The Physiocratic Platform: Land Tax

Making the "Least Bad Tax" Work for the United States

Today we continue our series on taxation. As noted in the earlier essays, we start from this premise: If taxation is to be morally legitimate, then (a) it must be in service of a morally legitimate government; (b) it must be imposed in a manner that is reasonably related to the government’s services; and (c) its cost should be born, not by “the poor” or “the rich” per se, but rather by those who benefit from its services.

The first principle dictates the type of governments that can legitimately impose taxes; the second principle dictates what types of taxes those governments can rightfully use; and the third principle dictates who can be charged those taxes and how much they can be charged. The physiocratic theory is effectively neutral about whether a tax should be “progressive,” “flat,” or “regressive.”

If we follow the American tradition that men establish governments in order to secure their rights, then any morally legitimate government must provide services related to securing those rights. It seems to me that the services of such a government can be reduced (at a bare minimum) to four:

1. Maintaining peaceful transfer of power over time;

2. Protecting the person and property of citizens of the state from violation;

3. Securing the state’s borders from incursion and invasion; and

4. Upholding the legitimate contracts made by the state’s citizens.

Obviously a government surely can do other things, and most governments do many other things, but a government that cannot do what’s necessary to provide these four services will be a government that fails its necessary purpose.

If these are the necessary purposes of government, and if taxation must be reasonably related to these purposes, then the scope of taxation is necessarily limited. Working from this core of four services, I have identified four taxes that can be imposed in a manner that is reasonably related to those services and paid by those who benefit from them. These four taxes are:

• Poll taxes

• Land-value taxes

• Tariffs

• Transaction taxes

In the first installment in this series, we discussed poll taxes. In the second installment, we discuss tariffs. Now we turn our attention to land-value taxes.

Land-Value Tax (LVT)

A land value tax (LVT) is often confused with a property tax, but it is in fact an entirely different form of taxation.

A land value tax is a levy on the unimproved value of land, taxing only the land itself regardless of any buildings or developments on it. In contrast, a property tax is imposed on the total value of real estate, including both the land and any structures or improvements. Therefore, while property tax encompasses the combined value of land and its enhancements, land value tax focuses solely on the inherent value of the land.

The physiocratic platform entails a 2% land value tax. With an estimated total land value of $23 trillion in the U.S., the LVT would raise $460 billion annually. To avoid sharply disrupting property values, this tax would be rolled out gradually, at 0.25% per year over 8 years.

In the physiocratic platform, the LVT is earmarked to protect and preserve the value of property. Its revenue would be allocated to the Department of Agriculture, the Department of Energy, the Department of the Interior, and various other agencies and programs responsible for transportation projects, environmental programs, and public infrastructure investments. The cost of these governmental function is $460 billion, so the land value tax can be entirely hypothecated to these purposes. Therefore it meets our criteria above that taxes need to be reasonably related to the government’s legitimate services.

Economic Justification

When discussing tariffs, I was able to provide 150 years of precedent within American history for the successful use of tariffs to fund the government and promote domestic industry. A similar historical-empirical justification is not possible for a national LVT, as one has never been implemented here. The primary justification for using an LVT rather than a property tax is therefore theoretical: An LVT doesn’t create economic distortions or discourage productive investment.

Unlike taxes on buildings or income, which can reduce incentives to develop or improve property, a land value tax encourages the efficient use of land by taxing only its unimproved value. Since land is fixed in supply and can't be hidden or moved, taxing it doesn’t lead to supply reductions or economic inefficiencies.

For this reason, the LVT was famously praised by economists such as Adam Smith, David Ricardo, and Henry George, with George especially advocating it in his book Progress and Poverty. Nobel laureate Milton Friedman also recognized LVT as the "least bad tax" due to its minimal economic distortion and efficiency in capturing unearned gains from land ownership without discouraging productive behavior.

Why do economists unanimously sing the praises of the LVT?

Well, land is unique in that its supply is perfectly inelastic—there is only a fixed amount of land, and no matter how much you tax it, you cannot produce more or less land.¹ This is in stark contrast to other goods and services, where producers can respond to taxes by reducing supply or by increasing prices.

