If Big Ag offers to buy your family farm for $10M then you have two options:
1. Sell it to them for $10M
2. Pay land value tax on it as though it were worth $10M
What other meaning does "land value" have than what someone is willing to pay for it?
(Roughly. There has to be some hysteresis and other frictional factors inserted to make it workable. My comment was not supposed to be interpreted as a finished piece of legislation, just a rough idea of how to prevent gaming.)
In your scenario, Big Ag just needs to offer an amount that causes the tax burden to be unbearable for the person who currently owns the farm. That’s not “the value of the land” but the cash flow of the owner at a moment in time.
I presume it would be easy to set up systems of mortgages to pay land value tax. In fact I imagine that in practice land value taxation would be indistinguishable from paying a slightly higher mortgage, for most people. In fact given the downward pressure it would impose on property prices it could easily mean people end up paying less than what they would pay as mortgage under the current system.
Say the tax is 10%. You already have a mortgage on the property, and not a lot of other assets. "Big Ag" offers 20 times what the property is worth to buy you out and eliminate a competitor. The tax (10% of 20x) would be double the standard market value. No bank is going to let you borrow double the ordinary market value in addition to what you already owe to cover the tax. You have no choice but to sell.
There are many implausible aspects to this scenario.
Firstly, the tax will be nowhere near 10% p.a.. The order of magnitude yield on real estate is 5%. Unimproved land will be less, of course. 1% seems to be a more likely order of magnitude for LVT rate.
Secondly, would "Big Ag" really offer 20x the intrinsic value of the property? Seems unlikely.
Thirdly, who wouldn't be dancing for joy to receive 19x the value of their property in cash (after paying off a possibly hefty mortgage)?
Finally, if you are sitting on land that has economic value but you are refusing to unlock that economic value then yes, LVT is a pressure to sell. That's (part of) the point of LVT.
The rate was, of course, fictitious. Feel free to use a different estimate.
> Unimproved land will be less, of course.
Unimproved land would be more since a higher tax rate is needed to bring in the same tax revenues if you exclude the value of the improvements.
> Secondly, would "Big Ag" really offer 20x the intrinsic value of the property?
To eliminate a competitor? I don't find that implausible at all. They wouldn't pay that much for an arbitrary plot of land, but it's not the land that they're paying for here.
> Thirdly, who wouldn't be dancing for joy to receive 19x the value of their property in cash…?
Presumably the owner who didn't want to sell the land at the ordinary market value in the first place. Maybe it's been in their family for generations, or they just really despise Big Ag and don't want them to get it. Maybe cash just isn't all that valuable to them.
> …then yes, LVT is a pressure to sell. That's (part of) the point of LVT.
And that is part of what is wrong with LVT. Property owners have the right to keep their property no matter who wants it or how much they are willing to offer. Regardless of the reason.
> > Firstly, the tax will be nowhere near 10% p.a..
> The rate was, of course, fictitious. Feel free to use a different estimate.
The scenario fails with a different estimate. If one chooses 1% p.a. then it's even less plausible that "Big Ag" is going to offer 200x the value of the property!
> > Unimproved land will be less, of course.
> Unimproved land would be more since a higher tax rate is needed to bring in the same tax revenues if you exclude the value of the improvements.
Interesting. I hadn't considered that. I'm hard for me to understand the implications. Anyway, you seem to be suggesting 10% of the total property value (including improvements), which is far higher than would occur in practice.
> Property owners have the right to keep their property no matter who wants it or how much they are willing to offer. Regardless of the reason.
Right, so I think your objection is to LVT at all, not this particular strategy of countering under- and overvaluation. That's a reasonable position. I don't agree, but I'm sympathetic. Your particular objection about "Big Ag" buying the family farm seems a too precise and implausible objection to the very vague system I laid out.
(Or intended to lay out. If readers misinterpreted my comment then I take full responsibility and apologise!)
After they do this a few years in a row, the family will be bankrupt from paying property tax and the "Big" firm will be able to buy the farm for less than it was originally worth.
1. Sell it to them for $10M
2. Pay land value tax on it as though it were worth $10M
What other meaning does "land value" have than what someone is willing to pay for it?
(Roughly. There has to be some hysteresis and other frictional factors inserted to make it workable. My comment was not supposed to be interpreted as a finished piece of legislation, just a rough idea of how to prevent gaming.)