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Followers of Henry George (a fine economist) argue that land should be heavily taxed and activities that are truly productive (like labor) should be lightly taxed. The argument is used because it is thought that such a system would improve output and also produce a more just “distribution” of wealth.

The reason to tax land, it is argued, is that men could benefit from merely owning a piece of property and holding onto it while the rest of the community contributes and grows. We might be able to “justify” the rewards to a Steve Jobs for providing us with awesome entertainment and educational devices, but what of the real estate “speculator” who holds a piece of land in the city idle while others profitably develop lands around it. The excess value gained from holding the land when other people’s actions produce more wealth for you is commonly called “rent.”

Without addressing the merits of the speculator in the first place, here is a problem for those who sympathize with such a view. When I went to college, I benefited a great deal from the productive efforts of my classmates. In fact, these so called “peer effects” are one of the en vogue things to focus on in higher education. The extra gains I have made as a result of being near talented Amherst students as opposed to less talented SUNY Albany students is appropriately called rent (even the non-financial gains). Should this rent be condemned out of hand?

Are there not other people who do not “contribute” to society but who also nonetheless benefit from their efforts? Consider the increase in well being I get as a consumer when the rest of society figures out a way to make things more cheaply. Consider the well being I get as a professor when someone figures out a way to let me “chat” with students even when I am not in my office.

Thus, the “problem” of rent is everywhere – why is it that land should be the target for confiscatory taxation in the name of a more just income distribution? In a future post we’ll address why the “problem” of rent in itself is no particular problem, and certainly overstated today.

2 Responses to “Problem for Green Taxers and Land Taxers”

  1. azmyth says:

    The argument I’ve heard for land taxes is that the supply of land is very inflexible to the rate of taxation (people could abandon land that had negative value). Thus the deadweight loss is lower than other forms of taxation.

  2. […] I last addressed issues of rent and land taxation here. […]

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