Fred Harrison summarises the various studies analysing the role of economic rents
and why it is hidden from economic analysis. The interview is conducted by Andy Mazzone (Henry George School of Social Studies) as part of the Smart Talk series.
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I thought France was another European country besides Denmark that has a land tax.
But there is a fundamental initiation issue with land tax. Applying it causes an instant capital loss to land value. Hence landowners will not like it one little bit so good luck to any government that tries to introduce it in its basic form. More politically feasible would be a tax based on capital gain of land that doesn’t wait the many years it can take for land to be sold and which collects the tax annually.
Hi Chris,
France has no Land Tax – a genuine pity as their /Physiocrats were the first to recognise that location received an ‘impot unique’. Yes the ‘capital loss’ (or as we see it, the correction between land price back to land value) is our challenge, to convince the public, the banking system and politicians that we would be better off with lower mortgages (on improvements only), zero income tax, zero company tax, zero sales tax. Should be easy yes? We’ve been at it 126+ years. With today’s mobility of capital, the need for a tax on something that can’t be hidden in a tax haven – land – becomes even more of an imperative.
“we would be better off with lower mortgages (on improvements only)”
Unfortunately the lower mortgages would only extend to people who buy property after land tax has been introduced. Existing owners would have the same mortgage as before except now their property is worth less and they have to pay land tax as well.
The fundamental problem is that economic rent on land that has accumulated in the past is often alienated by the land being sold. For example if someone sold land a hundred years ago and part of the price of that land was the value of economic rent inherent in that land at the time then there is no way in the world that the government can get the proceeds of that economic rent out of that previous owner from a hundred years ago.
It is virtually impossible to extract the proceeds of previously accumulated economic rent from the previous owners of land. The only possibility may be to extract it from existing owners (by a land tax on the entire value e.g.) but existing owners paid in full for the value of that economic rent and like anyone else they will not want to have part of their property that they paid in full for arbitrarily taken away from them. There is a case that this violates the federal constitution that requires the government to acquire property on just terms.
So you’re simply not going to convince the public that they’ll be better off with lower mortgages because that’s a straw man because a lot of them won’t have lower mortgages.
There are a number of transition policies being worked on to overcome the issues you raise. One of the best is Land Value Covenants. It’s an opt-in based reform.
We won’t attempt to claim every skerrick of past rent, there is more than enough today to find government. Inherited wealth would soon have to wake up and become productive to maintain their standing. Upwards mobility would be greatly enhanced with the tax focus deterring speculation whilst rewarding entrepreneurs.