A friend who works
in the advertising world, when he heard about these ideas, smiled and
said "there's your tagline! Location, location, taxation!"
When one is buying a home, the advice one gets includes "buy
the worst house in the best neighborhood." And
of course it is good advice: good neighborhoods appreciate faster than
more poorly located. The amenities that make them good neighborhoods
don't go away, and have nothing to do with who owns the property. For
the same total amount spent, this strategy causes the buyer to prefer the
share of real estate
value). Land appreciates, while buildings depreciate, and if the
share of the property value that is appreciating is high, the total property
is likely to be maximized — without the owner lifting a finger
or spending another dollar! Conversely, if one spends the same amount on a
newer home (or commercial property) on the fringe of town, the largest
the purchase is for the newer house, and the site may not be worth much
at all. Even if the site doubles in value over the next few years,
as the taxpayers provide sewers and city water, fire and police protection,
libraries, schools, etc, the effect on the total value of the property
But why on earth should we allow the owners of either residential site
to privatize land value? They haven't created it, and can't
create it. The rest of us make it valuable, and that value belongs to us
But residential property isn't the biggest part of this story. The most
valuable land in most cities is commercial property in the central business
district and along the major highways that lead to it. Many kinds of
businesses will only thrive if they have a good location, one where customers
can reach them, where they can draw on a pool of employees, and where suppliers
and materials can reach them. Without a good location, many business plans
Many "small businesses" and closely held companies are largely in the
business of being landlords. Tenants come, and tenants go. "Lost our lease"
and "under new management" signs appear, but the landlord keeps collecting
rent, mostly for the location. (If you doubt this, think how much a similar
building would rent for a few miles away, or even several hundred feet
away, in many cases.) Who is entitled to the land rent, the locational
portion of the rent? Tradition says that it is the fellow who owns the
land, and that answer is clearly popular with landlords, but that answer
doesn't hold water if one looks long at the question. Look long at the
Louis Post: Outlines of Louis F. Post's
Lectures, with Illustrative Notes and Charts (1894)
Whoever calmly reflects and candidly decides upon the merits of indirect
taxation must reject it in all its forms. But to do that is to make a great
stride toward accepting the single tax. For the single tax is a form of direct
taxation; it cannot be shifted.11
11. This is usually a stumbling block to those who, without
much experience in economic thought, consider the single tax for the
first time. As soon as they grasp the idea that taxes upon commodities
shift to consumers they jump to the conclusion that similarly taxes upon
land values would shift to the users. But this is a mistake, and the
explanation is simple. Taxes upon what men produce make production more
difficult and so tend toward scarcity in the supply, which stimulates
prices; but taxes upon land, provided the taxes be levied in proportion
to value, tend toward plenty in supply (meaning market supply of course),
because they make it more difficult to hold valuable land idle, and so
"A tax on rent falls wholly on the landlord. There
are no means by which he can shift the burden upon anyone else. . . A
tax on rent, therefore, has no effect other than its obvious one. It
merely takes so much from the landlord and transfers it to the state." — John
Stuart Mill's Prin. of Pol. Ec., book v, ch. iii, sec. 1.
"A tax laid upon rent is borne solely by the owner
of land." — Bascom's Tr., p.159.
"Taxes which are levied on land . . . really fall
on the owner of the land." — Mrs. Fawcett's Pol. Ec. for
Beginners, pp.209, 210.
"A land tax levied in proportion to the rent of land,
and varying with every variation of rents, . . . will fall wholly on
the landlords." — Walker's Pol. Ec., ed. of 1887, p. 413,
"The power of transferring a tax from the person
who actually pays it to some other person varies with the object taxed.
A tax on rents cannot be transferred. A tax on commodities is always
transferred to the consumer." — Thorold Rogers's Pol.
Ec., ch. xxi, 2d ed., p. 285.
"Though the landlord is in all cases the real contributor,
the tax is commonly advanced by the tenant, to whom the landlord is obliged
to allow it in payment of the rent." — Adam Smith's Wealth
of Nations, book v, ch. ii, part ii, art. i.
"The way taxes raise prices is by increasing the
cost of production and checking supply. But land is not a thing of human
production, and taxes upon rent cannot check supply. Therefore, though
a tax upon rent compels land-owners to pay more, it gives them no power
to obtain more for the use of their land, as it in no way tends to reduce
the supply of land. On the contrary, by compelling those who hold land
on speculation to sell or let for what they can get, a tax on land values
tends to increase the competition between owners, and thus to reduce
the price of land." — Progress and Poverty, book viii,
ch. iii, subd. i.
