Friedman explains how a tax on the unimproved value of land is economically the best tax, but politically the worst, and he also takes some blame for personal income taxes which he helped introduce during his time in the US treasury in 1941. He says
The question is, which are the least bad taxes. And in my opinion, and this may come as a shock to some of you, the least bad tax is the property tax on the unimproved value of land - the Henry George argument from many many years ago.
It's an interesting thing if you're talking about taxes about why it is that the property tax is so unpopular. It's not unpopular for good economics reasons. It's unpopular in my opinion for one good reason. It's the only tax left on the books for which people have to write a big cheque.
The income tax is a far worse tax. But, and I have to admit that I have some part of the guilt in this process, because during World War Two I worked at the Treasury and helped to design the withholding system (my wife has never forgiven me for it). But with respect to the income tax we've arranged it so it's taken off bit by bit and it's almost painless. With respect to the sales tax we pay a little bit of it each time. With respect to the corporate tax and excise taxes, they're hidden in the price of things we buy - we don't even know we're paying them.
But with respect to property tax that remains a tax that we as individuals have to pay, and then we have to write a big cheque for it. That's the fundamental reason in my opinion why it's so unpopular.
But if you wanted to reduce the unpopularity of the property tax the way to do it would simply be to provide for an effective method whereby it could be withheld at source in small payments.For me Friedman's last comment could be the key to unlocking land taxes as the primary source of government revenue in many jurisdictions. People in general have intense loss-aversion - they hate getting something and having it taken away much more than never having it in the first place. The practicalities of implementing a withholding system for land taxes should be seriously considered by land tax advocates.
I could suggest that for residential property, each State's rental authority (the authority that holds rental bonds in trust) also operate as a rent intermediary, deducting estimated land taxes from periodic rental payments in the same way that income taxes are withheld. This would allow landlords to see only rents net of land tax, and make investment decisions on the basis of this new net rental amount.
But rentals are only about 30% of the housing stock. For owner occupiers, vacant and non-residential land owners, I currently see no practical alternative but collect State-level land taxes in the same manner as the already are.
In truth, this loss-aversion problem with land taxes might reflect Friedman's world view more than the real political problem. After all, in Australia most State's already have land taxes, but with extensive exceptions, particular for owner-occupied housing. Incrementing the tax rate is a costless exercise politically, as only a tiny fraction of voters pay it, compared with alternative sources of taxation. It seems to me the hinderance here is more a case of the political power of the wealthy, who would be on the hook for most land taxes, regardless of how they are disguised.
In any case, a good video.