I have friends who take great pains to conserve water and nonrenewable energy,
and I admire them. And yet I find myself troubled by the extent to which
personal thought and energy to "act locally" under circumstances
where at the societal level the biggest users of water and energy
have no particular incentive
to behave similarly. (Household water use represents perhaps 1% of national
consumption.) Until we manage to align our incentives with what we as
a society want to achieve,
overshadowed by the advantage taken by others off whom the pressure is
What do we want to reward? What do we want to discourage? How does our system
of taxation align with that?
Land, unlike labor and capital, is in fixed supply, and some land is far
more desirable than other land. Who is entitled to the value of the land?
of us more entitled than others? What entitled some to it?
Henry George: The Common Sense of Taxation (1881
Evidently this regard for the general good is the true principle of taxation.
The more it is examined the more clearly it will be seen that there is
no valid reason why we should, in any case, attempt to tax all property.
That equality should be the rule and aim of taxation is true, and this
for the reason given in the Declaration of Independence, that all men are
created equal. But equality does not require that all men should be taxed
alike, or that all things should be taxed alike. It merely requires that
whatever taxes are imposed shall be equally imposed upon the persons or
things in like conditions or situations; it merely requires that no citizen
shall be given an advantage, or put at a disadvantage, as compared with
The true purposes of government are well stated in the preamble to the Constitution
of the United States, as they are in the Declaration of Independence. To
insure the general peace, to promote the general welfare, to secure to each
individual the inalienable rights to life, liberty, and the pursuit of happiness — these
are the proper ends of government, and are therefore the ends which in every
scheme of taxation should be kept in mind. ...
And the reason of this difference is clear. The possession of wealth is
the inducement to the exertion necessary to the production and maintenance
of wealth. Men do not work for the pleasure of working, but to get the things
their work will give them. And to tax the things that are produced by exertion
is to lessen the inducement to exertion. But over and above the benefit to
the possessor, which is the stimulating motive to the production of wealth,
there is a benefit to the community, for no matter how selfish he may be,
it is utterly impossible for any one to entirely keep to himself the benefit
of any desirable thing he may possess. These diffused benefits when
localized give value to land, and this may be taxed without in any wise diminishing
the incentive to production. ... read
the whole article
H.G. Brown: Significant
Paragraphs from Henry George's Progress & Poverty:
10. Effect of Remedy Upon Wealth Production (in the unabridged P&P: Part
IX — Effects of the Remedy: Chapter 1 — Of the effect upon
the production of wealth)
Consider the effect upon the production of wealth.
To abolish the taxation which, acting and reacting, now hampers every wheel
of exchange and presses upon every form of industry, would be like removing
an immense weight from a powerful spring. Imbued with fresh energy, production
would start into new life, and trade would receive a stimulus which would be
felt to the remotest arteries. The present method of taxation operates upon
exchange like artificial deserts and mountains;
- it costs more to get goods through a custom house than it does to carry
them around the world.
- It operates upon energy, and industry, and skill, and thrift, like a
fine upon those qualities.
- If I have worked harder and built myself a good house while you have
been contented to live in a hovel, the taxgatherer now comes annually to
me pay a penalty for my energy and industry, by taxing me more than
- If I have saved while you wasted, I am mulct, while you are exempt.
- If a man build a ship we make him pay for his temerity, as though he
had done an injury to the state;
- if a railroad be opened, down comes the tax collector upon it, as though
it were a public nuisance;
- if a manufactory be erected we levy upon it an annual sum which would
go far toward making a handsome profit.
- We say we want capital, but if any one accumulate it, or bring it among
us, we charge him for it as though we were giving him a privilege.
- We punish with a tax the man who covers barren fields with ripening
- we fine him who puts up machinery, and him who drains a swamp.
How heavily these taxes burden production only those realize who have attempted
to follow our system of taxation through its ramifications, for, as I have
before said, the heaviest part of taxation is that which falls in increased
To abolish these taxes would be to lift the whole enormous weight of taxation
from productive industry. The needle of the seamstress and the great manufactory;
the cart horse and the locomotive; the fishing boat and the steamship;
the farmer's plow and the merchant's stock, would be alike untaxed. All would
free to make or to save, to buy or to sell, unfined by taxes, unannoyed
by the taxgatherer. Instead of saying to the producer, as it does now, "The
more you add to the general wealth the more shall you be taxed!" the state
would say to the producer, "Be as industrious, as thrifty, as enterprising
as you choose, you shall have your full reward! You shall not be fined
for making two blades of grass grow where one grew before; you shall not
for adding to the aggregate wealth."
