While Georgists believe that taxing land value is the fairest of all the taxes we could use to fund public spending, most Georgists also believe that revenue sharing is absolutely vital. There are many places in America where local land rent is not high enough to support public education adequately. But there are also many places in America that have awesomely high land rents, which could be used to finance public education in other parts of the country, much the way federal spending now is distributed geographically very differently from the collection of income taxes.

In many towns, particularly in the northeast, the superintendent of schools is paid far more than the mayor is. This is in part related to the fact that the superintendent of schools can have more influence on local land values than the mayor can: homebuyers will flock to towns whose educational offerings are perceived as above average (whether the relevant measure is the percentage of students passing various tests, graduating from high school, attending college or admitted to Ivy League colleges.) The peculiar part? It is the retiree leaving town for Florida who reaps the benefit, in the form of a windfall profit on his residence. Georgists see this as perverse!

Everett Gross: Explaining Rent

Sometimes it's difficult for people to understand the meaning of "rent" as an economic concept. One way I have of explaining it doesn't use the word rent. I just use a little analogy.

I'm from Crete, Nebraska. It's a small town of 5,000 people.

Suppose a man comes to Crete, and he wants to start a business. He needs a building, but first he needs a piece of ground to build this new building on. So he looks up a real estate agent, describes what he wants, and the real estate agent shows him a parcel that's just right for his needs. The man asks the agent, "All right, now how much money do you want for this land?" The agent says, "It's worth $50,000." The man says, "Why is it worth $50,000?" And the real estate agent points out that "The school is good, the roads are good, the police department is good, the rescue crew is good and very fast, and business is good here."

So the man says "Yeah, I believe that $50,0000 is a fair price. I'll take it. How do I pay the $50,000 to the school people, and the road people, and the police department? To whom do I pay the $50,000?" And the real estate agent says, "Oh no. You don't pay it to them. You pay it to the person who owned the land before."

The man says, "But who supports the schools, and the roads, and the police, and the other good things?" And the real estate agent says, "If you build, then you'll pay for them again."

The buyer then asks, "And what will the previous owner do for me for my $50,000?"  The real estate man answers, "Nothing!  Nothing at all!"

Now I don't need to use the word "rent" in that explanation. ... see the whole essay, including Dave Wetzel's version

Nic Tideman: Revenue Sharing under Land Value Taxation

H.G. Brown: Significant Paragraphs from Henry George's Progress & Poverty: 11 Effect of Remedy Upon the Sharing of Wealth (in the unabridged P&P: Part IX Effects of the Remedy — Chapter 2: Of the Effect Upon Distribution and Thence Upon Production

But great as they thus appear, the advantages of a transference of all public burdens to a tax upon the value of land cannot be fully appreciated until we consider the effect upon the distribution of wealth.

Tracing out the cause of the unequal distribution of wealth which appears in all civilized countries, with a constant tendency to greater and greater inequality as material progress goes on, we have found it in the fact that, as civilization advances, the ownership of land, now in private hands, gives a greater and greater power of appropriating the wealth produced by labor and capital.

Thus, to relieve labor and capital from all taxation, direct and indirect, and to throw the burden upon rent, would be, as far as it went, to counteract this tendency to inequality, and, if it went so far as to take in taxation the whole of rent, the cause of inequality would be totally destroyed. Rent, instead of causing inequality, as now, would then promote equality. Labor and capital would then receive the whole produce, minus that portion taken by the state in the taxation of land values, which, being applied to public purposes, would be equally distributed in public benefits.

That is to say, the wealth produced in every community would be divided into two portions.

• One part would be distributed in wages and interest between individual producers, according to the part each had taken in the work of production;
• the other part would go to the community as a whole, to be distributed in public benefits to all its members.

In this all would share equally — the weak with the strong, young children and decrepit old men, the maimed, the halt, and the blind, as well as the vigorous. And justly so — for while one part represents the result of individual effort in production, the other represents the increased power with which the community as a whole aids the individual.

Thus, as material progress tends to increase rent, were rent taken by the community for common purposes the very cause which now tends to produce inequality as material progress goes on would then tend to produce greater and greater equality. ... read the whole chapter

Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894) — Appendix: FAQ

Q3. In an interior or frontier town, where land has but little value, how would you raise enough money for schools, highways, and other public needs?
A. There is no town whose finances are reasonably managed in which the land values are insufficient for local needs. Schools, highways, and so forth, are not local but general, and should be maintained from the land values of the state at large.... read the book

Nic Tideman:  The Morality of Taxation: The Local Case

From a moral perspective, taxation is dubious or worse. We tell our fellow citizens that if they do not pay taxes that we say they owe, their property will be seized or they will be sent to prison. Why do we treat people this way? Is there a justification?

