Some of what falls into the category of "small business" is actually
landlording, and often it is also largely speculating on land value. We
need to make a clearer distinction in our common conversation, and in how we
do we want to reward? What do we want to encourage? Conversely, what do we
want to discourage? What behavior do we specifically not want to reward?
In the central business district of most towns, the building owners are
the same entities (or families) now as they were 10, 20 and 30 years ago.
The tenants may have changed: over the years, there has probably been a series
"grand opening," "lost our lease, everything must go," "under
management." But the landlords remain the same, and the buildings remain
the same. If the local economy is healthy, and local government invests in
good schools and services and maintains the infrastructure well, those landlords
can collect higher and higher rents on those buildings, making it harder
and harder for the tenant to afford to locate in the prime locations. Eventually,
the landlord turns day to day responsibility over to a management company,
and retires to a more hospitable climate, receiving the rent check there,
and paying back to the town a small amount in property taxes.
Every dollar that a commercial tenant spends on rent is a dollar not available
for wages, inventory or specialized equipment. And when he does succeed in
a profit, we tax that profit. We also tax his employees' wages and if he
is a retailer, the purchases his customers make — in order to provide
schools and services and infrastructure which will allow the landlord to
higher rent next time the lease is to be renewed. (See pork for
a similarly perverse cycle.)
Many of us dream of opening our own businesses. Most of those plans somehow
involve having access to a prime, or at least adequate, site on which to
conduct that business. Without it, and without it being affordable, our business
plan must remain a castle in the air.
And then there are the entrepreneurs who are ready to retire. They take
a look at their business, and, if they are the owners of the site on which
they have conducted their business, they may reach the conclusion that they
can live just as comfortably by renting that site to someone else, and "letting"
that other person do the work. We may be used to this, but is it just? Is
there a difference between being able to rent out one's building and renting
out a site? Is one equally entitled to privatize, to keep as one's own treasure,
the value of the building and the value of the site? Or are they fundamentally
different in character? Most people who have read Henry
George's book Progress
and Poverty acknowledge that the difference between land and building,
or capital, is an important distinction, which needs to be acknowledged by
how we tax ourselves.
Look around you at the "small business" people you know. Group
together in your mind those who own the sites on which they conduct their
— be that retail, service, professional, whatever — and those
who are tenants. They may not be very different in how hard they work, or
skill or training
they bring to their work, but their fortunes are likely to be quite different.
(And then consider the other group: the landlords.) Is this the kind of
society we want? Land value taxation is the simple reform which will begin
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)
The elder Mirabeau, we are told, ranked the proposition of Quesnay, to substitute
one single tax on rent (the impôt unique) for all other taxes,
as a discovery equal in utility to the invention of writing or the substitution
of the use of money for barter.
To whosoever will think over the matter, this saying will appear an evidence
of penetration rather than of extravagance. The advantages which would be gained
by substituting for the numerous taxes by which the public revenues are now
raised, a single tax levied upon the value of land, will appear more and more
important the more they are considered.
- This is the secret which would transform the little village into the
- With all the burdens removed which now oppress industry and hamper exchange,
the production of wealth would go on with a rapidity now undreamed
- This, in its turn, would lead to an increase in the value of land — a
new surplus which society might take for general purposes.
- And released from the difficulties which attend the collection of revenue
in a way that begets corruption and renders legislation the tool of
special interests, society could assume functions which the increasing
of life makes it desirable to assume, but which the prospect of political
demoralization under the present system now leads thoughtful men to
*At the beginning of Book
IX of the complete Progress & Poverty, Henry George quotes from
Themistocles: "I cannot play upon any stringed instrument, but I
can tell you how of a little village to make a great and glorious city."
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? For there is to the community also a natural reward.
The law of society is, each for all, as well as all for each. No one can keep
to himself the good he may do, any more than he can keep the bad. Every productive
enterprise, besides its return to those who undertake it, yields collateral
advantages to others. If a man plant a fruit tree, his gain is that he gathers
the fruit in its time and season. But in addition to his gain, there is a gain
to the whole community. Others than the owner are benefited by the increased
supply of fruit; the birds which it shelters fly far and wide; the rain which
it helps to attract falls not alone on his field; and, even to the eye which
rests upon it from a distance, it brings a sense of beauty. And so with everything
else. The building of a house, a factory, a ship, or a railroad, benefits others
besides those who get the direct profits.
Well may the community leave to the individual producer all that prompts him
to exertion; well may it let the laborer have the full reward of his labor,
and the capitalist the full return of his capital. For the more that labor
and capital produce, the greater grows the common wealth in which all may share.
And in the value or rent of land is this general gain expressed in a definite
and concrete form. Here is a fund which the state may take while leaving to
labor and capital their full reward. With increased activity of production
this would commensurately increase.
And to shift the burden of taxation from production and exchange to the value
or rent of land would not merely be to give new stimulus to the production
of wealth; it would be to open new opportunities. For under this system no
one would care to hold land unless to use it, and land now withheld from use
would everywhere be thrown open to improvement.
The selling price of land would fall; land speculation would receive its death
blow; land monopolization would no longer pay.* Millions and millions of acres
from which settlers are now shut out by high prices would be abandoned by their
present owners or sold to settlers upon nominal terms. And this not merely
on the frontiers, but within what are now considered well settled districts.
* The fact that a tax on the rental value of land cannot
be shifted by landowners to tenants, though recognized by all competent
economists, is sometimes a stumbling block to persons untrained in economics.
The reason such a tax cannot be shifted is that it cannot limit the supply
of land. Landowners are presumably, before the tax is laid, charging all
the rent they can get. There is nothing in a tax on the rental value of
land to make tenants willing to pay more or to make land more difficult
to hire. On the contrary, more land will be on the market, because of such
a tax, rather than less, since the tax puts a heavy penalty on holding
land out of use and unimproved for mere speculation. The competition of
former vacant land speculators to get their land used will make land cheaper
to rent rather than more expensive. And since only the net rent remaining
after the tax is subtracted is capitalized into salable value, land will
be very much cheaper to buy. H.G.B.
And it must be remembered that this would apply, not merely to agricultural
land, but to all land. Mineral land would be thrown open to use, just as agricultural
land; and in the heart of a city no one could afford to keep land from its
most profitable use, or on the outskirts to demand more for it than the use
to which it could at the time be put would warrant. Everywhere that land had
attained a value, taxation, instead of operating, as now, as a fine upon improvement,
would operate to force improvement. Whoever planted an orchard, or sowed a
field, or built a house, or erected a manufactory, no matter how costly, would
have no more to pay in taxes than if he kept so much land idle.
- The monopolist of agricultural land would be taxed as much as though
his land were covered with houses and barns, with crops and with stock.
- The owner of a vacant city lot would have to pay as much for the privilege
of keeping other people off of it until he wanted to use it, as his
neighbor who has a fine house upon his lot.
- It would cost as much to keep a row of tumble-down shanties upon valuable
land as though it were covered with a grand hotel or a pile of great
warehouses filled with costly goods.
Thus, the bonus that wherever labor is most productive must now be paid before
labor can be exerted would disappear.