And will not the community gain by thus refusing to kill the goose that lays
the golden eggs; by thus refraining from muzzling the ox that treadeth out
the corn; by thus leaving to industry, and thrift, and skill, their natural
reward, full and unimpaired? 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
Henry George: Concentrations
of Wealth Harm America
(excerpt from Social Problems) (1883)
I am not denouncing the
rich, nor seeking, by speaking of
these things, to excite envy and hatred; but if we would get a clear
understanding of social problems, we must recognize the fact that it
- to monopolies which we permit and create,
- to advantages which
we give one man over another,
- to methods of extortion sanctioned by
law and by public opinion,
that some men are enabled to get
enormously rich while others remain so miserably poor. If we look
around us and note the elements of monopoly, extortion and spoliation
which go to the building up of all, or nearly all, fortunes, we see
on the one hand now disingenuous are those who preach to us that
there is nothing wrong in social relations and that the inequalities
in the distribution of wealth spring from the inequalities of human
nature; and on the other hand, we see how wild are those who talk as
though capital were a public enemy, and propose plans for arbitrarily
restricting the acquisition of wealth. Capital
is a good; the
capitalist is a helper, if he is not also a monopolist. We can safely
let any one get as rich as he can if he will not despoil others in
doing so. There are deep wrongs in the present
constitution of society,
but they are not wrongs inherent in the constitution of man nor in
those social laws which are as truly the laws of the Creator as are
the laws of the physical universe. They are wrongs resulting from
adjustments which it is within our power to amend. The ideal social
state is not that in which each gets an equal amount of wealth, but
in which each gets in proportion to his contribution to the general
stock. And in such a social
state there would not be less incentive
to exertion than now; there would be far more incentive. Men
more industrious and more moral, better workmen and better citizens,
if each takes his earnings and carries them home to his family, than
where they put their earnings in a "pot" and gamble for them until
some have far more than they could have earned, and others have
little or nothing. ... Read the entire article
Louis Post: Outlines of Louis F. Post's
Lectures, with Illustrative Notes and Charts (1894)
4. CONFORMITY TO GENERAL PRINCIPLES OF TAXATION
The single tax conforms most closely to the essential principles of Adam
Smith's four classical maxims, which are stated best by Henry George 19 as
The best tax by which public revenues can be raised is evidently that which
will closest conform to the following conditions:
- That it bear as lightly as possible upon production — so as least
to check the increase of the general fund from which taxes must be paid
and the community maintained. 20
- That it be easily and cheaply collected, and fall as directly as may
be upon the ultimate payers — so as to take from the people as little
as possible in addition to what it yields the government. 21
- That it be certain — so as to give the least opportunity for tyranny
or corruption on the part of officials, and the least temptation to law-breaking
and evasion on the part of the tax-payers. 22
- That it bear equally — so as to give no citizen an advantage or
put any at a disadvantage, as compared with others. 23
a. Interference with Production
Indirect taxes tend to check production and cause scarcity, by obstructing
the processes of production. They fall upon men as they work, as they
do business, as they invest capital productively. 24 But the single
tax, which must be paid and be the same in amount regardless of whether the
payer works or plays, of whether he invests his capital productively or wastes
it, of whether he uses his land for the most productive purposes 25 or in lesser
degree or not at all, removes fiscal penalties from industry and thrift, and
tends to leave production free. It therefore conforms more closely than indirect
taxation to the first maxim quoted above.
24. "Taxation which falls upon the processes of production
interposes an artificial obstacle to the creation of wealth. Taxation
which falls upon labor as it is exerted, wealth as it is used as capital,
land as it is cultivated, will manifestly tend to discourage production
much more powerfully than taxation to the same amount levied upon laborers
whether they work or play, upon wealth whether used productively or unproductively,
or upon land whether cultivated or left waste" — Progress
and Poverty, book viii, ch. iii, subd. I.
25. It is common, besides taxing improvements, as fast
as they are made, to levy higher taxes upon land when put to its best
use than when put to partial use or to no use at all. This is upon the
theory that when his land is used the owner gets full income from it
and can afford to pay high taxes; but that he gets little or no income
when the land is out of use, and so cannot afford to pay much. It is
an absurd but perfectly legitimate illustration of the pretentious doctrine
of taxation according to ability to pay.
Examples are numerous. Improved building lots, and even
those that are only plotted for improvement, are usually taxed more than
contiguous unused and unplotted land which is equally in demand for building
purposes and equally valuable. So coal land, iron land, oil land, and
sugar land are as a rule taxed less as land when opened up for appropriate
use than when lying idle or put to inferior uses, though the land value
be the same. Any serious proposal to put land to its appropriate use
is commonly regarded as a signal for increasing the tax upon it.
In respect of the fourth maxim the single tax bears more equally— that
is to say, more justly — than any other tax. It is the only tax that
falls upon the taxpayer in proportion to the pecuniary benefits he receives
from the public; 29 and its tendency, accelerating with the increase
of the tax, is to leave every one the full fruit of his own productive enterprise
and effort. 30
29 The benefits of government are not the only public
benefits whose value attaches exclusively to land. Communal development
from whatever cause produces the same effect. But as it is under the
protection of government that land-owners are able to maintain ownership
of land and through that to enjoy the pecuniary benefits of advancing
social conditions, government confers upon them as a class not only the
pecuniary benefits of good government but also the pecuniary benefits
of progress in general.
30. "Here are two men of equal incomes — that
of the one derived from the exertion of his labor, that of the other
from the rent of land. Is it just that they should equally contribute
to the expenses of the state? Evidently not. The income of the one represents
wealth he creates and adds to the general wealth of the state; the income
of the other represents merely wealth that he takes from the general
stock, returning nothing." — Progress and Poverty, book
viii, ch. iii, subd. 4. ...
f. The Single Tax Retains Rent for Common Use.
To retain Rent for common use it is not necessary to abolish land-titles,
nor to let land out to the highest bidder, nor to invent some new mechanism
of taxation, nor in any other way to directly change existing modes of holding
land for use, or existing machinery for collecting public revenues. "Great
changes can be best brought about under old forms."109 Let land be held
nominally as it is now. Let taxes be collected by the same kind of machinery
as now. But abolish all taxes except those that fall upon actual and potential
Rent, that is to say, upon land values.
