Industrial
Capacity
When too much of an entrepreneur's funds must be spent securing a site
on which to do business, he has little left for equipment or wages. Land
value taxation fixes that and levels the playing field between long-established
businesses and newer ones.
Herbert J. G. Bab: Property
Tax -- Cause of Unemployment (circa 1964)
... Under the impact of spectacular advances in
technology the actual level of employment and production falls short of
the full use of our manpower and industrial capacity. ...
In view of this it would be
difficult
to contend that we have solved the twin problems of full employment and
economic growth. The truth is that we have lived all these postwar
years on borrowed time.
What have these
considerations to do with property taxation? The purpose of my talk is
to show that the relation of property taxation to unemployment and lack
of economic growth is that of cause to effect. ...
Ricardo believed that ground rents and the value of land have a
tendency to rise continuously and that this benefits solely the
landowners. The progress of
industrialization and urbanization in the
second half of the 19th century resulted in a rapid increase in the
value of urban land and the owners of such land reaped tremendous
profits. This led John Stuart Mill to observe, that "Only the
landowners grow richer, as it were in their sleep without working,
risking and economizing". He called for the taxation of land in order
to recapture the unearned increment accruing to the land owners.
The apostle of land taxation is Henry George. In his famous book
Progress
and Poverty he develops
his single tax theory. He tries to show that poverty and unemployment
and other evils are caused by the land monopolists. Henry George's
theory is similar to that developed by John Stuart Mill. Land values
are based on ground rents which are created by the community and not by
the land owners. Therefore the community is justified in recapturing
these rents by a single tax on land. ...
An analysis of the social and
economic
effects of a particular tax system would indicate the third criterion.
When analysing property taxes we shall distinguish between that
part of
the tax which is assessed on improvements and that part which is
assessed on land.
That part of the tax that is
assessed on buildings penalizes everybody
who improves his land, his buildings or intends to construct
residential, commercial or industrial property. ...
A defect
of our property tax system that is seldom mentioned is that it puts a
premium on obsolescence and penalizes new housing. This is so
because property taxes are ad valorem
taxes. Every piece of real estate except land is subject to
depreciation. Thus the owners
of old and obsolete real estate will pay little in taxes, while newly
constructed buildings will bear the brunt of the tax.
While
land
values have risen by about 10% yearly, property taxes assessed on land
averaged about 1.5%. Thus a person owning vacant or underimproved land
would have earned about 8 1/2% per year just by withholding land from
its proper use.
A higher tax on vacant or unimproved land would make it
unprofitable to
hold such lands. It will tax land into better use and it will lead to a
spurt in construction activity. While all other taxes are deterrents to
employment and economic growth, though to a varying extent, land taxes
are the only genuine incentive taxes. ...
Property taxes shape the pattern of our cities. ...
- If taxes on improvements are low or non-existing and taxes
on
land are high, the cities are bound to grow vertically and at a fast
rate.
- If taxes on improvements are high and taxes on land are
low, our
cities will spread over larger and larger areas. They will become
metropolitan areas and they will grow at a much slower rate.
Relatively low taxes on land and
high taxes on improvements will
discourage the owners of vacant lots or underdeveloped land, such as
that used for parking lots, gas stations, hamburger stands, etc., from
improving their land. It will encourage them to keep the land out of
use and to sell later at a profit. This will create an artificial
shortage of land, which in turn will lead to urban blight and
irregular, leapfrog city growth. ...
We have analyzed the effects of
property taxation on improvements as distinguished from those caused by
the incidence of these taxes on land.
- We have found that a high and burdensome tax rate on
improvements
will discourage residential construction, create unemployment, penalize
home-ownership, aggravate the housing shortage and force up rents.
- Yet a low tax rate on land will have similar if not
identical
effects: it will lead to a rise in urban land values, which in turn
will discourage residential construction, create unemployment, penalize
home-ownership, aggravate the housing shortage and force up rents.
The
paradox of property taxation
consists in the fact that lower rates on improvements produce the same
results as higher rates on land and conversely higher rates on
improvements produce the same results as lower rates on land. Read
the whole article
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