Honest Debate on Land Tax

[Epic]

Quote from Tom B:

What is the estimated land tax percentage rate to be charged in order to remain revenue neutral to our existing tax system?

A rough calculation suggests something around 40% in the end if there were no other taxes.

Admittedly this sounds high, but remember that we are only talking about the unimproved value of the land. If I live on a 1/4 acre lot that is worth $50K, even though my entire property is worth $350K, my tax burden is then going to be about $20K annual.

Then I must ask myself what type of family lives in a $350K house. Typically we are looking at a family with an income of about $100K. With all deductions, that family will pay somewhere in the neighborhood of $20K.

 

[Epic]

Quote from Free Thinker:

this is just wrong.

Well are you going to present an argument or just a comment that is completely without value? I thought the point of the thread was to have an intellectual debate.

Please explain what is incorrect about the valuation of land in that post.

 

[Free Thinker]

Quote from Epic:

Well are you going to present an argument

actually i am not. i will let others take up the battle. what you are proposing is not in the realm of possibility so i will move on.

 

[Epic]

Free Thinker,

Allow me to present the argument a different way. Suppose you are wanting to own your own business. You have two options;

1) Build your business from scratch.

2) Purchase an existing business.

First you must see if there is an existing business that fits the description of what you want. Let's assume you find one, and the owner chose to build it out in an undeveloped area because foot traffic wasn't important and he wanted to get the land as cheaply as possible. He bought the land for $20K and the open vacant fields around him still sell for that amount.

Suppose the appraisal on the business breaks down like this;

Building value-- $400K
Good Will -- $15K
Land -- $50K

Are you going to buy the company? The answer for any savvy businessman is, NO. Why? Because if the building is worth $400K, then you can build an equivalent building for that amount. And you could do it right next door for only $20K. Why would you pay his $50K overvalued land.

Again, the land doesn't increase in value simply because someone built on it. It is the surroundings that determine land value.

 

[Epic]

Quote from Free Thinker:

actually i am not. i will let others take up the battle. what you are proposing is not in the realm of possibility so i will move on.

How is it any less possible than any other proposal?

Allow me to give you a list of countries with an LVT.

Taiwan, China, Singapore, Estonia.

South Korea, Ireland, Scottland, and the UK are pushing for it as a preferred method of taxation.

Specifically in the UK, the Labour Party, the Unions, and the Liberal Democrats' ALTER are pushing for it very heavily.

 

[Tom B]

Quote from Epic:

A rough calculation suggests something around 40% in the end if there were no other taxes.

Admittedly this sounds high, but remember that we are only talking about the unimproved value of the land. If I live on a 1/4 acre lot that is worth $50K, even though my entire property is worth $350K, my tax burden is then going to be about $20K annual.

Then I must ask myself what type of family lives in a $350K house. Typically we are looking at a family with an income of about $100K. With all deductions, that family will pay somewhere in the neighborhood of $20K.

The land value to total property value ratio can vary greatly depending on where the property is located. For example, in southern California, the land could be worth $275K out of the $350K. In addition, the income of the family that purchases a $350K house can vary greatly. One family could have a much lower income than $100K; but, purchases the house with a one time large down payment. The down payment could come from equity from a previous house, investments, savings, etc. The 40% land tax in this example would amount to a huge tax rate related to income earned.

 

[Epic]

Quote from Tom B:

The land value to total property value ratio can vary greatly depending on where the property is located. For example, in southern California, the land could be worth $275K out of the $350K. In addition, the income of the family that purchases a $350K house can vary greatly. One family could have a much lower income than $100K; but, purchases the house with a one time large down payment. The down payment could come from equity from a previous house, investments, savings, etc. The 40% land tax in this example would amount to a huge tax rate related to income earned.

Your concern about property values is actually used to argue in favor of LVT. Locations with high property values are populated by more wealthy people. If someone wants to live on what is considered a "prime" residential lot, they must pay a higher tax. Thus someone choosing to live in Newport Coast, CA is purchasing the privilege from the community.

Typically the locations with the highest residential property values have either or both of two characteristics.

1) prime location
This includes view, proximity to other locations, etc.

