and Best Use
When choice sites are put to their highest and best use, the owners of the
property benefit immediately. But equally important, unless we are truly a nation
of individualists, is that the entire community benefits from intense use of
centrally located properties. Can we count the ways?
1. The community benefits because well-developed downtown sites usually
have office, retail or residential space, each of which meets market
needs a place to live, and many people — though certainly not all of
us, at various phases in our lives — would prefer to live close
to our work, to cultural amenities, to goods and services we depend on.
walk than drive, and we appreciate the benefits of living in the center
2. The community benefits because most of us need places to work. For many
kinds of jobs, particularly specialized ones, we need either to be with others
who are doing the same kind of work, and/or accessible to our customers, and
only a centrally located site can provide that effectively.
3. The community benefits because some of us want to open our own businesses.
It might be the first of its kind, supplying a good or service not yet being
provided to that market, or it might be a second, or fifth, or tenth or fiftieth,
the presence of which helps to keep prices down for the consumer, as vendors
compete to meet consumer preferences.
4. The community benefits when land is put to its highest and best use because
for many pieces of land, housing is the highest and best use.
5. The community benefits when land is put to its highest and best use because
centrally located land, well used, prevents or retards the development of
agricultural and wilderness land on the fringes. Existing infrastructure
is fully used, and there is no need to extend infrastructure into sparsely
populated areas not yet served. Rural land is preserved.
We are land creatures, even in the computer age. We all need land, to live
on and to work on, and when prime land is used at less than its highest and
best use, we are forced to use more time, use more fuel, create more pollution,
to get from good paying work to affordable land
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. ...
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.
H.G.B. ... read the whole chapter
Henry George: Why The Landowner
Cannot Shift The Tax on Land Values (1887)
A VERY common objection to the
proposition to concentrate all taxes on Land Values is that the
landowner would add the increased tax on the value of his land to the
rent that must be paid by his tenants. It is this notion that increased
Taxation of Land Values would fall upon the users, not upon the owners
of land, that more perhaps than anything else prevents men from seeing
the far-reaching and beneficent effects of doing away with the taxes
that now fall upon labor or the products of labor, and taking for
public use those values that attach to land by reason of the growth and
progress of society.
That taxes levied upon Land Values, or, to use the
politico-economic term, taxes levied upon rent, do not fall upon the
user of land, and cannot be transferred by the landlord to the tenant
is conceded by all economists of reputation. However much they may
dispute as to other things, there is no dispute upon this point.
Whatever flimsy reasons any of them may have deemed it expedient to
give why the tax on rent should not be more resorted to, they all admit
that the taxation of rent merely diminishes the profits of the
landowner, cannot be shifted on the user of land, cannot add to prices,
nor check production. ...
But while the Taxation of Land
Values cannot raise rents, it
would, especially in a country like this, where there is so much
valuable land unused, tend strongly to lower them. In all our
and through all the country, there is
much land which is not used, or
not put to its best use, because it is held at high prices by men who
do not want to, or who cannot, use it themselves, but who are holding
it in expectation of profiting by the increased value which the
growth of population will give to it in the future. Now the
the Taxation of Land Values would be to compel these men to seek
tenants or purchasers. Land upon which there is no taxation even a
poor man can easily hold for higher prices, for land eats nothing.
