Tuesday, January 20, 2015

Land tax is the fairest tax on earth

The TU is for land tax, done right (broad-based, with reformed rates). We've discussed recently how land tax done right encourages economic activity, reduces the tax burden on work and enterprise and  makes housing more affordable.

Today we'll consider another aspect of the case for land tax: it's fair.

Land tax is fair because it treats land specially, and land is a special asset. Land is unlike other assets: no person made it, and there's not any more of it being made.

For this reason, ancient societies understood land to be a gift of the gods that should be kept in the common ownership of society and its succeeding generations. The current wisdom, however, is that we should allow land to be owned by individual persons, in much the same way as individuals may own things that are made. So, the individual owner may decide to use their land, or allow another person to use it, or withdraw it from use; they can also decide who gets to own it after them.

It's one thing for individual persons to enjoy exclusive, perpetual ownership rights in relation to things that they have made, or that some other person (back along the chain of ownership) has made: it might be said that if it were not for those rights, the thing would not have been made and so would not exist. 

But you cannot say that of land, which has always existed and would exist regardless of ownership rights. The private ownership of land involves no making, but instead a taking – a private taking of something that would otherwise belong to the whole of society.

And as we said, what the private owner of land gets is the right to decide if their land will be used, and who may use it. This is a valuable right: just about every economic activity you can think of involves land, even if it just sits there underneath, so the owner of land can demand some of the benefit of the activity in return for allowing it to take place. In other words, they can demand rent. And the rent they may get will reflect demand for the site according to the activities to which it can be put – and hence to the level of economic development of society generally.

Of course, the owner may decide not to allow another person to use their land: they might prefer to use it themselves (for example, for their own housing). If so, it is fair enough to put a value on this preference, with reference to the rent they might have gotten from its best use. Then again, the owner might decide not to allow use of the land at all – and take their reward as demand for land increases amongst potential users.

Considering what private ownership of land does for individual owners, for other potential users and for the whole of society, nothing could be fairer than land tax, being a tax levied annually on the unimproved value of land.

Where private ownership of land takes something valuable away from the whole of society; land tax makes some space, at the expense of land owners, for government spending, and so effectively returns to society some of that value.

And where private ownership of land allows the individual owner to decide if land may be withheld from use, denying benefits to others while still taking a benefit themselves; land tax encourages owners to decide to put land to its best and most productive use.


  1. Land tax is something I have explored as part of package of Consumption tax. I agree with you it is a fair tax and a better alternative to private ownership, because i do not believe in land ownership for the very reasons you state above: we cannot make more land and we do not make land.

    The only issue with your land tax is how do you define as improved or unimproved value of the land?

    Take this example: a billionaire wish to have an exclusive private large tract of land surrounding a lake for his personal use. By your argument this is unproductive use. However by preserving the wilderness and controlling the entire lake, he maintains the quality of the water, that would supply a city downstream.

    On the other hand, a very same Billionaire could be an industrialist and build factories, power stations on the lake edge, providing a huge benefit to the community with cheap power, cheap products and jobs, however he would be polluting the lake and surrounding lands and degrading the water supply for the city downstream.

    How would the land tax judge those above in terms of improved and unimproved value of land, and benefit to the society?

    1. Unimproved is the land itself, improved land is the land plus the things that you build on it.

      It's not very complicated.

      In your example the first billionaire has unimproved land. The second billionaire has improved land.

    2. I know it is not complicated. I am just talking about the interpretation of "improved land".

      In your response you correct stated that first billionaire has unimproved land and second billionaire have improved land.

      Land tax would encourage owners to put their land to best and most productive use. The argument is which example is the best and productive use? Jobs and dirty water, or clean water and no jobs?

      While the land tax effectively takes into account the superficial use of the land at its face value; the unimproved value of the land. It has no regard for the consequence of the improved value of the land on whole for the society.

  2. Hi Anthony

    Land tax does not relieve the need to regulate environmental hazards. It may be that it is appropriate to prohibit industry around the lake. The value of the land would reflect this limitation.

    But say industrial uses of the land are not prohibited. Apart from land tax, it may be appropriate that your industrialist also pay for the right to use the natural environment as a toilet. This charge may vary according to how much the industrialist pollutes. These costs may encourage the industrialist to minimise pollution, or they may make the project unviable.

    1. A land tax, and an eco-tax or regulations. I like that :)

      My thoughts were on "consumption tax", you pay for what you consume. Land tax would be part of consumption tax after all you are consuming precious space, regardless whether you are going to make use of it or not.
      And eco-tax is already included in the framework of consumption tax, because pollution is a unwanted waste of resource from your consumption and therefore part of the consumption tax.

      The principle of consumption tax is to make more effective use of your resources, waste, and space. After all you have a right to consume a resource, and in same principle to your arguments about private ownership taking something valuable away from whole of society and need to give returns to the society some of the value.

      For example a recycling sustainable product would attract a low consumption tax, and a unsustainable polluting product would attract high consumption tax.

  3. Many thanks for this fine piece, Chris. you are exactly right. We need to resist consumption taxes. They hurt the poorest and confer substantial advantages on private capital incomes. Visti: prosper.org.au

  4. Thanks for the kind words David - and thanks to Prosper for its work for land tax reform. Brown Couch readers, please take a look at Prosper 's work - you can always find the link in our sidebar (at right).


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