WHY LVT WILL NOT HAPPEN — ACCORDING TO THE ECONOMIST
Here's the economic establishment scoffing at LVT. They have a point, but I hope I am showing how these problems can be overcome
The biggest problem is that to raise money and change behaviour, the rate of land-value taxation will need to be quite high. This arouses furious opposition from landowners, in most countries a potent lobby, see it as highly unfair. They have got used to enjoying their rents and object to their sudden socialisation. In effect, it is a breach of property rights: the owners have paid for their land out of taxed income, so why should its benefits now be confiscated by what is in effect an arbitrary tax on some assets?
Another problem (as with any new tax) is balancing winners and losers. Some categories of land (private golf courses and urban car dealerships, for example) are likely to be hit especially hard. So too are urban homeowners with gardens: the tax will encourage them to build on them, which is good for the housing stock but bad for the environment. Some pensioners may own a valuable and much-loved house but not have the means to pay the levy. The temptation to tweak the tax to soften these problems is great. Even fiscally purist Estonia, which adopted a land tax after it regained independence in 1991, now has multiple bands, including an exemption for homeowners.
A third problem is that valuation of the high-priced urban land (rarely sold as vacant plots) may be tricky—and controversial. Wealthy commercial landlords could tie the assessment process up in costly legal knots.
Some of these objections could be overcome. A land tax need not be implemented overnight. It could be phased in, which would mean market signals started working before the levies were actually paid. Hard-up owners of valuable land could be allowed to commute payment until they die. Valuation of urban land, with a bit of maths, is not insuperable.
Until a modern economy takes the plunge and introduces a land tax—and keeps it—it is hard to know if performance will match promise. “It is a question of faith” admits Stuart Adam, of the Institute for Fiscal Studies, a think-tank which backs the idea. Yet until its benefits are convincingly displayed, few politicians will feel like risking the wrath of the landowning lobby. In short, precious little has changed since George was alive.