But put heavy taxation upon it, and even a rich man will be driven to
seek purchasers or tenants, and to get them he will have to put down
the price he asks, instead of putting it up; for it is by asking
less, not by asking more, that those who have anything they are
forced to dispose of must seek customers. Rather than continue to pay
heavy taxes upon land yielding him nothing, and from the future
increase in value of which he could have no expectation of profit,
since increase in value would mean increased taxes, he would be glad
to give it away or let it revert to the State. Thus the dogs in the
manger, who all over the country are withholding land that they
cannot use themselves from men who would be glad to use it, would be
forced to let go their grasp. To tax Land Values up to anything like
their full amount would be to utterly destroy speculative values, and
to diminish all rents into which this speculative element enters. And
how groundless it is to think that landlords who have tenants could
shift a tax on Land Values upon their tenants can be readily seen
from the effect upon landlords who have no tenants. It is when
tenants seek for land, not when landlords seek for tenants, that rent
To put the matter in a form in
which it can be easily
understood, let us take two cases. The one, a country where the
available land is all in use, and the competition of tenants has
carried rents to a point at which the tenant pays the landlord all he
can possibly earn save just enough to barely live. The other, a
country where all the available land is not in use and the rent that
the landlord can get from the tenant is limited by the terms on which
the tenant can get access to unused land. How, in either case, if the
tax were imposed upon Land Values (or rent), could the landlord
compel the tenant to pay it? ... read the whole article
Charles B. Fillebrown: A Catechism
of Natural Taxation, from Principles of
Natural Taxation (1917)
Q50. How could the landowner escape the alleged burden of an increase
in his land tax?
A. Simply by assuming the legitimate role of a model landlord, by putting his
land to suitable use, in providing for tenants at lowest possible price the best
accommodations and facilities appropriate to the situation that money can buy.
Q52. In old cities, it is not nearly all the land in use?
A. About one half the area of New York and Chicago is classed by the assessors
as vacant. In Boston the proportion is: occupied, 45 percent; vacant,
43 percent; marsh, 12 percent. ... read the whole article
Mason Gaffney: Economics in Support of
Growing barley is a worthy goal (especially if you enjoy a little beer). So
is growing corn. It would be great to raise as much of each as anyone wants,
but the Earth has its limits. A choice and a decision are required. People
invented (or stumbled into) the discipline of economics to help with such hard
choices, and to
console ourselves that we are doing the right thing. The hardest choices are those regarding
land use, because there is just so much. We can build more houses, cars, and
boats, write more music and drama, spawn and educate more people, but we cannot
Barley grows on cheap land, and the demand is limited, so the best barley
land is used for growing corn. Economics reconciles
the competing demands and rationalizes the outcome. It defines the "highest
and best use" of land as that yielding the highest net gain, the excess of
revenues over costs. Economists include non-cash "service flows" among "revenues," although
they bear watching: sometimes they forget. Thus, economics
shows how the market sorts and arranges land uses, giving us a corn belt, a
wheat belt, and a cotton belt. Economists pride themselves on this achievement.
(Some preen themselves too much, as we will see, and pride goeth before a fall.)
By the same logic, irrigated crops take land from dry-farmed crops; orchards
take land from irrigated row crops; housing takes land from orchards and groves;
commerce takes land from housing.
Sometimes the rich take land from the poor, provoking sympathy, strong rhetoric,
and occasionally effective rear-guard resistance to such changes. Actually,
a well-oiled market is often quite democratic. People of moderate income, by
crowding, can outcompete those of high income for the same land, as
when a Sears or Wal-mart takes the best commercial sites from a Nordstroms
or Broadway; or when an old estate is subdivided into five lots per acre. This,
too, provokes negative rhetoric, but developers know how to make hay out of
this, and mincemeat of their opposition. At this point developers become populists
and accuse preservationists and environmentalists of snobbery and elitism.
We need an answer for that one if environmentalists are going to command enough
popular support to win, and hold the gains. Of this, more later.
Other worthy goals that conflict are open
space and water conservation. A major problem in an arid land is that
much wide open space guzzles up water. Conserving open space and conserving
water conflict directly. Green grass uses more water per acre than almost
any farm crop except rice (and rice returns part of it downstream). In cities
most water is used not for swimming pools or toilets or washing machines,
but for sprinkling lawns. Cemeteries, golf courses, horse-pastures, parks,
freeway banks, and the spacious tax-exempt grounds of institutions are the
greatest water junkies outside of farming itself, which of course takes much
more than all cities.
Something has to give. Thus far it has been
wetlands that gave. Once, perhaps, we had too much wetland, but that
was long ago. We cannot accommodate all those uses, and
save wetlands too, just by having restaurants stop serving water, or putting
bricks in toilet tanks. Those are just token or "Goo-Goo" measures for parlor
reformers; they distract us from real problems, and substitute for real solutions.
