Why is the socialization of land important?

The left wing theory of property has always approached natural resources from an egalitarian point of view, stating that since no man created natural resources, no man should have the right to exclude anyone else from specific resource without just compensation. This unfortunately seems to be ignored by leftists, who tend to focus on the battle between labor and capital, to the extent that the third factor, land and natural resources, tend to be ignored. As a result, there seems to be only a few fighting for social ownership of land, and this is to all our detriment.

This egalitarian approach to the natural world has been proven correct by Norway's sovereign wealth fund. Through the principles of socialism, Norway has successfully diversified its economy away from oil and avoided the resource curse that plagues other oil rich nations. Now, the question is, why hasn't this principle been applied to other natural resources? Namely the most important resource: Land. Like oil and other natural resources, Land must also be socially owned, for nobody created land. It is the collective inheritance of all people, and therefore is not just for one man to benefit from the exclusion of others from a piece of land without providing just compensation to society. However, this is the case in every nation on Earth. Even those that are otherwise social democratic, like Norway.

As technology progresses, land ownership only becomes more lucrative as a result of more productive labor, considering the revenue generated from a farm is nothing compared to that of a modern skyscraper employing professionals. As such, the profits from land only grow more and more concentrated; the owners of more valuable land extract wealth from society in the form of rents, by charging for access to land or taking its rents for themselves, without any contribution to the economy in return. Rents that should rightfully belong to the worker. In doing so, they grow ever richer while the rest of society stagnates or declines. It was not by accident that the feudal societies of Europe based their power on the ownership of the land- a heritage we acknowledge in the very modern term for landowner, the landlord.

Of course, it isn't feasible to seize all land and centrally plan how each piece of land is used. So the solution is to socialize all land rents (profit). To demand just compensation equal to the profit extracted from the unjust ownership of land. We do this through what's called a land value tax (LVT).

An empirical look at the rising inequality due to Land

Rising inequality is a huge issue in the 21st century. Regardless of any argument on how well the poor at doing, what we can all agree on is that the rich are getting richer, and are doing so at an astonishingly fast rate. If this continues, we will reach a point where society looks much like that of feudal Europe, with a few high class families dominating society.

A convincing case for this was made by none other than Thomas Piketty himself, in his bestselling book "Capital in the 21st century" (here is a summary). In the book, he points out that the rate of return to capital, r, has been much higher than economic growth, g, resulting in dramatic increases in inequality. This is known as the r > g function. He believes that a global wealth tax could significantly alleviate this issue. While his contribution is historic and bought the problem of rising inequality into the mainstream, his analysis is incomplete. This ties into what I was saying earlier, with leftists lumping land and capital together and treating them as the same, when they really are not. The issue with Piketty's analysis is precisely this. He forgets to separate returns to real estate from returns to financial capital. As it turns out, the rise in the capital share of income is driven entirely by increasing real estate prices (caused by land).

Since land ownership is the primary driver of inequality in the first world, the correct policy prescription isn't a wealth tax like Piketty believed, but rather a full 100% land value tax. If we want to reduce inequality, the most precise method of doing so is with an LVT.

How would an LVT fit into the tax system?

In my opinion, the best way to fit a land value tax into the tax system would be to begin by replacing property taxes, then slowly shift tax burden from labor to land. This means replacing Income tax, sales tax (or VAT), and payroll taxes with LVT. The case for replacing VAT and payroll taxes is simple. VAT, when measured relative to income, is an extremely regressive tax that forces the lower income and middle class to pay a higher proportion of their income in taxes. Payroll taxes are flat, which is better but not good. As a result, the case for replacing sales and payroll taxes with LVT are obvious. It would result in a massive shift of tax burden from the poor to the upper class.

However, the case for replacing income tax with LVT isn't so obvious. Income tax has always been a keystone tax in a social democracy, providing the majority of the revenue to fund social programs, while also reducing income inequality with its progressivity. However, the case for replacing income tax with LVT addresses this, because:

1. According to FRED data, the top 10% holds 45% of all land value, whereas the top 10% holds 30% of the income. As a result, shifting tax burden from labor to land would actually decrease inequality even further. It would also decrease income inequality because LVT will be paid partly out of income.
2. LVT would be able to raise enough revenue to replace income tax. Even in the presence of an income tax, an LVT alone is able to raise enough revenue to fund 1/2 to 2/3 government spending (source of image). It would raise even more if it replaces income tax, because income that is no longer taxed will be spent/invested, which raises land values and, in extension, revenue from the LVT. Land values are Aldo artificially suppressed by terrible land use regulation in areas like San Francisco. Proper land use reform is a must!
3. LVT would boost economic performance. All taxes except LVT have deadweight loss, and Income tax is no exception. Income tax has the unfortunate effect of taxing savings and reducing labor supply as a result of decreasing returns to higher incomes. In fact, there is evidence that income tax suppresses incomes. However, unlike other taxes, land value tax has zero deadweight loss because the supply of land is perfectly inelastic. Taxing land doesn't result in less land. As a result, replacing income tax with LVT would increase wages and increase labor supply by inducing people to work more, which can dramatically boost economic growth.

The main concern is that landlords may be able to pass on LVT to tenants through higher rents, but that's not true either because LVT doesn't discourage new housing construction the way property taxes do, so the landlord can't leverage lower competition (due to lower supply) for higher prices. He will be forced to charge what the market will bear and pay LVT out of profits.

Lastly there is also a moral case to be made to tax land over income. It boils down to the fact that taxing hard earned income to fund social services is terrible when compared to the alternative, which is taxing unearned profit that results from the exclusion of others from what is rightfully theirs.

Conclusion

As we have seen, implementing an LVT accomplishes many of our goals, from reducing inequality, to raising revenue, and even solving the housing crisis by incentivizing higher density development.

If an LVT isn't implemented, I can say with certainty that Piketty will be proven true. The absence of an LVT would result in us living in a pseudo-feudalist society where the few own massive holdings of high value land while the rest of us are doomed to be renters or relegated to lower value land that isn't enough to live off.

If you read this far, thank you for your time!