http://www.cooperativeindividualism.org/batt-h-william_who-says-cities-are-poor.html

Who Says Cities are Poor? They Just Don't Know How to Tax Their Wealth!

H. William Batt, Ph.D.
[Reprinted from a paper prepared under the auspices of the
Center for the Study of Economics,
Philadelphia, PA. April 2005]

The problem

It's been an axiom of urban policy for the past half century to lament the plight of American cities — that they have lost their most productive populations, that their infrastructure is deteriorated and obsolete, that they contain people most in need, and that their tax base is limited. This essay argues that none of this needs to be so, and that municipal leaders need only to think "outside the box" as the hackneyed phrase goes, to find undreamed of revenue that will not only provide all the support cities need but enhance the economic vitality of their being by its collection.

As conventionally viewed, cities not only have need for more services but lack the tax base on which to draw from. The services are greater in cities than in suburban and rural communities because that's where streets and other general services are the heaviest, where the schools are the greatest challenge, where the police and fire departments are most relied upon, where the social programs face the greatest pathologies, and where general administration is the most complex and requires the greatest control and coordination. It seems so obvious that it hardly needs mentioning, and no further discussion is required.

At the same time, so the argument goes, the revenue bases upon which to levy taxes are most lacking: the middle class and the wealthier populations have largely moved out, and stores have relocated to malls and highway junctions taking the sales tax base with them. What's left are deteriorating buildings and a complaining citizenry: the footloose commercial and industrial sector also threatens to relocate along with a residential population feeling strangled by growing municipal and school taxes on real property. A few cities have reached beyond taxation of property and sales to impose one more — an income tax — on top of the others. And greater reliance upon user fees and on privatized services shifts the burden increasingly to the poor.

It is difficult to argue with the truth of this picture. The most recent National League of Cities Annual Report[1] indicated that most urban officials are very pessimistic about the general directions the country is heading, and most expect continued decreases in the levels services in years to come. Using almost any indicator — traffic, unemployment, infrastructure, housing, drug and alcohol abuse, or economic conditions, the problems have gotten worse. As federal and state taxes are cut back in the face of growing resentment, local leaders are faced with a Hobson's choice — raise more taxes or further cut services. In recent years, the changes in revenue streams between federal, state, and local governments show a continued decrease of support in all areas.

1. National League of Cities, The State of America's Cities 2004: The Annual Opinion Survey of Muncipal Elected Officials. www.nlc.org/resources_for_cities/publications/1637.cfm.

The revenue choices, political leaders assume, are between taxes on real property, retail sales, and personal income. All three are recognized to have strong negative impacts. Property taxes, well documented as being the most resented of all,[2] are viewed as unevenly and even arbitrarily applied, regressive, and destructive of economic vitality. Sales taxes are acknowledged also as regressive and easily evaded. And income taxes, intended as a means of taxing the "rich," also have downside consequences in their invitation to both tax avoidance and enactment of loopholes by compliant legislatures. What then to do? The more each tax rate is increased, the greater the tendency to institute beggar-thy-neighbor policies that raise the cost of their administration and foster more resentment and evasion. Not without reason do tax experts regard politics today as essentially a contest over taxes.[3]

2. Karlyn H. Bowman, "Public Opinion on Taxes," American Enterprise Institute Studies in Public Opinion, April 7, 2004, www.aei.org/publication16838; and Glenn W. Fisher, The Worst Tax? A History of the Property Tax in America. University of Kansas Press, 1996.
3. See, for example, Joel Slemrod, Taxing Ourselves: A Citizen's Guide to the Debate over Taxes, Third Edition. Cambridge: MIT Press, 2004); Michael Graetz, The Decline (and Fall?) of the Income Tax. (New York: W.W. Norton, 1997.

The premises of discourse

What is most called for today is a return to basic analysis. Elementary economics starts with the recognition that there are three factors of production in the creation of social wealth. Each of those factors are mutually exclusive and, taken together, are jointly exhaustive of all sources of market value. The first of these is what classical economics from Adam Smith on called land. Land meant every aspect of nature to which industry can be applied; it meant not just locations of space but air, water, and mineral wealth. Today sunlight, radio waves, and even time, on occasion, would be added. The second factor of production is labor, referring quite simply to the effort applied by people's minds or bodies to land. The third factor is the product of past application of land and labor to current production: capital. Each factor in classical economics has its price, the product of which is the creation of wealth as we commonly understand it. The price of labor is wages; the price of capital is interest, and the price of land is rent. Rent, as understood in economics, is not payment for the use of property owned by others; it has, rather, a more technical meaning, one which will require greater explication below.