What is the highest and best use of water? Wetlands, maybe; more golf courses,
maybe not. But we need a rule to gauge "highest and best use." Is it the
market? Read on.
Mason Gaffney: The Taxable
Capacity of Land
The question I am
assigned is whether the taxable capacity of land without buildings is
up to the job of financing cities, counties, and schools. Will the
revenue be enough? The answer is "yes."
The universal state and local revenue problem today
is whether we must cap tax rates to avoid driving business away.
exemplified by Governor Pete Wilson of the suffering State of
California. He keeps repeating we must make a hard choice: cut taxes
and public services, or drive out business and jobs. (When a public
figure gives you two choices you know they're both bad, and he wants
one of them.)
The unique, remarkable quality of a property tax based
on land ex buildings is that you may raise the rate with no fear
driving away business, construction, people, jobs, or capital! You
certainly will not drive away the land. However high the tax rate,
not one square foot of it will put on a track shoe and hop out of
only bad thing to say about this tax's incentive effects is that
it stimulates revitalization, and makes jobs. If some people think
bad, maybe this attitude is the problem. ...
In other cases, industries
occupy land of high value that
is wrongly assessed low simply because industry occupies it, and it
has not been subdivided. What has subdivision to do with it? The bias
of assessors is to value industrial "acreage" low, relative to
improved "lots," even though they lie cheek by jowl. It is a kind of
wholesale discount for owners of "raw" (undivided) tracts.
For example, in West Allis,
Wisconsin, the southwest corner
of the Allis-Chalmers plant occupies the northeast corner of the
location, the most valuable
commercial site in town. That land, with the same retail potential as
the other three corners, is assessed as raw industrial acreage, as
though it were in the boonies, with no recognition of its high
location value for retail/office use. To
make a land tax work, the
assessor must be reinstructed to value that land at its highest and
best use rather than as ordinary raw acreage. Exempting
would create the necessary pressure, thus solving the very problem
that otherwise might be taken as a point against it. As noted
earlier, the U.S. Census of Governments gives us no data on this
point. You, however, can find it easily enough: tax assessments are
public records, and you know your own town. ...
I once wrote a long
chapter on this subject, "The Adequacy of Land as a Tax Base" (Gaffney,
1970). It came out of two years of research, and is too long even to
summarize now. I am delivering it to Pat Salkin, however, and hope she
may add it to the record of this conference. I also attach a short
bibliography of articles that expand on topics covered above, for
whoever is moved to study more on this fascinating subject. I hope you
think it as important as I do. Please pick up this ball and run with
it. Nobody said it was going to be easy. There are some bone-crushing
line-backers out there, like Greed, Ignorance, Myopia, and Inertia. So
much the more credit to you when you cross the line: your fans will
love you for a touchdown. They really need a lift; they've waited so
long! Read the whole article
Jeff Smith and Kris Nelson: Giving
Life to the Property Tax Shift (PTS)
John Muir is right. "Tug on any
thing and find it connected to everything else in the universe." Tug on
the property tax and find it connected to urban slums, farmland loss,
political favoritism, and unearned equity with disrupted neighborhood
tenure. Echoing Thoreau, the more familiar reforms have failed to
address this many-headed hydra at its root. To think that the root
could be chopped by a mere shift in the property tax base -- from
buildings to land -- must seem like the epitome of unfounded faith. Yet
the evidence shows that state and local tax activists do have a
powerful, if subtle, tool at their disposal. The "stick" spurring
efficient use of land is a higher tax rate upon land, up to even the
site's full annual value. The "carrot" rewarding efficient use of land
is a lower or zero tax rate upon improvements. ...
Might the PTS fall heavily on low-income land
holders and elderly homeowners? The land-rich, money-poor old widow
could suffer if society were to levy sites. Eventho' the vast majority
of poor people would come out ahead, there probably will be the rare
exception. To deal with "the widow on a valuable lot", the new policy
could include deferments.