Sometimes this point is raised as a question of shifting
the tax in higher rent to the tenant, and at others as a question of
shifting it to the consumers of goods in higher prices. The principle
is the same. Merchants cannot charge higher prices for goods than their
competitors do, merely because they pay higher ground rents. A country
storekeeper whose business lot is worth but few dollars charges as much
for sugar, probably more, than a city grocer whose lot is worth thousands.
Quality for quality and quantity for quantity, goods sell for about the
same price everywhere. Differences in price are altogether in favor of
places where land has a high value. This is due to the fact that the
cost of getting goods to places of low land value, distant villages for
example, is greater than to centers, which are places of high land value.
Sometimes it is true that prices for some things are higher where land
values are high. Tiffany's goods, for instance, may be more expensive
than goods of the same quality at a store on a less expensive site. But
that is not due to the higher land value; it is because the dealer has
a reputation for technical knowledge and honesty (or has become a fad
among rich people), for which his customers are willing to pay whether
his store is on a high priced-lot or a low-priced one.
Though land value has no effect upon the price of good,
it is easier to sell goods in some locations than in others. Therefore,
though the price and the profit of each sale be the same, or even less,
in good locations than in poorer ones, aggregate receipts and aggregate
profits are much greater at the good location. And it is out of his aggregate,
and not out of each profit, that rent is paid, For example: A cigar store
on a thoroughfare supplies a certain quality of cigar for fifteen cents.
On a side street the same quality of cigar can be bought no cheaper.
Indeed, the cigars there are likely to be poorer, and therefore really
dearer. Yet ground rent on the thoroughfare is very high compared with
ground rent on the sidestreet. How, then, can the first dealer, he who
pays the high ground rent, afford to sell as good or better cigars for
fifteen cents than his competitor of the low priced location? Simply
because he is able to make so many more sales with a given outlay of
labor and capital in a given time that his aggregate profit is greater.
This is due to the advantage of his location, and for that advantage
he pays a premium in higher ground rent. But that premium is not charged
to smokers; the competing dealer of the side street protects them. It
represents the greater ease, the lower cost, of doing a given volume
of business upon the site for which it is paid; add if the state should
take any of it, even the whole of it, in taxation, the loss would be
finally borne by the owner of the advantage which attaches to that site — by
the landlord. Any attempt to shift it to tenant or buyer would be promptly
checked by the competition of neighboring but cheaper land.
"A land-tax, levied in proportion to the rent of
land, and varying with every variation of rent, is in effect a tax on
rent; and as such a tax will not apply to that land which yields no rent,
nor to the produce of that capital which is employed on the land with
a view to profit merely, and which never pays rent; it will not in any
way affect the price of raw produce, but will fall wholly on the landlords." — McCulloch's
Ricardo (3d ed.), p. 207 ...
a. Explanation of Wages and Rent
Differences in the desirableness of land divide Wealth into the two funds,
Wages and Rent. Labor naturally applies its forces to that land from
which, considering all the existing and known circumstances, most Wealth
produced with least expenditure of labor force. Such land is the best. So
long as the best land exceeds demand for it, laborers are upon an equality
of opportunity, and the entire product goes to them as Wages in proportion
to the labor force they respectively expend. But when the supply of the best
land falls below demand for it, some laborers must resort to land where with
an equal expenditure of labor force they produce less wealth than those who
use the best land. The laborers thus excluded from the best land naturally
offer a premium for it, or what is the same thing, offer to work for its
owners for what they might obtain by working for themselves upon the poorer
land. This condition differentiates Rent from Wages. Rent goes to land-owners
as such, irrespective of whether they labor or not; Wages go to laborers
as such, irrespective of whether they own land or not.85
85. Land of every kind may vary in desirableness from other land of the
same kind. Certain farming land, for example, is so fertile that it will
yield to a given application of labor two bushels of wheat to every bushel
that certain other farming land will yield; and it is obvious that, other
things being equal, farmers would prefer the more fertile land. But some
fertile land lies so far away from market that less fertile land lying nearer
is more productive, because it costs less to exchange its products for what
their producer demands; in such cases farmers would prefer the less fertile
land. The same principle applies to all kinds of land. Building lots at or
near a center of residence or business are preferable for most purposes of
residence or business to lots equally good in other respects which are far
Now, the land that is preferable is of course most in demand; and if it
be all in use, with demand for it unsatisfied, competition for the preference
sets in, and gives value to it.
