I was shocked and humbled when Astral Codex Ten's readership selected me as the winner. Even more shocking was how many people from around the world wrote to me about their interest in the article. Family, friends, and acquaintances for sure, but also a lot of total strangers–including business owners, activists, podcasters, online game designers, investors, even government officials from around the world. Scott's blog has way more reach than I realized.
Let's admit some bias upfront. I'm a Georgist, and I would be happy to find this philosophy true and sad to find it false. But by George, what would make me really sad is to live in a world where Georgism is wrong but where I blissfully continue to believe in it anyway. In that world, I would waste time and energy advocating for a policy that doesn't work at best, and harms society at worst. I'll do my best to kick the tires here, and hopefully the commentariat will point out any of my blind spots. It's impossible for this to not come across as an advocacy piece to some degree, but I promise to give all my critics plenty of surface area to attack.
Some readers of the book review were understandably skeptical that Georgism actually works in practice, so this week I'm going to empirically assess "the big three" critiques that come up the most often:
- Land might have been a big deal in 1879, but it just doesn't matter much today
- Landlords will just pass Land Value Tax (LVT) on to tenants, so it won't work
- In real life you can't accurately assess land value separately from improvements, so even if LVT would work in theory, it doesn't work in practice
If you haven't read the Book Review yet, I've posted a brief recap of the relevant concepts below. Otherwise, feel free to skip directly to the subsequent section.
Table of Contents
Introduction
A Brief Recap
Is Land a Really Big Deal?
1. Most of the Value of Urban Real Estate Is Land
2. America's Land Rents Equal a Sizeable % of Government SpendingLand rents vs. Budgets
How Much Money Can We Raise From Land Rents?
ATCOR and the Henry George Theorem
3. Land Represeents a Significant % of all Major Bank Loans
4. Land Represents a Significant % of all Gross Personal Assets
5. Land Ownership is Highly Concentrated Among the Wealthy
A Brief Recap
Georgism is a school of political economy that is really upset about, among other things, the Rent Being Too Damn High. It seeks to liberate labor and capital alike from those who gatekeep access to scarce "non-produced assets," such as land and natural resources, while still affirming the virtues of hard work and free enterprise. George uses the term "Land" to mean not just regular land, but everything that is external to human beings and the things they produce–nature itself, really.
Georgism's chief insight is to move economic thinking from a two-factor model (Labor and Capital) to a three-factor model (Land, Labor, and Capital). Its chief (but not only) policy prescription is the Land Value Tax (LVT), which taxes real estate at as close to 100% of its "land rent" as possible (the amount of rent due to the land alone apart from "improvements" such as buildings). In actual practice, most Georgists seem to think 85% is a reasonable figure to target.
There’s often a lot of confusion around these terms so let's carefully unpack what they mean.
"Land value" is a term used in multiple conflicting ways in different contexts. When we use the term "land value tax", the "land value" part refers to the rental value of the land. This is the recurring income land is capable of generating from the market. This income (land rent or "geo-rent") is what people are willing to pay for the exclusive use of land alone apart from improvements like buildings. This also includes “imputed” rents (the rent an owner-occupier effectively pays to themselves as a simultaneous landlord and tenant). This recurring income comes from people's willingness to pay to use land because of its location and natural attributes (agricultural fertility, endowment of stuff like water, minerals, etc.).
Rental value is related to, but distinct from, selling value. Selling value is what people often mean when they casually use the term "land value." The selling value of the land is just the price of the land in a sale. Full selling value, however, has a special meaning, equivalent to the use of "full market value" in modern assessing. This is specifically the price a property would fetch in an open market at an arms-length sale, between well informed uncoerced parties. In other words, the "full selling value" of the land is the purchase-price of land under "fair" and open market conditions, rather than e.g., your dad selling you a valuable piece of property for $1 as an obvious gift.
