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ATCOR: All Taxes Come Out of Rents

 

Henry George: The Common Sense of Taxation (1881 article)

IT may seem like a truism to assert that the only fund upon which taxation can draw is that made up by the produce of the community, and that to multiply the places at which it is tapped is not to increase its capacity to yield. Yet the manner in which taxation, under our system, is spread over a multitude of subjects, and new subjects are still sought for, suggests the belief of that chief of the eunuchs who thought the weight of an obnoxious poll-tax might be lessened, and his master's revenues at the same time increased, by substituting for the tax on heads a tax upon fingers and toes.

But it is probable that the disposition to tax everything susceptible of taxation does not spring so much from the notion that more may thus be obtained, as from the notion that as a matter of justice everything should be taxed. That all species of property shall be equally taxed, is enjoined by many of our State constitutions, and that it should be so, at least so far as direct taxation is concerned, is regarded by most of our people as a self-evident truth — the idea being that every one should contribute to public expenses in proportion to his means, or, as it is sometimes phrased, that all property, being equally protected by the State, should equally contribute to the expenses of the State. ... read the whole article

Mason Gaffney:  Sounding the Revenue Potential of Land: Fifteen Lost Elements

Raising taxable rents by untaxing capital and labor, production and exchange: the concept of ATCOR (All Taxes Come Out of Rents)  The meaning and relevance of ATCOR is that when we lower other taxes, the revenue base is not lost, but shifted to land rents and values, which can then yield more taxes. This is most obvious with taxes on buildings. When we exempt buildings, and raise tax rates on the land under them, we are still taxing the same real estate; we are just taxing it in a different way. This “different way” actually raises the revenue capacity of real estate by a large factor, by relieving it of the excess burden of taxing production and capital. This is that “free lunch” that Chicago economists wrongly preach “There ain’t no such thing as.”

      Historical experience with exempting buildings has shown that builders offer more for land, and sellers demand more, when the new buildings are to be untaxed. The effect on revenue is the same as taxing prospective new buildings before they are even built, even though the new buildings are not to be taxed at all.

      Net result: the revenue capacity of land, when it is substituted for other tax bases, is comparable to current revenues. Owing to efficiency effects, and renewal effects, it may well be higher.  Read the whole article


Bill Batt: The Fallacy of the "Three-Legged Stool" Metaphor
Tax experts, especially at the state level, ply their trade by invoking one metaphor above all others: the three-legged stool.  It rests on the claim that a sound and successful tax regime for any government needs to rely on a three tax bases: income, property and sales.  This is repeated so often that it passes today without much examination. ...

The power with which the three-legged stool analogy has underpinned tax policy is in fact rather disconcerting, because a close examination of its premises shows that they are very questionable.  These benchmark measures of a tax regime are scrutinized here in order to cast doubt on the claims so often made on their behalf. ...

Taxes on Labor and Capital, in contrast, are always shifted.  Studies of so-called tax incidence seldom trace the flow of tax burdens beyond the first or second step of the shift.  Textbooks and research studies will note that particular burdens -- for instance, a tax on the sale of goods -- will be partly borne by the vendor and partly also by the consumer.  The vendor in turn sees that tax incorporated into the price he pays for the product at the wholesale level; the consumer sees his burden reflected in the relative cost of living of his tax jurisdiction -- which in turn affects the price of his home and his wages.  The shift in taxes, as economic theory makes clear, are ultimately converted to rent, and that rent, as capitalized in land prices, is its final resting place.  It is a truism of classical economics as carried through in the present day tradition of Georgist economics that all taxes come out of rent -- an adage that has come to be abbreviated as ATCOR.

What this insight means is that all taxes not first imposed on Land and collected from the rent that rests thereon are instead passed through the economy from one party to another until they ultimately come to rest on Land, thereby increasing the price of real estate.  The passing along of tax burdens not only creates distortions in economic transactions; it also constitutes an excess burden and an inefficiency that handicaps economic performance. 
  • Taxing any form of Capital makes it more expensive and leads to less saving and investment;
  • taxing Labor, in the same way, depresses wages and discourages enterprise. 
Contemporary economists and conventional tax theorists well recognize that taxing Labor and Capital is detrimental to economic vitality — politicians thrive on repeating this ad nauseam.  Currently the Republican party candidates seem best able to exploit resentment about the negative impact of taxes.  But they are not alone in failing to appreciate the nature of tax shifting.  What all fail to realize is that there are notable exceptions to the rule that taxes are oppressive: any tax imposed on an inelastic base — that is, any form of Land — constitutes no distortion or excess burden whatsoever.

Far from spreading the burden of distribution over a wide array of  tax bases, the ideal tax, then, should be imposed solely on those factors of production that form an inelastic base, i.e., that constitute forms of Land — whether they be locational sites, natural resources, the spectrum, time slots, or others as they may arise in the future.  Land, in any of its forms, is totally inelastic.  Will Rogers in his pithy way said it well, "Buy land.  They ain't making any more of the stuff."  Mark Twain said it too.  ...  Read the whole article
Another area in which George applied these inherent differences between land and products was the field of taxation. To determine the incidence of taxation, George had to know what was to be taxed, products or the value of land. In each case he traced out the effect from the essential nature of the thing to be taxed: "...all taxes upon things of unfixed quantity increase prices, and in the course of exchange are shifted from seller to buyer, increasing as they go. ...If we impose a tax upon buildings, the users of buildings must finally pay it, for the erection of buildings will cease until building rents become high enough to pay the regular profit and the tax besides. ...In this way all taxes which add to prices are shifted from hand to hand, increasing as they go, until they ultimately rest upon consumers, who thus pay much more than is received by the government. Now, the way taxes raise prices is by increasing the cost of production, and checking supply. But land is not a thing of human production, and taxes upon...[land value] cannot check supply. Therefore, though a tax on...[land value] compels the land owners to pay more, it gives them no power to obtain more for the use of their land, as it in no way tends to reduce the supply of land. On the contrary, by compelling those who hold land on speculation to sell or let for what they can get, a tax on land values tends to increase the competition between owners, and thus to reduce the price of land." ... read the whole article

