UK Accounting Glossary
The tax is often said to be justified for economic reasons because if it is implemented properly, it should not distort market mechanisms or otherwise damage the economy the way most taxes do. It is also said to be justified for reasons of fairness by asserting that the tax is equivalent to a fee for protection of land ownership, which is the primary activity of any state. It is a cheap (and therefore efficient) tax to administer because much less effort is required to track land ownership than to track income or sales transactions. Land Value Taxation was an important part of the platform of the British Liberal Party during the early part of the twentieth century and was advocated by Winston Churchill early in his career.
As well as these pragmatic arguments LVT can be justified from the philosophical premise that the natural world was originally the common property of all persons, and therefore the LVT is not really a tax, but simply the collection of rent on behalf of the proper owners (the community). A consequence of this argument is that land should be taxed to the maximal extent and all proceeds should be equally distributed to each citizen as a citizen’s dividend. This implementation of the LVT amounts to a moderate form of land reform. The most influential advocate of this position was the political economist and activist Henry George. Many contemporary American advocacy groups trace their heritage back to his thoughts and writings.
LVT is charged in Estonia, Taiwan, Singapore and Hong Kong, and many more countries have used it in the past, particularly Denmark and Japan. It is currently being introduced in Namibia, and there are campaigns for its introduction to South Korea and Scotland. Several cities around the world also use LVT, including Sydney, Canberra, Mexicali and Fairhope, Alabama. In addition, some countries like Saudi Arabia fund their governments in large part from revenues from fees related to the extraction of minerals or oil.
In 1990, several leading economists – including 4 Nobel Prize winners – wrote to then-President Mikhail Gorbachev suggesting that Russia use Land Value Taxation in its transition towards a free market economy.
Some cities in the USA have recently introduced a two-rate property tax, which can be seen as a compromise between pure LVT and an ordinary asset-value property tax. This system was abandoned in Pittsburgh when an ineffective property assessment system led to a drastic increase in assessed land values during 2001 after years of underassessment.
The United States and some other countries have also started charging fees for use of spectrum or fees related to pollution; non-traditional variations on Land Value Taxation. (Note that in economics, land is also used as a generic term for certain kinds of natural resources other than areas of ground.)
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This glossary post was last updated: 13th February 2020.