Harry Pollard, head of the Henry George School of Social Science in Los
Angeles, expresses it this way: "Better
to collect Rent and throw it in the ocean than not collect it at all," and
explains that this is because the economic effects of collecting Rent are incomparably
more important than any revenue collected.
That puts much of the Federal Tax Reform panel's explorations of the interior
dimensions of the income tax box in a different light.
It is an axiom of statesmanship, which the successful founders of tyranny
have understood and acted upon that great changes can best be brought about
under old forms. We, who would free men, should heed the same truth. It
is the natural method. When nature would make a higher type, she takes
a lower one and develops it. This, also, is the law of social growth. Let
us work by it. With the current we may glide fast and far. Against it,
it is hard pulling and slow progress.
By making use of this existing machinery, we may, without jar or shock, assert
the common right to land by appropriating rent by taxation. We already take some
rent in taxation. We have only to make some changes in our modes of taxation
to take it all.*
*Rent in the economic sense is not, as those unfamiliar
with economic terminology may assume, the whole amount paid for the
use of real estate. It is only that part of such amount which is paid
for the use of the bare land or site employed, exclusive of the payment
for the use of any buildings or other improvements on it. H. G. B.
In form, the ownership of land would remain just as now. No owner of land
need be dispossessed, and no restriction need be placed upon the amount
of land any one could hold. For, rent being taken by the State in taxes,
land, no matter in whose name it stood, or in what parcels it was held,
would be really common property, and every member of the community would
participate in the advantages of its ownership.
Now, insomuch as the taxation of rent, or land values, must necessarily
be increased just as we abolish other taxes, we may put the proposition
into practical form by proposing --
to abolish all taxation save that upon land
values.
As we have seen, the value of land is at the beginning of society nothing,
but as society develops by the increase of population and the advance of
the arts, it becomes greater and greater. In every civilized country, even
the newest, the value of the land taken as a whole is sufficient to bear
the entire expenses of government. In the better developed countries it
is much more than sufficient. Hence it will not be enough merely to place
all taxes upon the value of land. It will be necessary, where rent exceeds
the present governmental revenues, commensurately to increase the amount
demanded in taxation, and to continue this increase as society progresses
and rent advances. But this is so natural and easy a matter, that it may
be considered as involved, or at least understood, in the proposition to
put all taxes on the value of land. That is the first step upon which the
practical struggle must be made. When the hare is once caught and killed,
cooking him will follow as a matter of course. When the common right to
land is so far appreciated that all taxes are abolished save those which
fall upon rent, there is no danger of much more than is necessary to induce
them to collect the public revenues being left to individual landholders.
Wherever the idea of concentrating all taxation upon land values finds
lodgment sufficient to induce consideration, it invariably makes way, but
there are few of the classes most to be benefited by it, who at first,
or even for a long time afterward, see its full significance and power.
- It is difficult for workingmen to get over the idea that there is a
real antagonism between capital and labor.
- It is difficult for small farmers and homestead owners to get over
the idea that to put all taxes on the value of land would be unduly to
tax them.
- It is difficult for both classes to get over the idea that to exempt
capital from taxation would be to make the rich richer, and the poor
poorer.
These ideas spring from confused thought. But behind ignorance and prejudice
there is a powerful interest, which has hitherto dominated literature,
education, and opinion. A great wrong always dies hard, and the great wrong
which in every civilized country condemns the masses of men to poverty
and want, will not die without a bitter struggle. ... read the whole chapter
H.G. Brown: Significant
Paragraphs from Henry George's Progress & Poverty:
10. Effect of Remedy Upon Wealth Production (in the unabridged P&P: Part
IX — Effects of the Remedy: Chapter 1 — Of the effect upon the
production of wealth)
The elder Mirabeau, we are told, ranked the proposition of Quesnay, to substitute
one single tax on rent (the impôt unique) for all other taxes,
as a discovery equal in utility to the invention of writing or the substitution
of the use of money for barter.
To whosoever will think over the matter, this saying will appear an evidence
of penetration rather than of extravagance. The advantages which would be gained
by substituting for the numerous taxes by which the public revenues are now
raised, a single tax levied upon the value of land, will appear more and more
important the more they are considered.
- This is the secret which would transform the little village into the
great city.*
- With all the burdens removed which now oppress industry and hamper exchange,
the production of wealth would go on with a rapidity now undreamed
of.
- This, in its turn, would lead to an increase in the value of land — a
new surplus which society might take for general purposes.
- And released from the difficulties which attend the collection of revenue
in a way that begets corruption and renders legislation the tool of
special interests, society could assume functions which the increasing
complexity
of life makes it desirable to assume, but which the prospect of political
demoralization under the present system now leads thoughtful men to
shrink from.
*At the beginning of Book
IX of the complete Progress & Poverty, Henry George quotes
from Themistocles: "I cannot play upon any stringed instrument,
but I can tell you how of a little village to make a great and
glorious city."
... Well may the community leave to the individual producer all that prompts
him to exertion; well may it let the laborer have the full reward of his
labor,
and the capitalist the full return of his capital. For the more that labor
and capital produce, the greater grows the common wealth in which all may share.
And in the value or rent of land is this general gain expressed in a definite
and concrete form. Here is a fund which the state may take while leaving to
labor and capital their full reward. With increased activity of production
this would commensurately increase.
And to shift the burden of taxation from production and exchange to the
value or rent of land would not merely be to give new stimulus to the production
of wealth; it would be to open new opportunities. For under this system no
one would care to hold land unless to use it, and land now withheld from
use would everywhere be thrown open to improvement.