As a result, land owners enjoy economic rent — the income earned from land purely because of its location and desirability, not because of any improvements or development done on the land (such as building a house or adding infrastructure).² This is in contrast to market rent, which is the income earned from property based on its development and use.

Because land supply is fixed, taxing the land doesn't affect the amount of land available for use, unlike taxes on other goods or services, where higher taxes could reduce supply due to substitution. And because land has no cost of production (unlike labor or capital, which requires work or investment), the landlord cannot raise the rent on the land to compensate for the tax, even if he improves his buildings.

The market rent for the building as a whole is determined by supply and demand for construction in general, and the land component is a fixed portion based on location desirability, which is already factored into the current rent. That is, in a competitive market, landlords cannot just raise rents arbitrarily without losing tenants. The total rent is set by the broader market, which balances supply and demand for office space, housing, etc.

Let’s build a toy model of a land and property market to understand this. Imagine a property in Manhattan with a land value of $5M developed with a $5M office building, for a total property value of $10M. Let us imagine that the market return on capital is 5%, such that the market rent the office building generates is $500,000 annually. Of this $500,000, $250,000 is the economic rent that arises from the capital value of the land, not the building.

Now imagine the same office building located in a bad part of Jersey City, NJ. The land value there is just $1M while the office building is still $5M. The total property value is $6M and the market rent generated at 5% is now $300,000 annually. Of this, just $50,000 is the economic rent attributed to the land.

The same office building thus generates much more market rent in Manhattan than in Jersey City, with the difference being entirely due to economic rent! And if, for some reason, Jersey City property appreciated in a Manhattan-like manner, the landlord could charge $500,000 in rent instead of $300,000 without making any improvements to his building.

Now let us imagine that a 5% land value tax is imposed nationwide. The landlord in Manhattan now owes $5M x .05 = $250,000 per year in taxes. The landlord in Jersey City now owes $1M x .05 = $50,000 per year in taxes.

Officer renters in Manhattan were already paying an additional $200,000 in rent annually for the privilege of being in Manhattan. If the privilege of being in Manhattan were worth more than that, landlords could have already charged it! Therefore, the Manhattan landlord cannot raise rent to $750,000. He can’t extract the same value twice. If he tried, raising the rent above the market rate would simply drive the tenants away to, e.g. Jersey City.

What this toy model demonstrates is true (and has been proven true with much more sophisticated models) of the economy as a whole: Landlords cannot pass the land tax onto tenants in the form of higher rents for the entire property because the market rent for property is already determined independently of the land tax. The tax absorbs the economic rent that would have otherwise gone to the landlord, such that the burden of the tax always fall on the landowner, not his tenants.

Since the cost of a land value tax cannot be passed on, the cost of the LVT is entirely paid for by the property owners. That means the LVT meets our criteria above that the cost of a tax should be born, not by “the poor” or “the rich” per se, but rather by those who benefit from its services.

With the theoretical justification for the LVT established, let’s evaluate the funding required and revenue that could be generated.

Funding Required

The total spending of the U.S. federal government on departments related to agriculture, interior, energy, infrastructure, and emergency relief is a significant portion of the budget, though relatively small compared to overall federal expenditures. Here's how it breaks down:

• Department of Agriculture (USDA): The USDA’s budget in recent years has been around $200 billion, which includes funding for agricultural programs, food assistance, rural development, and conservation efforts​

• Department of Energy (DOE): The DOE’s budget has been approximately $50 billion, which includes investments in energy innovation, environmental management, and nuclear security​

• Department of the Interior (DOI): The DOI manages public lands, wildlife refuges, and national parks, with a budget of approximately $18 billion annually​.

• Federal Emergency Management Agency (FEMA): FEMA's budget varies depending on disaster needs but is typically around $30 billion, with significant spikes during large-scale natural disasters​

• Highway and Infrastructure Spending: Federal transportation and infrastructure spending amounts to around $45 billion annually, with an additional $82 billion annually transferred to states for infrastructure projects such as highways, public transit, and water systems​

• Environmental Spending: The U.S. government spent around $35 billion on environmental and natural resource protection in 2023​.

