Wealth and Want
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Infrastucture

When we build infrastructure — roads, sewage systems, shared water supplies, schools, libraries, hospitals, highways, public transportation, bridges, etc. — we build communities. We make the land served by those amenities far more valuable than it would be in the absence of those amenities. Shopping centers and office buildings seldom get built far away from infrastructure.

Who should pay for infrastructure? How should they pay for it?

Does it make sense to pay for infrastructure through taxes on wages? Does it make sense to pay for infrastructure through taxing capital? Or does it make sense to pay for infrastructure by taxing land value? This website argues that the legitimate way to pay for infrastructure spending is by taxing land value. If we tax land value fully, and that still isn't enough to pay for all the infrastructure we feel it appropriate to build and maintain, then, yes, it may be desirable to supplement taxes on land value with taxes on work or on trade. But don't tax them first!

Think, too, about the effects of building infrastructure in other countries. Who benefits? All the residents? Mostly those who own their own homes and business places? How about the tenants? Do they benefit, or is it their landlord, because they simply end up paying their landlords more rent for the privilege of simply living?

Henry George: The Condition of Labor — An Open Letter to Pope Leo XIII in response to Rerum Novarum (1891)

God’s laws do not change. Though their applications may alter with altering conditions, the same principles of right and wrong that hold when men are few and industry is rude also hold amid teeming populations and complex industries. In our cities of millions and our states of scores of millions, in a civilization where the division of labor has gone so far that large numbers are hardly conscious that they are land-users, it still remains true that we are all land animals and can live only on land, and that land is God’s bounty to all, of which no one can be deprived without being murdered, and for which no one can be compelled to pay another without being robbed. But even in a state of society where the elaboration of industry and the increase of permanent improvements have made the need for private possession of land wide-spread, there is no difficulty in conforming individual possession with the equal right to land. For as soon as any piece of land will yield to the possessor a larger return than is had by similar labor on other land a value attaches to it which is shown when it is sold or rented. Thus, the value of the land itself, irrespective of the value of any improvements in or on it, always indicates the precise value of the benefit to which all are entitled in its use, as distinguished from the value which, as producer or successor of a producer, belongs to the possessor in individual right.

To combine the advantages of private possession with the justice of common ownership it is only necessary therefore to take for common uses what value attaches to land irrespective of any exertion of labor on it. The principle is the same as in the case referred to, where a human father leaves equally to his children things not susceptible of specific division or common use. In that case such things would be sold or rented and the value equally applied.

It is on this common-sense principle that we, who term ourselves single-tax men, would have the community act.

We do not propose to assert equal rights to land by keeping land common, letting any one use any part of it at any time. We do not propose the task, impossible in the present state of society, of dividing land in equal shares; still less the yet more impossible task of keeping it so divided.

We propose — leaving land in the private possession of individuals, with full liberty on their part to give, sell or bequeath it — simply to levy on it for public uses a tax that shall equal the annual value of the land itself, irrespective of the use made of it or the improvements on it. And since this would provide amply for the need of public revenues, we would accompany this tax on land values with the repeal of all taxes now levied on the products and processes of industry — which taxes, since they take from the earnings of labor, we hold to be infringements of the right of property.

This we propose, not as a cunning device of human ingenuity, but as a conforming of human regulations to the will of God.

God cannot contradict himself nor impose on his creatures laws that clash.

If it be God’s command to men that they should not steal — that is to say, that they should respect the right of property which each one has in the fruits of his labor;

And if he be also the Father of all men, who in his common bounty has intended all to have equal opportunities for sharing;

Then, in any possible stage of civilization, however elaborate, there must be some way in which the exclusive right to the products of industry may be reconciled with the equal right to land.

If the Almighty be consistent with himself, it cannot be, as say those socialists referred to by you, that in order to secure the equal participation of men in the opportunities of life and labor we must ignore the right of private property. Nor yet can it be, as you yourself in the Encyclical seem to argue, that to secure the right of private property we must ignore the equality of right in the opportunities of life and labor. To say the one thing or the other is equally to deny the harmony of God’s laws.

But, the private possession of land, subject to the payment to the community of the value of any special advantage thus given to the individual, satisfies both laws, securing to all equal participation in the bounty of the Creator and to each the full ownership of the products of his labor. ...

Nor do we hesitate to say that this way of securing the equal right to the bounty of the Creator and the exclusive right to the products of labor is the way intended by God for raising public revenues. For we are not atheists, who deny God; nor semi-atheists, who deny that he has any concern in politics and legislation.

It is true as you say — a salutary truth too often forgotten — that “man is older than the state, and he holds the right of providing for the life of his body prior to the formation of any state.” Yet, as you too perceive, it is also true that the state is in the divinely appointed order. For He who foresaw all things and provided for all things, foresaw and provided that with the increase of population and the development of industry the organization of human society into states or governments would become both expedient and necessary.

No sooner does the state arise than, as we all know, it needs revenues. This need for revenues is small at first, while population is sparse, industry rude and the functions of the state few and simple. But with growth of population and advance of civilization the functions of the state increase and larger and larger revenues are needed.

Now, He that made the world and placed man in it, He that pre-ordained civilization as the means whereby man might rise to higher powers and become more and more conscious of the works of his Creator, must have foreseen this increasing need for state revenues and have made provision for it. That is to say: The increasing need for public revenues with social advance, being a natural, God-ordained need, there must be a right way of raising them — some way that we can truly say is the way intended by God. It is clear that this right way of raising public revenues must accord with the moral law.

Hence:

It must not take from individuals what rightfully belongs to individuals.

It must not give some an advantage over others, as by increasing the prices of what some have to sell and others must buy.

It must not lead men into temptation, by requiring trivial oaths, by making it profitable to lie, to swear falsely, to bribe or to take bribes.

It must not confuse the distinctions of right and wrong, and weaken the sanctions of religion and the state by creating crimes that are not sins, and punishing men for doing what in itself they have an undoubted right to do.

It must not repress industry. It must not check commerce. It must not punish thrift. It must offer no impediment to the largest production and the fairest division of wealth.

Let me ask your Holiness to consider the taxes on the processes and products of industry by which through the civilized world public revenues are collected — the octroi duties that surround Italian cities with barriers; the monstrous customs duties that hamper intercourse between so-called Christian states; the taxes on occupations, on earnings, on investments, on the building of houses, on the cultivation of fields, on industry and thrift in all forms. Can these be the ways God has intended that governments should raise the means they need? Have any of them the characteristics indispensable in any plan we can deem a right one?

All these taxes violate the moral law. They take by force what belongs to the individual alone; they give to the unscrupulous an advantage over the scrupulous; they have the effect, nay are largely intended, to increase the price of what some have to sell and others must buy; they corrupt government; they make oaths a mockery; they shackle commerce; they fine industry and thrift; they lessen the wealth that men might enjoy, and enrich some by impoverishing others.

Yet what most strikingly shows how opposed to Christianity is this system of raising public revenues is its influence on thought.

Christianity teaches us that all men are brethren; that their true interests are harmonious, not antagonistic. It gives us, as the golden rule of life, that we should do to others as we would have others do to us. But out of the system of taxing the products and processes of labor, and out of its effects in increasing the price of what some have to sell and others must buy, has grown the theory of “protection,” which denies this gospel, which holds Christ ignorant of political economy and proclaims laws of national well-being utterly at variance with his teaching. This theory sanctifies national hatreds; it inculcates a universal war of hostile tariffs; it teaches peoples that their prosperity lies in imposing on the productions of other peoples restrictions they do not wish imposed on their own; and instead of the Christian doctrine of man’s brotherhood it makes injury of foreigners a civic virtue.

