Another issue with the LVT is that it acts as an implicit tax on nearby land development.
Isn’t this the whole point ? One of the main goals of LVT, as I understand it, is to prevent people from leeching off positive externalities generated by others without providing anything themselves, like a shitty apartment building that still charges high rents because of good nearby amenities/infrastructure.
The downside you mention is about how LVT would also prevent people from ‘leeching off’ their own positive externalities, like the Disney example. Assuming that’s true, I’m not sure why that’s a problem ? It seems to be the default case for everyone. A restaurant doesn’t capture the full externalities from the neighborhood having a restaurant nearby, not unless it’s the only restaurant around and generally not even then. A friendly neighbor doesn’t capture the externality from the neighborhood having exactly one additional nice person in it. Neither of these things are realistically feasible, so why should we care that LVT would also make it unfeasible for Disney to get the full externalities from building Disney World ?
The downside you mention is about how LVT would also prevent people from ‘leeching off’ their own positive externalities, like the Disney example. Assuming that’s true, I’m not sure why that’s a problem ? It seems to be the default case for everyone.
The problem is that it would reduce the incentive to develop property for large developers, since their tax bill would go up if they developed adjacent land.
Whether this is a problem depends on your perspective. Personally, I would prefer that we stop making it harder and more inconvenient to build housing and develop land in the United States. Housing scarcity is already a major issue, and I don’t think we should just keep piling up disincentives to develop land and build housing unless we are being adequately compensated in other ways by doing so.
The main selling point of the LVT is that it arguably acts similarly to a zero sum wealth transfer, in the sense of creating zero deadweight loss (in theory). This is an improvement on most taxes, which are closer to negative sum rather than zero sum. But if the LVT slows down land development even more than our current rate of development, and the only upside is that rich landowners have their wealth redistributed, then this doesn’t seem that great to me. I’d much rather we focus on alternative, positive sum policies.
(To be clear, I think it’s plausible that the LVT has other benefits that make up for this downside, but here I’m just explaining why I think your objection to my argument is weak. I am not saying that the LVT is definitely bad.)
The problem is that it would reduce the incentive to develop property for large developers, since their tax bill would go up if they developed adjacent land.
I guess I’m arguing about the zero point. Your frame is that the current situation where large developers develop something, the surrounding land’s value goes up, and this profits the developer is the default, and thus LVT brings us below the default, since it balances the uptick in land value with more taxes. My frame is that the default for everyone else is that one cannot benefit from the increase in surrounding land’s value from one’s own actions, the current way we manage land ownership enables large landowners and companies to do it but that’s not the norm, and LVT just brings large landowners and companies back to the same default as everyone else.
I agree that on purely consequentialist grounds the result is the same, that this will be a pressure towards fewer buildings (or it gets rid of a pressure towards more buildings), but I think the frame matters for what our default reaction will be, especially in the absence a of good comprehensive model of what would happen to land use under LVT.
Also on purely consequentialist grounds, a situation where large landowners have an advantage to develop their land over everyone else seems like it risks all land belonging to a few large landowners in the very long term, which doesn’t seem desirable.
But if the LVT slows down land development even more than our current rate of development, and the only upside is that rich landowners have their wealth redistributed, then this doesn’t seem that great to me.
Note that the idea is that LVT would incentivize more development, and this is only an argument that it wouldn’t in one situation (for large landowners). If the LVT’s advocates argument holds for small landowners, the overall effect on land use could still be positive. Overall I agree that we can’t just assume the effect of LVT on land development would be positive without a better model to justify it, though I don’t think we should assume it to be negative either.
Isn’t this the whole point ? One of the main goals of LVT, as I understand it, is to prevent people from leeching off positive externalities generated by others without providing anything themselves, like a shitty apartment building that still charges high rents because of good nearby amenities/infrastructure.
The downside you mention is about how LVT would also prevent people from ‘leeching off’ their own positive externalities, like the Disney example. Assuming that’s true, I’m not sure why that’s a problem ? It seems to be the default case for everyone. A restaurant doesn’t capture the full externalities from the neighborhood having a restaurant nearby, not unless it’s the only restaurant around and generally not even then. A friendly neighbor doesn’t capture the externality from the neighborhood having exactly one additional nice person in it. Neither of these things are realistically feasible, so why should we care that LVT would also make it unfeasible for Disney to get the full externalities from building Disney World ?
The problem is that it would reduce the incentive to develop property for large developers, since their tax bill would go up if they developed adjacent land.
Whether this is a problem depends on your perspective. Personally, I would prefer that we stop making it harder and more inconvenient to build housing and develop land in the United States. Housing scarcity is already a major issue, and I don’t think we should just keep piling up disincentives to develop land and build housing unless we are being adequately compensated in other ways by doing so.
The main selling point of the LVT is that it arguably acts similarly to a zero sum wealth transfer, in the sense of creating zero deadweight loss (in theory). This is an improvement on most taxes, which are closer to negative sum rather than zero sum. But if the LVT slows down land development even more than our current rate of development, and the only upside is that rich landowners have their wealth redistributed, then this doesn’t seem that great to me. I’d much rather we focus on alternative, positive sum policies.
(To be clear, I think it’s plausible that the LVT has other benefits that make up for this downside, but here I’m just explaining why I think your objection to my argument is weak. I am not saying that the LVT is definitely bad.)
I guess I’m arguing about the zero point. Your frame is that the current situation where large developers develop something, the surrounding land’s value goes up, and this profits the developer is the default, and thus LVT brings us below the default, since it balances the uptick in land value with more taxes. My frame is that the default for everyone else is that one cannot benefit from the increase in surrounding land’s value from one’s own actions, the current way we manage land ownership enables large landowners and companies to do it but that’s not the norm, and LVT just brings large landowners and companies back to the same default as everyone else.
I agree that on purely consequentialist grounds the result is the same, that this will be a pressure towards fewer buildings (or it gets rid of a pressure towards more buildings), but I think the frame matters for what our default reaction will be, especially in the absence a of good comprehensive model of what would happen to land use under LVT.
Also on purely consequentialist grounds, a situation where large landowners have an advantage to develop their land over everyone else seems like it risks all land belonging to a few large landowners in the very long term, which doesn’t seem desirable.
Note that the idea is that LVT would incentivize more development, and this is only an argument that it wouldn’t in one situation (for large landowners). If the LVT’s advocates argument holds for small landowners, the overall effect on land use could still be positive. Overall I agree that we can’t just assume the effect of LVT on land development would be positive without a better model to justify it, though I don’t think we should assume it to be negative either.