We’ve had some really good back and forth in the prior articles about the SLT/LVT, so I’m gonna poke the hornet’s next one more time.
Rent, so much rent!!!
This time I’m taking aim at the claim from SLTers (and other economists) that a single land tax/land value tax is the “least bad” because it incurs no “deadweight loss.”
MASSIVE DISCLAIMER: I’m not an economist. My only formal exposure to economics was a AP micro in high school and 2 weeks of macro in college before I dropped the class. I’m prepared for somebody with knowledge in this subject matter to refute any and every premise/assertion/conclusion I make.
First, let’s define deadweight loss. In a broad sense, deadweight loss is a measure of certain inefficiencies caused by government intervention in a market. Focusing specifically on taxes, deadweight loss represents the benefit that would’ve been had by consumers in the perfect market that is foregone in the distorted market.
As a simple example, let’s say the perfect market would sell monocles for $1, and the government imposes a $3 luxury tax on monocles, raising their total cost to $4/monocle. There are a lot of people who would buy a monocle at $1, and a few glibertarians who would buy a monocle even at $4. Deadweight loss represents the economic benefit that the glibertarians who bought $4 monocles would have otherwise had with the $3 they ended up paying in tax.
Using a static model, it looks like this, pictographically:
Using this model, SLTers say that the SLT has no deadweight loss because there is a fixed supply of land (a vertical supply curve). You usually see a graph like this from them:
However, let’s think about what this means for a moment. It means that no matter the tax on the value of the land, the consumer does not lose economic benefit. This strikes me as incorrect. In fact, upon examining the above graph, it seems a bit… off. After looking at it for a bit, it appears that the demand curve has been moved in the no deadweight loss graph. It’s showing the equilibrium for a distorted market, not for a theoretical perfect market like in the top graph. Taking that into account here’s what the graph should look like (IMO):
Somebody please explain to me what I’m doing wrong here. When I, a lay person, am coming to a different conclusion than the likes of Milton Friedman, I’m worried that I’m missing something very simple.
However, just to hedge my argument a little bit, I think we need to re-examine this asymptotic economic model. Land is a somewhat unique object in that it cannot be produced. When looking at a supply curve, we’re more focused on production. Thinking about it for a moment, it seems really odd to say that, should the demand for land drop precipitously, land could go to at-or-near zero price. See, what I intuit is that some land isn’t marketable at a certain price. I think the vertical line is too simplistic and results in “technically right” answers that don’t reflect reality. The “not for sale” aspect isn’t being taken into account. Therefore, in adjusting the supply curve to reflect the marketable supply of land rather than the total supply, we get a graph that looks a bit more like the first one in this article:
As one of the supporters of single land tax around here for me dead-weight loss has nothing to do with it so I won’t really comment on it
You should, because fairness and efficiency are but two sides of the same coin.
Supply curves are how much of X will be willing to be sold at price point Y. You can’t have a vertical supply curve because that represents an attitude of “we’ll always sell the same amount no matter the price.” The price still impacts the quantity people are willing to sell. There is a hard qunatity limit to all commodities, this is a limit to where the supply curve can go at the highest prices.
The tax on owning land is unrelated to the supply curve for the market of land. It is a punitive measure for simply having something.
You are right that the demand curve will shift in the taxed environment, as it represents a loss in marginal value to the purchacer as the land now represents an year over year outlay of funds. This will depress demand and reduce the amount of reallocation, disincentivizing people who might otherwise have put the land to a different, potentially better, use than the current owner.
Also, am I the only one not seeing any of the graphs referenced?
I see the little black x in a box, which isn’t very informative…
No, I can’t see them, either. I tried going in and editing it, but I could only spend a minute on it since I’m at work and the thing I tried didn’t work to fix it.
No, that is not necessarily right. If the market was perfect, because we all rented our land from each other, a 100% tax on its rental value wouldn’t change demand one jot.
So in the real world, with no other tax changes, the LVT doesn’t change demand among those that currently rent. That is a perfect market.
However, because owner occupiers currently impute their rent, the LVT put them on the same market level as renters.
This would indeed lead to less consumption of land relative to capital.
Thus what the OP thinks is a deadweight loss, is in fact the elimination of an existing inefficient caused by the implicit subsidy enjoyed by owner occupiers because they currently do not pay compensation, as tax, for their right to exclude others from valuable locations.
Without the LVT, the market cannot allocate resources at optimal efficiency.
Those that are against LVT, like those socialists on the left arguing for union rights, are seeking special privileges in order to protect themselves from the market.
Thus what the OP thinks is a deadweight loss, is in fact the elimination of an existing inefficient caused by the implicit subsidy enjoyed by owner occupiers because they currently do not pay compensation, as tax, for their right to exclude others from valuable locations.
I addressed this below. Your premise is that the community owns the land, comrade. Prove it. First prove that property is somehow uniquely incapable of being privately owned unlike every other type of property. Second prove that property somehow belongs to the entire community. If you can find a way to do that without relying on the unsupported premise that “labor is different because… well.. because it is,” then we can start seriously considering the “no deadweight loss” assertion.
No, I’m afraid that is your assumption based on a misunderstanding of economics and what economists say on the subject of LVT and how it works.