2) significant building restrictions
Places like Newport Coast, Lauguna, Boulder CO, Hamptons NY... There are significant restrictions with the express intent to remain "high end". There is no other real reason for these restrictions, so if the people in that area want to isolate community land for such a purpose, they will be required to pay for that privilege.

The point is, that the LVT has the specific purpose of providing an incentive for most efficient use of land. If a certain piece of land has a higher value it is because there is either a more productive use for it, or someone wants the privilege of restricting it.

As to your second point. When a person lives in an area, regardless of whether they have income or not, they use the system that was built around them. The roads must be maintained. The sewer must still function. Are you suggesting that people should be allowed to take advantage of all of this infrastructure for free?

OTOH, some have suggested the idea of cutting the LVT in half or something for primary residences.

 

[PiggyBank]

Quote from Epic:

Come on guys... I realize that there are certain desirable aspect of the "fairtax", but if you are going to claim it is better than LVT, you must present an argument as to how it more appropriately accomplishes the purpose of its existence.

I don't know much (anything) bout the LVT, but I don't need to in order to make this one point. In my opinion property taxes have no place in a free society. If you have the right to buy and own property, then once purchased, why should the owner have to pay anything else? You can't really own property if it can be taken from you because you didn't pay your taxes to the government, you are just renting it.

The fairtax on the other hand ensures that you only pay tax when you spend your money, you have a measure of control over your tax liabilities. The more you consume the more you pay. When Paris Hilton wants to have a custom designed diamond encrusted dashboard built into her shiny new pink Bentley, she will pay a ton of tax. The very wealthy will still pay the most in taxes, and those struggling will pay the least. that is literally fair.

 

[PHOENIX TRADING]

Quote from Epic:

Honestly this is one of the only areas that is difficult with this tax in the modern world. Most other concerns are trivial and indicate that people don't have a true grasp of what a tax is.

Anyway, the issue is that we no longer simply have material land. WE also have virtual real estate. It is my contention that every business uses either or both of those. Farmers are an extreme case of the first, whereas, financial companies are an extreme case of the second. IMO, it's not unreasonable in any argument about LVT to consider the idea of "virtual" LVT.

Amazon is a special case in that it takes advantage of the virtual and physical system while using a very small physical footprint. For this reason I think that certain excise taxes bring in the benefits of the "fairtax" plan without the drawbacks, and keep the benefits of the LVT plan. So amazon would be taxed based on gas tax, some LVT, and maybe a virtual LVT.



That is sort of the entire idea. The amount of land is fixed. The quantity cannot easily be manipulated (like printing money to create wage inflation).



Keep in mind that the value of a piece of land is directly tied to its potential use. If there is a certain restriction on a piece of land, that land significantly drops in value, which greatly reduces the inherent tax burden. As an extreme case, any land that has no inherent value, also has no inherent tax burden. There is currently desert land in the US that sells for about $10/acre.



There is no incentive for Hoovervilles because someone is liable for taxes on that property. Think about it a little more deeply.

1)virtual lvt is just a BULL SHIT "lets pull a new tax out of our asses because the politicians are crying for more money".
In a few years we will be right back to where we are now but with stupidly high land taxes.
2)The fact that land is fixed is a HUGE problem not a solution.

3)Think more deeply? phht People will simply abandon ownership of useless land (vs tax obligation) and yes that could easily attract squatters & obamavilles. perhaps you are the one who should think more deeply.

 

[Epic]

Quote from PHOENIX TRADING:

1)virtual lvt is just a BULL SHIT "lets pull a new tax out of our asses because the politicians are crying for more money".
In a few years we will be right back to where we are now but with stupidly high land taxes.

You might be correct, but how is that different than any other tax that we can come up with. You don't think that politicians will try to unfairly boost revenues under a "fairtax"?

2)The fact that land is fixed is a HUGE problem not a solution.

Describe the problem.

3)Think more deeply? phht People will simply abandon ownership of useless land (vs tax obligation) and yes that could easily attract squatters & obamavilles. perhaps you are the one who should think more deeply.

What is preventing them from squatting on worthless land right now? Remember that under LVT if land has no value then the owner pays no tax. Why would someone abandon land that has no tax?