Rent is
customarily paid quarterly or monthly. Alternatively, the taxpayer
could require his mortgagee or employer to pay the tax withheld from
his mortgage payment or salary.
5. Interim Reassessment Adjustment.
When land is taxed, it could be reassessed annually. If not, a
problem would develop - the re-assessment, when it comes, might be
much higher than previously, especially in inflationary times. This
would result in sudden increases in the taxes that some landowners
have to pay, with possible hardship and opposition.
There might even be pressure to delay re-assessments, or for
reassessment increases to be less than market value increases.
To avoid this, all land assessments could automatically be adjusted
annually, until the next re-assessment, according to changes in the
general price index. If, for example, the general price level
increases 10 per cent, then all land assessments could be
automatically increased 10 per cent, but all such inflation
adjustments are negated by the next reassessment.
6. Purchase and Demolition (PAD) Guarantee.
When neighbourhoods change to higher uses, land values shoot up. So
do land assessments and taxes. The old owner may not be in a position
to pay the new higher tax and he may not be able to sell his house
which might now have a negative value since it must be demolished to
make way for a new and more appropriate improvement. He would face
severe hardship from which zoning regulations give him inadequate
Examples of such neighbourhood changes to higher uses are
-agricultural use to single or multi-family residential use, to
industrial or commercial or natural resource use.
Suppose, for example, a single-family neighbourhood becomes ripe for
apartment house development. A homeowner there cannot pay his higher
land value tax any more since it is now predicated on apartment house
use. He cannot sell his land site if the full annual value is taxed
away. And his house has no value at all - it will be demolished,
unless he can move it to a more appropriate location, and that is
unlikely. He has problems.
Fortunately, a solution exists: the government could pay the old
owner the appraised value of his about-to-be demolished house. This
would give homeowners and others a real feeling of security since they
need never fear that rising land value taxes would expropriate them.
It would make land value taxation even more saleable, especially
at high rates.
Additionally, it would significantly spur the re-building of cities.
No longer would the prospective developer have to expend a larger sum
for the purchase and demolition of a useless be incurred even before
actual construction can begin, contruction can begin.
Some technical provisos are needed to accompany this Purchase and
Demolition (PAD) Guarantee: the building would have to be at least 12
years old and the guarantee should not exceed the land tax times twice
the interest rate percentage.
THE TAXATION of land values can do more than provide revenue for the
government: it can also provide a powerful stimulus to economic
One way of ensuring that the land value tax provides maximum
incentive to land owners to develop their sites fully would be to
announce in the first year that the tax would start at a base figure
and move upwards by equal increments over a 10-year period to the full
In this way, land owners would have plenty of time and incentive to
adjust to the new tax, and put their land to the best-possible use.
Although there may be certain short-run or special-case problems
arising from land value taxation, we have seen how they are certainly
amenable to' a solution. There is no need to keep the land value tax
rate low in order to protect those few people who might experience
hardship. They can be adequately protected by the six adjustments
I recommend them for reasons of humanitarianism as well as good
1. The rationale for these provisos
can be found in Catalyst: Henry George Foundation of America,
PITTSBURGH'S land taxers have
helped to notch up another success.
Over the years, they have campaigned to shift the burden of the
property tax on to land - with a measurable degree of success.
And this year the tax on land will be 15.1 per cent of assessed
values (which are officially set at one-quarter of market
Thus, in five years, the ratio of the land to building taxes
has moved from 2-1 up to 5.6-1.
The new rates for 1983 will raise the same revenue as the old
rates in 1982. But, says Steven Cord, the editor of Incentive
"If taxing buildings less and land more encourages new
construction, as theory and experience indicate, then the city
could hope to get more revenue in the future." Mr. Cord is
Professor of History at Indiana University, Pennsylvania. For
years he and his co-workers have worked to inform state and city
officials about the virtues of land value taxation.
Copies of Incentive Taxation* are regularly mailed to
politicians to show them how a tax on buildings is a constraint
on economic growth.
The latest evidence is based on a study conducted for the
Center for the Study Economics by Daniel Sullivan -- which
revealed that 78 per cent of a random sample of over 500
homeowners paid less with a tax shift to land.
The Cord campaign promises even greater gains in the future.
For example, the Pittsburgh Council had actually approved an
even larger shift in the land-to-buildings tax ratio for 1983;
this was postponed at the request of shop-keepers. And there
appears to be a breakthrough in the attitude towards land
taxation emanating from the Mayor's office. The Mayor has the
power of veto over tax changes.
*Published by the Center for the Study of Economics.