The Land Value Tax, like the Fair Tax, is meant to be a single-tax scheme to replace the current multitude of taxes. Readers of the old Free Liberal will recall quite a few articles where I poo-poo it and one where I posit that in some form it might help as housing prices reach their bottom - assuming you do something to compensate those of us who are underwater on our mortgages.
In this essay, I will cover two topics: a variation on wage value and the main implementation difficulty of land value tax implementation: federalism.
First, the wage value alternative. LVT supporters trace their intellectual heritage to John Locke, who like modern geolibertarians believe that the moral justification for an LVT is to compensate individuals who do not have access to the ownership of that piece of land - especially renters. Landlords would pay others for the right to exclude others and even to charge them for holding land that should be available, but cannot be because land is a fixed resource.
Land is not important merely because it is fixed, but because it is productive. In libertopian theory, if everyone had their own land in a free economy, everyone could grow their own food or otherwise exploit their land and thereby avoid working for others - or if they did - they could get a fair wage.
When the labor market (and market for goods) is not free, business owners can be more selective in hiring and pay less, even to the extent of pocketing some portion of the productivity of labor rather than paying it fully to employees. Indeed, retention of such profit is a key component of capitalism and why capitalism cannot be said to be the same thing as a free market. Indeed, in a perfectly competitive labor market, even in a principle-agent hierarchical organization - all employees and managers would be paid the same wage - all things being equal.
How is that possible? Simply, the top manager is responsible to the owners for running the firm. If the manager hires someone to help him carry out his job, that person is doing the manager or owners work and therefore has the same value. Assuming no barriers to entry and homogenous resources, which are essential assumptions in a free market, all work must have equal value since the authority to do it comes from the same place.
It is only when work is segmented that markets become unfree - which is the essence of an unfree market - which leads to unequal wages, unequal positions and segmentation, as well as a scarcity of positions and the retention of profit from labor by management and business owners rather than its full distribution to wage earners. This type of market is called monopsonistic competition, or monopsony if there are very few employers.
It would seem that the scarcity of positions is the modern equivalent of the scarcity of land. When individuals are excluded from land ownership, they are morally entitled to the proceeds of a land value tax. As the economy moves from being land based to talent based, are not those who are excluded entitled to the same type of compensation from an income-value tax, especially if they have been disadvantaged in their ability to obtain an education? I am not talking about simple unemployment compensation here, but either a permanent payment for being excluded from the labor force (roughly equivalent to a pension when someone is "retired" - which is a form of exclusion) or by payments to become competitive in terms of skills. This training should be available to all who desire an upgrade in their skill level, not just the illiterate. If such a training program were fully implemented, there would be no justification for divergent wages and the labor market would, in fact, be free.
The second topic explores why federal income taxes can never be replaced by a federal land value tax. I currently live in Alexandria, Virginia and am planning a move to the New York metropolitan area. Land values are significantly higher where I am going, so one would think that I would favor a land value tax to reduce the land prices I would have to deal with - or to at least provide me with a dividend so that I can afford housing. Leaving aside the appropriateness of higher prices because too many people desire to live in too small a space, there remains the question of how high LVT taxes would have to be and how widely the proceeds of that tax would have to be distributed. If the LVT is federal, then the scope of the tax would be nation-wide and the goal would be for land in Great Neck, Long Island to have the same value as equivalent land in Cedar Rapids, Iowa; Alexandria, Virginia and Stanton, Virginia. That would create some wicked tax rates in urban areas and some hefty dividends in rural areas.
This is also the Achiles Heel for any national LVT, since the most populous states, while not a majority in the Senate, are a majority in the House of Representatives. For a federal LVT to be enacted would require a constitutional amendment. There are simply too many members of the House for such an amendment to ever be submitted to the states for ratification - or to call a constitutional convention upon petition by low-property value states. Congress has the plenary power to judge both ratification and convention calls - these are not justicable (there is no access to the courts for disputes), so any such amendment try is dead and with it the LVT as a federal source of revenue.
It gets worse. Morally, if an LVT is a just act, then in a world economy it must be a world-wide tax - meaning that if someone is not able to get land in Bombay or New York, they must be compensated. In practice, this would require that the LVT be collected globally with a global citizens dividend to be paid to everyone, especially those who are not allowed to come to more developed areas. Anyone who is not allowed to immigrate to the United States would be entitled under LVT principles to a payment and everyone who is keeping them out - in essence all Americans and Europeans, would be required to make a payment for that world citizens' dividend. I challenge anyone who favors an LVT to examine this implication of their argument and see if they can swallow it and its implications.
I suspect this call to be ignored, since going down that road makes enacting an LVT impossible in Tea Party America.