Tyler Cowen writes: “The land tax, an idea that dates to Henry George and the classical economists of the late 19th century, is having another one of its moments.” In fact, the idea is older, dating back to Adam Smith, David Ricardo, John Stuart Mill, and others, though indeed, land-value taxation (LVT) is quietly gaining new momentum in some parts of the United States. Detroit, Mich., is working to enact it, and there’s an LVT authorization bill in the Minnesota legislature that shows promise. More than simply appearing again in the news cycle, as it does every few years, there’s a real possibility that cities will be able to enact LVT when they weren’t able to before.
Cowen, however, is not convinced of its efficacy. He argues that land taxes won’t make cities more affordable because landowning interest groups will demand exemptions and thwart them.
We should consider ourselves lucky if LVT’s worst challenge is political wrangling.
Let me back up. If you’ve never had the opportunity to explain LVT to someone, you’ll find one of two things will happen: the person will quickly grasp the idea and agree with it, or they will counter it with either sideways logic or irrelevant free-market chest-thumping. The latter speaks for itself (didn’t I say Adam Smith liked the idea?), but one recent example of the former I’ve heard is: “There’s more to value than land.” Another is suggesting that it’s a bad idea because if we encourage land use by taxing it, then we’ll want to encourage labor by taxing leisure.
Thankfully, Cowen is sophisticated enough to accept the theory behind LVT, so he spares his readers these difficulties. With few options left to criticize it, however, he argues the benefits will be diluted by the landowners, which will counterintuitively increase construction costs.
But if taxing away recalcitrant landowners’ concentrated power won’t work, what would? Cowen doesn’t offer alternatives, and I am not merely making a rhetorical point. The purpose of the democratic process is to solve collective action problems; inevitably some minority blocs will pay for a law, and some parties within that minority more than others. Cowen is essentially arguing that democracy can’t solve problems. It’s a pretty nihilistic view: Laws won’t make things better for people and the wealthy will always play dirty, so the lesson is to never try.
On the contrary, majorities have come together to break interest groups’ power on many occasions, such as against polluters thanks to the Environmental Protection Act or health insurance companies by the Affordable Protection Act. Undoubtedly, they pushed back and demanded concessions, but the Cuyahoga River doesn’t catch on fire anymore and people who had cancer as teenagers can buy health insurance. Likewise, with LVT there will be more construction and cheaper housing at the expense of some uncooperating landowners.
If anything, LVT has less to fear from special interests and NIMBYists than lack of significant impact. Here, experience in the 2010s is instructive. The city enacted LVT for all the right reasons, but the city council repealed the law several years later largely because its benefits were too minimal. In reality, only the city’s property tax was shifted to land values, leaving county and school district taxes on buildings in place. Along with infrequent reassessments, the promised building boom didn’t materialize. Ironically, the only real pushback to the repeal was from businesses—traditionally thought of as special interests—which had invested in Altoona’s downtown area. Homeowners, it appears, did not complain about their higher property taxes. Repeal diffused the costs to the many and the benefits to the few.
Horse-trading between the stakeholders affected by a new law is inevitable, but that doesn’t mean LVT is doomed to be watered down. Rather, its advocates should focus on ensuring that its predicted benefits are visible. This way powerful interest groups and NIMBYists won’t be able to coordinate a repeal of LVT, for which there is much more precedence than there is for stymieing it.
Matt Leichter is a lawyer and writer living in Minneapolis, Minnesota. His writing on legal education, student debt, land reform, positional goods, and popular culture can be found at The Last Gen X American.