Henry George's proposal, that we should tax land values, is consistent with
the canons of taxation — that is, the best criteria by which a tax
should be judged — more than virtually any other tax we currently
rely on. Read on!
H.G. Brown: Significant
Paragraphs from Henry George's Progress & Poverty,
Chapter 8: Why a Land-Value Tax is Better than an Equal Tax on All Property (in
the unabridged P&P: Book
VIII: Application of the Remedy — Chapter 3: The proposition tried
by the canons of taxation)
The ground upon which the equal taxation of all species of property is commonly
insisted upon is that it is equally protected by the state. The basis of
this idea is evidently that the enjoyment of property is made possible by
the state — that
there is a value created and maintained by the community, which is justly
called upon to meet community expenses. Now, of what values is this true?
the value of land. This is a value that does not arise until a community
is formed, and that, unlike other values, grows with the growth of the community.
It exists only as the community exists. Scatter again the largest community,
and land, now so valuable, would have no value at all. With every increase
of population the value of land rises; with every decrease it falls. This
true of nothing else save of things which, like the ownership of land,
are in their nature monopolies.
The tax upon land values is, therefore, the most just and equal of all taxes.
- It falls only upon those who receive from society a peculiar and valuable
benefit, and upon them in proportion to the benefit they receive.
- It is the taking by the community, for the use of the community, of that
value which is the creation of the community.
- It is the application of the common property to common uses.
When all rent is taken by taxation for the needs of the community, then will
the equality ordained by Nature be attained. No citizen will have an advantage
over any other citizen save as is given by his industry, skill, and intelligence;
and each will obtain what he fairly earns. Then, but not till then, will labor
get its full reward, and capital its natural return. ... read the whole chapter
H.G. Brown: Significant
Paragraphs from Henry George's Progress & Poverty:
10. Effect of Remedy Upon Wealth Production (in the unabridged P&P: Part
IX — Effects of the Remedy: Chapter 1 — Of the effect upon the
production of wealth)
Consider the effect upon the production of wealth.
To abolish the taxation which, acting and reacting, now hampers every wheel
of exchange and presses upon every form of industry, would be like removing
an immense weight from a powerful spring. Imbued with fresh energy, production
would start into new life, and trade would receive a stimulus which would be
felt to the remotest arteries. The present method of taxation operates upon
exchange like artificial deserts and mountains;
- it costs more to get goods through a custom house than it does to carry
them around the world.
- It operates upon energy, and industry, and skill, and thrift, like a
fine upon those qualities.
- If I have worked harder and built myself a good house while you have
been contented to live in a hovel, the taxgatherer now comes annually to
me pay a penalty for my energy and industry, by taxing me more than
- If I have saved while you wasted, I am mulct, while you are exempt.
- If a man build a ship we make him pay for his temerity, as though he
had done an injury to the state;
- if a railroad be opened, down comes the tax collector upon it, as though
it were a public nuisance;
- if a manufactory be erected we levy upon it an annual sum which would
go far toward making a handsome profit.
- We say we want capital, but if any one accumulate it, or bring it among
us, we charge him for it as though we were giving him a privilege.
- We punish with a tax the man who covers barren fields with ripening
- we fine him who puts up machinery, and him who drains a swamp.
How heavily these taxes burden production only those realize who have attempted
to follow our system of taxation through its ramifications, for, as I have
before said, the heaviest part of taxation is that which falls in increased
To abolish these taxes would be to lift the whole enormous weight of taxation
from productive industry. The needle of the seamstress and the great manufactory;
the cart horse and the locomotive; the fishing boat and the steamship;
the farmer's plow and the merchant's stock, would be alike untaxed. All would
free to make or to save, to buy or to sell, unfined by taxes, unannoyed
by the taxgatherer. Instead of saying to the producer, as it does now, "The
more you add to the general wealth the more shall you be taxed!" the state
would say to the producer, "Be as industrious, as thrifty, as enterprising
as you choose, you shall have your full reward! You shall not be fined
for making two blades of grass grow where one grew before; you shall not
for adding to the aggregate wealth."
And will not the community gain by thus refusing to kill the goose that lays
the golden eggs; by thus refraining from muzzling the ox that treadeth out
the corn; by thus leaving to industry, and thrift, and skill, their natural
reward, full and unimpaired? ... read the whole chapter
Henry George: The
Land Question (1881)
The tax upon land values or rent
is in all economic respects the most perfect of taxes. No political
economist will deny that it combines the maximum of certainty with
the minimum of loss and cost; that, unlike taxes upon capital or
exchange or improvement, it does not check production or enhance
prices or fall ultimately upon the consumer. ... read the whole article
Milton Friedman (Nobel Prize in Economics, 1976)
In my opinion,
the least bad tax is the property tax on the unimproved value of land, the
Henry George argument of many, many years ago.
Q Is there no tax you like?
A Yes, there are taxes I like. For example, the gasoline tax, which pays
for highways. You have a user tax. The property tax is one of the least
bad taxes, because it's levied on something that cannot be produced — that
part that is levied on the land. So some taxes are worse than others, but
all taxes are bad.
— Milton Friedman,
interview with Scott Duke Harris,
San Jose Mercury News,
Sunday November 5, 2006
Henry George: The Common Sense of
Taxation (1881 article)
For, keeping in mind the fact that all wealth is the result of
human exertion, it is clearly seen that, having in view the promotion of
the general prosperity, it is the height of absurdity to tax wealth for
purposes of revenue while there remains, unexhausted by taxation, any value
attaching to land. We may tax land values as much as we please, without
in the slightest degree lessening the amount of land, or the capabilities
of land, or the inducement to use land. But we cannot tax wealth without
lessening the inducement to the production of wealth, and decreasing the
amount of wealth. We might take the whole value of land in taxation, so
as to make the ownership of land worth nothing, and the land would still
remain, and be as useful as before. The effect would be to throw land open
to users free of price, and thus to increase its capabilities, which are
brought out by increased population. But impose anything like such taxation
upon wealth, and the inducement to the production of wealth would be gone.
Movable wealth would be hidden or carried off, immovable wealth would be
suffered to go to decay, and where was prosperity would soon be the silence
So with railroads everywhere. And so not alone with railroads,
but with all industrial enterprises. So long as we consider that community
prosperous which increases most rapidly in wealth, so long is it
the height of absurdity for us to tax wealth in any of its beneficial forms.
tax what we want to repress, not what we want to encourage. We should tax
that which results from the general prosperity, not that which conduces
to it. It is the increase of population, the extension of cultivation,
the manufacture of goods, the building of houses and ships and railroads,
the accumulation of capital, and the growth of commerce that add to the
value of land — not the increase in the value of land that induces
the increase of population and increase of wealth. It is not that the land
of Manhattan Island is now worth hundreds of millions where, in the time
of the early Dutch settlers, it was only worth dollars, that there are
on it now so many more people, and so much more wealth. It is because of
the increase of population and the increase of wealth that the value of
the land has so much increased. Increase of land values tends of itself
to repel population and prevent improvement. And thus the taxation of land
values, unlike taxation of other property, does not tend to prevent the
increase of wealth, but rather to stimulate it. It is the taking of the
golden egg, not the choking of the goose that lays it.
Every consideration of policy and ethics squares
with this conclusion. The tax upon land values is the most economically
perfect of all taxes.
It does not raise prices; it maybe collected at least cost, and with the
utmost ease and certainty; it leaves in full strength all the springs of
production; and, above all, it consorts with the truest equality and the
highest justice. For, to take for the common purposes of the community
that value which results from the growth of the community, and to free
industry and enterprise and thrift from burden and restraint, is to leave
to each that which he fairly earns, and to assert the first and most comprehensive
of equal rights — the equal right of all to the land on which, and
from which, all must live.
Thus it is that the scheme of taxation which conduces
to the greatest production is also that which conduces to the fairest
that in the proper adjustment of taxation lies not merely the possibility
of enormously increasing the general wealth, but the solution of these
pressing social and political problems which spring from unnatural inequality
in the distribution of wealth. ... read the whole article
Henry George: The
Condition of Labor — An Open Letter to Pope Leo XIII in response
Nor do we hesitate to say that this way of securing the equal right
to the bounty of the Creator and the exclusive right to the products
of labor is the way intended by God for raising public revenues. For
we are not atheists, who deny God; nor semi-atheists, who deny that he
has any concern in politics and legislation.
