Much of our best land is held by corporations. Land in the central business district is worth thousands, even hundreds of thousands, of times what agricultural land is worth.

But land is not limited to the earth under our feet. It also includes such things as the broadcast spectrum. We say that the airwaves belong to the American people, but in reality, they belong to a small subset: the owners of corporate stock, which is very concentrated in a narrow band of our society. They sell individual broadcast frequencies, reaping profits that a just society would recognize that they did not earn.

Land also includes our natural resources, for which very small royalties are paid.

Should the economic value of things that are in scarce supply, of which none of us can make more, be monopolized by a few individuals or corporations? Or is there a more just way to organize ourselves and our economy? Georgists seek to collect for the commons the value of that which none of us individually created.
 

The Most Rev. Dr Thomas Nulty, Roman Catholic Bishop of Meath (Ireland): Back to the Land (1881)

Ownership of large property gives one control of other assets. Property is borrowing power and credit rating: all studies show interest rates to be very regressive with size and quality of collateral, and terms easier. But simple borrowing is only the beginning. With great wealth one goes into banking and exerts multiple leverage. The story has been told many times, if not as well, since Brandeis' Other Peoples' Money: collateral, leverage, conglomerates, interlocking directorates, mergers, lender suasion, industrial leadership, pyramiding, the Wallenberg Grip, subcontracting market power, control of dealerships, . . . . Control is power and status (psychic income), and control is a source of additional income, as revealed by the premium prices of shares during battles for control.

Data in Table I probably understate concentration, for four general reasons:

• omitting the unpropertied,
• accepting and reporting regressive assessments,
• accepting the bias in partial inventories, and
• accepting and reporting straw owners as separate owners. ...

• In-county landlords averaged 85 acres;
• out-of-county but in-state landlords, 126 acres;
• out-of-state but U.S. landlords, 159 acres.
• Foreign landlords were highest of all.
  • 28% of them held over 2500 acres, while
  • only 10% of U.S. landlords did.19 ...

A large genre of partial inventories is the farm study, of which every Agricultural Experiment Station must have issued one or more. Hardly anyone wealthy enough to own a large farm today lacks nonfarm income. One cannot afford to keep a large farm without using it as an income tax shelter - that is the "highest and best use" under our income tax law. Studies purporting to compare "farm income" with farm property taxes are founded on the obsolete premise that "farmers" are a separate class of people, and have no value.

 "Hold on again," I have heard, "how much revenue can land yield by itself?" It is my job to address that. I assure you it can yield more than local governments need. I have already pointed out you can raise the rate to any level without fear of driving away jobs, capital, people, or building. That is a remarkable quality in a tax, especially one as progressive as the land tax. I will also support the point in several other ways.

 The taxable capacity of land is camouflaged in our times by a consistent modern tendency to underassess it, relative to buildings. There are several studies in point. The most general one is the quinquennial Report of the U.S. Census of Governments. It actually understates the tendency a lot, by omitting the class of land most underassessed, that is, raw acreage in and near cities. ...

 "How about corporate stock?", I hear. "Should we exempt corporate wealth from the property tax?" Actually, almost all jurisdictions already exempt stock and all other "intangible" property. Not to worry, however, you tax corporate assets. When you rank property owners by value of holdings, the top ten on most tax rolls are all corporations. None of their multi-national profit-shifting through layered ownership of foreign subs, and creative transfer pricing, can hide their taxable property on your assessor's maps. This makes sense anyway. Why should you think you can tax a corporation for its business in Malaysia? What concerns you is its property in your town.

"Wait another minute," I hear. "Some corporations build bright new plants in cow pastures, with a high fraction of building value. If you exempt buildings, you let them off easy." There are cases in point, I concede, like the blue-collar industrial suburbs of Cudahy and South Milwaukee, Wisconsin. Probably you could have said that in Amsterdam, N.Y., when the rug industry was thriving there. Amsterdam's fate, however, draws a moral about that. An industry that depends on your land, your location, is likely to stay put; but an industry that brings in most of its own assets, in the form of capital, is mobile. What it brought in it can take out.