We have largely lost sight of these basic premises of economic thought, and it has led to our general inability to address the urban challenge of taxation with a perspective that offers an easy solution. Returning to these fundamental building blocks makes things much simpler and more comprehensible. Labor continues to be easily understood; its meaning has not changed in the course of a shift from classical to neoclassical economic thought. But capital, which had earlier encompassed only those creations that were the result of human enterprise— the product of labor and land, has now been redefined to include land. Land by itself in contemporary neoclassical economics has dropped out of the equation altogether, and so for the most part has the concept of economic rent.[4] Mathematical formulas in neoclassical economics are entirely changed.

4. For an extended discussion of this, see Mason Gaffney and Fred Harrison, The Corruption of Economics London: Shepheard-Walwyn Press, 1994.

There is good reason, however, to recover the use of the terms land and rent as they were employed in 19th century classical economics: rent is the surplus produced by the collective enterprise that can provide the necessary revenue to easily support public services, if it were only collected in the form of taxes.[5] In fact, by shifting taxes off labor and capital and onto land rent, the performance of markets would be made fully efficient and would be essentially painless to taxpayers. This is the thesis I am arguing here, and which is now possible to demonstrate with the advent of computer power and available data. It amplifies and validates what has been for a century only a plausible theoretical claim. We can now show that collecting economic rent can provide for all the services demanded of cities and avail themselves of the proper tax base that exceeds all others.[6] And unlike other taxes there is no downside impact; in fact it's positive. Economic rent is the surplus created by the community, and it circulates through the markets until it ultimately comes to settle on land sites.[7] The result of its accretion to land sites is to raise their market price. Economic rent is sometimes called land rent or ground rent for this reason, and comes about not through any titleholder's individual enterprise but by the consequence rather of society's collective effort. British political economist David Ricardo first conceived of land rent in terms of its relationship to agricultural production in the early 1800s, but its applicability today is understood far more easily with regard to the site values in cities. Whereas ground rent to Ricardo reflected the differential gifts of nature inherent in various land sites, it is today better understood as reflective of locational differentials in the capacities of communities.

5. For more on this, see Kenneth C. Wenzer (ed.), Land Value Taxation: The Equitable and Efficient Source of Public Finance. New York: M.E. Sharpe, 2001.
6. See, for example, Terry Dwyer, "The Taxable Capacity of Australian Land Resources," in Australian Tax Forum, January, 2003. www.prosper.org.au/Documents/TaxableCapacity.pdf; and infra. More work is forthcoming on this question, and much greater documentation will be available shortly.
7. See Mason Gaffney, "The Philosophy of Public Finance",@ especially, pp. 188-192, in Fred Harrison (ed.), The Losses of Nations: Deadweight Politics versus Public Rent Dividends. London: Othila Press, 1988.

This is relatively easy to understand by considering a vacant expanse of land that has imposed upon it a grid of roads like a tic-tac-toe board. Suppose each of the squares were privately owned, and development of those sites were to ensue, the economic surplus generated by that market activity would raise the value of each of those locations. Let's further suppose that every site were developed except the center square, that titleholder choosing instead to just hold his title vacant. Which land site, discounting the building values, would command the greatest market price after a short time? The center square, of course — even though that owner made no effort to earn that increase in price. The center square would see the greatest accretion of economic rent because of its strategic access. It would be the passive beneficiary of the surplus generated by the common enterprise of all the market exchanges resulting from the other locations. In just this way rent becomes the social creation of the community and not the result of any private individual's enterprise. The more the economic activity, the more the surplus generated comes to settle on land in the form of rent. Rent accretes to land sites and raises their market value, directly reflecting the varying levels of productive economic surplus generated over time throughout a community. High economic productivity yields high surplus rent.