“By their fruits ye shall know them.” Can anything more clearly show that to tax the products and processes of industry is not the way God intended public revenues to be raised?

But to consider what we propose — the raising of public revenues by a single tax on the value of land irrespective of improvements — is to see that in all respects this does conform to the moral law.

Let me ask your Holiness to keep in mind that the value we propose to tax, the value of land irrespective of improvements, does not come from any exertion of labor or investment of capital on or in it — the values produced in this way being values of improvement which we would exempt. The value of land irrespective of improvement is the value that attaches to land by reason of increasing population and social progress. This is a value that always goes to the owner as owner, and never does and never can go to the user; for if the user be a different person from the owner he must always pay the owner for it in rent or in purchase-money; while if the user be also the owner, it is as owner, not as user, that he receives it, and by selling or renting the land he can, as owner, continue to receive it after he ceases to be a user.

Thus, taxes on land irrespective of improvement cannot lessen the rewards of industry, nor add to prices,* nor in any way take from the individual what belongs to the individual. They can take only the value that attaches to land by the growth of the community, and which therefore belongs to the community as a whole.

* As to this point it may be well to add that all economists are agreed that taxes on land values irrespective of improvement or use — or what in the terminology of political economy is styled rent, a term distinguished from the ordinary use of the word rent by being applied solely to payments for the use of land itself — must be paid by the owner and cannot be shifted by him on the user. To explain in another way the reason given in the text: Price is not determined by the will of the seller or the will of the buyer, but by the equation of demand and supply, and therefore as to things constantly demanded and constantly produced rests at a point determined by the cost of production — whatever tends to increase the cost of bringing fresh quantities of such articles to the consumer increasing price by checking supply, and whatever tends to reduce such cost decreasing price by increasing supply. Thus taxes on wheat or tobacco or cloth add to the price that the consumer must pay, and thus the cheapening in the cost of producing steel which improved processes have made in recent years has greatly reduced the price of steel. But land has no cost of production, since it is created by God, not produced by man. Its price therefore is fixed —

1 (monopoly rent), where land is held in close monopoly, by what the owners can extract from the users under penalty of deprivation and consequently of starvation, and amounts to all that common labor can earn on it beyond what is necessary to life;
2 (economic rent proper), where there is no special monopoly, by what the particular land will yield to common labor over and above what may be had by like expenditure and exertion on land having no special advantage and for which no rent is paid; and,
3 (speculative rent, which is a species of monopoly rent, telling particularly in selling price), by the expectation of future increase of value from social growth and improvement, which expectation causing landowners to withhold land at present prices has the same effect as combination.

Taxes on land values or economic rent can therefore never be shifted by the landowner to the land-user, since they in no wise increase the demand for land or enable landowners to check supply by withholding land from use. Where rent depends on mere monopolization, a case I mention because rent may in this way be demanded for the use of land even before economic or natural rent arises, the taking by taxation of what the landowners were able to extort from labor could not enable them to extort any more, since laborers, if not left enough to live on, will die. So, in the case of economic rent proper, to take from the landowners the premiums they receive, would in no way increase the superiority of their land and the demand for it. While, so far as price is affected by speculative rent, to compel the landowners to pay taxes on the value of land whether they were getting any income from it or not, would make it more difficult for them to withhold land from use; and to tax the full value would not merely destroy the power but the desire to do so.

To take land values for the state, abolishing all taxes on the products of labor, would therefore leave to the laborer the full produce of labor; to the individual all that rightfully belongs to the individual. It would impose no burden on industry, no check on commerce, no punishment on thrift; it would secure the largest production and the fairest distribution of wealth, by leaving men free to produce and to exchange as they please, without any artificial enhancement of prices; and by taking for public purposes a value that cannot be carried off, that cannot be hidden, that of all values is most easily ascertained and most certainly and cheaply collected, it would enormously lessen the number of officials, dispense with oaths, do away with temptations to bribery and evasion, and abolish man-made crimes in themselves innocent.

But, further: That God has intended the state to obtain the revenues it needs by the taxation of land values is shown by the same order and degree of evidence that shows that God has intended the milk of the mother for the nourishment of the babe.

See how close is the analogy. In that primitive condition ere the need for the state arises there are no land values. The products of labor have value, but in the sparsity of population no value as yet attaches to land itself. But as increasing density of population and increasing elaboration of industry necessitate the organization of the state, with its need for revenues, value begins to attach to land. As population still increases and industry grows more elaborate, so the needs for public revenues increase. And at the same time and from the same causes land values increase. The connection is invariable. The value of things produced by labor tends to decline with social development, since the larger scale of production and the improvement of processes tend steadily to reduce their cost. But the value of land on which population centers goes up and up. Take Rome or Paris or London or New York or Melbourne. Consider the enormous value of land in such cities as compared with the value of land in sparsely settled parts of the same countries. To what is this due? Is it not due to the density and activity of the populations of those cities — to the very causes that require great public expenditure for streets, drains, public buildings, and all the many things needed for the health, convenience and safety of such great cities? See how with the growth of such cities the one thing that steadily increases in value is land; how the opening of roads, the building of railways, the making of any public improvement, adds to the value of land. Is it not clear that here is a natural law — that is to say a tendency willed by the Creator? Can it mean anything else than that He who ordained the state with its needs has in the values which attach to land provided the means to meet those needs?

That it does mean this and nothing else is confirmed if we look deeper still, and inquire not merely as to the intent, but as to the purpose of the intent. If we do so we may see in this natural law by which land values increase with the growth of society not only such a perfectly adapted provision for the needs of society as gratifies our intellectual perceptions by showing us the wisdom of the Creator, but a purpose with regard to the individual that gratifies our moral perceptions by opening to us a glimpse of his beneficence.

Consider: Here is a natural law by which as society advances the one thing that increases in value is land — a natural law by virtue of which all growth of population, all advance of the arts, all general improvements of whatever kind, add to a fund that both the commands of justice and the dictates of expediency prompt us to take for the common uses of society. Now, since increase in the fund available for the common uses of society is increase in the gain that goes equally to each member of society, is it not clear that the law by which land values increase with social advance while the value of the products of labor does not increase, tends with the advance of civilization to make the share that goes equally to each member of society more and more important as compared with what goes to him from his individual earnings, and thus to make the advance of civilization lessen relatively the differences that in a ruder social state must exist between the strong and the weak, the fortunate and the unfortunate? Does it not show the purpose of the Creator to be that the advance of man in civilization should be an advance not merely to larger powers but to a greater and greater equality, instead of what we, by our ignoring of his intent, are making it, an advance toward a more and more monstrous inequality? ...

But worse perhaps than all else is the way in which this substituting of vague injunctions to charity for the clear-cut demands of justice opens an easy means for the professed teachers of the Christian religion of all branches and communions to placate Mammon while persuading themselves that they are serving God. Had the English clergy not subordinated the teaching of justice to the teaching of charity — to go no further in illustrating a principle of which the whole history of Christendom from Constantine’s time to our own is witness — the Tudor tyranny would never have arisen, and the separation of the church been averted; had the clergy of France never substituted charity for justice, the monstrous iniquities of the ancient régime would never have brought the horrors of the Great Revolution; and in my own country had those who should have preached justice not satisfied themselves with preaching kindness, chattel slavery could never have demanded the holocaust of our civil war.