When combining these areas, total spending on infrastructure, energy, agriculture, interior, emergency services, and environmental programs is around $460 billion annually.

Land Value in U.S.

The total land value in the United States is estimated to be around $23 trillion as of 2022, according to estimates from various sources, including the Federal Reserve and Lincoln Institute of Land Policy. This includes all types of land—agricultural, commercial, industrial, and residential.

Agricultural Land: Agricultural land in the U.S. averages around $4,170 per acre. The total value of U.S. agricultural land was estimated at about $3.2 trillion in 2022.

Commercial and Industrial Land: Major commercial real estate markets, particularly in coastal cities, have very high land values, further contributing to the total.

Residential Land: Residential land in urban and suburban areas makes up a significant portion of this total. High-value urban land can reach extraordinary levels of value, such as $196,410 per acre in New Jersey, or $133,730 per acre in Rhode Island.

Economists generally assume a 5% return on capital for land. If U.S. land is valued at $23 trillion, the annual land rent is estimated around $1.15 trillion, and would be fully captured by a 5% land value tax.

However, while Henry George proposed that government tax 100% of land rent, we are not here going to propose the same; we are proposed only a 2% land value tax (which works out to 40% of land rent). In the next section, I’ll explain why.

The Big Problem with 100% Land Value Taxes (Or “Why Physiocracy is Not Adopting a Georgist LVT”)

Despite their economic efficiency, LVTs are used far less frequently than property taxes. There’s basically two reasons why:

• Political resistance to them is strong. LVTs disproportionately impact landowners, who are powerful political actors in most countries. The established property tax systems also often have entrenched interest groups that prefer the status quo.

• Assessing the unimproved value of land is difficult. Determining land’s separate value requires sophisticated and controversial appraisal methods even when the LVT is low. Determining land’s value at a high LVT is virtually impossible.

Since we are here assuming some sort of radical political change has occurred that makes otherwise untenable reform possible, I am not going to focus on the first problem of political resistance to LVTs. Let’s just assume I’ve taken power as absolute dictator and am non-consensually imposing physiocratic reform on all the unwilling statists and commies; anyone who dissents is sent to a camp and forced to listen to Loituma Girl 24/7. (Don’t click, I’m warning you, don’t do it.)

Despite my tyrannical powers, however, the second problem remains: the difficulty of assessing land value. In fact, the problem is actually much worse than it seems initially.

In the discussion above, I calculated the economic rent from land by starting with the land value and applying a rate of return to that value, e.g. 5% annually of $5M. In actuality, this is a sleight-of-hand! When land is evaluated as a capital asset, its value actually represents the present value of future rents. That is: economic rent is not a matter of land value; land value is a matter of rent!

If a 100% tax on land rent is imposed (as Henry George proposed), the entire economic rent generated by the land is collected by the government. The landowner receives none of the land rent. As a result, owning land no longer provides the owner with any financial benefit, since all potential income from the land is taxed away.

In such a situation, the land itself would have no market value because it no longer generates any net income for the owner. As a result, the land no longer has any capital value—it cannot be sold or traded for profit because no future returns are expected. Therefore, in a 100% land rent tax system, land becomes worthless in the market, even though the land still exists and has its locational advantages. Land would still have use value for the purposes it serves, like housing or farming, but it would no longer be a capital asset that could be priced in the market.

For instance, imagine that I build a $1M house on a lot I bought for $100K. I now charge market rent of $55K annually to rent out my house. Of that $55K, $5K is the economic rent of the land. Now imagine that a Georgist government imposes an LVT of 5% that captures 100% of my economic rent. It therefore says that I owe $5K in LVT. I don’t want to pay the tax, so I put the land (just the land, not the building) up for sale. Since the land is being taxed of all its land rent, its market value is now $0! My lawyer then informs the government that since the value of my land is $0, I owe an LVT of $0. In the attempt to capture the land value by taxation, the government has paradoxically destroyed the land value!