If one plots the land value per unit area, whether by square foot, acre, hectare, or square mile, as is now possible to easily do using modern computer programs, the differential land values are easy to approximate. Typically the center of a city experiences the peak land value, with a precipitous decline as one leaves the center and departs to its outer edge. The highest value locations are the commercial cores, falling quickly as one travels out to residential locations, and with agricultural and forest lands having only a small fraction of the value commanded at the center. In areas of New York City, the market price of locations has been shown to be in the vicinity of $500 million per acre. Even in smaller cities, there is little realization of the enormous cost of sites in core areas: in downtown Des Moines, the price per acre was $31.5 million. Other illustrations are easily available, particularly in urban areas on the east and west coasts of the US. Taking another perspective, the urbanized center of Tompkins County, New York (Ithaca) is five percent of the land area but contains ninety-five percent of the land value.[8] To see where the land values are highest, it is easiest to look at a city's skyline.[9] The tallest buildings sit on the most expensive land parcels. Typically the aggregate land value of a city is about 40 percent of the combined market value of land and improvements. The proportion of overall land value to building value is revealed by that profile, known as a landvaluescape.[10] Some buildings will exceed that proportion — a large investment on a small footprint; other sites may be vacant or depreciated buildings with a far smaller land to building ratio. The dynamic at work here is easily understood: the greater a land site's value the greater the incentive to take advantage of its location; following the same logic, the more intensive the investments in particular neighborhoods the greater market value of remaining or underused land sites, making any locations that are underutilized good candidates for improvement. So it is that downtowns generate land values many times those of farther reaches; each investment development fosters others.

8. For a graphical presentation of this, see H. William Batt, The Nexus of Transportation, Economic Rent, and Land Us, April, 2002, at www.taxpolicy.com/batt.
9. The website World City Photo Archive, http://www.worldcityphotos.org/, has just about every city.
10. Tony Vickers and Mark Thurstain-Goodwin, "Visualizing Landvaluescape Without a Cadastre," at www.fig.net/pub/fig_2002/Js14/JS14_vickers_thurstaingoodwin.pdf and others.

The Rent in Cities

The land values are highest in urban cores, one is reminded, because the economic rent passes as a surplus through all market transactions and comes to settle on land sites. Rent happens, so to speak, and it raises the market price of sites accordingly. Were cities to recover the socially produced ground rent in the form of tax revenue, it would not be left to collect on sites but could be used to provide the financial wherewithal for the services that cities are bound to perform. As will be evident below, the amount of economic rent available for recovery is thought sufficient to pay for all services and then some. Today it simply collects on sites of greatest activity with typical and visible negative consequences.

One might suppose that collecting the economic rent would leave locational sites with less market price appreciation, stabilizing land prices at levels that are more within reach for various developments. To be sure collecting economic rent exerts a downward pressure on market prices. But there is a countervailing pressure that works to neutralize whatever tendencies are otherwise at work: the collection of rent, especially from high-value sites, increases the carrying costs in ways that provides a greater inducement for their titleholders to improve them. That incentive fosters development in areas that, together in combination with other activity generated in neighborhoods, tends to maintain the stability of land markets in a roughly constant pattern.[11]

11. T. Nicolaus Tideman, Taxing Land is Better than Neutral: Land Taxes, Land Speculation, and the Timing of Development,@ in Kenneth C. Wenzer (ed.), Land Value Taxation: The Equitable and Efficient Source of Public Finance. Armonk, NY: M.E. Sharpe, 1999.

Unfortunately the positive effect of taxing rent in the typical American city is neutralized by the fact that taxes are also imposed upon improvements. Even though taxing land sites fosters their more intensive use, taxing buildings exerts a penalty on titleholders for doing so that works in the opposite direction. The conventional tax on real property in most American cities is like a train with an engine at each end. Whatever beneficial effects that might be apparent by taxing just land value are taken away again by the tax on improvements. This is why so many cities suffer from abandonment and despoliation. It is also why titleholders so often revile the conventional property tax. Were the tax on improvements gradually phased out and the tax on land values raised proportionately in a revenue-neutral manner, underused parcel owners would be induced to make improvements and sites would be built upon commensurate with their market price.[12] This practice is increasingly employed by municipalities both in the US and beyond.[13]

12. This phenomenon has been apparent in many instances where land value taxation has been instituted. See the work of the Center for the Study of Economics (Philadelphia) at www.urbantools.net.
13. Robert V. Andelson, Land-Value Taxation Around the World. American Journal of Economics and Sociology, Vol 59. No. 5 (Supplement, 2000), and Blackwell Publishers, 2000.

Taxing land value only is an incentive with the virtue of reversing the centrifugal forces of sprawl development and the tendency for builders to choose suboptimal locations.[14] Some titleholders find it advantageous to hold their valuable parcels off the market for speculative gain. But bringing the holding costs forward rather than allowing their exploitation for a capital gain upon sale increases the market efficiency of transactions and more optimal use of sites. The incentive to speculate on others' dime is removed.

