This little known tax can bring forth the best of both capitalism and socialism

[Infinity16]

As you probably all know, capitalism has its issues. But as Leo Gura pointed out in When Does the Left Go Too Far?, socialism isn't perfect either.

Awhile back, I discovered an economic theory that can ensure steady economic growth whilst at the same time, ensuring that those benefits distribute rather than consolidate.

To understand this, you first need to understand the three factors of production - land, labor, and capital. Profit for each of the three has its own term.

Land: Natural resources and plots of land. Profit from land is rent.

Labor: Effort by people to provide a good or service. Profit from labor is a wage.

Capital: Anything manmade, especially to produce goods or services. Profit from capital is interest.

What different economic theories disagree on is on the priority of each of the three.

For example, Marxian economics revolves around the labor theory of value (LTV) which states that labor is the only way to contribute to the economy. Land and capital exist but take on a passive role relative to labor. As such, landlords and business owners are leeching off of the productive working class whilst giving nothing in return.

Neoclassical economics considers all three to be legitimate.

There was something that I noticed. I spotted a thread in the LTV when it occurred to me that each business has to start somehow. The founder may not contribute a majority of the labor that goes into a successful business, but does take on a risk of starting one. Most fail but the ones that succeed will become big. Even big businesses can eventually fail as is the case with Sears which has just five locations left as of December 2025 (Sears had a branch in Mexico which is now larger than the current company).

At the same time, I felt like land speculation was a way to make money without actually giving anything to society. In fact, it's negative since it drives up land prices.

I then discovered georgism, an economic theory that I believe will give us the best of both capitalism and socialism. 

Henry George lived during the late 19th century and wrote a book called Progress and Poverty in 1879. In this book, he took note that landowners nearby where the railroads were built were profiteering big time. The industrial revolution brought forth unprecedented wealth and yet there was still a great deal of poverty. He came to the conclusion that land was the problem. After all, whereas labor and capital are manmade and variable, land is a constant. It's also worth noting that at the time that book was written, the American frontier was nearing its conclusion (Native Americans would get kicked off of Oklahoma a decade later). Once all of the land gets sold, the price of land will go up.

To solve this, George proposed a land value tax (LVT). This is different from a property tax in that it only taxes the land and not the improvements. Henry George gained following in what became known as the single tax movement.

Henry George ran for NYC mayor in 1886 against Abram Hewitt, who won, and Theodore Roosevelt. He ran again in 1897 but died a few days before the election. His funeral was attended by 100,000, making it one of the largest funerals in the country at the time.

The LVT was largely forgotten in the mid 20th century, perhaps because the post war boom and the automobile enabled a recreation of the frontier. George's ideas remained of note to economists, perhaps because of how logical they are.

Since the 2008 financial crisis, georgism has become relevant again, especially as homes have become increasingly unaffordable. I found myself to be persuaded to support land-based taxation because it enables the state to collect revenue without incurring any deadweight loss. This is because taxing land does not result in less land. Furthermore, LVT does not suffer from tax avoidance or evasion because the government will always know what landowners have to pay. The only issue lies in separating land from improvements as not doing so makes it simply a property tax which is a double edged sword. A property tax discourages land speculation but it also discourages improving the property.

[Entrepreneur]

11 hours ago, Infinity16 said:

I found myself to be persuaded to support land-based taxation because it enables the state to collect revenue without incurring any deadweight loss. This is because taxing land does not result in less land. Furthermore, LVT does not suffer from tax avoidance or evasion because the government will always know what landowners have to pay. The only issue lies in separating land from improvements as not doing so makes it simply a property tax which is a double edged sword. A property tax discourages land speculation but it also discourages improving the property.

How is LVT different from property tax?   They seem the same to me.

Where I live, we already pay a hefty property tax and a school tax that is based on the value of the property.   The property value includes the value of the raw land plus any buildings.    The property tax gets paid to the local county to pay for the services the county provides to the community.  Part of it gets kicked up to the state to pay for Medicaid, which is a federally mandated State taxpayer-funded healthcare welfare entitlement for low-income earners.   The school tax goes to the local public school district to pay for public education.

Are you suggesting a Federal level tax on property in addition to the local property taxes people are already mandated to pay?  Please elaborate.

[Infinity16]

1 hour ago, Entrepreneur said:

How is LVT different from property tax?   They seem the same to me.

Where I live, we already pay a hefty property tax and a school tax that is based on the value of the property.   The property value includes the value of the raw land plus any buildings.    The property tax gets paid to the local county to pay for the services the county provides to the community.  Part of it gets kicked up to the state to pay for Medicaid, which is a federally mandated State taxpayer-funded healthcare welfare entitlement for low-income earners.   The school tax goes to the local public school district to pay for public education.

Are you suggesting a Federal level tax on property in addition to the local property taxes people are already mandated to pay?  Please elaborate.

Excellent question

A property tax is a tax on the whole property. That means that if demand for the location increases or if an improvement is made, the property tax goes up. Land value tax is meant to tax just the land, not the building on top of the land. In other words, demolishing a building or making an improvement would not affect the LVT. The only thing that would affect LVT is a change in demand for the plot of land.

[Apparition of Jack]

2 hours ago, Entrepreneur said:

How is LVT different from property tax?   They seem the same to me.

Where I live, we already pay a hefty property tax and a school tax that is based on the value of the property.   The property value includes the value of the raw land plus any buildings.    The property tax gets paid to the local county to pay for the services the county provides to the community.  Part of it gets kicked up to the state to pay for Medicaid, which is a federally mandated State taxpayer-funded healthcare welfare entitlement for low-income earners.   The school tax goes to the local public school district to pay for public education.

Are you suggesting a Federal level tax on property in addition to the local property taxes people are already mandated to pay?  Please elaborate.

The logic of a LVT is that it prevents rent-seeking and unjust profits being accumulated for doing nothing.

If someone buys a vacant lot in a suburb for $50,000, and then 10 years later that suburb becomes on of the trendiest places to live so demand for land increases, that person is now able to sell that vacant lot for $500,000 without ever having produced anything or improved society in anyway. Their entire wealth comes from closing off valuable land to society in order to sell in the future, making construction more costly for everyone whilst providing no value in return.

Likewise an LVT applies to natural resources. Which person created coal, oil, minerals etc? The answer is “no one”, if someone is getting rich off goods that have existed since before humanity was around, in some sense that represents a crime against all the people in a society who share the same land. By taxing a mining company for the value of that land - which would account for the uncreated raw resources on said land - you’re effectively saying “the wealth from these resources belongs to everyone in this society, not just the person who happened to have the land they were on, since no one created these resources and hence the profits from them shouldn’t just belong to an individual or private entity.”

Basically, no one invented land, no one invented coal, etc, so for companies to get rich off the hoarding and closing off of these resources, it leads to negative financial incentives that don’t actually improve society and instead funnel wealth to entities that don’t actually produce anything at the end of the day. There’s more to it than that, but I think that’s the basic jist of it. 

[Apparition of Jack]

Here’s a great video about Georgism, how it works, and how it could solve society’s problems. I think it’s fascinating.