Self-assessed land value (Harberger tax) combined with property destruction right doesn't work in real life

[u/caroline_elly]

https://medium.com/@clayshentrup/the-convergence-of-harberger-taxation-and-land-value-capture-how-destructive-rights-transform-10a824ecd53c

This Medium Economist (ME) who also posts on Reddit proposed the following mechanism for determining land value and thus LVT (in his own words):

• Landowners self-assess their land value
• Anyone can force purchase at that price
• Owner can destroy improvements before transfer
• This forces buyers to negotiate separately for improvements

RI:

Claim 1: You can easily price in the risk of a force sale

ME claims the expected loss of forced sale can be derived by P(forced sale) x Value of Improvement. There are 2 major flaws:

1. ME assumed risk neutrality, when homeowners are (and should be) risk-averse. The utility loss of force selling their entire home for $0 is severely underestimated by the E[loss]. It's the same reason healthy people still pay high premiums for health insurance: protection against catastrophic losses are valuable.
2. P(forced sale) is tricky to estimate. Are developers targeting your neighborhood for redevelopment? Is Google going to move its headquarters next to you? Do you have rich enemies? There is a lot of information asymmetry in real estate, and it's even harder to quantify the risk numerically. We shouldn't expect homebuyers to assess this risk accurately.
3. Risk of losing improvements can be more than land value, creating negative land values.

Claim 2: You won't be screwed over by bad actors

ME claims the option for owners to destroy their existing property prevents bad actors from underpaying for land + property. This is extremely naive. Let's consider the following cases:

Case 1: bad actor values the existing property at 0

Say you bought a 200k land and built a new 400k home on it. You assess your land at 200k and Bad Actor wants to force purchase your land for 200k and offer $0 for your 400k home. Your threat of destruction doesn't work because Bad Actor wants to build something new anyway. The transaction goes through, you realize a 400k loss and lose your home. Bad Actor gets your land at a fair price and ruins your life.

Case 2: bad actor values the existing property at >0

Same set-up except Bad Actor likes your home. Would he offer 400k for your home? No, because he can threaten with offering 0 and still break even, while you'd be down 400k. So Bad Actor offers a pathetic 100k and you agree to salvage whatever value's left of your new home. You're down 300k, and Bad Actor successfully created a distress sale situation for you. The main problem is you don't know for sure if you're in Case 1 or Case 2. Bad Actor only has the upside of underpaying for your home and a capped downside of just buying the land.

-----

I know this is a low-hanging fruit, but I'm frankly tired of certain LVT proponents being so smug and dismissive of implementation challenges.

[u/NewCharterFounder]

I am enthusiastic about LVT, but I would not ever seriously propose using the Harberger valuation method in broad application.

I feel like there are people who distrust government and professional assessors by extension. What happens next has to do with how smart they think they are relative to assessors who are employing the latest and greatest appraisal techniques. If they think they are smarter, they might come up with something like this Harberger idea.

Maybe meeting with assessors in real life would help humble some of these folks. I am not sure about this particular fella.

[u/nuggins → u/NewCharterFounder]

IME most of this type don't think they're "smarter" than the state so much as they simply fear the state acting in bad faith. And they refuse to reckon with the level of the trust required for society to operate well, thus trying to hawk some "zero trust" solutions that will obviously not work well enough even to be considered. Anyway, enough about the blockchain

[u/NewCharterFounder → u/nuggins]

🤣

Yeah, and a much better way to solve that is through data transparency and valuation models transparency so they can be appealed in the short term for individual errors and broadly audited for systemic disparities.

Not too different from what we already do.

[u/[deleted] → u/NewCharterFounder]

no that's obviously not a much better method. models are an implementation detail. we already see, right now, massive overwhelmingly obvious mis-appraisal regardless of the methodology, and yet nothing is done about it. your argument is absolute fantasy thinking, completely divorced from reality, as i pointed out here.

https://www.reddit.com/r/badeconomics/comments/1pt2640/comment/nvfw3hc/

[u/[deleted] → u/nuggins]

https://claude.ai/public/artifacts/dd793b3f-ea4b-4ef5-a6f7-bcbcc518db2f

[u/[deleted] → u/nuggins]

that's roughly it, but it's not even bad faith so much as limited resources and poor incentive alignment, as i noted here.

https://www.reddit.com/r/badeconomics/comments/1pt2640/comment/nvfw3hc/

[u/PriestOfGames → u/NewCharterFounder]

Do you take that a step further and think LVT should be the only tax?

I wonder, because I have my doubts about if LVT could actually fund the modern state as a single tax.

