[logfromblammo]

I should point out that a tax to promote efficient use of land surface area should not include the value of improvements to the property.

Most municipalities in the US tax property based upon assessed market value, which discourages more efficient use of land. If you knock down your single-family house and erect a multistory condo, the value of the improvement will swamp the value of the land, and you will be punished with much higher property tax.

Georgists (http://en.wikipedia.org/wiki/Georgism) explored the probable effects of land taxes extensively, though I don't agree with the premises of their reasoning.

For one, Henry George drew the supply curve for land as a vertical line, to reflect the idea that you can't make more land. But different areas of land have different suitability for any given purpose. It is true that you can't increase the surface area of the Earth, but you can still rank every hectare by how much effort it takes to reach it from the center of global trade. The economic projection of the world map is basically one huge ocean in the middle, a ring of port cities around it, roads and rivers spreading outward from there, and deserts and wilderness way out at the edges. Those peripheral lands are the ones that get used last, when land prices are highest, and that's why the supply curve for land is not vertical.

Besides that, it is difficult to separate the value of the land itself from the improvements on it, or even the improvements near it. Is it just for you to be taxed more when someone else builds a train station near your house? I think the way to levy a land tax that is least susceptible to abuse or political manipulation is to calculate it based purely upon surface area. A hectare in the furthest backwater of the jurisdiction is taxed at the same rate as one in the busiest urban center.

[panglott]

But a hectare in an isolated backwater has less value than a hectare in an urban area.

The land-value tax boils down to a tax on the site-value of land, which necessarily has to account things like proximity/distance to commercial centers.

[logfromblammo]

That's why a land-value tax discourages inefficiency in land use to a lesser extent than a land-surface-area tax.

You generally want people to increase their density, because that makes it possible to provide more efficient services with a distance, area, or volume component less expensively.

Electrically-powered commuter trains are more efficient movers of people than automobiles, but the capital requirements are such that you need a minimum population density to run the train profitably. The commuter train increases the desirability of property near the stations. Taxing that value discourages use of the train.

A hectare in the country is the same area as a hectare in the city. Land value usually has an inverse relationship with population density. You could either tax based on area alone, or try to cancel the value effect of increased density by dividing the land value by the density of the census tract.

[panglott]

Maybe high taxes on land area would encourage densification if they were sufficiently high, but I suspect the prices necessary would cause problems in other areas. Like taking arable land out of agriculture because the land is taxed at the same level as a dense urban business district. If the land taxes are high enough to discourage suburban housing versus urban housing formats, the farms would be taxed at the same rate, which would be ruinous.

The problem with a flat tax on land is that it provides no incentive to allocate land to the most productive uses. A flat land tax sufficient to encourage low-density suburban areas to convert to medium-density urban areas might still be low enough to permit vacant lots in high-density areas.

[logfromblammo]

> The problem with a flat tax on land is that it provides no incentive to allocate land to the most productive uses.

What?! It provides a direct incentive in the form of $/hectare-year. If your use of the land does not earn at least that amount, you lose money by owning it. If it does, the relative burden of the tax decreases as you make your use of the land more efficient.

A dense urban business district is incontestably a more efficient use of land than an agricultural field. If any land is removed from cultivation because the crop yields cannot support the tax, then the land with the lowest yields, and therefore least suited for agriculture, will be abandoned first. Those lands might be better suited for other purposes. In that sense, the tax is working exactly as expected.

And that farm-use consideration is vital for keeping the tax low. The government cannot use that tax to squeeze any particular type of person without devastating agriculture. If you try to use a tax as a sledgehammer rather than a speed bump, you end up with all sorts of nasty unintended consequences.

If you need a sledgehammer, you can simply write a zoning law that effectively abolishes new low-density residential neighborhoods. Or you could use eminent domain to take vacant urban lots. But those are going to cost a lot more money and public goodwill than a uniform tax on land surface area.

[panglott]

Out in the grassland, 50 miles from any existing center, a farmland is indeed a more productive use of the hectare than paving it over and building an uninhabited-but-dense urban center there.

[logfromblammo]

You're making an invalid comparison.

The owners of the land will be considering alternative uses for their land by how much additional revenue they could produce.

If the owner of a hectare of remote farmland decides to do something else with it other than tilling it as a flat field, it is far more likely to be building greenhouses, or burying drainage tile, or installing center-pivot irrigation and planting windbreaks, or just changing to a higher-margin crop rather than something like erecting a mid-rise AAA office building. Even building a vertical farm is unlikely.

If the hectare is in the middle of the fastest-growing city in the state, selling out or converting to a different use is increasingly likely, as the marginal increase in revenue over the marginal cost of making the improvement rises.

Consider also that a hectare in the suburbs is likely not directly producing any revenue for the owner at all. Its worth is almost entirely derived from opportunity costs. The owner of that land might decide to grow a vegetable garden in response to a tax, or raise rabbits or chickens in the back yard. Or they might decide to lease their mother-in-law apartment in the basement or garage. or they might just work a little harder elsewhere to pay the cost of not improving their land.