A true Georgist would argue that a tax is still warranted because the land itself is still valuable for its use (e.g., proximity to amenities, the quality of the neighborhood, etc.). The fact that the government is taxing the economic rent doesn’t mean it doesn’t exist. Therefore, the government should therefore assess the land rent based on the economic value of the land's use

But this is not a good answer. The only reason we could calculate the economic value of the land’s use is because we had a functional market to let us do so! As Hayek and the Austrians have demonstrated, a price is a data point; it is information. Prices are crucial in transmitting information in a market economy.

Let’s return to our example. Prior to the land tax, the $100K market price of land reflected the interaction of supply and demand for land, influenced by factors like location, infrastructure, and desirability. When the land became taxed at 100%, the market price of land dropped to $0 because no one would pay for something that yields no net income. The price signal was lost, meaning that the government was no longer rely on the land market to gather information about the value of the land.

Initially, of course, the government could use historical data about land prices and rents to establish a baseline value. But if history gives us any data at all, it’s that prices fluctuate a lot! So what happens over time?

A Georgist might argue the government could look at comparable properties in similar locations to estimate land rents. This method is already used in property assessments today, where governments assess taxes based on comparable properties, even when market transactions are limited. But if it’s a nationwide tax, all of the comparables would also be subject to the same problem.

The committed Georgist might argue that the government could develop a system based on zoning categories, infrastructure, and other location-specific factors to estimate the land rent. For example, land in highly desirable areas (e.g., downtowns, near transport hubs) would be categorized differently than rural or less developed land, based on the potential utility of the land. The government would then observe the total rent charged for properties and estimate the portion attributable to the land based on the characteristics of the land and improvements using its model. If similar properties in similar areas generate similar rents, the government could reasonably assume that the land rent remains consistent.

But this has transformed the objective process of market pricing into a subjective process run by a government bureaucracy, and while various appraisal methodologies could be used, the government might misestimate land rents. By eliminating the price mechanism, the government is left to "make up" the value of land rent, which could lead to inefficiencies, distortions, or errors in taxation.

For example, the government could overestimate land rents in some areas, accidentally discouraging development, or underestimate rents in prime areas, leading to lost revenue. Worse, over time, this estimation process might become politicized or influenced by lobbying, as powerful interests pushed for lower assessments on certain land, further distorting the system.

Obviously all of these criticisms can be levied at many other types of taxes, too (especially property taxes), but they are especially bad for the LVT, because the whole point of the LVT was that it was theoretically efficient and transparent!

Solving the Problem

Instead of setting our LVT to capture 100% of the economic rent, the LVT is set to capture 40% of the economic rent, e.g. it is set at 2% of land-value rather than 5% of land-value. We know from the real-world example of income taxes that market prices can still determine wages even when tax rates approach or exceed 50%; and as such we can feel fairly confident that land will still have an appraisable market value.

There’s one problem, however, The market value of the land would be lower than its economic value because a fraction of the economic rent is being taxed away. This requires some further adjustment. Let us return to our earlier example to see why.

Our developer plans to build a $1M house on a one-acre lot. While he is making his plans, he notes that other million-dollar houses on one-acre lots in the neighborhood are able to charge $55K in annual rent. Since the house is worth $1M and the rate of return on real estate is 5%, he surmises that the value of the land is $55,000/.05 - $50,000/0.5 = $100,000.

However, he also knows that he’ll have to pay a 2% LVT. If he’s right that the value of the land is $100,000, he’ll owe a tax of $2,000 annually. Therefore he’ll only earn $3,000 in economic rent annually instead of $5,000. But that means that the lot is only worth $3,000 / .05 = $60,000 to him. So the market price of the lot to him is $60K.

So what should be the taxable value of the land, $60K or $100K? If we say that the taxable land value is $60,000 then we’re back into paradox. The LVT would now charge him just $1,200 per year! So he’d have “gotten a deal” on the land ($60K instead of $100K) because of high taxes, only to actually pay less taxes as a result of the expected taxes. That’s obviously absurd.