The selling price of land would fall; land speculation would receive its
death blow; land monopolization would no longer pay.* Millions and millions
of acres from which settlers are now shut out by high prices would be abandoned
by their present owners or sold to settlers upon nominal terms. And this
not merely on the frontiers, but within what are now considered well settled
districts.
* The fact that a tax on the rental value of land cannot
be shifted by landowners to tenants, though recognized by all competent
economists, is sometimes a stumbling block to persons untrained in economics.
The reason such a tax cannot be shifted is that it cannot limit the supply
of land. Landowners are presumably, before the tax is laid, charging
all the rent they can get. There is nothing in a tax on the rental value
of land to make tenants willing to pay more or to make land more difficult
to hire. On the contrary, more land will be on the market, because of
such a tax, rather than less, since the tax puts a heavy penalty on holding
land out of use and unimproved for mere speculation. The competition
of former vacant land speculators to get their land used will make land
cheaper to rent rather than more expensive. And since only the net rent
remaining after the tax is subtracted is capitalized into salable value,
land will be very much cheaper to buy. H.G.B.
And it must be remembered that this would apply, not merely to agricultural
land, but to all land. Mineral land would be thrown open to use, just as
agricultural land; and in the heart of a city no one could afford to keep
land from its most profitable use, or on the outskirts to demand more for
it than the use to which it could at the time be put would warrant. Everywhere
that land had attained a value, taxation, instead of operating, as now, as
a fine upon improvement, would operate to force improvement. Whoever planted
an orchard, or sowed a field, or built a house, or erected a manufactory,
no matter how costly, would have no more to pay in taxes than if he kept
so much land idle.
- The monopolist of agricultural land would be taxed as much as though
his land were covered with houses and barns, with crops and with stock.
- The owner of a vacant city lot would have to pay as much for the privilege
of keeping other people off of it until he wanted to use it, as his neighbor
who has a fine house upon his lot.
- It would cost as much to keep a row of tumble-down shanties upon valuable
land as though it were covered with a grand hotel or a pile of great warehouses
filled with costly goods.
Thus, the bonus that wherever labor is most productive must now be paid
before labor can be exerted would disappear.
- The farmer would not have to pay out half his means, or mortgage his
labor for years, in order to obtain land to cultivate;
- the builder of a city homestead would not have to lay out as much for
a small lot as for the house he puts upon it*;
- the company that proposed to erect a manufactory would not have to expend
a great part of its capital for a site.
- And what would be paid from year to year to the state would be in lieu
of all the taxes now levied upon improvements, machinery, and stock.
*Many persons, and among them some professional economists,
have never succeeded in getting a thorough comprehension of this
point. Thus, the editor has heard the objection advanced that the
greater cheapness of land is no advantage to the poor man who is
trying to save enough from his earnings to buy a piece of land; for,
it is said, the higher taxes on the land after it is acquired, offset
the lower purchase price. What such objectors do not see is that
even if the lower price of land does no more than balance the higher
tax on it, (and this overlooks, for one thing, the discouragement
to speculation in land), the reduction or removal of other taxes
is all clear gain. It is easier to save in proportion as earnings
and commodities are relieved of taxation. It is easier to buy land,
because its selling price is lower, if the land is taxed. And although
the land, after its purchase, continues to be taxed, not only can
this tax be fully paid out of the annual interest on the saving in
the purchase price, but also there is to be reckoned the saving in
taxes on buildings and other improvements and in whatever other taxes
are thus rendered unnecessary. H.G.B.
Consider the effect of such a change upon the labor market. Competition
would no longer be one-sided, as now. Instead of laborers competing with
each other for employment, and in their competition cutting down wages to
the point of bare subsistence, employers would everywhere be competing for
laborers, and wages would rise to the fair earnings of labor. For into the
labor market would have entered the greatest of all competitors for the employment
of labor, a competitor whose demand cannot be satisfied until want is satisfied — the
demand of labor itself. The employers of labor would not have merely to bid
against other employers, all feeling the stimulus of greater trade and increased
profits, but against the ability of laborers to become their own employers
upon the natural opportunities freely opened to them by the tax which prevented
monopolization.
With natural opportunities thus free to labor;
- with capital and improvements exempt from tax, and exchange released
from restrictions, the spectacle of willing men unable to turn their labor
into the things they are suffering for would become impossible;
- the recurring paroxysms which paralyze industry would cease;
- every wheel of production would be set in motion;
- demand would keep pace with supply, and supply with demand;
- trade would increase in every direction, and wealth augment on every
hand. ... read the whole chapter
Henry George: Thy Kingdom Come
(1889 speech)
One cannot look, it seems to
me, through nature — whether
one looks at the stars through a telescope, or have the microscope
reveal to one those worlds that we find in drops of water. Whether
one considers the human frame, the adjustments of the animal kingdom,
or any department of physical nature, one must see that there has
been a contriver and adjuster, that there has been an intent. So
strong is that feeling, so natural is it to our minds, that even
people who deny the Creative Intelligence are forced, in spite of
themselves, to talk of intent; the claws on one animal were intended,
we say, to climb with, the fins of another to propel it through the
water.
Yet, while in looking through the
laws of physical nature, we
find intelligence we do not so clearly find beneficence. But in the
great social fact that as
population increases, and improvements are
made, and men progress in civilisation, the one thing that rises
everywhere in value is land, and in this we may see a proof of the
beneficence of the Creator.