 "Take out buildings? Be serious!" you may say. Buildings look rooted to the spot, but that is illusory: those roots are temporary. Buildings depreciate. They may be milked through undermaintenance, and the capital consumption allowances (CCAs) reinvested elsewhere. After a few years the plant is an empty shell. They close it, flat-bed the equipment, and silently steal away. If they really need nothing but a cow pasture, they can find ten thousand others, anywhere, and reinvest their CCAs there. You are wise not to tax such plants out of town. You need them, but they can take their capital to greener pastures. Capital is mobile, both coming and going. Only land stays put.

 In other cases, industries occupy land of high value that is wrongly assessed low simply because industry occupies it, and it has not been subdivided. What has subdivision to do with it? The bias of assessors is to value industrial "acreage" low, relative to improved "lots," even though they lie cheek by jowl. It is a kind of wholesale discount for owners of "raw" (undivided) tracts.

 For example, in West Allis, Wisconsin, the southwest corner of the Allis-Chalmers plant occupies the northeast corner of the 100% location, the most valuable commercial site in town. That land, with the same retail potential as the other three corners, is assessed as raw industrial acreage, as though it were in the boonies, with no recognition of its high location value for retail/office use. To make a land tax work, the assessor must be reinstructed to value that land at its highest and best use rather than as ordinary raw acreage. Exempting buildings would create the necessary pressure, thus solving the very problem that otherwise might be taken as a point against it. As noted earlier, the U.S. Census of Governments gives us no data on this point. You, however, can find it easily enough: tax assessments are public records, and you know your own town.

In still other cases "industry" surrounds and intersperses itself with vast swaths of vacant land. They hold it for open storage, parking, purported "future expansion," accessways, buffers, backlots, discouragement of competitors, etc. Many of Los Angeles' swankiest buildings of today arose over the former surplus lands of the cinema industry, which disgorged them before 1978 because they used to have to pay substantial taxes on surplus lands.

 "Corporate" is not coterminous with "industrial," anyway. Many corporations are in retailing. They own chain stores, malls, gasoline stations, auto dealerships, major real estate "developments," drive-ins, office space, department stores, banks, "power centers," etc. As to these, shifting to the land basis will shift more of the tax burden to them, because retailing has a higher land fraction than any other major land use (except vacant, golf courses, cemeteries, parking lots, etc.). That is because location is more critical to retailers than other businesses. You can tell this by their high rate of tear-downs and remodeling.

 Among its other effects, site-value taxation will induce some land to shift from retail to industrial use. Recall that exempting the building, or prospective building, lets buyers bid more for land. The higher the building fraction, the stronger is that force. Thus the present system, which is biased against buildings generally, is biased against industrial compared with retail uses. Removing that bias will help industry outbid retail for land -- not all land, of course, but land on the tipping point between the uses. Most towns today seem oversupplied with retailers, compared with their shortage of basic industries. Shifting to the site-value basis of property taxation helps redress that balance.

 "Let the market decide," some say. "No good can come from forcing land into use, against the owner's private judgment." Actually, the proposal to exempt buildings and focus property taxes on site values is premised on the market concept of consumer sovereignty; it's the present property tax that isn't. The case may be summed up like this: if the tax on a parcel varies with the use of the parcel, then the tax biases choices against the use more taxed. Economists call the land tax "neutral," for that very reason: it does not vary with use. It does not bias the choice of uses; the consumer sovereign prevails. "No other tax can make that statement."

 I do not view that as saying we should throw away other social controls over land use. I have written a short piece, "Land Planning and the Property Tax," showing how land taxation strengthens the hand of planners and helps them and the market work together. There are a few libertarians who would terminate city planning altogether, but that is pretty extreme, and not the proposal we should be considering here today. Rather, let us consider a measured proposal, an incremental change within the framework of present law and custom. ...