I’ve addressed your specific point elsewhere on this thread, so I’m going to leave it at that.
Humans don’t supply Land, as by definition it is everything not supplied by human effort. So for economic purposes its supply is perfectly inelastic. ie vertical.
Humans don’t supply Land
No, humans don’t produce land. They certainly do supply/retain land. Land can be bought and sold just like anything else.
This is exactly what my last graph is describing. The supply curve shouldn’t be confused with some register of all instances of a certain product. It’s a representation of the marketability of a product. For something that can be produced, it correlates closely with production of the product. For something that cannot be produced (e.g. land), it correlates with the interest the owner has in selling the property.
You are confusing the right to exclude with supply.
A change in price of factors supplied by human effort, caused a supply response ie less produced. Hence the deadweight loss.
There is no supply response from the LVT, hence no deadweight loss. Furthermore there cannot be any change in demand where markets are perfect. If the demand curve moves to the left, that is indicative of a correction of market dysfunction.
As Land is everything not supplied by human effort, its supply is considered perfectly inelastic as all times.
A production based supply model is irrelevant in the case of land. Giving your arguments the most charitable interpretation, deadweight loss is merely irrelevant when discussing land. A less charitable interpretation is that you’re completely missing the point of the supply curve (to represent the amount of a product that would be marketable at a certain point).
As per your bottom graph, a tax on the marketable supply of land wouldn’t be a Land Value Tax. So you are beating up a straw man.
Anything that isn’t perfectly inelastic in supply isn’t by definition Land. Marketing land is a service, therefore it is Labour.
You guys are tough on the Georgists here. Good thing no one seems to recognize my profile picture.
It’s a tiny grayscale image that is literally the size of a thumbnail on my work monitor. I’m lucky I can tell it’s supposed to be a person.
Or is it a person? And the mystery begins
You go have fun chasing that.
You’re missing out. It would have been a great waste of time and a very useless endeavor. Actually, you’re not missing out on much
GK Chesterton, I thought.
It’s G.K. Chesterton. Considering the number of things that Chesterton wrote about, having him as a profile pic doesn’t cause Georgism to spring to the front of my mind.
You win!
Distributism, though, which was his brainchild is like the red-headed step-child of Georgism.
Your prize is a girly pic
http://www.barstoolsports.com/barstoolu/arianny-celeste-dumping-em-out-in-tulum-is-one-of-the-hottest-things-shes-done/
Diolche! I knew about his views on distributism,but I always figured you were one of those filthy papists. Probably because Eddy used to post as the notorious GKC at tstsnbn.
I am a filthy papist. It’s probably the finest quality about me.
Chesterton, though, is just a fantastic writer. Read “The Everlasting Man” and be amazed. Beyond the religious argument being made, his case is incredibly strong and well written.
Oh, I’m quite the fan of his writing. I disagree with a large portion of it, but the man had a gift with words. I like to challenge my beliefs, or in the case of religion my lack of them, and Chesterton is a great whetstone to sharpen my wits against.
The Everlasting Man is a great book. Also, I enjoy Dale Ahlquist’s EWTN show on Chesterton.
As far as Distributism goes, I have had debates with self-proclaimed Distributists who were just bonkers. Every village and town is an autarky unto itself. Make your own tables. Grow your own food. When the price of tables and food skyrockets, they have some madcap scheme to counteract that. It’s fixes for problems created by the Distributism itself all the way down.
Now, when I read Chesterton, he seems to be arguing against both Communism and Corporatism. In other words, he’s advocating for free-market capitalism, where people own their own homes and so forth. In England, where all land was traditionally owned by the king who “rented” it back to you, this is a perfectly sensible way to think about things. A good capitalist system is one where property is widely distributed rather than owned by a few oligarchs. In the United States, we had a chance to start over again with the land rushes west.
Anyway, it would be interesting to hear what a sane Distributist thinks about economics.
I am a free-marketer through and through. But, I appreciate some of the criticisms offered by Chesterton and Belloc.
The problem with studying distributism is that there is no central thesis that they all adhere to. I once bought a large book about distributism and it began with three encyclicals written by the pope regarding his criticisms of both capitalism and socialism. Too many declarations and not enough solutions offered.
The EWTN show on Chesterton was fantastic. I watch an episode every once in a while on YouTube
The problem with studying distributism is that there is no central thesis that they all adhere to.
This, I’m intrigued by the view of the family as the foundation unit of society. I’m also intrigued by the idea that broad ownership of land is beneficial. I’m further intrigued by the self sufficiency arguments. However, it’s hard to find anything that isn’t either insane or directly contradicted by the next thing you read. Kinda like the Georgist stuff I’ve read. I’ve gotten a better explanation of LVT here in comments (robc and benj being the resident LVT evangelists) than in any other context.
Papists make very fine writers in English (Chesterton, Belloc, Tolkien, Lewis, Wolfe – do we count Conrad?)
His essay on Poland is an amazing piece of work that my avatar approves 100%…
It is a learned faith. The School of Salamanca, for instance, was revered by Austrian economists as one of the precursors to ‘free market economics’.
Minor correction – if your Lewis is C. S. Lewis, as I suspect, he was not a proper papist (he was an Anglican, so his pope was in Canterbury, not Rome).