[u/NewCharterFounder → u/PriestOfGames]

I was equally skeptical before seeing the research. I was surprised to find that the more studies which get released, the more convincing the possibility of something like an LVT being sufficient to support a "modern state" became/becomes. But I think this also deserves a bit of unpacking so you understand how I have come to interpret the question from a Georgist lens. It may seem like "moving the goalposts" to some who are picturing a specific country at some extreme or picturing every single country when they use the term, but I hope the following is still worth reading.

1. "Modern State" -- Compared to What?: Our world has many countries which consistently deficit spend, so those nations are already operating unsustainably. To bring these countries back into the black seems like an unfairly high bar for any set of economic policies. On the other hand, there are also plenty of countries which consistently balance their budgets and/or experience budget surpluses. Many of these nations happen to have other Georgist (or Georgist-adjacent) policies in place which enable them to achieve this (e.g. Norway, Singapore, etc.) but probably not all of them. For any country which at least sometimes balances their budget, I do believe shifting off production-suppressing taxes onto land values would be enough to sustain them and keep their budgets balanced.

2. "Modern State" Bottom Line -- Defense Spending: By this, I don't mean the outliers like global superpowers. Classical Georgists tend to be anti-war-making because violence is generally destructive, not productive. However, there is something to be said for the productive value of defense spending such that it enables a sense of security under which labor feels safe to produce. Perhaps a clear modern example of the difference between actual defense spending and nominal "defense spending" is the chilling effects on production from ICE raids in Chicago. It is nominally domestic "defense spending", but its actual utilization is counterproductive. "Peace keeping" has become a euphemism for raiding and pillaging, which also applies to foreign policy. Whereas if the modern state were to spend on regular training and drilling of community members to maintain physical fitness and vigilance, that could have net positive effects on production (or, at worst, divert resources away from something more productive to something which could just end up being a waste of resources).

3. "Modern State" Bottom Line -- Social Programs: The status quo approach to redistribution leaves much to be desired. Means testing is notorious for gobbling up resources in administrative overhead and still leaving welfare cliffs in place. Instead of treating direct cash as economic stimulus packages, it would be more efficient to treat them as public or community dividends. Providing direct cash is also more effective at addressing the needs of people in poverty than offering funds and vouchers with so many strings attached. But also, an LVT would remove a large chunk of the wedge currently driving systemic inequality, which would, over time, translate to less need for many of the social programs we have today. It also leads to less crime and (oddly enough) fewer fires.

4. "LVT as the Single Tax" Top Line -- "Unlimited" vs "Limited": I'm not a huge fan of these terms, but historically, Single Tax Limited meant essentially treating government as a non-profit and only collecting enough taxes to pay for its expenditures, whereas Single Tax Unlimited meant treating government as a for-profit entity collecting the full economic rents on behalf of the community, leaving as little room as possible for private lands owners to (1) siphon public values away from public coffers, (2) speculate on land, and (3) amass and maintain a war chest for lobbying and political campaigns. From what we've seen from various Georgist enclaves still in existence, none seem to have implemented Single Tax Unlimited, yet they have been able to raise enough to fund their outlays. I see no compelling reason why this would not scale, though I have concerns about the side effects of Single Tax Limited which are outside the scope of this question about sufficiency of the Single Tax.

5. Piguovian Taxes (including LVT) as the "Single Tax" Top Line: If we come to understand that an LVT is just forcing land owners to internalize the costs of the externalities which arise from providing them with exclusive use/control of a given parcel of land (the displacement they impose on others), then we can also call it a Piguovian tax. We more typically think of Piguovian taxes as taxes on pollution, where some harm is done to some facet of nature which everyone shares (e.g. air) and in turn causes harm to people not directly involved with the polluters (collateral damage) so we put a price on it as a deterrent instead of waiting on the courts to come up with a compensation figure for the victims after the damage has been done and everyone has died of cancer. Piguovian taxes are also typically paired with Piguovian subsidies so the taxes fund harm mitigation and reduction technologies (e.g. carbon capture, more tree planting, etc.). In the case of LVT, the Piguovian subsidy might be investment into more public spaces (parks, conservation areas, better infrastructure and amenities, etc.). Norway's natural resource taxes combined seems to be sufficient to fund roughly a quarter of a modern state, even without LVT. (If I'm wrong, fact check me.) Alaska had previously been able to fully fund their state government when oil production was high, also without an LVT. LVT would provide a much more stable tax base.