All land cannot be equally desirable. Some excels in fertility. Some is
rich with mineral deposits, a species of fertility. On some,
towns and cities settle, thereby adding to the productiveness of the
labor that uses it, because
these sites are thus made centers of co-operation or trade. And yet production
in the civilized state requires that the producer shall have exclusive possession
of the land lie needs. This necessity inevitably gives to some people more
desirable land than others have, even though all should have an abundance.
Consequently the returns to equal labor are unequal. The man who has land
that is more fertile or better located than that of another gets more wealth
than the other in return for a given expenditure of labor. If, for example,
one with given labor produces 10 bushels of corn from fertile land, equal,
say, to $5 worth of any kind of wealth in the market, and the other with
the same labor produces 8 bushels of corn, or $4 worth of any kind of wealth
in the market, the first receives 2 bushels (or $1) more for his labor than
the other receives for his, though each labors with equal effort, skill,
and intelligence. Or, if the fertility of the land be the same, but its situation
in reference to the market be such that the cost of transportation still
preserves the relation of $5 to $4, the same inequality of wages results.
It is this phenomenon that gives rise to Rent. Rent is the market value of
just such differences in opportunity as are here illustrated. It is a premium
for choice land, for preferential locations, for site, for space.
This premium is a very different thing from compensation for labor. Nor
is the difference modified when premium owners first obtain Wages for work
and with them buy the premium-commanding land. Rent can no more be turned
into compensation for labor by exchanging labor products for the power to
exact it, than a man can be turned into Wealth by exchanging Wealth for him.
Whether the fruits of purchase or of conquest, or of fraud, Rent always constitutes
that part of Wealth which is deducted from current production as premiums
for superior opportunities for production.
Wages and Rent are both drawn from Wealth, and both go
often to the same individual and in the same form of payment, as when
a freehold farmer enjoys
the use of the grain he raises from more fertile land than his neighbors
have, or a city freeholder occupies or receives hire from his house and
lot: but Wages flow from Wealth to labor as compensation for production,
Rent flows from Wealth to land-owners in premiums for allowing labor
to produce Wealth from superior locations. Wages are appurtenant to Labor;
Rent is appurtenant
to Land. It is as laborer that the individual takes Wages, but as land-owner
that he takes Rent. ...
Q36. How is it possible to determine what part of a man's product is
due to land, and what part is due to labor?
A. All products are due wholly to the union of land and labor. Labor is the active
force, land is the passive material; and without both there can be no product
at all. But the part of a man's product that he individually earns, as distinguished
from the part that he obtains by virtue of advantageous location, is determined
by the law of rent — by what his location is worth.
Q40. Under the single tax theory what right have you to tax the value
of "made land," like the Back Bay of Boston? Is not such land
produced by labor?
A. The surface soil is produced by labor. But the foundation —the bottom
of a bay, a swamp, a river, or a hole, is not. "Made land" does not
differ economically from a house. Its materials are produced from one place to
another and adjusted to meet the demand. But nature in the case of the "made
land," as in that of the house, supplies the materials and the foundation.
The value of the Back Bay of Boston is chiefly the value of a location — a
communal value. The single tax would not take the value of "made land";
it would take the value of the space where the "made land" is. ... read the book
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,
* fire protection,
* steam and electric railway service,
* gas and electric lighting,
* telegraph and telephone service,
* public schools,
* private schools,
* 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.
Q8. How about fertility value?
A. On the surface of the globe are countless varieties of exhaustible fertility,
i.e. chemical constituency, differing in kind and degree, from the nitrogen,
hydrogen, oxygen, and carbon of the soil to the carbon of the coal, the gold,
and the diamond. Fertility as an attribute need not be predicated of agricultural
land alone. Economic fertility belongs equally to any other land which yields
to labor its product whether in food, mineral, or metal. Land may be fertile
in wheat, corn, and potatoes. It may be fertile in cotton, in tobacco, or in
rice. It may be fertile in diamonds, in gold, silver, copper, lead, or iron.
It may be fertile in oil, coal, or natural gas, in a water power or water front.
The value of artificial fertility is an improvement value. The value of natural
fertility of any kind is a site value.
Q44. Why, on similar lots of land, should one man with a $10,000 building
be taxed as much as another with a $100,000 building?
A. Because the value of the privilege of occupancy and use is the same in both
... read the whole article
Michael Hudson: The Lies of
the Land: How and why land gets undervalued
Turning land-value gains into
Hiding the free lunch
Two appraisal methods
How land gets a negative value!
