Well, first of all, government increases tax rates once a year, just like landlords increase rents once a year.
As I explained, renting is different from buying. If the government increases the rate on a parking meter, you can just walk away. You’re “renting” it. But if you BUY it, and government LATER tacks on an additional rent, then you’re effectively charged a one-time Net Present Value cost. You CANNOT walk away like with a rental, because it’s not like the government will just buy back the spot at the original price. You have to find someone to sell to, and because that person has to keep up that payment, he’ll discount the payment by the NPV of that perpetuity.
So the biggest point I want to keep focusing on is, LVT is just a one-time tax on whoever owns the property at the time the LVT goes into effect (I call this the “hot potato” effect). This is arbitrary and thus obviously irrational. Case in point, if the LVT goes into effect AFTER Bob sells to Alice, then Alice pays it. If it goes into effect BEFORE the sale, then Bob pays it. That’s arbitrary, whereas ideal policy would be to tax Bob or Alice based on their total wealth, regardless of whether that wealth is in stocks, land, intellectual property, etc.
And suppose a private landlord won’t sell? Why must government sell?
This is a good question, though of secondary importance to the point I just made about the “hot potato” effect. First, the government in most cases already DID sell (or a long time ago they gave a homestead or what have you). So that’s just a done deal.
As for why the government should continue to sell in the future vs. rent, there are a couple of reasons. First, people want to be able to build permanent structures on their property, like houses. Even when I rent an apartment, I generally won’t pay to do significant remodeling or building of new structures on the land (even the landlord will let me) because if I leave for any reason, I can’t force the landlord to pay me the cost of those improvements. The same would go for a house on my owned land. People buy because they want stability; they want to know that if a huge employer like Amazon moves into their city, they won’t be priced out by a huge rent increase. There are clearly legitimate reasons to have the construct of outright sale and ownership.
In addition, government is supposed to have the public interest at heart, and if a buyer is willing to pay ENOUGH money, then it would be irrational for government not to sell. For example, suppose a buyer is willing to pay 2M for a property estimated to be worth 1M. Government could use that huge revenue to benefit society, so it would be harmful for them not to do it. In the worst case scenario, government could go re-purchase real estate and rent it out. So even if you argue that the government should generally rent rather than sell, selling can be advantageous if it allows reclaiming MORE value to rent out.
Selective outrage because government raised the rate and won’t sell seems misplaced unless you apply that outrage to everyone.
The difference is, as I just explained, that a private owner has no obligation to do what’s in society’s best interest. Government is supposed to act in our best interest. Although, generally speaking, a private owner WOULD sell if the offered price was in excess of his own estimate of the value. That would be rational, and we want government to be rational too, on society’s behalf.
Indeed, government cannot sell the land because government doesn’t own it. It is merely an agent of the people.
That’s a non-sequitur. Individuals can own and sell assets. Companies can own and sell assets. Clearly, GROUPS of people can collectively own and sell assets. So governments can own and sell assets too, and they do. Governments own military bases for instance. And planes. And computers.
Even if all the people wanted to sell their own rights to that land, how do they sell the rights of their children and grandchildren?
If I want to trade the government a million dollars of Google stock for a plot of land of equal value, there’s nothing inherently wrong with doing that. Future generations will benefit from their government having wealth, regardless of whether that wealth is in the form of stocks or land or intellectual property. Wealth is wealth. There. Is. Nothing. Special. About. Land. Full stop.
To really drive that home, simply observe government pensions for example, have investments in everything from REITs to index funds to outright stocks and bonds. If you were right that it’s inherently preferable to own land, then all those fund managers would sell all non-land assets and buy land with them (REITs or whatever). But they don’t. There is nothing special about land, QED.
“ Fancy comparing these healthy processes with the enrichment which comes to the landlord who happens to own a plot of land on the outskirts or at the centre of one of our great cities, who watches the busy population around him making the city larger, richer, more convenient, more famous every day, and all the while sits still and does nothing!