Just as some poor could pay more, some
rich could pay less, such as the
owners of a skyscraper that'd be the highest (literally) and best use
of a site. While a PTS could be a tax break for a few, the intent of
the shift is not so much to whittle away fortunes as it is to promote
prosperity, equity, and sustainability. Were society to attain
goals, letting some fortunes escape unscathed is a small price to pay.
Also, putting a site to best use, while profitable, also benefits the
community by providing convenient employment, bringing money into the
local economy, and by precluding less efficient development, such as
A big problem needs a big solution which in turn
matching shift of our prevailing paradigm. Geonomics -- advocating that
we share the social value of sites and natural resources and untax
earnings -- does just that. Read the whole article
Tony Vickers: From Zee to Vee:
using property tax assessments to monitor the economic landscape
The ‘real world’ in which human
society exists is not
confined to natural, physical phenomena. From earliest times, human
beings have interacted socially and economically. As they do so, they
have specialised and traded in goods and services which are the
products of combinations of labour, capital, enterprise and the
fourth – often forgotten but distinct – factor of all production:
Land comprises all natural
resources, not just ‘terra
firma.’ It is the universe minus man’s products. Even the
simplest of human activities, sleep, requires each of us to occupy
exclusively a space, a location, preferably a bed in a home of our
own. But that word ‘own’ conjures emotions and political
The Nobel-winning economist
William Vickrey said that the property
tax is actually two different taxes (Vickrey 1991). That is because
buildings are capital, not land, in the economic sense – even
if, in most legal codes, there is no distinction between land and
improvements made to it which are all lumped together as ‘landed
property’ or real estate. Buildings and other improvements to
land all depreciate over time unless further capital is expended.
Eventually the market value of such improvements may become
negative, owing to the costs that would need to be incurred by
someone wishing to redevelop the site for an alternative use. But
that does not necessarily take away the rental value of the
Much urban blight is caused by
these so-called ‘brown
field’ vacant and under-used sites. However they are often in
valuable locations, with good transport connections. It may be that
owners are speculating that land prices will rise and enable them to
sell at greater profit in the future than now, or it may be that
there is genuinely no market for sites in a particular location
unless the cost of remediation is subsidised as a form of public
investment. Such investment, according to Vickrey and other followers
of Henry George, can be entirely funded from LVT. In a lecture given
in 1991, first published last year, Vickrey claimed:
“Cities have the
capacity to be fully self-financing without dependence on either
federal assistance or on general taxes that are unrelated to benefits
The proviso, according to Vickrey,
is to replace the tax on
buildings with a tax on land value alone – LVT:-
“The property tax
combines one of the best and one of the worst taxes we have. The
portion that falls on sites or land values is the only major tax that
is reasonably free of distortionary effects and is not intolerably
buildings and work done to improve them discourages such
work. Un-taxing them and taxing land more highly, irrespective of its
actual state of development but based upon its highest and best
immediate potential use, will
encourage owners to maintain their
sites and buildings in such a way as to maximise their income. A
remote site or one with conservation or other restrictions will have
a low site value, hence attract low taxes, whereas a high value city
centre derelict site will very soon be redeveloped. The extra
property tax revenue from extending the tax base to sites that are
currently under-taxed (because the tax is based primarily on
building/rental value not site/owner value), ensures public
infrastructure projects can be funded without resource to general
taxes or excessive borrowing on the financial markets. Read
the whole article
Bill Batt: The Merits of Site
... Taxing high value
land parcels encourages their efficient use. The
highest value parcels will then be settled at sufficient density that
public transportation services become economically viable -- experts
recognize that it typically takes at least 10-12 households per acre
for this to happen.21
both relieves dependency upon motor vehicle transportation and enhances
the livability of communities. Taxing land alone also removes the
penalty for titleholders who want to improve their properties. Under
current property tax structures, one is penalized if one adds a garage,
an extra wing of rooms, or in any way makes an upgrade. This is
perverse: when people maintain and improve their homes and other
buildings it is a social and economic benefit. ... Read
the whole piece
Bill Batt: How Our Towns Got That
Way (1996 speech)
Failure to recapture
publicly-created land rents through the
tax mechanism provided the incentive to speculators to buy land, not
to use it in production but to hold it for the rise. In this way,
choice parcels remain undeveloped or underdeveloped relative to the
full extent that their values warrant and development occurs instead
in remote areas where opportunity for profit is more immediate. The
result was low density development what we know as sprawl.