It is true as you say — a salutary truth too often forgotten — that “man
is older than the state, and he holds the right of providing for the
life of his body prior to the formation of any state.” Yet, as
you too perceive, it is also true that the state is in the divinely appointed
order. For He who foresaw all things and provided for all things, foresaw
and provided that with the increase of population and the development
of industry the organization of human society into states or governments
would become both expedient and necessary.
No sooner does the state arise than, as we all know, it needs revenues.
This need for revenues is small at first, while population is sparse,
industry rude and the functions of the state few and simple. But with
growth of population and advance of civilization the functions of the
state increase and larger and larger revenues are needed.
Now, He that made the world and placed man in it, He that pre-ordained
civilization as the means whereby man might rise to higher powers and
become more and more conscious of the works of his Creator, must have
foreseen this increasing need for state revenues and have made provision
for it. That is to say: The increasing need for public revenues with
social advance, being a natural, God-ordained need, there must be a right
way of raising them — some way that we can truly say is the way
intended by God. It is clear that this right way of raising public revenues
must accord with the moral law.
It must not take from individuals what rightfully belongs to individuals.
It must not give some an advantage over others, as by increasing the
prices of what some have to sell and others must buy.
It must not lead men into temptation, by requiring trivial oaths, by
making it profitable to lie, to swear falsely, to bribe or to take bribes.
It must not confuse the distinctions of right and wrong, and weaken
the sanctions of religion and the state by creating crimes that are not
sins, and punishing men for doing what in itself they have an undoubted
right to do.
It must not repress industry. It must not check commerce. It must not
punish thrift. It must offer no impediment to the largest production
and the fairest division of wealth.
Let me ask your Holiness to consider the taxes on the processes and
products of industry by which through the civilized world public revenues
are collected — the octroi duties that surround Italian cities
with barriers; the monstrous customs duties that hamper intercourse between
so-called Christian states; the taxes on occupations, on earnings, on
investments, on the building of houses, on the cultivation of fields,
on industry and thrift in all forms. Can these be the ways God has intended
that governments should raise the means they need? Have any of them the
characteristics indispensable in any plan we can deem a right one?
All these taxes violate the moral law. They take by force what belongs
to the individual alone; they give to the unscrupulous an advantage over
the scrupulous; they have the effect, nay are largely intended, to increase
the price of what some have to sell and others must buy; they corrupt
government; they make oaths a mockery; they shackle commerce; they fine
industry and thrift; they lessen the wealth that men might enjoy, and
enrich some by impoverishing others.
Yet what most strikingly shows how opposed to Christianity is this system
of raising public revenues is its influence on thought.
Christianity teaches us that all men are brethren; that their true interests
are harmonious, not antagonistic. It gives us, as the golden rule of
life, that we should do to others as we would have others do to us. But
out of the system of taxing the products and processes of labor, and
out of its effects in increasing the price of what some have to sell
and others must buy, has grown the theory of “protection,” which
denies this gospel, which holds Christ ignorant of political economy
and proclaims laws of national well-being utterly at variance with his
teaching. This theory sanctifies national hatreds; it inculcates a universal
war of hostile tariffs; it teaches peoples that their prosperity lies
in imposing on the productions of other peoples restrictions they do
not wish imposed on their own; and instead of the Christian doctrine
of man’s brotherhood it makes injury of foreigners a civic virtue.
“By their fruits ye shall know them.” Can anything more
clearly show that to tax the products and processes of industry is not
the way God intended public revenues to be raised?
But to consider what we propose — the raising of public revenues
by a single tax on the value of land irrespective of improvements — is
to see that in all respects this does conform to the moral law.
Let me ask your Holiness to keep in mind that the value we propose to
tax, the value of land irrespective of improvements, does not come from
any exertion of labor or investment of capital on or in it — the
values produced in this way being values of improvement which we would
exempt. The value of land irrespective of improvement is the value that
attaches to land by reason of increasing population and social progress.
This is a value that always goes to the owner as owner, and never does
and never can go to the user; for if the user be a different person from
the owner he must always pay the owner for it in rent or in purchase-money;
while if the user be also the owner, it is as owner, not as user, that
he receives it, and by selling or renting the land he can, as owner,
continue to receive it after he ceases to be a user.
Thus, taxes on land irrespective of improvement cannot lessen the rewards
of industry, nor add to prices,* nor in any way take from the individual
what belongs to the individual. They can take only the value that attaches
to land by the growth of the community, and which therefore belongs to
the community as a whole.
* As to this point it may be well to add that all
economists are agreed that taxes on land values irrespective of improvement
or use — or what in the terminology of political economy is
styled rent, a term distinguished from the ordinary use of the word
rent by being applied solely to payments for the use of land itself — must
be paid by the owner and cannot be shifted by him on the user. To
explain in another way the reason given in the text: Price is not
determined by the will of the seller or the will of the buyer, but
by the equation of demand and supply, and therefore as to things
constantly demanded and constantly produced rests at a point determined
by the cost of production — whatever tends to increase the
cost of bringing fresh quantities of such articles to the consumer
increasing price by checking supply, and whatever tends to reduce
such cost decreasing price by increasing supply. Thus taxes on wheat
or tobacco or cloth add to the price that the consumer must pay,
and thus the cheapening in the cost of producing steel which improved
processes have made in recent years has greatly reduced the price
of steel. But land has no cost of production, since it is created
by God, not produced by man. Its price therefore is fixed —
1 (monopoly rent), where land is held in close monopoly,
by what the owners can extract from the users under penalty of
deprivation and consequently of starvation, and amounts to all
that common labor can earn on it beyond what is necessary to life;
2 (economic rent proper), where there is no special monopoly, by what the
particular land will yield to common labor over and above what may be had
by like expenditure and exertion on land having no special advantage and
for which no rent is paid; and,
3 (speculative rent, which is a species of monopoly rent, telling particularly
in selling price), by the expectation of future increase of value from
social growth and improvement, which expectation causing landowners to
withhold land at present prices has the same effect as combination.
Taxes on land values or economic rent can therefore
never be shifted by the landowner to the land-user, since they in
no wise increase the demand for land or enable landowners to check
supply by withholding land from use. Where rent depends on mere monopolization,
a case I mention because rent may in this way be demanded for the
use of land even before economic or natural rent arises, the taking
by taxation of what the landowners were able to extort from labor
could not enable them to extort any more, since laborers, if not
left enough to live on, will die. So, in the case of economic rent
proper, to take from the landowners the premiums they receive, would
in no way increase the superiority of their land and the demand for
it. While, so far as price is affected by speculative rent, to compel
the landowners to pay taxes on the value of land whether they were
getting any income from it or not, would make it more difficult for
them to withhold land from use; and to tax the full value would not
merely destroy the power but the desire to do so.
To take land values for the state, abolishing all taxes on the products
of labor, would therefore leave to the laborer the full produce of labor;
to the individual all that rightfully belongs to the individual. It would
impose no burden on industry, no check on commerce, no punishment on
thrift; it would secure the largest production and the fairest distribution
of wealth, by leaving men free to produce and to exchange as they please,
without any artificial enhancement of prices; and by taking for public
purposes a value that cannot be carried off, that cannot be hidden, that
of all values is most easily ascertained and most certainly and cheaply
collected, it would enormously lessen the number of officials, dispense
with oaths, do away with temptations to bribery and evasion, and abolish
man-made crimes in themselves innocent.
But, further: That God has intended the state to obtain the revenues
it needs by the taxation of land values is shown by the same order and
degree of evidence that shows that God has intended the milk of the mother
for the nourishment of the babe.