14. H. William Batt, "Stemming Sprawl: The Fiscal Approach," in Matthew J. Lindstrom and Hugh Bartling (ed.), Suburban Sprawl: Culture, Theory, and Politics. Lanham, MD: Rowman & Littlefield Publishers, 2003, pp 239-254; and http://www.cooperativeindividualism.org/batt-stemming_sprawl.html.

Cities, having the huge preponderance of land value, stand most to gain by a shift of taxes to land value alone. If they wished they could "cream" the tax base in a way that would make outermost locations positively jealous. Contrary to the thesis of writers like David Rusk who argue for incorporating the suburbs to the cities to expand the tax base,[15] it is the urban cores that have the greatest tax base in the form of high ground rent. Preliminary studies indicate that the amount of economic rent available to be recovered in taxes is equivalent to the optimal demand for services that cities require. Nobel prize winning economists William Vickrey and Joseph Stiglitz have been among those who explored what is known as the Henry George Theorem.[16] Given the quality of current data it remains a challenge to be more specific in applications of this thesis. It remains a subject area begging for further exploration.

15. David Rusk, Cities Without Suburbs. Washington: Woodrow Wilson Center Press, 1995, 2003.
16. Richard Arnott, "Does the Henry George Theorem Provide a Practical Guide to Optimal City Size?" American Journal of Economics and Sociology, Vol. 63. No. 5 (November, 2004), pp. 1057-1130.

The Failure to Tax Rent

The performance of economies freighted by experience with conventional taxes is much reduced, as has been widely acknowledged. One Harvard study estimated that taxes on income exert a deadweight loss equal to a third of the amount that is collected, half if payroll taxes are included.[17] Sales taxes are equally as onerous. But taxing land, due to its fixed (inelastic) supply, has zero burden; it therefore has no encumbrance or drag on economic activity whatsoever. By reducing all the taxes on labor and capital and instead shifting the burden to various forms of land as a revenue base, it is possible not only to garner sufficient income for government programs but to relieve the market from the friction that slows its performance. Cities then get a double dividend by shifting to a land tax: downtaxing any form of labor and capital frees up its potential; uptaxing land value by the recovery of rent prompts its more intensive use. Revenue yield could even be increased in such a tax regime without much additional burden on homes. This is because underused landsites in the urban cores would feel the greatest increases.

17. Martin Feldstein, "Tax Avoidance and the Deadweight Loss of Income Taxes," Review of Economics and Statistics (November, 1999). Abridged online at http://www.cooperativeindividualism.org/feldstein_martin_deadweight_loss.html

It should be further noted that wherever tax burdens are first incurred they are ultimately shifted through the economy until they come out of economic rent.[18] By their initial imposition on other factors of production, however, they encumber the performance of markets and foster inequities among populations that is both inefficient and unjust. This is not difficult to explain: labor is responsive to the forces of market location, even if not always in the short run. People are always free to locate where burdens are less onerous, thus avoiding efforts to collect taxes when their labor is so targeted. Capital is even more mobile, especially so in the age of contemporary communication and wired transfers. By taxing capital a municipality is insuring that its investment base will be reduced. Only locations, and the rent that attaches to them, cannot be moved and are beyond escaping the reach of taxation. One can't take one's land to Cancun or Bermuda.

18. Supra, note 6.

One could argue that the failure to tax every bit of economic rent that accretes to land sites also has destructive consequences, although this is somewhat open to debate. Classical economists agree that rent collection ought to be at least the sum of inflation plus interest, otherwise the public is facilitating speculation in ways that distorts urban configurations even more than they constitute an inequity. But land sites frequently rise in market price far more than the rate of inflation, especially in times (as is perhaps true today) that a "bubble" in an economic cycle is in full flower. Some municipalities, especially on the east and west coasts of US, are today claiming to have increases in housing prices of as high as 20 percent per annum, a fever that surely will not last and will be especially destructive when it collapses.[19] Land values are what create that bubble; buildings are subject to continuing depreciation just like cars, computers, refrigerators or any other manufactured (capital) item. Recovering the economic rent reduces and perhaps even eliminates the speculative bubbles and swings that (some argue) account for economic cycles, fostering stability and regularity in economic planning and development that make for improved financial health to all.