Yeah, he’s making the same fallacy that I’ve addressed again and again. Those are examples of *positive* externalities, NOT *negative* externalities. People get this confused all the time. You address positives externalities with SUBSIDIES, and negative externalities (e.g. CO2 emissions) with TAXES. In other words, his would be an argument for subsidizing (“reimbursing”) all the entities creating that value. But it does NOT follow that we should TAX the landholders who benefit from those positive externalities. You want to tax people based on TOTAL WEALTH, because wealth has decreasing marginal utility.
I’ll give you a simple example. Since buying my first house in Olympia, WA last year, it’s gone up in value by like 24k (not counting the stuff we’ve done to it internally that no one even knows about). Now, Churchill’s rhetoric would say to take that 24k away from us. But we’re on one income, and have two kids, and have been paying off health care and student loan debt for YEARS. My wife, son, and daughter all have Marfan syndrome, which is extremely expensive to deal with. I could go on and on about my impoverished childhood and resulting persistent health care issues. But the point is, it would be far better to take 24k from someone richer, like Jeff Bezos, than from us. He’s so rich that the marginal utility of his dollars is drastically smaller, thus it would hurt him less than it would hurt us. This is essentially grade school level economics: dollars have decreasing marginal utility. So Churchill was just dead wrong here.
I talked about this issue in another post called “what to tax or subsidize”.
This is similar to what happens if someone wins a million dollar lottery. You could argue that government should just take that money (or a goodly portion of it) because it was “unearned”. But this is similarly flawed reasoning. The utility decrease you cause (the drop in the taxed entity’s welfare) is a function of his or her WEALTH; utility is thought to be roughly log_base_2(wealth). So it would be much better to take money from Rich Guy X (Bezos, Buffett, Kobe Bryant, etc.) than from someone much poorer who happened to win the lottery.
This is especially true because a huge portion of what we called “earned” income is largely a function of dumb luck. Bezos and Buffett probably had a strong genetic component to their intellects. Kobe Bryant was built to play a sport, and raised by a professional basketball player. The whole idea of “earned” wealth is largely mythology. There IS somewhat of a legitimate way of looking at this: if you tax away money that was clearly caused by “dumb luck” (e.g. Amazon moving into your town and driving up salaries and thus making your property more valuable, or being born with the basketball gene or Bono’s voice) then you don’t negatively affect incentives to create wealth. This is actually one of the chief arguments for LVT — that taxing land doesn’t decrease how much of it is produced. But this is an incredibly minor issue compared to decreasing marginal utility and negative externalities. I mean, if you think about it for a moment, everyone who’s wildly wealthy already gets almost zero additional utility from each dollar, and yet these people still work like mad to make more money. Bezos and Buffett have absolutely no need for an incentive to show up to work each day. You could take away 99% of their wealth over a million dollars, and they’d still work just as hard, because they do it for the competitive element and/or intellectual exercise of it. The same reason U2 still plays shows even though they could just sit around eating donuts. Read any good book on human motivation (e.g. Drive) and it’s patently obvious that concerns about decreasing incentives to create wealth are pretty misguided.
“He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing even to the process from which his own enrichment is derived.
More “but he won the lottery and doesn’t deserve it” rhetoric, which has been debunked every which way. Churchill was simply woefully uninformed about basic economic concepts. Which is understandable, because even a lot of economics professors get confused by this stuff, as anyone who’s read “Thinking, Fast and Slow” or “Predictably Irrational” knows.
“But let us follow the process a little farther. The population of the city grows and grows still larger year by year, the congestion in the poorer quarters becomes acute, rents and rates rise hand in hand, and thousands of families are crowded into one-roomed tenements…it is sold by the yard or by the inch at ten times, or twenty times, or even fifty times, its agricultural value
This would simply mean government sold the land for too little. In other cases they may sell it for too much, and the buyer doesn’t see the value he expected. This can happen with ANY investment vehicle, land or otherwise. People who invested in Theranos got screwed. Government, by NOT buying Amazon or Google stock in their early years, got screwed. Government can get screwed by selling land for too little. The elementary economic lesson I’m trying to teach you is that nothing is special about land.
Again, LVT is premised on mythology and basic economic fallacies like confusion between negative and positive externalities, as you’ve aptly demonstrated.