There is an economically neutral tax. There is a tax that doesn’t have the effect of making you poorer than you should be or richer than you should be; but only one. My previous blog entry discussed one way in which taxing capital distorts the degree of our being poor or rich. It’s why taxing capital is a big mistake. However, the one tax that is economically neutral is a tax on the value of land. It is not a property tax that includes the value of the building or other improvement on the land made by private hands. It is a tax on the value of the plot alone, the dirt, rocks, trees or grasses, as defined by the community.

While it should be clear that land is the one thing that none of us made (land-fill is the exception), it is also clear that land is what is needed before anything can be made. All work begins with a touch to land. All wealth begins with a claim on land. Even if your office is on the 80^th floor of a skyscraper or your business is sending data through the air, you can’t do it without connecting to the land, be it via the elevator that rises from the ground-level lobby, or the high frequency tower attached to the roof. All of our work, be it in agriculture, art, or airplanes, comes down to, or goes up from earth.

This means access to land is effectively access to economic opportunity. And that opportunity has a price. The price varies from plot to plot, but it is established by the free market; interested peoples’ assessment of the economic potential. Land value is the price of an admission ticket to an economy. Without a ticket, or borrowing someone else’s ticket via a rental agreement, or being employed by someone who foots the cost for you, it’s tough to create wealth or to save for a better future.

Taxing land value will not distort economic results the way taxing capital does. Because land value is set by the market, not some politically expedient government deliberation of a percentage. And if it is the community that gives a plot of land its value, it only follows that land value be a natural source to tap for the costs that community needs to run itself.

So how does taxing land value not distort the degree of wealth or poverty in society? Traditional economic success results from the work done after one enters the economy. This is where capital taxes fall; on results. When land value is being taxed instead of capital, work, in all its profits and rewards, is freed from government established costs. The price of the opportunity taken, fundamentally rooted in the value of the land chosen for the endeavor, is set by the market. Greater opportunity, usually land with more people around it, logically costs more.

If what I’ve just laid out is true, the only big question remaining is whether that opportunity cost, levied on what no one made, goes back to the community that valued it, or if it goes to the private hands fortunate enough to use it.