A land value tax is a levy on the market value of land, exclusive of any buildings or other improvements. The tax is said to be a progressive tax, as the burden falls mainly upon citizens with land holdings.
Unlike taxes on labor, enterprise profits, and produced goods, a tax on land rent or land value has no deadweight loss, as it does not reduce the incentives to produce. Land has a fixed supply, so taxing it does not shrink the amount of land, nor does land flee or hide as does income. Since land receives much of its value from nearby public works and services, a land value tax returns value received, avoiding the implicit subsidy of rent and land value if these are paid for by taxing labor or enterprise. Under this theory, land beneath glaciers in Antartica has the same value as Mid-town Manhattan real estate.
The American economist Henry George analyzed and promoted land value taxation during the later 1800s, and so land value taxation is referred to as a Georgist policy. Progressives today consider a land value as both efficient and equitable, and a shift of taxes from labor, sales, and profits to land value would make the economy more productive. Conversely, taxing land below fair market value cheats the government out of revenue.
References
- Progress and Poverty by Henry George (1879)