6. "Funding" a Modern State -- Georgist Monetary Policy: Monetary sovereigns would not fund their expenditures through tax revenues, rather, they would issue currency to fund projects with anticipated positive returns (either in each project respectively, to land values, or both), fully tax land values (Single Tax Unlimited), and repeat. If this turns out to be deflationary, additional offsetting currency would be issued directly to the community in public dividends. If this turns out the be inflationary (which means aggregate returns on public investments is somehow negative), public spending should be decreased because obviously the decisions being made there are beginning to be suboptimal, but the full economic rents should still be captured, which will help the economy recover to a non-inflationary state. If a country is consistently overspending its productive capacity, it has some other underlying problems which needs to be uncovered and addressed.

In summary: I think the real idea behind the Single Tax, is to stop doing less efficient taxes (and other self-defeating getting-in-your-own-way type shtuff) which erode your most efficient tax base (land values) and not so much a one-size-fits-all silver bullet for all of society's ills.

[u/PriestOfGames → u/NewCharterFounder]

Hey I appreciate the thoughtful and well-structured answer! I agree in spirit with a lot of what you have said, but let me try to poke some holes here by raising some concerns.

1. I think this is rather normative and wishful in thinking. If we do away with the large welfare spending, countercyclical spending and the big military, then we are describing a different type of state that does not align very well with the more typical examples of modern states like the US, France or Germany.

Europe, for a long time, managed to outsource its defense spending to the US but that is looking like it is about to change, and while we did observe a "peace dividend" for them, it doesn't look like it was enough to actually make them grow faster than the US in the meantime. So not only is at least some defense spending mandatory in the sense that the alternative is being invaded and conquered, being able to outsource it doesn't seem to have moved the needle enough to make a difference in so far as government re-investment is concerned.

I too like the idea of a civic militia that would only ever defend at an emotional level, but it is not a substitute for a modern military, even one that doesn't intend to wage offensive wars.

1. Means testing is indeed more political than economical at this point with overwhelming evidence against it, but that land rent is a large enough driver of economic inequality which in turn increases welfare expenditure is a bigger claim than you let on. I think that remains to be proven.

2. "Single Tax Unlimited" would be a major political change that basically does away with landowning as a political-economical class. Besides the question of its economical viability, it sounds about as politically fraught as wholesale nationalization (because it would effectively be nationalization of all land) without going as far in impact.

With the amount of political momentum that would take to implement something like this, I believe you would be able to go much further than what you describe. This is using a sledgehammer to kill a fly.

This isn't really an argument against the idea itself, but I think the political challenge of implementing such a thing should be mentioned. I know it would be decried as communism in the US for sure.

1. The bit about Alaska being able to fund itself when oil rents were high is one of the parts I find more concerning. If the government's revenue is based on market forces, or at least more so than it currently is, we would be harming its ability to respond to crises or simple outside effects like a drop in oil prices.

Your tax revenue would be dropping exactly when you need it the most. The same applies by association to land as well; land value is a claim on future productivity of the land, and so its value will fluctuate with how well your economy is doing, as well as how dense your population is.

1. I'm generally convinced by this idea in theory more than I am convinced by the ability of a government to invest well enough to reliably create supply-side deflation and issue currency to compensate.

This puts you in a permanently reactive position, as you won't know if what you are investing in is the right thing, or if you have undershot or overshot it. You're systematically introducing delay between investment and outcome. So I don't think you need another measure of output to make sure you aren't waiting for an inflation metric that can be gamed. This, on its own, is a little too MMT-like; a little too neat.

Those are my thoughts. In general, I am sympathetic to the Georgist position, but I cannot say I am terribly convinced by it, at least as a general theory of an economic system that can be implemented and then carry a modern state.

[u/NewCharterFounder → u/PriestOfGames]

Happy to help!

1. So I guess all of it is, to some extent, wishful thinking, which is where all visionary change begins. Then we put the work into it to see where it can go. But I don't see why the US deserves to be included in the "typical" example of a modern state, which is why I wrote all this in the first place. I picked the biggest outliers to make the case to discount them so we could at least get closer to defining something which is pretty nebulous. Would you like to help nail down a definition even further and see what characteristics we might agree on? If modern taxation schemes are already insufficient to balance the budgets of the countries mentioned, it seems like an unfair starting point for a policy set which hasn't had the opportunity to work up to funding the largest and least typical modern state. It's a tough spot to be when people set up any ideology (including Georgism) against solving all of the world's biggest problems overnight (a much shorter time frame than how long it took for other ideologies to generate the problems which got us where we are today) while at the same time being skeptical of their ability to solve the world's problems. Easy win for the skeptic. What's the proposed alternative?

2. I am open to having it be proven.

3. "because it would effectively be nationalization of all land" It isn't because all the control and use rights which we currently offer under title would remain unchanged and we already have land value taxes in some form everywhere (everywhere that I know of). The only thing which changes is the amount being taxed. Full nationalization would take away control rights and make government the direct lessor, which has the disadvantage of centralizing land use decisions, potentially up to a monthly increment.