The dubiousness of taxation increases when we consider its origins. Government seems to have originated as roving bandits who learned that total destruction was less profitable than protecting their victims from other bandits and allowing them to keep a fraction of what they produced (Olson, 1993). In time, scheduled partial plunder evolved into taxation. Over the centuries, regimes that started as tyrannies evolved into democracies. The public sector evolved from an apparatus for implementing the will of despots into a mechanism for carrying out democratic decisions. But public finance continues to rely on the power of tax collectors, developed under early tyrants, to coerce citizen to pay taxes. The wrath that citizens feel toward tax collectors is probably the strongest antagonistic feeling that citizens have toward a governmental institution. Why do we allow ourselves to do this to one another?

There is a gentler side of taxation that provides some explanation of our tolerance of this coercion. Taxation can be the way that people achieve their common purposes. People may agree to be taxed so that there will be money to pay for public services that they want. From this perspective, taxation may be considered no more than the dues for belonging to a club that provides people with things that they would rather pay their share of than do without. However, to make this "voluntary exchange" theory of taxation relevant, people must be able to choose freely whether or not to "join the club," to be a citizen of the taxing jurisdiction. With all land claimed by some taxing jurisdiction, the choice isn't exactly free.

The problem of morality in taxation is the following:

• How do we retain the possibility of people pooling their contributions to the cost of services that they agree are worthwhile, while eliminating the possibility of citizens treating their fellow citizens as targets of plunder?
• What are the limits of obligations that we can justly impose on our fellow citizens?
• And how do we set up a structure of government that will ensure that these limits are observed? ...

But to make taxation truly voluntary, the option to leave must be viable. If people could move costlessly from one jurisdiction to another, taking all of their belongings with them, then competition among jurisdictions would tend to eliminate oppressive taxation. This would leave only the fees that people were prepared to pay to have public services (Tiebout, 1956).

Of course, moving will always have some costs, so the ideal will not be attainable. But what can be imagined is a system in which all taxes were local taxes. Then people would not have to move nearly as far to escape from taxes that they regarded as oppressive. Higher levels of government would not need to disappear; if the services that they provide are desired, they could be financed by levies on lower levels of government. ...

Such a conclusion would be unwarranted, because there is a very significant source of public revenue that can survive when localities compete for mobile residents. This source is land. When people are taxed in proportion to the land they possess, no land moves to another locality where taxes are lower. Thus two questions arise:

• Would taxes on land be sufficient to finance the public activities that ought to be undertaken, and
• would such a system be fair? ...

Thus local public services are financed efficiently when users are required to pay marginal costs, and the component of total cost that is not covered by marginal cost charges is financed by levies on land that collect the increases in rental value of land that result from provision of the service. If all citizens in a locality valued the service equally, then every increment in the level of the service that was worthwhile would have a cost that was less than or equal to the sum of the revenue that could be raised from charges for use equal to marginal cost and the increase in the rental value of land in the community that resulted from the availability of the service. When people value the service differently, the increase in the rental value of land that results from the provision of a service will be less than the value of the service to those who receive it. By a criterion of maximizing the real incomes of residents, the best outcome that covers the full cost of a service will involve a level of service somewhat lower than that for which marginal cost is equal to the sum of marginal benefits, along with charges that exceed somewhat the marginal cost of providing the service to additional persons. Still, in general, the combination of user fees approximately equal to marginal cost and taxes on land to finance the remainder of costs is capable of providing financing for local public services that is adequate and reasonably efficient.

Next consider fairness. The fairness of such financing is the fairness of incremental decisions in an environment in which the initial allocation is fair. (It does not provide special opportunities for disadvantaged persons. They would need to be provided for by insurance that operated independently of the provision of public goods.) A person who is treated fairly in the absence of public goods cannot reasonably complain about being required to pay for a service according to its marginal cost, or about have to pay the value that is added to his land by the availability of a public service.

In the latter case, there is an argument that must be answered. A person may say, "It is true that the provision of this public service adds as much to the rental value of my land as I am being taxed, but that is what the service is worth to someone else who might use my land. It's not worth that to me. In fact, the 'service' reduces my well-being."

Here we have a difficulty. We have no way of identifying the value of a service that is provided to a person without his request. If we express a willingness to respond to such statements, people will have a motive for faking a lack of interest in the service in order to reduce their tax bills. If a person can point to some characteristic of his circumstances that would tend to support the claim that he does not value the service (for example, if the service is concerts in the park and the person is deaf, or if the services is a sewer line and the person just put in a new septic system), then we may have an obligation to compensate the person for raising his taxes to pay for something that he does not value. But when the person can point to no such special circumstances, he should bear the cost. People should understand that one of the risks of moving into a community is that their fellow citizens may decide to provide a local public service that most people value but they do not. At worst, the aggrieved person will have to bear the costs of moving (including the psychological costs). Thus if any compensation is offered to people who have characteristics that suggest that they do not value a public service that raises the value of their land, the compensation that they receive should have an upper limit of the loss in the value of things attached to the land (the septic system) plus the financial and psychological costs of moving. While we need to watch out for fakers, these are real costs, and a public service is only worthwhile if its benefits exceed its full costs, including losses in the value of capital and in the human satisfaction of those who did not want change.