No, your Holiness; as faith without works is dead, as men cannot give to God his due while denying to their fellows the rights be gave them, so charity unsupported by justice can do nothing to solve the problem of the existing condition of labor. Though the rich were to “bestow all their goods to feed the poor and give their bodies to be burned,” poverty would continue while property in land continues.

Take the case of the rich man today who is honestly desirous of devoting his wealth to the improvement of the condition of labor. What can he do?

  • Bestow his wealth on those who need it? He may help some who deserve it, but will not improve general conditions. And against the good he may do will be the danger of doing harm.
  • Build churches? Under the shadow of churches poverty festers and the vice that is born of it breeds.
  • Build schools and colleges? Save as it may lead men to see the iniquity of private property in land, increased education can effect nothing for mere laborers, for as education is diffused the wages of education sink.
  • Establish hospitals? Why, already it seems to laborers that there are too many seeking work, and to save and prolong life is to add to the pressure.
  • Build model tenements? Unless he cheapens house accommodations he but drives further the class he would benefit, and as he cheapens house accommodations he brings more to seek employment and cheapens wages.
  • Institute laboratories, scientific schools, workshops for physical experiments? He but stimulates invention and discovery, the very forces that, acting on a society based on private property in land, are crushing labor as between the upper and the nether millstone.
  • Promote emigration from places where wages are low to places where they are somewhat higher? If he does, even those whom he at first helps to emigrate will soon turn on him to demand that such emigration shall be stopped as reducing their wages.
  • Give away what land he may have, or refuse to take rent for it, or let it at lower rents than the market price? He will simply make new landowners or partial landowners; he may make some individuals the richer, but he will do nothing to improve the general condition of labor.
  • Or, bethinking himself of those public-spirited citizens of classic times who spent great sums in improving their native cities, shall he try to beautify the city of his birth or adoption? Let him widen and straighten narrow and crooked streets, let him build parks and erect fountains, let him open tramways and bring in railroads, or in any way make beautiful and attractive his chosen city, and what will be the result? Must it not be that those who appropriate God’s bounty will take his also? Will it not be that the value of land will go up, and that the net result of his benefactions will be an increase of rents and a bounty to landowners? Why, even the mere announcement that he is going to do such things will start speculation and send up the value of land by leaps and bounds.

What, then, can the rich man do to improve the condition of labor?

He can do nothing at all except to use his strength for the abolition of the great primary wrong that robs men of their birthright. The justice of God laughs at the attempts of men to substitute anything else for it. ... read the whole letter

Henry George: The Wages of Labor

Take Rome, or Paris, or London, or New York, or Melbourne. Consider the enormous value of land in such cities as compared with the value of land in sparsely settled parts of the same countries. To what is this due? Is it not due to the density and activity of the populations of those cities – to the very causes that require great public expenditure for streets, drains, public buildings, and all the many things needed for the health, convenience, and safety of such great cities? See how with the growth of such cities the one thing that steadily increases in value is land; how the opening of roads, the building of railways, the making of any public improvement, adds to the value of land.  ...  read the whole article

Henry George: The Increasing Importance of Social Questions (Chapter 1 of Social Problems, 1883)

[08] In the rude beginning, each family produces its own food, makes its own clothes, builds its own house, and, when it moves, furnishes its own transportation. Compare with this independence the intricate interdependence of the denizens of a modern city. They may supply themselves with greater certainty, and in much greater variety and abundance, than the savage; but it is by the cooperation of thousands. Even the water they drink, and the artificial light they use, are brought to them by elaborate machinery, requiring the constant labor and watchfulness of many men. They may travel at a speed incredible to the savage; but in doing so resign life and limb to the care of others. A broken rail, a drunken engineer, a careless switchman, may hurl them to eternity. And the power of applying labor to the satisfaction of desire passes, in the same way, beyond the direct control of the individual. The laborer becomes but part of a great machine, which may at any time be paralyzed by causes beyond his power, or even his foresight. Thus does the well-being of each become more and more dependent upon the well-being of all — the individual more and more subordinate to society.

[11] In a simpler state master and man, neighbor and neighbor, know each other, and there is that touch of the elbow which, in times of danger, enables society to rally. But present tendencies are to the loss of this. In London, dwellers in one house do not know those in the next; the tenants of adjoining rooms are utter strangers to each other. Let civil conflict break or paralyze the authority that preserves order and the vast population would become a terror-stricken mob, without point of rally or principle of cohesion, and your London would be sacked and burned by an army of thieves. London is only the greatest of great cities. What is true of London is true of New York, and in the same measure true of the many cities whose hundreds of thousands are steadily growing toward millions. These vast aggregations of humanity, where he who seeks isolation may find it more truly than in the desert; where wealth and poverty touch and jostle; where one revels and another starves within a few feet of each other, yet separated by as great a gulf as that fixed between Dives in Hell and Lazarus in Abraham's bosom — they are centers and types of our civilization. Let jar or shock dislocate the complex and delicate organization, let the policeman's club be thrown down or wrested from him, and the fountains of the great deep are opened, and quicker than ever before chaos comes again. Strong as it may seem, our civilization is evolving destructive forces. Not desert and forest, but city slums and country roadsides are nursing the barbarians who may be to the new what Hun and Vandal were to the old.

[18] The evils that begin to appear spring from the fact that the application of intelligence to social affairs has not kept pace with the application of intelligence to individual needs and material ends. Natural science strides forward, but political science lags. With all our progress in the arts which produce wealth, we have made no progress in securing its equitable distribution. Knowledge has vastly increased; industry and commerce have been revolutionized; but whether free trade or protection is best for a nation we are not yet agreed. We have brought machinery to a pitch of perfection that, fifty years ago, could not have been imagined; but, in the presence of political corruption, we seem as helpless as idiots. The East River bridge is a crowning triumph of mechanical skill; but to get it built a leading citizen of Brooklyn had to carry to New York sixty thousand dollars in a carpet bag to bribe New York aldermen. The human soul that thought out the great bridge is prisoned in a crazed and broken body that lies bedfast, and could watch it grow only by peering through a telescope. Nevertheless, the weight of the immense mass is estimated and adjusted for every inch. But the skill of the engineer could not prevent condemned wire being smuggled into the cable. ... read the entire essay


Winston Churchill: The People's Land  

Every form of enterprise only undertaken after the land monopolist has skimmed the cream off for himself   It does not matter where you look or what examples you select, you will see that every form of enterprise, every step in material progress, is only undertaken after the land monopolist has skimmed the cream off for himself, and everywhere today the man or the public body who wishes to put land to its highest use is forced to pay a preliminary fine in land values to the man who is putting it to an inferior use, and in some cases to no use at all. All comes back to the land value, and its owner for the time being is able to levy his toll upon all other forms of wealth and upon every form of industry. A portion, in some cases the whole, of every benefit which is laboriously acquired by the community is represented in the land value, and finds its way automatically into the landlord's pocket. If there is a rise in wages, rents are able to move forward, because the workers can afford to pay a little more. If the opening of a new railway or a new tramway or the institution of an improved service of workmen's trains or a lowering of fares or a new invention or any other public convenience affords a benefit to the workers in any particular district, it becomes easier for them to live, and therefore the landlord and the ground landlord, one on top of the other, are able to charge them more for the privilege of living there.

