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Public Expenditure

One of the beauties of forming communities is that through our common spending, we can together create amenities and provide services that benefit large number of people, which individuals would have great difficulty in providing or could only provide very inefficiently.

Most public spending creates more value than what it costs. Spend money on a bridge, and land values rise at an accelerating rate on both sides of the bridge. Build a subway system, and land values within a significant radius around the stations go sky high. Improve the schools, and land values will rise. Provide trash pickup, and land values will rise.

Judging a public spending project on the basis of whether it will produce an increase in land values equal to the cost of the project makes a lot of sense. For example, there was the famous proposal to build a bridge to an island in Alaska. One guess at the land value of that island placed the island's value at about $450 million, and the cost of the bridge was to be about $223 million. So if building the bridge results in a 50% increase in land values, the cost of building the bridge would be covered! (And if building the bridge wouldn't produce a 50% increase in land values, did the project make sense?)

Now we need to consider who it is that should pay for that bridge, and why the current owners of the 60,000 or so acres of land on that island should receive a windfall. If we believe that the federal taxpayer should pay for it, should it be paid for via a tax on wages and other income, or should it be through a federal tax on land values?

Something to think about.

Henry George: The Common Sense of Taxation (1881 article)

The true purposes of government are well stated in the preamble to the Constitution of the United States, as they are in the Declaration of Independence. To insure the general peace, to promote the general welfare, to secure to each individual the inalienable rights to life, liberty, and the pursuit of happiness — these are the proper ends of government, and are therefore the ends which in every scheme of taxation should be kept in mind.

As to amount of taxation, there is no principle which imposes any arbitrary limit. Heavy taxation is better for any community than light taxation, if the increased revenue be used in doing by public agencies things which could not be done, or could not be as well and economically done, by private agencies.
Taxes could be lightened in the city of New York by dispensing with street-lamps and disbanding the police force. But would a reduction in taxation gained in this way be for the benefit of the people of New York and make New York a more desirable place to live in? Or if it should be found that heat and light could be conducted through the streets at public expense and supplied to each house at but a small fraction of the cost of supplying them by individual effort, or that the city railroads could be run at public expense so as to give every one transportation at very much less than it now costs the average resident, the increased taxation necessary for these purposes would not be increased burden, and in spite of the larger taxation required, New York would become a more desirable place to live in. It is a mistake to condemn taxation as bad merely because it is high; it is a mistake to impose by constitutional provision, as in many of our States has been advocated, and in some of our States has been done, any restriction upon the amount of taxation. A restriction upon the incurring of public indebtedness is another matter. In nothing is the far-reaching statesmanship of Jefferson more clearly shown than in his proposition that all public obligations should be deemed void after a certain brief term — a proposition which he grounds upon the self-evident truth that the earth belongs in usufruct to the living, and that the dead have no control over it, and can give no title to any part of it. But restriction upon public debts is a very different thing from restriction upon the power of taxation, and reasons which urge the one do not apply to the other. Nor is increased taxation necessarily proof of governmental extravagance. Increase in taxation is in the order of social development, for the reason that social development tends to the doing of things collectively that in a ruder state are done individually, to the giving to government of new functions and the imposing of new duties. Our public schools and libraries and parks, our signal service and fish commissions and agricultural bureaus and grasshopper investigations, are evidences of this.

But while no limit can be properly fixed for the amount of taxation, the method of taxation is of supreme importance. A horse may be anchored by fastening to his bridle a weight which he will not feel when carried in a buggy behind him. The best ship may be made utterly unseaworthy by the bad stowage of a cargo which properly placed would make her the stiffer and more weatherly. So enterprise may be palsied, industry crushed, accumulation prevented, and a prosperous country turned into a desert, by taxation which rightly levied would hardly be felt. ...

So long as we consider that community most prosperous which increases most rapidly in wealth, so long is it the height of absurdity for us to tax wealth in any of its beneficial forms. We should tax what we want to repress, not what we want to encourage. We should tax that which results from the general prosperity, not that which conduces to it. It is the increase of population, the extension of cultivation, the manufacture of goods, the building of houses and ships and railroads, the accumulation of capital, and the growth of commerce that add to the value of land — not the increase in the value of land that induces the increase of population and increase of wealth. It is not that the land of Manhattan Island is now worth hundreds of millions where, in the time of the early Dutch settlers, it was only worth dollars, that there are on it now so many more people, and so much more wealth. It is because of the increase of population and the increase of wealth that the value of the land has so much increased. Increase of land values tends of itself to repel population and prevent improvement. And thus the taxation of land values, unlike taxation of other property, does not tend to prevent the increase of wealth, but rather to stimulate it. It is the taking of the golden egg, not the choking of the goose that lays it.

Every consideration of policy and ethics squares with this conclusion. The tax upon land values is the most economically perfect of all taxes. It does not raise prices; it maybe collected at least cost, and with the utmost ease and certainty; it leaves in full strength all the springs of production; and, above all, it consorts with the truest equality and the highest justice. For, to take for the common purposes of the community that value which results from the growth of the community, and to free industry and enterprise and thrift from burden and restraint, is to leave to each that which he fairly earns, and to assert the first and most comprehensive of equal rights — the equal right of all to the land on which, and from which, all must live.

Thus it is that the scheme of taxation which conduces to the greatest production is also that which conduces to the fairest distribution, and that in the proper adjustment of taxation lies not merely the possibility of enormously increasing the general wealth, but the solution of these pressing social and political problems which spring from unnatural inequality in the distribution of wealth. ... read the whole article

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Hence:

  • It must not take from individuals what rightfully belongs to individuals.
  • It must not give some an advantage over others, as by increasing the prices of what some have to sell and others must buy.
  • It must not lead men into temptation, by requiring trivial oaths, by making it profitable to lie, to swear falsely, to bribe or to take bribes.
  • It must not confuse the distinctions of right and wrong, and weaken the sanctions of religion and the state by creating crimes that are not sins, and punishing men for doing what in itself they have an undoubted right to do.
  • It must not repress industry. It must not check commerce. It must not punish thrift. It must offer no impediment to the largest production and the fairest division of wealth.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Henry George: Thou Shalt Not Steal  (1887 speech)

There is no need for poverty in this world, and in our civilization. There is a provision made by the laws of the Creator which would secure to the helpless all that they require, which would give enough and more than enough for all social purposes. These little children that are dying in our crowded districts for want of room and fresh air, they are the disinherited heirs of a great estate.