See how close is the analogy. In that primitive condition ere the need
for the state arises there are no land values. The products of labor
have value, but in the sparsity of population no value as yet attaches
to land itself. But as increasing density of population and increasing
elaboration of industry necessitate the organization of the state, with
its need for revenues, value begins to attach to land. As population
still increases and industry grows more elaborate, so the needs for public
revenues increase. And at the same time and from the same causes land
values increase. The connection is invariable. The value of things produced
by labor tends to decline with social development, since the larger scale
of production and the improvement of processes tend steadily to reduce
their cost. But the value of land on which population centers goes up
and up. Take Rome or Paris or London or New York or Melbourne. Consider
the enormous value of land in such cities as compared with the value
of land in sparsely settled parts of the same countries. To what is this
due? Is it not due to the density and activity of the populations of
those cities — to the very causes that require great public expenditure
for streets, drains, public buildings, and all the many things needed
for the health, convenience and safety of such great cities? See how
with the growth of such cities the one thing that steadily increases
in value is land; how the opening of roads, the building of railways,
the making of any public improvement, adds to the value of land. Is it
not clear that here is a natural law — that is to say a tendency
willed by the Creator? Can it mean anything else than that He who ordained
the state with its needs has in the values which attach to land provided
the means to meet those needs?
That it does mean this and nothing else is confirmed if we look deeper
still, and inquire not merely as to the intent, but as to the purpose
of the intent. If we do so we may see in this natural law by which land
values increase with the growth of society not only such a perfectly
adapted provision for the needs of society as gratifies our intellectual
perceptions by showing us the wisdom of the Creator, but a purpose with
regard to the individual that gratifies our moral perceptions by opening
to us a glimpse of his beneficence.
Consider: Here is a natural law by which as society advances the one
thing that increases in value is land — a natural law by virtue
of which all growth of population, all advance of the arts, all general
improvements of whatever kind, add to a fund that both the commands of
justice and the dictates of expediency prompt us to take for the common
uses of society. Now, since increase in the fund available for the common
uses of society is increase in the gain that goes equally to each member
of society, is it not clear that the law by which land values increase
with social advance while the value of the products of labor does not
increase, tends with the advance of civilization to make the share that
goes equally to each member of society more and more important as compared
with what goes to him from his individual earnings, and thus to make
the advance of civilization lessen relatively the differences that in
a ruder social state must exist between the strong and the weak, the
fortunate and the unfortunate? Does it not show the purpose of the Creator
to be that the advance of man in civilization should be an advance not
merely to larger powers but to a greater and greater equality, instead
of what we, by our ignoring of his intent, are making it, an advance
toward a more and more monstrous inequality? ...
That the value attaching to land with social growth is intended for
social needs is shown by the final proof. God is indeed a jealous God
in the sense that nothing but injury and disaster can attend the effort
of men to do things other than in the way he has intended; in the sense
that where the blessings he proffers to men are refused or misused they
turn to evils that scourge us. And just as for the mother to withhold
the provision that fills her breast with the birth of the child is to
endanger physical health, so for society to refuse to take for social
uses the provision intended for them is to breed social disease.
For refusal to take for public purposes the increasing values that attach
to land with social growth is to necessitate the getting of public revenues
by taxes that lessen production, distort distribution and corrupt society.
It is to leave some to take what justly belongs to all; it is to forego
the only means by which it is possible in an advanced civilization to
combine the security of possession that is necessary to improvement with
the equality of natural opportunity that is the most important of all
natural rights. It is thus at the basis of all social life to set up
an unjust inequality between man and man, compelling some to pay others
for the privilege of living, for the chance of working, for the advantages
of civilization, for the gifts of their God. But it is even more than
this. The very robbery that the masses of men thus suffer gives rise
in advancing communities to a new robbery. For the value that with the
increase of population and social advance attaches to land being suffered
to go to individuals who have secured ownership of the land, it prompts
to a forestalling of and speculation in land wherever there is any prospect
of advancing population or of coming improvement, thus producing an artificial
scarcity of the natural elements of life and labor, and a strangulation
of production that shows itself in recurring spasms of industrial depression
as disastrous to the world as destructive wars. It is this that is driving
men from the old countries to the new countries, only to bring there
the same curses. It is this that causes our material advance not merely
to fail to improve the condition of the mere worker, but to make the
condition of large classes positively worse. It is this that in our richest
Christian countries is giving us a large population whose lives are harder,
more hopeless, more degraded than those of the veriest savages. It is
this that leads so many men to think that God is a bungler and is constantly
bringing more people into his world than he has made provision for; or
that there is no God, and that belief in him is a superstition which
the facts of life and the advance of science are dispelling.
The darkness in light, the weakness in strength, the poverty amid wealth,
the seething discontent foreboding civil strife, that characterize our
civilization of today, are the natural, the inevitable results of our
rejection of God’s beneficence, of our ignoring of his intent.
Were we on the other hand to follow his clear, simple rule of right,
leaving scrupulously to the individual all that individual labor produces,
and taking for the community the value that attaches to land by the growth
of the community itself, not merely could evil modes of raising public
revenues be dispensed with, but all men would be placed on an equal level
of opportunity with regard to the bounty of their Creator, on an equal
level of opportunity to exert their labor and to enjoy its fruits. And
then, without drastic or restrictive measures the forestalling of land
would cease. For then the possession of land would mean only security
for the permanence of its use, and there would be no object for any one
to get land or to keep land except for use; nor would his possession
of better land than others had confer any unjust advantage on him, or
unjust deprivation on them, since the equivalent of the advantage would
be taken by the state for the benefit of all.
The Right Reverend Dr. Thomas Nulty, Bishop of Meath, who sees all this
as clearly as we do, in pointing out to the clergy and laity of his diocese*
the design of Divine Providence that the rent of land should be taken
for the community, says:
I think, therefore, that I may fairly infer, on the strength of authority
as well as of reason, that the people are and always must be the real
owners of the land of their country. This great social fact appears to
me to be of incalculable importance, and it is fortunate, indeed, that
on the strictest principles of justice it is not clouded even by a shadow
of uncertainty or doubt. There is, moreover, a charm and a peculiar beauty
in the clearness with which it reveals the wisdom and the benevolence
of the designs of Providence in the admirable provision he has made for
the wants and the necessities of that state of social existence of which
he is author, and in which the very instincts of nature tell us we are
to spend our lives. A vast public property, a great national fund, has
been placed under the dominion and at the disposal of the nation to supply
itself abundantly with resources necessary to liquidate the expenses
of its government, the administration of its laws and the education of
its youth, and to enable it to provide for the suitable sustentation
and support of its criminal and pauper population. One of the most interesting
peculiarities of this property is that its value is never stationary;
it is constantly progressive and increasing in a direct ratio to the
growth of the population, and the very causes thatincrease and multiply
the demands made on it increase proportionately its ability to meet them.
* Letter addressed to the Clergy and Laity of the Diocese of Meath, Ireland,
April 2, 1881.
There is, indeed, as Bishop Nulty says, a peculiar beauty in the clearness
with which the wisdom and benevolence of Providence are revealed in this
great social fact, the provision made for the common needs of society
in what economists call the law of rent. Of all the evidence that natural
religion gives, it is this that most clearly shows the existence of a
beneficent God, and most conclusively silences the doubts that in our
days lead so many to materialism.
For in this beautiful provision made by natural law for the social needs
of civilization we see that God has intended civilization; that all our
discoveries and inventions do not and cannot outrun his forethought,
and that steam, electricity and labor-saving appliances only make the
great moral laws clearer and more important. In the growth of this great
fund, increasing with social advance — a fund that accrues from
the growth of the community and belongs therefore to the community — we
see not only that there is no need for the taxes that lessen wealth,
that engender corruption, that promote inequality and teach men to deny
the gospel; but that to take this fund for the purpose for which it was
evidently intended would in the highest civilization secure to all the
equal enjoyment of God’s bounty, the abundant opportunity to satisfy
their wants, and would provide amply for every legitimate need of the
state. We see that God in his dealings with men has not been a bungler
or a niggard; that he has not brought too many men into the world; that
he has not neglected abundantly to supply them; that he has not intended
that bitter competition of the masses for a mere animal existence and
that monstrous aggregation of wealth which characterize our civilization;
but that these evils which lead so many to say there is no God, or yet
more impiously to say that they are of God’s ordering, are due
to our denial of his moral law. We see that the law of justice, the law
of the Golden Rule, is not a mere counsel of perfection, but indeed the
law of social life. We see that if we were only to observe it there would
be work for all, leisure for all, abundance for all; and that civilization
would tend to give to the poorest not only necessities, but all comforts
and reasonable luxuries as well. We see that Christ was not a mere dreamer
when he told men that if they would seek the kingdom of God and its right-doing
they might no more worry about material things than do the lilies of
the field about their raiment; but that he was only declaring what political
economy in the light of modern discovery shows to be a sober truth.