109. "Such dupes are men to custom, and so prone
To rev'rence what is ancient and can plead
A course of long observance for its use,
That even servitude, the worst of ills,
Because delivered down from sire to son
Is kept and guarded as a sacred thing." —Cowper.
It is only custom that makes the ownership of land seem
reasonable. I have frequently had occasion to tell of the necessity under
which the city of Cleveland, Ohio, found itself, of paying a land-owner
several thousand dollars for the right to swing a bridge-draw over his
land. When I described the matter in that way, the story attracted no
attention; it seemed perfectly reasonable to the ordinary lecture audience.
But when I described the transaction as a payment by the city to a land-owner
of thousands of dollars for the privilege of swinging the draw "through
that man's air," the audience invariably manifested its appreciation
of the absurdity of such an ownership. The idea of owning air was ridiculous;
the idea of owning land was not. Yet who can explain the difference,
except as a matter of custom?
To the same effect was the question of the Rev. F. L.
Higgins to a friend. While stationed at Galveston, Tex., Mr. Higgins
fell into a discussion with his friend as to the right of government
to make land private property. The friend argued that no matter what
the abstract right might be, the government had made private property
of land, and people had bought and sold upon the strength of the government
title, and therefore land titles were morally absolute.
"Suppose," said Mr. Higgins, "that the
government should vest in a corporation title to the Gulf of Mexico,
so that no one could fish there, or sail there, or do anything in or
upon the waters of the Gulf without permission from the corporation.
Would that be right?"
"No," answered the friend.
"Well, suppose the corporation should then parcel
out the Gulf to different parties until some of the people came to own
the whole Gulf to the exclusion of everybody else, born and unborn. Could
any such title be acquired by these purchasers, or their descendants
or assignees, as that the rest of the people if they got the power would
not have a moral right to abrogate it?"
"Certainly not," said the friend.
"Could private titles to the Gulf possibly become
absolute in morals?"
"Then tell me," asked Mr. Higgins, "what
difference it would make if all the water were taken off the Gulf and
only the bare land left."
If that were done it is doubtful if land-owners could any longer confiscate
enough Rent to be worth the trouble. Even though some surplus were still
kept by them, it would be so much more easy to secure Wealth by working for
it than by confiscating Rent to private use, to say nothing of its being
so much more respectable, that speculation in land values would practically
be abandoned. At any rate, the question of a surplus — Rent in excess
of the requirements of the community — may be readily determined when
the principle that Rent justly belongs to the community and Wages to the
individual shall have been recognized by society in the adoption of the Single
110. Thomas G. Shearman, Esq., of New York, author of
the famous magazine article on "Who Owns the United States," estimates
that sixty-five per cent of the present annual value of the land in the
United States would pay all the present expenses of American government — federal,
state, county, and municipal. ...
Q32. Is not ownership of land necessary to induce its improvement? Does
not history show that private ownership is a step in advance of common ownership?
A. No. Private use was doubtless a step in advance of common use. And because
private use seems to us to have been brought about under the institution
of private ownership, private ownership appears to the superficial to have
been the real advance. But a little observation and reflection will remove
that impression. Private ownership of land is not necessary to its private
use. And so far from inducing improvement, private ownership retards it.
When a man owns land he may accumulate wealth by doing nothing with the land,
simply allowing the community to increase its value while he pays a merely
nominal tax, upon the plea that he gets no income from the property. But
when the possessor has to pay the value of his land every year, as he would
have to under the single tax, and as ground renters do now, he must improve
his holding in order to profit by it. Private possession of land, without
profit except from use, promotes improvement; private ownership, with profit
regardless of use, retards improvement. Every city in the world, in its vacant
lots, offers proof of the statement. It is the lots that are owned, and not
those that are held upon ground-lease, that remain vacant.
Q48. Would you let money escape taxation, and so favor money lenders?
A. It is a curious fact that this question is most popular among people who
clamor for cheap money. How they expect to cheapen money by taxing its
lenders on their loans is past finding out. To tax money lenders is to
discourage money lending, and thereby to increase interest on loans. Yes,
we should let money escape taxation. It escapes taxation now, which in
itself is a politic reason for exempting it; but we should exempt it (by
taxing nothing but land values) for the additional and better reason that
a man's money is his own and the community has no right to it, while a
man's land value is the community's and the man has no right to it. This
would not favor money lenders in any invidious sense. It would favor both
lenders and borrowers; borrowers by enabling them to borrow on easier terms,
and lenders by making their loans more secure. ... read
Charles B. Fillebrown: A Catechism
of Natural Taxation, from Principles of
Natural Taxation (1917)
Q19. Why should buildings and all other improvements and personal property
and capital be exempt from taxes?
A. Because a tax on them falls upon industry, and so increases the cost of living,
while continuing the invidious exemption of the present net land value.
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.
... read the whole article
Weld Carter: An Introduction to
However, what is the effect on
production of taxes levied on
products and of taxes levied on the value of land?
Of taxes levied on products,
George said: "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 make me pay a penalty for my energy and industry, by taxing me
more than you. 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 taxcollector 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 anyone 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
grain, 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 prices."