- The farmer would not have to pay out half his means, or mortgage his
labor for years, in order to obtain land to cultivate;
- the builder of a city homestead would not have to lay out as much for
a small lot as for the house he puts upon it*;
- the company that proposed to erect a manufactory would not have to expend
a great part of its capital for a site.
- And what would be paid from year to year to the state would be in lieu
of all the taxes now levied upon improvements, machinery, and stock.
*Many persons, and among them some professional economists,
have never succeeded in getting a thorough comprehension of this point.
Thus, the editor has heard the objection advanced that the greater
cheapness of land is no advantage to the poor man who is trying to
save enough from his earnings to buy a piece of land; for, it is said,
the higher taxes on the land after it is acquired, offset the lower
purchase price. What such objectors do not see is that even if the
lower price of land does no more than balance the higher tax on it,
(and this overlooks, for one thing, the discouragement to speculation
in land), the reduction or removal of other taxes is all clear gain.
It is easier to save in proportion as earnings and commodities are
relieved of taxation. It is easier to buy land, because its selling
price is lower, if the land is taxed. And although the land, after
its purchase, continues to be taxed, not only can this tax be fully
paid out of the annual interest on the saving in the purchase price,
but also there is to be reckoned the saving in taxes on buildings and
other improvements and in whatever other taxes are thus rendered unnecessary.
Consider the effect of such a change upon the labor market. Competition
would no longer be one-sided, as now. Instead of laborers competing with
for employment, and in their competition cutting down wages to the point
of bare subsistence, employers would everywhere be competing for laborers,
wages would rise to the fair earnings of labor. For into the labor market
would have entered the greatest of all competitors for the employment of
competitor whose demand cannot be satisfied until want is satisfied — the
demand of labor itself. The employers of labor would not have merely to
bid against other employers, all feeling the stimulus of greater trade
profits, but against the ability of laborers to become their own employers
upon the natural opportunities freely opened to them by the tax which prevented
With natural opportunities thus free to labor;
- with capital and improvements exempt from tax, and exchange released
from restrictions, the spectacle of willing men unable to turn their labor
the things they are suffering for would become impossible;
- the recurring paroxysms which paralyze industry would cease;
- every wheel of production would be set in motion;
- demand would keep pace with supply, and supply with demand;
- trade would increase in every direction, and wealth augment on every hand.
... read the whole chapter
H.G. Brown: Significant
Paragraphs from Henry George's Progress & Poverty:
12. Effect of Remedy Upon Various Economic Classes (in the unabridged P&P: Part
IX: Effects of the Remedy — Chapter 3. Of the effect upon individuals
When it is first proposed to put all taxes upon the value of land, all landholders
are likely to take the alarm, and there will not be wanting appeals to
the fears of small farm and homestead owners, who will be told that this
is a proposition
to rob them of their hard-earned property. But a moment's reflection will
show that this proposition should commend itself to all whose interests as
do not largely exceed their interests as laborers or capitalists, or both.
And further consideration will show that though the large landholders may
lose relatively, yet even in their case there will be an absolute gain. For,
increase in production will be so great that labor and capital will gain
very much more than will be lost to private landownership, while in these
and in the greater ones involved in a more healthy social condition, the
whole community, including the landowners themselves, will share.
- It is manifest, of course, that the change I propose will greatly benefit
all those who live by wages, whether of hand or of head -- laborers,
operatives, mechanics, clerks, professional men of all sorts.
- It is manifest, also, that it will benefit all those who live partly
by wages and partly by the earnings of their capital -- storekeepers, merchants,
manufacturers, employing or undertaking producers and exchangers of
from the peddler or drayman to the railroad or steamship owner -- and
- it is likewise manifest that it will increase the incomes of those whose
incomes are drawn from the earnings of capital.
Take, now, the case of the homestead owner -- the mechanic, storekeeper, or
professional man who has secured himself a house and lot, where he lives, and
which he contemplates with satisfaction as a place from which his family cannot
be ejected in case of his death. He will not be injured; on the contrary, he
will be the gainer. The selling value of his lot will diminish -- theoretically
it will entirely disappear. But its usefulness to him will not disappear. It
will serve his purpose as well as ever. While, as the value of all other lots
will diminish or disappear in the same ratio, he retains the same security
of always having a lot that he had before. That is to say, he is a loser only
as the man who has bought himself a pair of boots may be said to be a loser
by a subsequent fall in the price of boots. His boots will be just as useful
to him, and the next pair of boots he can get cheaper. So, to the homestead
owner, his lot will be as useful, and should he look forward to getting a larger
lot, or having his children, as they grow up, get homesteads of their own,
he will, even in the matter of lots, be the gainer. And in the present, other
things considered, he will be much the gainer. For though he will have more
taxes to pay upon his land, he will be released from taxes upon his house and
improvements, upon his furniture and personal property, upon all that he and
his family eat, drink and wear, while his earnings will be largely increased
by the rise of wages, the constant employment, and the increased briskness
of trade. His only loss will be, if he wants to sell his lot without getting
another, and this will be a small loss compared with the great gain. ...
In short, the working farmer is both a laborer and a capitalist, as well as
a landowner, and it is by his labor and capital that his living is made. His
loss would be nominal; his gain would be real and great. In varying degrees
is this true of all landholders. Many landholders are laborers of one sort
or another. This measure would make no one poorer but such as could be made
a great deal poorer without being really hurt. It would cut down great fortunes,
but it would impoverish no one.
Wealth would not only be enormously increased; it would be equally distributed.
I do not mean that each individual would get the same amount of wealth. That
would not be equal distribution, so long as different individuals have different
powers and different desires. But I mean that wealth would be distributed in
accordance with the degree in which the industry, skill, knowledge, or prudence
of each contributed to the common stock. The great cause which concentrates
wealth in the hands of those who do not produce, and takes it from the hands
of those who do, would be gone. The inequalities that continued to exist would
be those of nature, not the artificial inequalities produced by the denial
of natural law. The nonproducer would no longer roll in luxury while the producer
got but the barest necessities of animal existence. ... read the whole chapter
Rev. A. C. Auchmuty: Gems from George, a
themed collection of
excerpts from the writings of Henry George (with links to sources)
CAPITAL, which is not in itself a distinguishable element, but which it
must always be kept in mind consists of wealth applied to the aid of labor
in further production, is not a primary factor. There can be production without
it, and there must have been production without it, or it could not in the
first place have appeared. It is a secondary and compound factor, coming
after and resulting from the union of labor and land in the production of
wealth. It is in essence labor raised by a second union with land to a third
or higher power. But it is to civilized life so necessary and important as
to be rightfully accorded in political economy the place of a third factor
in production. — The
Science of Political Economy unabridged:
Book III, Chapter 17, The Production of Wealth: The Third Factor of Production — Capital • abridged:
Part III, Chapter 10: Order of the Three Factors of Production
IT is to be observed that capital of itself can do nothing. It is always a subsidiary,
never an initiatory, factor. The initiatory factor is always labor. That is to
say, in the production of wealth labor always uses capital, is never used by
capital. This is not merely literally true, when by the term capital we mean
the thing capital. It is also true when we personify the term and mean by it
not the thing capital, but the men who are possessed of capital. The capitalist
pure and simple, the man who merely controls capital, has in his hands the power
of assisting labor to produce. But purely as capitalist he cannot exercise that
power. It can be exercised only by labor. To utilize it he must himself exercise
at least some of the functions of labor, or he must put his capital, on some
terms, at the use of those who do. — The Science of Political Economy unabridged:
Book III, Chapter 17, The Production of Wealth: The Third Factor of Production — Capital • abridged:
Part III, Chapter 10: Order of the Three Factors of Production
THUS we must exclude from the category of capital everything that may be included
either as land or labor. Doing so, there remain only things which are neither
land nor labor, but which have resulted from the union of these two original
factors of production. Nothing can be properly capital that does not consist
of these — that is to say, nothing can be capital that is not wealth. — Progress & Poverty — Book
I, Chapter 2: Wages and Capital: The Meaning of the Terms
THUS, a government bond is not capital, nor yet is it the representative of capital.
