Friday, October 22, 2010

OECD: Land Tax is Good

'Taxes on immobile bases, such as property' are advocated in an article recently (7 Oct) in the Financial Times by Vanessa Houlder . The source paper for this was by the OECD 23 March 2010 Preparing Fiscal Consolidation.   This itself quoted Asa Johansson from OECD Asa Johansson Working Paper 620. 2008
47. Recurrent taxes on land and buildings (especially residential buildings) are generally argued to be more efficient than other types of taxes in that their impact on the allocation of resources in the economy is less adverse. This is because these taxes do not affect the decisions of economic agents to supply labour, to invest in human capital, to produce, invest and innovate to the same extent as some other taxes.

.....also, as real estate and land are highly visible and immobile these taxes are more difficult to evade, and the immovable nature of the tax base may be particularly appealing at a time when the bases of other taxes become increasingly internationally mobile. Property taxes also encourage greater accountability on the part of government, particularly where they are used to finance local government. Property taxes, with regular updating of valuation (which, with modern technology, is now feasible), can also increase the progressivity of the tax system (for example, by the exemption of low value properties), provided that special arrangements are made to reduce the liquidity constraints that the tax may imply for the relatively small number of people with low incomes and illiquid assets.

…and they could contribute to the usage of underdeveloped land…
48. The design of property taxes on land and buildings can also be used as an instrument to affect land development and land use patterns. For example, low taxes on vacant property and  undeveloped land can encourage the under-utilisation of land which may lead to a reduced supply of land for housing particularly in urban areas. Linking the assessment value to market value may increase incentives for developing land as market prices also reflect the development potential of land.

Fred Harrison's book The Predator Culture ( see this blog Oct 18) comes with a strong advocacy of land taxation as outlined above but Johansson does not differentiate between buildings and the land. 
The first paragraph says land and building taxes are less inhibiting to investment decisions.
Correct concerning taxation of land but if adding value to a building will increase the tax on it then improvement is inhibited. 
So: tax the plot's value more and the building's value less (or not at all).  We need good housing, offices and factories so chop taxes on them. Balance any tax loss with more tax on the site. Force the landowner to develop their plot (to raise funds for the land tax) and make this easy for them by having all buildings tax-free. 
posted by Charles Bazlinton
BUY THE BOOK: For a fuller discussion of land tax and other measures to make a fairer society click here: The Free Lunch - Fairness with Freedom 


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