To some people this may be
counter-intuitive. It may not be
obvious that increasing taxes on a parcel of land will foster its
improvement. Consider, however, the possibility that there are two
parcels of land in roughly the same location and of equal size. You
own a vacant parcel and another next to it has a twenty-story
building. If only the land-value is taxed you will be paying the same
tax revenue as your neighbor. What are you likely to do with your
parcel? If you are rational, you will either build a twenty-story
building or else sell the land to someone who will. In this way
improvements tend to be clustered in high-land-value areas except
where it is prohibited, perhaps for a park. ... read
the whole article
Mason Gaffney: 18 Fallacies
4. "If property
falls, America falls"
Wrong, at least in my opinion. Property is not an end in itself;
it is a means of getting resources put to their best use for the
To secure that end, property
rights are instituted among men,
deriving their just standing from the consent of the unpropertied.
Whenever any form of property
becomes destructive of that end, it
is the right of the people to alter or to abolish it, and to
institute new principles most likely to effect their safety and
Consent of the unpropertied?
That means property must work for
the benefit of all, not just
those who own property.
But abolish property!?
That is a red flag indeed, but
note I said alter or abolish, and
it is our own Declaration of Independence I am paraphrasing.
Like Jefferson, I generally prefer
alter to abolish: 'abolishing'
something is nihilistic until we know what we want to replace it
The point is, we have many degrees
of freedom as citizens; we are
not bound body and soul by decisions made, or allegedly made, in the
the whole article
Mason Gaffney: The Taxable Surplus
of Land: Measuring, Guarding and Gathering It
Taxable surplus is also what you
can tax without driving land into the wrong use. It is not enough
that the land supply is fixed: a tax must not force underuse or other
misuse of the fixed supply.
A great advantage of taxing rent
is that it does not change the ranking of land uses in the eyes of the landowner. Let
In a free market, the function of rent is to sort and arrange land uses:
landowners allocate land to those uses yielding the most net product, or
rent. Economists have shown (and you can easily see) that this is socially
advantageous: the net product is the excess of revenue over all costs, so
land yielding the highest rent is adding its utmost to the national product.
When you base your tax on the net product (or rent), the ranking of rival
land uses remains the same after-tax as it was before-tax. That is, if use "A" yields
20% more rent than use "B", and a tax takes 50% of the rent, then use A still
yields the owner 20% more after-tax than use B, and the owner still prefers
use A. We will see below, (Section
D), that when you tax something other than rent (say the Gross Revenue,
G), you will drive the land into less intensive uses, or out of use altogether.
A related advantage of taxing rent
is that you can often levy the tax on the land's potential to
yield rent, regardless of what use the owner actually chooses. This
is, indeed, a standard way of taxing rent in most capitalist nations. It
is possible because buyers and sellers trade land based on their careful
estimates of its maximum rent-yielding capability. The tax valuer observes
and records these value data, and uses them to place a value on all comparable
lands. Many books and manuals and professional journals have been published
on the techniques used: it is a well established art, with its own professional
associations, of which our speaker Mr. Gwartney is a leading member.
Such a tax is limited to the maximum possible
rent, and so will not exceed a landowner's ability to pay - provided he uses
the land in the most economical manner (which is not always the most intensive
manner). It will surely not interfere with his using the land in the best
way, but will discourage using it any other way. ...
