by eru | 2025-06-05 23:38:30+00:00
> Right but you just added a huge cost that you have to tax from somewhere. So the LVT rate goes up again.

No, it doesn't.

>> LVT should be set to approximately tax all land rents.

> What does this even mean?

A sketch: suppose a piece of land gives a land-rent of $100 a year. At 5% prevailing interest rates, that piece of land would trade for about $100/5% = $2,000. That's because arbitrage will roughly make it trade at the same price as a bond that pays $100 a year. (For simplicity of illustration assume no taxes, no risk, etc.)

Now if you add a 15%-a-year LVT, you get the following no-arbitrage condition:

(land price) * (tax rate + interest rate) = land rent

Solving for the new land price gives you (land price) = $100 / (15% + 5%) = $500. That market price gives you a $75 LVT bill. That's 75% of our land rent.

You can directly calculate the proportion of land rent that goes to LVT as a function of the tax rate and interest rate as (tax rate) / (tax rate + interest rate). As you can see, assuming non-negative interest rates, this can get arbitrary close to but will never reach 100% of land lent. There are some practical limits to how high you can set the LVT per year. But you can get pretty close to 100% of the land rent. And the limits are of a practical nature, they don't have anything to do with what you are doing with the revenue (ie UBI or whatever).

I know, it's a bit confusing: we are charging a specific rate on the price of the land, but what we are actually interested in is the proportion of land rent we are capturing.

Land prices adjust to the taxes we are charging. So jacking up the LVT rates won't really give you an increase in the tax take.

(That's one way to implement LVT. You could also instead auction off leases to use plots of land for eg 20 years at a time to the highest bidder. There it's also clear that you take approximately 100% of the land rent as a tax, and it's also clear that there's not much the government can do to jack up the rates: they are already getting the whole proceeds of the auction.)

> And under an LVT, having a house or apple tree gets you a tax bill, measured in money. Of course economic calculation is relevant.

Yes, the tax bill is measured in money. But that doesn't mean the only thing that's admissible to be taxed should be income measured in money.

> I don't have a better description for what you want to happen to people with income lower than their LVT bill.

You have to sit on a lot of valuable land to have a high LVT bill. Those are rich people.

In any case, you are right that changing the tax system will always create winners and losers, even if you create many more winners than losers.

So you could do what the British did when they freed the slaves in the Empire without causing a civil war: you could pay out the old landowners. (The British paid off the previous slave owners.)

By itself, acquiring all the land will be fiscally neutral, so the government hasn't gained anything. (In reality, there will be some inefficiencies and friction, so you'll actually lose money.) However, once you start lowering other taxes, land rents will go up and thus the LVT take with it.

You have to make sure to pay for what the land traded _before_ the market started pricing-in the anticipation of lowering other taxes later.

Instead of paying off the old owners, you could also gradually introduce the LVT to soften the blow of the impact a bit.