The landowner absorbs a share of almost every public and private benefit  
  • Some years ago in London there was a tollbar on a bridge across the Thames, and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted on so large a proportion of their earnings appealed to the public conscience, an agitation was set on foot, municipal authorities were roused, and at the cost of the ratepayers the bridge was freed and the toll removed. All those people who used the bridge were saved sixpence a week. Within a very short period from that time the rents on the south side of the river were found to have advanced by about sixpence a week, or the amount of the toll which had been remitted.
  • And a friend of mine was telling me the other day that in the parish of Southwark about L350 a year, roughly speaking, was given away in doles of bread by charitable people in connection with one of the churches, and as a consequence of this the competition for small houses, but more particularly for single-roomed tenements, is, we are told, so great that rents are considerably higher than in the neighbouring district. All goes back to the land, and the landowner, who in many cases, in most cases, is a worthy person utterly unconscious of the character of the methods by which he is enriched, is enabled with resistless strength to absorb to himself a share of almost every public and every private benefit, however important or however pitiful those benefits may be.
Now let the Manchester Ship Canal tell its tale about the land. It has a story to tell which is just as simple and just as pregnant as its story about Free Trade. When it was resolved to build the Canal, the first thing that had to be done was to buy the land. Before the resolution to build the Canal was taken, the land on which the Canal flows -- or perhaps I should say 'stands' -- was, in the main, agricultural land, paying rates on an assessment from 30s. to L2 an acre. I am told that 4,495 acres of land purchased fell within that description out of something under 5,000 purchased altogether. Immediately after the decision, the 4,495 acres were sold for L777,000 sterling -- or an average of L172 an acre -- that is to say, five or six times the agricultural value of the land and the value on which it had been rated for public purposes.

Now what had the landowner done for the community; what enterprise had he shown; what service had he rendered; what capital had he risked in order that he should gain this enormous multiplication of the value of his property! I will tell you in one word what he had done. Can you guess it! Nothing.

But it was not only the owners of the land that was needed for making the Canal, who were automatically enriched. All the surrounding land either having a frontage on the Canal or access to it rose and rose rapidly, and splendidly, in value. By the stroke of a fairy wand, without toil, without risk, without even a half-hour's thought many landowners in Salford, Eccles, Stretford, Irlam, Warrington Runcorn, etc., found themselves in possession of property which had trebled, quadrupled, quintupled in value.

Apart from the high prices which were paid, there was a heavy bill for compensation, severance, disturbance, and injurious affection where no land was taken -- injurious affection, namely, raising the land not taken many times in value -- all this was added to the dead-weight cost of construction. All this was a burden on those whose labour skill, and capital created this great public work. Much of this land today is still rated at ordinary agricultural value, and in order to make sure that no injustice is done, in order to make quite certain that these landowners are not injured by our system of government, half their rates are, under the Agricultural Rates Act, paid back to them. The balance is made up by you. The land is still rising in value, and with every day's work that every man in this neighbourhood does and with every addition to the prosperity of Manchester and improvement of this great city, the land is further enhanced in value. ... Read the whole piece

Charles B. Fillebrown: A Catechism of Natural Taxation, from Principles of Natural Taxation (1917)

Q3. What is meant by economic rent?
A. Gross ground rent -- the annual site value of land -- what land, including any quality or content of the land itself, is worth annually for use -- what the land does or would command for use per annum if offered in open market -- the annual value of the exclusive use in control of a given area of land, involving the enjoyment of those "rights and privileges thereto pertaining" which are stipulated in every title deed, and which, enumerated specifically, are as follows: right and ease of access to

* water, and
* health inspection,
* sewerage,
* fire protection,
* police,
* schools,
* libraries,
* museums,
* parks,
* playgrounds,
* steam and electric railway service,
* gas and electric lighting,
* telegraph and telephone service,
* subways,
* ferries,
* churches,
* public schools,
* private schools,
* colleges,
* universities,
* public buildings --

utilities which depend for their efficiency and economy on the character of the government; which collectively constitute the economic and social advantages of the land which are due to the presence and activity of population, and are inseparable therefrom, including the benefit of proximity to, and command of, facilities for commerce and communication with the world -- an artificial value created primarily through public expenditure of taxes. For the sake of brevity, the substance of this definition may be conveniently expressed as the value of "proximity." It is ordinarily measured by interest on investment plus taxes.

Q18. You would not say that the supply of land can be increased?
A. No; but fresh demand is constantly requiring not only an increase in the public equipment of land already in use, but also the constant extension of such equipment to new area.

... read the whole article

Everett Gross: Explaining Rent

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

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

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

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

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

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

Now I don't need to use the word "rent" in that explanation.

Everett Gross and Dave Wetzel: Explaining Rent

... A gentleman came to the town to build a factory and he chose a woman realtor. He described to the realtor the exact size of the piece of land he needs to build his factory.

She said, "Come with me; I have got exactly that size piece of land." They get into the automobile and drive down the freeway, and drive off the freeway onto a local road, drive off the local road onto a country road, drive off the country road onto a dirt track, and in the middle of nowhere they get out of the automobile, and walk for 10 minutes through marsh, bog, bushes, and eventually they get to this site. She said "here you are, this site is for sale, it is $10,000."

The factory builder looks around and asks, "Is that the only access, or is there a nice highway on the other side of the field?"

She said, "No, that's the only access."

He said "Have you got any energy coming to the site? Gas? Water? Sewage" Cable?"

She said, "No, there is none of that out here." ... Read the whole story

William F. Buckley, Jr.: Home Dear Home

The real estate boom is a familiar phenomenon. Most people are predicting that it will, if not burst, at least wilt. But the basic components aren't going to change, not unless we have a catastrophe of sorts, something economists don't feel obliged to integrate into their speculations.

The components are:

  • a relatively wealthy community;
  • the hard desire to own one's own house, along with the ambition to make it more and more comfortable and pleasing;
  • the dependence of building sites on immediate amenities (sewage, power); and
  • strategic sources of nourishment (jobs).

The convenience of infinitely available land faded as urbanization brought on heavy dependence on elements that weren't always available to homes on the range. Schools and hospitals are not only useful for educating children and curing the infirm. They are necessary to attract affluent home buyers. ... read the whole column

 

Nic Tideman:  Land Taxation and Efficient Land Speculation

One consequence of levying additional taxes on land is that it becomes possible to lower taxes on other things. One of the things most likely to be taxed less when land is taxed more is improvements. Lowering taxes on improvements makes the present value of land development very much less costly, and hence is likely to accelerate development although it would be possible to construct cases in which the effect of lowering taxes on improvements would be to postpone development. Whether it retards or accelerates development, the lowering of taxes on improvements results in more intensive development when development occurs. The possibility of promoting more intensive development by reducing or eliminating taxes on improvements is an important beneficial effect of an increase in taxes on land.

A second consequence of levying additional taxes on land is that it becomes possible to price public services more efficiently. Services to land such as sewers, water and electricity are used most effectively when they are priced at marginal cost. The costs of these services, however, are generally such that the sum of marginal costs will not cover total costs. Land taxes have the potential to provide a fund to cover the difference between total costs and the sum of marginal costs. If land taxes are so used, the reductions in the costs of using services that complement development will promote more efficient development....  Read the whole article


Karl Williams:  Land Value Taxation: The Overlooked But Vital Eco-Tax
I. Historical overview
II. The problem of sprawl
III. Affordable and efficient public transport
IV. Agricultural benefits
V. Financial concerns
VI. Conclusion: A greater perspective
Appendix: "Natural Capitalism" -- A Case Study in Blindness to Land Value Taxation

While, at first sight, the prospect of sprawling cities with lots of open space and possible greenery might be appealing from an environmental perspective, a closer examination should lead to a different conclusion. The inducement to collect windfall profits (resulting from the failure of society to apply LVT) encourages some landholders to withhold vacant land from the market and forces new development to "leapfrog" this land and move further out. Hence there is an unnecessary outlay in roads, pipelines, power supplies and other infrastructure which must service a greater area. Commuting journeys, similarly, must now consume greater resources. Financially inducing land to be put to its optimal use is not "flogging" the land, but is rather ensuring land is carefully used and that we only exploit as much as we properly need.  ...

