Policy Summary: we should shift a large chunk of the tax base onto land, through an annual tax on the unimproved rental value of land.

Values Justification

• Land is a scarce natural resource, so all citizens should share in the value it creates: same reason why we charge royalties on oil extraction.
• Land values are generated by society as a whole, so should be captured by society as a whole: land value is not created by the land owner, but rather by nature (desirable location, amenities), government (guaranteeing property rights, security, infrastructure investment) and society at large (LVs higher in areas that are more productive, have more jobs or social opportunities). So society as a whole should capture land value, not the private land owner.
• Meritocracy: we all benefit if our social systems incentivize productive activity. LVT prevent land owners from profiting through passive ownership of land, which enables a reduction in taxes which punish work and investment.
• Tax what you take, not what you make: LVT taxes you on the value of the land you use (meaning others cannot use it), instead of taxing value that you created with your labor.

“The least bad tax”: Testing LVT Against the Principles of Taxation

• Efficiency (taxes should avoid distortions to resource use): land supply is perfectly inelastic, so LVT is the least distortionary tax, meaning no deadweight loss. By discouraging passive speculation, it increases production.
• Vertical equity (taxes increase with ability-to-pay): land ownership highly correlated with wealth, so LVT does too.
• Horizontal equity (equal treatment of those in equal circumstances): LVT treats $1m of farmland the same as $1m of urban land.
• Revenue Integrity (minimize avoidance behavior): land is immobile so LVT can't be avoided.
• Simplicity (minimise cots of compliance): land registers and property taxes already exist, models of land value are relatively simple. Administration of LVT is therefore easy enough.
• Transparency (give taxpayers certainty): land owners will have clear information and expectations about their annual tax burden.
• Broad-base, low-rate: LVT broadens the tax base, enables lower rates on other tax bases (income, consumption, saving).

Social problems underlying the case for LVT

• Current tax systems massively favor land ownership & speculation: mortgage interest deduction, exemptions from capital gains tax, no tax on imputed income from property (discussion in NZ context)
• Financialisation of the economy: since land is permanent, it's highly attractive as securitisation, driving a huge volume of loans against land (see Ryan-Collins)
• Speculation creates cycles in land values (see Ryan-Collins, Barker review, Mian Sufi)