Turning to taxation levied on the
value of land, George went on to
For this simple device of placing
all taxes on the value of land
would be in effect putting up the land at auction to whosoever would
pay the highest rent to the state. The demand for land fixes its
value, and hence, if taxes were placed so as very nearly to consume
that value, the man who wished to hold land without using it would
have to pay very nearly what it would be worth to anyone who wanted
to use it.
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 (1879, rpt. 1958, p. 437).
A few pages before this he had
told us that, "It is sufficiently
evident that with regard to production, the tax upon the value of
land is the best tax that can be imposed. Tax manufactures, and the
effect is to check manufacturing; tax improvements, and the effect is
to lessen improvement; tax commerce, and the effect is to prevent
exchange; tax capital, and the effect is to drive it away. But the
whole value of land may be taken in taxation, and the only effect
will be to stimulate industry, to open new opportunities to capital,
and to increase the production of wealth" (1879, rpt. 1958, p. 414).
In other words, according to
George, taxation of products checks
production, whereas taxation of land values stimulates production. ... read
the whole article
Bill Batt: Stemming Sprawl: The Fiscal Approach
Stemming Sprawl: Command-and-Control Measures
Policymakers have two modes of leverage by which to implement public will:
1) so-called command-and-control approaches that are typically enforced
by what state and federal constitutions group under "police powers" and
2) fiscal approaches that typically involve a variety of taxes, fees, fines,
and other charges that derive constitutionally from either police powers or "tax
powers." When governments administer either of these powers, they
are legitimate and authoritative. Fiscal measures available to governments
come from either ground. The charges that the private sector usually impose
differ in that they usually are responsive to market forces. Prices that
are established by government, however, are not necessarily responsive
forces, nor are they intended to be. Rather, they are set in order to accomplish
specific public policy goals. They
can be no less efficient, however, when responsibly instituted.
19. One recent exploration of this is a chapter titled "Catalytic
Government: Steering Rather Than Rowing," in Reinventing Government:
How the Entrepreneurial Spirit Is Transforming the Public Sector, ed. David
Osborne and Ted Gaebler (New York: Penguin, 1993).
Governments face the challenge of knowing which of the tools at their disposal — command-and-control
approaches or "pricing" approaches — will best serve effective
and efficient achievement of public policies. Only in recent years, however,
has there been a renewed interest in fiscal levers to achieve goals that policymakers
seek to achieve. There is particular interest among students of welfare economics
in incorporating costs earlier regarded as externalities, especially in designing
environmental policies. Moreover, the use of pricing approaches to recover
costs of government services that have a high level of private good about them
can bring about more attractive and achievable goals than reliance on conventional
police power approaches. User fees, environmental fees, and other such fiscal
tools have become more fascinating — at least to students of public policy — than
The renewed interest in fiscal approaches comes in recognition of the fact
that traditional command-and-control approaches have not been successful. Government
authority is far more effective at prohibiting and controlling than it is inducing
and channeling. Three
illustrations of failed command-and-control approaches will demonstrate this:
zoning, urban growth boundaries, and altering (usually expanding) political
jurisdictions. ... read the whole article
Fred E. Foldvary — The
Ultimate Tax Reform:
Public Revenue from Land Rent
Impact on behavior
Income taxes impose on the economy a large administrative cost by government
and a cost to payers of filling out forms, paying lawyers and accountants,
and trying to comprehend the complex requirements. The compliance cost of lost
time in the U.S. is 5 billion hours per year, the equivalent of two million
people working full time just to process the income tax. In dollar terms, the
compliance cost is estimated to be more than $200 billion per year.29
Reformers who want to impose a national retail sales tax are well aware of
the substantial impact taxes have on human behavior. That, indeed, is often
why such reforms are proposed: The reformer wishes to discourage borrowing,
reduce consumption, or encourage savings, for example. But moving to a national
retail sales tax results in little improvement.
Most people use their wage income to pay for goods and services and sales
taxes. Switching from an income to a sales tax is like taxing you when you
leave a room instead of when you enter the room.
Income taxes punish savings, but sales taxes punish borrowing. If you borrow
$10,000 to buy a car and there is a 20 percent sales tax, you need to borrow
an extra $2,000 to pay the tax. Some folks might decide to not buy the car,
spending the $10,000 on something else, without borrowing $2,000.
There is no good economic reason to tax-punish consumption or borrowing. The
purpose of production is consumption! If we punish consumption, we punish production.
Consumption is not an evil to be thwarted, but the very benefit we get from
the economy. We may as well also tax fun and joy! Those seeking to tax consumption
act as though they have a Puritan streak that considers enjoying goods to be
evil and working and saving to be good for their own sake.
Tapping rent or land value, by contrast, avoids the manipulation of an individual’s
choice to save or borrow, consume or invest. A well-constructed land value
levy has no distortive effect at all on human action or decisions, since
it taps a pure surplus, what is left over after paying for the economic costs
of production. The effect of shifting public revenue from labor and capital
to land would be to liberate human action from the disincentives currently
imposed by other taxes.
As Henry George noted,
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
... With all the burdens removed which now oppress industry and hamper exchange,
the production of wealth would go on with a rapidity undreamed of ... [It
would be] like removing an immense weight from a powerful spring.30
... An ideal public revenue policy respects a person’s right to privacy,
does not discourage work or savings, and does not induce dishonesty. While
income, sales, and value-added taxes fall woefully short of this ideal, land
value taxation meets each requirement.