Why, consider what it means! It
means that the social laws are
adapted to progressive humanity! In a rude state of society where
there is no need for common expenditure, there is no value attaching
to land. The only value which attaches there is to things produced by
labour. But as civilisation goes on, as a division of labour takes
place, as people come into centres, so do the common wants increase,
and so does the necessity for public revenue arise. And so in that
value which attaches to land, not by reason of anything the
individual does, but by reason of the growth of the community, is a
provision intended — we may safely say intended — to meet
that social want.
Just as society grows, so do the
common needs grow, and so grows
this value attaching to land — the provided fund from which they
can be supplied. Here is a value that may be taken, without impairing
the right of property, without taking anything from the producer,
without lessening the natural rewards of industry and thrift. Nay,
here is a value that must be taken if we would prevent the most
monstrous of all monopolies. What does all this mean? It means that
in the creative plan, the natural advance in civilisation is an
advance to a greater and greater equality instead of to a more and
more monstrous inequality. ... Read the
whole speech
Rev. A. C. Auchmuty: Gems from George, a
themed collection of
excerpts from the writings of Henry George (with links to sources)
IF two men find a diamond they do not march to a lapidary to have it cut
in two. If three sons inherit a ship they do not proceed to saw her into
three pieces; nor do they agree that if this cannot be done equal division
is impossible. Nor yet is there no other way to secure the rights of the
owners of a railway than by breaking up rail, engines, rolling stock and
stations into as many separate bits as there are shareholders. And so it
is not necessary in order to secure equal rights to land to make an equal
division of land. All that it is necessary to do is to collect rent for the
common benefit. — Social
Problems — Chapter
19, The First Great Reform
WE would simply take for the community what belongs to the community, the value
that attaches to land by the growth of the community; leave sacredly to the individual
all that belongs to the individual; and, treating necessary monopolies as functions
of the State, abolish all restrictions and prohibitions save those required for
public health, safety, morals and convenience. — The
Condition of Labor, an Open Letter to Pope Leo XIII
MAN is driven by his instincts and needs to form society. Society, thus formed,
has certain needs and functions for which revenue is required. These needs and
functions increase with social development, requiring a larger and larger revenue.
Now, experience and analogy, if not the instinctive perceptions of the human
mind, teach us that there is a natural way of satisfying every natural want.
And if human society is included in nature, as it surely is, this must apply
to social wants as well as to the wants of the individual, and there must be
a natural or right method of taxation, as there is a natural or right method
of walking. —Social
Problems — Chapter
19, The First Great Reform
AND will not the community gain by thus refusing to kill the goose that
lays the golden eggs; by thus refraining from muzzling the ox that treadeth
out the corn; by thus leaving to industry, and thrift, and skill, their natural
reward, full and unimpaired? For there is to the community also a natural
reward. The law of society is, each for all, as well as all for each. No
one can keep to himself the good he may do, any more than he can keep the
bad. Every productive enterprise, besides its return to those who undertake
it, yields collateral advantages to others. If a man plant a fruit tree,
his gain is that he gathers the fruit in its time and season. But in addition
to his gain, there is a gain to the whole community. Others than the owner
are benefited by the increased supply of fruit; the birds which it shelters
fly far and wide; the rain which it helps to attract falls not alone on his
field; and, even to the eye which rests upon it from a distance, it brings
a sense of beauty. And so with everything else. The building of a house,
a factory, a ship, or a railroad, benefits others besides those who get the
direct profits. Nature laughs at a miser. He is like the squirrel who buries
his nuts and refrains from digging them up again. Lo! they sprout and grow
into trees. In fine linen, steeped in costly spices, the mummy is laid away.
Thousands and thousands of years thereafter, the Bedouin cooks his food by
a fire of its encasings, it generates the steam by which the traveler is
whirled on his way, or it passes into far-off lands to gratify the curiosity
of another race. The bee fills the hollow tree with honey, and along comes
the bear or the man. — Progress & Poverty — Book
IX, Chapter 1, Effects of the Remedy: Of the Effect upon the Production of
Wealth
CONSIDER the effect of such a change upon the labor market. Competition
would no longer be one-sided, as now. Instead of laborers competing with
each other for employment, and in their competition cutting down wages to
the point of bare subsistence, employers would everywhere be competing for
laborers, and wages would rise to the fair earnings of labor. For into the
labor market would have entered the greatest of all competitors for the employment
of labor, a competitor whose demand cannot be satisfied until want is satisfied — the
demand of labor itself. The employers of labor would not have merely to bid
against other employers, all feeling the stimulus of greater trade and increased
profits, but against the ability of laborers to become their own employers
upon the natural opportunities freely opened to them by the tax which prevented
monopolization. — Progress & Poverty — Book
IX, Chapter 1, Effects of the Remedy: Of the Effect upon the Production of
Wealth
... go to "Gems from George"
Louis Post: Outlines of Louis F. Post's
Lectures, with Illustrative Notes and Charts (1894)
c. Significance of the Upward Tendency of Rent
Now, what is the meaning of this tendency of Rent to rise with social progress,
while Wages tend to fall? Is it not a plain promise that if Rent be treated
as common property, advances in productive power shall be steps in the direction
of realizing through orderly and natural growth those grand conceptions of
both the socialist and the individualist, which in the present condition
of society are justly ranked as Utopian? Is it not likewise a plain warning
that if Rent be treated as private property, advances in productive power
will be steps in the direction of making slaves of the many laborers, and
masters of a few land-owners? Does it not mean that common ownership of Rent
is in harmony with natural law, and that its private appropriation is disorderly
and degrading? When the cause of Rent and the tendency illustrated in the
preceding chart are considered in connection with the self-evident truth
that God made the earth for common use and not for private monopoly, how
can a contrary inference hold? Caused and increased by social growth, 97
the benefits of which should be common, and attaching to land, the just right
to which is equal, Rent must be the natural fund for public expenses. 98
97. Here, far away from civilization, is a solitary settler.
Getting no benefits from government, he needs no public revenues, and
none of the land about him has any value. Another settler comes, and
another, until a village appears. Some public revenue is then required.
