I understand that the 2008 financial crisis was mainly caused by the re-packaging and re-selling of subprime loans.
And also the moral hazard caused by such things as the bailout of "Long Term Capital Management" in 1998, so that the big dogs knew that if there was ever a system-wide crisis, they'd most likely be bailed out.
A big issue, certainly in the USA, yet the same underlying trouble was everywhere. I know a lot of people in the Netherlands also rand into major trouble, not so much because the mortgage structures were all bad (although some were), but simply because banks had afforded too much credit (more than the clients could realistically keep paying off if the economy took a downturn). This problem persisted globally. The diseased trickery that proved to be the impetus was certainly a big problem, but the biggest issue ulyimately proved to be "we've extended credit that will only be paid back if the economy keeps booming". And, yes, 'moral hazard' played a major role in that. No matter whether it was the USA or any given European country or whatever-- the banks were confident that they'd be bailed out.
As far as this discussion is concerned, the point I wanted to make was that using LVT as a way to ensure that too much credit isn't pumped into real estate financing is a dangerous step, because it can easily swing the other way and choke off legitimate financing as well. Most young families rely on it, and -- under normal circumstances -- are good for it; can pay it off. If you miscalculate the effect of using an LVT as an manipulative instrument, that can really cause issues for a lot of average families just as bad as what we saw in 2008... but because of a
dearth of financing.
Or, put more succinctly: I'm saying an LVT isn't a magical tool that can fix all ills and has no possible draw-backs, as some of its more fervent proponents occasionally seem to believe.
PS This has squarely become a spanning topic in which we're talking about 1800s policy norms affecting the 1900s and beyond, but I like spanning topics.
Looking at the time-frame, it would be interesting to see what would happen if an LVT were to be implemented in the early 19th century or something, especially later on when the economy really starts to move away from agrarianism. Personally, I think an LVT would be unlikely, and that you'd more likely see a 'regular' property tax. But a country that has its taxation centred on a property tax might at some point undergo reform (due to a Henry George analogue?) and change it to an LVT. And then when land ownership becomes less and less relevant... well, another overhaul, I suspect.
See I'm not so sure you are correct here. Fundamentally if you did as you suggested, you've priced yourself out of a sale there, making your land less productive. If anything you'd do better to absorb the tax and invest, or even lower the price so that it is used more often. Whilst land itself is inelastic, access is too. You can only sell so much time a year, and you want that access to be as high as possible, otherwise you will just be paying money for owning land. Which is a net loss. This can vary based on the method of valuation used, but I hope you get my point. Low demand land needs to act as it is, a mass-sale product with low margins.
(...) [snipped for length]
I think the bolded part is perhaps the crux. My thinking here is, quite simply, that all land-owners are likely to hand added costs off to renters or to those buying the products of whatever land usage the owner carries out himself.
If, for example, John owns plot A and rents it to Pete, and Pete's annual rent is initially 1000 bucks per [period], and then an LVT is implemented that costs John 200 bucks per [period], then John is just going to up Pete's rent to 1200 bucks per [period]. And every single "John" in the country will do that. Same reason why, when they raised the VAT in my country, all the stores raised all prices of all affected goods with about the same percentage. That always happens. "
Hey, my costs of doing business went up, so my prices go up, too. That's life, buddy!"
Similarly, if John also owns plot B and raises some crop on it, which he sells at a total price that gets him about 2000 bucks every [period], and an LVT is implemented that costs him 500 bucks per [period] for that plot of land, he will slighly increase the prices of his crops with the aim of making 2500 every [period], thus off-setting the additional costs. This, too, is something that every agrarian ever has always done when faced with yet another tax hike.
The idea of "pricing yourself out of the market" won't really enter into consideration here, because the whole market is affected, and general market pricing will be adjusted accordingly.
The real result of an LVT is in those cases where John owns plot C, which lies fallow.
That plot is going to cost John money when the LVT is implemented, which means he has to do something with it. That's also the goal of the tax, in the eyes of many: to ensure that people use all the land they own productively. Whether that is always a good idea may be debated, but I'm not denying the effect. As I wrote before: certainly in urban areas, discouraging the non-use of valuable land might be great boon.
My point was not that the LVT cannot have such positive results, but to note that Mill was let us say
rather too optimistic in his belief that the burden wouldn't be shifted onto others. On the contrary: the burden is
always shifted onto others, as is inevitably the case with almost all taxes. If it
can be shifted onto others... it
will be.