Imagine the increased prosperity and opportunities for advancement that
would exist if people could keep all of the money they earn; if billions
of dollars wasted on efforts to avoid high income taxes were suddenly turned
to productive endeavors; and if the growth of government were constrained
by a tax system that would raise only enough to pay for services actually
provided. ... read the whole document
Wyn Achenbaum: Eminent Domain
and Government Giveaways
It seems to me that there are better ways than eminent domain to provide
the incentives that will lead the private sector to develop choice land. ...
While at one time this area might have been an appropriate place for a neighborhood
of single family homes, it appeared to me that that time had passed a decade
or so ago. It seemed to me that the path of progress would -- if the incentives
were logical and the market responsive to signals -- have caused the private
sector to have redeveloped that site. Such re-development might have been
painful to the residents of the neighborhood, but would have put now-choice
land to a higher and better use than single-family homes.
But our system wasn't designed to send signals all that well -- Connecticut
law required properties to be reassessed once every decade (and I've heard
that once in early '70s and once in the late 80's was construed to satisfy
that requirement). Now assessments are required every 4 years (though my
town decided it didn't like the 2003 revaluation and is keeping the 1999
for a few more years).
But if the properties had been reassessed on a regular basis, with market-based
values assigned first to the land and the residual being assigned to the
existing buildings, the homeowners themselves would have been in a position
to make their own rational decisions on whether it was worth it to them to
continue to occupy extremely valuable land (and pay the taxes on it), or
more to their advantage to accept an offer from someone who was prepared
to put it to a higher and better use, and take that equity and buy elsewhere. ...
Our land, particularly the best-located land, is a common asset on which
we are all dependent. Allowing individuals or corporations to occupy it without
compensating the rest of us for its value is the underlying problem, and
solving that problem through good assessment and rational (that is, land
value) taxes is the way to solve it. When we do that, a lot of problems will
begin to fall away. Read
the whole article
A tension remains, reflecting the Georgist orientation towards taxes
rather than more directly regulatory interventions. Whether the use of the
mechanism in this ‘environmental fine tuning’ is sufficient
for dealing with pervasive environment threats is a moot point. The nature
and severity of environmental stresses is such that more directly proscriptive
environmental policies are commonly needed to protect natural resources.
The creation and maintenance of national parks, for example, constitutes
a necessary direct regulation of land-use: the market, even when modified
by taxes, cannot absolutely guarantee the conservation of such crucial
assets. In other words, protection of ‘natural capital’ may
commonly require regulation as well as taxation. ... read the whole article
Peter Barnes: Capitalism
3.0 — Chapter 1: Time to Upgrade (pages 3-14)
All thought processes start with premises and flow to conclusions. Here
are the main premises of this book.
1. WE HAVE A CONTRACT ...
2. WE ARE NOT ALONE ...
3. ILLTH HAPPENS ...
4. FIX THE CODE, NOT THE SYMPTOMS— If we want to reduce illth on an economy-wide scale, we need to change the
code that produces it. Ameliorating symptoms after the fact is a losing strategy.
Unless the code itself is changed, our economic machine will always create
more illth than it cleans up. Moreover, illth prevention is a lot cheaper
than illth cleanup.
5. REVISE WISELY ...
6. MONEY ISN’T EVERYTHING ...
7. GET THE INCENTIVES RIGHT
Notwithstanding the above, an economic system works best when it rewards
desired behavior. As Mary Poppins put it, “A spoonful of sugar helps
the medicine go down” (and as I’ve never forgotten, offering
a free pint of Ben & Jerry’s was the best way Working Assets ever
found to get customers). While we’re looking for methods to protect
nature and future generations, we need to make the incentives work for living
humans as well.
If you disagree with any of these premises, you’re unlikely to fancy
my conclusions. If, on the other hand, these premises make sense to you,
then welcome to these pages. I won’t bore you with statistics, or tell
you, yet again, that our planet is going to hell; I’m tired, as I suspect
you are, of numbers and gloom. Nor will I tell you we can save the planet
by doing ten easy things; you know it’s not that simple. What I will
tell you is how we can retool our economic system, one step at a time, so
that after a decent interval, it respects nature and the human psyche, and
still provides abundantly for our material needs.
Perhaps capitalism will always involve a Faustian deal of some sort: if
we want the goods, we must accept the bads. But if we must make a deal with
the devil, I believe we can make a much better one than we presently have.
We’ll have to be shrewd, tough, and bold.
But I’m confident that, if we understand how to get a better deal,
we will get one. After all, our children and lots of other creatures are
counting on us. ... read
the whole chapter
Peter Barnes: Capitalism
3.0 — Chapter 4: The Limits of Privatization (pages 49-63)
Socially Responsible Corporations
To survive over time, every organization needs to take in more money than
it spends. (The only possible exception may be the U.S. government.) This
means that even nonprofit organizations must, in a sense, make a profit.
But making a profit isn’t the same as maximizing profit. In the first
instance, profit is a means to an end; in the latter, it’s the purpose
that trumps all others. Millions of organizations earn enough money to
stay alive, yet pursue goals other than profit. Is it possible for publicly
traded corporations to be like that? Can they have multiple bottom lines?
Can they, in other words, rise above their profit-maximizing algorithm?
There are several ways this might be possible: enlightened managers might
choose a higher goal than profit, shareholders might insist on it, and government
might require it. Let’s consider each possibility.