Did you ever consider the full meaning of the significant fact that as progress goes on, as population increases and civilization develops, the one thing that ever increases in value is land? Speculators all over the country appreciate that fact. Wherever there is a chance for population coming; wherever railroads meet or a great city seems destined to grow; wherever some new evidence of the bounty of the Creator is discovered, in a rich coal or iron mine, or an oil well, or a gas deposit, there the speculator jumps in, land rises in value, and a great boom takes place, and people find themselves enormously rich without ever having done a single thing to produce wealth.

Now, it is by virtue of a natural law that land steadily increases in value; that population adds to it; that invention adds to it; that the discovery of every fresh evidence of the Creator’s goodness in the stores that He has implanted in the earth for our use adds to the value of land, not to the value of anything else. This natural fact is by virtue of a natural law, a law that is as much a law of the Creator as is the law of gravitation.

What is the intent of this natural law of increasing land values? Is there not in it a provision for social needs? That land values grow greater and greater as the community grows and common needs increase: is there not built into this law a manifest provision for social needs — a fund belonging to society as a whole, with which we may take care of those who fall by the wayside — with which we may meet public expenses, and do all the things that an advancing civilization makes more and more necessary for society to do on behalf of its members?

Today the value of land in New York city is over a hundred million annually. Who has created that value? Is it because a few landowners are here that that land is worth a hundred million a year? Is it not because the whole population of New York is here? Is it not because this great city is the center of exchanges for a large portion of the continent? Does not every child that is born, every one that comes to settle in New York, does it not add to the value of this land? Ought it not, therefore, get some portion of the benefit? And is it not wronged when, instead of being used for that purpose, certain favored individuals are allowed to appropriate the fund of land values?

We might take this vast fund for common needs; we might with it make a city here such as the world has never seen before — a city spacious, clean, wholesome, beautiful — a city that should be full of parks; a city without tenement houses; and we could do this, not merely without imposing any tax upon production, without interfering with the just rights of property, but while at the same time securing far better than they are now the rights of property, and abolishing the taxes that now weigh on production. ...  read the whole article

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

Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894) — Appendix: FAQ

Q2. Would the single tax yield revenue sufficient for all kinds of government?
A. Thomas G. Shearman, Esq., of New York, estimates that sixty-five per cent of the rent that the land in the United States now yields actually and potentially to its owners, would be sufficient. But whether it would or not is as yet an unimportant question. If all revenues ought to be raised from land values, then no revenues should be drawn from other sources while any land value remains in private possession. Until land values are exhausted the taxation of labor cannot be excused.

Q4. What disposition would you make of the revenues that exceeded the needs of government?
A. The people who ask this question ought to settle it with those who want to know whether the single tax would yield revenue enough. I do not believe that public revenues under the single tax would exceed the just needs of economical government; in better highways, better sidewalks, better wharves, better schools, better public service of various kinds, we should find sufficient demand for all our revenues. But the question of deficiency or surplus is one to be met and disposed of when it arises. The present question is the wisdom and the justice of applying land values to common use, as far as they will go or as much of them as may be needed as the case may prove to be.

Q5. If the full rental value were taken would it not produce too much revenue and encourage official extravagance? If only what was needed for an economical administration of government, would not land still have a speculative value?
A. In the first part of your question you are thinking of a vast centralized government as administering public revenues. With the revenues raised locally, each locality being assessed for its contribution to the state and the nation, there would be no such danger. The possibility of this danger would be still further reduced by the fact that private business would then offer greater pecuniary prizes than would public office, wherefore public office would be sought for purer purposes than as money-making opportunities. As to the second part of your question, the speculative value of land would be wiped out as soon as the tax on land values was high enough and that on improvement values low enough to make production more profitable than speculation. And this point would be reached long before the whole rental value was absorbed in taxation.

Q55. Our city raises $20,000 for fire protection. Is it fair to tax land, which doesn't get that protection, and let houses go free though they do get it?
A. Is not the land worth more with your fire protection than it would be without it? Which would be better for the owners of land in your city, to pay the $20,000, or to have no fire protection? Read notes 14 and 18. ... read the book

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

Q2. What is meant by the single tax?
A. The payment of all public expenses from economic rent, the normal revenue, thus eventually abolishing all taxes.

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

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

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

Q57. Would the single tax yield sufficient revenue for all government purposes, local, state, and national?
A. Careful estimates by Mr. Thomas G. Shearman indicate that all present taxes amount to not much more than one half of the annual site value of the land. But he said:

The honest needs of public government grow faster than population and fully as fast as wealth itself. Local taxation will increase rapidly; and it ought to do so..... This does not imply that ground rent will not be sufficient to supply many, possibly all, of those additions to human happiness which Henry George has pictured in such glowing words. But such extensions of the sphere of government must take place gradually; or they will be ruinous failures, simply because the state cannot at once furnish the necessary machinery for their successful operation. ... read the whole article

Arthur J. Ogilvy: A Colonist's Plea for Land Nationalization (about 1890)

The increase of value in my land has arisen from the execution of public works and increase of population, causing an increased demand for the land; in other words, it has arisen from the national progress; and I, so far from aiding in this progress have actually hindered it, by keeping my property locked up and so forcing on intending producers to inferior or less accessible lands; and by holding so much land back have helped to make land so much scarcer, and, therefore, so much dearer, and so have helped to increase the tribute which industry has to pay to monopoly for the mere privilege of exerting itself. ...

The value of land, as of everything else, will oscillate within certain limits, and even in some exceptional cases, as in the sudden diversion of traffic, fall for an indefinitely prolonged period; but these occasional or exceptional perturbations are but as the advance and recession of the waves in a flowing tide. The tide still comes in.

In every country which has any enterprise and progress, land values must rise. The movement may be fast or slow, continuous or interrupted, but it is up not down.

There is not a single factor in a nation's progress that does not add to the value of land. Every road improved and railway laid down; every machine invented and process perfected; every opening of new markets; every improvement in fiscal policy, in order and good Government, in the knowledge and skill, in the morals, manners, and even numbers of the people, every conceivable element, in short that adds to the productiveness of industry, adds to the value of land, and increases the tribute which monopoly can wring from industry; which the man who merely owns the land can exact from him who uses it for the mere permission to use it.

This is why the gradual rise of land value or rent (ground rent only, remember), is called the unearned increment. ...

Rent devours wages.

Suppose the labourer to ask for a rise and the farmer to refuse, on the ground that he cannot afford it.

But presently something happens. A railway is made or a mine opened in the neighbourhood, or some improved process enables a greater yield to be obtained at the same cost, and there is now an appreciable surplus. The labourer comes forward again and says, "You can afford it now."