But LVT has much more to contribute to the question of low-impact urban function, in the form of affordable and efficient public transport and other desirable infrastructure. The principle reason why public transport options are presently so limited is because the taxpayer-funded investment in this and other forms of infrastructure effectively disappears, in an almost unseen manner, into the "Black Hole" of landowners' pockets.

That is, not only is the resulting compact cityscape more amenable to the provision of public transport (not to mention walking and riding), but LVT makes the investment in such infrastructure affordable because the resulting enhanced land values are "recycled" back into public coffers. The extension of London's Jubilee line underground network, which opened in 1999, provides a good case in point of how desirable infrastructure can be self-funding if land values are recaptured. An independent study was performed which assessed the increase in land values extending to 800 yards from each of the 10 stations. The accumulated gain (to private landowners) was estimated to be around £13 billion, courtesy of the £3.5 billion of taxpayers funds it took to build the line!   read the entire article

Mason Gaffney: Nonpoint Pollution: Tractable Solutions to Intractable Problems The Special Challenge to Economic Thinking
The Search for Surrogates
Sources of Nonpoint Pollution
What Problems are Created?
What Problems are Unsolved by Excise Taxes on Surrogates?
The Case of Forestry
The Case of Urban Settlement
The Case of Agriculture
The Common Theme from Forest, City and Farm
Solutions

Major sources of nonpoint pollution are:
    * agriculture,
    * forestry,
    * mining,
    * recreation,
    * paving and rooftops,
    * roads,
    * lawns and gardens,
    * onsite industrial waste dumps, and
    * military, for a start.
To these I would add
    * the class of moving point sources, like autos and vessels and aircraft, which have part of the elusive character of nonpoint sources.  I would add
    * septic tanks; and
    * moonlight dumpers; and
    * everything served by a storm sewer, or no sewer at all. 

"Construction" is usually added, but construction per se is innocent and should not bear the onus.  It is rather grading, the destruction that precedes construction on new lands, that denudes land and allows runoff and blowing.  Filling can be noxious, too, when it takes wetlands that otherwise help filter runoff before it hits shellfish beds and beaches.  

So nice a distinction may seem picky, but it is heavy with policy meaning.  The Sears Tower and the Empire State Building probably caused less runoff than any modern cookie‑cutter subdivision.  We can have needed construction without grading and filling by renewing and infilling our cities instead of promoting more urban sprawl.  Milwaukee in the last 20 years has lost 20% of its population.  Buildings are boarded up and land lies vacant while dozers and scrapers tear up new land upstream of it.  At least one‑third of Milwaukee, perhaps more, could and should be renewed forthwith, obviating much of the random lateral expansion onto new land whose runoff now causes so much grief down here.  

Within agriculture it is common to hear that tillage is the problem; the solution, evidently, is grazing.  On some lands that is true, but the generalization is not.  On other more fragile lands, grazing causes runoff.  Not for nothing are sheep called "woolly maggots," and the Arab called the father, rather than the son of the desert.  Exploitive high-grading grazing, leaving weeds to take over the range, is another form of pollution — biological pollution, depleting the gene pool.  As with all land problems, "where" and "when" are as important as "what."  "A place for everything, and everything in its place," the slogan of land economics, is the proper watchword.  

We sometimes hear that good organic manure is the answer.  But on feedlots, too much of a good thing becomes a nonpoint pollutant.  Cities in the upper Santa Ana River basin must provide tertiary sewage treatment, but the largest concentration of dairy cattle in the world, in the Chino basin, drains into the same waters.  Next time you visit Disneyland if the water reminds you of Wisconsin, there may be a reason.  (Chino, ironically, is in an agricultural preserve, to enhance the environment.)  These feedlots also overlie what might be one of our most usable aquifers, in a region in sorest need of water storage.  

Cities like Milwaukee are painted as victims of nonpoint pollution, but within cities the great anomaly is that the output of sanitary sewers is monitored and treated while that of storm sewers is not.  A few blocks from this meeting in downtown Milwaukee you can see coal and salt stored in the open, draining directly into the Harbor with each rain.  

In Riverside, the local scatological whimsy is "Flush your toilets, Orange County needs the water."  It relieves the local inferiority complex, but actually that water gets tertiary treatment.  It is our storm runoff that's dirty.  Some cities of course have only one set of sewers, but that creates problems of its own which Milwaukee knows well.  

In Riverside we have also poisoned many of our own water wells with toxic percolation from farm and industry wastes which, since they are inside our expansive city limits, we cannot blame on others; but which our prudent city fathers prefer not to identify too closely.   Read the entire article

Jeff Smith and Kris Nelson: Giving Life to the Property Tax Shift (PTS)
John Muir is right. "Tug on any one 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. ...

What's won or lost is a value generated by society. That is, land rises in value
  • where a new resource is discovered (during a gold rush, more money is made by land developers than by prospectors),
  • where population grows (see the Sun Belt and verdant Northwest),
  • where technology advances (witness the land values in the various Silicon Valleys, Forests, etc),
  • where infrastructure expands (e.g., near a new road or sewer), and
  • where society cooperates (e.g., in communities that organize street fairs, neighborhood watches, etc).
These factors driving land value are not improvements made by lone owners but by the entire community. The closest correlation to land value is density and no one person creates that. Hence the site value levy merely puts public values in the public treasury for public benefit, as untaxing homes, sales, and income leaves privately-generated values in private pockets. ...

The failed policy that the PTS would replace is the present property tax. This is actually two taxes in one, one on land and another on improvements. The tax on improvements penalizes owners for improving. This negative incentive does its greatest damage at the margin, where profit is slim. There, rather than pay a higher tax, owners let buildings dilapidate into slums. The lack of much tax on land keeps overhead on speculators affordable. This negative incentive lets owners under-utilize prime sites, even withhold them from use entirely. Kept from prime sites, development sprawls outward.

Sprawl inflates the values of suburban and rural land. Leap-frog development raises a few spikes in a land value map that soon pull up values everywhere, increasing the property tax burden of owners of previously developed sites, unless the tax is capped. The resultant sprawl also raises enormously the cost of extending infrastructure and makes auto-dependency a given.

The PTS reverses all these negative consequences.
  • Rather than burden construction, taxing only land spares it.
  • Rather than spread development (hooking us on cars), taxing land concentrates it (providing a market for mass transit).
  • Rather than inflate land price, a land tax squashes it.
  • Rather than enrich the owners of prime sites or itself, a land-taxing government could rebate some collected site rent as a dividend, perhaps in the form of a Housing Voucher, making home ownership inflation-proof.
A big problem needs a big solution which in turn needs a 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


Jeff Smith: Leaking Economic Value of Communities
Wearing pajamas outdoors in the winter, one wouldn’t expect to retain body heat. Yet, people do try to sustain community while hemorrhaging its commonwealth. Losing it, residents must work more than necessary.