It is the rental value which Land Value Tax is intended to capture. It's not a tax on the market purchase price of a property, nor is it a fixed amount of tax per acre of land, but rather a tax which redirects the flow of land rents. When assessed correctly, as LVT approaches 100% the market selling value of the land will approach zero but the rental value will remain the same (more detail on the relationship between land price and land rents in the next article).
Don't let the "100%" confuse you, either. If a piece of land costs $10,000 to buy, and is leased for $500/year, then an LVT that captures 100% of the land rent is $500/year, which works out to a 5% annual tax of the selling value.
LVT should not be confused with a property tax. Property taxes consider land plus improvements (typically buildings). An LVT considers land alone.
Georgists assert that if we sufficiently tax land in this manner, we'll not only end the housing crisis but also fix a bunch of misaligned incentives that cause poverty to persist alongside economic progress, while raising a bunch of revenue that can lower or even eliminate other less efficient taxes, such as sales and income taxes.
This is because virtually all economists agree that LVT has zero "deadweight loss"–a fancy word for a drag on the economy that makes certain activities no longer profitable. Other taxes with no deadweight loss include Pigouvian taxes on bad things, like congestion and pollution.
But won't landlords just raise the rent to make up for the LVT, passing the burden of the tax on to the tenants? Georgists say no, because land is special in that it is scarce and nobody can make any more of it. Indeed, LVT is a rare form of taxation that actually boosts the economy, because it discourages rent-seeking and speculation. Some Georgists even go so far as to say that LVT can raise enough revenue to replace all other less efficient taxes, becoming the so-called "Single Tax," but this is not a universally held position among modern Georgists. To be clear, modern proponents of the "Single Tax" believe that LVT is sufficient for all public purposes and that no other taxes (such as income tax, capital taxes, and tariffs) are necessary for revenue generation, although they still might support other taxes for various reasons-for example, carbon taxes or "sin taxes" on things they want to discourage.
Georgism doesn't begin and end with the LVT, however, and the movement isn't solely concerned with real estate and tax revenue. Henry George was an early proponent of what we now call "Universal Basic Income," or as he called it, the "Citizen's Dividend" (funded by LVT, naturally). But even if you threw every penny of LVT revenue into the sea, the anti-sprawl effects of the policy are appealing enough by themselves to earn the endorsement of YIMBY's and urbanists like Strong Towns.
If you take Georgism to its natural conclusions, you might start to question government-enforced monopolies over other kinds of "Land," such as electromagnetic spectrum, water and mineral rights, and orbital real estate for satellites, not to mention the deadweight loss created by intellectual property gatekeepers over, say, research papers. (...)
A Brief Recap
Is Land a Really Big Deal?
1. Most of the Value of Urban Real Estate Is Land
2. America's Land Rents Equal a Sizeable % of Government SpendingLand rents vs. Budgets
How Much Money Can We Raise From Land Rents?
ATCOR and the Henry George Theorem
3. Land Represeents a Significant % of all Major Bank Loans
4. Land Represents a Significant % of all Gross Personal Assets
5. Land Ownership is Highly Concentrated Among the Wealthy
A Brief Recap
Georgism is a school of political economy that is really upset about, among other things, the Rent Being Too Damn High. It seeks to liberate labor and capital alike from those who gatekeep access to scarce "non-produced assets," such as land and natural resources, while still affirming the virtues of hard work and free enterprise. George uses the term "Land" to mean not just regular land, but everything that is external to human beings and the things they produce–nature itself, really.
Georgism's chief insight is to move economic thinking from a two-factor model (Labor and Capital) to a three-factor model (Land, Labor, and Capital). Its chief (but not only) policy prescription is the Land Value Tax (LVT), which taxes real estate at as close to 100% of its "land rent" as possible (the amount of rent due to the land alone apart from "improvements" such as buildings). In actual practice, most Georgists seem to think 85% is a reasonable figure to target.
There’s often a lot of confusion around these terms so let's carefully unpack what they mean.