Not much, but some. And the land has a little value, only a little; perhaps
just enough to equal the need for public revenue. The village becomes
a town. More revenues are needed, and land values are higher. It becomes
a city. The public revenues required are enormous, and so are the land
values.
98. Society, and society alone, causes Rent. Rising with
the rise, advancing with the growth, and receding with the decline of
society, it measures the earning power of society as a whole as distinguished
from that of the individuals. Wages, on the other hand, measure the earning
power of the individuals as distinguished from that of society as a whole.
We have distinguished the parts into which Wealth is distributed as Wages
and Rent; but it would be correct, indeed it is the same thing, to regard
all wealth as earnings, and to distinguish the two kinds as Communal
Earnings and Individual Earnings. How, then, can there be any question
as to the fund from which society should be supported? How can it be
justly supported in any other way than out of its own earnings?
If there be at all such a thing as design in the universe — and who
can doubt it? — then has it been designed that Rent, the earnings of
the community, shall be retained for the support of the community, and that
Wages, the earnings of the individual, shall be left to the individual in
proportion to the value of his service. This is the divine law, whether we
trace it through complex moral and economic relations, or find it in the
eighth commandment.
d. Effect of Confiscating Rent to Private Use.
By giving Rent to individuals society ignores this most just law, 99 thereby
creating social disorder and inviting social disease. Upon society alone,
therefore, and not upon divine Providence which has provided bountifully,
nor upon the disinherited poor, rests the responsibility for poverty and
fear of poverty.
99. "Whatever dispute arouses the passions of men,
the conflict is sure to rage, not so much as to the question 'Is it wise?'
as to the question 'Is it right?'
"This tendency of popular discussions to take an
ethical form has a cause. It springs from a law of the human mind; it
rests upon a vague and instinctive recognition of what is probably the
deepest truth we can grasp. That alone is wise which is just; that alone
is enduring which is right. In the narrow scale of individual actions
and individual life this truth may be often obscured, but in the wider
field of national life it everywhere stands out.
"I bow to this arbitrament, and accept this test." — Progress
and Poverty, book vii, ch. i.
The reader who has been deceived into believing that Mr.
George's proposition is in any respect unjust, will find profit in a
perusal of the entire chapter from which the foregoing extract is taken.
Let us try to trace the connection by means of a chart, beginning with the
white spaces on page 68. As before, the first-comers take possession of the
best land. But instead of leaving for others what they do not themselves
need for use, as in the previous illustrations, they appropriate the whole
space, using only part, but claiming ownership of the rest. We may distinguish
the used part with red color, and that which is appropriated without use
with blue. Thus: [chart]
But what motive is there for appropriating more of the space than is used?
Simply that the appropriators may secure the pecuniary benefit of future
social growth. What will enable them to secure that? Our system of confiscating
Rent from the community that earns it, and giving it to land-owners who,
as such, earn nothing.100
100. It is reported from Iowa that a few years ago a workman
in that State saw a meteorite fall, and. securing possession of it after
much digging, he was offered $105 by a college for his "find." But
the owner of the land on which the meteorite fell claimed the money,
and the two went to law about it. After an appeal to the highest court
of the State, it was finally decided that neither by right of discovery,
nor by right of labor, could the workman have the money, because the
title to the meteorite was in the man who owned the land upon which it
fell.
Observe the effect now upon Rent and Wages. When other men come, instead
of finding half of the best land still common and free, as in the corresponding
chart on page 68, they find all of it owned, and are obliged either to go
upon poorer land or to buy or rent from owners of the best. How much will
they pay for the best? Not more than 1, if they want it for use and not to
hold for a higher price in the future, for that represents the full difference
between its productiveness and the productiveness of the next best. But if
the first-comers, reasoning that the next best land will soon be scarce and
theirs will then rise in value, refuse to sell or to rent at that valuation,
the newcomers must resort to land of the second grade, though the best be
as yet only partly used. Consequently land of the first grade commands Rent
before it otherwise would.
As the sellers' price, under these circumstances, is arbitrary it cannot
be stated in the chart; but the buyers' price is limited by the superiority
of the best land over that which can be had for nothing, and the chart may
be made to show it: [chart]
And now, owing to the success of the appropriators of the best land in securing
more than their fellows for the same expenditure of labor force, a rush is
made for unappropriated land. It is not to use it that it is wanted, but
to enable its appropriators to put Rent into their own pockets as soon as
growing demand for land makes it valuable.101 We may, for illustration, suppose
that all the remainder of the second space and the whole of the third are
thus appropriated, and note the effect: [chart]
At this point Rent does not increase nor Wages fall, because there is no
increased demand for land for use. The holding of inferior land for higher
prices, when demand for use is at a standstill, is like owning lots in the
moon — entertaining, perhaps, but not profitable. But let more land
be needed for use, and matters promptly assume a different appearance. The
new labor must either go to the space that yields but 1, or buy or rent from
owners of better grades, or hire out. The effect would be the same in any
case. Nobody for the given expenditure of labor force would get more than
1; the surplus of products would go to landowners as Rent, either directly
in rent payments, or indirectly through lower Wages. Thus: [chart]
101. The text speaks of Rent only as a periodical or continuous
payment — what would be called "ground rent." But actual
or potential Rent may always be, and frequently is, capitalized for the
purpose of selling the right to enjoy it, and it is to selling value
that we usually refer when dealing in land.