"Unfortunately, no," replies his employer. "I might have done so, but my lease is nearly up, and these advantages you refer to having made the land more valuable, my landlord has notified that he means to raise the rent; and as there certainly is a greater surplus available for rent than there was, I must give it, for if I don't someone else will; and so, as far as I am concerned, the surplus you calculate upon has vanished."

In short, whenever there is an increase in the productiveness of industry creating an additional surplus, and the labourer stretches forth his hand for a share of it, the landlord pushes him aside, and takes it all himself; but as he keeps well out of sight in doing so, using the employer as his instrument, his action is not perceived. And as it is in the present so it has been in the past. Inventions and discoveries have within the last century doubled the productiveness of industry over and over again, but the labourer has no more benefited by them than the employer has. The increase has been enormous, but, in the primary industries at any rate, the landlord has taken it all.

But some will say, "The labourer's exertion is a fixed quantity. The increased productiveness of his industry is in no degree due to himself, but to the improved appliances he works with, and, that being so, the person who supplies these appliances that is, the employer has a right to the increase.

There is enough prima facie appearance of reason in this to have made it worth discussing if the employer really got it, but he does not. He gets interest, no doubt, on the additional expense he has incurred in procuring the appliance, but he gets none of the increase of wealth due to the increased efficiency of labour when aided by the appliance, (once the appliance has come into general use); that, as we have seen, goes to increase the value of land and raise rents, and while the employer does not gain, the labourer in most cases actually loses; for the usual result of labour-saving inventions, in the primary industries at any rate, is not that the employer retains the same hands to do more work, but that he discharges some of his men and does the old amount of work with fewer hands.

It is the landlord, who has neither invented, nor supplied, nor put to use the appliances, who gets the whole benefit of them. ... read the whole paper.

note: the Canal which Churchill describes was built by a corporation, not a government entity, but the story is instructive nonetheless:
Winston Churchill: The People's Land  

Fancy comparing these healthy processes with the enrichment which comes to the landlord who happens to own a plot of land on the outskirts or at the centre of one of our great cities, who watches the busy population around him making the city larger, richer, more convenient, more famous every day, and all the while sits still and does nothing. Roads are made, streets are made, railway services are improved, electric light turns night into day, electric trams glide swiftly to and fro, water is brought from reservoirs a hundred miles off in the mountains -- and all the while the landlord sits still. Every one of those improvements is effected by the labour and at the cost of other people. Many of the most important are effected at the cost of the municipality and of the ratepayers. To not one of those improvements does the land monopolist as a land monopolist contribute, and yet by every one of them the value of his land is sensibly enhanced. He renders no service to the community, he contributes nothing to the general welfare; he contributes nothing even to the process from which his own enrichment is derived. If the land were occupied by shops or by dwellings, the municipality at least would secure the rates upon them in aid of the general fund, but the land may be unoccupied, undeveloped, it may be what is called 'ripening' — ripening at the expense of the whole city, of the whole country, for the unearned increment of its owner. Roads perhaps may have to be diverted to avoid this forbidden area. The merchant going to his office, the artisan going to his work, have to make a detour or pay a tram fare to avoid it. The citizens are losing their chance of developing the land, the city is losing its rates, the State is losing its taxes which would have accrued if the natural development had taken place; and that share has to be replaced at the expense of the other ratepayers and taxpayers, and the nation as a whole is losing in the competition of the world -- the hard and growing competition of the world -- both in time and money. And all the while the land monopolist has only to sit still and watch complacently his property multiplying in value, sometimes manifold, without either effort or contribution on his part; and that is justice!

Unearned increment reaped in exact proportion to the disservice done. But let us follow the process a little further. The population of the city grows and grows still larger year by year, the congestion in the poorer quarters becomes acute, rents and rates rise hand in hand, and thousands of families are crowded into one-roomed tenements. There are 120,000 persons living in one-roomed tenements in Glasgow alone at the present time. At last the land becomes ripe for sale — that means that the price is too tempting to be resisted any longer — and then, and not till then, it is sold by the yard or by the inch at ten times, or twenty times, or even fifty times, its agricultural value, on which alone hitherto it has been rated for the public service. The greater the population around the land, the greater the injury which they have sustained by its protracted denial, the more inconvenience which has been caused to everybody, the more serious the loss in economic strength and activity, the larger will be the profit of the landlord when the sale is finally accomplished. In fact, you may say that the unearned increment on the land is on all fours with the profit gathered by one of those American speculators who engineer a corner in corn, or meat, or cotton, or some other vital commodity, and that the unearned increment in land is reaped by the land monopolist in exact proportion, not to the service but to the disservice done.

The drag on enterprise  It is monopoly which is the keynote, and where monopoly prevails, the greater the injury to society the greater the reward of the monopolist will be. See how all this evil process strikes at every form of industrial activity.
  • The municipality, wishing for broader streets, better houses, more healthy, decent, scientifically planned towns, is made to pay, and is made to pay in exact proportion, or to a very great extent in proportion, as it has exerted itself in the past to make improvements. The more it has improved the town, the more it has increased the land value, and the more it will have to pay for any land it may wish to acquire.
  • The manufacturer proposing to start a new industry, proposing to erect a great factory offering employment to thousands of hands, is made to pay such a price for his land that the purchase price hangs round the neck of his whole business, hampering his competitive power in every market, clogging him far more than any foreign tariff in his export competition, and the land values strike down through the profits of the manufacturer on to the wages of the workman.
  • The railway company wishing to build a new line finds that the price of land which yesterday was only rated at agricultural value has risen to a prohibitive figure the moment it was known that the new line was projected, and either the railway is not built or, if it is, is built only on terms which largely transfer to the landowner the profits which are due to the shareholders and the advantages which should have accrued to the traveling public.
Now let the Manchester Ship Canal tell its tale about the land. It has a story to tell which is just as simple and just as pregnant as its story about Free Trade. When it was resolved to build the Canal, the first thing that had to be done was to buy the land. Before the resolution to build the Canal was taken, the land on which the Canal flows — or perhaps I should say 'stands' — was, in the main, agricultural land, paying rates on an assessment from 30s. to L2 an acre. I am told that 4,495 acres of land purchased fell within that description out of something under 5,000 purchased altogether. Immediately after the decision, the 4,495 acres were sold for L777,000 sterling — or an average of L172 an acre — that is to say, five or six times the agricultural value of the land and the value on which it had been rated for public purposes.

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

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

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

Clarence Darrow: How to Abolish Unfair Taxation (1913)

Fundamentally, all law recognizes the right to eminent domain, to take the portion of any human being for the welfare of the public — that no man's claim to any portion of the earth shall stand in the way of the common good. This is a common law, but in practice it only applies where a rich railroad wants to get the land of some poor widow.

