Anyone who reads my comments on various sites, especially those of a libertarian bent like the Free Liberal and various mailing lists, know that I have been a frequent critic of the Georgist ideal of a Land Value Tax as a single levee. The current voice for this view is Dr. Fred Foldvary and his current and former students, including Brian Green. We enjoy our arguments on whether an LVT should be a single tax and whether now is the time for its adoption.
Land Value Taxes extract excess value from the location value of property, called economic rent. An effective LVT will negate such values and prevent significant appreciation, which works a bit like a sin tax. Most local jurisdictions do extract some land value, but not to the extent to prevent the housing bubble just witnessed. Indeed, local democracies find it hard enough to extract enough value to run the local school - and some don't even do that. Democratic theory shows why. Unless the assessors have some separation from the voters, an honest assessment is all but impossible. The other difficulty is that an effective tax decreases values over time and makes it hard to raise needed revenue - it is better for localities to allow values to increase, leave tax rates as they are and rake in the proceeds.
When a significant number of borrowers are underwater, it is probably not the time for a vigorous LVT with the goal of price stabilization. That was, of course, until yesterday. The White House has announced a procedure to allow people who are under water on their mortgage to have their principals written down. This makes it the perfect time to put in an LVT to prevent a new bubble from forming in later years. Since values usually stay low for a few years, we have time to fight about it, however the effort should start now.
Should it be a single tax? Absolutely not. Taxes should be economically linked to the activities they fund. Services to property, such as police and fire protection, corrections and mental health, and home inspection, local streets, sanitation, snow removal and rental enforcement should be paid from both an LVT and a tax on improvements (since expensive homes cost more to protect). Notice I left schools out of the mix.
School levies should come from a tax that redistributes income from all sources, not just land. While some are of the opinion that only land values make people rich, most will argue that celebrity CEOs are rich because of the economic rent they extract from worker wages rather than from the property they hold. Services to families, such as schools, remedial adult education, health care, and credits to assure a guaranteed income should come from a tax on employers. Such a tax would ideally force a just distribution of benefits and services (including tuition at both charter and sectarian schools) and not collect any revenue for the state.
A separate sales or Value Added Tax would fund the state to the extent it cannot self-fund. As a more visible levee, it would provide an incentive to reduce state activities, such as domestic military bases, weapon systems not deployed, commercial regulation and other non-entitlement general government not covered elsewhere.
An income surtax should extract income from accumulated economic rent and excess wages and inheritances, as well as activities that require further borrowing. These include overseas and at sea military deployments, net interest on the debt and debt retirement - including debt held by the government for retirees. The only out from paying such a tax (which should be on high incomes only and range from 3% to 23%) should be charitable contributions and income from selling shares to broad based employee-ownership plans.
Retirement taxes should go to employee-ownership shares and a large insurance fund holding such shares (with workers at non-stock firms paying into the insurance fund). Taxes should be employer-paid only and should be credited to employees equally, regardless of pay. Bonuses for actual accomplishment or educational attainment (rather than position only), as well as reinvestment of dividends, should go to both retirement accounts - with a protion of dividend income going to longevity increases. This removes the incentive to fire middle age workers as they get too expensive.