Dr. Gavin R. Putland

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While land value taxation takes only as much money from property owners as it delivers to the Treasury, almost every other tax takes more money from property owners than it delivers to the Treasury.

How so? The overall supply of land is fixed. From the viewpoint of the taxpayer, the supply of land zoned for any particular purpose is also fixed, as is the supply of land within acceptable distance of any particular services, infrastructure, or markets. Yet access to suitably located land is essential to life and livelihood. Therefore land rents and land prices are bid upward until they absorb the economy's capacity to pay. All taxes are deductions from that capacity. In the best case, in which the tax is only a deduction from taxpayers' capacity to pay for access to land, the tax will take as much from landowners as it delivers to the Treasury. But most taxes do more than that; most taxes target productive transactions, causing otherwise viable transactions and hence otherwise viable enterprises to become unviable. Thus they reduce the total capacity to pay for land — and therefore reduce the income of landowners — by more than the tax paid: the landowners are overcharged!

Direct taxation of land values avoids the overcharge because the taxable value is independent of, and therefore cannot deter, any productive activity of the taxpayer. (Even selling the land does not destroy the taxable value or the incentive to use the asset productively, but merely transfers both to the buyer.) As there is no loss of production, landowners suffer no loss apart from the actual tax paid.

The same logic applies even to property owners who are about to sell. Anticipated liability for land tax reduces buyers' capacity to pay and therefore reduces sale prices. But so does anticipated liability for any other tax — with the usual overcharge.

Now consider what happens when the tax revenue is spent. Taxes on land values (or, better still, on increases in land values) give governments an incentive to spend money on public infrastructure that raises land values for the benefit of property owners [see the articles below]. Other taxes dilute that incentive but still ultimately fall (with an overcharge) on property owners. Indeed, financing infrastructure by land value taxation was strongly advocated by the British property investor Don Riley in his book, Taken for a Ride. Riley in turn drew his central argument from the late economist and Nobel laureate William Vickrey:

"... Given the high mobility of capital and labor, which tends in the long run to equalize returns to these factors over the region, landlords ultimately reap most if not all of the benefit from an increase in the efficiency of the city, and should, if they fully realized their long-term advantage, enthusiastically support the change to land-value taxation..."

"... Equity and efficiency are both served by having landlords contribute to the network costs of these services so as to enable their prices to be brought closer to marginal cost. In the long run the increased efficiency of the local economy would tend to redound to the benefit of the landlords by raising their market rents by more than the amount of the subsidy..."

"... If landlords in a community could be made aware of their long-run interests, they would voluntarily agree to tax themselves on a site-value basis to subsidize utility rates so as to permit them to be set at close to the efficient level, and find that the rental value of their land had risen by more than the amount of the tax subsidy..."

So says Vickrey in K.C. Wenzer (ed.), Land-Value Taxation: The Equitable and Efficient Source of Public Finance (New York: M.E. Sharpe, 2000).

The inescapable conclusion: If property owners were economically rational, they would prefer land value taxes to other taxes.

Articles on taxation & public finance

ProsperAustralia Working Papers

  1. Opting out of the tax system — or the feasibility of financing government through the free market (superseded by next item)
  2. The tax/rent trade-off: Making tax (literally) optional
  3. Greens vs. Georgists
  4. Housing affordability: What it is, what it isn't, and how to achieve it
  5. The superiority of Site-Value rating — and how to implement it with no losers
  6. The possibility of a Zero-Tax Party in New South Wales
  7. Adequacy of land-value capture for the funding of infrastructure

ProsperAustralia Talking Points

  1. Income Tax: The Zero Option
  2. IR Reform: Unmentionable Barriers to Job-Creation
  3. Negative Gearing: Incompetence or Conspiracy?
  4. Infrastructure: Free Riders on the Tollway
  5. IR Reform: Who Really Wins?
  6. The Progressive Flat Tax
  7. Your Home: The Tax Haven that Never Was
  8. Infrastructure: No Pork Barrel Needed!
  9. Globalization: Shortcut to the Bottom
  10. IR Reform: Let Banks Collect P.A.Y.E. Tax
  11. FHOG Reloaded: New Home Builders' Grant
  12. Taxation vs. Privacy
  13. The Property Owners' Suicide Bomb
  14. The Self-Hypothecating Tax
  15. Fairfax Spin on Land Tax

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(Note: The proposals discussed in the following documents are not necessarily compatible with those in more recent works of this writer, and were not necessarily meant to be compatible with each other.)

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"... It is in vain in a country whose great fund is land to hope to lay the publick charge of the Government on anything else; there at last it will terminate. The merchant (do what you can) will not bear it, the labourer cannot, and therefore the landholder must: and whether he were best to do it by laying it directly where it will at last settle, or by letting it come to him by the sinking of his rents, ... let him consider."

— John Locke,
Some Considerations of the Lowering of Interest... (1691).