When residents import food and energy, they deprive others in the community of income. Yet, the loss pales when compared to paying mortgages and [income] taxes. A recent study of Oakland, CA found torrents of dollars pumped out of town headed for the treasuries of distant capitols and the bank vaults of distant lenders. ...

Cutting out outsiders’ taxes means the locality would have to take over providing the outsiders’ services: nuclear power plants, toxic dumps, scarifying freeways, submarines, whatever. To pay for whatever desired services, from where will the city or county get the money? From themselves, their commonwealth. It’s the money they spend on the nature they use, the prices and rents paid for sites and resources.

How can communities capture that flow of natural values and keep it circulating locally? Get local government to charge some kind of land use fee. Depending on state law, the locality could replace the property tax with a site value tax, raise the fee for defending deeds, levy a fee for resource use, and/or resurrect ancient land dues.

No matter what the mechanism, as the community collects more of its value, that leaves less for owners to capitalize into price; as land dues rise, land prices must fall. Cheap land means buyers need borrow less, shrinking mortgages. Less demand for credit also drops the lending rate. Deflated profits makes real estate less attractive to mega-banks, more suitable to local lenders....  Read the whole article

Jeff Smith: Share Rent, Transform Society

In the past, land owners owed services to king, but in this age of equality then we owe our neighbors. We have an equal right to the earth.

The community creates rent. Land value rises when infrastructure goes on land. Technology progresses when the community becomes more tranquil and density goes up. Density is a really good measure of land value. No one owner by himself is responsible for density. Rent from land value is justified because all should share in the rent.
 
If the community collected the rent, it would motivate owners not to speculate in anticipation of a higher future return. There would be a tendency to infill in the city and make cities more efficient. It would make mass transit more efficient. We could collect some rent in a greater amount as ecological security deposits for gas stations with gas pump brownfields. We could actually put a surcharge on gasoline and put the playing field back to level between cars and other transportation. If we collected ground rent around transit stops and dedicated that income stream to the transit system, we could run a free system. When built, BART (Bay Area CA Rapid Transit) did a study and found it could run BART free. If we had free mass transit, people would choose to ride instead of drive. It becomes more efficient and more people use, increasing the mobility of citizens in the region. If we get people out of cars, that reduces air pollution, noises, run off, and use of resources. ... read the whole article

 

The Most Rev. Dr Thomas Nulty, Roman Catholic Bishop of Meath (Ireland): Back to the Land (1881) 

Land Values intended by Providence for Public Purposes.
I have already observed that the chief peculiarity of the land of a country was that its value was never stationary, that it was always progressive and rising, that in fact it increased in a direct ratio with the growth of the population and the advancing progress of the industry of the nation.

It would seem as if Providence had destined the land to serve as a large economical reservoir, to catch, to collect and preserve the overflowing streams of wealth that are constantly escaping from the great public industrial works that are always going on in communities that are progressive and prosperous.

Besides the permanent improvements that are made in the land itself, and which increase its productiveness and value, there are other industrial works not carried out on the land itself, but on its surroundings and in its vicinity, and which enhance its value very considerably. A new road is made for the accommodation of a district; a new bridge is thrown across a river or a stream to make two important localities accessible to each other; a new railway passes close by and connects it with certain large and important centres of industry; a new factory or a new mill is erected, or a new town is built in the neighbourhood.

Industrial works like these add very materially to the value of all the land in their vicinity. It is a well-known fact that a new railway has in several instances doubled the value of the land through which it passed, in consequence of the increased facilities it had afforded for the sale of its agricultural products.

In every state of society, which is progressive and improving, such industrial works are continually going on, and hence the value of the land is rising also everywhere. But its value rises enormously with the enlarged growth of the population of a nation, and with the increased productiveness of its industry. ...

The Great National Property Which Landlords Are Permitted to Appropriate.
But now the great national property which Providence has destined for the support of the public burdens of society has been diverted from its original purpose to minister to the wants, the necessities, and perhaps the extravagance of a class. The explanation of this extraordinary act of national spoliation will be found in the fact that hitherto this class could just do as it pleased; the government of the country lay for centuries exclusively in its hands, and despite the combined influence of "English radicalism" and "Irish obstructionism" it is practically in its hands still. The enormous value, then, thus superadded to the land from the two sources just indicated passes directly with the land itself into the hands of those who own it.

Those who hold the ownership of the land hold also the ownership of all the accessions of value it receives from all quarters. This increase in the value of their property cost no sacrifice, demanded no painful effort of labour. Even while they slept their rent rolls went on increasing and multiplying.

The value continually imparted to the land by the industrial exertions of the community, in the construction of harbours and bridges, in the making of new roads and railways, in the erection of new factories, mills and houses, etc., has all gone with the land, has all been confiscated and appropriated by the owners of the soil.

Professor Cairnes feels sorely perplexed to account for some of the anomalous results of this appropriation. He says: "A bale of cloth, a machine, a house, owes its value to the labour expended upon it, and belongs to the person who expends or employs the labour; a piece of land owes its value, so far as its value is affected by the causes I am now considering, not to the labour expended on the land, but that expended on something else -- the labour expended in making a railroad or in building houses in an adjoining town; and the value thus added to the land belongs not to the persons who have made the railroads or built the houses, but to someone who may not have been aware that these operations were being carried on -- nay, who perhaps has exerted all his efforts to prevent their being carried on. How many landlords have their rent rolls doubled by railways made in their despite!"

Professor's Unwitting Testimony
It never occurred to Mr. Cairnes that he had here given, quite unconsciously to himself, an unanswerable argument, ex absurdo, to prove the injustice of the appropriation of the land. If the land had not been confiscated no such absurd or unjust result could have followed. The value imparted by labour to the land, exactly like "the bale of cloth, the house or the machine," would belong to the persons who expended or employed that labour, that is to say, to the public, by whose industrial exertions it had been created.

Lastly, the vast accessions of value which the land is constantly receiving from the proceeds of that "self-imposed tax" which the nation levies on itself in the high prices it pays for the "raw products of the soil," together with the increased productiveness of the soil itself, go all, as Mr. Cairnes is forced to confess, "neither to profits nor to wages nor to the public at large, but to swell a fund ever growing, even while its proprietors sleep -- to the rent roll of the owner of the soil."   Read the whole letter

Bill Batt: The Nexus of Transportation, Economic Rent, and Land Use

What is Land Rent?
John Houseman, an actor perhaps most widely known as Professor Kingsfield in the long-running TV series, The Paper Chase, later became the pitchman for Smith Barney. In that advertisement, his tag line was "We make money the old-fashioned way -- we earn it."

That we should earn our money rather than live off the efforts of others seems a simple enough moral tenet. But it seems to have lost its cogency in contemporary economic thought. More than a century ago John Stuart Mill noted that
Landlords grow richer in their sleep without working, risking or economizing. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title.(1)

Today, on the other hand, the unearned surplus which classical economists called rent attaches to monopoly titles -- largely the scarce goods and services of nature like locational sites, and has totally disappeared from economic calculus. Yet this is the primary vehicle by which wealth is captured by economic elites. If government recaptured the socially-created economic rent from land sites that comes from the investment of the collective community, we could eliminate other taxes that are both more onerous and create a drag on the economy that makes us all poorer. There are many websites that explain how this can be done, ways that not only beget greater economic efficiency but also bring about economic justice.(2) The surplus economic rent that derives from community effort is its rightful entitlement.