The capital that was once received for it by the government has been consumed
unproductively — blown away from the mouths of cannon, used up in war ships,
expended in keeping men marching and drilling, killing and destroying. The bond
cannot represent capital that has been destroyed. It does not represent capital
at all. It is simply a solemn declaration that the government will, some time
or other, take by taxation from the then existing stock of the people, so much
wealth, which it will turn over to the holder of the bond; and that, in the meanwhile,
it will, from time to time, take, in the same way, enough to make up to the holder
the increase which so much capital as it some day promises to give him would
yield him were it actually in his possession. The immense sums which are thus
taken from the produce of every modern country to pay interest on public debts
are not the earnings or increase of capital — are not really interest in
the strict sense of the term, but are taxes levied on the produce of labor and
capital, leaving so much less for wages and so much less for real interest. — Progress & Poverty — Book
III, Chapter 4: The Laws of Distribution: Of Spurious Capital and of Profits
Often Mistaken For Interest
CAPITAL, as we have seen, consists of wealth used for the procurement of
more wealth, as distinguished from wealth used for the direct satisfaction
of desire; or, as I think it may be defined, of wealth in the course of exchange.
Capital, therefore, increases the power of labor to produce wealth: (1) By
enabling labor to apply itself in more effective ways, as by digging up clams
with a spade instead of the hand, or moving a vessel by shoveling coal into
a furnace, instead of tugging at an oar. (2) By enabling labor to avail itself
of the reproductive forces of nature, as to obtain corn by sowing it, or animals
by breeding them. (3) By permitting the division of labor, and thus, on the
one hand, increasing the efficiency of the human factor of wealth, by the utilization
of special capabilities, the acquisition of skill, and the reduction of waste;
and, on the other, calling in the powers of the natural factor at their highest,
by taking advantage of the diversities of soil, climate and situation, so as
to obtain each particular species of wealth where nature is most favorable
to its production.
Capital does not supply the materials which labor works up into wealth, as
is erroneously taught; the materials of wealth are supplied by nature. But
such materials partially worked up and in the course of exchange are capital. — Progress & Poverty — Book
I, Chapter 5: Wages and Capital: The Real Functions of Capital
WITH profits this inquiry has manifestly nothing to do. We want to find
what it is that determines the division of their joint produce between land,
labor, and capital, and profits is not a term that refers exclusively to
anyone of these three divisions. Of the three parts into which profits are
divided by political economists — namely, compensation for risk, wages
of superintendence, and return for the use of capital — the latter
falls under the term interest, which includes all the returns for the use
of capital, and excludes everything else; wages of superintendence falls
under the term wages, which includes all returns for human exertion, and
excludes everything else; and compensation for risk has no place whatever,
as risk is eliminated when all the transactions of a community are taken
together. — Progress & Poverty — Book
III, Chapter 1: The Laws of Distribution: The Inquiry Narrowed to the Laws
of Distribution — The Necessary Relation of these Laws
INTEREST, as an abstract term in the distribution of wealth, differs in
meaning from the word as commonly used, in this: That it includes all returns
for the use of capital, and not merely those that pass from borrower to lender;
and that it excludes compensation for risk, which forms so great a part of
what is commonly called interest. Compensation for risk is evidently only
an equalization of return between different employments of capital. — Progress & Poverty — Book
III, Chapter 3: The Laws of Distribution: Of Interest and the Cause of Interest
... go to "Gems from George"
Louis Post: Outlines of Louis F. Post's
Lectures, with Illustrative Notes and Charts (1894)
I. THE SINGLE TAX DEFINED
The practical form in which Henry George puts the idea of appropriating
economic rent to common use is "To abolish all taxation save that upon
This is now generally known as "The Single Tax."2 Under its operation
all classes of workers, whether manufacturers, merchants, bankers, professional
men, clerks, mechanics, farmers, farm-hands, or other working classes, would,
as such, be wholly exempt. It is only as men own land that they would be
taxed, the tax of each being in proportion, not to the area, but to value
of his land. And no one would be compelled to pay a higher tax than others
if his land were improved or used while theirs was not, nor if his were better
improved or better used than theirs.3 The value of its improvements would
not be considered in estimating the value of a holding; site value alone
would govern.4 If a site rose in the market the tax would proportionately
increase; if that fell, the tax would proportionately diminish.
The single tax may be concisely described as a tax upon land alone, in the
ratio of value, irrespective of improvements or use. ...
Indirect taxation costs the real tax-payers much more than the government
receives, partly because the middlemen through whose hands taxed commodities
pass are able to exact compound profits upon the tax,8 and partly on account
of extraordinary expenses of original collection;9 it favors corruption
in government by concealing from the people the fact that they contribute
to the support of government; and it tends, by obstructing production,
to crush legitimate industry and establish monopolies.10 The questions
it raises are of vastly more concern than is indicated by the sum total
of public expenditures.
8. A tax upon shoes, paid in the first instance by shoe manufacturers, enters
into manufacturers' prices, and, together with the usual rate of profit upon
that amount of investment, is recovered from wholesalers. The tax and the
manufacturers' profit upon it then constitute part of the wholesale price
and are collected from retailers. The retailers in turn collect the tax with
all intermediate profits upon it, together with their :usual rate of profit
upon the whole, from final purchasers -- the consumers of shoes. Thus what
appears on the surface to be a tax upon shoe manufacturers proves upon examination
to be an indirect tax upon shoe consumers, who pay in an accumulation of
profits upon the tax considerably more than the government receives.
The effect would be the same if a tax upon their leather output were imposed
upon tanners. Tanners would add to the price of leather the amount of the
tax, plus their usual rate of profit upon a like investment, and collect
the whole, together with the cost of hides, of transportation, of tanning
and of selling, from shoe manufacturers, who would collect with their profit
from retailers, who would collect with their profit from shoe consumers.
The principle applies also when taxes are levied upon the stock or the sales
of merchants, or the money or credits of bankers; merchants add the tax with
the usual profit to the prices of their goods, and bankers add it to their
interest and discounts.