Where did all the land value go?
A curious asymmetry
Site values as the economy's "credit sink"
Immortally aging buildings
Real estate industry's priorities
THE FREE LUNCH
* Its cost to citizens
* Its cost to the economy
Hiding the free
BAUDELAIRE OBSERVED that the devil wins at the point where he
convinces humanity that he does not exist. The Financial,
Insurance and Real Estate (FIRE) sectors seem to have adopted a
kindred philosophy that what is not quantified and reported will be
invisible to the tax collector, leaving more to be pledged for
mortgage credit and paid out as interest. It appears to have worked.
To academic theorists as well,
breathlessly focused on their own
particular hypothetical world, the magnitude of land rent and
land-price gains has become invisible. But not to investors. They
out to pick a property whose location value increases faster rate
than the interest charges, and they want to stay away from earnings
on man-made capital -- like improvements. That's earned income,
the "free lunch" they get from land value increases.
Chicago School economists insist
that no free lunch exists. But
when one begins to look beneath the surface of national income
statistics and the national balance sheet of assets and liabilities,
one can see that modern economies are all about obtaining a free
lunch. However, to make this free ride go all the faster, it helps if
the rest of the world does not see that anyone is getting the
proverbial something for nothing - what classical economists
unearned income, most
characteristically in the form of land rent.
You start by using a method of
appraising that undervalues the real
income producer, land. Here's how it's done. ...
For hundreds of years property's
value has been calculated by
discounting its flow of rental income at the going rate of interest.
The lower the interest rate, the higher the price a given rental
stream will justify -- or as property owners express it, the more
years' rent a property will bring. What is so striking about land
values today is that they are rising for reasons independent of their
earnings stream. The major new consideration is their prospect for
future "capital" (that is, land-price) gains. In sum, the ultimate
aim of real estate investors no longer is so much to seek income --
most of which is pledged to their bankers as interest payments on the
property they acquire -- as much as to seek property gains.
Politically opportunites abound. Merely changing zoning in New
York City in the 1980s to allow using commercial loft spaces for
residential purposes had the effect of multiplying asset values five
Whether the gains come from
selling the property or from borrowing
more money against it, the essential phenomenon is the rapid growth
in asset values and real estate's uniquely favored tax treatment.
That's why investors choose real estate instead of bonds or stocks,
and much of the strategy underlying corporate takeovers has followed
the strategies they developed over the past half century.
Nationwide the capital-gains
dimension needs to be incorporated
into the rental revenue statistics to measure real estate's total
returns. This sector's
nearly complete success in escaping the tax
collector has placed an enormous tax burden on everyone else.
Lindy Davies: Land
We tend to have a very romantic conception of land, in this day and age. I'm
not sure why, but I suspect it has to do with how seldom modern people actually
come into contact with the stuff of the earth itself. We deal with burgers...
papers... toilets... Without thinking about the many layers of processing between
hayfield and burger, between tree and paper, between flush and water table.
We think of dropping out of the modern plastic world to go "back to
the land." "The land" is where we go on camping trips.
This romantic conception of land can lead to some dangerously fuzzy thinking.
It leads us to think, for example, that perhaps land used to be absolutely
vital to human life, back in some halcyon, underpopulated past — but
modern technology has long since taken care of that.
Or has it?
Let's think about this question: what is our most valuable natural resource?
— gold, diamonds, precious or strategic minerals? Nope, not even close.
— Oil? Well, it's highly important to industrial civilization, of course,
a matter of great political import — but by no means the most valuable.
— Water? Now we're getting closer: necessary for life, to be sure, and
thus a potential object of wars — but in terms of cost per cubic foot,
not so terribly high, yet.
What is it? Our most valuable natural resource — by leaps and bounds,
more valuable than all the others combined — is urban land. Our most
valuable natural resource is land whose natural fertility is utterly depleted,
it will yield no gems or minerals; its soil is full of toxins. There's nothing
worthwhile about it, except for one vital attribute: where it is. ... read
the whole speech
Mason Gaffney: Land as a
Distinctive Factor of Production
When a firm
adds land to its operation, the
added land is normally farther from
nucleus and not, therefore, homogeneous. The added land is
marginal to the firm in location, not just in quantity. The
marginal location means that more internal transportation cost is
required to integrate the added land with the operation. That is
a prime diseconomy of scale, limiting the optimal area of producing
As a firm expands it takes land from the
margins of neighboring
firms. As Firm A continues to expand, the zone of acquisition
moves farther from A's nucleus, but closer to that of B, its
neighbor. As the zone advances, the contested land becomes of
higher value to B, and lower value to A. Again, this is a matter both
pure quantity and specific location. Military Science would
few winners if it aped Economics and ignored such facts.