Managers are human beings; they don’t care just about money, they
also care about the larger world. The problem is, they’re trapped in
a cold-hearted system. Managers are paid to do one thing, and to do it well.
At best, they can be public-spirited as long as they don’t harm the
bottom line. This gives them some range to operate — for example, if
using recycled paper adds minimally to their costs without reducing quality,
they might use it. But if it adds substantially to their costs, they won’t — or
more accurately, can’t — sacrifice profit for the sake of a few
trees. What matters at the end of the day isn’t the managers’ personal
values, but the difference in price between recycled paper and paper made
from newly felled trees.
There are other reasons not to rely upon the voluntary benevolence of corporate
executives. As The Economist has written, “The great virtue of the
single bottom line is that it holds managers to account for something. The
triple bottom line does not. It is not so much a license to operate as a
license to obfuscate.”
As a businessperson, I find this argument compelling. Every large organization,
to be managed well, needs a mission. That mission should be as clear as possible.
It’s hard enough to manage to one bottom line; it’s more than
thrice as hard to manage to three. How do managers know, much less quantify,
the external consequences of what they do? And even if they know, what do
they do when goals conflict? Does profit trump nature or vice versa? If managers
are accountable to shareholders for profit-based performance, to whom are
they accountable for commons-based performance?
Hypothetical answers to such questions can no doubt be drafted, but what
would happen in the real world, I suspect, is what The Economist surmises:
profit maximization would dominate, accompanied by obfuscation about other
goals. Corporate communications departments would try to maximize the appearance
of social responsibility for the lowest actual cost. We’d see beautiful
ads and reports, but little change in core behavior.
It’s important to remember that the profit-maximizing algorithm is
enforced not just by laws, but by a variety of carrots and sticks. For example,
CEO compensation is typically based on a list of goals established by the
board. These often include nonfinancial goals, but the goal that carries
the most weight, and is least amenable to obfuscation, is profit. Further,
the CEO and other top managers usually receive stock options. Since stock
prices are driven by reported quarterly earnings, managers who own stock
or stock options strive to maximize these.
When carrots fail to motivate, sticks come into play — and they can
be brutal. An “underperforming” corporation will be devalued
by the stock market. This makes it susceptible to takeover. A classic example
is the Pacific Lumber Company of California, the largest private owner of
old-growth redwood trees in the world. Prior to 1985, Pacific Lumber was
a family-run business that took a long-term perspective. When it logged,
it left up to half the trees standing, creating natural canopies and keeping
much of the soil stable. It was also generous to its workers, renting them
housing at below-market rates and refraining from layoffs during downturns.
Sadly, however, Pacific Lumber’s responsible behavior made it easy
prey for a takeover. Its concern for nature and its employees diminished
its profits and hence its share price. Because of its cutting practices,
it held tremendous stands of virgin redwoods that could be liquidated quickly.
In addition, its pension plan was overfunded. Spotting all this, corporate
raider Charles Hurwitz offered to buy the company in 1985 through a holding
company called Maxxam. At first the directors refused, but when Hurwitz threatened
to sue them for violating their fiduciary duty to shareholders, the directors
Hurwitz financed his purchase with junk bonds, the interest on which was
more than the historical profits of the company. To service this debt, he
terminated the workers’ pension plan and began harvesting trees at
twice the previous rate. Such were the fruits of the previous managers’ enlightened
It is possible for a company to pursue multiple bottom lines if it’s
closely held by a group of like-minded shareholders — that was the
case at my former company, Working Assets. But once a corporation goes public — that
is, sells stock to strangers — the die is pretty much cast. Strangers
want a stock that will rise when they plunk down their money, and profit
is the sure path to doing that. It’s just a matter of time, then, until
the profit-maximizing algorithm kicks in.
I’ve spent a good part of my life talking with people who wish publicly
traded companies could be socially responsible — not just cosmetically,
but sufficiently to make a difference. They contend that corporations were
once dedicated to public purposes, escaped their bounds, and can be put back
in. They recall a time when companies were rooted in their communities, hired
workers for life, and contributed to local charities. The trouble is, those
days are irreversibly gone. Today, owners live nowhere near workers, labor
and nature are costs to be minimized, and it’s hard to see what might
displace profit as the organizing principle for publicly traded corporations.
I don’t think it will ever happen, but consider this scenario. Imagine
Congress passes a law requiring every corporation — in exchange for
limited liability — to have a triple bottom line. The law also says
that at least a third of corporate directors should represent workers, nature,
and communities in which the company operates. And it protects directors
from lawsuits if they favor nature over profit. You’re the CEO of Acme
Corporation. What changes do you make after the law takes effect?
Well, you might start by increasing your accounting budget. You’ll
need, henceforth, to keep track not only of money but also of your nonmonetary
impacts on society and nature. This isn’t easy, though presumably shortcuts
will be developed. Next, you assign people to find ways to reduce Acme’s
negative impacts on nature and society, ranking the proposals by years to
payback. You budget a modest sum for the most cost-effective projects, giving
preference to those with public relations value. You publish ads and reports,
patting yourself on the back for doing what the law requires. And you remind
your board of directors that, if they choose, they can snub offers from the
likes of Charles Hurwitz and forgo large capital gains for shareholders.
All this would be well and good. But given the algorithms that still rule,
how much difference would it make? And even if it did have some effect, would
it make enough difference in the right ways? After all, you might spend your
small green budget on one thing, while nature most needs something else.