Your Holiness, even to see this is deep and lasting joy. For it is to
see for one’s self that there is a God who lives and reigns, and
that be is a God of justice and love — Our Father who art in Heaven.
It is to open a rift of sunlight through the clouds of our darker questionings,
and to make the faith that trusts where it cannot see a living thing.
... read the whole letter
Rev. A. C. Auchmuty: Gems from George,
a themed collection of excerpts from the writings of Henry George (with
links to sources)
THE mode of taxation is quite as important as the amount. As a small
burden badly placed may distress a horse that could carry with ease a
much larger one properly adjusted, so a people may be impoverished and
their power of producing wealth destroyed by taxation, which, if levied
in another way, could be borne with ease. — Progress & Poverty — Book
VIII, Chapter 3, Application of the Remedy: The Proposition Tried by
the Canons of Taxation
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. If
we impose a tax upon manufactures or imported goods, the manufacturer
or importer will charge it in a higher price to the jobber, the jobber
to the retailer, and the retailer to the consumer. Now, the consumer,
on whom the tax thus ultimately falls, must not only pay the amount of
the tax, but also a profit on this amount to everyone who has thus advanced
it — for profit on the capital he has advanced in paying taxes
is as much required by each dealer as profit on the capital he has advanced
in paying for goods. — Progress & Poverty — Book
VIII, Chapter 3, Application of the Remedy: The Proposition Tried by
the Canons of Taxation
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 rent cannot
check supply. Therefore though a tax on rent compels the landowners 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. — Progress & Poverty — Book
VIII, Chapter 3, Application of the Remedy: The Proposition Tried by the Canons
... go to "Gems
Louis Post: Outlines of Louis F. Post's
Lectures, with Illustrative Notes and Charts (1894)
4. CONFORMITY TO GENERAL PRINCIPLES OF TAXATION
The single tax conforms most closely to the essential principles
of Adam Smith's four classical maxims, which are stated best by Henry
George 19 as follows:
The best tax by which public revenues can be raised is evidently that
which will closest conform to the following conditions:
- That it bear as lightly as possible upon production — so
as least to check the increase of the general fund from which
taxes must be paid and the community maintained. 20
- That it be easily and cheaply collected, and fall as directly
as may be upon the ultimate payers — so as to take from
the people as little as possible in addition to what it yields
- That it be certain — so as to give the least opportunity
for tyranny or corruption on the part of officials, and the least
temptation to law-breaking and evasion on the part of the tax-payers.
- That it bear equally — so as to give no citizen an advantage
or put any at a disadvantage, as compared with others. 23
19. "Progress and Poverty," book viii.
20. This is the second part of Adam Smith's fourth
maxim. He states it as follows: "Every tax ought to be so
contrived as both to take out and to keep out of the pockets of
the people as little as possible over and above what it brings
into the public treasury of the state. A tax may either take out
or keep out of the pockets of the people a great deal more than
it brings into the public treasury in the four following ways:
. . . Secondly, it may obstruct the industry of the people, and
discourage them from applying to certain branches of business which
might give maintenance and employment to great multitudes. While
it obliges the people to pay, it may thus diminish or perhaps destroy
some of the funds which might enable them more easily to do so."
21. This is the first part of Adam Smith's fourth
maxim, in which he condemns a tax that takes out of the pockets
of the people more than it brings into the public treasury.
22. This is Adam Smith's second maxim. He states
it as follows: "The tax which each individual is bound to
pay ought to be certain and not arbitrary. The time of payment,
the manner of payment, the quantity to be paid, ought all to be
clear and plain to the contributor and to every other person. Where
it is otherwise, every person subject to the tax is put more or
less in the power of the tax gatherer."
23. This is Adam Smith's first maxim. He states
it as follows: "The subjects of every state ought to contribute
towards the support of the government as nearly as possible in
proportion to their respective abilities, that is to say, in proportion
to the revenue which they respectively enjoy under the protection
of the state. The expense of government to the individuals of a
great nation is like the expense of management to the joint tenants
of a great estate, who are all obliged to contribute in proportion
to their respective interests in the estate. In the observation
or neglect of this maxim consists what is called the equality or
inequality of taxation."
In changing this Mr. George says ("Progress
and Poverty," book viii, ch. iii, subd. 4): "Adam
Smith speaks of incomes as enjoyed 'under the protection of the
state'; and this is the ground upon which the equal taxation
of all species of property is commonly insisted upon — that
it is equally protected by the state. The basis of this idea
is evidently that the enjoyment of property is made possible
by the state — that there is a value created and maintained
by the community; which is justly called upon to meet community
expenses. Now, of what values is this true? Only of the value
of land. This is a value that does not arise until a community
is formed, and that, unlike other values, grows with the growth
of the community. It only exists as the community exists. Scatter
again the largest community, and land, now so valuable, would
have no value at all. With every increase of population the value
of land rises; with every decrease it falls. This is true of
nothing else save of things which, like the ownership of land,
are in their nature monopolies."
Adam Smith's third maxim refers only to conveniency
of payment, and gives countenance to indirect taxation, which is
in conflict with the principle of his fourth maxim. Mr. George
properly excludes it.
a. Interference with Production
Indirect taxes tend to check production and cause scarcity, by obstructing
the processes of production. They fall upon men as they work, as they
do business, as they invest capital productively. 24 But the single
tax, which must be paid and be the same in amount regardless of whether the
payer works or plays, of whether he invests his capital productively or wastes
it, of whether he uses his land for the most productive purposes 25 or in lesser
degree or not at all, removes fiscal penalties from industry and thrift, and
tends to leave production free. It therefore conforms more closely than indirect
taxation to the first maxim quoted above.
24. "Taxation which falls upon the processes
of production interposes an artificial obstacle to the creation
of wealth. Taxation which falls upon labor as it is exerted, wealth
as it is used as capital, land as it is cultivated, will manifestly
tend to discourage production much more powerfully than taxation
to the same amount levied upon laborers whether they work or play,
upon wealth whether used productively or unproductively, or upon
land whether cultivated or left waste" — Progress
and Poverty, book viii, ch. iii, subd. I.
25. It is common, besides taxing improvements, as
fast as they are made, to levy higher taxes upon land when put
to its best use than when put to partial use or to no use at all.
This is upon the theory that when his land is used the owner gets
full income from it and can afford to pay high taxes; but that
he gets little or no income when the land is out of use, and so
cannot afford to pay much. It is an absurd but perfectly legitimate
illustration of the pretentious doctrine of taxation according
to ability to pay.
Examples are numerous. Improved building lots, and
even those that are only plotted for improvement, are usually taxed
more than contiguous unused and unplotted land which is equally
in demand for building purposes and equally valuable. So coal land,
iron land, oil land, and sugar land are as a rule taxed less as
land when opened up for appropriate use than when lying idle or
put to inferior uses, though the land value be the same. Any serious
proposal to put land to its appropriate use is commonly regarded
as a signal for increasing the tax upon it.
b. Cheapness of Collection
Indirect taxes are passed along from first payers to final consumers
through many exchanges, accumulating compound profits as they go, until
they take enormous sums from the people in addition to what the government
receives.26 But the single tax takes nothing from the people in excess
of the tax. It therefore conforms more closely than indirect taxation
to the second maxim quoted above.
26. "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 on money
loaned, as has been often attempted, the lender will charge the
tax to the borrower, and the borrower must pay it or not obtain
the loan. If the borrower uses it in his business, he in his turn
must get back the tax from his customers, or his business becomes
unprofitable. 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. If we impose a tax upon manufactures or imported
goods, the manufacturer or importer will charge it in a higher
price to the jobber, the jobber to the retailer. and the retailer
to the consumer. Now, the consumer, on whom the tax thus ultimately
falls, must not only pay the amount of the tax, but also a profit
on this amount to everyone who has thus advanced it — for
profit on the capital he has advanced in paying taxes is as much
required by each dealer as profit on the capital he has advanced
in paying for goods." — Progress and Poverty, book
viii, ch. iii, subd. 2.