Where does economic rent most tend to lodge? In the center of cities where people are. And also proximate to heavy social investments -- such as railroad and metro stations, public and office buildings, hotels and conference centers, and anywhere there is high traffic in personal or market exchanges. The land value in New York City is higher than all the rest of the New York state combined, even though it is only a minute fraction of the area. One 9-acre site south of the United Nations Building was recently sold to a developer intent on building luxury condominiums facing the East River. That site sold for $680 million, and would have been higher had the existing structure, an obsolete power plant, not have to be razed.(3) Land values in any given area tend to rise and fall together, and tend also to form a contour somewhat comparable to a topographical survey map. In a city's center are the highest value locations, analogous to a mountain peak. Once one departs from that center, land values fall in direct proportion to the value of their use, made more or less attractive by whatever social attributes are provided in the proximate areas. Two illustrations from small and medium sized cities in the United States illustrate the point. ...

... capital investments affect the market value of locational sites by conveying rent to those in any way benefitting from the service. That rent accruing to proximate sites and can easily recaptured to pay off the debt service of project construction. Typically rent collection is ignored, however, left instead in the hands of titleholders whose sites are serviced by the infrastructure investment. This drives speculation in land, with all the negative effects it brings both economically and politically. In fact the rent created by capital investment in transportation can be enormous.

  • One nine-mile stretch of interstate highway in Albany, New York, costing $125 million to construct has yielded $3.8 billion in increased land values within just two miles of its corridor in the 40 years of its existence.(27) This is a thirty-fold return in a timespan typically used for bond repayment!
  • The Washington Metro created increments in land value along much of the 101-mile system under of construction in 1980 that easily exceeded $3.5 billion, compared with the $2.7 billion of federal funds invested in Metro up until that time.(28) No doubt the return is far greater today.
The component of transportation costs constituting capital expenditure can and should be recaptured through the collection of land rent since it accounts for the creation of that value particular to proximate locational sites.... read the whole article

Bill Batt: The Compatibility of Georgist Economics and Ecological Economics
Any failure to pay back that increment to society, or of government to recapture it in the form of taxes, constituted not only an injustice to the poor but a distortion of economic equilibrium. He witnessed first hand the perverted configurations of land use that today we know as sprawl development— even in his time it was apparent that urban, high value land parcels were being held off the market for speculative gain by meretricious interests. He witnessed also the boom and bust cycles of the land markets on account of such speculation, effects which spread far wider than just land prices. These inevitable cycles would dislocate labor and capital supply, giving impetus to the impoverishment and suffering which he himself had experienced. He understood that holding the most strategically valuable landsites out of circulation constituted a burden on the economy. He understood that financial resources spent to pay exorbitant land prices had a depressing effect on capital and labor. And because government was taxing labor and capital instead of recovering land rent, it was further restricting the job market and the growth of capital. He realized that people who captured monopoly control of strategically valuable landsites could do so because they were privy to information prior to its public release. It was not by any means his insight alone; it was captured also by George Washington Plunkett writing at the same time:
There’s an honest graft, and I’m an example of how it works. I might sum up the whole thing by sayin’: “I seen my opportunities and I took ‘em.”

Just let me explain by examples. My party’s in power in the city, and it’s goin’ to undertake a lot of public improvements. Well, I’m tipped off, say, that they’re going to lay out a new park in a certain place.

I see my opportunity and I take it. I go to that place and I buy up all the land I can in the neighborhood. Then the board of this or that makes its plan public, and there is a rush to get my land, which nobody cared particularly for before.


Ain’t it perfectly honest to charge a good price and make a profit on my investment and foresight? Of course, it is. Well, that’s honest graft. 32

32William L. Riordan, Plunkett of Tammany Hall. New York: Dutton, 1963, p. 3.
All society needed to do was to collect the economic rent from landholders as its rightful due, a solution that became part of the subtitle of his book, “the remedy.” Taxing the land (or, alternatively, collecting the economic rent) was something common citizens could understand. ... read the whole article

 

Bill Batt: Stemming Sprawl: The Fiscal Approach

Land Rent

From the standpoint of an economic geographer and for some land economists, land rent is simply capitalized transportation cost. Land rent is the surplus generated by social activity on or in the vicinity of locational sites that accrues to titleholders of those parcels. Whether or not it is recaptured by public policy, rent is a natural factor deriving from the intensive use of natural capital. One must return to nineteenth-century classical economics to appreciate the importance of economic rent or land rent; neoclassical economic frameworks have largely discarded it.[13] More intensive use of high-value land sites leads to site configurations that are less dependent on transportation services. Land rent is highest where the greatest traffic and market exchanges occur, that being at the center of large conurbations. Comparing land values of urban property parcels, the highest land rent in the urban cores and traffic junctures are analogous to the contours of land elevations. Mountain peaks gradually slope down to valleys and flatland regions and continue outward until at distant points — perhaps at the poles of the earth — land sites have no market value at all.

The differentials in land values are profound, even more than most people realize. In 1995, in the small city of Ithaca, New York, the highest quintile of land had a value of over $56,000 per acre in the downtown center, whereas the lowest quintile only a mile away falls to less than $3,000.[14] Large city centers have far higher site prices. Even in Polk County, Iowa (which includes Des Moines), in the middle of cornfields where I did a study two years ago, the highest urban value land site was $31.3 million per acre, which quickly declined to about $20,000 per acre only about a mile away. In the spring of 1998, one land parcel (the building was to be razed) of less than an acre in New York City's Times Square and split in two pieces by Broadway was sold by Prudential Life to Disney for roughly $240 million.[15] To take another instance, a nine-acre tract on the East River in New York City occupied by an obsolete power plant was purchased by Mort Zuckerman to build high-rise condominiums two years ago. The sale price was in the neighborhood of $680 million and would have been higher were it not for some enormous costs associated with the demolition of the old structures.[16] It should be noted that the overwhelming proportion of land value is in cities; relatively speaking, the site values of peripheral lands, typically used for agriculture and timber growth, are negligible. Land values are high in urban areas because, over time, rent accrues to a site. Each improvement in proximity to a property parcel enhances the value of all other parcels. This makes even unimproved sites attractive objects for speculation, particularly when land sites surrounding it are to be improved by adding either transportation service or new structures. One nine-mile stretch of interstate highway in Albany, New York, costing $125 million to construct, has yielded $3.8 billion in increased land values (constant dollars) within just two miles of its corridor in the forty years of its existence.[17] This is a thirty-fold return in a time span typically used for bond repayment! The Washington Metro created increments in land value along much of the 101-mile system completed by 1980 that easily exceeded $3.5 billion, compared with the $2.7 billion of federal funds invested in Metro up until that time.[18] Any major building construction project, private or public, will have a similar effect on adjacent land sites. Differentials in land value can have a profound effect on decisions made by titleholders, either positively by inducing appropriate development in urban cores or negatively by giving monopoly titleholders power to hold sites out of use for long-term speculative gain. Such decisions of course determine the character of urban configurations and society as well.... read the whole article

 

Nic Tideman: Using Tax Policy to Promote Urban Growth

The efficiency that is entailed in using the rent of land to finance public activities applies to certain other sources of public revenue as well:
1. Charges on any publicly granted privileges, such as the exclusive right to use a portion of the frequency spectrum for radio and TV broadcasts.

2. Payments for extractions of natural resources. Such payments should be set at levels that yield the greatest possible revenue of the resources, in present value terms.