Dammit, why did I think Lewis went Catholic after Tolkien persuaded him not to abandon Christianity?
Ron Swanson?
Google sez GK Chesterton or Curt Vonnegut
Are you saying Mark Twain was some kind of commie?
This time I’m taking aim at the claim from SLTers (and other economists) that a single land tax/land value tax is the “least bad” because it incurs no “deadweight loss.”
This claim seems to me to be, on its face, nonsensical.
Also, the SLT seems mired conceptually in some sort of agrarian fantasy world. If the tax is the same for me, as I reside in tranquil indolence on my land, as it is for my neighbor, who erects a factory to make stamped steel Hello Kitty lunchboxes, I cannot help but assume that I will fall prey to a government who sees me as “wasting” the potential profitability of the parcel, and depriving them of much needed revenue.
Part of the fantasy is that this will be the only form of revenue the government subsists on and that it will be satisfied with that allotment.
The Government wouldn’t mind what you do on your land, as long as you pay market rents as tax, for your right to exclude others from using it.
There is no economic or conceptual difference between the Government collecting LVT or private landlords (which they do now as rent).
Therefore if LVT is bad for the economy/unfair, then so must private landlordism.
There is no economic or conceptual difference between the Government collecting LVT or private landlords (which they do now as rent).
Broken water heater? Just call the government!
Fed up with your landlord? Too bad, he owns everything.
Yep, totally the same.
I guess I should know this, but is this a one-time tax (time of sale?) or periodic (like property taxes on calculated differently)?
Single Land Tax is periodic. Property taxes using a different formula supposedly on the “Unimproved value” which is impossible to determine because value is what someone is willing to pay for it, and no one will be buying the land without the changes made.
Our current property tax system works in the opposite way. Improvements on land increase the tax that you pay. I agree, though, that it is difficult to determine what is ‘unimproved land’.
In rural areas determining value even on developed land is highly subjective. This is especially true if your town assessor is an idiot. During the last town wide assessment I found two locations where there were 3 plots side by side. The 2 groups of plots essentially all the same dimensions. One of the plots from each of the two locations were specified in acres. The other plots were specified by frontage and depth. One of the components of the assessment is land value which is independent of what is on the land. In both cases land specified in acres were given a higher land value than the ones specified by frontage and depth.
We also get increased taxes for improvements. Had someone new to the area ask why so many houses had siding not finished. Told them if they finished the siding their taxes would go up. Unimproved land is essentially land with no utilities. Most of the area doesn’t have either sewer or water so if you have electric the land is considered ‘developed’. When the Amish buy a house around these parts they strip out all the electrical wiring thus turning the property into ‘undeveloped’ with a subsequent reduction in taxes.
Every once and a while you will see properties of elderly people up for sale due to delinquent taxes. I know several people in the Adirondacks that were forced to sell their waterfront property due to the taxes they could ill afford to pay. The values were driven up by the well healed from the NYC area buying some of the properties for summer homes. IMO property taxes are not taxes but rather are rents. The belief that you actually own the property is an illusion.
That’s the main difficulty with the idea. If an accurate “unimproved” value of land could be estimated, a single land tax would be a good way of raising revenue while promoting the efficient use of land (which is a limited, necessary, and oft-hoarded resource). Since the government does a terrible job at assessing the actual value of land for property taxes as they are, this scheme must remain in the realm of fantasy.
As a landlord, I can only try to get as much rent as possible, but it’s a trade off and certainly not some perfect market ideal.
The same principle applies to the State and LVT, which is rent.
Fortunately, there is a mass of data on rents and selling prices which would allow for very good assessment of location values.
Yes a perfect 100% tax applied to 100% of lands rental value is an ideal. But like justice its an ideal we should try and get as close to as possible.
Taxes on income, capital and transactions are very far away from that ideal. We can and should do much better.
Fortunately, there is a mass of data on rents and selling prices which would allow for very good assessment of location values.
And all of this data is on the “improved” value of the land, which we are told up and down is not what the tax is being assessed on. There is, however, zero market data on the “unimproved” value of the land, which is what the tax is supposed to be assessed upon.
I can see them, but I’m not sure I can make sense of them.
I agree with Uncivil. The vertical supply curve doesn’t make sense.
I will also point out the irony of people who are otherwise rightly suspicious of the capability of government to exercise comprehensive stewardship of the economy in toto to magically arrive at a “correct” valuation for each individual plot of land.
* I presume there will be some sort of differentiation based on presumptive “utilitarian” value.
All taxes produce ‘dead weight loss’. The main point that Henry George made was that taxes on land were (1) justifiable, unlike taxes on income and consumption, and (2) they distort the market less than taxes on income and consumption.
Further, the idea was that if owning large amounts of land became so cost prohibitive due to the tax (which is sometimes argued to increase incrementally based upon acreage owned), landowners would have to sell some of their land, thus increasing supply of land and thereby reducing the cost of purchase.
Kenneth Arrow argued (IIRC) that consumption taxes on relatively inelastic items produce less deadweight loss. So, tax cigarettes, alcohol and heating fuel.