No other tax, direct or indirect, conforms so closely to the third
maxim. "Land lies out of doors." It cannot be hidden; it
cannot be "accidentally" overlooked. Nor can its value be
seriously misstated. Neither under-appraisement nor over-appraisement
to any important degree is possible without the connivance of the whole
community. 27 The land values of a neighborhood are matters of common
knowledge. Any intelligent resident can justly appraise them, and every
other intelligent resident can fairly test the appraisement. Therefore,
the tyranny, corruption, fraud, favoritism, and evasions that are so
common in connection with the taxation of imports, manufactures, incomes,
personal property, and buildings — the values of which, even
when the object itself cannot be hidden, are so distinctly matters
of minute special knowledge that only experts can fairly appraise them — would
be out of the question if the single tax were substituted for existing
fiscal methods. 28
27. The under-appraisements so common at present,
and alluded to in note 25, are possible because the community,
ignorant of the just principles of taxation, does connive at them.
Under-appraisements are not secret crimes on the part of assessors;
they are distinctly recognized, but thoughtlessly disregarded when
not actually insisted upon, by the people themselves. And this
is due to the dishonest ideas of taxation that are taught. Let
the vicious doctrine that people ought to pay taxes according to
their ability give way to the honest principle that they should
pay in proportion to the benefits they receive, which benefits,
as we have already seen, are measured by the land values they own,
and underappraisement of land would cease. No assessor can befool
the community in respect of the value of the land within his jurisdiction.
And, with the cessation of general under-appraisement,
favoritism in individual appraisements also would cease. General
under-appraisement fosters unfair individual appraisements. If
land were generally appraised at its full value, a particular unfair
appraisement would stand out in such relief that the crime of the
assessor would be exposed. But now if a man's land is appraised
at a higher valuation than his neighbor's equally valuable land,
and he complains of the unfairness, he is promptly and effectually
silenced with a warning that his land is worth much more than it
is appraised at, anyhow, and if he makes a fuss his appraisement
will be increased. To complain further of the deficient taxation
of his neighbor is to invite the imposition of a higher tax upon
28. If you wish to test the merits in point of certainty
of the single tax as compared with other taxes, go to a real estate
agent in your community, and, showing him a building lot upon the
map, ask him its value. If he inquires about the improvements,
instruct him to ignore them. He will be able at once to tell you
what the lot is worth. And if you go to twenty other agents their
estimates will not materially vary from his. Yet none of the agents
will have left his office. Each will have inferred the value from
the size and location of the lot.
But suppose when you show the map to the first agent
you ask him the value of the land and its improvements. He will
tell you that he cannot give an estimate until he examines the
improvements. And if it is the highly improved property of a rich
man he will engage building experts to assist him. Should you ask
him to include the value of the contents of the buildings, he would
need a corps of selected experts, including artists and liverymen,
dealers in furniture and bric-a-brac, librarians and jewelers.
Should you propose that he also include the value of the occupant's
income, the agent would throw up his hands in despair.
If without the aid of an army of experts the agent
should make an estimate of these miscellaneous values, and twenty
others should do the same, their several estimates would be as
wide apart as ignorant guesses usually are. And the richer the
owner of the property the lower as a proportion would the guesses
Now turn the real estate agent into an assessor,
and is it not plain that he would appraise the land values with
much greater certainty and cheapness than he could appraise the
values of all kinds of property? With a plot map before him he
might fairly make every appraisement without leaving his desk at
the town hall.
And there would be no material difference if the
property in question were a farm instead of a building lot. A competent
farmer or business man in a farming community can, without leaving
his own door-yard, appraise the value of the land of any farm there;
whereas it would be impossible for him to value the improvements,
stock, produce, etc., without at least inspecting them.
In respect of the fourth maxim the single tax bears more equally— that
is to say, more justly — than any other tax. It is the only
tax that falls upon the taxpayer in proportion to the pecuniary benefits
he receives from the public; 29 and its tendency, accelerating with
the increase of the tax, is to leave every one the full fruit of
own productive enterprise and effort. 30
29 The benefits of government are not the only public
benefits whose value attaches exclusively to land. Communal development
from whatever cause produces the same effect. But as it is under
the protection of government that land-owners are able to maintain
ownership of land and through that to enjoy the pecuniary benefits
of advancing social conditions, government confers upon them as
a class not only the pecuniary benefits of good government but
also the pecuniary benefits of progress in general.
30. "Here are two men of equal incomes — that
of the one derived from the exertion of his labor, that of the
other from the rent of land. Is it just that they should equally
contribute to the expenses of the state? Evidently not. The income
of the one represents wealth he creates and adds to the general
wealth of the state; the income of the other represents merely
wealth that he takes from the general stock, returning nothing." — Progress
and Poverty, book viii, ch. iii, subd. 4.... read
Fred E. Foldvary — The
Ultimate Tax Reform: Public Revenue from Land Rent
What qualities make for the best (or least-bad) tax system?
Public finance economists identify simplicity, efficiency, fairness, and
revenue sufficiency as the proper objectives of tax policy. In his Wealth
of Nations, Adam Smith identified equality, certainty (clear manner and
quantity), convenience, and economy in collection. Transparency is also an
important criterion; visible taxes are better than hidden taxes.
In Progress and Poverty (1879), his most important book, Henry George contended
the ideal tax would most closely conform to the following conditions, similar
to those of Smith:
1. That the tax bears as lightly as possible upon production, minimizing
the excess burden or deadweight loss.
2. That the revenues be easily and cheaply collected,
and fall as directly as may be upon
the ultimate payers—so
as to take from the people as little
as possible in addition to what it yields
3. That it be certain and visible, so as to give
the least opportunity for tyranny or corruption
on the part of officials,
and the least temptation
to lawbreaking and evasion on the part of the taxpayers.
4. That it be equitable, giving no citizen an arbitrary
advantage or privilege, and in being consistent
with moral principles.
The two things most people want
from the economy and from public revenue are efficiency and equity.
As to efficiency, as the world-famous free-market
economist Milton Friedman stated, “the
least bad tax is the property tax on the unimproved value of
land, the Henry George argument
of many, many
years ago.” We will see how Friedman is right, why land
value taxation best fits the criteria of Smith and George and
modern economics. ...
PART 4: A Comparative Analysis of Land Value Taxation
We now analyze the criteria for taxation, discussed above, to see how
tapping geo-rent for public revenue compares with taxing income, value
added, consumption, and sales. ... read
the whole document
Real tax reform could do away with those taxes that are resented
by the large proportion of our population. We could replace all taxes on
wages and on interest by instead taxing economic rent. Rent is windfall income;
it is income that arises not from the efforts of any person or corporation;
it comes about as a surplus gain from common social enterprise. There is
ample moral warrant for society to lay claim to that which it has created,
as well as to that which no individual or party has earned. Analysis increasingly
makes clear that economic rent in all its forms is far larger than official
government figures indicate; in fact it is likely sufficient to supplant
all current taxes on labor and capital (wages and interest) which are acknowledged
to have so many negative effects. Recovering economic rent in all its manifestations
by taxing its various bases actually can foster economic performance and
yield other benefits that make it the natural source of revenue for governments.
Such a tax is essentially painless. ...
The starting points should be the lessons that have been learned over the
course of the past three hundred and more years about what is a good tax.
Most basic textbooks in public finance enumerate them in very clear form,
and they constitute benchmarks against which to measure the soundness of
any particular tax. They are listed as few as three or as many as eight such
principles but little disagreement exists as to their substance, regardless
of ideology or government. Most commonly enumerated are neutrality, efficiency,
equity, administrability, simplicity, stability, sufficiency. Tax
theorists typically measure revenue structures according to any or all of
- Tax neutrality refers to the influence (or absence of
such) that any particular design has on economic behavior. Typically taxes
are perceived as a damp on economic activity — taxing income reduces
the incentive to work, taxing sales discourages retail transactions, and
taxing savings reduces the propensity to save. The more a tax is perceived
to be neutral the less the identifiable distortions it imposes on the economy.
The common assumption of most tax theorists is that all taxes impose distortions;
it's simply a matter of which ones are least burdensome to economic health.
A tax which imposes no distortions is ideally best.