It is different when a growing firm adds labor and capital to
operation. These are drawn from the margins of other operations,
but they are marginal only in quantity, not location. They are
homogenous units, and may be added to the core of the growing
operation. That continues to be so, however much Firm A grows, or
shrinks. This is because labor and capital migrate, and their
supplies are a "pool." No one neighbor is singled out for
raiding; there is no locational factor.
This locational factor qualifies the idea of "factor symmetry,"
as developed by Clark and Wicksteed, and expressed in the replacement
of "diminishing returns" by "variable proportions" in
economic analysis. It is impossible to add "homogeneous"
land to an operation: each unit has a unique location, and added land
normally farther from the nucleus.
This consideration, taken alone, would make landholdings tend
uniformity, to minimize internal transport costs. In fact,
landholdings are less uniform than other measures of firm size, like
labor force, capital improvements, sales, and value-added. These
facts are consistent with an hypothesis that the acquisition of land as
store of value, dominated by financial forces tending toward
concentration, interferes with efficiency in land markets. This
hypothesis is further considered in B-11.
Added land, besides being farther from a nucleus, may be farther
street interface. In retailing this is extremely weighty.
In retailing this is extremely weighty - cf. the rule
of 4-3-2-1. Land added to water front parcels may be far from the
shore, and so on.
| A rule of thumb when valuing retail
sites. Divide the lot in quarters, starting from the front.
The first quarter has 40% of the value, then 30%, 20%, and 10%.
Jeff Smith and Kris Nelson: Giving
Life to the Property Tax Shift (PTS)
John Muir is right. "Tug on any
thing and find it connected to everything else in the universe." Tug on
the property tax and find it connected to urban slums, farmland loss,
political favoritism, and unearned equity with disrupted neighborhood
tenure. Echoing Thoreau, the more familiar reforms have failed to
address this many-headed hydra at its root. To think that the root
could be chopped by a mere shift in the property tax base -- from
buildings to land -- must seem like the epitome of unfounded faith. Yet
the evidence shows that state and local tax activists do have a
powerful, if subtle, tool at their disposal. The "stick" spurring
efficient use of land is a higher tax rate upon land, up to even the
site's full annual value. The "carrot" rewarding efficient use of land
is a lower or zero tax rate upon improvements. ...
Not only is the PTS efficient, it is also
fair. For ages, people have debated the just basis for taxation:
ability to pay versus benefits received. The property tax shift settles
the argument in favor of both sides.
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
- First, land "dues" (taxes, fees,
liturgy, or some combination of the forgoing), especially when coupled
with an untaxing of homes, jobs, and enterprises, are inherently
- Second, land dues are scaled
according to site values.
Site values measure not what an owner puts into the "common kitty" but
what one takes out. A prime location
has the most advantages; it's the
one enjoying the best that society and nature have to offer. For owners
to enjoy those locations exclusively, and to pay more for doing so, is
exquisitely just. ...
Walter Rybeck and Ronald Pasquariello: Combating
Modern-day Feudalism: Land as God’s Gift
What gives value
to land. Any
real estate textbook will explain that the three factors for
determining land value are "location, location and location." And any
property owner will affirm this truth. But
what generates locational
value? Three phenomena: God, people and public activities.
- God the creator, Genesis tells us,
everything he had made, and he found it very good." We recognize this
goodness in the fertility of the soil, natural harbors, scenic beauty,
the availability of water, and the subsurface riches of coal, oil,
gold, iron and other substances. The land has a God-given goodness and
is one of the gifts through which God sustains us.
- People create land values simply
because they are
social beings, consumers and producers. The more people concentrated on
a piece of land, the higher its value. The press of population
intensifies the demand for homes, jobs and services; this is what makes
Manhattan far more valuable than downtown Richmond, Virginia, and
Richmond more valuable than Anderson, Indiana, and Anderson more
valuable than an uninhabited Utah crossroad.
- Finally, the public or government
values by providing streets, schools, police protection and other
infrastructures. Opening a subway system for the District of Columbia
in 1976 gave Washington’s blighted downtown a new lease on life. The
subway and its riders are stimulating the economy along all of its
corridors. According to a 1981 congressional study, "a minimum of $2
billion in land values has already been added to the existing land
value base." However, it concluded that "only a trickle" of these new
values finds its way back to local government through the property tax.
