Land value tax
Based on Wikipedia: Land value tax
The Perfect Tax That Almost Nobody Uses
Economists have spent three centuries looking for the perfect tax. They found it. It doesn't hurt economic growth. It can't be evaded. It falls on the wealthy. And almost no country in the world actually uses it.
The land value tax—a levy on the value of land itself, ignoring whatever buildings or improvements sit on it—has been called "the perfect tax" by economists since Adam Smith first praised it in the eighteenth century. David Ricardo agreed. So did virtually every major economist who followed. The logic is elegant and virtually unassailable. Yet today, only a handful of places implement it even partially: Denmark, Estonia, Singapore, Taiwan, and a scattering of cities in Australia, Germany, and the United States.
What makes this tax so theoretically perfect? And why has it remained theoretical for so long?
Why Land Is Different From Everything Else
Most taxes create what economists call "deadweight loss"—they distort decisions and discourage productive activity. Tax income, and people work less. Tax purchases, and people buy less. Tax buildings, and people build less.
But land is different.
Land cannot be manufactured. It cannot be moved to a tax haven in the Cayman Islands. The supply is, in economic terms, "perfectly inelastic"—a fancy way of saying that no matter how much you tax it, there won't be any less of it tomorrow than there is today. Tax labor, and workers might stay home. Tax land, and the land is still there, unmoved and unmovable.
This simple fact has profound consequences. When you tax something that can't change in supply, the entire tax burden falls on the owner. They can't pass it on to tenants through higher rents, because tenants would simply move to competing properties. They can't reduce the supply of land to drive up prices, because they have no control over the supply. The tax comes straight out of the landowner's pocket.
And landowners, as a class, tend to be wealthy. Owning valuable land correlates strongly with income and assets. A land value tax is therefore inherently progressive—it takes more from those who have more.
The Henry George Revolution That Wasn't
The most passionate advocate for land value taxation was Henry George, a nineteenth-century American economist and journalist whose 1879 book Progress and Poverty became one of the best-selling economic texts of all time. George observed something that troubled him: as society became richer, poverty seemed to persist and even deepen. Technological progress raised overall wealth, but the gains flowed disproportionately to landowners.
George's explanation was elegant. When a city builds a new subway line, land near the stations becomes more valuable. But who created that value? Not the landowner—they just sat there. The community created the value through public investment and the collective decision of thousands of people to live and work nearby. Yet the landowner captures that value as rising property prices.
This struck George as fundamentally unjust. He proposed a single tax on land values that would capture this community-created wealth for public use, replacing all other taxes. His movement, which came to be called Georgism, attracted millions of followers. George nearly became mayor of New York City in 1886, running on a platform of the single tax.
The revolution never came. Landowners—who possessed, then as now, enormous political influence—fought back effectively. The movement fractured and faded. But the economic arguments George marshaled have never been seriously challenged.
How It Actually Works
A land value tax separates the value of land from the value of whatever sits on it. Consider a city lot with a house. A conventional property tax assesses the total value—land plus building—and taxes that combined sum. A land value tax ignores the building entirely and taxes only the land.
This creates radically different incentives. Under a property tax, if you improve your building—add a room, renovate the kitchen, replace the roof—your taxes go up. The tax punishes investment. Under a land value tax, improvements are free of additional tax. Build a skyscraper or let the lot sit empty; your tax bill stays the same.
The result? Landowners have powerful incentives to develop their property. Empty lots in valuable locations become financial liabilities rather than speculative investments. The mayor of Harrisburg, Pennsylvania, credited the city's land value tax—implemented in 1975—with reducing vacant downtown structures from roughly 4,200 in 1982 to fewer than 500 by the early 2000s.
Speculators who buy land and sit on it, waiting for prices to rise, find this strategy suddenly unprofitable. They must pay taxes on the land's value every year whether they use it or not. Many choose to sell to developers who will actually build something.
The Bubble-Popping Machine
Real estate bubbles follow a depressingly familiar pattern. Speculators buy land expecting prices to rise. Rising prices attract more speculators. Banks lend freely against appreciating land values. The bubble inflates until it doesn't, and then everything collapses at once. The 2008 financial crisis followed this script almost perfectly.
Land value taxation directly attacks the speculation that drives these bubbles. When landholding costs money every year, the math changes. Buying land and waiting for prices to rise makes sense only if the expected appreciation exceeds the annual tax burden. A high enough land value tax makes speculation unprofitable.
More subtly, a land value tax prevents land rents from becoming "capitalized" into prices. When you buy a piece of land, part of what you're paying for is the right to collect rent from that location forever. If the government captures most of that rent through taxation, the purchase price falls accordingly. Lower land prices mean smaller mortgages, less speculation, and more stable financial systems.
Some economists argue that land value taxation could eliminate real estate bubbles entirely. That's probably an exaggeration—human beings will always find new ways to speculate irrationally—but the dampening effect on land speculation would be substantial.
The Practical Problems
If land value taxation is so wonderful, why isn't it universal?
Start with valuation. How do you assess the value of land separately from whatever sits on it? You can't exactly sell a skyscraper's foundation while leaving the building floating in the air. The land and improvements are physically inseparable.
Assessors handle this through various techniques. They examine sales of vacant land in similar locations. They estimate what a plot would sell for if the buildings were removed. They use statistical models that analyze thousands of transactions to tease apart land and improvement values. Modern geographic information systems make this easier than it once was—once you've established values for landmark parcels, you can interpolate values for everything in between.