Land which has the power of yielding Rent to its owner
will have a selling value, whether it be used or not, and whether Rent
is actually derived from it or not. This selling value will be the capitalization
of its present or prospective power of producing Rent. In fact, much
the larger proportion of laud that has a selling value is wholly or partly
unused, producing no Rent at all, or less than it would if fully used.
This condition is expressed in the chart by the blue color.
"The capitalized value of land is the actuarial 'discounted'
value of all the net incomes which it is likely to afford, allowance
being made on the one hand for all incidental expenses, including those
of collecting the rents, and on the other for its mineral wealth, its
capabilities of development for any kind of business, and its advantages,
material, social, and aesthetic, for the purposes of residence." — Marshall's
Prin., book vi, ch. ix, sec. 9.
"The value of land is commonly expressed as a certain
number of times the current money rental, or in other words, a certain
'number of years' purchase' of that rental; and other things being equal,
it will be the higher the more important these direct gratifications
are, as well as the greater the chance that they and the money income
afforded by the land will rise." — Id., note.
"Value . . . means not utility, not any quality inhering
in the thing itself, but a quality which gives to the possession of a
thing the power of obtaining other things, in return for it or for its
use. . . Value in this sense — the usual sense — is purely
relative. It exists from and is measured by the power of obtaining things
for things by exchanging them. . . Utility is necessary to value, for
nothing can be valuable unless it has the quality of gratifying some
physical or mental desire of man, though it be but a fancy or whim. But
utility of itself does not give value. . . If we ask ourselves the reason
of . . . variations in . . . value . . . we see that things having some
form of utility or desirability, are valuable or not valuable, as they
are hard or easy to get. And if we ask further, we may see that with
most of the things that have value this difficulty or ease of getting
them, which determines value, depends on the amount of labor which must
be expended in producing them ; i.e., bringing them into the place, form
and condition in which they are desired. . . Value is simply an expression
of the labor required for the production of such a thing. But there are
some things as to which this is not so clear. Land is not produced by
labor, yet land, irrespective of any improvements that labor has made
on it, often has value. . . Yet a little examination will show that such
facts are but exemplifications of the general principle, just as the
rise of a balloon and the fall of a stone both exemplify the universal
law of gravitation. . . The value of everything produced by labor, from
a pound of chalk or a paper of pins to the elaborate structure and appurtenances
of a first-class ocean steamer, is resolvable on analysis into an equivalent
of the labor required to produce such a thing in form and place; while
the value of things not produced by labor, but nevertheless susceptible
of ownership, is in the same way resolvable into an equivalent of the
labor which the ownership of such a thing enables the owner to obtain
or save." — Perplexed
Philosopher, ch. v.
The figure 1 in parenthesis, as an item of Rent, indicates potential Rent.
Labor would give that much for the privilege of using the space, but the
owners hold out for better terms; therefore neither Rent nor Wages is actually
produced, though but for this both might be.
In this chart, notwithstanding that but little space is used, indicated
with red, Wages are reduced to the same low point by the mere appropriation
of space, indicated with blue, that they would reach if all the space above
the poorest were fully used. It thereby appears that under a system which
confiscates Rent to private uses, the demand for land for speculative purposes
becomes so great that Wages fall to a minimum long before they would if land
were appropriated only for use.
In illustrating the effect of confiscating Rent to private use we have as
yet ignored the element of social growth. Let us now assume as before (page
73), that social growth increases the productive power of the given expenditure
of labor force to 100 when applied to the best land, 50 when applied to the
next best, 10 to the next, 3 to the next, and 1 to the poorest. Labor would
not be benefited now, as it appeared to be when on page 73 we illustrated
the appropriation of land for use only, although much less land is actually
used. The prizes which expectation of future social growth dangles before
men as the rewards of owning land, would raise demand so as to make it more
than ever difficult to get land. All of the fourth grade would be taken up
in expectation of future demand; and "surplus labor" would be crowded
out to the open space that originally yielded nothing, but which in consequence
of increased labor power now yields as much as the poorest closed space originally
yielded, namely, 1 to the given expenditure of labor force.102 Wages would
then be reduced to the present productiveness of the open space. Thus: [chart]
102. The paradise to which the youth of our country have
so long been directed in the advice, "Go West, young man, go West," is
truthfully described in "Progress and Poverty," book iv, ch.
iv, as follows :
"The man who sets out from the eastern seaboard
in search of the margin of cultivation, where he may obtain land without
paying rent, must, like the man who swam the river to get a drink,
pass for long distances through half-titled farms, and traverse vast
areas of virgin soil, before he reaches the point where land can be
had free of rent — i.e., by homestead entry or preemption."
If we assume that 1 for the given expenditure of labor force is the least
that labor can take while exerting the same force, the downward movement
of Wages will be here held in equilibrium. They cannot fall below 1; but
neither can they rise above it, no matter how much productive power may increase,
so long as it pays to hold land for higher values. Some laborers would continually
be pushed back to land which increased productive power would have brought
up in productiveness from 0 to 1, and by perpetual competition for work would
so regulate the labor market that the given expenditure of labor force, however
much it produced, could nowhere secure more than 1 in Wages.103 And this
tendency would persist until some labor was forced upon land which, despite
increase in productive power, would not yield the accustomed living without
increase of labor force. Competition for work would then compel all laborers
to increase their expenditure of labor force, and to do it over and over
again as progress went on and lower and lower grades of land were monopolized,
until human endurance could go no further.104 Either that, or they would
be obliged to adapt themselves to a lower scale of living.105
103. Henry Fawcett, in his work on "Political Economy," book
ii, ch. iii, observes with reference to improvements in agricultural
implements which diminish the expense of cultivation, that they do not
increase the profits of the farmer or the wages of his laborers, but
that "the landlord will receive in addition to the rent already
paid to him, all that is saved in the expense of cultivation." This
is true not alone of improvements in agriculture, but also of improvements
in all other branches of industry.