When you base a tax on taxable surplus,
and keep the tax proportional to taxable surplus, you levy taxes without
twisting and inverting the landowner's or land manager's ranking of land
uses. As noted before, the owner's preferred use after tax remains
the same as it would be without any tax. On
the other hand, if you
tax on some other basis (Gross Revenue, for example), you
bias the owner
against uses more heavily taxed. To keep the example simple, and
realistic, we assume here that the seller is a "price-taker," meaning he sells
on a world market and cannot raise the price, and so has no choice but to bear
Bear in mind that Net Revenue is the Taxable Surplus: you cannot tax more than
that without aborting the land use. The ratio of Costs (C) to Gross Revenue (G)
varies over a wide range, from zero up nearly to one (and even above one for
subeconomic uses which, however, you do not want). Let's compare two rival uses,
A and B, for the same piece of land. Use "A" yields more Net Revenue (N), but
has a higher ratio of C/G. We levy a tax of 10% on Gross Revenue (G). To simplify,
Expenses and Capital Costs are consolidated as "C", so N = G-C. Table 1 shows
the effects of the tax on Net Revenue after Tax
The higher use, A, produces more goods, makes more jobs, and yields
more Net Product: it is clearly the higher use.
Table 1: Effect on Net Revenues
of a 10% Tax on Gross Revenues
Net After Tax $
The tax on G [Gross Revenue],
however, turns A into a lower use than B, in the eyes of the landowner or
manager. A 10% tax on G is a 100% tax on the N from use A, wiping out the
entire incentive to put land to use A. It is a 40% tax on the N from use
B, leaving 60% of the Net Product for the landowner. The landowner would
choose use A in the absence of taxes, or with a tax on N; but the tax on
G forces him to choose use B, which is socially inferior. This,
in a nutshell, expresses the damage done by imposing taxes on bases other
than N, the Net Revenue of land.
- The tax lowers output, employment, and investment opportunities for capital,
- Fourth, it lowers tax revenues well below their maximum possible level
of $10k, the Net Revenue from use A. ... read
the whole article
Nic Tideman: Land Taxation and Efficient
Of course, land will not be transferred by those who have the right to use
it unless some payment is made. The possibility of payments for transferring
the right to use land raises the specter of land speculators receiving large
undeserved profits while holding economic development hostage. Is land speculation
concomitant of a market economy?
It is important to understand first that withholding land from development
can be a productive activity. Land that is developed prematurely will not
be improved to the extent that is efficient when the land is ripe for development,
because that later development would require the sacrifice of the earlier,
inefficient improvements. To insure that resources are not wasted on premature
development of land, it must be possible for those who make development decisions
to profit from making them well. This perspective on land speculation was
by Richard T. Ely (1920). ... read the
Fred E. Foldvary — The
Ultimate Tax Reform:
Public Revenue from Land Rent
Another error made even by academic economists is to confuse the supply of
land for a particular use, such as housing, with the overall supply of land.
Of course the supply for a particular use can vary, since, for example, we
can convert farmland to housing land. But the total area available for all
uses does not change, and that is the relevant supply.
The relevance for taxation is that if a plot of land used for a factory is
taxed, the owner will not suddenly want to convert it into a farm unless its
use as a factory was suboptimal. If the plot was already being used to maximize
the rent, taxing it will not change the use. Taxing the site will also not
make the boundary lines move to the west. Taxing the site will also not affect
the demand by tenants to use the site. ... read the whole document
Charles T. Root — Not a Single Tax! (1925)
To explain: Every community has an indefeasible original right to the land
on which it exists, and to all the natural, unmodified properties and advantages
of that particular area of the earth's surface. To this land in its natural
state, undrained, unfenced, unfertilized, unplanted and unoccupied, including
its waters, its contents and its location, every individual in the community
(which may consist of any political unit selected) has an equal right, while
all the individuals together have a joint right to the value for use which
society has conferred upon these natural advantages.
This value for use is known as "Land Value," or by the not particularly
descriptive but generally adopted name of "Economic Rent."
Briefly defined the land value or economic rent of any piece of ground
is the largest annual amount voluntarily offered for the exclusive use of
ground, or of an equivalent parcel, independent of improvements thereon. Every
holder or user of land pays economic rent, but he now pays most of it to the
wrong party. The aggregate economic rent of the territory occupied by any political
unit is, as has been stated above, always sufficient, usually more than sufficient,
for the legitimate expenses of the government of that unit. As also stated
above, the economic rent belongs to the community, and not to individual landowners.