Everybody who works is poor; nobody would work if they were not poor, and nobody can get rich working. I never tried it, but I have seen others try it. The land boomer comes along and gets good car service to this poor man's home, and then charges him ten dollars per month instead of five. A lot of reformers are trying to get parks laid out in the slums, which only make the poor move, for they cannot pay the increased rent. The greater the population, the less the worker gets. As the land becomes valuable, more and more goes to rent. The bigger the city, the deeper the poverty; the bigger the city the more degradation, there are the almshouses and gaols filled to overflowing. It is better for the men who own the earth to have big cities — but for no one else. Every man, woman, and child adds to the wealth of the land owner; the others must secure land upon which to live, and they must bid with each other for the right to live.

... The single tax theory is that the public should take all the value of land, as it was made by the public. Land value goes up because of population, and not because of the owner of the title deed, and the value should be taken by the community, and thus create a natural fund from which to make improvements for the comfort of all, and thus make life easier. It would abolish poverty, that crime of the century, which has always come with civilization; inequality of wealth, which comes as the world grows older, and which we have never been able to cure, because man wants to hold what he cannot use, and pass on to future generations what they will not use.

The personal property tax always was a delusion, a humbug, and a snare; it never could be administered justly. The conscientious man, the widow and the orphans (whose fund is in trust) pay in full while the rich get off. It is unscientific, it is bad as a fiscal measure. What we are after is the earth, and it can be had in an easy, simple, direct way.

Every right-of-way of every railroad should be owned by the people; all public franchises, every mine and every forest, all should belong to the community itself. Then we would not need the repressive laws we have today.

Men love peace, and if not antagonized, they will behave, and until justice is done in that good time to come, all the gaols on earth cannot make them behave. It never did, and it never will.

The "single tax" is so simple, so fundamental, and so easy to carry into effect that I have no doubt it will be about the last reform the world will ever get. People in this world are not often logical; in fact, there is never any considerable number of them that are logical. I am pretty sure the people will never get started in the right direction; they will go a long way around. ... read the whole speech

Charles T. Root — Not a Single Tax! (1925)

... let us lay down and briefly defend the proposition that —

Taxation as a means of meeting the proper expenses of government is oppressive, unjust, inexpedient and unnecessary.

This proposition will strike a good many readers as absurd, but all must at least recognize the timeliness of the topic and the importance of any contribution to the discussion of a subject which is agitating the whole civilized world, for the methods, subjects and amounts of taxation are among the pressing problems of every country.

The most obvious question which arises in the mind of anyone who reads for the first time the proposition above laid down is this:

"If taxation is unnecessary, what is to take its place? Government and its functions are increasingly expensive. They require a lot of money. Where is it to come from?" The answer may be placed in the form of a second proposition:

Every community, whatever its political name and extent — village, city, state or province or nation — has its own normal, unfailing income, growing with the growth of the community and always adequate to meet necessary governmental expenditure.

To explain: Every community has an indefeasible original right to the land on which it exists, and to all the natural, unmodified properties and advantages of that particular area of the earth's surface. To this land in its natural state, undrained, unfenced, unfertilized, unplanted and unoccupied, including its waters, its contents and its location, every individual in the community (which may consist of any political unit selected) has an equal right, while all the individuals together have a joint right to the value for use which society has conferred upon these natural advantages.

This value for use is known as "Land Value," or by the not particularly descriptive but generally adopted name of "Economic Rent."

Briefly defined the land value or economic rent of any piece of ground is the largest annual amount voluntarily offered for the exclusive use of that ground, or of an equivalent parcel, independent of improvements thereon. Every holder or user of land pays economic rent, but he now pays most of it to the wrong party. The aggregate economic rent of the territory occupied by any political unit is, as has been stated above, always sufficient, usually more than sufficient, for the legitimate expenses of the government of that unit. As also stated above, the economic rent belongs to the community, and not to individual landowners. ...

But before this time the reader, unless he has given previous attention to the subject, is full of objections to the above doctrine: "How about the law?" he is asking. "Hasn't a man the right to buy a piece of land as cheaply as he can, to do what he pleases with it, and hold on to it till he gets ready to sell?" The answer is that at present he certainly has this statutory right, which has been so long and so universally recognized that most people suppose it to be not only a legal, but a real or equitable right. A shrewd man, foreseeing the direction of growth of population in a city, for example, can buy a well-located block at a moderate figure from some less far-seeing owner, can let it grow up to weeds, fence it off against all comers and give it no further attention except to pay the very small tax usually imposed upon vacant land.

Meantime the increasing community builds up all around it with homes, banks, stores, churches, schools, paving and lighting the streets, giving police and fire protection, etc., and at last comes to need this block so urgently that the owner is fairly begged to sell it, at three or ten or fifty times what it cost him. Quite often the purchaser at this enormous advance is the very community which has through its presence and the expenditure of its taxes created practically the whole value of the land in question!

It was said above that an individual has a statutory right to pursue this very common course. That was an error. The statement should have been that he has a statutory wrong; for no disinterested person can follow the course of land speculation as almost universally practiced, without feeling its rank injustice. ...

An illustration has already been given of the case of a piece of farm land. Let us take an example in a large city. Let us take a corner lot centrally located in New York City, the title to which lot is held by, say, Mr. John William Rhinelastor. This lot was a part of an old Dutch farm, and is an heirloom. It did not cost the present owner anything, nor his father nor his grandfather. There is a little old building on it, which has always been rented at a figure ten times as large as the taxes imposed, so that the owner has been handsomely subsidized each year for storing his title-deeds during a period of the city's growth in which the increase in population and the expenditure of public money in that neighborhood have raised the value of this corner location to, say, two hundred times its early value.

About now, Mr. Rhinelastor decides that he will go abroad to live, and can't be bothered with this piece of property. But knowing that the pressure of population is sure to increase and that the expenditure of public money to the benefit of this land must continue, he will not sell it. So he gives a twenty-one year lease to the corner for, say, $20,000 a year net, with a privilege to the lessee of renewals at advancing figures. The lessee agrees to pay all taxes.

Now what is this net $20,000 a year, which will be regularly remitted to Mr. Rhinelastor, in Europe or wherever he may be, given in payment for? Not for the old building — the first thing the lessee does is to pull it down. Not for the land itself — it is all rock, which has got to be blasted out as part of its improvement.

Clearly it is paid for a location or site value, which the community, and the community only, has built up and paid for. In other words, the present $20,000 rental, and the larger one which that location will command in later years, is strictly a community product, and as such belongs to the community and not to Mr. Rhinelastor.

