100% land value tax clarification (rent or value)
I noticed that there’s a lot of confusion about what different land value tax rates imply for the tax burden, so I thought I would clarify it.
In practice, the tax is based on the value of land, because that is the easiest to observe. There is also reason to believe that this value is better to base it on as it also includes expectations about the future which reduces speculation.
The most important thing is that the land value tax is based on the after tax value. So a 100% tax rate on a 5 million euro lot does not imply a tax burden of 5 million euros.
The value is calculated using the formula:
Value = rent / (interest rate - growth rate + tax rate)
This value is then multiplied with the tax rate to get the tax burden.
Here is the tax burden for different tax rates on a 50000 land rent lot with 3% interest rate and 2% growth rate.
0%: 0 (market value aka pre-tax value: 5,000,000)
1%: 25,000 (market value: 2,500,000)
2%: 33,333 (market value: 1,666,667)
5%: 41,667 (market value: 833,333)
10%: 45,455 (market value: 454,545)
50%: 49,020 (market value: 98,039)
90%: 49,451 (market value: 54,945)
100%: 49,505 (market value: 49,505)
As the tax rate goes towards 100%, it goes towards the land rent.
If the tax was on the rental value it would be like this:
1%: 500
2%: 1,000
5%: 2,500
10%: 5,000
50%: 25,000
90%: 45,000
100%: 50,000
But we don’t work with land rents cause those are not observed in practice.
So when people talk about a 100% tax rate on land value, they may mean land rent, but it’s likely that they are talking about land value too. The main reason you wouldn’t want a 100% tax rate is because of the margin of error in assessments that could cause abandonment if too high. Another takeaway from this is that there is not that much difference between a 100% tax rate and a 10% tax rate and that there’s a big difference between 1% tax rate and a 2% tax rate. Advocating for a 5% or 10% tax rate is probably enough, and would still go a very long way in completely shifting the tax picture.
Recommended reading: https://www.maxwell.syr.edu/docs/default-source/research/post-corona-balanced-budget-super-stimulus.pdf?sfvrsn=4a481ae0\_5
Edit: corrected some math