The answer is to calculate taxable value for the LVT using the formula Vt = Vm / (1 - T) where Vt = taxable land value; Vm​ = market value of land given the LVT; and T = tax rate of the LVT as a percentage of land rent.

In our example above, the tax rate of the LVT as a percentage of land rate is (2% / 5%) = 40%. The market value of land given the LVT is $60,000. Therefore the taxable land value is ($60,000) / (1 - 40%) = $100,000.

And now we see why 100% LVT cannot work. If T is 100% or 1, then the divisor (1-T) is 0, and division with a divisor of 0 yields an undefinable result. It is arithmetically impossible to calculate a land value with a 100% tax on land rent - but trivial to do so with a 40% tax on land rent. Et voila!

What does this tax do to property values? In other words, how much is the property now worth? To answer this, we ask “how much would someone who just wants to live in the house pay for the house?” We know:

• renters are willing to pay $55,000 annually to live in the property;

• rates of return for this sector are 5%;

• land value tax rates are 2%.

If the land has a taxable value of $100K and the building $1M, and a property owner took out a mortgage at 5% to pay $1.1M for the property, he would owe $55,000 per year, the same as rent. However, he’d now also owe (as the landowner) the LVT of $2,000 per year. So he’d actually be worse off! Therefore, the effect of the LVT would be to reduce property prices by the difference between the taxable value of the land and the market value of the land. In this case, the property value would now be $1.06M, such that the property owner would owe $53,000 in mortgage and $2,000 in LVT, $55,000 total.

This is not a major price shock for our imaginary developer, but it would be a major price shock in places like Manhattan. For this reason, the LVT would have to be implemented gradually (I assume 0.25% per year). During this time, income taxes, property taxes, and other taxes would gradually diminish, which would free up discretionary income. That, in turn, would help bid up property prices, so property owners wouldn’t suffer calamitous loss.

Of course, this system is susceptible to a few other problems: Some property might not have been on the market for many years, or might have no comparables; and so we might still misunderestimate our valuationism when we implementize our taxation strategery.

Therefore, we will add another innovation. Rather than have the government appraise the market value and scale it up to the taxable land value, we will have the landowner submit the market value he believes the land has.

If the government disagrees with the landowner’s submitted market value, the government has the right to put the land (not the property, just the land) up to auction with a starting price equal to the submitted value. If no buyer is found, then the owner’s submitted price is used to calculate the taxable value of the land.

If a buyer is found, the market price paid by the buyer is used calculate the taxable value of the land, which is paid by the new buyer. The previous landowner is given his choice:

• Accept a 99-year lease to continue to use the property as he had been, such that all that is changing is who collects the economic rent for the land and who pays the land value tax. The land buyer is contractually obligated to offer this lease if the previous landowner chooses this option.

• Sell the property to the land buyer for its market price. The land buyer is contractually obligated to purchase the property at this price if the previous landowner chooses this option.

For instance, let’s imagine that a decade has passed since our developer built his $1M rental property. During that time, the area has become very popular with retirees and California refugees. The developer is now earning $70,000 per year in rent instead of $55,000. Zillow assess the property as worth $1,240,000; that’s what a buyer would pay to get to live in this fabulous neighborhood.

Our sleazy developer, however, tells the government that he believes the market value of the land is still just $60,000 (taxable value $100,000); he attributes the higher rent to a new paint job on the house and better landscaping.

The government disagrees and forces the land for sale. A number of real estate investors now review the property. They note that the cost of replacement for the house is just $1,000,000. The land must therefore have massively appreciated. The investors slowly bid the price of the land up until it reaches its actual market value of $240,000 (taxable value $400,000).

The prior owner now has a choice. He can sell the property as a whole or he can take $240,000 in a buyout for the land, but keep the property and pay rent.

If he sells the property as a whole, it will sell for its market price of $1,240,000. The new owners will earn a market rent of $70,000 and pay an LVT of ($400,000 x .02) = $8,000, leaving them with $62,000 in profit on their investment of $1,240,000 (5% rate of return).