19. Cover article of Business Week, "After the Housing Boom," April 11, 2005, pp 78 ff.

This reality brings into stark relief the choices which local political leaders have. They may suggest increasing taxes on economic rent (i.e., on land value) or recognize that most property owners are counting on treating their homes and other property not as places to live and work so much as investments and then lament the poverty of their cities. Owners expect to reap a gain from their property when they sell, and they are often positioned to make any threat to that entitlement politically unpalatable. Farmers sometimes regard selling their farms as their retirement security. Homeowners sell with the expectation that this gain will provide them the means to enter long term end-of-life facilities if necessary. Heirs also oppose that recapture just as with a reverse mortgage. But for every long-term property owner that walks away with a lifetime's benefit of increased rent attached to a land title, there are just as many — if not more — young households or emerging businesses that are prohibited from acquiring a property because of the prohibitively expensive costs. In this sense, a title to a socially created stream of rental benefits constitutes a monopoly privilege to an unearned windfall gain for a lucky few. It is both unjust and is socially and economically destructive to the greater good.

The Perfect Tax

In the final analysis, a tax should be evaluated according to the tenets of sound tax theory that have evolved over the course of recent centuries, and much of what has been said above is recaptured by a review of those principles. These measures of what is a "good" tax or a "bad" tax are often listed differently in textbooks, but they are largely agreed upon. Failure to conform to these venerable benchmarks is by itself sufficient cause to explain an economy's faltering — a particularly noteworthy example today is the city of Philadelphia which appears to have done everything backward! It taxes income, sales, building capital and even business privilege, the result being that its fisc is destitute.[20] The principles by which to measure tax design are enumerated here so as to make quite clear how recapturing economic rent in the form of taxes — in all the several forms where 'land' can be identified — constitutes the best method of financing government services and the most advantageous to cities.[21]

20. See the Tax Structure Analysis Report of the Controller of the City of Philadelphia Jonathan Saidel at http://www.philadelphiacontroller.org/tax.htm and Philadelphia Forward, a tax reform organization focused on that city, at http://www.philadelphiaforward.org/.
21. For a discussion of what students of tax policy regard as the principles which should guide their design, see, for example, George Break, "Taxation," Encarta Encyclopedia by Microsoft, 1993; "Principles of Taxation, in Light of Modern Developments," Washington: Federal Tax Policy Memo, The Tax Foundation; "Principles of a High Quality Revenue System," Tax Notes, March 21, 1988; David G. Davies, United States Taxes and Tax Policy, (New York: Cambridge University Press, 1986), pp. 17-19; and David Brunori, State Tax Policy: A Political Perspective. Washington: Urban Institute Press, 2001, Ch. 2. State studies cited above also typically list any or all of these criteria. I have seen accountability, balance, certainty, competitiveness, and complementary included as well.

The first measure of a good tax is its neutrality. A neutral tax in no way alters the behavior of its partners from what would transpire were there no tax at all. A simple example illustrates the case: today many consumers will travel to alternate jurisdictions to avoid paying a sales tax on particular items, be they food, medication, clothing, or whatever. Taxes fully absorbed ("capitalized") in a market price such as land taxes in no way distort behavior, the volume of transactions, or gross prices. They are neutral.

A tax should also be efficient. To be sure, efficiency has many meanings even in economics. But here, rather than speaking of the administrative efficiency of its collection as will be addressed below, the measure is whether and how much it constitutes an excess burden on the economy, thereby slowing down performance and market vitality. Many taxes, as was mentioned earlier, exert so much drag on market transactions that they are destructive, however much revenue is brought to government coffers. Because land has a fixed supply there is no excess burden at all.

People are frequently most concerned about the fairness of a tax, which is typically measured according to both horizontal and vertical equity. Horizontal equity means that those in similar circumstances will bear similar burdens. Vertical equity prescribes that those with greater resources will pay more. Although studies have yet to show this, land taxes are likely the most "progressive" of any levy, as tenants bear no passed-through burden at all.[22] Not only does no household or office tenant bear any tax burden, locational sites distant from the urban core, mostly homeowners and farmers, typically find their burden reduced. Vacant or underused lots in high value areas pick up the difference, employing a design that employs an alternate criterion of equity: taxing according to use. "Paying for what you take and not for what you make" encourages efficient consumption of space and resources in an automatic and non-coercive manner. The one-third of households that own no land are relieved of all taxes, and residential and non-residential property owners split the rest. Farmers, whose land is typically of inconsequential value relative to sites in urban areas, are likely to pay little if anything even if they are not already protected by other save-harmless provisions. By eliminating taxes on building improvements they typically enjoy savings just as do other businesses.