- Tax efficiency is much like tax neutrality, and is the
measure of how much shifting of behavior it imposes, resulting in what
is called "excess burden," or "deadweight loss" on
the economy. Tax economists usually hold that the best taxes are those
that are shifted little if at all. Because the elasticities (a technical
word for the slope of supply and demand curves) of each are very different,
a tax on land values and a tax on improvement values have very contrastive
effects on economic choices. Using a tax base that has little or zero elasticity
is the best way of assuring that taxes are not shifted. Zero elasticity
is another way of saying fixed supply.
- The principle of equity is central to any discussion
of tax design. Tax design requires concern with both what is fair and the
extent to which it must sometimes be compromised to satisfy the other principal
criteria. Fairness can be evaluated according to what is termed "horizontal
equity" -- the extent to which those in similar circumstances will
pay similar tax burdens, and "vertical equity" -- how well those
in different classes bear different burdens in the tax structure. It is
this latter perspective that leads to the use of terms like "proportional," "progressive," and "regressive" in
referring to tax structures. A tax is progressive with respect to income
if the ratio of tax revenue to income rises when moving up the income scale,
proportional if the ratio is constant, and regressive if the ratio declines.
There is an ancillary question of whether taxing to reach greater equity
should employ measures of income or of wealth, difficult as this is to
measure. Such questions of equity are a matter particularly central when
discussing the property tax.
- Administrability refers to the ease with which a tax
can be administered and collected. Taxes which distort the economy are
inefficient but so are taxes that cost lots to administer. This is measured
not only in the direct costs of tax avoidance and accounting expenses,
but in the level of evasion and cheating, and by the cost of government
auditing and policing. When the taxpaying public perceives that a tax is
easily evaded, cumbersome, and unfair, it loses its legitimacy and calls
government itself into question.
- This is why the principle of simplicity is important:
the more complex the tax design, the more lawyers and accountants will
find loopholes, encourage the appearance of unfairness, and drive up the
cost of its administration. People know that with simple taxes other parties
are also paying their fair share, and all this enhances the legitimacy
and therefore the compliance of the tax system.
- Stability refers to the ability of a tax to produce
revenue in the face of changing economic circumstances. Income and sales
taxes, for example, vary greatly according to phases in the economic cycle;
the property tax, in contrast, is highly stable regardless of the state
of the economy. This is one reason why school administrators have typically
been supportive of using the property tax base rather than some other tax
to support school services.
- The certainty of a tax's collection ensures that the
number and types of tax changes be kept to a minimum. Frequent changes
in tax rates and bases interfere with business decisions and the ability
to make long-term financial plans. This concept reinforces the need for
stability because an unstable revenue system is more likely to require
- In assessing the value of a tax it is also important, of course, to
understand its potential to bring in revenue for the purposes of government,
usually deemed revenue sufficiency. Income, sales and
property taxes, along with corporation taxes to a lesser extent, have come
to be regarded as the workhorses of the American revenue structure. But,
as anti-tax politicians are quick to note, the higher these taxes are,
the more they impose a drag on the economy. This is why one should ponder
whether to consider raising taxes which have demonstrable distorting effects.
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
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.
There seem to be three arguments for this:
- that taxes should be drawn from as wide an array of
possible so as not to overburden any one base or sector.
- that the spread of tax burdens over a number of bases will
greater stability and reliability.
- that reliance upon a wider number of revenue streams
the downside consequences which all taxes impose on the economy.
It is even claimed that revenue
streams should rely
on each such base in roughly equal proportions, lest structural
imbalances will otherwise eventuate that jeopardize public support of
government. There are of course exceptions. States that
have rich mineral wealth have the luxury of imposing taxes that relieve
them of the need to rely equally on the "big three." So also for
states that have a rich tourist industry or that can rely heavily on
gambling revenue. But a state is open to the charge that its
revenue structure is unbalanced, unfair, or worse unless such special
circumstances warrant. ...
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.
Taking first the argument that spreading the tax
burden over as wide a base of sources as possible, it is best to begin
by noting that revenue streams can be drawn from only three elements of
- Labor, and/or
Standard textbooks for Economics
101 typically start with recognition
of these factors, even if they usually give insufficient attention to
Land as a component. Classical economics, culminating
particularly in the tradition of Henry George, includes in the idea of
Land any and all components of value not created by human hands or
minds. It therefore means not just locational sites on the
earth's surface that might be bought and sold as real estate, but other
elements of so-called "natural capital" as well:
- the electromagnetic spectrum,
- fish in the ocean,
- mineral wealth,
- airport time slots, and so on.
Those elements have a market
price, and can be -- indeed are -- often
subject to taxation. It is important to note, however, that taxes on such Land are capitalized in the
market value of their worth; they cannot be passed forward or backward
because their supply is essentially inelastic.
important, as will be noted below, because imposing such taxes incurs
no excess burden on their use or upon the general economy.
Taxing such bases is totally neutral and completely efficient.
Indeed, it is the failure to tax Land as stated that leads to
economic distortions and causes an economy to function at a sub-optimal
level. Land, whatever its form, has a market value only to
the extent that a human presence exists to make use of it, and it
acquires that value due to the accretion of economic rent, the return
that comes to rest on such factors.
Labor and Capital, in contrast, are always shifted.
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. ...
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
less saving and investment;
- taxing Labor, in the same way, depresses wages and
Contemporary economists and
conventional tax theorists well recognize
that taxing Labor and Capital is detrimental to economic vitality --
politicians thrive on repeating this ad
Currently the Republican party candidates seem
best able to exploit resentment about the negative impact of
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.
A second claim
among advocates of spreading tax burdens over the "big three" bases
(and sometimes more if possible) is that it insures greater reliability
and stability of the revenue streams supportive of government
Economic cycles are
accepted as a given in both government and business circles. But
there is compelling evidence that such cycles have their roots in the
tendency for elements of the financial community to speculate in real
estate, fostering bubbles in their market prices that ultimately must
be reconciled with the real demand. Because the market price of Land
is in good part a function of the settling of rent, the recapture of
that rent in the form of taxation can both stabilize those markets and
remove the cause of those periodic cycles. ...
The third claim,
that reliance upon a wider number of revenue streams minimizes the
downside consequences that all taxes impose, requires an
extensive examination of the various options available. What,
first of all, are those aspects that must be avoided? What are the
standards against which various taxes can and should be measured?
These are typically listed as anywhere from four to seven depending
upon their description. Most common are
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.
- sufficiency. ...
be sure, the
"big three" taxes all have negative consequences. This is because
all three are imposed largely on Capital and Labor; only a minor
component of taxes on property constitutes collection of economic
The one criticism often
levied against the
conventional property tax is its regressivity.
This is somewhat belied by the facts. Only two empirical studies
have ever been done on the subject, but both concluded that the real property tax is mildly progressive.
The upshot is that
a tax on Land value alone -- totally neutral, efficient, certain,
progressive, stable, and administrable -- measures up so well that it
looks like the perfect tax! It is even argued that a land
tax is "better than
neutral," in that it actually fosters the kind of economic activity
that fosters vibrant communities. ... Read the whole article
Robert V. Andelson Henry
George and the Reconstruction of Capitalism
Why did George take so many
pieces from the Capitalist table?
Because, I think, they are all corollaries of one big piece, namely,
the moral justification for private property. You see, George,
who was a devout though non-sectarian Christian, had a stout belief
in the God-given dignity of the individual. This dignity, he held,
demands that we recognize that the individual possesses an absolute
and inalienable right to himself, which is forfeited only when he
refuses to accord the same right to others. The right to one's self
implies the right to one's labor, which is an extension of one's
self, and therefore to the product of one's labor -- to use it, to
enjoy it, to give it away, to destroy it, to bequeath it, or even (if
one so desires) to bury it in the ground.
Now, taxation as ordinarily
understood, especially when based
upon the "ability to pay" principle, is a denial of this right. It is
a denial of it because it represents a tribute levied on the product
of an individual's labor. It is a denial of it because it rests
upon the assumption that the community at large has a right to assess
individuals disproportionately to the benefits which they receive
from the community at large. And so George rejects as collectivistic
many institutions that most present-day defenders of free enterprise
would never dream of questioning -- income taxes, tariffs, sales
taxes, corporate taxes, personal property taxes, etc. This makes him
in one sense an arch-Conservative, yet prominent Socialists like
Walter Rauschenbusch and George Bernard Shaw have testified that it
was Henry George who first kindled their concern for social justice.