For example; a tax of $100,000 upon the output of manufacturers
or importers would, at 10 per cent as the manufacturing profit, cost
at a profit of 10 per cent to wholesalers it would cost retailers $121,000,
and at 20 percent profit to retailers it would finally impose a tax burden
of $145,200 — being 45 per cent more than the government would
get. Upon most commodities the number of profits exceeds three, so that
taxes may frequently cost as much as 100 per cent, even when imposed
only upon what are commercially known as finished goods; when imposed
also, the cost of collection might well run far above 200 percent in
addition to the first cost of maintaining the machinery of taxation.
It must not be supposed, however, that the recovery of indirect taxes from
the ultimate consumers of taxed goods is arbitrary. When shoe manufacturers,
or tanners, or merchants add taxes to prices, or bankers add them to interest,
it is not because they might do otherwise but choose to do this; it is because
the exigencies of trade compel them. Manufacturers, merchants, and other
tradesmen who carry on competitive businesses must on the average sell their
goods at cost plus the ordinary rate of profit, or go out of business. It
follows that any increase in cost of production tends to increase the price
of products. Now, a tax upon the output of business men, which they must
pay as a condition of doing their business, is as truly part of the cost
of their output as is the price of the materials they buy or the wages of
the men they hire. Therefore, such a tax upon business men tends to increase
the price of their products. And this tendency is more or less marked as
the tax is more or less great and competition more or less keen.
It is true that a moderate tax upon monopolized products,
such as trade-mark goods, proprietary medicines, patented articles and
is not necessarily shifted to consumers. The monopoly manufacturer whose
prices are not checked by cost of production, and are therefore as a
rule higher than competitive prices would be, may find it more profitable
the burden of a tax that leaves him some profit, by preserving his entire
custom, than to drive off part of his custom by adding the tax to his
usual prices. This is true also of a moderate import tax to the extent
upon goods that are more cheaply transported from the place of production
to a foreign market where the import tax is imposed than to a home market
where the goods would be free of such a tax — products, for instance,
of a farm in Canada near to a New York town, but far away from any Canadian
town. If the tax be less than the difference in the cost of transportation
the producer will bear the burden of it; otherwise he will not. The ultimate
effect would be a reduction in the value of the Canadian land. Examples which
may be cited in opposition to the principle that import taxes are indirect,
will upon examination prove to be of the character here described. Business
cannot be carried on at a loss — not for long.
9. "To collect taxes, to prevent and punish evasions, to check and
countercheck revenue drawn from so many distinct sources, now make up probably
three-fourths, perhaps seven-eighths, of the business of government outside
of the preservation of order, the maintenance of the military arm, and the
administration of justice." — Progress and Poverty, book iv,
10. For a brief and thorough exposition of indirect taxation
read George's "Protection
or Free Trade," ch. viii, on " Tariffs for Revenue."
Whoever calmly reflects and candidly decides upon the merits of indirect
taxation must reject it in all its forms. But to do that is to make a great
stride toward accepting the single tax. For the single tax is a form of direct
taxation; it cannot be shifted.11 ...
3. THE SINGLE TAX FALLS IN PROPORTION TO BENEFITS
To perceive that the single tax would justly measure the value of government
service we have only to realize that the mass of individuals everywhere and now,
in paying for the land they use, actually pay for government service in proportion
to what they receive. He who would enjoy the benefits of a government must use
land within its jurisdiction. He cannot carry land from where government is poor
to where it is good; neither can he carry it from where the benefits of good
government are few or enjoyed with difficulty to where they are many and fully
enjoyed. He must rent or buy land where the benefits of government are available,
or forego them. And unless he buys or rents where they are greatest and most
available he must forego them in degree. Consequently, if he would work or live
where the benefits of government are available, and does not already own land
there, he will be compelled to rent or buy at a valuation which, other things
being equal, will depend upon the value of the government service that the site
he selects enables him to enjoy. 14 Thus does he pay for the service of government
in proportion to its value to him. But he does not pay the public which provides
the service; he is required to pay land-owners.
14. Land values are lower in all countries of poor government
than in any country of better government, other things being equal. They
are lower in cities of poor government, other things being equal, than
in cities of better government. Land values are lower, for example, in
Juarez, on the Mexican side of the Rio Grande, where government is bad,
than in El Paso, the neighboring city on the American side, where government
is better. They are lower in the same city under bad government than
under improved government. When Seth Low, after a reform campaign, was
elected mayor of Brooklyn, N.Y., rents advanced before he took the oath
of office, upon the bare expectation that he would eradicate municipal
abuses. Let the city authorities anywhere pave a street, put water through
it and sewer it, or do any of these things, and lots in the neighborhood
rise in value. Everywhere that the "good roads" agitation of
wheel men has borne fruit in better highways, the value of adjacent land
has increased. Instances of this effect as results of public improvements
might be collected in abundance. Every man must be able to recall some
within his own experience.
And it is perfectly reasonable that it should be so.
Land and not other property must rise in value with desired improvements
in government, because, while any tendency on the part of other kinds
of property to rise in value is checked by greater production, land can
not be reproduced.
Imagine an utterly lawless place, where life and property
are constantly threatened by desperadoes. He must be either a very bold
man or a very avaricious one who will build a store in such a community
and stock it with goods; but suppose such a man should appear. His store
costs him more than the same building would cost in a civilized community;
mechanics are not plentiful in such a place, and materials are hard to
get. The building is finally erected, however, and stocked. And now what
about this merchant's prices for goods? Competition is weak, because
there are few men who will take the chances he has taken, and he charges
all that his customers will pay. A hundred per cent, five hundred per
cent, perhaps one or two thousand per cent profit rewards him for his
pains and risk. His goods are dear, enormously dear — dear enough
to satisfy the most contemptuous enemy of cheapness; and if any one should
wish to buy his store that would be dear too, for the difficulties in
the way of building continue. But land is cheap! This is the
type of community in which may be found that land, so often mentioned
and so seldom seen, which "the owners actually can't give away,
But suppose that government improves. An efficient administration
of justice rids the place of desperadoes, and life and property are safe.
What about prices then? It would no longer require a bold or desperately
avaricious man to engage in selling goods in that community, and competition
would set in. High profits would soon come down. Goods would be cheap — as
cheap as anywhere in the world, the cost of transportation considered.
Builders and building materials could be had without difficulty, and
stores would be cheap, too. But land would be dear! Improvement
in government increases the value of that, and of that alone.
Now, the economic principle pursuant to which land-owners are thus able
to charge their fellow-citizens for the common benefits of their common government
points to the true method of taxation. With the exception of such other monopoly
property as is analogous to land titles, and which in the purview of the
single tax is included with land for purposes of taxation, 15 land is the
only kind of property that is increased in value by government; and the increase
of value is in proportion, other influences aside, to the public service
which its possession secures to the occupant. Therefore, by taxing land in
proportion to its value, and exempting all other property, kindred monopolies
excepted — that is to say, by adopting the single tax — we should
be levying taxes according to benefits.16
15. Railroad franchises, for example, are not usually
thought of as land titles, but that is what they are. By an act of sovereign
authority they confer rights of control for transportation purposes over
narrow strips of land between terminals and along trading points. The
value of this right of way is a land value.