On the other hand, the result of every utilization or enhancement of the natural
advantages of land (such as farm profits, the rent and selling value of buildings
and other improvements), when accomplished by an individual, belongs wholly
to that individual, and should never, and need never, be taken from him by
In his third five years the boom continues, and the community grows so fast
that before the close of that period one corner of our friend's farm finds
itself near the middle of a flourishing town. Five acres of it are needed for
a public park, and five acres adjoining are wanted to cut up into building
lots. As building lots, this part of the land will command a voluntary offer
of a hundred dollars per year per acre of economic rent; and this fact establishes
the land-value of the adjoining five acres needed for park purposes.
In this situation what shall our farmer do?
He has two courses open to him. If he doesn't want to relinquish his land,
and can afford to withhold it from further improvement, he can pay the hundred
dollars per acre per year of economic rent which these ten acres will now command,
and keep his farm intact. If this appears to him too costly a luxury, he can
signify his willingness to sell to the town the five acres wanted for the park,
and the other five to individual builders. ...
Let us roughly restate the proposition: All members of the community having
a joint right to the income which the social advantages of the land will command,
they are all partners in this income.
Therefore, when one of their number wishes to take for his private use a parcel
of this land, he should buy out his partners, i.e., the rest of the community,
by paying regularly into the common treasury the economic rent of that parcel,
instead of paying, as at present, the purchase price, i.e., the right to collect
the economic rent, in a lump, to some other individual who has no more original
right to it than himself.
But before this time the reader, unless he has given previous attention
to the subject, is full of objections to the above doctrine: "How about the
law?" he is asking. "Hasn't a man the right to buy a piece of land
as cheaply as he can, to do what he pleases with it, and hold on to it till
he gets ready to sell?" The answer is that at present he certainly
has this statutory right, which has been so long and so universally recognized
that most people suppose it to be not only a legal, but a real or equitable
right. A shrewd man, foreseeing the direction of growth of population in
city, for example, can buy a well-located block at a moderate figure from
some less far-seeing owner, can let it grow up to weeds, fence it off against
comers and give it no further attention except to pay the very small tax
usually imposed upon vacant land.
Meantime the increasing community builds up all around it with homes, banks,
stores, churches, schools, paving and lighting the streets, giving police and
fire protection, etc., and at last comes to need this block so urgently that
the owner is fairly begged to sell it, at three or ten or fifty times what
it cost him. Quite often the purchaser at this enormous advance is the very
community which has through its presence and the expenditure of its taxes created
practically the whole value of the land in question!
It was said above that an individual has a statutory right to pursue this
very common course. That was an error. The statement should have been that
he has a statutory wrong; for no disinterested person can follow the course
of land speculation as almost universally practiced, without feeling its rank
An illustration has already been given of the case of a piece of farm land.
Let us take an example in a large city. Let us take a corner lot centrally
located in New York City, the title to which lot is held by, say, Mr. John
William Rhinelastor. This lot was a part of an old Dutch farm, and is an heirloom.
It did not cost the present owner anything, nor his father nor his grandfather.
There is a little old building on it, which has always been rented at a figure
ten times as large as the taxes imposed, so that the owner has been handsomely
subsidized each year for storing his title-deeds during a period of the city's
growth in which the increase in population and the expenditure of public money
in that neighborhood have raised the value of this corner location to, say,
two hundred times its early value. ...
But — and right here is one of the prime advantages of the abolition
of taxation — Mr. Rhinelastor, in order to get satisfactory return
from his land, must improve it. Unless he is satisfied with a small income
it, to wit, the proportion of the economic rent which the community chooses
to leave in his hands, he must put upon his land the best building the
location will warrant. The rents of this building will be his in their
one dollar of them being taken from him by taxation. If he is not prepared
or not willing to do this he would probably find it more profitable,
before he leaves the country, to sell the land to some one of the many
are eager to build upon it. It will always be salable, although not by
any means at present figures.