To understand the reason for this, we must direct our attention to
the other table, the table labeled "Socialism."
In fitting together the economic
jigsaw puzzle, George took only
two pieces from the Socialist table. But what large and what
strategic pieces they were!
- The first of these was his insistence that all persons
the world with an equal right of access to the goods of nature.
- The second was his contention that the community has a
take that which the community produces.
Actually, these pieces had landed
on the Socialist table only by
default. They had originally been part of the theory of Capitalism,
as outlined by John Locke, the Physiocrats,
and Adam Smith. But
Capitalism in practice ignored them, and so became a distorted
caricature. George's notion was to rescue these lost elements, and
restore balance and proportion to the Capitalist table.
Now, if private property derives
its moral justification from the
right of a human being to the fruits of his or her own efforts,
clearly the land and the other goods of nature do not belong in the
category of private property because no human efforts created them.
And the value that attaches to them is not the result of anything
their title-holder does to them; it is the result of the presence and
activity of the community around them. Someone can build a skyscraper
in the desert and the ground upon which it stands will not be worth a
penny more because of it, yet a city lot with nothing on it may be
worth a fortune simply because of the number of people who pass by it
Why, asked Henry George in
effect, should private individuals
be allowed to fatten upon the unearned increment of land -- upon the
rise in value which the community creates because of population
increase and the growth of public services? Why should certain
people be allowed to levy tribute upon others who desire access to
their common heritage? But, you might object, the present owner may
have paid hard-earned money for his land. Has he not, therefore, a
vested right? To this, George would have answered: If one unwittingly
buys stolen goods, the rectitude of one's intentions establishes no
right against the legitimate owner of those goods. Read
the whole article
Herbert J. G. Bab: Property
Tax -- Cause of Unemployment (circa 1964)
Three criteria are generally
used to judge the merits of a tax.
For instance if full employment and economic
growth are regarded as
desirable, the question to be examined is what effects will this tax
have on achieving these objectives?
The shortcomings of property
revenue producers have been obvious for a long time and are widely known.
The main difficulty is that revenues from property taxation do not keep
pace with the ever-increasing requirements of local governments. Every
county, every city official and every school administrator will
testify, that there are not enough funds available to meet the
requirements of local governments.
The inability of local government to raise enough revenues from
property taxation has forced them to borrow at an ever-increasing rate.
The debts of local governments have increased from about $16 billions
in 1947 to over $61 billions in 1963, an increase of about 382%. During
the same period private debt increased by 279% and federal debt by only
To satisfy the second
criterion, a tax
must be equitable. It must be either based on the ability to
pay principle or on the benefit principle. The Federal income tax for
instance is based on the ability to pay principle. Gasoline taxes used
exclusively for the construction of roads are benefit taxes. The
property tax cannot be justified by either of these principles. The
ownership of property is not a yardstick of ability to pay, though this
was probably true before the industrial revolution. In that age land
was the main, if not the only, form of wealth and intangible forms of
wealth did not exist. As to the benefit principle most of the services
rendered by local governments benefit the community as a whole rather
than property owners. This is especially true of schools, police
protection, welfare expenses and many others.
An analysis of the social and
effects of a particular tax system would indicate the third criterion.
When analysing property taxes we shall distinguish between that
the tax which is assessed on improvements and that part which is
assessed on land.
That part of the tax that is assessed on buildings penalizes
who improves his land, his buildings or intends to construct
residential, commercial or industrial property. The most serious
incidence of property taxes is on new housing. When rental property or
houses are newly constructed these taxes add 15 to 20% to the annual
cost depending on assessment practices and tax rates.
"In 1962 property taxes on new F.H.A. insured houses averaged
per month, or $171.60 per year, excluding that part of the tax that was
assessed on the land. Assuming that a family spends 20% of its income
on housing, the income of a family must increase by $858 per year in
order to afford the purchase of a home. In this way many families in
the lower income group are priced, or taxed, out of the market. And
residential construction, a mainstay of our economy, is discouraged."
"In 1963 HOUSING STARTS reached a level of 1.6 million units,
representing a value of about $20 billions. Yet very few houses were
built in the central areas of our cities and a large part of these
houses were built for families in the middle or upper income group. Of
these single-family homes, only 15% were sold for less than $12,500.
Another 15% sold for between $12,500 and $15,000. Thus 70% of these
homes cost $15,000 or more. This is so because under our income tax
laws property taxes and interest charges are deductible items. A person
in the 75% bracket pays only 25% of these costs and a person in the 50%
bracket pays only half the property taxes and half the interest
- First, it must be satisfactory as a revenue producer,
- second it must be equitable and
- third its economic effects should not collide with the
The ever widening gap between the level of rentals and the urban family
income constitutes a rental squeeze, which has brought untold misery
and hardship to families in the lower income group, especially to those
belonging to minority groups. The rental squeeze has also aggravated
overcrowding and slum conditions.
In the press, on the radio and on television we are often warned about
the threat of inflation. Hardly ever are we told, that the increase in
the cost of living is to a large extent due to the increase in housing
costs brought about by the housing shortage. The inflationary effects
of property taxation are reinforced by the fact that property taxes
themselves are included in the cost of living index and that property
tax rates have the tendency to rise.
A defect of our property tax system that is seldom mentioned is that it
puts a premium on obsolescence and penalizes new housing. This is so
because property taxes are ad valorem taxes. Every piece of real estate
except land is subject to depreciation. Thus the owners of old and
obsolete real estate will pay little in taxes, while newly constructed
buildings will bear the brunt of the tax.
This characteristic of the property tax is obscured by the rising
trends of land values, which in many cases offset the loss in value of
the improvement. Increases in tax rates and differences in assessment
procedures and practices further hide the fact that ad valorem taxes
favor obsolete real property.
Let us now turn to that part of the tax that is assessed on land.
Increases in population, immigration from the farms and other forces
have led to a rapid increase in the population of our large cities and
metropolitan areas. Population pressure is bound to increase the value
of urban land. Yet an adequate system of land taxation could have
prevented the steep rise in urban land values.
Economists agree that taxes on land can not be shifted but are
capitalized. For instance a lot having a value of $10,000 -- will have
an imputed or expected income of $500 -- assuming a 5% rate of
capitalization. A 2-1/2% yearly "ad valorem" tax would reduce the
imputed income by $250 -- or 50%. Such a tax would naturally reduce the
value of the land by the same percentage.
"Sir Winston Churchill has been most of his life an advocate of land
taxation. He stated on one occasion that 'Land monopoly is not the only
monopoly, but ... it is the mother of all other forms of monopoly' ".
For these reasons increases in land values can be prevented by taxing
land at an appropriate rate. Yet urban land values have increased
tremendously during recent years. For instance in Los Angeles county
the assessed value of land increased from $1,972 millions in 1952 to
$4,002 millions in 1962, an increase of a little over 100%. The
assessed values, are supposed to represent 25% of the market value.
Thus the unearned increment in land values during this period amounted
to not less than $8 billions. Even this figure is an understatement
because it is based on assessed values and land is greatly
underassessed. While land values have risen by about 10% yearly,
property taxes assessed on land averaged about 1.5%. Thus a person
owning vacant or underimproved land would have earned about 8 1/2% per
year just by withholding land from its proper use.
A higher tax on vacant or unimproved land would make it unprofitable to
hold such lands. It will tax land into better use and it will lead to a
spurt in construction activity. While all other taxes are deterrents to
employment and economic growth, though to a varying extent, land taxes
are the only genuine incentive taxes.
Inflated land values must necessarily increase the cost of new homes,
the cost of home-ownership and rentals. It discourages residential
construction, prices many families out of the housing market and
aggravates the housing shortage. Read
the whole article
Bill Batt: Who Says Cities are Poor? They Just
Don't Know How to Tax Their Wealth!