16. Each occupant would pay to his landlord the value
of the public benefits in the way of highways, schools, courts, police
and fire protection, etc., that his site enabled him to enjoy. The landlord
would pay a tax proportioned to the pecuniary benefits conferred upon
him by the public in raising and maintaining the value of his holding.
And if occupant and owner were the same, he would pay directly according
to the value of his land for all the public benefits he enjoyed, both
intangible and pecuniary.
And in no sense would this be class taxation. Indeed, the cry of class
taxation is a rather impudent one for owners of valuable land to raise against
the single tax, when it is considered that under existing systems of taxation
they are exempt. 17 Even the poorest and the most degraded classes in the
community, besides paying land-owners for such public benefits as come their
way, are compelled by indirect taxation to contribute to the support of government.
But landowners as a class go free. They enjoy the protection of the courts,
and of police and fire departments, and they have the use of schools and
the benefit of highways and other public improvements, all in common with
the most favored, and upon the same specific terms; yet, though they go through
the form of paying taxes, and if their holdings are of considerable value
pose as "the tax-payers" on all important occasions, they,
in effect and considered as a class, pay no taxes, because government, by
increasing the value of their land, enables them to recover back in higher
rents and higher prices more than their taxes amount to. Enjoying the same
tangible benefits of government that others do, many of them as individuals
and all of them as a class receive in addition a tangible pecuniary benefit
which government confers upon no other property-owners. The value of their
property is enhanced in proportion to the benefits of government which its
occupants enjoy. To tax them alone, therefore, is not to discriminate against
them; it is to charge them for what they get.18
17. While the landholders of the City of Washington were
paying something less than two per cent annually in taxes, a Congressional
Committee (Report of the Select Committee to Investigate Tax Assessments
in the District of Columbia, composed of Messrs. Johnson, of Ohio, Chairman,
Wadsworth, of New York, and Washington, of Tennessee. Made to the House
of Representatives, May 24, 1892. Report No. 1469), brought out
the fact that the value of their land had been increasing at a minimum
rate of ten per cent per annum. The Washington land-owners as a class
thus appear to have received back in higher land values, actually and
potentially, about ten dollars for every two dollars that as land-owners
they paid in taxes. If any one supposes that this condition is peculiar
to Washington let him make similar estimates for any progressive locality,
and see if the land-owners there are not favored in like manner.
But the point is not dependent upon increase in the capitalized
value of land. If the land yields or will yield to its owner an income
in the nature of actual or potential ground rent, then to the extent
that this actual or possible income is dependent upon government the
landlord is in effect exempt from taxation. No matter what tax he pays
on account of his ownership of land, the public gives it back to him
to that extent.
18. Take for illustration two towns, one of excellent
government and the other of inefficient government, but in all other
respects alike. Suppose you are hunting for a place of residence and
find a suitable site in the town of good government. For simplicity of
illustration let us suppose that the land there is not sold outright
but is let upon ground rent. You meet the owner of the lot you have selected
and ask him his terms. He replies:
"Two hundred and fifty dollars a year."
"Two hundred and fifty dollars a year!" you
exclaim. "Why, I can get just as good a site in that other town
for a hundred dollars a year."
"Certainly you can," he will say. "But
if you build a house there and it catches fire it will burn down; they
have no fire department. If you go out after dark you will be 'held up'
and robbed; they have no police force. If you ride out in the spring,
your carriage will stick in the mud up to the hubs, and if you walk you
may break your legs and will be lucky if you don t break your neck; they
have no street pavements and their sidewalks are dangerously out of repair.
When the moon doesn't shine the streets are in darkness, for they have
no street lights. The water you need for your house you must get from
a well; there is no water supply there. Now in our town it is different.
We have a splendid fire department, and the best police force in the
world. Our streets are macadamized, and lighted with electricity; our
sidewalks are always in first class repair; we have a water system that
equals that of New York; and in every way the public benefits in this
town are unsurpassed. It is the best governed town in all this region.
Isn't it worth a hundred and fifty dollars a year more for a building
site here than over in that poorly governed town?"
You recognize the advantages and agree to the terms.
But when your house is built and the assessor visits you officially,
what would be the conversation if your sense of the fitness of things
were not warped by familiarity with false systems of taxation? Would
it not be something like what follows?
"How much do you regard this house as worth? " asks
"What is that to you?" you inquire.
"I am the town assessor and am about to appraise
your property for taxation."
"Am I to be taxed by this town? What for?"
"What for?" echoes the assessor in surprise. "What
for? Is not your house protected from fire by our magnificent fire department?
Are not you protected from robbery by the best police force in the world?
Do not you have the use of macadamized pavements, and good sidewalks,
and electric street lights, and a first class water supply? Don't you
suppose these things cost something? And don't you think you ought to
pay your share?"
"Yes," you answer, with more or less calmness; "I
do have the benefit of these things, and I do think that I ought to pay
my share toward supporting them. But I have already paid my share for
this year. I have paid it to the owner of this lot. He charges me two
hundred and fifty dollars a year -- one hundred and fifty dollars more
than I should pay or he could get but for those very benefits. He has
collected my share of this year's expense of maintaining town improvements;
you go and collect from him. If you do not, but insist upon collecting
from me, I shall be paying twice for these things, once to him and once
to you; and he won't be paying at all, but will be making money out of
them, although he derives the same benefits from them in all other respects
that I do." ...
Note 71: Farmers, millers, bakers, ranchers, butchers, fishermen, hunters,
makers of food-producing implements, food merchants, railroad men, sailors,
coal miners, metal miners, builders, bankers who by exchanging commercial
paper facilitate trade. together with clerks, bookkeepers, foremen, journeymen,
common laborers, seeking for them instead of their seeking for work. To
specify the labor that would be profitably affected by this demand would
involve the cataloguing of all workmen, all business men, and all professional
men who either directly or indirectly are connected with food industries,
and the naming of every grade of such labor, from the newest apprentice
to the largest supervising employer.
Would not this be putting an end to "hard times"? For what is
the most striking manifestation of "hard times"? Is it not "scarcity
of work"? Is it not that there are more men seeking work than there
are jobs to do? Certainly it is. And to say that, is not to limit "hard
times" to hired men. The real trouble with the business man
when he complains of "hard times" is that people do not employ him as much
as he expects to be employed. Work is scarce with him, just as with those
he employs, or as he would phrase it, "business is slack."
Let there be ten men and but nine jobs, and you have "hard times." The
tenth man will be out of work. He may be a good union man who abhors a "scab" and
will not take work away from his brother workman. So he hunts for a job which
does not exist, until all his savings are gone. Still he will not be a "scab," and
he suffers deprivation. But after a while hunger gets the better of him,
and he takes one of the nine jobs away from another man by underbidding.
He becomes a "scab." And who can blame him? any one would rather
be a "scab" than a corpse. Then the man who has lost his place
becomes a "scab" too, and turns out some one else by underbidding.
And so it goes again and again until wages fall so low that they but just
support life. Then the poorhouse or a charitable institution takes care of
the tenth man, who thereafter serves the purpose of preventing arise in wages.