But, less revenue, perhaps. And politically difficult to enact if we are talking about truly inelastic resources such as water. You are correct, though, that cigarettes and alcohol remain fairly inelastic despite the tax levied upon them
I cannot think of a more succint argument against “deadweight loss” as the metric to optimize than “it makes sense to tax heating fuel”.
There are two ways we can look at that statement. Your biggest land plots tend to be agricultural in nature. Because of economics of scale, farms tend to aggregate into larger individual operations where the investment of capital can be utilized across the largest potential space for specialized equipment. If the tax per acre were to go up progressively by acreage owned, you begin punishing efficiency and imposing the supposedly nonexistant deadweight loss. If it were to stay steady by acreage and the higher tax bills for the larger farms are a linear progression, you get people complaining about agribusiness buying up all the family farms, but you also get cheap food. This was a pattern we saw back in Roman days with Latifunda when the smaller farms were economically unviable and sold to the bigger farms. It is not in of itself a negative outcome.
The highest volume of exchanges in land ownership is keyed to housing, not business. Most small landholders are people who own their own home, or maybe their home and another property somewhere. This is where the turnover is. Punitive taxes on agribusiness to encourage breakup of large landholdings does not lead to a large increase in land for housing as most of the land is not where people want to live. (As evidenced by current patterns of pricing).
You would end up with tall, narrow towers for service industries because it would minimize the tax paid by stacking their business on as small a footprint as practical, which, in of itself, is a distorting effect. If only on the construction industry and road infrastructure.
The single land tax worldview is predicated on an agrarian society. Something that no longer exists here.
Agreed. But, I don’t dismiss anyone that wants to eliminate all taxes, but one. No doubt it would distort our society, but all taxes distort the decisions we make.
I can’t countenance a tax on exisiting, which is what a tax on property boils down to.
^This^
You cant lay claim to the fruit of ones labor without also laying claim to them. Taxes on owning stuff violates your right to the fruit of your labor and by extension violates your right of self ownership.
We have a tax on consumption and we already have a property tax. So we already tax everyone’s existence. Wouldn’t it be preferable to eliminate most of these taxes in favor of one?
Use fees and tariffs were the original federal funding source. Use fees alone for local services actually provided should be sufficient. If not – you haven’t cut spending enough. Plus, it might actually incentivize the government to pay attention to customer service.
I just got a phone call from my trash service. They wanted to make sure the special pickup I requested was satisfactory. It was. So there is an anecdote about a decent government agency.
^This. At the risk of being a stereotype, “Taxation is theft”. There’s no moral difference between a government doing the stealing or a street thug with a pistol, nor does the purpose of the theft change the immorality of the theft. Use fees are legitimate, and if that doesn’t cover the expenses of a government then the government is doing too much.
Well, property tax isn’t a federal tax, and property taxes in the US have existed since the beginning. Income taxes are the only innovation since the beginning; sales and property taxes have always been with us.
No not all taxes do produce deadweight losses. Only those that are as a % of a factor produced by human effort, distort incentives to supply it. Hence the loss.
As Land is not a supplied factor, a 100% tax on it’s rental value with neither reduce its supply or the demand for its consumption(assuming a perfect market).
Also lump sum taxes produce no losses. And Pigouvian Taxes internalise costs, so help correct market dysfunction. The LVT should be considered a Pigouvian tax applied to the real World.
As Land is not a supplied factor, a 100% tax on it’s rental value with neither reduce its supply or the demand for its consumption(assuming a perfect market).
A perfect market does not produce infinite capital. There isn’t an economic actor on the face of the Earth that would make zero changes in behavior if all of his expenses (but not his revenues) doubled.
It’s been too long for me…econ that is but I will take a shot.
They are playing a shell game. By saying “a single land tax/land value tax is the “least bad” because it incurs no “deadweight loss.” they are saying that a land tax does not distort markets.
To say that increasing the cost of ‘owning’ land, thus reducing the value of that land to the owner, does not distort markets is absurd. The supply of land is not fixed. Increasing the cost of land functionally reduces the supply (amount available for purchase) by simply pricing it out of the market. There is an theoretical infinite supply of everything but the actual supply is determined by the economic feasibility of acquiring it.
Do I have that right?
No you have that wrong.
If something isn’t produced by human effort, it has no cost and is perfectly inelastic in supply (even if its supply in nature isn’t fixed). Under the LVT, the selling price of land would fall to zero, but it rental value would only go up. This wouldn’t change market allocation if we all rented property from each other. But in the World we live in, it would put renters and owner occupiers on the same market footing, thus allowing the market to allocate valuable land at optimal efficiency. Something it cannot do now.
Under the LVT, the selling price of land would fall to zero
Is there a contest on to say the most outlandish and fantastical things about this scheme?
Improved land at the very least has value over unimproved land. A tax on the “unimproved” value would be unaffected by this difference. Taxing the full value of the “rents” allegedly captured from improving the land would result in a destruction of capital unheard of outside of socialist countries. So your tax has to be less than 100%, which means there is a reason to favor improved land over unimproved land, even if you made it as marginal as possible, and hence value in the acquisition of it. Although it might only exist on the black market, if you wish to enforce the destructive fantasy through the state.
OT : I want to make sure BakedPenguin (AFL football) and Florida Man (In The Shadow of Kilimanjaro) saw my comments on dead threads indicating where they can locate the media they’re looking for.