 

Thomas Flavin, writing in The Iconoclast, 1897

Now, it is quite true that all taxes of whatever nature are paid out of the products of labor. But must they be for that reason a tax on labor products. Let us see.

I suppose you won't deny that a unit of labor applies to different kinds of land will give very different results. Suppose that a unit of labor produces on A's land 4, on B's 3, on C's 2 and on D's 1. A's land is the most, and D's is the least, productive land in use in the community to which they belong. B's and C's represent intermediate grades. Suppose each occupies the best land that was open to him when he entered into possession. Now, B, and C, and D have just as good a right to the use of the best land as A had.

Manifestly then, if this be the whole story, there cannot be equality of opportunity where a unit of labor produces such different results, all other things being equal except the land.

How is this equality to be secured? There is but one possible way. Each must surrender for the common use of all, himself included, whatever advantages accrues to him from the possession of land superior to that which falls to the lot of him who occupies the poorest.

In the case stated, what the unit of labor produces for D, is what it should produce for A, B and C, if these are not to have an advantage of natural opportunity over D.

Hence equity is secured when A pays 3, D, 2 and C, 1 into a common fund for the common use of all--to be expended, say in digging a well, making a road or bridge, building a school, or other public utility.

Is it not manifest that here the tax which A, B and C pay into a common fund, and from which D is exempt, is not a tax on their labor products (though paid out of them) but a tax on the superior advantage which they enjoy over D, and to which D has just as good a right as any of them.

The result of this arrangement is that each takes up as much of the best land open to him as he can put to gainful use, and what he cannot so use he leaves open for the next. Moreover, he is at no disadvantage with the rest who have come in ahead of him, for they provide for him, in proportion to their respective advantages, those public utilities which invariably arise wherever men live in communities. Of course he will in turn hold to those who come later the same relation that those who came earlier held to him.

Suppose now that taxes had been levied on labor products instead of land; all that any land-holder would have to do to avoid the tax is to produce little or nothing. He could just squat on his land, neither using it himself nor letting others use it, but he would not stop at this, for he would grab to the last acre all that he could possibly get hold of. Each of the others would do the same in turn, with the sure result that by and by, E, F and G would find no land left for them on which they might make a living.

So they would have to hire their labor to those who had already monopolized the land, or else buy or rent a piece of land from them. Behold now the devil of landlordism getting his hoof on God's handiwork! Exit justice, freedom, social peace and plenty. Enter robbery, slavery, social discontent, consuming grief, riotous but unearned wealth, degrading pauperism, crime breeding, want, the beggar's whine, and the tyrant's iron heel.

And how did it all come about? By the simple expedient of taxing labor products in order that precious landlordism might laugh and grow fat on the bovine stupidity of the community that contributes its own land values toward its own enslavement!

And yet men vacuously ask, "What difference does it make?"

O tempora! O mores! To be as plain as is necessary, it makes this four-fold difference.

  • First, it robs the community of its land values;
  • second, it robs labor of its wages in the name of taxation;
  • third, it sustains and fosters landlordism, a most conspicuously damnable difference;
  • fourth, it exhibits willing workers in enforced idleness; beholding their families in want on the one hand, and unused land that would yield them abundance on the other.

This last is a difference that cries to heaven for vengeance, and if it does not always cry in vain, will W. C. Brann be able to draw his robe close around him and with a good conscience exclaim, "It's none of my fault; I am not my brother's keeper."



Bill Batt: The Nexus of Transportation, Economic Rent, and Land Use

... Arriving at the appropriate revenue formulas is the challenge. Recapturing land rent is likely best achieved by setting the rates at levels that stabilize the market price of landsites in the face of speculative pressures. Because the collection of rents fosters economic activity in the regions of highest value, it may just be that market prices will remain stable even with very high levies. The downward pressure on market prices exerted by a tax is countered by the increased incentive to improve parcel sites with the highest value. Many economists as early as the French physiocrats have argued that ultimately all tax revenues come from rents in any case; that it is only a question of how much they are shifted through to other sectors of the economy before they are collected. Professor Mason Gaffney explains this by noting that

After-tax interest rates are determined in world markets and the local supply of capital funds is highly elastic. So, local taxes on capital do not stick to capital. Even national taxes on capital typically fail to stick, because capital is a citizen of the world. Local labor supplies are also pretty elastic, although not so totally. Local taxes on labor, therefore, do not stick to labor, either. Payroll taxes drive people out of localities that impose them, for example. Ditto for sales taxes. Customers move, or shift their purchases, to where taxes are lower, or zero. Sellers shift, too, to the extent they bear the tax. What else is left? Just land, and land cannot emigrate or immigrate from the local jurisdiction.(22)... read the whole article

 

 

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