Meanwhile, diminished purchasing power, due to low wages, bears down upon
But let there be ten jobs and but nine men. Conditions would instantly reverse,
Instead of a man all the time seeking for a job, a job would be all the time
seeking for a man; and wages would rise until they equaled the value of the
work for which they were paid. And as wages rose purchasing power would rise,
and business in general would flourish.
If demand freely directed production, there would always be ten
jobs for nine men, and no longer only nine jobs for ten men. It could not
while any wants were unsatisfied. ... read
Louis Post: Outlines of Louis F. Post's
Lectures, with Illustrative Notes and Charts (1894) — Appendix:
Q5. If the full rental value were taken would it not produce too much revenue
and encourage official extravagance? If only what was needed for an economical
administration of government, would not land still have a speculative value?
A. In the first part of your question you are thinking of a vast centralized
government as administering public revenues. With the revenues raised locally,
each locality being assessed for its contribution to the state and the nation,
there would be no such danger. The possibility of this danger would
be still further reduced by the fact that private business would then offer
pecuniary prizes than would public office, wherefore public office would
be sought for purer purposes than as money-making opportunities. As to the
second part of your question, the speculative value of land would be wiped
out as soon as the tax on land values was high enough and that on improvement
values low enough to make production more profitable than speculation. And
this point would be reached long before the whole rental value was absorbed
Q46. How can it be possible that speculative land values cause business
depressions when, as any business man will tell you, the whole item of land
value — whether ground rent or interest on purchase money — is
one of the smallest items in every business?
A. You overlook the fact that the item of speculative rent is the only item
which the business man does not get back again. The cost of his goods, the
expense of clerk hire, the rent of his building, the wear and tear of implements,
are all received back, in the course of normal business, in the prices of
his goods. Even his ground rent, to the extent that it is normal (i.e., what
it would be if the supply of land were determined alone by land in use, and
not affected by the land that is held out of use for higher values), comes
back to him in the sense that his aggregate profits are that much greater
than they would be where ground rent was less. But the extra ground rent
which he is obliged to pay, in consequence of the abnormal scarcity of land,
is a dead weight; it does not come back to him. Therefore, even if infinitesimal
in amount, as compared with the other expenses of his business — and
that is by no means admitted — it is the one expense which may break
a thriving business down. Besides, it is not alone the ground rent paid by
the business man for his location that bears down upon his business prosperity;
the weight of abnormally high land values in general presses upon business
in general, and by obstructing the flow of trade forces the weaker business
units to the wall. It is not altogether safe to deduce general economic principles
from the ledgers of particular business houses. ... read the book
Charles B. Fillebrown: A Catechism
of Natural Taxation, from Principles of
Natural Taxation (1917)
Q41. Why would the single tax be an improvement upon present systems
A. Because: (1) The taking for public uses of that value which justly belongs
to the public is not a tax; (2) it would relieve all workers and capitalists
of those taxes by which they are now unjustly burdened, and (3) it would make
unprofitable the holding of land idle.
... read the whole article
Fred Foldvary: Geo-Rent: A Plea to Public
“Land” includes all earthly
space, not just solid surfaces. Land
includes water areas and the electro-magnetic spectrum, but the most
important potential source of public revenue from land is real estate
The characteristics of land are well known.
- Land has a fixed supply. The space within some boundary
can be neither expanded nor contracted.
- Land is fixed not only in extent but also in mobility,
people, who can migrate, or capital goods, which are more or less
- Land cannot be imported. Even in the case of buildings and
permanent structures, they differ from land in that they are created by
human enterprise, and in that their creators decide where the structure
will be located.
- Finally, land is not something to be discovered. Once
figured out that the earth was a sphere, and its approximate size, they
knew that the land was “out there.” Entrepreneurship
is vital in
discovering the best routes to land areas, it is vital in discovering
the potential value of those areas, but it is not vital in discovering
that the land is out there. That was known all along. Read
the entire article
Fred E. Foldvary — The
Ultimate Tax Reform:
Public Revenue from Land Rent
Some may wonder why anyone would own land if most of the rent is taxed away.
One would own land for the same reason people rent land: in order to
use it. Ownership also gives the title holder rights of possession, the ability
control the use of the site indefinitely.
Today there is also a speculative motive for owning land, to profit from the
increase in its price. With most of the geo-rent tapped for public revenue,
the speculative motive would be dampened. That would benefit the economy, since
with a lower price of land, funds that now go to buy land would instead go
to build more capital goods, hire more labor, or provide better training.
The tax on the geo-rent would be borne by the owner, not the tenant. If
a landlord, who was already charging what the market could bear, tried to
on the tax, he would face vacancies. Some say that since the tax would
be invisible to renters, the link between using public services and paying
for them would
be broken. But productive public services increase the geo-rent, so that
link is there. If government revenue is wasted, then indeed this does not
rent, and a land value tax without corresponding benefits would reduce
land value. Pressure for a productive use of public revenue would come from
landowners more than from the tenants. But that is no different than the
situation today; poor folks pay little or no income tax and no property tax,
they get government assistance. This is an argument not against the use
of rent, but in favor of privatizing government programs. In the private
the link between ownership and control is stronger. ...
Land value taxation would shift economic power back to state and local governments.
Land is suited to local taxation because — unlike enterprise, capital,
and labor — it cannot be moved. Land is also the logical source of
local public finance because it does not burden enterprise, so that entrepreneurs
don’t even want to run from it. Indeed, entrepreneurs welcome a shift
to land value taxation, not only because their economic profits are not taxed
if all taxation is on land values, but also because land value taxation reduces
the price of land, so they do not need to borrow so much when they invest
funds in an enterprise. ... read the whole
Weld Carter: An Introduction to
Another area in which George
applied these inherent differences
between land and products was the field of taxation. To determine the
incidence of taxation, George had to know what was to be taxed,
products or the value of land. In each case he traced out the effect
from the essential nature of the thing to be taxed: "...all taxes
upon things of unfixed quantity increase prices, and in the course of
exchange are shifted from seller to buyer, increasing as they go.
...If we impose a tax upon buildings, the users of buildings must
finally pay it, for the erection of buildings will cease until
building rents become high enough to pay the regular profit and the
tax besides. ...In this way all taxes which add to prices are shifted
from hand to hand, increasing as they go, until they ultimately rest
upon consumers, who thus pay much more than is received by the
government. Now, the way taxes raise prices is by increasing the cost
of production, and checking supply. But land is not a thing of human
production, and taxes upon...[land value] cannot check
supply. Therefore, though a tax on...[land value] compels the
land owners to pay more, it gives them no power to obtain more for
the use of their land, as it in no way tends to reduce the supply of
land. On the contrary, by compelling those who hold land on
speculation to sell or let for what they can get, a tax on land
values tends to increase the competition between owners, and thus to
reduce the price of land."
Here, then is another derivative difference between land and
products, according to George: taxation on products causes an
increase in the price of products; taxation on the value of land
causes a drop in the price of land. ... read
the whole article
Mason Gaffney: Land as a
Distinctive Factor of Production
- a. Financing
difficult to impossible.
