Dan Reed has an interesting letter to the editor of the Baltimore Sun: “The LVT is a unique creature in that it’s supported by progressives and conservatives, affluent and aspirational alike. The city is in dire need of fresh energy and new ideas. Simply put, the land value tax is an annual tax on the unimproved value of a piece of property. It completely ignores the value of any building, structure or capital improvement. This is important because our current property tax system encourages a number of unintended negative consequences. In addition to being incredibly inefficient and prone to manipulation, it provides a disincentive to long term livability of the city and incentivizes the exact opposite behaviors of what Baltimore needs.”
LVT stands for Land Value Tax, described as a levy on the unimproved value of land only. It is an ad valorem on land that, unlike typical property taxes, disregards the value of buildings, personal property and other improvements. Although the economic efficiency of a land value tax (LVT) has been established knowledge since Adam Smith, it was perhaps most famously promoted by Henry George.
“In his best-selling work Progress and Poverty (1879), George argued that because the location value of land was provided by communities, the economic rent of land was the most logical source of public revenue. A land value tax is said to be a progressive tax, in that the burden would fall on landlords and cannot be passed on as higher costs or lower wages to tenants, consumers, or laborers. The philosophy that land rents extracted from nature should be captured by society and used to replace taxes is often now known as Georgism.”
This is a novel idea for the times and is worth discussion. Consider two properties; one is an apartment building properly maintained and even remodeled adding the newest features. It has good security, no rats and no graffiti. The second apartment building is a wreck. The tenants complain and little is done in response. There are several broken windows and maintenance has been deferred for a number of years. As a result, the first apartment is taxed on its value and pays higher property taxes than building two. The incentive is wrong. We have incentivized landlords to defer maintenance and to sit years on a property for the appreciation. Society doesn’t appear to be served by this type of taxation.
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