The biggest share goes to people "lucky enough to own land within easy
access of Metro stations." ...
the whole article
Jeff Smith: What the Left Must
Do: Share the Surplus
The value of a parcel of land is
initially based on the natural
endowments of the location (“location, location, location”), created
not by an owner but by
whatever created all of us. Next, land
value rises with the presence of society, and grows with the population
of society. It’s highest where society is densest, in the city centers,
typically 2000 times more valuable
than sites in the boondocks. Land values as economic values
disappear whenever society quits respecting one’s claim, as in a war
zone; there, real estate offices nimbly shut down. And while land
titles may be the holy grail of wannabe homeowners, they’re also the
ticket to pocket unearned rent by absentee landlords, such as Donald
Trump.... Read the whole article
Tony Vickers: From Zee to Vee:
using property tax assessments to monitor the economic landscape
economist William Vickrey said that the property
tax is actually two different taxes (Vickrey 1991). That is because
buildings are capital, not land, in the economic sense – even
if, in most legal codes, there is no distinction between land and
improvements made to it which are all lumped together as ‘landed
property’ or real estate. Buildings and other improvements to
land all depreciate over time unless further capital is expended.
Eventually the market value of such improvements may become
negative, owing to the costs that would need to be incurred by
someone wishing to redevelop the site for an alternative use. But
that does not necessarily take away the rental value of the
Much urban blight is caused by
these so-called ‘brown
field’ vacant and under-used sites. However they are often in
valuable locations, with good transport connections. It may be that
owners are speculating that land prices will rise and enable them to
sell at greater profit in the future than now, or it may be that
there is genuinely no market for sites in a particular location
unless the cost of remediation is subsidised as a form of public
investment. Such investment, according to Vickrey and other followers
of Henry George, can be entirely funded from LVT. In a lecture given
in 1991, first published last year, Vickrey claimed:
“Cities have the capacity to
be fully self-financing without dependence on either federal assistance
or on general taxes that are unrelated to benefits received.”
The proviso, according to Vickrey,
is to replace the tax on
buildings with a tax on land value alone – LVT:-
“The property tax combines
one of the best and one of the worst taxes we have. The portion that
falls on sites or land values is the only major tax that is reasonably
free of distortionary effects and is not intolerably regressive”.
Taxing buildings and work done to
improve them discourages such
work. Un-taxing them and taxing land more highly, irrespective of its
actual state of development but based upon its highest and best
immediate potential use, will encourage owners to maintain their
sites and buildings in such a way as to maximise their income. A
remote site or one with conservation or other restrictions will have
a low site value, hence attract low taxes, whereas a high value city
centre derelict site will very soon be redeveloped. The extra
property tax revenue from extending the tax base to sites that are
currently under-taxed (because the tax is based primarily on
building/rental value not site/owner value), ensures public
infrastructure projects can be funded without resource to general
taxes or excessive borrowing on the financial markets. Read
the whole article
H.G. Brown: Significant
Paragraphs from Henry George's Progress & Poverty, Chapter 5: The Basic
Cause of Poverty (in the unabridged: Book
V: The Problem Solved)
The truth is self-evident. Put to any one capable of consecutive thought this
"Suppose there should arise from the English Channel or the German
Ocean a no man's land on which common labor to an unlimited amount should
to make thirty shillings a day and which should remain unappropriated and
of free access, like the commons which once comprised so large a part of
soil. What would be the effect upon wages in England?"
He would at once tell you that common wages throughout England must soon increase
to thirty shillings a day.
And in response to another question, "What would be the effect on rents?" he
would at a moment's reflection say that rents must necessarily fall; and
if he thought out the next step he would tell you that all this would happen
any very large part of English labor being diverted to the new natural
opportunities, or the forms and direction of industry being much changed;
only that kind of
production being abandoned which now yields to labor and to landlord together
less than labor could secure on the new opportunities. The great rise in
wages would be at the expense of rent.
Take now the same man or another — some hardheaded business man, who
has no theories, but knows how to make money. Say to him: "Here is a little
village; in ten years it will be a great city — in ten years the
railroad will have taken the place of the stage coach, the electric light
of the candle;
it will abound with all the machinery and improvements that so enormously
multiply the effective power of labor. Will, in ten years, interest be
He will tell you, "No!"
"Will the wages of common labor be any higher; will it be easier for
a man who has nothing but his labor to make an independent living?"
He will tell you, "No; the wages of common labor will not be any higher;
on the contrary, all the chances are that they will be lower; it will not
be easier for the mere laborer to make an independent living; the chances
that it will be harder."