Thanks. Which thread?
The one where Swiss posted something about Rugby.
The phrase “afl torrent tracker” typed into google is what you are looking for. Unfortunately you will need an invite, which may be non-trivial to come by.
I did. Thank you. I went to a Swedish site (name redacted) but didn’t find it. I’ll have to do a little more digging. I remember that movie being great as a kid. Hopefully I won’t be disappointed if I find it as an adult.
Wow, I’m surprised at how hard it is to locate the site by googling related terms, but I guess I never tried to do so.
Ok, how about this :
Google “torrent tracker spreadsheet” and look in that spreadsheet for the five syllable or so, single word torrent site name that riffs on the end of the world.
Thanks again.
ATTN Tundra!
show this to your kid. Some great examples of LSM, and a strong defense against someone who you can’t defend against.
Horning into JATNAS territory here. This just makes me think that the SLT is simply a way of imposing a flat tax on the property in a certain governmental region. Flat taxes in general I think are less distorting whether it’s a flat income tax or a single sales tax. Of course political leaders can’t but help carving out exceptions for “worthy” taxpayers. I can understand why property taxes exist as it’s easier for local governments to collect taxes that aren’t easily avoided. My real problem with property taxes as with any wealth tax is you can’t adjust for changes in ability to pay the tax. If you want to start working as a tutor for special needs kids taking a pay cut or get laid off, well too bad, you have to sell your home. Regardless, the property tax is always going to depend more on the rapacious of the local government and less on any sense of fairness. The answer to taxation of any sort is simply put, No, Fuck You. Cut spending.
FY,CS is the most important.
The moral justification behind land tax that I’ve heard is that a.) you owe the gov’t money for protecting your land, b.) you owe the gov’t money for establishing the system by which your ownership is recognized, and c.) if you can afford to own land, you can afford to cough up some dough for the benefit of your less well-heeled fellow citizens.
Obviously, these are bullshit. But, #3 points to what I think is the strongest argument against the notion the usage fees for civic services deny services to the indigent. There’s no reason that a sliding price scale can’t be used, charging a flat fee up to a certain amount of usage, and then a percentage increase in rate beyond that point. Excess revenue subsidizes the costs incurred by the poor.
The only real moral justification is that you can only own a good or service you have produced, or paid compensation for the produce of others.
As such, no one can own Land, and therefore if you want exclusive rights to use it, compensation should be paid to those you exclude.
you can only own a good or service you have produced
Why? and who owns everything else?
Because else it would not exist.
Land would still exist without humans. So it cannot be owned by anyone.
We can of course have the right of exclusive use, under the right circumstances.
Because else it would not exist.
Slavery would seem to invalidate this point. Also, things are not created from nothingness. They’re merely transformed into something people find more valuable. What happens to the intrinsic value of the natural resources required to build a car?
Land would still exist without humans. So it cannot be owned by anyone.
Why? This makes no sense. Like I wrote above, you’re getting into “labor is different because … well… it is” territory. What about labor is categorically different from staking a claim or possession by occupancy??
No, slavery validates my point perfectly. The slave would still exist, even if the slave owner didn’t.
Again your point regarding cars and natural resources illustrates my point perfectly. Oil was a pollutant before the invention of the internal combustion engine shifted demand for it, making it very valuable.
The producers of cars do not own the scarcity value of oil. That belongs to the owners of the oil fields.
Cars would not exist without the producers of cars. Oil fields would exist without humans.
Causation is not creation. People often conflate the two, causing many problems.
The slave would still exist, even if the slave owner didn’t.
But he would not be a slave.
Oil fields would exist without humans.
But then it would sit in the ground, unused and worthless.
Causation is not creation
Unless you’re God.
But neither has anything to do with value.
Land would still exist without humans. So it cannot be owned by anyone.
The first is an unproveable axiom and the second is a consequence of another, unstated axiom.
Humans + land = land ownership. Even if you call it something else. Whosoever can walk from one corner of a place to the other without paying tribute to another is the owner. Even if the owner is the state, there is still an owner.
I apologize in advance for this OT post, but I don’t know when the Afternoon Links will arrive.
I have started playing a mobile phone MOBA called Vainglory, and it is quite diverting.
That’s all I needed to say. I’m glad I was able to get that off my chest.
Are you being paid to shill for them? If not, why not?
Afternoon Lynx at 1500 Central Time.
Central Time? Nobody lives in the middle of America. Well, nobody that matters. That’s what the TV told me.
4PM real people time, 1PM Left coaster time, 9PM Limey time.
Don’t forget to disparage Mountain time as well. It’s just a bunch of land that was pushed higher due to plate shifting.
I don’t believe in volcanism! Them dinosaurs were put there to test the faithful!
Does anyone have an easy to understand source for why taxing only consumption is good/bad. My thoughts are it would encourage saving/investing and discourage consumption of capital. I’m sure there is more than my shallow thinking on this. One being on the other side of consumption is production.
It does not encourage savings, it reduces overall economic activity by draining liquidity at every transaction. There is less to save because your essentials eat up more of your operating funds, and discretionary buys cost more, causing further delaying in acquisition of investments like capital improvements, etc. Everything from a household level on up just buys and sells less.
