The mainstream debate today is on the various levels of current taxes: income, sales, property, gasoline, etc... What has been missing from the debate is a debate on land value taxes.
Thomas Paine wrote
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
Sure, right now, people can work and buy land, but how did the first person who owned that land have a claim to it? Do people get to simply draw a line in the sand, and therefore have a right to exclude others from it and have their land title protected forever? Doesn't make much sense. It's with government support that people are able to do so. What you can have, and government is obligated to provide, is secure possession of land, and you have an absolute right to what you build on top of the land or buy on top of the land.
For these reasons, land value taxes are the most morally sound, but they are also economically sound. Follow me over the flip for more...
A tax on income, sales, property improvements, etc... are a disincentive to productivity. When you reduce the return on investment people receive from their work, some projects and investments that previously made economic sense now either make less economic sense or no economic sense. No, we don't have anyone refusing to take a pay raise due to being in a higher tax bracket, but we do have people unwilling to put in effort if they won't get to keep a high enough % of the fruits of their labor. The profit either goes down or goes away. The difference between what would be produced with no taxes and what is produced with taxes is called deadweight loss. Similar to an interest rate: make it artificially low, and investments that previously did not make economic sense now do. Make it artificially high, and investments that previously made economic sense now don't. Taxes have the same effect of an artifically high interest rate.
Many of us are familiar with John Locke's philosophy on property rights being a natural extension of our right to ourselves. When you mix your body with your labor, you are entitled to keep the results. The common example is picking an apple from the tree. You own your body, you used it to pick the apple, the apple is yours, provided there's "enough and as good for others" and you take no more than you need. If you take too much and some spoils, you have overstepped your rights.
A land value tax encourages productivity. The supply of land is 100% inelastic, so the landowner will bear the entire cost. Currently, people have an incentive to hoard land because of the general rise in economic rent. Under a land value tax, they are paying it regardless of what they do with the land, so they are facing a much greater loss than now if they hoard land. It no longer makes economic sense to hoard land. It will be put more to productive use, which will help areas that need it.
As well, a land tax cannot be passed onto consumers, as Adam Smith wrote, in his The Wealth of Nations, Book V, Chapter 2, Article 1:
Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground. More or less can be got for it according as the competitors happen to be richer or poorer, or can afford to gratify their fancy for a particular spot of ground at a greater or smaller expense. In every country the greatest number of rich competitors is in the capital, and it is there accordingly that the highest ground-rents are always to be found. As the wealth of those competitors would in no respect be increased by a tax upon ground-rents, they would not probably be disposed to pay more for the use of the ground. Whether the tax was to be advanced by the inhabitant, or by the owner of the ground, would be of little importance. The more the inhabitant was obliged to pay for the tax, the less he would incline to pay for the ground; so that the final payment of the tax would fall altogether upon the owner of the ground-rent.
That brings me to another point, it discourages sprawl. Since people have to pay the same tax on land regardless of what they do with it, they are going to want to do the most production with the least amount of land. If they build up on their current land, they are not faced with a higher tax. If they build out, they are because they are owning more land. Henry Ford said it quite nicely:
"The time will come when not an inch of the soil, not a single crop, not even weeds, will be wasted. Then every American family can have a piece of land. We ought to tax all idle land the way Henry George said — tax it heavily, so that its owners would have to make it productive".
Lastly, it's impossible to evade.
In short, a tax on land is the most moral because no one is making a claim on the fruits of someone else's labor, and it's the most economically sound because it encourages productivity, discourages sprawl, and is impossible to evade. Ultimately, the goal should be more land tax and less taxes on productive activity.
You can check out some other readings here that will go more into depth:
Impact in other countries
High land tax in Hong Kong
The Impact of Taxation and Valuation Practices on the Timing and Efficiency of Land Use
Geo-Rent: A Plea to Public Economists
ADDENDUM: May want to check out its impact in Harrisburg, Pennsylania http://www.labourland.org/...
ADDENDUM 2: A great YouTube video driving the point home