104. "The cause which limits speculation in commodities,
the tendency of increasing price to draw forth additional supplies, cannot
limit the speculative advance in land values, as land is a fixed quantity,
which human agency can neither increase nor diminish; but there is nevertheless
a limit to the price of land, in the minimum required by labor and capital
as the condition of engaging in production. If it were possible to continuously
reduce wages until zero were reached, it would be possible to continuously
increase rent until it swallowed up the whole produce. But as wages cannot
be permanently reduced below the point at which laborers will consent
to work and reproduce, nor interest below the point at which capital
will be devoted to production, there is a limit which restrains the speculative
advance of rent. Hence, speculation cannot have the same scope to advance
rent in countries where wages and interest are already near the minimum,
as in countries where they are considerably above it. Yet that there
is in all progressive countries a constant tendency in the speculative
advance of rent to overpass the limit where production would cease, is,
I think, shown by recurring seasons of industrial paralysis." — Progress
and Poverty, book iv, ch. iv.
105. As Puck once put it, "the man who makes two
blades of grass to grow where but one grew before, must not be surprised
when ordered to 'keep off the grass.' "
They in fact do both, and the incidental disturbances of general readjustment
are what we call "hard times." 106 These culminate in forcing unused
land into the market, thereby reducing Rent and reviving industry. Thus increase
of labor force, a lowering of the scale of living, and depression of Rent,
co-operate to bring on what we call "good times." But no sooner
do "good times" return than renewed demands for land set in, Rent
rises again, Wages fall again, and "hard times" duly reappear.
The end of every period of "hard times" finds Rent higher and Wages
lower than at the end of the previous period.107
106. "That a speculative advance in rent or land
values invariably precedes each of these seasons of industrial depression
is everywhere clear. That they bear to each other the relation of cause
and effect, is obvious to whoever considers the necessary relation between
land and labor." — Progress and Poverty, book v, ch. i.
107. What are called "good times" reach a point
at which an upward land market sets in. From that point there is a downward
tendency of wages (or a rise in the cost of living, which is the same
thing) in all departments of labor and with all grades of laborers. This
tendency continues until the fictitious values of land give way. So long
as the tendency is felt only by that class which is hired for wages,
it is poverty merely; when the same tendency is felt by the class of
labor that is distinguished as "the business interests of the country," it
is "hard times." And "hard times" are periodical
because land values, by falling, allow "good times" to set
it, and by rising with "good times" bring "hard times" on
again. The effect of "hard times" may be overcome, without
much, if any, fall in land values, by sufficient increase in productive
power to overtake the fictitious value of land.
The dishonest and disorderly system under which society confiscates Rent
from common to individual uses, produces this result. That maladjustment
is the fundamental cause of poverty. And progress, so long as the maladjustment
continues, instead of tending to remove poverty as naturally it should, actually
generates and intensifies it. Poverty persists with increase of productive
power because land values, when Rent is privately appropriated, tend to even
greater increase. There can be but one outcome if this continues: for individuals
suffering and degradation, and for society destruction.
f. The Single Tax Retains Rent for Common Use.
To retain Rent for common use it is not necessary to abolish land-titles,
nor to let land out to the highest bidder, nor to invent some new mechanism
of taxation, nor in any other way to directly change existing modes of holding
land for use, or existing machinery for collecting public revenues. "Great
changes can be best brought about under old forms."109 Let land be held
nominally as it is now. Let taxes be collected by the same kind of machinery
as now. But abolish all taxes except those that fall upon actual and potential
Rent, that is to say, upon land values.
109. "Such dupes are men to custom, and so prone
To rev'rence what is ancient and can plead
A course of long observance for its use,
That even servitude, the worst of ills,
Because delivered down from sire to son
Is kept and guarded as a sacred thing." —Cowper.
It is only custom that makes the ownership of land seem
reasonable. I have frequently had occasion to tell of the necessity under
which the city of Cleveland, Ohio, found itself, of paying a land-owner
several thousand dollars for the right to swing a bridge-draw over his
land. When I described the matter in that way, the story attracted no
attention; it seemed perfectly reasonable to the ordinary lecture audience.
But when I described the transaction as a payment by the city to a land-owner
of thousands of dollars for the privilege of swinging the draw "through
that man's air," the audience invariably manifested its appreciation
of the absurdity of such an ownership. The idea of owning air was ridiculous;
the idea of owning land was not. Yet who can explain the difference,
except as a matter of custom?
To the same effect was the question of the Rev. F. L.
Higgins to a friend. While stationed at Galveston, Tex., Mr. Higgins
fell into a discussion with his friend as to the right of government
to make land private property. The friend argued that no matter what
the abstract right might be, the government had made private property
of land, and people had bought and sold upon the strength of the government
title, and therefore land titles were morally absolute.
"Suppose," said Mr. Higgins, "that the
government should vest in a corporation title to the Gulf of Mexico,
so that no one could fish there, or sail there, or do anything in or
upon the waters of the Gulf without permission from the corporation.