Appreciate your response, but do you have a source that explains it in more detail?
Not really, that’s what accumulated in the back of my head regarding incentives and their effects on people’s activities.
I am not a font of citations. Maybe chainsword or Fusionist might have better collections…
Try this. There are more sources at the bottom of that article, if you want to dive deeper.
Thank you. Also a shout out to whomever recommended “the instant economist” & “money mischief”.
“Does anyone have an easy to understand source for why taxing only consumption is good/bad.”
I’ve got a couple of interrelated opinions on that.
For one, taxing production reeks of central planning.
Second, consumption taxes by consumers are more efficient because the cost of the tax is considered with each transaction.
The interrelated part has to do with why markets themselves are more efficient than central planning. 350 individual American consumers making choices for themselves from their own perspectives, billions of times a day, are far superior to 585 members of Congress making our choices for us.
If consumers making those choices for themselves based on other costs is a more efficient system, then why wouldn’t the tax costs be made more efficient by that same means, as well?
I should add that the consumption tax is also the most voluntary form of taxation. Before the individual mandate, anyway, law enforcement wasn’t ever coming after you because you decided not to buy something because it cost too much–whether it cost too much because of the sales tax or for some other reason. I should say, that’s my gut reaction against the land tax–and, I admit, it definitely has a qualitative aspect to it. I want it to be possible for people to choose to be truly free. As a libertarian, I think it should be possible for someone to buy themselves some land, grow their own food, take care of themselves, educate their own children, and not owe the government anything.
Is that possible with a land tax?
Taxing income discourages production and punishes saving
Taxing consumption discourages consumption and encourages saving
If you discourage production and punish saving you are inherently pushing people into living off credit to fund current consumption. The problem with this is it debt has servicing costs which means that an ever growing portion of the economy is going to pay for past production and not current consumption or investment in the future. That leads to stopping investment first and then eventually declining production as no one can afford it until you reach the point where decreased production causes wages to fall below the level needed to service the loans and still live at which point the whole house of cards collapses.
If you discourage consumption and encourage savings that drives a higher portion of the economy into building future capacity over meeting current consumption demands. This increased future capacity will then be in place to pay off the savings instruments when they mature.
The first is an unstable and destructive feedback loop that while it is not guaranteed to destroy an economy pushes (there are after all many other factors at play that can overwhelm this one factor) it in unstable directions, the second is a virtuous feedback loop that does not guarantee ever growing wealth for the society (again many other factors) but it pushes it in the direction of stability and greater wealth.
Any tax on produced factors reduces the incentives to produce it. Sales/consumption taxes are in fact the worst.
“Land is a somewhat unique object in that it cannot be produced.”
As a commercial real estate developer, I look for ways to add value to land that I can take to the market and get compensated for creating. Originally, I worked for a commercial real estate investment company–we bought and sold buildings. Buy buildings that are managed badly, have high vacancy relative to the market, etc., get them leased up and resell them. I’d much rather do that, especially in California, where there’s so much risk and time involved now in getting plans approved for development.
I was chased into development because at the height of the bubble, industrial and office buildings were selling for a 6.5 cap. A cap(italization) rate is basically an inverse p/e ratio. Instead of being price of earnings, though, a cap rate is net operating income over price. The higher the cost of buying a building, the lower the cap rate. During the bubble, a 6.5% return means you’re getting something like the historical yield on a bond–but holding a building is a lot more risky. In order to get higher returns, I had to go higher up the food chain where we could add more value. Instead of forgoing profit by compensating a builder, we’d build them ourselves.
We started out buying finished pads, but soon the price of those went up with the bubble. So, we started doing raw land, turning them into pads, and reselling the pads to other developers until we could finance construction with just the land that was left. Adding value for the market by taking raw land and turning it into something that people can build on is creating land. You can drive down Interstate 15 from Riverside, between Corona and Lake Elsinore, and you’ll see empty land all around you. It’s all unusable for various reasons. Land all around, far as the eye can see, but if you want a 20 acre parcel along the interstate, at the time, there was only one available.
In order to make that land usable, we had to fight to get a floodway (rather than a flood plain) removed from the FEMA map. Hydrological engineers are amazing guys. We also had to hire some traffic engineers. The city’s general plan had a main artery going through that piece of land, and we were able to show them, with a lot of help from some expensive traffic engineers, that it was in the city’s best interest to restripe the streets around it, put in a number of street lights on the other roads, and take the throughway off of the our property. The land had been covered with stockpiled sludge from an adjacent channel–all of which had to be recompacted before anyone could build on it.
It took 18 months and more than a million+, but we created land where there had been none before.
I suppose you could say the same thing about a lot of things. A lot of people think that crude and gold aren’t manufactured–they’re just sitting in the ground and no one is making more of it. When a car manufacturer uses steel, it was originally iron ore in the ground. Someone mined it out of the ground and made it useful, adding value. The steel manufacturer bought the iron ore and made it even more useful–turned it into a form so that a car manufacturer could use it. Any time somebody takes something that can’t be used and does something to make it useful, they’re effectively creating more of it.
