Response to Jesse Myerson’s Land Tax Idea

February 6, 2014

Jesse Myerson has made a splash lately, writing a Rolling Stone piece that sounded communist even if it wasn’t, and a less disguised “why you’re wrong about communism” piece for Salon. Someone today sent me a piece that he actually wrote late last year, advocating a land tax to replace all other taxes:

If we want a real overhaul/simplification of the tax code, the way to do it is to tax land value. It might be the only tax we need. No sales tax. No income tax. No payroll tax to fill a Social Security trust fund. No corporate income tax that, as we can plainly see, offshores profits. No need to tax labor and industry at all. Just tax the stuff that humans had nothing to do with creating, and therefore have no basis to claim ownership over at all. You’ll find that almost all of it is “owned” by the fabled 1 percent.

This idea, popularized by economist Henry George, is one that historically has had support from left and right. The left supports it in the belief that wealth comes primarily from land, taxing it prevents excessive wealth accumulation and speculation, and that it would be progressive since the poor don’t usually own land. (These arguments were first made over a century ago, and our switch from an agricultural economy to a more service-based economy may undermine some of them.) The right supports it because a land tax, unlike other taxes, does not discourage productive activity since no more land can be created, and taxing land instead of income is less harmful to investment and development.

That said, while it’s a nice idea, the actual numbers may give people pause. Federal, state, and local governments in the United States collect about $4.2 trillion in taxes each year. (They spend slightly more than that, resulting in a budget deficit, but ignore that for now.) All land values in the United States is a bit tricky to calculate, as it involves adding up different state measures. My back-on-the-envelope guesstimate has all privately-held land value in the U.S. totaling about $13 trillion. Structures add about another $35 trillion, for a total of just under $50 trillion in property values.

Just looking at land values as a tax base, raising $4.2 trillion on a base of $13 trillion means a hefty land tax rate: 32 percent a year. People complain today when their property taxes edge above 1 percent! Even if you tax land and structures, that would require about an 8 percent annual property tax rate. A land tax might be better for economic growth and discouraging land speculation, but those tax rates would be a tough sell for people!

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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

The tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.

A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.

A property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services.

A payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue.

A corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax.