To many people, the land value tax (LVT) has earned the reputation of being the "perfect tax." In theory, it achieves a rare trifecta: generating government revenue without causing deadweight loss, incentivizing the productive development of land by discouraging unproductive speculation, and disproportionately taxing the wealthy, who tend to own the most valuable land.
That said, I personally think the land value tax is overrated. While I'm not entirely against it—and I think that several of the arguments in favor of it are theoretically valid—I think the merits of the LVT have mostly been exaggerated, and its downsides have largely been ignored or dismissed for bad reasons.
I agree the LVT may improve on existing property taxes, but I think that's insufficient to say the policy itself is amazing. In my view the LVT is at best a useful but highly limited tool ("the worst tax policy ever, except for all the others that have been tried"); at worst, it is a naive proposal that creates many more problems than it solves.
In many ways, the enthusiasm surrounding the LVT seems like it has morphed into a kind of ideological fervor, where it is treated as a universal solution to a wide range of housing and economic problems. In various circles, the LVT has transcended its role as a reasonably sensible tax policy and is instead hailed as some sort of panacea to a disparate set of barely connected issues. This sentiment is epitomized by the meme "Land value tax would solve this", which is often repeated in response to housing-related debates on Twitter.
In this post, I aim to balance this debate by presenting several arguments that challenge the overly optimistic view of the land value tax. To be clear, it is not my aim to provide a neutral analysis of the LVT, weighing up all the pros and cons side-by-side, and coming to a final conclusion about its value. Instead, this post will focus exclusively on some of the most significant arguments against an LVT, which I feel are often ignored by even the most intellectually honest proponents of the LVT.
If you'd like to get a more complete picture of the overall merits of an LVT, in order to assess for yourself whether the negatives of the LVT outweigh the positives, I recommend reading this blog post series on Astral Codex Ten. There you will find a positive defense of Georgism, the philosophy most closely associated with the LVT.
Core problems with the LVT
A fundamental issue with the land value tax lies in the tension between its theoretical appeal and its practical implementation. On paper, the LVT is often presented as an efficient, distortion-free tax that encourages productive land use. However, I argue that this "naive" version of the LVT—the simplest and most commonly proposed form—actually contains intrinsic economic distortions that disincentivize using land efficiently.
Even in the best-case scenario, the naive version of LVT suffers from an inherently narrow tax base, limiting the revenue it can generate. Attempts to address its flaws, as outlined below, would further erode this already-limited tax base while also making the proposal significantly more complex, both administratively and legally. These issues ultimately undermine the practicality and effectiveness of the LVT as a policy tool.
An LVT discourages searching for new uses of land
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