Now, as an alternative, imagine that the price of nature is no longer
zero. All of a sudden, it costs big bucks to pollute or degrade ecosystems. Overnight,
your managers scramble to cut pollution and waste. The higher the price,
the faster their behavior changes. And it changes in response to specific
natural scarcities, as indicated by specific prices.
The question is, which of these approaches would work better — mandatory
social responsibility, or increases in the price of nature? The answer, without
doubt, is the latter. ... read
the whole chapter
Peter Barnes: Capitalism
3.0 — Chapter 6: Trusteeship of Creation (pages 79-100)
By contrast, if pollution rights are assigned to trusts representing pollutees
and future generations, and if these trusts then sell these rights to polluters,
the trusts rather than the polluters will capture the commons rent. If
the trusts split this money between per capita dividends and expenditures
on public goods, everyone benefits.
At this moment, based on pollution rights allocated so far, polluting corporations
are getting most of the commons rent. But the case for trusts getting the
rent in the future is compelling. If this is done, consumers will pay commons
rent not to corporations or government, but to themselves as beneficiaries
of commons trusts. Each citizen’s dividend will be the same, but his
payments will depend on his purchases of pollution-laden products. The more
he pollutes, the more rent he’ll pay. High polluters will get back
less than they put in, while low polluters will get back more. The microeconomic
incentives, in other words, will be perfect. (See figure 6.1.)
What’s equally significant, though less obvious, is that the macroeconomic
incentives will be perfect too. That is, it will be in everyone’s interest
to reduce the total level of pollution. Remember how rent for scarce things
works: the lower the supply, the higher the rent. Now, imagine you’re
a trustee of an ecosystem, and leaving aside (for the sake of argument) your
responsibility to preserve the asset for future generations, you want to
increase dividends. Do you raise the number of pollution permits you sell,
or lower it? The correct, if counterintuitive answer is: you lower the number
of permits. ... read
the whole chapter
Peter Barnes: Capitalism
3.0 — Chapter 9: Building the Commons Sector (pages 135-154)
According to a near-unanimous consensus of scientists, the world is very
close to a tipping point on atmospheric carbon: we must drastically curtail
our carbon burning or climate hell will soon break loose. This means every
nation must install economy-wide valves for reducing their carbon use. I
described earlier how America might do this using a carbon, or sky trust.
Since we can’t halt global warming by ourselves, however, the necessary
complement to such an American trust is a global trust.
A global carbon trust would require national governments to recognize that,
just as they can, and should, delegate internal trusteeship duties to trusts,
so should they delegate global trusteeship duties. The alternative, I’d
argue, is paralysis in the face of clear and present danger.
Consider the long and tortuous climate negotiations that began in the early
1990s. They produced, first, a toothless pledge by all nations — the
Rio Convention of 1992 — to voluntarily reduce their greenhouse gas
emissions to the 1990 level by 2010. Five years later, they produced a slightly
toothier protocol in Kyoto, which took another five years to ratify and translate
into operational rules. An equally prolonged negotiation now looms for the
successor to Kyoto, which expires in 2012.
No doubt these negotiations could move faster if the current U.S. administration
weren’t so obstinately opposed to them. But the deeper problem is that
nearly two hundred sovereign nations are trying to negotiate a deal that
satisfies everyone. The process is inherently cumbersome, and not surprisingly,
the results fall far short of what scientists say is necessary. Perhaps,
therefore, it’s time to delegate. I can imagine a global atmosphere
trust working something like this. It would be governed by a smallish board
of trustees and a general membership consisting of all signatory nations.
The general membership would appoint the trustees. There might be, as in
the U.N. Security Council, a number of seats reserved for “great powers” (in
this case, large emitters) and another number set aside for regions. However,
once trustees are appointed, their loyalty would shift from individual nations
or regions to future generations. This is critical.
The trustees would decide, based on peer-reviewed scientific evidence, where
to set a global cap on carbon emissions. Each year, they’d issue tradeable
carbon emission permits up to that year’s limit. A portion of these
permits (initially, a majority) would be distributed at no cost to participating
nations based on a pre-agreed formula. The remainder would be auctioned by
the trust, with the revenue used to remediate damage caused by climate change
and aid the inevitable victims. The trust would determine on a yearly basis
how many permits were needed for these purposes, and how the remediation
funds would be spent.
The trustees would make decisions by majority vote, with no vetoes. Like
a court, they’d explain their decisions in writing, showing exactly
how they protect future generations. The general membership could override
a trustee decision by, say, a two-thirds majority. In this way, signatory
nations could put short-term interests over long-term ones, but they’d
have to do so explicitly, and implicitly admit to stealing or borrowing from
The knotty question is, What formula should be used to distribute carbon
emission permits among nations? The key to crafting such a formula, given
the disparate interests of so many nations, is to ground it on some universal
principle of equity. The Kyoto Protocol didn’t do this; it was a hodgepodge
of deals and escape hatches aimed at pleasing the United States, which in
the end didn’t ratify anyway. The next international regime, however,
must appeal to the poor and the up-and-coming, as well as to the United States
and other developed countries. Without an organizing principle based on equity,
it’s hard to see how any deal can be reached.
Fortunately, an equitable organizing principle has been advanced: it’s
known as contract and converge. Here’s how it would work.
First, an overall reduction schedule would be agreed to; this is the contract
part of the equation. Then, rights to the global atmospheric commons would
be divided among nations in proportion to their populations — in other
words, one person, one share.