That the latter has no good right to it is at once evident when we remember that "When one man gets something for nothing somebody else has got to give something for nothing." Here are $20,000 that some men and women have got to work to earn every year to hand over to a man who does not render, and does not feel any obligation to render, one dollar's worth of public or private service in return. Such is the wild travesty of justice which we call law. It is not comical only because it is frankly tragic in its social results.

Now suppose this $20,000 and all the rest of this same community product — i.e., the site or location rent of its ground — were paid every year to its rightful owner, the treasurer of New York City, what would become of taxation, with its inseparable retinue, Fraud, Evasion, Perjury, Inequality, and an all-pervading public sense of injustice? ... read the whole article

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

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

Georgist analysis strongly emphasises landownership as a principal source of inequality. Because land is a strictly limited resource, its private ownership necessarily excludes large sections of the community from its benefits. A landowning class thereby gains political economic power. In George’s own time the social identity and power of this landowning class was distinctive. Those who could not afford to buy land were forced to pay rent to the wealthier few who could. By taxing the value of land, George posited that publicly created wealth could be recouped from the private landowners and redistributed throughout the community more equitably in order to address social goals.

Are George’s arguments about land ownership and wealth inequality relevant today? Australia provides an interesting example, because land is the single largest item in national wealth. Laurie Aarons outlines the concentration of farming land in particular in the hands of a few very wealthy corporations and individuals – what he refers to as ‘corporate squattocracy’ (Aarons, 1999: 23). The relentless increase in urban land values in recent years has also produced dramatic redistributions of wealth. In the State of New South Wales, for example, land values increased by about $361 billion over the period 1993 – 2003. The existing land-based taxes clawed back only $44 billion in government revenues, comprising only about 12% of the land-related economic surplus. So 88% was retained as ‘unearned income’ by landowners (Stilwell and Jordan, forthcoming). A higher rate of land tax with fewer exemptions could have substantially reduced this private wealth appropriation. This is not necessarily to posit the desirability of recouping 100% through land tax, because that would certainly raise major problems of people’s ability to pay, given that much of the increased wealth resulting from land price inflation has not been realised as current income. But it is indicative of the current imbalance between private and public appropriations of the surplus arising from increases in land-based wealth. ... read the whole article

Joseph Fels:   True Christianity and My Own Religious Beliefs

Do you question the relationship between taxation and righteousness? Let us see. If government is a natural growth, then surely God's natural law provides food and sustenance for government as that food is needed; for where in Nature do we find a creature coming into the world without timely provision of natural food for it? It is in our system of taxation that we find the most emphatic denial of the Fatherhood of God and the Brotherhood of Man, because,
  • first, in order to meet our common needs, we take from individuals what does not belong to us in common;
  • second, we permit individuals to take for themselves what does belong to us in common;
  • thus, third, under the pretext of taxation for public purposes, we have established a system that permits some men to tax other men for private profit.
Does not that violate the natural, the divine law? Does it not surely beget wolfish greed on the one hand, and gaunt poverty on the other? Does it not surely breed millionaires on one end of the social scale and tramps on the other end? Has it not brought into civilization a hell, of which the savage can have no conception? Could any better system be devised for convincing men that God is the father of a few and the stepfather of the many? Is not that destructive of the sentiment of brotherhood? With such a condition, how is it possible for men in masses to obey the new commandment, "that ye love one another"? What could more surely thrust men apart? What could more surely divide them into warring classes?... read the whole letter

Joseph Stiglitz: October, 2002, interview

Q: Your academic work led you to formulate what you called "The Henry George Theorem." This demonstrated that public spending — where this was efficient — generated additional rental value that surfaced in the land market. Other distinguished scholars, such as the late Nobel prize winner, William Vickrey, confirmed your findings. You also noted in one of your books, co-written with Anthony Atkinson, that the Henry George Theorem was attractive both because it was the revenue-raiser that did not distort private incentives and because "it is the 'single tax' required to finance the public good." [Anthony B. Atkinson & Joseph E. Stiglitz, Lectures on Public Economics, London: McGraw-Hill, 1980, p. 525] Now, public investment, unless of the wasteful kind designed to serve the privileged interests of rent seekers (the classic type being a land speculator), should be viewed as working in partnership with the private sector and not a drain on the community. How can the reputation of publicly provided services and investments be rescued?

JES: That's a very good question. What we did when I was at the Council of Economic Advisors was some studies to try to show what the social returns would be to public investment in R&D, etc. And we became convinced that the rates of return of those investments are very high. So you ask the question, "what can we do to restore confidence in public investment?" We need to realize how much we depend on them. I keep telling people, "The Internet." That's one example. It was publicly funded. It's now a public-private partnership. The government did the basic research, and the private sector ran off with it. But, arguably, we would never have had the Internet if it were not for government expenditure. So I think a major industry in the United States — biotech — is based on NIH (National Institutes of Health). NIH does all the basic research.

Q: From the conference on "mondialization," I saw a major difference in attitude among the French with regard to public investment. The French believe strongly in public funds for public works, whereas Americans believe they shouldn't be taxed more in order to support public projects. Which view do you agree with?

JES: There's been a lot of so-called "bad rhetoric" in this whole area. The real point is that we need to recognize that there are some things in the area of "the public sphere." We're not having investment in basic research; we need to have the government do it. And that's what I've consistently been arguing; you don't want the government building steel factories. But you do want the government doing certain research, and the relative size of that depends on the society. Right now, we should be spending far more on basic research. So what is the message. I think how much we depend on the government. And the new economy, we take it for granted, but it is the public sector. I think you're right that we have the wrong view. But I keep saying, "The Internet." How much as it changed our lives? And it's [the result of] the government. ... read the entire interview

Mason Gaffney: Neo-classical Economics as a Stratagem Against Henry George

A state, provincial, or local government can finance generous public services without driving away business or population. The formula is simple: tax land, which cannot migrate, instead of capital and people, which can. By eliminating the destructive "Wedge Effect," the land tax lets us support schools and parks and libraries and water purification and police and fire protection, etc., as generously as you please, without suppressing or distorting useful work, and without taxing investors in real capital. ... read the whole essay

Lindy Davies: The Cat in New York
When I taught at the Henry George School in New York, our Director, George Collins, used to give a stirring graduation speech to students. He told them they would find that the gift of insight they'd been given, in studying Georgist political economy, was also a kind of curse: they would never look upon their city with the same eyes. The land question and its ramifications, the malignant absurdities of today's economic systems and the sheer obviousness of the remedy, would shout at them in every day's news.

I was reminded of that when I recently visited New York. ...