Now imagine for a moment the effect upon the appearance of a city and upon
the comfort of its population which would result from the change of fiscal
policy which this article proposes. At present, a tempting premium is placed
upon keeping land unimproved or inadequately improved, while a heavy penalty
is imposed upon improvement. Most land appreciates constantly. All buildings
depreciate from the moment of completion. Yet the building is taxed equally
with the land.
What incentive does such a system offer the speculative landowner to put up
a commodious, well-lighted modern structure in place of the old ruin which
now pays him so well? The old one cannot depreciate much more, and while paying
a trifling tax because of its physical worthlessness, he is thereby enabled
to collect and pocket the economic rent of the ground, which the community
is continually rendering more valuable. The new building would absorb a large
amount of capital, would begin to run down even before it could be occupied,
and would be taxed to the limit. Why then is not the landlord justified in
letting well enough alone, enjoying the growing economic rent, and waiting
till he can get a fancy price for the right to collect it?
But reverse the conditions. Reclaim for the community its natural income,
making it expensive either to keep needed land vacant or to withhold it from
the ready and willing to improve it to the full extent of its possibilities.
... read the whole article
Frank Stilwell and Kirrily Jordan: The
Political Economy of Land: Putting Henry George in His Place
Concerns about urban policies also raise questions about the current relevance
of Georgist ideas. For example, it is pertinent to ask whether a more uniform
land tax would encourage the more efficient utilisation of urban space.
George argued that, in order to cover the costs of a higher rate of land
tax, landowners would be forced to put their land to its most productive
use, and could not afford to hold it idle. Here is a clear link with the
modern concerns to discourage ‘urban sprawl’ and to promote ‘urban
consolidation.’ To the extent that a higher land tax would encourage
the development of more housing in existing urban areas, the pressures
for housing development in outlying areas would be significantly reduced.
This, in turn, could reduce the burgeoning demand for transport that is
currently characteristic of large cities.
Land tax also impacts on the politics of peripheral urban expansion. Currently,
the prospect of huge capital gains resulting from decisions by local governments
to rezone land from rural to urban acts as an incentive for landowners on
the fringes of built-up areas to lobby for changes that will allow increased
development. Hence, landowners push for rights to subdivision, irrespective
of whether or not there is actual demand (Day, 1995: 3). By creaming off
the gains from windfall increases in land values, land tax obviates this
bias towards relentless urban expansion.
However, the question remains: would a uniform land tax be sufficient to
produce more efficient patterns of urban development? Or would there still
be a need for direct land use controls? Land tax can certainly be a tool
for discouraging the wasteful use of land. It tends to discourage people
from purchasing excessive amounts of land or leaving it idle. However, it
may also encourage the overdevelopment of land in order to produce the income
stream necessary to pay the higher rate of tax.
Critics of urban consolidation such as Patrick Troy (1996) have examined
the potential problems of such overdevelopment, including a range of environmental
impacts such as altered hydrological processes. It seems to be an overly
bold claim that a Georgist land tax alone would be sufficient to achieve
optimal urban development patterns. Land use controls a necessary adjunct
to land tax - in setting minimum requirements for green space, for example.
Local government planning controls are also important to prevent incompatibility
of land uses, such the development of hazardous or unhealthy industrial activities
adjacent to residential areas. Targeted decentralisation policies are a means
of encouraging the further development of regional centres. Such policies
can work in conjunction with land taxes to ease growth pressures in the larger
cities, while addressing long-standing spatial, social and economic inequalities
(Stilwell, 2000: 254-260). The desirability of promoting more decentralised
regional development is consistent with a Georgist perspective, but not altogether
compatible with the claim that land tax would facilitate urban consolidation.
It seems clear that it ‘overburdens’ land tax to expect it alone
to produce the best spatial outcomes, taking account of all the economic,
social and environmental issues involved in urban and regional policy. The
various other policy instruments – including regulations relating to
green space, zoning, and the provision of public infrastructure to pave the
way for decentralisation – are important complements to land taxation.
In other words, land tax is best regarded as a necessary but not sufficient
condition for more effective spatial policy. ... read the whole article