All tax revenues, whether in money or goods, have to derive ultimately from existing wealth or the wealth creation process. Taxing individuals or organisations that have little or no wealth is not only unjust but unproductive. It is commonly accepted that wealth is represented by the ownership of goods, property or the means of production. The wealth creation process is represented by work, manufacture and trade. A fair principle that most would accept is that the wealthy should pay more than the less wealthy. The difficulty (as with all progressive taxes) lies in how to measure this distinction.
Land values provide a very clear distinction in that they are directly related to prosperity, and therefore the general level of wealth within an area, especially in an urban situation (as will be explained, land values in rural situations are slight by comparison). They provide a clear gradation that is directly related to the capacity for wealth creation and also to the ownership of that capacity. They indicate how the benefit of such ownership might be measured in accordance with location. This benefit has traditionally been collected as the economic rent. LVT would enable the community to take ownership of this rent, albeit the ownership of the actual land may continue in private hands. LVT is not about nationalising land, it is about nationalising the economic rent of land. The tax would be imposed in proportion to the location surplus values for each site, ie. the values that register above the margin of production. Those at the margin would not be taxed; whatever product they achieved they would keep.
The tax may also be described as a levy that society imposes for the exclusive occupation and use of a site. The use to which the site is put may or may not be for wealth creation purposes. For instance where a site is occupied for a purely residential purpose, the levy is still payable according to the value of the site. Also the owners of vacant sites would pay the tax whether occupied or not. This would discourage the deliberate holding out of use of sites for speculative purposes. As with most property taxes, there would need to be an appeals system. With LVT, valuations could always be challenged, but these would be more likely on the high value sites rather than near the margin, where the tax burden would be less.
LVT should be introduced gradually without any sudden shock; perhaps over a period of ten years or more, in which other unsuitable taxes could be reduced or eliminated; those for instance which are impediments to wealth creation. LVT is proposed as a replacement tax, not an additional tax. The overall tax take from all taxes would remain the same although, because LVT is an efficient tax, considerable savings could be made, so reducing the overall tax requirement. LVT would cause a shift in the burden of taxation away from the margin towards the centre; away from less prosperous areas onto the more prosperous, as measured by location values. Thus it would satisfy the requirement that taxes should be paid in accordance to the ability to pay.
In an established system of LVT one might envisage the principal source of revenue coming from LVT, alongside other useful taxes, which are retained. The overall tax take would vary according to government requirements, which hopefully could be reduced due to efficiencies. Where this occurred, any reduction in LVT should be measured ‘from the top down’, that is to say with a graduated percentage reduction inversely proportional to site value. This would effectively raise the level of the margin and have the effect of taking more marginal sites out of tax altogether.