We once took 240 acres of rough, hilly, lumpy land in Santa Clarita, CA, and tore a good 65 feet of it off the top of a hill. We used it as fill dirt to fill in and recompact ravines that were as much as 80 feet deep. That land is an industrial and office park now. It didn’t really exist before. We created that land. We produced it.
Is gold produced? Some might say no one is creating it like no one is creating new land, but have you ever watched “Gold Rush” on the Discovery Channel? Of course they’re producing gold. They’re adding value by taking it out of the ground and making it useful, and they’re bringing that gold to market where it wasn’t available to use before. That’s what GM does with iron ore and cars, too. It’s just that GM makes the final product, but the iron ore miners are further up the food chain.
We once took 240 acres….. It didn’t really exist before. We created that land. We produced it.
What did you end up with? 275-300 acres?
We ended up with 240 acres of usable land where there was none before.
Define usable.
Flat, stable, doesnt wash away. Buildable. Sure, you can build on the side of a cliff but the price of building over flat land is exponentially higher.
I can propose a simpler definition.
It went from unowned wild to owned land. People don’t own unusable stuff. They abandon it.
So, in converting it from wild to something worth owning – they made it useful.
Even if the government would let you build something that unsafe, no bank would finance a property on the land the ay it was before. Who would insure it?
No bank would have given anyone the financing for construction either. They always assume the worst case scenario, and it would be fundamentally unsafe. Who would they resell it to in a foreclosure?
Not to mention the site was inaccessible before.
Usable ≠ Buildable.
Unowned land? does that exist in Santa Clarita?
Should be in response to Tarran.
If you watched Gold Rush you’d see the landlord, Tony Beets extracts 25% in rent. The LVT in that case would be up to that amount.
As Land by definition is everything not supplied by human effort, it does not tax an improvements or services like search or discovery.
Anything you produce is capital. You did not produce the 3D space ie location your improvements or private property occupies.
The LVT only seeks to tax the value of one location relative to another.
Your supply curve for land is incorrect.
Yes, there is a fixed amount of land on earth.
But the market for selling land is not fixed. More land comes on the market as prices go up, and less when the price goes down. I’ll put my land of the market for 5 mil, but not for one mil.
Should be an upward sloping line or curve.
I see you covered that at the end.
“Yes, there is a fixed amount of land on earth.”
The Dutch would beg to differ.
Also, climate cycles. Much less land during ice ages.
Also, Antarctica is off-limits to non-government actors, because government. Not much land there whichisn’t covered by ice, but some.
It’s irrelevant if the amount of Land supplied by nature is fixed. Although 3D space relative to the Earth is, and that’s what is important.
Anything supplied by humans is capital, not Land. Like Dutch Polders.
It doesn’t matter what the market for land is, it’s supply is perfectly inelastic. If it weren’t it wouldn’t by definition be Land.
I find a cap on taxes preferable to any particular excuse for collection as long as that tax burden is borne equally by everyone. I would cap it somewhere around 15 -20 %. Closer to 15 than 20. A fixed income does wonders for one’s ability to budget.
*Bonus – Breakfast for lunch today. Hot sausage, biscuits and tomato gravy.
Cook the sausage in a skillet. When well done remove sausage. Add into the skillet about 12 oz. of chopped tomato preserves, about 1/3 cup of flour, about one cup of reduced chicken stock, garlic, cayenne (and or tabasco sauce), paprika, touch of ground white pepper (potent, just use a pinch). I think y’all know me well enough by now to know that I go heavy on the cayenne. Deglaze pan and cook down until it thickens and begins browning (light milk-chocolate color).
I had lunch for breakfast. Now I don’t know what to do for lunch.
Whiskey? Is that not what we’re all having for lunch?
*checks cabinet*
I need to go the store… for… milk and bread…
In my head, the sausage is andouille, and that just solved what I’m going to have for dinner tonight.
What’s the recipe for the biscuits? That’s one I’m missing from my skillset.
I cheated and used bisquick. Don’t tell anyone.
I got yelled at for listing a premade pie crust on a quick stovetop pie recipe, so I’m not going to judge.
Tsk, tsk, Suthen. Please tell me that you didn’t do drop biscuits (no rolling or cutting). I find Pillsbury brand frozen biscuits are better than fresh biscuits from mix.
That didn’t become a leading national brand for no reason (eat biscuit!).
Convenience.
Sure, but I’m sure there were/are other convenient biscuit mixes, but bisquick is probably the most successful for a reason (eat another biscuit!)
Here’s the recipe I use for my buttermilk biscuits.
Sounds like too much work, can’t I just grab a can of lard off the shelf?
Joking aside, the chart at the bottom is very useful.
ooo… If I weren’t on a diet.
Yeah, I’m a fan of his recipe layouts. Too bad there haven’t been any real updates to the site for several years. The Classic Tiramisu recipe has been a hit everywhere I’ve brought it.
–“Land is a somewhat unique object in that it cannot be produced.”–
Really?
Please go to Boston’s Back Bay and say that again.
You know why it is called the “Back Bay”? Because in the 17th century it was literally part of the bay, under water, not “land”. Then, they filled it in and built houses on it.
You could accomplish the same with any number of floating platforms and we won’t even get into the eventuality of space habitats and O’Neil colonies
Land has an economic meaning. Reclaimed physical land is Capital. Land is everything not supplied by human effort.