"What, then, will be higher?"
"Rent; the value of land. Go, get yourself a piece of ground, and hold
And if, under such circumstances, you take his advice, you need do nothing
more. You may sit down and smoke your pipe; you may lie around like the lazzaroni
of Naples or the leperos of Mexico; you may go up in a balloon, or down a hole
in the ground; and without doing one stroke of work, without adding one iota
to the wealth of the community, in ten years you will be rich! In the new city
you may have a luxurious mansion; but among its public buildings will be an
almshouse. ... 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 largely
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
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 highest and
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.
Land value taxation, on the other hand, overcomes all these obstacles. Locations
are the beneficiaries of community services whether they are improved or
not. As has been forcefully argued by this writer and others elsewhere,32
a tax on land value conforms to all the textbook principles of sound tax
theory. Some further considerations are worth reviewing, however, when looking
at ground rent as a flow rather than as a “present value” stock.
The technical ability to trace changes in the market prices of sites – or
as can also be understood, the variable flow of ground rent to those sites – by
the application of GIS (geographic information systems) real-time recording
of sales transactions invites wholesale changes in the maintenance of cadastral
data. The transmittal of sales records as typically received in the offices
of local governments for purposes of title registration over to Assessors’ offices
allows for the possibility of a running real-time mapping of market values.
Given also that GIS algorithms can now calculate the land value proportions
reasonably accurately, this means that “landvaluescapes” are
easily created in ways analogous to maps that portray other common geographic
features. These landvaluescapes reflect the flow of ground rent through
local or regional economies, and can also be used to identify the areas of
market vitality and enterprise. The flow of economic rent can easily be taxed
in ways that overcomes the mistaken notion that it is a stock. Just as income
is recognized as a flow of money, rent too can (and should) be understood
The question still begs to be answered, “why tax land?” And
what happens when we don’t tax land? Henry George answered this more
than a century ago more forcefully and clearly, perhaps, than anyone has
since. He recognized full well that the economic surplus not expended by
human hands or minds in the production of capital wealth gravitates to land.
Particular land sites come to reflect the value of their strategic location
for market exchanges by assuming a price for their monopoly use. Regardless
whether those who acquire title to such sites use them to the full extent
of their potential, the flow of rent to such locations is commensurate with
their full capacity. This is why John Stuart Mill more than a century ago
observed 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.”33 Absent its
recovery by taxation this rent becomes a “free lunch” to opportunistically
situated titleholders. When offered for sale, the projected rental value
is capitalized in the present value for purposes of attaching a market price
and sold as a commodity. Yet simple justice calls for the recovery in taxes
what is the community’s creation. Moreover, the failure to recover
the land rent connected to sites makes it necessary to tax productive activities
in our economy, and this leads to economic and technical inefficiency known
as “deadweight loss.”34 It means that the economy performs suboptimally.
Land, and by this Henry George meant any natural factor of production not
created by human hands or minds, is ours only to use, not to buy or sell
as a commodity. In the equally immortal words of Jefferson a century earlier, “The
earth belongs in usufruct to the living; . . . [It is] given as a common
stock for men to labor and live on.”35 This passage likely needs a
bit of parsing for the modern reader. The word usufruct, understood since
Roman times, has almost passed from use today. It means “the right
to use the property of another so long as its value is not diminished.”36
Note also that Jefferson regarded the earth as a “common stock;” not
allotted to individuals with possessory titles. Only the phrase “to
the living” might be subject to challenge by forward-looking environmentalists
who, taking an idea from Native American cultures, argue that “we do
not inherit the earth from our ancestors; we borrow it from our children.” The
presumption that real property titles are acquired legitimately is a claim
that does not withstand scrutiny; rather all such titles owe their origin
ultimately to force or fraud.37
If we own the land sites that we occupy only in usufruct, and the rent that
derives from those sites is due to community enterprise, it is not a large
logical leap to argue that the community’s recovery of that rent should
be the proper source of taxation. This is the Georgist argument: that the
recapture of land rent is the proper – indeed the natural – source
of taxation.38 ... read the whole commentary
Ethical Land Tenure
I want to tell you the story of
Charles Avilla. A while back I came
across a book called Ownership, Early
Christian Teachings. Avilla was a divinity student in the
Phillipines. One of his professors had a great concern about poverty
conditions in the Phillipines, and was taking students out to prisons
where the cooks were the land rights revolutionaries in the
Phillipines. Because they kept pushing for land reform for the people,
they had ended up in jail. So they were political prisoners who were
reading the Bible and were asking the question, who did God give this earth to? Who does it
belong to? It isn't
in the Bible that so few should have so much and so many have so little.