Few assets are priced so high as
relative to cash flow.
Financing a purchase of land therefore presents an unusually high
barrier to the builder, new businessman or hopeful homeowner.
flow is seldom adequate to cover interest on a full loan, let alone the
principal. The buyer must find the excess elsewhere. A poor
credit rating raises the interest rate and increases the
difficulties. Even a middling credit rating is not good enough to
open entry to most businesses, and a weak one excludes a large minority
- b. Land purchase
Because market agents expect
land to last
forever they price it
accordingly, high enough so the net cash flow just covers interest on
price, with nothing left over to pay for the principal. Thus the
land buyer will never normally (or "in equilibrium") pay for it
from its own cash flow, as he will pay for capital assets. The
debtor will never retire the loan from the cash flow of the land, but
only from other saving, or from new windfalls not expected at time of
purchase. A new buyer with no equity, therefore, is a bad credit
risk and gets short shrift at the bank. ...
Those of poor credit ratings are
peculiarly handicapped in the
market for land titles. This is because the carrying cost of land
is interest, and because there is a structure of interest rates based
borrowers' credit ratings. ...
Those with existing cores of rent-yielding land -- “existing
enjoy a continual flow of discretionary funds they can use to buy more
land. The advantage of a head start snowballs over time.
Buying with equity funds is only the beginning. Land is
for extending credit. The "sections" go to the banks for
accommodation to buy the "quarters." As Rainer Schikele wrote,
"The basis of credit is not marginal productivity, but collateral
security." A major factor giving one a good credit rating is the prior
ownership of land. ....
Massed control of
land is the most
natural base for monopolizing
markets because land is limited. Buying land always does double
duty: when A expands he ipso facto
preempts opportunities from B. For
example, a chain of service stations with most of the best comers in a
town has market power, the more so if it also holds a large share of
sources, of refinery sites, of "offset rights" to pollute air,
transmission rights of way, harbor sites, and other such limited
Preemption is not always just a by-product of expansion; it may
main point. For example, in 1993 Builders'
Emporium, a large chain of California hardware stores with large
lots in good locations, closed down and sold out. The sites were
bought up by the largest grocery chain in southern California, Vons
Company. According to news reports, this is "a shut-out strategy
against competitors." Vons will convert 6-8 Emporium stores to
Vons' markets, and "hold onto the others until commercial rents rebound
-- then market them to non-rivals."
Salomon Bros. analyst Jonathan Ziegler, far from being shocked,
this as "ingenious." "You're controlling who's in your market
area." Ralphs, another grocery chain, had been looking for sites
and is now shut out. The stores
remain empty today; the land idle. Read the whole article
Nic Tideman: Using Tax
Policy to Promote Urban Growth
Urban growth is desired because it raises peoples' incomes.
market economy, incomes can be divided into components derived from
four factors of production:
- the rent of land,
- the wages of labor,
- the interest received from owning capital, and
- the profits of entrepreneurship (the activity of choosing
investments and organizing production).
Thus a successful urban growth strategy in a market economy
either increase the amounts of land, labor, capital and
entrepreneurship that are used in a city or increase the payments
that are made per unit of each factor, or both.
The land that a city has is fixed (or if it changes, it does
the expense of other administrative units). Therefore, with respect
to land, socially productive urban growth means adopting policies
that raise the productivity of land. Labor, on the other hand, is
reasonably mobile, and capital is highly mobile. Entrepreneurship
springs up and fades away with the rise and fall of opportunities.
Therefore, in a market economy, the payments that must be made to
attract these factors are substantially outside the control of a
city. Thus the growth of a city with respect to labor, capital and
entrepreneurship is achieved primarily by making the city a place
that attracts more of these factors, taking the rates of wages,
interest and profits that must be paid to attract them as given by
Tax policy is critical for urban growth because taxes on the
earnings of labor, capital and entrepreneurship drive these factors
away. A city that desires to grow should refrain from taxing wages,
interest or profits and concentrate its taxes on land, which does not
have the option of moving away.
Certain other sources of public revenue, in addition to the
of land, have the characteristic of not discouraging growth. These
sources of revenue involve either charging people for using scarce
opportunities that no one created, as with land, or charging people
for the costs that their actions impose on others.
A city that wishes to grow should confine its search for
to these sources. In this way it will attract more labor, capital and
entrepreneurship, thereby raising the rent of land, which can be
collected publicly without discouraging growth.
Additions to the stock of capital are extremely important for
urban growth, because of the impact of abundant capital on wages and
rents. When capital is abundant, labor and land are more productive,
and the more productive they are, the higher wages and rents are. ...
... Every activity that is
continued should pass a test of providing adequate value for money.
Most of the worthwhile activities of local governments raise the
rental value of the land in the vicinity of the activity by enough to
pay a substantial fraction if not all of the costs of the activity.
Thus the rental value of land is a natural first source of
financing for local public expenditures.
Making the rental value of land a principal source of local
revenue has both an equity rationale and an efficiency rationale. The
equity argument for social collection of the rent of land is founded
on a recognition that the rental value of land has three sources.
- Part of the rental value
of land is the gift of nature--the fertility
of soil, the value of good rivers and harbors, the depletable value
of minerals, and so on. This part of the rental value of land should
be collected publicly because no individual has a just claim to more
than a proportionate share of it. Public collection is just either if
it is followed by an equal distribution to all citizens or by
spending on activities that provide equal benefits to all.
- A second part of the
rental value of land comes from the provision
of public services. The local agencies that provide these
can justly claim the increase in the rental value of land that
results from their activities.
- A third part of the
rental value of any particular site arises
from private activities that are conducted in the vicinity of that
site. Social collection of this part of the rental value of
particularly appropriate if this money is used to reward those
private activities according to how much they increase the rental
value of land.
The efficiency argument for social collection of the rent of
has two parts.
- First, the rental value
of land has the rare quality of being a source of public revenue that
does not discourage productive activity. If people are taxed
according to their labor earnings, they can be expected to work less,
and to tend to move from the places that tax them. If people are taxed
on their investments and savings, they can be expected to save and
invest less, and to find it attractive to put their savings and
investments in other places where they will not be taxed as much. But
when the rental value of land is collected, no one will reduce the
amount of land in existence, and no one will move his land elsewhere.
Thus social collection of the rent of land does not reduce the
productivity of an economy in the way that most other sources of public
- The second part of the
efficiency argument is that social collection of the rent of land tends
to make land more available to those who want to start new enterprises.
When the rent of land is
not collected publicly, those who have rights to land will tend to
ignore the possibility of releasing it to someone who might make better
use of it. On the other hand, if those who have rights to land
are required to make annual payments equal to the market value of the
rights they hold, then these continuing payments will induce people to
ask themselves regularly whether they ought to release the land to
someone who can make better use of it.
To achieve the potential efficiency of public revenue from
it is important that people not be charged more for the use of land,
just because they happen to be using it particularly productively.
The rental value of land should be reassessed regularly, the values
that are determined should vary smoothly with location, and they
should be available for public inspection so that all users of land
can see that they are being charged amounts commensurate with what
their neighbors are being charged.
