The Advantages of Taxing Land

There has been increasing discussion of Land Value Taxation in recent months with prominent supporters, including Vince Cable. This post neatly sums up the advantages.

First the politics. A land value tax would be progressive because the richer people are, the more likely they are to own expensive land. It might even be more progressive than income tax because land wealth is even more concentrated in the hands of the few, argues David Cooper:

LVT is indeed fairer than income tax because property wealth is far more concentrated than income. The best-paid 1% get about 8% of the national income. The wealthiest 1% own 23% of the national wealth. It is in property where greatest inequalities lie, not income.

It would, therefore, be a more effective way of getting extracting extra tax from the rich than simply raising income tax.

Furthermore, LVT might help to even up the wealth gap between the South East and the rest of the country. Poorer regions where land is cheaper would become internal tax havens and would therefore be more likely to attract new businesses.

Then there’s the economics. LVT would, say its advocates, discourage people from leaving land unused. Because the tax is on the value of the land regardless of what is standing on it, you would pay the same for a plot of land with a derelict warehouse on it as you would for the same size plot next door with a mansion on it. This would give people an extra incentive to develop land. LVT might also act as a brake on house prices as, in general, higher priced houses would attract more tax. Given the damage that property bubbles have inflicted on the world’s economy recently, that can’t be a bad thing.

Shifting tax from wages and profits to land could also, say LVT’s supporters, encourage people to invest in business rather than property. Income and corporation taxes are taxes on economic activity. Increasing the taxes on land would give people less of an incentive to sit on their arses watching their property value rise and more of an incentive to put their money into job creating businesses.