In the theological world in this upscale seminary he was trying to put
this together about poverty and what the biblical teachings were. He
had a thesis to write and he was thinking he would do something about
economic justice. One of his professors thought there would be a wealth
of information from the church's early history, the first 300 years
after Jesus. So he actually went back to read the Latin and Greek about
land ownership and found a wealth of information about the prophetic
railings of the people in that early time on the rights of the land. ...
In the Judaic tradition, and the Talmudic tradition, how much of
Jubilee justice was actually implemented is a subject of discussion.
Some say it was a good idea but not put in place. Others say it was
substantially put into place.
The Talmudic rabinical discussion is of interest to Georgists
they tried to allocate the land according to the richness of the soil
for agriculture. For better soil,
richer for agriculture, maybe an acre
of that would be allocated. On the poorer soil, these tribes could get
other thing was some lands were closer to the market. Some land was
closer to Jerusalem. That is an advantage over those who would have to
travel a longer distance to get to the market. How do you have an equal
rights distribution of land allocation with reference to the market
problem? For those more advantageously situated, the adjustment was to
be made by money. Those holding land nearer the city should pay in to
the common treasury the estimated excess of value attaining to it by
reason of superior situation. While those holding land of less value by
reason of distance from the city would receive from the treasury a
money compensation. On the more valuable holdings would be imposed a
tax or a lease fee, the measure of which was the excess of their
respective values over a given standard, and the fund thus created was
to be paid out in due proportion to those whose holdings were in less
this, then, we see affirmed the doctrine that natural advantages are
common property and may not be diverted to private gain. Throughout the
ages when wisdom is applied to land problems, we see this emerge.
Read the whole article
Ted Gwartney: Estimating
Adjustments for Unique Features
After the base value has been estimated, the individual sites must
be considered. Some sites have unique advantages or disadvantages
compared to other sites. Actual real estate market values vary for
each site and are dependent upon numerous individual features,
qualities, characteristics and restrictions such as:
People would tend to be willing to pay additional value for a land
site with special advantages and would pay less value for a land site
with disadvantages. The market value for the unique differences would
be determined by how much more or less site users in general were
willing to pay for those features. This market difference must be
determined for each significant variable feature.
The difference can then be converted to an adjustment of value.
For example, if a site were better than the standard in a district
because of distance to downtown of 5% ($4,000), site size of 5%
($4,000), location of transportation 10% ($8,000) and convenience of
recreation of 5% ($4,000), the site being appraised would be 25%
($20,000) superior to the standard site. In reality most sites have
many small differences both positive and negative from a standard
Per dwelling unit site
Base Value - $
Downtown - miles
Size - square feet
Transport - blocks
Recreation - blocks
Adjusted value - $
What are the factors that
cause land to have market value and to
whom does this market revenue advantage properly belong? Land has
market value for three reasons:
- the limited supply and "natural"
productivity of the soil and natural resources,
- the publicly provided
services, including planning, improvements that increase the market
value of land and
- the growth of communities and peoples' competitive
demand for the exclusive use of prime locations.
Land rent is the price that people and businesses are willing to
pay for the exclusive right to possess and use a good land site for a
period of time. For example, people prefer to use sites of good
location because it gives them an advantage of spending less time in
travel by being near what they choose to do and where they work. A
businessman can sell more goods at a site where many people pass each
day, compared to a site where only a few people would pass.
The collection of land rent should be used as revenue, by the
community for supplying public needs. This returns the advantage an
individual land possessor receives from the exclusive use of a land
site, to the balance of the people who live within the community and
have allowed the land possessor the exclusive use of the land site
for the period of time.
It is the responsibility of the local communities to insure that
the market rent of land is collected for public purposes. When a
major part of land rent is not collected, which is the case in most
of the world today, land title holders obtain rights to sell the
value of the public improvements which were made by the whole
community. The community added to the market value of land by making
improvements which increases demand and rent for the land. The longer
the possessors hold the land out of use the greater will be the bonus
By prohibiting people from using good land, the possessors force
the premature use of other less desirable land, which is more distant
from the city. This raises the cost of community improvements and the
rental value of the unused, but better located, land. This
precipitates the degradation of the rural environment by using city
land inefficiently -- and creates huge unnecessary pressures on the
natural environment. ...... Read
the whole article