The Constructive Tax

The Constructive Tax

Usually when you think of taxing you think of some level of destructive interference of the normal course of economic activity. So when you hear that there is a constructive tax it sounds like the mother of all oxymorons. However there is such a concept. The Land Location Value Tax is just such a tax. Here is how it works. Currently you can save a bundle of money letting your property become run down or even boarded up altogether. In the city you can bulldoze your building, rent parking space to a few cars to pay your tax and laugh at the huge tax the office building owner right next door is paying for the same size land footprint in the city. That is because the vast majority of Real Estate property tax is on the building and other improvements and not on the land itself. You hold that land as the prices escalate drastically due to this land hoarding scheme then sell at the peak of the market cycle. Once the Real Estate cycle (commonly referred to as the “business cycle”) goes bust the speculator takes his cash and scarf’s up the cheap foreclosed properties to begin the cycle again. But the speculator creates no actual wealth but rather shifts wealth around generally from the pockets of the poorest tenants and blue collar working class into the speculator’s pocket.

But just a simple shift of the tax burden radically alters the motivations and needs of the land owner, especially city owners of valuable urban land. With the tax removed from the buildings and other improvements then placed of the value of the land size and location the average Real Estate owners would notice very little change. However, the land hoarding parking lot owners and slum lords would see a steep increase in their tax bill as now they would be paying for the same urban footprint as their neighbors who put their land to productive use.

What this means is these hoarders would bring their under used urban land into more productive use earning wealth to pay for their Land Location Value Tax. To make their urban land more productive to create the wealth necessary to pay the tax would mean construction of some form of building to generate wealth as a business, factory, rental, etc. Since there would be no tax on buildings the decision to build to create more wealth would be a no brainer. Plus other building owners would no longer be punished with higher taxes for improving and renovation of their dwellings so they would have every incentive to hire carpenters, plumbers, roofers, etc. to make their buildings nicer and more useful to filling their needs. Therefore, enormous levels of construction would be occurring in the urban areas and hence the concept of a Constructive Tax is understood. Taxes on income are destructive in that they reduce the incentive to work and require large paperwork overhead costs. Tax on sales of goods and services reduce the market share by the amount of the tax plus the paperwork cost of collecting the tax. Corporate taxes are paid by the customers of the corporations and not the corporation themselves. All tax except the Land Location Value Tax are destructive to the social fabric in an insidiously unseen fashion by the average man in the street. The wealthy have always calculated legal ways around these taxes. Using the Land Location Value Tax to fund our genuinely public needs would remove the one flaw in our capitalist economic system.

But the land baron class of speculators here in the U.S. would never hear of such sensible economic reform. And they have plenty of our cash from the fruits of our labor and not theirs to buy all the influence on Capital Hill to assure that things remain here as they have always been. But Cuba is soon to be a clean slate. What if we opened Cuba to private ventures and relegalized ownership of one’s own labor but implemented this just mentioned constructive form of taxation? I'm betting that if this was to occur combined with the ingenuity and drive of the Cuban people that the island would be flush with widely distributed wealthy people in no time. Then the time of the Cuban people would go from worthless to priceless.