Justice William Paterson of the United States Supreme Court worried about this as early as 1796, arguing that leaving valuation to assessors would create bureaucratic nightmares and inconsistent procedures. Murray Rothbard, the libertarian economist, later raised similar objections: only a free market can truly determine value, and government assessors will inevitably get it wrong.
These concerns are real but overstated. Property taxes already require assessment, and land value varies more smoothly than improvement value—neighboring lots tend to have similar land values, while neighboring buildings can differ wildly in quality and design. If anything, land value assessment is easier than the combined assessments that property taxes already require.
The Political Problem
The deeper obstacle is political. Landowners are not a random sample of the population. They are, by definition, people with assets. They are more likely to vote, more likely to donate to campaigns, more likely to have the ear of politicians. And they have every reason to oppose a tax that falls directly and heavily on them.
The genius of many taxes is that their burden is diffuse and hidden. Sales taxes take a little from everyone. Income taxes are withheld automatically before you ever see the money. Corporate taxes get passed along to consumers and workers in ways that are nearly impossible to trace. Nobody organizes politically around these taxes because nobody feels them as a concentrated burden.
Land value taxes are different. A wealthy landowner facing a substantial annual bill knows exactly who to blame and has both the resources and motivation to fight it. Throughout history, landed interests have used their political power to deflect taxation onto others—onto trade, onto labor, onto consumption, onto anything but land itself.
Henry George understood this. He saw land monopoly as the foundation of inequality and the land value tax as the tool that could break that monopoly. But breaking monopolies requires overcoming the monopolists, and the monopolists have proven remarkably effective at protecting themselves.
The Developing World Challenge
Land value taxation faces additional obstacles in developing countries, where clear land titles often don't exist. You cannot tax land if you don't know who owns it. And in much of the world, ownership is unclear, disputed, or communal in ways that don't fit neatly into Western legal categories.
In parts of Africa, grazing land may be communally owned by village inhabitants and administered by elders under customary law. Boundaries may be poorly surveyed or not surveyed at all. The "owner" in any meaningful sense might be a village, a clan, a family, or nobody in particular. How do you send a tax bill to a tradition?
Establishing clear land registries is expensive and politically fraught. Powerful interests often benefit from ambiguity—if nobody knows exactly who owns what, it's harder to hold anyone accountable. Land reform efforts throughout history have faced fierce resistance, and creating the administrative infrastructure for land value taxation is itself a form of land reform.
The Ancient Roots
Despite its association with Henry George, the idea of taxing land value stretches back millennia. Ancient Indian texts from the Vedic period argued that land should be held in common and that unfarmed land should bear the same tax burden as productive land. The earth, they claimed, "is common to all beings enjoying the fruit of their own labour."
The Chinese philosopher Mencius, writing around 300 BCE, advocated eliminating taxes and tariffs in favor of collecting urban land rent: "In the market-places, charge land-rent, but don't tax the goods." His reasoning anticipated the efficiency arguments that economists would develop two thousand years later.
Medieval England developed the "geld," a land tax based on the hide—originally defined as the amount of land sufficient to support a household. The hide became a standardized unit of taxation, creating one of the first systematic land tax regimes in European history.
The Physiocrats, a school of French economists in the eighteenth century, argued that all wealth ultimately derived from land. They proposed a single tax on land rent, reasoning that all other taxes eventually came out of land values anyway—you might as well tax land directly and avoid the economic distortions that indirect taxes create. Their ideas influenced Adam Smith, who praised land taxes in The Wealth of Nations.
The Modern Experiments
Where land value taxation has been tried, it has generally worked. Denmark maintains a national land value tax that has operated for decades. Estonia implemented one after independence from the Soviet Union and credits it with spurring rapid development. Singapore uses land value capture to help fund its public housing and transit systems. Taiwan taxes land values and has avoided the extreme property speculation that plagues other Asian cities.
In the United States, Pennsylvania has been the laboratory. Nearly two dozen Pennsylvania cities have implemented some form of split-rate taxation, taxing land at higher rates than improvements. The results have generally been positive—more construction, less vacancy, increased density in urban cores.
But these remain experiments at the margins. No major economy has fully implemented Georgist principles. The political obstacles remain formidable.
What It Would Mean
Imagine, for a moment, a world that took land value taxation seriously. Urban land speculation would become unprofitable. Property prices would stabilize and likely fall. Young people could afford to buy homes in cities where they work. The financial system would be less prone to real estate-driven crises.
Public investments would naturally pay for themselves. Build a park, and nearby land values rise, generating tax revenue. Extend a transit line, and land around the new stations becomes more valuable, funding the construction. The community would automatically capture the value that community action creates.
Other taxes could be reduced or eliminated. Income taxes discourage work. Sales taxes discourage consumption. Payroll taxes discourage hiring. Land taxes discourage nothing except land hoarding—and that's something we want to discourage anyway.
Economist William Vickrey, who won the Nobel Prize in 1996, believed that replacing most business taxes with land value taxation "would substantially improve the economic efficiency of the jurisdiction." Most economists agree, at least in principle.
The Eternal Question
We have known for three centuries that land value taxation is economically efficient, administratively feasible, and ethically sound. We have known that it cannot be evaded, that it falls on the wealthy, that it encourages productive use of land, that it prevents bubbles, and that it captures community-created value for community use.
We also know that the people who would bear this tax are the same people who shape tax policy. And so the perfect tax remains, after all these years, largely theoretical—an elegant idea that almost nobody uses, praised by economists and ignored by legislators, the road not taken in public finance.
Perhaps someday the economics will finally overcome the politics. Or perhaps the "perfect tax" will remain forever perfect and forever impractical, a monument to the gap between what we know and what we do.