Social collection of the rent of land also facilitates the
privatization of land. If every user of land is charged annually
according to the rental value of the land that he or she holds, then
it is possible to undertake a just privatization of land simply by
passing out titles to the current users of land.
No one will be disadvantaged by not receiving land. Future
generations will not be deprived by not having been awarded shares.
And the community will have a continuing income from the rent of
efficiency that is entailed in using the rent of land to
finance public activities applies to certain other sources of public
revenue as well:
1. Charges on any publicly granted privileges, such
as the exclusive right to use a portion of the frequency spectrum for
radio and TV broadcasts.
2. Payments for extractions of natural resources. Such
payments should be set at levels that yield the greatest possible
revenue of the resources, in present value terms.
3. Taxes on pollution. Every individual or enterprise that
pollutes the air, water or ground should be required to pay the
estimated cost of the pollution it generates. The effect of pollution
on the rental value of surrounding land is one possible measure of its
4. Taxes on any other activities that reduce the rental
value of surrounding land.
5. Taxes on activities such as driving or parking in
crowded streets, where one person's activities reduce opportunities for
others. The administration of such charges may be so expensive that it
is not worth implementing them, but if the administration can be
handled sufficiently cheaply, these charges are efficient to the extent
that they only charge people for costs imposed on others.
6. Taxes on activities, such as the consumption of alcohol,
which impose costs on others (e.g., higher traffic fatalities).
7. Charges for local public services, such as water,
electricity, sewer connections, etc. It is not generally desirable to
make every service completely self-financing. Rather, what is desirable
is that each user be required to pay the marginal cost of the service
he receives. Extensions of service networks are efficient when they
increase publicly collected land rents by enough to cover the costs not
covered by user charges.
8. A self-assessed tax on permanent improvements to land,
at a very low rate (perhaps 1/10 of 1% per year). With a self-assessed
tax, each possessor of land names a price at which he would be willing
to part with the land he possesses (and any immovable improvements). He
pays a tax proportional to the value he names, and anyone who wishes to
may take over possession at that price. The value of such a tax is that
it makes it much easier to assemble land for redevelopment, and to
identify appropriate compensation when land is taken for public
of the above taxes are positively beneficial and should be
collected even if the revenue is not needed for public purposes. Any
excess can be returned to the population on an equal per capita
basis. If these attractive sources of revenue do not suffice to
finance necessary public expenditures, then the least damaging
additional tax would probably be a "poll tax," a uniform charge on
all residents. If some residents are regarded to be incapable of
paying such a tax, then the next most efficient tax is a proportional
tax on income up to some specified amount. Then there is no
disincentive effect for all persons who reach the tax limit. The next
most efficient tax is a proportional tax on all income.
It is important not to tax
the profits of corporations. Capital
moves from where it is taxed to where it is not, until the same rate
of return is earned everywhere. If the city refrains from taxing
corporations they will invest more in St. Petersburg. Wages will be
higher, and the rent of land, collected by the government, will be
higher. The least damaging tax on corporations is one that provides a
complete write-off of investments, with a carry-over of tax credits
to future years. Such a tax has the effect of making the government a
partner in all new investments. With such a tax the government
provides, through tax credits, the same share of costs that it later
receives in revenues. However, the tax does diminish the incentive
for entrepreneurial activity, and it raises no revenue when
investment is expanding rapidly. Furthermore, the efficiency of such
a tax requires that everyone believe that the tax rate will never
change. Thus it is best not to tax the profits of corporations at
all. If the people of St. Petersburg want to share in the profits of
corporations, then they should invest directly in the corporations,
either privately or publicly. The residents of St. Petersburg would
be best served by refraining from taxing the profits of corporations.
Creating a place where profits are not taxed can be expected to
attract so much capital that the resulting rises in wages and in
government-collected rents will more than offset what might have been
collected by taxing profits.
The taxes that promote urban growth have at least one of two
A city that confines itself to these taxes can expect to
attract capital rapidly, and therefore to experience rapid growth,
raising the wages of its citizens and the publicly-collected rent of
- The first feature that a growth-promoting tax can have is
that it can serve to allocate a naturally occurring resource among
competing potential users. Charges for the use of land, for the use
of the frequency spectrum and for depleting natural resources share
- The second feature that a growth-promoting tax can have
is that of being a charge for the costs imposed on the city by the
person who pays the tax. This feature is shared by taxes on
pollution, taxes on other activities that reduce the value of
surrounding land, taxes on imposing congestion and other costs on
other residents of the city, charges for the marginal cost of
publicly provided services, and a self-assessed tax on property,
reflecting the hindrance to future growth represented by existing
...Read the whole article
Nic Tideman: Market-Based Systems
for Assigning Rental Value to Land
The idea of renting a site to the highest bidder is conceptually more complex
than selling it to the highest bidder, because different users can be expected
to desire to use a site for different spans of time. Suppose that one person
bids 1,000 rubles per year for 20 years and another bids 1,100 rubles per year
for 30 years. Which bid is higher? To compare these bids, one must know what
someone else would pay for the use of the site twenty years hence, and one
must also know the appropriate discount rate for the next thirty years. These
difficulties of comparing bids for different terms can be avoided by renting
sites just one year at a time. This annual rent-setting procedure also guarantees
future generations that they will not be disadvantaged by being bound by the
terms of agreements in which they did not participate, and which disposed of
their heritage for a small
fraction of its value.
The idea of renting sites one year at a time may sound unpromising at first.
The efficient use of land generally requires improvements that last for many
years. How can entrepreneurs be expected to improve land if they are only permitted
to rent it for one year at a time? The answer is that entrepreneurs can be
expected to make durable improvements to land even under these circumstances,
provided that they have the opportunity to continue to use the land they have
improved, for a price that is determined in a fair and impartial manner.
The risks associated with uncertainties are customarily borne, for a price,
by entrepreneurs. Uncertainty in the future price of using land, like uncertainty
in the future price of any other input or product, can be accommodated by entrepreneurs.
The kind of uncertainty that will significantly deter potential investors
is uncertainty associated with a climate that invites tax increases or other
rule changes that extract additional money from investors, taking advantage
of the fact that investment in durable improvements has occurred. To attract
investment, governments must do what they can to commit themselves not to take
confiscatory action once investment has occurred. This commitment is accomplished
by settled rules, by public respect for property in a democratic system, and
by a system of public finance that provides adequate revenue for necessary
expenditures and curbs the tendency of politicians to spend excessively. The
future rent of land can accordingly be uncertain without discouraging investment,
provided that the process used to determine rent is settled and does not confiscate
The question at issue can thus be restated as, "What process can be used to
determine the rental value of land, one year at a time, in such a way that
the full rent of land is collected, while at the same time insuring that entrepreneurs
are not required to pay extra amounts by virtue of having made durable improvements
to land?" ...
What is new is the suggestion regarding how a society can receive, in all
future years, the full rental value of land that it turns over to private management:
Just charge for each site, in each year, the amount people offer for the use
of similar land for that year when they know that future rents will be determined
in the same way. By collecting all rent without burdening those who improve
simple rule maintains land as the heritage of all generations. ... read the whole article