Economists note in this budget crunch, as in others the city has faced, a curious disconnect between the fiscal crisis and the overall economy. Tax receipts are way down and the budget outlook is indeed scary, even while the underlying economy actually lurches toward recovery. If it weren't for the large declines in the (admittedly, very important) financial and tourism sectors, the city's economy would not be performing badly at all. How unfortunate, then, that New York will see no other alternative than to choke off economic recovery by raising income and sales taxes while cutting back on public services. But what can they do? The tax base is declining.

Or is it? It turns out that land values in New York, while modestly down in some areas, have not taken anywhere near the beating that the Stock Market has, or the small business community, or public services. No, the real estate market in New York City remains, all in all, quite bullish. There are few bargains to be had. Residential rents, of course, having been held artificially low by rent stabilization, provide no relief even in a weak market.

So, no -- despite the dire warnings, New York City need not endure a fiscal crisis. Its tax base -- properly defined -- is robustly capable of providing for public needs, while actually bringing business into the city. They have just been taxing the wrong things, all along. Tourists, bulls and bears come and go, but New York City's land values -- like its citizens -- are quite resilient. ... Read the whole article

William F. Buckley, Jr.: Home Dear Home

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

The components are:

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

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

Weld Carter: A Clarion Call to Sanity, to Honesty, to Justice

...Thus, the benefits of a tax-supported public work accrued once more not to the benefit of the public at large, but to that of a very limited and narrowly defined class, those who were rich enough to own land in that location.

There are undoubtedly many other problems to be resolved before the ills of our society are cured; but what many do not recognize and understand is the primacy of the adoption of land value taxation over all these other corrections. The reason for that can be very simply stated: If any of these other measures already adopted have no merit and have only added to the burden of our problems, then they are disqualified at the outset. On the other hand, if they are of themselves beneficial, any benefit from them will be immediately capitalized into land values and will therefore exacerbate the very problems which otherwise might be helped toward a cure. Thus it is that our first step toward any possible remedy for the awesome plight into which we have been led increasingly over the recent years must be the adoption of land value taxation. ... read the whole essay

Ted Gwartney:  A Free Market Strategy to Reduce Sprawl

  • Unused land is far more abundant than we realize.
  • End the Public Subsidy of Land Speculation and Sprawl
  • Counterproductive growth limitations and regulations should be abolished.
  • A Strategy for Urban Renewal
  • A Strategy for Economic Development
  • Public Finance by Self-Financing
It was estimated that the BART transportation system in San Francisco produced two times more land value than it cost to build. The public recaptured only a small part of the cost from benefits provided by land taxes and user fees. Most of the cost came from external sources, unrelated sales and income taxes. Most of the profits went into only a few pockets.

Thus, the claim that a community is short of capital is misleading. In fact, a community could become self-sufficient in the supply of capital from internal sources. But a precondition for this is the reduction of taxes on productive capital and labor. Examine, for example, what would happen as a result of the elimination of taxation of buildings. This decision, not to penalize people who invest their savings in new buildings, leads to the stimulation of a higher level of national income, higher saving, and the creation of new capital. According to the study made by Tideman and Plassmann (1998, The Losses of Nations, Fred Harrison, editor, Orthila Press), shifting taxes off buildings, production and distribution, and onto land and natural resources, could increase the gross national product by 25%, or one trillion 1998 dollars ($1,000,000,000,000).

The Land Value Tax Shift from labor and capital is not only a key to reversing suburban sprawl and protecting rural environments -- it is a key to realizing the dream and fulfilling promises of a truly free market -- with liberty, prosperity, and justice for all.  ... Read the whole article

Weld Carter: A Clarion Call to Sanity, to Honesty, to Justice  (1982)

Back in the early days of this century, Winston Churchill saw and recorded an example of this. There had been a ferry fare over the river Thames for the common laborers who lived on the wrong side of the river to pay in order to get to work. A spirit of nobility prompted the absorption of this fare by the City, and almost immediately rents in the working class area were increased by the same amount as the fare had been. When this thing was done, the guys who got the benefit were not the poor working class people, but the owners of the homes in which they lived, or, more accurately and more critically, the owners of the land on which those homes stood. The laborers were thus charged a higher rent, and that rent diverted the benefit from the seemingly intended beneficiary (i.e., the public) to landowners in the affected area.

This occurs every day in this country. A new road is built, or a superhighway is constructed, which makes access to a particular site much easier. We tell ourselves that we justify this as an expenditure of public funds by the benefits that accrue to the traveling public; but the benefits go, in the form of higher land prices and rents, to the owners of the sites that are served by this new road. If you doubt this, consider the jockeying for the insider information or for influence over the selection.

Robert Caro, in his biography of Robert Moses, recalls the time in the early 1920s that Moses suggested to the authorities the building of a causeway from the Long Island mainland over to Jones Island. This proposal was rejected outright by the Long Island Park Commission. Some months later, Moses presented them with a drawing showing precisely where this causeway would run, and, after a suitable period of during which these public employees could buy up the land along the proposed highway, he resubmitted his proposal. This time, they officially approved the suggested construction.

In the town of Antioch, Illinois, there were two developments underway almost simultaneously. In the one, roads were provided, together with water and sewer lines, but no sidewalks; in the other, just across a main road from the first, the mayor of the city had storm sewers, curbs and sidewalks installed at public expense, for which of course, any prospective buyer or tenant would gladly pay for use of that land the higher price these added benefits provided. Any reader will recognize this chain of events and set of economic relationships as being the course of everyday life and business at the local, state and national level. The cynic would say that a primary motivation for entering local or even national politics would be the opportunity for personal gain offered daily by publicly financed improvements.

Another example relates to a piece of farmland in central Pennsylvania. In the early 1940's, an 18-acre farm complete with a two-story house with five bedrooms, a large barn that would among other things hang 3 ½ acres of tobacco and store hay, straw and corn on the upper level, with stalls for 6 milking cows and a half dozen steers, housing for 100 laying hens and for fattening a few hogs plus a shed for equipment – all in all, not a large farm by local standards at the time – sold for $7,500. Twenty years later, with about $12,000 in residential improvements, that land and its buildings were sold for approximately $20,000. In those twenty years, the neighborhood and the general economy in the county had not changed a great deal. Within the next year, a decision was pending on the exact location and routing of a new superhighway. The decision, which was announced some time later, carried the route of the highway via a bridge across the local road on which that farm was situated and a cloverleaf access was built nearby. Soon, the value of that piece of land jumped to $10,000 per acre, which, ignoring the value of any improvements to the original piece of land, was an increase of 800%. That increase, from $20,000 to $180,000, benefitted the most recent purchaser of the land. However, the increase resulted from the effects of public (i.e., taxpayers') spending, and, in a more just society, would have been returned to the taxpayers, rather than accruing to the private benefit of an individual who either made a good guess, had some private information, or even perhaps lobbied for that particular routing of that publicly financed highway.