 Another attractive feature of land taxation is its interesting positive effect on the economic base of a city. It strengthens it by its tendency to hit absentee owners harder than resident owners. The land fraction in real estate is generally highest in the CBD of any city, so that is a favorite place for absentees to buy and hold. They like the steady income, and the "trophy" quality. The surplus in real estate is what attracts outside buyers, and land is what yields the surplus. About 2/3 of downtown Los Angeles is owned by non-resident aliens, for example. In a more workaday city, Milwaukee, the absentee owners consist of former residents, or their heirs, who grew too rich to abide the harsh winters.

 Consider the effect on your balance of payments. When you get more tax money from absentees, money that used to flow to Tehran, Zurich, or Palm Beach now flows into your local treasury to pay your local teachers and city workers, and relieve your builders and building managers. In this way taxing land actually acts to undergird the value of its own base.

 To stimulate building is also to uphold and fortify the tax base, even though you do not tax the new buildings directly. Some people fault the "depressing" canyons of Manhattan, between the skyscrapers. In my observation, it is not the canyons that depress Manhattan. When the GM building went up, Fortune Magazine reported it doubled the rents of stores across the deep canyon so formed. Its spillover effects were highly positive. What really depresses Manhattan are rather the centenarian firetraps and the activities they attract. They tend to downvalue other lands nearby, eroding the tax base.

 Consider the effect of floorspace rentals on ground rents and land values. Doubling floorspace rentals will more than double land values, through a kind of leverage effect. That is because all cash flows above a constant amount required for the building will inure as ground rents. The higgling and arbitrage of the market will see to that. Once that constant is met, everything above it goes to landownership as such, raising land prices which are the land tax base.

 When you observe cities much, the positive neighborhood effects of replacing old buildings with new are irresistible and contagious, raising land prices all around. The converse is also true: the negative neighborhood effects of letting old junkers stand without replacement are depressive. Thus, when you take the tax off new buildings, and put it on the land under old tumbledowns, you kick off a general process of revitalization that turns gloom into hope into optimism: optimism that boosts land prices and the land tax base.  Read the whole article

• First, generous capital consumption allowances (CCAs) greatly magnify the proportion of real estate income taken as taxable capital gains. Capital gains accrue not only on newly constructed buildings, of course, but also on land and old buildings being sold and resold. Our tax code allows for properties to be re-depreciated by their new owners after a sale or swap, permitting real estate investors to recapture principal again and again on the same structure. When CCAs have been excessive relative to true economic depreciation, as they were during the 1980s, capital gains have been commensurately larger than the actual increase in property prices. As Charts la and lb illustrate, capital consumption allowances in real estate dwarf those in other industries.

• Second, very little of real estate cash flow is taxable as ordinary income, so the capital gains tax is currently the only major federal levy paid by the real estate industry. CCAs and tax-deductible mortgage interest payments combine to exempt most of real estate cash flow from the income tax. This encourages debt pyramiding as it throws the burden of public finance onto other taxpayers. ...

Jeff Smith: Sharing Natural Rents to Sustain Human Society

Noticing rent, realizing its social nature, accepting that it's to be shared, and understanding that wages and interest should not be expropriated, for most people that's a new way of thinking. Thinking such thoughts leads to a new way of conceiving economics, too. Ecological economics becomes not just a branch of economics but a whole new discipline, needing a new name. In geonomics we maintain the distinction between items bearing exchange value that come into being by human effort — wealth — and those that don't — land. Keeping this distinction in the forefront makes it obvious and non-controversial that speculating in land drives sprawl, that hoarding land retards Third World development, that borrowing to buy land plus buildings engorges banks, that so-called "interest" is quasi-rent, that the cost of land inflates faster than the price of produced goods and services, that over half of corporate profit, says the Urban Land Institute, is from real estate. ... read the whole article