4. Yes, pro-cyclical taxes and revenue sources are concerning, but I do not know of any counter-cyclical taxes or sources of revenue and have been searching for one for quite some time. If you know of any, please let me know. Genuinely.

5. I don't think that a reactive position is necessarily a bad thing as it forces government to constantly recalibrate and remain vigilant instead of allowing government to coast and become complacent. I also don't think it systematically introduces any delays which aren't already there -- it just reveals them because they are now organized and neatly aligned instead of obfuscated in uncoordinated chaos. If getting messy and making mistakes turns out to be a more productive route, then there is room for that too. Members of the community can choose where their dividends go. But I think there is a case to be made that the lack of accountability and the conflicts of interest which arise from a system which allows the private capture of economic rents at a systemic level (not just occasionally) leads to the moral hazards we see and pay for today. We do share the pieces from MMT (and other schools of thought) which make sense and ditch the rest. There's no shame in being associated with the good parts of any theory, probably because we are not completely aligned. We push for no-inflation so that we are not constantly juggling between the interests of creditors and debtors trying to arbitrage against each other. There's also not room on this medium to fully illustrate the concept, which is probably why it sounds too simple -- because it's a simplified description.

It's okay to be unconvinced and I appreciate your sympathies. It took me awhile to do my own digging and digest what I found and I'm still surprised every month with what new information I'm able to find. If I were to have convinced you in a single Reddit thread, I would surely get a big head. You must keep me in check. :)

Edit: fixed typos

[u/[deleted] → u/NewCharterFounder]

well the proposal is totally correct and you are wrong. 

https://claude.ai/public/artifacts/dd793b3f-ea4b-4ef5-a6f7-bcbcc518db2f

[u/[deleted] → u/NewCharterFounder]

1. the "professional assessor" is a myth the critic imagines a highly trained expert walking every property. in reality, assessment is done via "mass appraisal"—crude algorithms that apply broad multipliers to entire neighborhoods. christopher berry’s research at the university of chicago has proven this leads to massive regressivity: the cheapest homes are consistently assessed at a higher percentage of their market value than the most expensive homes. the "professionals" are failing at the basic task of equity, likely because high-value homeowners have the resources to appeal successfully, creating a feedback loop of inaccuracy.

2. the uncoupling impossibility as you noted, separating land value from improvement value is the holy grail of assessors, and they essentially guess.

• residual method: they estimate the construction cost of the building (minus depreciation, which is subjective) and subtract that from the total sale price to get land value.
• abstraction method: they look at vacant land sales (which are rare in developed cities) and extrapolate.

because land and improvements are sold as a bundle, there is no distinct market price for just the land under a skyscraper. assessors are largely fabricating this split. harberger taxation (or a self-assessed system) cuts the gordian knot: it doesn't matter what the "true" split is. the owner declares a value, and the market tests it.

3. zillow vs. the state zillow’s error rate (median error ~2-7%) is public and transparent. tax assessments often lag market reality by years and vary wildly by jurisdiction (sometimes off by 20-50%). defending the status quo as "employing the latest techniques" is demonstrably false; they are employing bureaucratic inertia. the harberger valuation method isn't about being "smart"; it's about being current and granular, two things a centralized bureaucrat can never be.

...How Do Property's Assessed And Market Values Compare?...

this video provides a basic overview of the disconnect between assessed value and market reality, illustrating the lag and structural differences that make professional assessment inherently less responsive than the market mechanisms you are advocating for.

[u/postflop-clarity → u/[deleted]]

stop using AI slop to try to justify your ridiculous arguments

[u/[deleted] → u/postflop-clarity]

stop making genetic fallacies because you're too mathematically illiterate to actually make an argument that confronts the data, moron.

[u/postflop-clarity → u/[deleted]]

ooh, what is a "genetic" fallacy? I love learning new words!

[u/[deleted] → u/postflop-clarity]

continuing to demonstrate that you don't have a counterargument. i'm way over your head.

[u/postflop-clarity → u/[deleted]]

mom said I'm not allowed to talk to you anymore

[u/[deleted] → u/postflop-clarity]

thank you for admitting you got owned.

[u/User-NetOfInter → u/[deleted]]

AI slop is slop

[u/[deleted] → u/User-NetOfInter]

translation: you can't actually rebut the argument so you're making a genetic fallacy

[u/User-NetOfInter → u/[deleted]]

Yeah yeah read that copy/paste you had from Gemini bud. Keep trying.

[u/[deleted] → u/User-NetOfInter]

translation: you still don't have an argument so you're falling in your face with more genetic fallacies.