I want to add one thing real quick… The way SLTers get to the no deadweight loss graph is to make a sneaky assumption. They assume that the SLT is undistorting the market from the distortions caused by exclusive property rights.
As has been covered previously, I find the arguments against private property ownership to be quite unconvincing, and I find communal ownership of land to be extremely unconvincing.
Once you yank the rug out from under their premise, the SLT goes from no deadweight loss to massive amounts of deadweight loss.
Nope. They are saying it is owner occupation rather than exclusive private property rights that are the problem. There would be no deadweight losses if we were all privately renting from private landlords.
Hope this helps.
They assume that the SLT is undistorting the market from the distortions caused by exclusive property rights.
Yeah, okay.
*hums “Imagine” by John Lennon while cleaning .45*
Fortunately, there is a mass of data on rents and selling prices which would allow for very good assessment of location values.
This is another thing that completely drives me up the wall with SLT. There is no such thing as a “location value.” Value is entirely selective, and price is determined based on individual buyers and sellers. Basing a tax on a figment of the government’s imagination is exactly why SLTs and property taxes are so damned nefarious. At least with transactional taxes, there’s a foundation in reality because you can determine a price of the transaction.
entirely subjective**
Well, that’s a rather silly statement. The price of a bar of chocolate doesn’t change on a per transaction basis does it? No, it’s the best guess of the shop of where the market equilibrium point is over a realistic time frame. Thats how the real World works.
The LVT is no different in principle to how landlords set their rents. Market data, and vacancy ratios.
The price of a bar of chocolate doesn’t change on a per transaction basis does it?
YES!!! YES IT DOES!!!
Just because you don’t negotiate the offered price of the shop where you buy it doesn’t mean that it can’t be negotiated. If you buy a box of 50, your price will be different. If you use a cloth bag to carry it out at the grocery store, your price will be different. If you shop around at different stores, you’ll find different prices. If you look online, you’ll find different prices. If you sign up for a supply contract, you’ll get a different price. If you go in right before the store gets a new shipment of chocolate bars, you’ll get it on clearance. If you buy the same chocolate bar from the same production line when they produced the generic version of the wrapper, you’ll get it for a different price.
Prices are HIGHLY CONTINGENT on the circumstances of the buyer, the circumstances of the seller, and the circumstances of the transaction.
Ok I don’t know where you live, but where I do prices are marked/displayed. They are not set at the moment I go and pay for them.
We are talking about how the market sets prices. When I let out my property I set a rent based upon the data I’ve got to hand.
Now, if I’ve not got too many people interested, I may lower my prices. Same as the super market, or how the State would collect the LVT.
Imagine you owned all the land in the USA. Every single square yard. Now you’d obviously like to collect the rent. How you do that is how the State would collect the LVT.
That’s unless you wouldn’t fancy an income of $1trn every year? Gross of taxes 🙂
“Ok I don’t know where you live, but where I do prices are marked/displayed.”
Yes, these prices are canonical and passed down from On High! They’re certainly not offers made to the customer which they can accept, negotiate, reject. I just bought a 12 pack of Stella from Target, and I couldn’t pay them their sale price because there was originally a Price Tag on it, and that is THE PRICE.
I think the bad taste in my mouth from the LVT is more base than the fact I think it’s flat wrong. It’s the deification of the State and the Market that gets me.
The “market” is an abstraction of a zillion individual transactions that reflect, on the whole, the incentives and disincentives the aggregated consumers and aggregated suppliers are subject to. A “market price” is merely a descriptor for a balancing point where products put for sale are efficiently matched with consumers looking to buy the product. To worship the market price misses the point. It’s an aggregate statistical abstraction, not a diktat from on high. There’s a reason we have supply curves and demand curves. Different people value a product differently. The “market setting the prices” as you describe, is a purely profit-driven action by the seller based on their specific circumstances. That’s why there’s a such thing as “manager’s specials” at chain stores. It’s also why two identical stores can have wildly different success depending on their circumstances.
Imagine you owned all the land in the USA. Every single square yard. Now you’d obviously like to collect the rent. How you do that is how the State would collect the LVT.
I reject the premise, I don’t believe in the divine right of kings.
Why would you have to be a king? There’s no reason why in theory at least you couldn’t own every square yard of land in the USA. There’s no moral or economic difference if one person owns it or many do.
I only used the point of you owning it all to illustrate the point. It could be the State, one person, two people or many people. From the POV of economics/valuations it makes no difference.
Not quite true, as the ensuing inequality cause by one person owning all the Land causes a deadweight loss in and of itself. But that’s a slightly different issue.
“Land is a somewhat unique object in that it cannot be produced.”
That isn’t true. Look at a map of Boston at the time of the Revolutionary War, and now. A lot more land.
Further, you can take worthless land that has no economic uses, and make improvements, such as irrigation, that put it into human use.
And skyscrapers basically create layers of new land.
You are describing capital, not land.
Then whatever “land” is, it’s impossible to tax. Either you tax every acre in the country/state/county the same, with the rate basically being set by fiat, or else you recognize that the tax will also cut into at least some capital. There is no way to assess this thing you call “land” which is so abstract that no market for it has ever existed.