Would that be right?"
"No," answered the friend.
"Well, suppose the corporation should then parcel
out the Gulf to different parties until some of the people came to own
the whole Gulf to the exclusion of everybody else, born and unborn. Could
any such title be acquired by these purchasers, or their descendants
or assignees, as that the rest of the people if they got the power would
not have a moral right to abrogate it?"
"Certainly not," said the friend.
"Could private titles to the Gulf possibly become
absolute in morals?"
"No."
"Then tell me," asked Mr. Higgins, "what
difference it would make if all the water were taken off the Gulf and
only the bare land left."
If that were done it is doubtful if land-owners could any longer confiscate
enough Rent to be worth the trouble. Even though some surplus were still
kept by them, it would be so much more easy to secure Wealth by working for
it than by confiscating Rent to private use, to say nothing of its being
so much more respectable, that speculation in land values would practically
be abandoned. At any rate, the question of a surplus — Rent in excess
of the requirements of the community — may be readily determined when
the principle that Rent justly belongs to the community and Wages to the
individual shall have been recognized by society in the adoption of the Single
Tax. 110
110. Thomas G. Shearman, Esq., of New York, author of
the famous magazine article on "Who Owns the United States," estimates
that sixty-five per cent of the present annual value of the land in the
United States would pay all the present expenses of American government — federal,
state, county, and municipal. ... read the book
Charles B. Fillebrown: A Catechism
of Natural Taxation, from Principles of
Natural Taxation (1917)
Q11. Does not the common right to rent involve common ownership of land?
A. Not in the least. When the economic rent is appropriated by the community
for common purposes, individual ownership of land could and should continue.
Such ownership would carry all the present rights of the landowner to use,
control, and dispose of land, so that nothing like common ownership of land
would be necessary.
... 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, or 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
Ted Gwartney: Estimating
Land Values
Any moves to enact good government principles without collecting
the full market rent of the land may result in a failure. People are
guided by the profit motive. When people can make a larger profit by
doing nothing, but keeping the land they possess out of use for a
long period of time, they will do so. When the community collects the
full market rent of land, they eliminate the motive for keeping land
out of efficient use, because the unearned profit has been collected
as public revenue. ...
Adam Smith, in The Wealth of Nations, suggested that any "tax" should
be a charge for services which benefit all people and are more efficiently
performed by a single cooperative effort. He postulated
four principles of taxation which any source of revenue should
meet:
1. Light on the production of wealth, and does not impede
or reduce production;
2. Cheap to collect, requiring few collectors, and easy to
understand;
3. Certain; can't be avoided, little opportunity for corruption,
and provides adequate revenue;
4. Equitable and fair, payment for benefits received, impartial,
and just.
Collecting public revenue from land rent is the only revenue
source, or "tax", that meets these criteria.
While the major argument for raising public revenue from land rent
and natural resources is because it is equitable and fair, it is also
the most efficient method of raising the revenue which is needed for
public facilities and services. Land is visible, can't be hidden and
its valuation is less intrusive than valuations of income and sales.
Taxes on labor and capital cause people to consider alternative
options, including working with less effort, which produces less real
goods. For example, a tax on wages will reduce after-tax net wages
and weaken the incentive to work. A person might be willing to work
hard for a wage of $20 per hour, but decide to drop out if the taxes
take $8 and the net wage is only $12 per hour. Economists claim that
present taxes account for a 25% loss in production in the United
States. Production and consumption would be greatly improved if
public revenue came primarily from land rather than a wage tax. The
same would occur when buildings and machinery are taxed. The tax on
building reduces the quantity and quality of buildings produced. A
tax on sales, commerce or value added reduces consumption, production
and net wealth. Sales tax evasion in the United States has exceeded
30% in recent years.
As new inventions and more efficient ways of producing goods are
discovered, people's economic well-being is not improved, because
they have lost access to land and must pay both rent and taxes. (5) Instead of
rent being used to provide community services, capital and wages must be
depleted, which obstructs private enterprise.
When the rent of land is taken for public purposes production and
distribution are not held back. This is because the same amount of
rent would otherwise have been taken by some private individual. The
rent would be the same, the difference is how it is utilized. There
is evidence that communities who raise their revenue from land,
rather than from labor and capital, are more prosperous, many
increasing productivity by more than 25%. (6)
HOW MUCH LAND RENT
SHOULD THE COMMUNITY COLLECT?
In order to preserve the environment, it is necessary and possible
to better utilize our communities. If the producers of the land
market value (nature, government and people) don't utilize land rent,
someone else will. This is why efficient land use fails under
contemporary land systems in most countries. All countries collect
some of the land rent, perhaps 10%, 20% or 30%, but none yet, collect
all of the market rent of land.
Studies have been produced that demonstrate that communities
prosper and succeed in proportion to the percentage of the land rent
that they collect. The first communities that decide to collect all
of the ground rent will have an enormous competitive advantage over
all other communities. They will be able to reduce or eliminate
regressive taxes on labor and capital. They will attract new business
and industry and become prosperous.
To determine how much
land rent the community should collect
let's consider the alternatives. Whatever is not collected will
be
capitalized into market value by land owners. Buying land at inflated
market prices is a block to new industry. Land owners sell the
capitalized land rent (known as land value) which is uncollected by
the community even though it is unearned income. This causes a
disparity between landowners and non-landowners. In the United States
5% of the population, which does not include many homeowners or
farmers, own 70% of the total national land and natural resource
values.
