How to sell Georgism to the middle class
We need to tax land. But the wealth of the middle class is mostly in land. How do we untie this knot?
I’m very glad to see more people taking an interest in Georgism! For those who don’t know, Georgism is the economic philosophy based on the ideas of Henry George, the 19th century American economist who wrote Progress and Poverty. His basic idea was that as humankind generates more wealth, landowners siphon off that wealth through increased land values and rents, so that lots of people stay poor. His solution was something we now call the “land value tax”, or LVT, which would tax the value of land itself without taxing the useful stuff that people create on the land (buildings, farms, etc.).
Lars Doucet has a great (and long) multi-part write-up of the LVT idea over at Scott Alexander’s blog, and I highly recommend it. But the basic idea isn’t hard to grasp. The tax has two big things going for it: Fairness, and economic efficiency.
First, fairness. Humans didn’t create the land; we just found it and declared it was ours. Companies, buildings, and other repositories of wealth are created by human ingenuity and effort, but land was there without us and will be there when we’re gone. Why should some humans reap a huge financial reward from that land while others get none? It seems unfair. Now if you build a building or a farm on the land or if you work to mine out the minerals under the land, then sure, reap the rewards. But just squatting on a piece of territory that they didn’t create doesn’t seem like the kind of thing that should determine who’s rich and who’s poor.
Second, efficiency. In general, when you tax something, people produce less of it. Tax labor earnings, and people work less. Tax savings, and people save less. And so on. Maybe it’s only a little bit less (as with income tax), but there is some effect. Not with land, though. No matter how much you tax it, land never goes away, so you can theoretically raise a lot of money with an LVT.
In fact, LVT is even more important for productive efficiency. A lot of land’s value — and more and more as time goes on — comes from its location. Land in urban areas is really valuable because of clustering effects — if all the tech companies decide they want to be in San Francisco, then land values in San Francisco shoot up. So do rents. That siphons away wealth from the productive tech workers who moved to the city, which discourages people from moving there, which reduces economic growth. Some authors, like Hsieh & Moretti (2019), find a pretty large growth reduction from limitations on housing in industrial cluster cities like NYC and SF. LVT provides a partial fix for this, by siphoning away money from lucky urban landowners and — presumably — returning it to the productive residents of the city, in the form of cash payouts or local public goods like education and infrastructure. In fact, a number of famous economic theory papers, most notably Arnott & Stiglits (1979), find that local public goods should be entirely financed by land value taxes — a result that’s usually referred to as the Henry George Theorem.
There are some practical problems regarding the implementation of LVT. The two thorniest questions revolve around when the tax is collected, and how the value of land can be separated from the value of improvements on the land (e.g. buildings). The answer to the first is basically to just have normal property tax with exemptions for improvements. This is how they did it in Pennsylvania in the 90s, and it worked pretty well. The second question, about assessments, is something Lars Doucet and other Georgists are working on dealing with.
So that’s all good. And it’s good to see that people in both the tech and politics world are taking a renewed interest in the idea of taxing land value. But there’s another problem here, which will likely prove less easy to surmount than the technical issues: Political economy. The fact is, most of the wealth of the American middle class is tied up in houses (and the land under the houses), and taxing away a significant portion of that wealth is going to make a lot of Americans very angry.