Registered: Apr 2011
07-27-12 03:21 PM
Quote from PHOENIX TRADING:
okay knock yourself out, institute this sort of tax as sole revenue for the US govt and I will divest myself of real property, import all my food (since prices would necessarily sky rocket) and completely avoid federal taxation entirely.
Sounds like the perfect plan to me, it doesn't take too much real estate to trade. I like the idea of being 95-99% tax free.
I don't mind suckers in the market and I certainly don't mind easily avoided taxation (left for other suckers to pay).
Actually, the economic theory suggests that as a portion of income, food prices would not skyrocket, but would actually fall slightly. Economists suggest that the efficient land use incentive is so strong with a tax like this that people could not afford to hold land in an unproductive state.
Urban sprawl would theoretically be reduced dramatically, as there would be large incentives against expansive parking lots and other inefficient uses of land. The theoretical shift in land prices would be as follows. Commercial land prices would increase relative to other types of land. Residential would be expected to decrease relative to commercial. Agricultural land would be expected to drop significantly in relative terms.
We are in the realm of theory (although all real world evidence supports the theory), but with such a strong efficiency incentive, businesses and residential land moves toward a state of higher density over smaller areas. Agricultural doesn't get crowded out so quickly, while at the same time all owners of ag land have a strong incentive to put that land to productive use for the highest yields possible. In short... more ag land with higher production equals dramatically higher supply. Higher supply with constant quantity demanded results in dramatically lower food prices.
I don't know that I can ever fully believe untested theory, but it says a lot that many of the big names in the economics world support that idea.
The biggest difficulty with this tax is that while most of them agree that it is the most efficient, most fair, and simplest form of tax, resulting in the greatest economic growth, it is easy to implement in a new nation but difficult in an established nation that has been built on the dream of land ownership.
LVT focuses the wealth creation incentives on productivity and innovation at the expense of land speculation. It also doesn't have any of the incentives against consumption that other taxes like a fairtax have. (We live in a society driven by consumption. It is hard to imagine the effect of a 30% consumption tax in the short term. Imagine the immediate impact on home prices.) No incentives against actively earning income like income taxes have.
We have built our entire economy around the idea of using land ownership speculation to create wealth. Consequently, upon implementation, land values would theoretically drop pretty significantly during the first couple years. They would balance out at prices that accurately reflect only the value of their most productive use. Right now we have values that reflect speculative premiums. My personal opinion is that this is the main reason it would not be possible to switch directly to an LVT.
Additional drops in property values would be a tough pill to swallow. Obviously this would also lead to a tax revenue drop where politicians would have to increase the rate to some higher figure like 50% to remain revenue neutral. Which leads us to the second problem, and the problem for any major tax reform. None of them would be as bad as our current system, but they cannot be implemented without major disruption as long as govt spending is so high.