However, absolute proportionality wouldn’t kick in for a decade or
two, during which time the allocation formula would converge toward proportionality.
The rate of convergence would be a topic for negotiation; the goal of per
capita equity would be accepted at the outset.
Before and after convergence, poor and populous countries with more permits
than emissions could sell their excess permits to rich and relatively underpopulated
countries that are short on them. In this way, nations could pollute at different
levels, with overusers of the atmosphere paying underusers for the privilege.
Americans could, in other words, extend our present level of carbon use for
another decade or so, but we’d have to pay poor countries to do so.
Would a global atmospheric trust be too great a surrender of national sovereignty?
I think not. We’re not talking about world government here. We’re
talking about a trust to manage a specific worldwide commons. The one and
only job of that trust would be to set and enforce limits on certain emissions
into that commons. Some loss of sovereignty is involved, but less than we’ve
already yielded to the World Trade Organization. Compared to the benefit
we and all nations would gain — a stabilized climate — our loss
of sovereignty would be small potatoes.
If a global atmosphere trust could be established, it would be a watershed
twenty-first-century event. Geopolitically, it could lay the foundation for
a harmonious century, much as the Versailles Treaty paved the way for a disharmonious
one in the twentieth. It would also help the world deal gracefully with the
decline in global oil production that experts say is imminent.
Economically, a global atmosphere trust would spur some important changes.
Corporations the world over would immediately pour money into energy efficiency
and noncarbon energy infrastructure. There’d be a rush to deploy new
technologies. Economies — including ours — would boom, not despite
higher carbon prices, but because of them.
Why would this happen? The simplest reason is that a global atmosphere
trust would remove an enormous cloud of uncertainty. Businesses would see
of carbon burning, and be more confident that a price shock — more
damaging than a gradual rise — wouldn’t derail their plans. Such
a trust would also remove a major source of international tension — the
scramble for declining oil supplies — that could easily lead to war.
In addition, the flow of money to poor countries (from sales of emission
permits to rich countries) would lift their economies and wages, help U.S.
exports and slow U.S. job loss. All these things would ensure that while
high-carbon activity declines, low-carbon activity rises at a comparable
But growth in aggregate economic activity isn’t the only benefit we’d
see; qualitative improvements would also occur. Thus, as long-distance transport
costs rose, manufacturers would shift from global to local production. Farmers
would return to practices they used before cheap petrochemicals became available.
They’d grow more food organically and sell more through farmers’ markets
and urban buying clubs, cutting out middlemen and keeping more of their products’ value.
For nonperishables, consumers would shop more on the Internet and less at
drive-and-haul malls. Thanks to eBay, Craigslist, and similar services, they’d
also buy more secondhand goods and dump fewer into landfills. More workers
would ride bikes, jitneys, and trains, and work online from home. Cities
would favor footpower, suburbs would reorganize around transit hubs, and
new forms of co-housing would spread. All these changes would be profitable
and even exciting. And they’d proceed with relative smoothness if we
placed the global atmosphere in trust.
On the other hand, if we leave our atmosphere as an unmanaged waste dump,
our glorious industrial party will abruptly end, brought to its knees by
oil price shocks, climate disasters, or a monetary panic. After that, no
one can know what will happen. That’s the stark choice we face. ... read
the whole chapter
Bill Batt: Comment on Parts of
the NYS Legislative Tax Study Commission's 1985 study “Who Pays New
Henry George’s Solution: Taxing the Flow of Land Rent
If land values are really the present values of anticipated future ground
rents, one can certainly treat them as flows rather than stocks, just as
community services are continuous flows. The amount of rent flowing through
a site and through the economy is not negligible; what estimates have been
made, where indeed the economic data allow it to be made, suggest that it
is roughly a third of a nation’s GDP.29 The question is whether it
makes more sense to. Should we elect to continue property tax regimes as
we do, it would make better sense to tax buildings as stocks and lands as
rent flows. But this raises the question whether real property should be
exempt from all taxes, as some have argued.30 What rationale exists for taxing
lands, whether as stocks or flows; and why do we tax buildings? I will argue
below that taxing buildings and the failure to adequately tax land both have
deleterious consequences for the whole economy.
Little justification exists for taxing buildings, or improvements
of any sort, so this question is easily disposed of. The practice is explained
as a matter of historical inertia. Only in the recent century or two have
buildings represented any significant capital value; prior to the rise of
major cities, the value of real property lay essentially in land. American
cities today typically record aggregate assessed land values – at least
when the valuations are well-done – at about 40% to 60% of total taxable
value, that is, of land and buildings taken together.31 Skyscrapers reflect
enormous capital investment, and this expenditure is warranted because of
the enormous value of locational sites. Each site gets its market price from
the fact that the total neighborhood context creates an attractive market
presence and ambience. By taxing buildings, however, we impose a penalty
on their optimum development as well as on the incentives for their maintenance.
Moreover, taxes on buildings take away from whatever burden would
otherwise be imposed on sites, with the result that incentives for their
best use is weakened. Lastly, the technical and administrative challenges
of properly assessing the value of improvements is daunting, particularly
since they must be depreciated for tax and accounting purposes, evaluated
for potential replacement, and so on. In fact most costs associated with
administration of property taxation and appeal litigation involve disputes
over the valuation of structures, not land values. ... read the whole commentary