Thus, the benefits of a tax-supported public work accrued once more not to the benefit of the public at large, but to that of a very limited and narrowly defined class, those who were rich enough to own land in that location.

There are undoubtedly many other problems to be resolved before the ills of our society are cured; but what many do not recognize and understand is the primacy of the adoption of land value taxation over all these other corrections. The reason for that can be very simply stated: If any of these other measures already adopted have no merit and have only added to the burden of our problems, then they are disqualified at the outset. On the other hand, if they are of themselves beneficial, any benefit from them will be immediately capitalized into land values and will therefore exacerbate the very problems which otherwise might be helped toward a cure. Thus it is that our first step toward any possible remedy for the awesome plight into which we have been led increasingly over the recent years must be the adoption of land value taxation.  ... read the whole essay

Mason Gaffney: How to Revive a Dying City
"French Equity" (Equity in Kind)

Under the Code Napoleon, a French testator must divide real estate equally among all children. Money cannot substitute for land; the Code requires equity in kind. The resulting fine subdivision is called morcellement, and the Code demands it without regard for efficiency.

Each heir, in fact, must get an equal share of land of each quality: meadow, woodland, etc.

Today we approach French Equity indirectly, and expensively. We distribute land haphazardly, but seek to make every parcel equally good by extending utilities and roads to all parcels on the same terms, regardless of cost or location.

Economists call such schemes "postage stamp pricing," because postal rates do not vary with delivery costs. Manhattan has 64,000 residents per square mile; Montana has 5.4. It costs a lot more to collect or deliver mail in Montana. The reason postal rates rise is that the U.S. urban population is spreading out more like Montana and less like Manhattan (which once had over 100,000 per square mile). Here are five other examples:

  • The British Columbia Ferry Service. This socialized system has two urban lines that make money, but the whole system hardly breaks even, because lesser lines serve remote areas. The worst costs $12 for every dollar of revenue.
  • British Columbia Hydro. This socialized power system charges uniform rates throughout the Province. Users living in high-density Vancouver are cheap to serve. A few live on the Yukon border, where (I surmise) it costs hundreds of dollars to earn a dollar of revenue.
  • Water and sewer service in Milwaukee County, Wisconsin. City investments have been captured, controlled, and milked by suburban land development interests, helped by state legislators.
  • State university campuses. The legislative ethic demands a prize, such as a university campus, in every electoral district. Most of the eight UC campuses have excess land; some have excess floor space. Sacramento solves rising enrollment not with more intensive use of existing campuses, but with the costly creation of new ones, each to enrich influential land speculators.
  • Water supply in California. The high real cost of serving new settlements is passed on to older settled areas through an accounting device called "melding," stirring all the accounts in the same pot. Melding passes through several levels: a state wholesaler serves the metropolitan district, which serves local districts, which serve cities. At the end of the line, in Riverside, it costs society $1800 to serve the marginal acre-foot (a unit of water) selling for $20. This subsidy is worth fortunes to developers; the cost is spread so others won't notice.

Problems with French Equity

There are two problems with these subsidies as an approach to equity: they are not equitable, and they are wasteful.
  • Equity achieved by regional cross-subsidy is not interpersonal, but interregional. It is like U.S. "foreign aid" programs, which tax the poor in rich countries to aid the rich in poor countries. Some who hold speculative land and enjoy subsidies are among the world's richest people and cor-porations. Equity is not served by milking middle-class neighborhoods to further enrich wealthy owners. "Public works for private gain" is bad enough, but worse when profiteers are already rich.
  • How about waste? Subsidy creates waste in the amount of the subsidy, almost by definition. The New York Regional Plan Association estimates the social cost of creating a new lot on the urban fringe at four times the lot's price (probably an underestimate). Why develop a lot worth only one quarter of its cost? Because other people pay the other three quarters. This process transfers ground rent from areas of overcharge to areas of undercharge, but it destroys much of the ground rent. To spread the surplus, we lose much of it.

Has French Equity any merit? It passed for a way to create jobs when Keynes actually urged waste as a route to full employment. Those ideas are now dormant, but we still do not understand the problem. If we had to fire teachers or policemen each time a city extended utilities to a campaign donor's raw acres, we would better sense the true cost of public works for private profit.  ... read the whole article

Ed Clarke: Geoisim and the Practice of Public Economics

The Nation has long needed more effective decision-making mechanisms for intergovernmental coordination of expenditures and regulations. Efficient coordination can be achieved in an incentive-compatible way where the effects of spending by any one subunit on another subunit can be more effectively taken into account as compared with current decision-making procedures.

Effective coordination also relates to an important national economic policy concern which is efficient and equitable spending and deficit management. The need for better coordination is evidenced by fractious Congressional debate (ie.,. the Congressional debate over welfare reform) over how to implement acceptable reductions in intergovernmental transfers, accompanied by reductions in Federally mandated spending requirements.

Given the existence of decision-making mechanisms (ie., demand revealing) that would motivate decision-makers to accurately reveal the positive and negative effects of spending and regulatory decisions on one another, why not use these mechanisms to achieve more effective coordination? The Federal Government can establish an initial level of entitlements (called a distributional status quo) and then, with appropriate provisions for agenda-control, let the political subunits decide what levels of actual spending, including Federally mandated spending, is required. In effect, Congress determines the initial distribution but allows more implementation flexibility to the subunits, adjusting the financial flows to reflect external effects.

To illustrate, I will assume we are applying the process to a subset of Federal discretionary programs (about $500 billion annually, and including National defense expenditures). Consider a subset of these programs consisting of about $55 billion in programs (transportation, communications and the environment) financed by Federal excise taxes. Assume first that, we take the President's budget and allow a "citizen's advisory committee" to propose substitutes or eliminations designed to "maximize the likelihood of minimizing harm" (a criterion elaborated by Bailey, 1997). Subject to oversight by a "Commission", it will allocate cost shares among political subunits (in this case Congressional districts) so as to try to equalize per capita (or household) net benefits among the jurisdictions (for example, by trying to make the cost shares proportional to estimated benefits -- see Clarke, 1980, Chapter V).