22. Only two empirical studies have ever been done on the subject, but both concluded that the real property tax is mildly progressive. When land and improvements, the two elements of the property tax, are taken separately, it becomes even clearer why this is so. See Peter Mieszkowski, AThe Property Tax: An Excise or a Profits Tax,@ Journal of Public Economics 1 (April 1972): 73-96, cited and discussed extensively by James Heilbrun, "Who Bears the Burden of the Property Tax?" in Lowell Harriss (ed.), The Property Tax and Local Finance, Proceedings of the Academy of Political Science, Vol 35, #1 (1983), pp. 56-71; and Henry J. Aaron, Who Pays the Property Tax: A New View, Washington: the Brookings Institution, 1975. These are reprinted and further discussed in Dick Netzer and Matthew P. Drennan (eds.), Readings in State and Local Public Finance. Oxford: Blackwell Publishers, 1997, Chapters 7 -- 10. See also Harvey S. Rosen, Public Finance, 2nd Edition (Homewood, IL: Irwin Press, 1988), pp. 483-489; Mason Gaffney, "The Property Tax is a Progressive Tax," Proceedings, National Tax Association, 64th Annual Conference, Kansas City, 1971, pp. 408-426. [Republished in The Congressional Record, March 16, 1972: E 2675-79. (Cong. Les Aspin.) Resources for the Future, Inc., The Property Tax is a Progressive Tax, Reprint No. 104, October, 1972], online at www.schalkenbach.org/library/progressivet.pdf .

All this makes for a far simpler and more comprehensible system of taxation. Land taxes are totally transparent, impossible to evade, and therefore much more administrable. This further engenders the legitimacy of taxation and of government itself. What it also does is assure stability to the tax system, for the reason that land values are not subject to the variations and vacillations that other tax bases frequently have. Indeed, the removal of economic rent from locational sites discourages speculative bubbles and the related economic cycles that are associated with them. This greater stability and reliability is to the advantage of every sector of the economy — private, public, and non-profit.

A tax that collects economic rent offers a win-win proposition to every sector of the community — except to those who speculate in land. But who wants to favor land speculators? They are not held in high regard anywhere; their destructive behavior is the bane of cities, recognized everywhere for what it is: parasitic and passive. Speculators provide no added value to a community's well-being, and taxing rent is a foolproof means by which to eliminate it. Land speculation is highest where the most rent can be privately captured, but it forces those who choose to develop to look to sub-optimal locations when the primary locations they hoped for are held off the market for opportunistic gain. By collecting rent, primary choice locations become available for use and to facilitate the development of land use configurations ideal for the economic health and efficient allocation. Urban ambience is improved, public sector service costs are reduced, and sprawl development is stemmed.

In the final analysis cities have no reason to complain other than by being hoodwinked by an economics profession that went off track a century ago and has seen its own disciples unable to take off the veil.[23] It was then that economic theory was altered to treat land as simply another form of capital, changed to formulas based on two factors of production rather than three, and disposing of the notion of economic rent altogether. Henry George, the last passionate defender of the classical economic tradition a century ago, lost his fight to preserve three-factor economics. But there are many still who appreciate the value, even the truth, of his insight and analysis. Today we have the computer power to test these ideas and to demonstrate their validity. There is an oft retold story among adherents of the Georgist school referred to as "seeing the cat."

23. Supra, Note 3.

As told by Professor Fred Foldvary,[24]

A man was walking down a shopping street and came to a store window where there was a big drawing full of lines and squiggles. A sign by the drawing asked, "Can you see the picture?" All the man could see was a chaos of lines going every which way. He stared at it and tried to make out some kind of design, but it was all a jumble. Then he saw that some of the lines formed ears, and whiskers, and a tail. Suddenly he realized that there was a cat in the picture. Once he saw the cat, it was unmistakable. When he looked away and then looked back at the drawing, the cat was quite evident now.

24. Fred Foldvary, "Seeing the Cat," http://www.taxreform.com.au/essays/thecat.htm.

So it is with those who see and appreciate economics in three-factor terms and the importance of economic rent. Once it is understood, their world is never again the same. By this uniquely Georgist story, the power of the classical economic framework is made clear. When it is more widely understood, city fathers will come to see that the revenue they dreamed about was there all along. They need only to see the cat and collect that economic rent.