On Slate, Ashok Rao wrote a post titled, “Meet Economists’ Favorite Tax—The Unimproved Land Tax.” He opens:
For a long time the economics profession has quietly noted that a land value tax is economically efficient but, having sussed out its theoretical benefits, left the subject for more intellectually rewarding pursuits. The result is a frustrating dearth of scholarship on the subject.
I have four problems with this opening. One, there’s no such thing as “improved land”; land is land, and improvements on land are capital. Two, the economics profession only “quietly notes” the economic efficiency of a land tax because neoclassical economics dogmatically fuses land with capital; you can thank Henry George-hater John Bates Clark for that. (Marxism didn’t help much either.) Three, there’s more recent research on land taxes than the 1985 paper by Steven Cord that Rao found. Finally, the subject of land taxes is much more intellectually rewarding than many other pursuits (in economics) because it raises topics on social justice, the history of economics, and economics’ politicization and lack of intellectual clarity.
It’s surprising that Rao couldn’t find more studies on LVT. In fact, Steven Cord himself collected a list of no fewer than 237 such studies in February 2006. I’m probably being unfair and Rao wanted a dollar figure for the United States’ annual land rent. If so, point number one is that technically it doesn’t matter. Shifting taxes from labor and capital onto land logically cannot create a revenue shortfall (aside from crowding out) because the shift increases taxable land values. Mason Gaffney refers to this as the “ATCOR principle” (all taxes come out of rents). In truth, non-land taxes suppress production and commerce, so a land-tax shift would raise GDP (and counts it better too, e.g. not including land rents as a product when they’re spontaneously generated).
My current favorite example of a recent analysis of the effects of a land-tax shift is the essay collection, The Losses of Nations: Deadweight Politics Versus Public Rent Dividends. Published in 1998, the editor Fred Harrison writes, “[T]he wealth lost to nations is so large as to override all scholastic concerns for precision.” (Pages v-vi) Okay, I think some precision is warranted, but if Rao wants a more recent figure, then he should turn to chapter 6 of Losses of Nations. Authors Nicolaus Tideman and Florenz Plassmann calculate that U.S. current-dollar GDP in 1993 ($5.495 trillion) would have actually been $7.097 trillion with a land tax, a 23 percent deadweight loss. For Europe, due to its VATs, the deadweight loss is closer to 50 percent. Part of the reason it’s hard to argue for land taxes is that it’s hard to conceptualize the opportunity that’s been lost.
By the way, I’m incredulous about these numbers too, mainly because I think it’s too good to be true for Georgists, but I’m happy to be proven wrong.
One thing that land-taxers also hasten to point out is not just how government accounting reshuffles land rents into categories like “corporate profits” but how government under-assesses land values. For example, Michael Hudson wrote in 2001, “The Lies of Land: How and Why Land Gets Undervalued,” in which he noted that governments tend to use the land-residual rather than building-residual valuation methodology that low-balls land values.
According to Hudson, in 1993 the Federal Reserve found that all the land owned by nonfinancial corporations nationwide had a -$4.0 billion value! Soon after, the Fed stopped publishing national land statistics altogether. In chapter 2 of Losses of Nations, Hudson is quoted as finding that the nation’s land value in 1994 was not the $4.4 trillion the Fed reported but in fact $8.8 trillion.
And we’re told that economists don’t find this intellectually rewarding.
I’d roll my eyes if someone said Georgists sound paranoid when they take the “indifference” economists show to land taxes for political capture by the rentiers. However, so long as economists treat land taxes as a trivial supply and demand graphic in a textbook box insert instead of learning the academic and political work backing it, they won’t understand what’s at stake.