What gives a piece of land its value? Why is a 500 square-foot spot in London worth more than 500 acres of land in Angus? The answer is obviously its location.
The value of a bit of land is not in the land itself, but in the location of that land. And what gives the location value is what is going on around it. Think good transport links, good schools (a house in the UK by a good school is worth anything from 5 to 20% more than one near a bad school), hospitals and the infrastructure to provide jobs.
This brings us to the key question: who facilitates the provision of all these services? The answer to that, of course, is the taxpayer, via the state. But if it is the state that gives land some of its value (clearly there is also value in non-state provided things, such as beauty and mineral rights), why is it that all of that value generally accrues to individual landowners, rather than to the state?
That, in a nutshell, is the argument for land or location value tax (LVT).
An LVT is levied not on the value of a property but on the value of the land that property sits on. After all, it is not the actual bricks and mortar that make a flat in, for example, London's One Hyde Park worth Ј6m-plus, it is the land on which it sits. So the LVT is just an attempt to collect tax on a regular basis on what economists used to call the 'unearned betterment' part of the value of a property - the part that is nothing to do with the actions of the owner and everything to do with the actions of the community.
In theory, it is not just an excellent tax, but the best of all possible taxes.
Once the initial valuations have been done, it is phenomenally easy to collect, and all but impossible to avoid. It also discourages speculation and stops in its tracks the endless cycle of investment in land and property purely to rent it out. It promises no more property boom and bust. But, as it is not collected on any improvements made to land or to buildings on land, it does not discourage productive activity. Instead, it encourages people to bring idle land into use, to improve land they own and to be as productive as possible (when you have a pure LVT, earned income isn't taxed at all). The end result is, in theory at least, good for society, good for the state, good for equality and good for growth.
Most people these days have never heard of the idea of an LVT, but the idea that it is a perfect tax has been around for centuries. Adam Smith noted its efficiency; David Ricardo was all for it; and it was hugely promoted by the US newspaper editor Henry George in the US in the late 19th century. George believed that LVT should be a single tax - its efficiency and productivity-enhancing effects would be such that all other taxes could and should be done away with.
It was a hobbyhorse of Winston Churchill's. He was convinced that "land differs from all other sorts of property" and put the LVT case like this: "Unearned increments in land are not the only form of unearned or undeserved profit, but they are the principal form of unearned increment, and they are derived from processes which are not merely not beneficial, but positively detrimental to the general public."
Churchill also offered a fabulous example of unearned betterment. A parish church started to give out free food to poor people living in a particular area. Demand to live in the area rose. The main beneficiaries of this surge in community spending, were the local landowners - their rents and hence the value of their land rose in response to the free bread. The effect on the poor was entirely neutral: they paid less for their food but more for their shelter.
Churchill was not alone in being a fan in 20th-century Britain. An LVT (then called a site value tax or SVT) was suggested in the 1910 budget. That failed to work out. But the idea did not go away.
In the mid-1960s an article in the Statist magazine explained to London readers that the tax would "reverse the trend of soaring land values and reduce housing costs". The writer was sure that support for an SVT was such that "a concerted effort at this stage should carry the day". It did not. But the idea has remained. Today there are variants of LVTs in a number of countries and progressive taxes on residential property act in much the same way.
The value of a bit of land is not in the land itself, but in the location of that land. And what gives the location value is what is going on around it. Think good transport links, good schools (a house in the UK by a good school is worth anything from 5 to 20% more than one near a bad school), hospitals and the infrastructure to provide jobs.
This brings us to the key question: who facilitates the provision of all these services? The answer to that, of course, is the taxpayer, via the state. But if it is the state that gives land some of its value (clearly there is also value in non-state provided things, such as beauty and mineral rights), why is it that all of that value generally accrues to individual landowners, rather than to the state?
That, in a nutshell, is the argument for land or location value tax (LVT).
An LVT is levied not on the value of a property but on the value of the land that property sits on. After all, it is not the actual bricks and mortar that make a flat in, for example, London's One Hyde Park worth Ј6m-plus, it is the land on which it sits. So the LVT is just an attempt to collect tax on a regular basis on what economists used to call the 'unearned betterment' part of the value of a property - the part that is nothing to do with the actions of the owner and everything to do with the actions of the community.
In theory, it is not just an excellent tax, but the best of all possible taxes.
Once the initial valuations have been done, it is phenomenally easy to collect, and all but impossible to avoid. It also discourages speculation and stops in its tracks the endless cycle of investment in land and property purely to rent it out. It promises no more property boom and bust. But, as it is not collected on any improvements made to land or to buildings on land, it does not discourage productive activity. Instead, it encourages people to bring idle land into use, to improve land they own and to be as productive as possible (when you have a pure LVT, earned income isn't taxed at all). The end result is, in theory at least, good for society, good for the state, good for equality and good for growth.
Most people these days have never heard of the idea of an LVT, but the idea that it is a perfect tax has been around for centuries. Adam Smith noted its efficiency; David Ricardo was all for it; and it was hugely promoted by the US newspaper editor Henry George in the US in the late 19th century. George believed that LVT should be a single tax - its efficiency and productivity-enhancing effects would be such that all other taxes could and should be done away with.
It was a hobbyhorse of Winston Churchill's. He was convinced that "land differs from all other sorts of property" and put the LVT case like this: "Unearned increments in land are not the only form of unearned or undeserved profit, but they are the principal form of unearned increment, and they are derived from processes which are not merely not beneficial, but positively detrimental to the general public."
Churchill also offered a fabulous example of unearned betterment. A parish church started to give out free food to poor people living in a particular area. Demand to live in the area rose. The main beneficiaries of this surge in community spending, were the local landowners - their rents and hence the value of their land rose in response to the free bread. The effect on the poor was entirely neutral: they paid less for their food but more for their shelter.
Churchill was not alone in being a fan in 20th-century Britain. An LVT (then called a site value tax or SVT) was suggested in the 1910 budget. That failed to work out. But the idea did not go away.
In the mid-1960s an article in the Statist magazine explained to London readers that the tax would "reverse the trend of soaring land values and reduce housing costs". The writer was sure that support for an SVT was such that "a concerted effort at this stage should carry the day". It did not. But the idea has remained. Today there are variants of LVTs in a number of countries and progressive taxes on residential property act in much the same way.
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