3. Taxes on pollution. Every individual or enterprise that pollutes the air, water or ground should be required to pay the estimated cost of the pollution it generates. The effect of pollution on the rental value of surrounding land is one possible measure of its cost.

4. Taxes on any other activities that reduce the rental value of surrounding land.

5. Taxes on activities such as driving or parking in crowded streets, where one person's activities reduce opportunities for others. The administration of such charges may be so expensive that it is not worth implementing them, but if the administration can be handled sufficiently cheaply, these charges are efficient to the extent that they only charge people for costs imposed on others.

6. Taxes on activities, such as the consumption of alcohol, which impose costs on others (e.g., higher traffic fatalities).

7. Charges for local public services, such as water, electricity, sewer connections, etc. It is not generally desirable to make every service completely self-financing. Rather, what is desirable is that each user be required to pay the marginal cost of the service he receives. Extensions of service networks are efficient when they increase publicly collected land rents by enough to cover the costs not covered by user charges.

8. A self-assessed tax on permanent improvements to land, at a very low rate (perhaps 1/10 of 1% per year). With a self-assessed tax, each possessor of land names a price at which he would be willing to part with the land he possesses (and any immovable improvements). He pays a tax proportional to the value he names, and anyone who wishes to may take over possession at that price. The value of such a tax is that it makes it much easier to assemble land for redevelopment, and to identify appropriate compensation when land is taken for public purposes.

All of the above taxes are positively beneficial and should be collected even if the revenue is not needed for public purposes. Any excess can be returned to the population on an equal per capita basis. If these attractive sources of revenue do not suffice to finance necessary public expenditures, then the least damaging additional tax would probably be a "poll tax," a uniform charge on all residents. If some residents are regarded to be incapable of paying such a tax, then the next most efficient tax is a proportional tax on income up to some specified amount. Then there is no disincentive effect for all persons who reach the tax limit. The next most efficient tax is a proportional tax on all income.

It is important not to tax the profits of corporations. Capital moves from where it is taxed to where it is not, until the same rate of return is earned everywhere. If the city refrains from taxing corporations they will invest more in St. Petersburg. Wages will be higher, and the rent of land, collected by the government, will be higher. The least damaging tax on corporations is one that provides a complete write-off of investments, with a carry-over of tax credits to future years. Such a tax has the effect of making the government a partner in all new investments. With such a tax the government provides, through tax credits, the same share of costs that it later receives in revenues. However, the tax does diminish the incentive for entrepreneurial activity, and it raises no revenue when investment is expanding rapidly. Furthermore, the efficiency of such a tax requires that everyone believe that the tax rate will never change. Thus it is best not to tax the profits of corporations at all. If the people of St. Petersburg want to share in the profits of corporations, then they should invest directly in the corporations, either privately or publicly. The residents of St. Petersburg would be best served by refraining from taxing the profits of corporations. Creating a place where profits are not taxed can be expected to attract so much capital that the resulting rises in wages and in government-collected rents will more than offset what might have been collected by taxing profits.

The taxes that promote urban growth have at least one of two features.

  • The first feature that a growth-promoting tax can have is that it can serve to allocate a naturally occurring resource among competing potential users. Charges for the use of land, for the use of the frequency spectrum and for depleting natural resources share this feature.
  • The second feature that a growth-promoting tax can have is that of being a charge for the costs imposed on the city by the person who pays the tax. This feature is shared by taxes on pollution, taxes on other activities that reduce the value of surrounding land, taxes on imposing congestion and other costs on other residents of the city, charges for the marginal cost of publicly provided services, and a self-assessed tax on property, reflecting the hindrance to future growth represented by existing development.
A city that confines itself to these taxes can expect to attract capital rapidly, and therefore to experience rapid growth, raising the wages of its citizens and the publicly-collected rent of its land. ...Read the whole article

Nic Tideman: Applications of Land Value Taxation to Problems of Environmental Protection, Congestion, Efficient Resource Use, Population, and Economic Growth

Land value taxation is usually thought of as a possible source of revenue for local governments. But the ethical principle that supports it is most coherent when the principal is applied on a global basis: All persons in the world have equal rights to natural opportunities. This does not mean that all persons in the world have equal rights to all land rent. To the extent that the rent of land arises as a result of the provision of infrastructure, that rent is the natural income of the polity that provided the infrastructure, and the logical source for financing it. What all persons in the world have equal rights to is the "pre-development" rental value of land, the rental value that land would have to the potential developer of a new community if there were no community and no infrastructure. To motivate the application of land value taxation to other areas of economic life, I will assume that there is a global agreement that, because all persons have equal rights to natural opportunities, there will be transfers among nations to equalize per capita pre-development rent. The principle behind this agreement is then extended to other issues. ... read the whole article

Nic Tideman: Revenue Sharing under Land Value Taxation

Consider a system of states and localities in which both state and local governments finance their activities by taxing every parcel of land in their jurisdictions, according to the rental value that the parcel would have if it were unimproved. Suppose that a state government placed a tax of 10% on the value that land would have if it were unimproved, and suppose that there was a local project that would cost $95,000 per year and raise the rental value of local land by $100,000 per year. The project would be socially beneficial, and if there were no national tax on the rental value of land, the local government would find that undertaking the project would improve the welfare of its citizens. However, one effect of the project would be to increase by $10,000 (10% of $100,000) the amount of money that the citizens of the locality were required to pay to the state government. Therefore it would not be in their interest to undertake the project. Thus taxation of the rental value of land by both states and localities does not promote efficiency in a federal system. ... read the whole article

 

Frank Stilwell and Kirrily Jordan: The Political Economy of Land: Putting Henry George in His Place

George saw land as a community resource provided by nature, to which every human being had an equal right. He argued that, since land was fixed in supply, the system of private land ownership allowed the wealthy few to enjoy exclusive rights to land and its benefits, while alienating the poorer majority from land ownership and forcing them to pay rent to landowners in order to access this necessary resource. Moreover, the collection of rents by landowners allowed them to increase their wealth without contributing to the productive efforts of society. As the population grew, so too did the demand for land, forcing rents and land values ever higher. In addition, increases in land value resulting from publicly-funded developments, such as roads and public transport systems, unduly benefited landowners at the expense of the community. Such unearned gains from landownership encouraged speculation in land, pushing prices even higher, while exposing the economy to the risks of speculative ‘booms’ and ‘busts’. ...

Indeed, one could say that the term ‘tax’ is a misnomer because what is really involved is value created by the community being retained by the community rather than being appropriated by private landholders. For example, under current arrangements landowners receive ‘windfall’ gains when the market value of their land rises as a result of publicly provided infrastructure being built nearby, or when local government zoning decisions reclassify their land as appropriate for further development. In this way, individual landowners stand to reap huge benefits at the expense of community-generated processes. Such arrangements create an odd incentive: allowing landholders to appropriate the unearned wealth generated by rising land values, thereby rewarding this unproductive activity, while taxing productive endeavour. The Georgist land tax ‘remedy’, by contrast, would eliminate such perverse incentives and thereby more effectively align private and public interests in the use of society’s resources. ... read the whole article

Further reading:

Rick Rybeck: Using Value Capture to Finance Infrastructure and Encourage Compact Development, at http://www.edrgroup.com/ted2006/T3_Rybeck_Rick.pdf.

Fred Harrison: Wheels of Fortune: Self-funding Infrastructure and the Free Market Case for a Land Tax at http://www.iea.org.uk/files/upld-publication307pdf?.pdf.

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