Suppose that the allocation of beneficiary tax-shares resulted in pressures for spending changes that were nonuniform among the districts. For example, spending may be cut about 10% (from $550 per household on average to $500. Lower spending districts with lower cost shares might end up with an average of $450 while higher spending districts remained close to the original $550 average. Under the system, compensating transfers in the form of interest on expenditures of $50 plus a credit on the $50 principal would be made in the form of an accounting transfer from the higher to the lower spending districts. If the advisory committee recommended prudent changes that also generated large net benefits and the compensating transfers were designed to achieve equal or proportional per capita net benefit increases for each district (that, say also averaged $500 per household), then the proposed package of changes would be accepted unanimously. (The result is that, relative to the original status quo, the lower spending districts would be loaning $50 per household to the higher spending districts and sharing in the social surplus created by more productive investments).

Perhaps such transfers may seem fairly insignificant in each household's budget. But what of the potential benefits to residents in any district if they carefully scrutinize the entire $500 or so in entitlements spent in or outside the district and can begin to effect self sustaining projects that are, say, financed through land rent increments and the appropriate marginal cost (user) charges? A resident that in no way benefits may be saving $500 per year with accumulating interest balances, accompanied by a significant incentive to make his/her preferences known.

In the SEA paper referred to above, I explore the potential for various "federalist" arrangements to govern district and National spending decisions. They range between close approximations of Bailey's "constitution" or "financial laws" to very simple, if less effective means of constraining rent seeking, means of determining interest rates to reflect disproportionate uses of Trust funds relative to initial entitlements (see appendix). The strongest incentive system, based on Bailey's work, is a use of the pivotal mechanism for agenda setting and combined use of the pivotal mechanism and the Thompson "preference revealing" approach in making final budget and regulatory decisions in a manner that will achieve efficiency while minimizing redistributive harm. (To illustrate the power of the Thompson incentive if budgetary conflicts reached a referendum stage, the citizen would have a strong incentive to reveal the $500 he is paying for a project with no benefit to him and would receive up to one half that amount in compensation if his less preferred option was chosen).

I'm also suggesting a very simple moral to the story. No one is going to seriously move forward on LVT when people think they can get what they want largely for free. We need to live with that realization. However, we often have episodic periods of reform when broad, if discrete, administrative measures might be undertaken in conjunction with an eye towards instituting what amounts to benefit taxation. Imagine an alternative to a "Truth in Budgeting" bill that can take Trust Funds off budget (which failed by one vote in the last Congress) passing with the appropriate incentive-compatible allocation features). One might find those with a strong bent towards benefit taxation (like Dupont) working in tandem with those who have no strong ideological bent towards the benefit tax idea (like Turgot).

One can always imagine the results of one's conversations with an overly agitated Finance Minister (who despite their calm exteriors are often extremely agitated). Whether I've worked with one or more in a functioning democracy here at home, in an autocracy (Morocco) or in anarchy (Haiti), I often feel like a player in Waiting for Godot. The mood is captured late in Act I when Estrogen (the assistant) turns to Vladimir (the Finance Minister) and says: "Be Happy". Later (after considerable reflection), Vladimir replies: Now That We Are Happy, What Shall We Do? Later, Estrogen then says (not in the play): Let's Write That Memoir".  ... ... Read the whole article

Mason Gaffney:  Rent, Taxation, Dissipation and Federalism

1. Public works. These enhance the value of specific private lands and so attract support from specific benefited landowners. At the same time they link new lands with old markets and, in the aggregate, increase the amount of land that is usable in more intensive forms, e.g. for urban housing, and thus have some redistributive effect in favor of non-owners. This makes for a wide constituency.

Because they are durable capital they appear to represent real assets. However many are heavily subsidized or cross-subsidized and cost far more than their benefits to anyone. In the aggregate they freeze up too much of the nation's limited capital stock.

Services are not inherently wasteful, and capital is not inherently economical. Economy is the key in either case. (When debt-financed, however, there should be capital resulting.)

Capital is the more wasteful when we consider it is taken from the margins of alternative uses where it may be very scarce today. Labor, on the other hand, is in surplus.

Anti-growth movements burgeoning today manifest growing disbelief in the benefits of subeconomic extensions of infrastructure. A small but growing element is increasing awareness of the high degree of absentee and alien ownership, highly concentrated, of the benefited lands.

Squandering the Alaska surplus is a splendid case in point. A social dividend would have been efficient, and respectful of consumer sovereignty. James Madison's dead hand stopped it (in part). (Zobel v. Williams.)

2. Subsidized public works in tandem with exclusionary zoning.

Through revenue-sharing with categorical grants, many localities have built expensive public works, e.g. sewer plants, designed to accommodate higher populations. Then they turn around and impose exclusionary zoning, to limit the benefits to a few.

In the B.C. Ferry Service the main lines make a little money and the branch lines to small islands are heavily cross-subsidized, some making $1 of revenues for $12 of costs. Residents of those islands, having sought and secured the service, are now alarmed at the influx of population and are zoning it out.

Here we have public works turned into pure giveaways to a few landowners, with no tokens for any wider constituency.

3. Hocking the revenues

Borrowing to spend worsens the public works problems. Worse yet is borrowing to pay for current services, with some admixture of graft, as the NYC bankruptcy illustrated, and much 3d-world borrowing illustrates today on a wider canvas. ... Read the whole article

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

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

 

Bill Batt: Comment on Parts of the NYS Legislative Tax Study Commission's 1985 study “Who Pays New York Taxes?”

The market price of a location depends not only on ground rent and taxes, effectively its present value, but also upon the “discount rate,” or interest rate, that prevails in the market used to calculate its returns and costs. When interest rates go up, the market prices of sites fall, just as for any other economic encumbrances placed on locational sites.

The market prices of sites also fall if taxes go up and nothing else changes. However, an increase in taxes is often accompanied by improvements in any obligations linked to parcel locations. These too are sometimes easily “commodified,”26 and may vary according to time period, changed neighborhood expectations, emergency conditions, government regulations, and so on.27 These contingent links often constitute services that raise the market prices of sites more than the taxes depress them. Still another way of understanding the value of locations is to see them as capitalized transportation costs.28 Savings in transportation are likely to be expressed in the market price of sites. One way or another people are willing to pay for access to exchange markets: either in the form of site proximity or in the form of travel expenses. It is the reason why urban cores have higher site rents than peripheral areas and hinterlands. Hence the differential value of locations, dependent, not on anything titleholders do, but rather on the quality of community amenities. These all have a price.

The prices for services that raise land rents, like the services themselves, should be regarded as flows rather than as stocks. But, ironically, our payments for such services are not understood as flows affecting site values at all, but are seen rather as related to stock prices. The values of our property parcels are viewed solely as stocks, and therefore our taxes are seen as stock taxes. ... read the whole commentary

Further reading:

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

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

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