Land value tax

Land value taxation (LVT), or site value taxation, is a tax that charges landholders a portion of the unimproved value of a site or parcel of land.

LVT is a special form of property tax. There are three species of property: land, improvements to land (immovable man-made things) and personal property (movable things).

LVT is an ad valorem tax where only the value of land is taxed, ignoring improvements to the land (e.g., houses, factories, ...) and personal property (e.g., cars, furnishings, ...). This is different from other property taxes which generally tend to fall on real estate--the combination of land and improvements to land.

Claimed advantages

• A correlation between high LVT and growing economic prosperity is predicted by Georgist theory, and has consistently been observed in practise.<ref>The Progress Report - Property Tax Shift Successes</ref>
• A natural source of public revenue. All land makes its full contribution to the government, allowing reductions in existing taxes on labour and enterprise.
• A stronger economy. If labour, buildings or machinery and plant are taxed, people are dissuaded from constructive and beneficial activities and enterprise and efficiency are penalized. 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. LVT 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 raising is expected to stimulate new business and new employment, reducing the need for costly government welfare spending.
• Marginal areas revitalized. Economic activities are handicapped by distance from the major centres of population. Conventional taxes such as VAT and those on transport fuels cause particular damage to the remoter areas of the country. LVT, 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. Holding land idle becomes financially unsustainable.
• Less urban sprawl. Because LVT deters speculative land holding, dilapidated inner-city areas are returned to productive use, reducing the pressure to build 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 stabilized, 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 land speculative bubbles. 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, eliminates the speculative element in land pricing.
• Impossible to pass on as 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. LVT cannot be passed on to tenants, as they are already paying the full market rent, and the tax doess not affect the economic rent of the land.
• Lower natural interest rates in economy. In the present system, the value of land has to be paid fully during the purchase. This increases the demand for money in the economy to serve these lump-sum payments. In a pure LVT system, the amount paid to buy a house or start a business is less because the initial prices of land are low due to the anticipated LVT payments as long as the land is held. Thus in an LVT system, the demand for money is lower (other things being the same), lowering the natural interest rates. The availability of more money for productive capital investment acts as a further boost to the economy.
• Fairness. Land (unlike goods and services) has no cost of production. If an ample supply of land of equal desirability were available everywhere, there would be nothing to pay for its use. In reality land acquires a scarcity value owing to the competing needs of the community for living, working and leisure space. Thus the unimproved value of land owes nothing to the individual efforts of the landowner and everything to the community at large. It belongs justly and uniquely to the community. Conversely, the reward for individual effort can belong only to the one who earns it, to spend, save, or give away as he or she may see fit.

(Several of these advantages are from the Land Value Tax Campaign<ref>Land Value Tax Campaign - What is Land Value Taxation?</ref>)

Criticism/Arguments against

One of the biggest potential problems with a Land Value Tax lies in the Valuation process. Under current property tax systems, the notional value for taxation purposes is often allowed to diverge from the actual market value. Some jurisdictions assess property value at a fraction (sometimes quite a small one) of actual market value, and others tax only a fraction of reasonably accurate appraisals. Different rates of assessment and/or tax for different classes of property and even different sorts of owner also abound. When such complications go too far, people may end up paying an unfairly high or low amount of tax. Sudden, large changes may occur in the tax amount, owing to the politically unpopular revaluations to market occurring in a single year after long periods of no change, rather than small changes occurring every year in step with changes in the true market value.

Another issue with LVT in large cities is that a pure LVT may not have adequate provision for open spaces in a densely populated city. Any parkland in a city would have an economic value higher than its usage as a park, leading to parks being removed and the city losing out in the process due to lack of open spaces. While some park area is economically efficient (i.e., the park increases the aggregate value of the surrounding land by more than its own value is decreased as a result of being unavailable for commercial or residential use), it may be that this efficient park area is less than cities currently have, and that the public may want. Thus, an LVT may require important exceptions for open spaces to be preserved.

See also

• Mill levy
• Proposition 2½, the property tax and auto excise tax limitation law in Massachusetts.
• Service tax in India
• Central Excise (India)
• Fringe Benefits Tax
• Corporate Income tax in India
• Tax return forms in India
• Income tax in India
• Permanent account number
• Tax return forms in India
• Value added tax
• Consumption tax
• Property tax

Further Reading

for further information on LVT please refer to Wikipedia Land value tax