Before a competition starts to emerge over which candidate can propose the highest wealth tax, we should be reminded how mobile wealth can be. Wealth taxes have failed for this reason in other countries, and have caused serious economic harm while raising negligible revenue. Taxing labor and physical capital can have the same issue to some extent, but less so with trade and consumption. However, if Warren truly wants to address wealth inequality, she needs to look at the often-forgotten factor of production: land.

A Better Alternative

When Piketty opened the discussion for rising wealth inequality, the data showed how almost all of the increase was due to land. A tax on land values is the most transparent form of taxation, since land ownership is easily mapped and traced, while also being progressive. Land can also not move abroad. Furthermore, a land value tax is endorsed by economists across the political spectrum, including Joseph Stiglitz.

A land value tax (LVT) is unique because unlike productive capital or labor, it cannot be reduced in supply, therefore avoiding the economic risks of other forms of taxation. Keep in mind it’s not a property tax, and strictly taxes the underlying land.

While reducing wealth inequality and raising significant revenues, an LVT also addresses issues of housing affordability. It deters speculators from holding onto vacant lots or under-utilizing their land, and pushes more units onto the market. There have also been proposals to use forms of LVT to encourage the development specifically of affordable housing and to grant rebates based on the number of people residing on a particular plot of land in order to further housing affordability. While an LVT would have little impact on farms (as land values are lower), it would have positive environmental effects by encouraging more density in cities, and allow for the self-funding of public transportation & infrastructure. An LVT also provides an advantage to small shops over large, sprawling big box chains.

If Warren really wants to differentiate herself from Sanders, the LVT is the most effective and positive form of wealth tax to propose.

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