The fairness of such a tax system might also be questioned from another perspective. If people are required to pay the costs of the public services that they use, then who will pay for schools?

There are two possible answers.

• One possibility is that people will agree on the value of living in a community where children are well educated, whether they have children or not, and they will find the presence of another child in the community to be a benefit for which the cost of educating the child is not too high a price to pay. In this case, educational expenditures add to the value of land throughout the community, and education can be financed efficiently by land taxes, without requiring students or their parents to pay. Those who pay will be receiving benefits that are equal to what they pay.
• The second possibility is that there will be a consensus that, whether anyone wants to pay or not, education is a birthright of all children. In this case, the birthright can be financed efficiently by a tax on land, since land does not leave town or work less hard when it is taxed.

But is such a tax fair? Consider first a case in which everyone has the same number of children. Then the taxation of land value to finance education is equivalent to the assertion of an equal claim of everybody to land. And there is a good basis for such a claim. No one made the land. The titles to land that we recognize today generally originated in conquest. Our affection for the words of the Declaration of Independence, that "All men are created equal," in conjunction with the recognition that titles to land are privileges that are created by government, should lead us to the implication that we have an obligation to share the benefits of land equally. As Henry George pointed out (1960 [1879], 403-407), the sensible way to assert equal rights to land is not to divide the land equally, but rather to collect the rent of land and use it for public purposes. A tax on land takes for public purposes only what nature, public services, and the growth of communities produce, unlike taxes on labor and capital, which take what people produce and which people may properly resent having taken from them. Thus, at least when everyone has the same number of children, it is fair to finance education by taxing land.

Now consider how the situation changes when people have different numbers of children. Consider two possibilities.

• First, it is possible that additional children provide a benefit to everyone in society, because the number of persons with whom everyone can interact will be greater. If this benefit is as large as the cost of education, then there is no unfairness in paying for the education of all children from public funds.
• On the other hand if the birth of an additional child does not provide general benefits as large as the cost of educating the child, or if it generates crowding costs, then people who have more children than average can rightfully be required to pay those costs.

"But wait!" you may say. "Many people will not be able to afford to pay the cost of educating their children. How can you expect them to do so?"

I would like to turn the question around. If people cannot be expected to pay for educating the children that they ought to be able to have, doesn't that mean that there is some fundamental unfairness in the starting conditions? Is it not the combination of past injustice and current unequal access to natural opportunities that makes us reluctant to require people to pay the full costs of having children? In my conception of justice, we have not adequately compensated for past injustice until we have put people in a position where we are content to oblige them to pay the full costs of their choices.

But there is another potential inequality that needs to be addressed. What if different communities have different amounts of land value per person? Here a distinction in sources of land value must be made. If a community has higher land value because it has built itself into a wonderful place, then it should be allowed to keep that value for itself. On the other hand, if a community has a higher-than-average natural endowment per citizen, then it owes something to communities with lower-than-average natural endowment per citizen. A program of payments among communities to equalize natural endowments per citizen will be both efficient and fair. It will be efficient because in the absence of such a program, people would gravitate to the communities with higher-than-average natural endowments (like Alaska) even when it was socially uneconomic for them to go there. It is fair because it accords with an equal right of all to natural opportunities.

Thus just and efficient local taxation is achieved by the combination of public collection of rent, marginal cost charges for public services, and a program of transfers among communities to equalize natural endowment per citizen. ... Read the whole article

• We have found that a high and burdensome tax rate on improvements will discourage residential construction, create unemployment, penalize home-ownership, aggravate the housing shortage and force up rents.
• Yet a low tax rate on land will have similar if not identical effects: it will lead to a rise in urban land values, which in turn will discourage residential construction, create unemployment, penalize home-ownership, aggravate the housing shortage and force up rents.

But is such a tax fair? Consider first a case in which everyone has the same number of children. Then the taxation of land value to finance education is equivalent to the assertion of an equal claim of everybody to land. And there is a good basis for such a claim. No one made the land. The titles to land that we recognize today generally originated in conquest. Our affection for the words of the Declaration of Independence, that "All men are created equal," in conjunction with the recognition that titles to land are privileges that are created by government, should lead us to the implication that we have an obligation to share the benefits of land equally. As Henry George pointed out (1960 [1879], 403-407), the sensible way to assert equal rights to land is not to divide the land equally, but rather to collect the rent of land and use it for public purposes. A tax on land takes for public purposes only what nature, public services, and the growth of communities produce, unlike taxes on labor and capital, which take what people produce and which people may properly resent having taken from them. Thus, at least when everyone has the same number of children, it is fair to finance education by taxing land. ... read the whole article