How do land value taxes work?

Land value taxes (LVT) are a method of taxation where the economic value of the land itself is taxed, rather than the buildings or improvements made to the land. LVT aims to capture the value of the social and community developments that enhance land values, encouraging landowners to utilize the property efficiently or relinquish it to those who will.

The discussion between Dwarkesh Patel and Lars Doucet elaborates on the potential benefits and impacts of LVT.

Key Points on Land Value Taxes

1. Shift in Burden: LVT would shift the tax burden from upper-middle-class landowners in urban areas to entities like major corporations that own valuable commercial land. However, much of the urban land value is concentrated in central business districts and commercial estates. Therefore, the tax would heavily impact those who hold valuable real estate but do not necessarily use it productively, like parking lots in central locations 1.

2. Economic Efficiency: Although it might seem regressive—shifting economic advantage towards more wealthy entities—the net effect is deemed economically efficient because it promotes better usage of prime real property 1.

3. Revenue Potential: Lars Doucet noted that with a full LVT, the U.S. could generate significant revenue, potentially paying for major budget items like Social Security, healthcare, or defense, thereby offering scope to reduce other forms of taxation 2.

4. Encourages Proper Use: By taxing land based on its unimproved value, landowners are motivated to utilize land to its fullest productive potential rather than holding onto it speculatively 1.

5. Impact on Assessment and Pricing: The implementation of LVT could affect real estate pricing strategies, as the tax would be based on the land's value, potentially decreasing the selling price to zero but making the land usage more efficient 3.

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     1

     Land Value Tax Debate

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     2

     Land Value Tax Potential

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     3

     Land Value Tax Calculation

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LVT is structured to incentivize the efficient use of land and mitigate speculative holding. The approach targets the socially-created value of land (like proximity to infrastructure and amenities), thus aiming to benefit the larger community or fund public goods. While it presents potential for substantial local revenue generation and economic activity stimulation, its broader application and impact on larger economic scales (like national funding) need careful consideration and planning.