On the other hand, if the previous landowner chooses the latter option, the new owners would pay $400,000 x .2 = $8,000 annually in LVT. They in turn would charge him $20,000 in rent, and keep $12,000 for themselves. That’s a 5% return on a $240,000 investment. Meanwhile, the previous landowner will now be earning $50,000 per year in rent - again, exactly what he was earning before the land appreciated.

This demonstrates that, while a 100% tax on land rent (5% LVT) destroys the price signal and therefore destroys the free market for land, a 40% tax on land rent (2% LVT) enables price signals to be maintained and land value to be appraised.

Caveat: I calculated all these formulas in an afternoon and built this hypothesis in just a few hours. It is not fully robust, and implementation nationwide would require hundreds or thousands of hours of effort by economists and statisticians to find and sort out all the edge cases. Since I am not a government agency, research firm, or professor with research assistants, I hope the reader will permit me the benefit of the doubt in speculating about this issue without fully solving it.

Another Problem with Land Value Tax (Or “You Will Own Nothing and Be Happy”)

While the problem of destroying the price signal has be solved, there is another major problem with the LVT. It’s a problem that, to my mind, cuts to the core of what it means to be a property owner. Bluntly, if you have to pay tax on it, you don’t own it.

Let's imagine a lovable old lady named Nanna. Nanna, who is 70 years old, survives on a fixed income of $2,000 per month. She lives in a small one-story two-bedroom home, which she inherited from her father, and which has been in the family for 100 years.

Through no fault of hers, however, a number of refugees have arrived from California/ These refugees, draped in Gucci and Balenciaga, quickly bid up prices in the neighborhood. Kamala Harris signs begin to appear everywhere and several organic chai cafes open up.

Then, the Macris administration imposes its 2% LVT. Through the processes above, Nanna’s land is assessed as now being worth $1.25 million dollars, meaning she owes a brutal $25,000 annually in LVT. That’s more than her entire annual income! She is forced to sell her beloved family home and move to an unpleasant nursing home, also staffed by Kamala Harris voters, who broadcast NPR into her room 24/7 until she perishes from despair.

This is terrible, and any tax system that does this to Nanna cannot call itself a legitimate and moral tax system. (A similar case can be made for family farms with agricultural land.)

There are, fortunately, some ways this could be managed.

Approach #1. Home Ownership Exemption

The first approach would be to exempt an American citizen’s primary residence from LVT of up to a certain value. The tax exemption here would only apply to American citizens for their primary residence, so foreign owners, corporate or private investors in residential land, and commercial or industrial land, would not be entitled to the benefit.

Estimates suggest that residential land alone is valued at $8 trillion out of the $23 trillion in total private land value. Approximately 66% of U.S. households are owner-occupied. Approximately 93% of homeowning households are headed by a U.S. citizen.

Therefore, this approach would exempt approximately $5 trillion of the land from the LVT. To make up for this, the LVT would have to be raised to 2.55% for non-exempt land. Alternatively, we could exempt only land worth less than the average homeowner’s land value; that works out to an exemption on the first $15,000 of land value.

The home ownership exemption has a number of benefits and a number of drawbacks, most of which are similar to the benefits of the current mortgage payment tax exemption. It encourages home ownership, but somewhat distorts the market in favor of owning versus renting. It is also somewhat regressive in that homeowners tend to be of higher socioeconomic status than renters.

Approach #2. Homestead Exemption.

The second approach would be to implement homestead exemptions for long-time residents. This is similar to approach #1 but it only kicks in for some people. The homestead exemption would eliminate the land tax for homeowners who are American citizens, own their own homes mortgage-free, and have lived in their homes for a certain period of time (e.g., 20 years or more). This would ensure that elderly homeowners of longstanding tenure are not forced out of their homes due to rising land value taxes.

The homestead exemption could (and probably should) be made heritable. Such a homestead exemption would have a number of implications that seem generally positive if, like me, one is of a socially conservative bent. Studies have found that social capital declines when people move frequently - friendships become more difficult to sustain, family members become harder to visit, memories that tie us to favorite places fade away, and society becomes a population of atomized wanderers.