"Land value" is a term used in multiple conflicting ways in different contexts. When we use the term "land value tax", the "land value" part refers to the rental value of the land. This is the recurring income land is capable of generating from the market. This income (land rent or "geo-rent") is what people are willing to pay for the exclusive use of land alone apart from improvements like buildings. This also includes “imputed” rents (the rent an owner-occupier effectively pays to themselves as a simultaneous landlord and tenant). This recurring income comes from people's willingness to pay to use land because of its location and natural attributes (agricultural fertility, endowment of stuff like water, minerals, etc.).
Rental value is related to, but distinct from, selling value. Selling value is what people often mean when they casually use the term "land value." The selling value of the land is just the price of the land in a sale. Full selling value, however, has a special meaning, equivalent to the use of "full market value" in modern assessing. This is specifically the price a property would fetch in an open market at an arms-length sale, between well informed uncoerced parties. In other words, the "full selling value" of the land is the purchase-price of land under "fair" and open market conditions, rather than e.g., your dad selling you a valuable piece of property for $1 as an obvious gift.
It is the rental value which Land Value Tax is intended to capture. It's not a tax on the market purchase price of a property, nor is it a fixed amount of tax per acre of land, but rather a tax which redirects the flow of land rents. When assessed correctly, as LVT approaches 100% the market selling value of the land will approach zero but the rental value will remain the same (more detail on the relationship between land price and land rents in the next article).
Don't let the "100%" confuse you, either. If a piece of land costs $10,000 to buy, and is leased for $500/year, then an LVT that captures 100% of the land rent is $500/year, which works out to a 5% annual tax of the selling value.
LVT should not be confused with a property tax. Property taxes consider land plus improvements (typically buildings). An LVT considers land alone.
Georgists assert that if we sufficiently tax land in this manner, we'll not only end the housing crisis but also fix a bunch of misaligned incentives that cause poverty to persist alongside economic progress, while raising a bunch of revenue that can lower or even eliminate other less efficient taxes, such as sales and income taxes.
This is because virtually all economists agree that LVT has zero "deadweight loss"–a fancy word for a drag on the economy that makes certain activities no longer profitable. Other taxes with no deadweight loss include Pigouvian taxes on bad things, like congestion and pollution.
But won't landlords just raise the rent to make up for the LVT, passing the burden of the tax on to the tenants? Georgists say no, because land is special in that it is scarce and nobody can make any more of it. Indeed, LVT is a rare form of taxation that actually boosts the economy, because it discourages rent-seeking and speculation. Some Georgists even go so far as to say that LVT can raise enough revenue to replace all other less efficient taxes, becoming the so-called "Single Tax," but this is not a universally held position among modern Georgists. To be clear, modern proponents of the "Single Tax" believe that LVT is sufficient for all public purposes and that no other taxes (such as income tax, capital taxes, and tariffs) are necessary for revenue generation, although they still might support other taxes for various reasons-for example, carbon taxes or "sin taxes" on things they want to discourage.
Georgism doesn't begin and end with the LVT, however, and the movement isn't solely concerned with real estate and tax revenue. Henry George was an early proponent of what we now call "Universal Basic Income," or as he called it, the "Citizen's Dividend" (funded by LVT, naturally). But even if you threw every penny of LVT revenue into the sea, the anti-sprawl effects of the policy are appealing enough by themselves to earn the endorsement of YIMBY's and urbanists like Strong Towns.
If you take Georgism to its natural conclusions, you might start to question government-enforced monopolies over other kinds of "Land," such as electromagnetic spectrum, water and mineral rights, and orbital real estate for satellites, not to mention the deadweight loss created by intellectual property gatekeepers over, say, research papers. (...)
Some people come to Georgism because of their aversion to income and capital taxes, some want to use LVT to fund generous social programs, some are motivated by the beneficial environmental effects, and some just think the Rent is Too Damn High. No matter where you come from on the political compass, there's probably a way to mix up a club soda and Georgism that's right for you.
by Lars Doucet, Game of Rent | Read more:
Image: Henry George; Georgism/Wikipedia uncredited
