> Property tax: The more of your money you invest into your property, the more you pay for taxes (punishing investment)
> Land value tax: Your tax is unchanged on how much you invest in your properties. A rundown parking lot pays the same amount of tax as the next door skyscraper (encouraging development of limited, high value land, and punishing lazy speculation).
The problem with this analysis of a land value tax is that the value of the lot next to the skyscraper depends on the improvements of the skyscraper lot. This is in addition to the 'inherent' value of being downtown.
If we assume the skyscraper is the highest and best use of the land, it would then appear that both the skyscraper land owner and the parking lot land owner are being charged based on the investments made on the skyscraper lot.
Now, how are market prices determined? Overall, investors and lenders wish to maximize a return on investment. Indeed, property appraisals explicitly consider the highest and best use of a property in determining its market value.
So I am unclear how the explicit taxation of land value and improvement value that exists currently causes differences in behavior from the land value tax system you outlined.
> So I am unclear how the explicit taxation of land value and improvement value that exists currently causes differences in behavior from the land value tax system you outlined.
Land with a skyscraper already on it and land next to a skyscraper have related but not equal market values. Switching from a tax on market value to a tax on land value rewards the the owner who developed their land and punishes the owner who didn't.
> Land with a skyscraper already on it and land next to a skyscraper have related but not equal market values.
I agree! But in appraisals that I have seen, there is an effort to assess the highest and best use of a parcel as well as a break-out of the value of the land associated with a parcel.
If the highest and best use of a parcel is a skyscraper, a sale of the parcel should occur near the valuation of skyscrapers in that area. If there is no skyscraper on the parcel, the sale should occur near the valuation of land that has the possibility to be turned into a skyscraper.
> Switching from a tax on market value to a tax on land value rewards the the owner who developed their land and punishes the owner who didn't.
I agree that the owner who built the skyscraper is being penalized (but also, the owner would not have created a sksyscraper if the underwriting did not show the endeavor would be profitable).
However, both land owners are being taxed on land value; one is also being taxed on the improvements on the land. It would seem that the land value of both parcels should be the same.
> It would seem that the land value of both parcels should be the same.
Yes, the land value is the same. lets say the Land value is $1 million each and the skyscraper is worth $1 million. Lets say property taxes are 1% under the current system:
0.01 * 2,000,000 = $20,000/year for skyscraper plot
0.01 * 1,000,000 = $10,000/year for vacant plot
There's a total of $30,000 per year in income so we have to equalize our LVT to match. a 1.5% LVT gives us:
0.015 * 1,000,000 = $15,000/year for skyscraper plot
0.015 * 1,000,000 = $15,000/year for vacant plot
The owner will evaluate building a skyscraper against investing in some other venture unrelated to the land. Under Property Tax, investing that $1 million into his property adds a -1% to his projected yearly returns that isn't present for other investments that $1 million is competing for. That discourages development even if the skyscraper would have been profitable.
My question is why we need to reframe our extant system as a 'land value tax.' This proposition suggests that we should give concessions to developers in areas where there is a need for more development. But this already happens!
I guess I don't know why we should avoid taxing the value of revenue-generating assets if they are fixed. Buying a truck for a landscaping business is an taxable purchase. Why should this be different when the asset is fixed?
For "This proposition suggests that we should give concessions to developers in areas where there is a need for more development."
Development is a good thing. Maintaining your house or property, improving it, developing businesses are all good things. I'm not sure we should restrict these things to "areas where there is a need for more development". I don't want to live next to someone who has a rotting ruin of a house, who didn't maintain their place in order to pay less in taxes.
Someone maintaining their roof isn't a developer, and isn't going to be making money from their investment but they still pay more in taxes because they do it. They always won't get any government concessions or subsidies to do it (in general).
Similarly, a small business owner usually does not get concessions for starting their business. Usually they instead have to pay extra for permitting and such.
The parking lot owner next the skyscraper, however, gets FREE value from the skyscraper construction - essentially leaching off of another's productivity.
As for the argument how we SHOULD be taxing assets ... every tax takes money from the economy, and some ways of doing that are "better" than others, in that they result in more desired outcomes. LVT seems to provide better outcomes than other ways of taxation.
> Land value tax: Your tax is unchanged on how much you invest in your properties. A rundown parking lot pays the same amount of tax as the next door skyscraper (encouraging development of limited, high value land, and punishing lazy speculation).
The problem with this analysis of a land value tax is that the value of the lot next to the skyscraper depends on the improvements of the skyscraper lot. This is in addition to the 'inherent' value of being downtown.
If we assume the skyscraper is the highest and best use of the land, it would then appear that both the skyscraper land owner and the parking lot land owner are being charged based on the investments made on the skyscraper lot.
Now, how are market prices determined? Overall, investors and lenders wish to maximize a return on investment. Indeed, property appraisals explicitly consider the highest and best use of a property in determining its market value.
So I am unclear how the explicit taxation of land value and improvement value that exists currently causes differences in behavior from the land value tax system you outlined.