A heritable homestead exemption would:

• Make it economically valuable for homeowners and their families and descendants to stay in the same place.

• Reward people for investing in their homes and neighborhoods, and for improving the area where they live, rather than taking flight to whatever the current city de jour is.

• Force companies that demand relocation to offer higher wages, making them pay for the negative externality of destroying social capital.

• Encourage stable families who have been in America for a long time to pass on their homes to their children.

• Make possible, for the first time, true allodial ownership of property in the United States. All that would be required would be a ban on eminent domain on exempt property. Allodial ownership was sought by some of the early Framers, but was never implemented; here in America, we actually hold our property in fee simple estate, meaning we don’t really own it at all - we just have tenure granted by our feudal lord, the U.S. government, who can demand of us tax and services or reclaim it at its pleasure via eminent domain. (No, really, I’m serious.)

The homestead exemption has many of the benefits of rent controls for elderly residents of longstanding, but without the pernicious effects on investment. In rent control the person living in the residence has no incentive to leave, but the person who owns the residence has no incentive to invest in it or maintain it, and developers have no reason or way to build new property at a profit. The problems of rent control don’t apply here.

That said, some care would have to be taken to avoid inter-generational accumulation of more and more property. It would have to be limited to single plots used for a personal residence, and perhaps capped at some large, but not unlimited, value or acreage.

Approach #3. Tax Deferral

The third approach would be to allow the owner of land used for their primary residence to indefinitely defer LVT until the property is either sold or passed down through inheritance. The value of the LVT would only be imposed at the time either on the seller or on the estate.

Let’s return to Nanna. Nanna’s home is quite modest, so even though Nana’s land is assessed with a taxable value of $1.25M, her property is only worth $1.4M total. She owes an LVT of $25,000 annually, which she cannot afford to pay. Therefore, she defers taxation. When she dies at the ripe old age of 85, she has accumulated $375,000 in back taxes; with interest, we’ll say $400,000. Her heirs could pay this tax directly, or sell the house and pay the accumulated land taxes out of the proceeds.

Thus, if she opts for tax deferral, Nanna would be able to continue to live in her home without the burden of paying higher taxes due to rising land values. When the property is eventually sold, the accumulated land taxes would be paid out of the sale proceeds — because, obviously, if LVT is going up from land value going up, sales proceeds will go up even faster since we’re at lower than 100% tax.

To make the tax deferral work, it would have to be capped such that deferral is no longer possible when the deferral exceeds the value of the property. At that time the property would have to be sold and the tax paid. But that’s e.g. 50 years - quite a long deferral if need be.

Which Way, Physiocratic Man?

As of the time of this writing, the physiocratic platform has not settled on which of these three solutions is best. When I first began considering LVT, I favored a home ownership exemption up to the median land value held by American citizens, but on further reflection I have begun to favor the homestead exemption. The tax deferral is the easiest to implement but I cannot say I like its inter-generational effects.

Please let me know what you think in the comments. In particular, I’d like to know:

• Are you persuaded by the economic arguments for the efficiency of LVTs over other forms of taxation?

• Are you persuaded by my argument that a full Georgist LVT is highly destructive but a partial LVT can be implemented without making it impossible to appraise land value?

• Do you see any gaping flaws (gulp) in my proposed mechanism for assessment of taxable land value by the submit-and-auction system?

• Which of the solutions to Nanna’s Problem do you think is best, if any? Or how would you solve it?

1. The Chinese and the Dutch beg to differ of course. Even granting their dikes and artificial land, such territory remains a tiny fraction of the world’s land. Supply is almost entirely fixed, if not quite entirely entirely.

2. Economic rent is also earned by monopolists who benefit from IP protection, industry regulation, and other factors. Economic rent is considered an evil by many economists, but especially by the classical economists, who defined a “free economy” as one that was free of economic rent. It should be noted, however, that the neoclassical economists generally see land as just a form of capital and do not acknowledge it as anything special.