People will come to a well run community because they will be
better off than living by themselves or in an impoverished locale. A
city must secure revenue in order to provide good quality
services.
This revenue can best be procured when the community recaptures
the value of the benefits and services that it provides. This is done
by collecting the rental revenue from land that reflects the value of
the services and facilities provided in that community. The land rent
belongs equally to all people that live in the locale who helped to
produce that value. In a well run community. there is sufficient land
rent to provide adequate funding for the social purposes requested
of, and provided by, the local city government
Cities which choose to collect land rent as their primary source
of revenue have the advantage of not requiring burdensome taxes to be
paid by workers, businesspeople, entrepreneurs or citizens.
Individuals who work to create wealth should be allowed to keep what
they produce. When labor is not taxed, greater production and
consumption occurs. Investment capital is formed which is used to
produce more wealth. New jobs are created and economic diversity
results.
Each person has a right to keep what he or she produces, but no
one has the right to waste what belongs to all people, the land which
includes the natural environment. Each person should have an
opportunity to use the best land for his business or personal needs,
as long as they are willing to pay the land rent that other land
users are willing to pay.
If the value of land rent exceeds the community's needs for public
services a method of dispensing of the revenue can easily be
found. To maintain an equitable society, where nobody has special
benefits that they do not pay for, it is important to collect all of
the land rent. The community should use what is needed for public
services and improvements such as schools, hospitals, parks, police,
roadways, utilities and defense -- and reserve a fund for
emergencies.
An ethical proposal might be to then divide the excess revenue
that is not needed for public facilities and services at the end of
each year and send each citizen in that community an equal portion of
the remaining revenue. This is similar to the method used in Alaska
and Alberta. Equality of opportunity to be productive can only be
accomplished by recapturing all of the market rent of land and
ensuring that all people benefit from its value.
Not only is land rent potentially an important source of public
revenue, collecting all of it would ensure that the equal opportunity
to be productive would be available to all citizens. People could
fund useful buildings, equipment and wages, rather than having to buy
land at inflated prices. Many countries, including the United States,
were started on the premise of using land rent to fund public
services. Many countries suffer economic loss because they no longer
collect the market rent of land.
The value of land can be estimated with an acceptable accuracy, at
a cost which is very small compared to the revenue to be obtained. A
proper system of assessment and taxation of land can provide for the
proper economic use of the land. A land site should be available to
the user who can make the highest and best use of the site and
maximize the site benefits for all people. A land tax can provide a
major source of public revenue which the local governing body could
use for the benefit of all people. A land tax can prevent the
dispossession of our children, the future producers in the society.
Justice requires that land values, which are created by society and
nature, be made available for public improvements. This is the
responsibility of good government.
... Read
the whole article
Bill Batt: Comment on Parts
of the NYS Legislative Tax Study Commission's 1985 study “Who Pays
New York Taxes?”
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
market presence and ambience. By taxing buildings, however, we impose a
penalty on their optimum development as well as on the incentives for their
maintenance. Moreover, taxes on buildings take away from whatever burden
would otherwise be imposed on sites, with the result that incentives for
their 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 greatest 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 as such.
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
Judge Samuel Seabury: An Address delivered
upon the 100th anniversary of the birth of Henry George
WE are met to celebrate the 100th anniversary of the birth of Henry George.
We meet, therefore, in a spirit of joy and thanksgiving for the great life
which he devoted to the service of humanity. To very few of the children
of men is it given to act the part of a great teacher who makes an outstanding
contribution toward revealing the basic principles to which human society
must adhere if it is to walk in the way which leads to freedom. This Henry
George did, and in so doing he expressed himself with a clarity of thought
and diction which has rarely been surpassed.
... First, that men have equal rights in natural resources, and that these
rights may find recognition in a system which gives effect to the distinction
between what is justly private property because it has relation to individual
initiative and is the creation of labor and capital, and what is public property
because it is either a part of the natural resources of the country, whose
value is created by the presence of the community, or is founded upon some
governmental privilege or franchise.
Henry George believed in an order of society in which monopoly should be
abolished as a means of private profit. The substitution of state monopoly
for private monopoly will not better the situation. It ignores the fact that
even where a utility is a natural monopoly which must be operated in the
public interests, it should be operated as a result of cooperation between
the representatives of labor, capital. and consumers, and not by the politicians
who control the political state.
We should never lose sight of the fact that all monopolies are created and
perpetuated by state laws. If the states wish seriously to abolish monopoly,
they can do so by withdrawing their privileges; but they cannot grant the
privileges which make monopoly inevitable and avoid the consequences by invoking
anti-trust laws against them.
It is strange that the state, which has assumed all sorts of functions
which it cannot with advantage perform, still persists in neglecting a
vital function
which it should and can perform — the function of collecting public
revenues, as far as possible, from those who reap the benefits of natural
resources. In view of public and social needs, it is remarkable that
no effort has been made by governments to reduce the tax burdens on labor
and capital,
which are engaged in increasing production, by transferring them to those
who restrict production by making monopoly privileges special to themselves.
These monopolistic privileges are of course disguised under many different
forms, but the task of ascertaining what they are, and their true value,
is a task within the competency of government if it really desires to accomplish
it. ... read the whole speech
Bill Batt: Comment on Parts
of the NYS Legislative Tax Study Commission's 1985 study “Who Pays
New York Taxes?”
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
market presence and ambience. By taxing buildings, however, we impose a
penalty on their optimum development as well as on the incentives for their
maintenance. Moreover, taxes on buildings take away from whatever burden
would otherwise be imposed on sites, with the result that incentives for
their 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 greatest 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 as such.
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
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