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,
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!
income, sales, building capital and even business privilege, the result
being that its fisc is destitute. 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
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
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
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
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. Not
only does no household or office tenant bear any tax burden, locational
sites distant from the urban core, mostly homeowners and farmers, typically
their burden reduced. Vacant or underused lots in high value areas pick
up the difference, employing a design that employs an alternate criterion
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
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
on building improvements they typically enjoy savings just as do other
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
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
that other tax bases frequently have. Indeed, the removal of economic
rent from locational sites discourages speculative bubbles and the related
cycles that are associated with them. This greater stability and reliability
is to the advantage of every sector of the economy — private, public,
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;
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
and to facilitate the development of land use configurations ideal for
the economic health and efficient allocation. Urban ambience is improved,
sector service costs are reduced, and sprawl development is stemmed. ... read the whole article
Bill Batt: The Merits of Site
... The place to start is taking
advantage of what economists and tax
theorists have learned over the course of the past three hundred years
about a government's role in the economy. Far from assuming that the
economy works best by a total "hands-off" policy as Adam Smith was
falsely believed to have advocated by his invocation of an "invisible
hand," policy leaders need to recognize that certain values we hold
dear are outside the economy, and are threatened by our failure to
price them properly. That we treat certain goods and "services" in
nature as "free" means that we overuse them and our environment is
degraded. Clean water and air, for example, aren't given any value in
our economic system, and when they are degraded by agricultural runoff,
industrial pollutants, or auto-emissions, those who are "using up"
these resources go untaxed. The notion that the economy is a
self-regulating system, operating according to defined laws and in
ongoing equilibrium, is no longer entertained by serious students of
economic and fiscal policy. The debate rather is over which government
interventions are constructive and which ones are dysfunctional. The
best place to start correcting property tax inequities and
environmental degradation is by the right kind of taxes.
Tax theorists evaluate revenue structures according to the
economic neutrality, efficiency, equity, administrability, simplicity,
stability, and sufficiency. ... Read
the whole piece
Bill Batt: How Our Towns Got That
There were many arguments to be
made for the classical tradition,
the result of which would be to rely upon payment of rent of land
according to its value to society. George
recognized that land value
is largely a function of how society has elected to invest in any
general neighborhood; there is no argument for any one titleholder to
reap the reward of what others have invested. Gaffney points out
that, from the standpoint of economic theory, the framework had the
- It reconciled common land rights with private tenure, free
markets and modern capitalism, a growing and persistent problem as the
industrial society took hold.
- It enabled the lowering of taxes on labor without raising
- It reconciled equity and efficiency. It constituted a
tax because land is concentrated so much among the wealthy and because
the tax cannot be shifted. It was efficient because it is neutral among
different land-use options.
- It constituted no disincentive to business location or
settlement. In this way it encouraged the most efficient land use and
- It created jobs without inflation, and raised government
without any penalty upon its base.
- It strengthened public revenues and at the same time
economy in government.
Those economists who today still
persistently hold to the view
that there is something special about land that make it unwise to
treat as a form of capital are known as Georgists. They represent a
small minority of the economics profession, but, little known as they
are, they are among its most esteemed members. ...
What David Ricardo called the
"law of rent," and which Henry
George integrated to a comprehensive economic theory, can be made the
basis of a perfect tax measured by contemporary principles of tax
theory. Public finance textbooks typically list them as
- economic neutrality,
- stability, and
Each of these words embodies an
important virtue of sound of
taxation going back to the insights of Adam Smith two centuries ago.
And now you know a bit of where I'm headed. ... read
the whole article
Bill Batt: Comment on Parts of
the NYS Legislative Tax Study Commission's 1985 study “Who Pays New
Little justification exists for taxing buildings, or improvements of any
sort, so this question is easily disposed of. The practice is explained
largely as a matter of historical inertia. Only in the recent century or
two have buildings represented any significant capital value; prior to
the rise of major cities, the value of real property lay essentially in
land. American cities today typically record aggregate assessed land values – at
least when the valuations are well-done – at about 40% to 60% of
total taxable value, that is, of land and buildings taken together.31 Skyscrapers
reflect enormous capital investment, and this expenditure is warranted
because of the enormous value of locational sites. Each site gets its market
price from the fact that the total neighborhood context creates an attractive
market presence and ambience. By taxing buildings, however, we impose a
penalty on their optimum development as well as on the incentives for their
maintenance. Moreover, taxes on buildings take away from whatever burden
would otherwise be imposed on sites, with the result that incentives for
their highest and best use is weakened. Lastly, the technical and administrative
challenges of properly assessing the value of improvements is daunting,
particularly since they must be depreciated for tax and accounting purposes,
evaluated for potential replacement, and so on. In fact most costs associated
with administration of property taxation and appeal litigation involve
disputes over the valuation of structures, not land values.
Land value taxation, on the other hand, overcomes all these obstacles. Locations
are the beneficiaries of community services whether they are improved or
not. As has been forcefully argued by this writer and others elsewhere,32
a tax on land value conforms to all the textbook principles of sound tax
theory. Some further considerations are worth reviewing, however, when looking
at ground rent as a flow rather than as a “present value” stock.
The technical ability to trace changes in the market prices of sites – or
as can also be understood, the variable flow of ground rent to those sites – by
the application of GIS (geographic information systems) real-time recording
of sales transactions invites wholesale changes in the maintenance of cadastral
data. The transmittal of sales records as typically received in the offices
of local governments for purposes of title registration over to Assessors’ offices
allows for the possibility of a running real-time mapping of market values.
Given also that GIS algorithms can now calculate the land value proportions
reasonably accurately, this means that “landvaluescapes” are
easily created in ways analogous to maps that portray other common geographic
features. These landvaluescapes reflect the flow of ground rent through local
or regional economies, and can also be used to identify the areas of greatest
market vitality and enterprise. The flow of economic rent can easily be taxed
in ways that overcomes the mistaken notion that it is a stock. Just as income
is recognized as a flow of money, rent too can (and should) be understood
The question still begs to be answered, “why tax land?” And
what happens when we don’t tax land? Henry George answered this more
than a century ago more forcefully and clearly, perhaps, than anyone has
since. He recognized full well that the economic surplus not expended by
human hands or minds in the production of capital wealth gravitates to land. Particular land sites come to reflect the value of their strategic location
for market exchanges by assuming a price for their monopoly use. Regardless
whether those who acquire title to such sites use them to the full extent
of their potential, the flow of rent to such locations is commensurate with
their full capacity. This is why John Stuart Mill more than a century ago
observed that, “Landlords grow richer in their sleep without working,
risking or economizing. The increase in the value of land, arising
as it does from the efforts of an entire community, should belong to the
and not to the individual who might hold title.”33 Absent its recovery
by taxation this rent becomes a “free lunch” to opportunistically
situated titleholders. When offered for sale, the projected rental value
is capitalized in the present value for purposes of attaching a market price
and sold as a commodity. Yet simple justice calls for the recovery
in taxes what is the community’s creation. Moreover, the failure to recover
the land rent connected to sites makes it necessary to tax productive activities
in our economy, and this leads to economic and technical inefficiency known
as “deadweight loss.”34 It means that the economy performs suboptimally.
Land, and by this Henry George meant any natural factor of production not
created by human hands or minds, is ours only to use, not to buy or sell
as a commodity. In the equally immortal words of Jefferson a century earlier, “The
earth belongs in usufruct to the living; . . . [It is] given as a common
stock for men to labor and live on.”35 This passage likely needs a
bit of parsing for the modern reader. The word usufruct, understood since
Roman times, has almost passed from use today. It means “the right
to use the property of another so long as its value is not diminished.”36
Note also that Jefferson regarded the earth as a “common stock;” not
allotted to individuals with possessory titles. Only the phrase “to
the living” might be subject to challenge by forward-looking environmentalists
who, taking an idea from Native American cultures, argue that “we do
not inherit the earth from our ancestors; we borrow it from our children.” The
presumption that real property titles are acquired legitimately is a claim
that does not withstand scrutiny; rather all such titles owe their origin
ultimately to force or fraud.37
If we own the land sites that we occupy only in usufruct, and the
rent that derives from those sites is due to community enterprise, it is
not a large
logical leap to argue that the community’s recovery of that rent should
be the proper source of taxation. This is the Georgist argument: that the
recapture of land rent is the proper – indeed the natural – source
of taxation.38 ... read the whole commentary
see also: Bill Batt: How the
Railroads Got Us On the Wrong Economic Track