Henry George: The Common Sense of Taxation (1881
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. ...
To consider the nature of property of this kind is again to see a clear
distinction. That distinction is not, as the lawyers have it, between movables
and immovables, between personal property and real estate. The true distinction
is between property which is, and property which is not, the result of human
labor; or, to use the terms of political economy, between land and wealth.
For, in any precise use of the term, land is not wealth, any more than labor
is wealth. Land and labor are the factors of production. Wealth is such result
of their union as retains the capacity of ministering to human desire. A
lot and the house which stands upon it are alike property, alike have a tangible
value, and are alike classed as real estate. But there are between them the
most essential differences. The one is the free gift of Nature, the other
the result of human exertion; the one exists from generation to generation,
while men come and go; the other is constantly tending to decay, and can
only be preserved by continual exertion. To the one, the right of exclusive
possession, which makes it individual property, can, like the right of property
in slaves, be traced to nothing but municipal law; to the other, the right
of exclusive property springs clearly from those natural relations which
are among the primary perceptions of the human mind. Nor are these mere abstract
distinctions. They are distinctions of the first importance in determining
what should and what should not be taxed.
For, keeping in mind the fact that all wealth is the result of human exertion,
it is clearly seen that, having in view the promotion of the general prosperity,
it is the height of absurdity to tax wealth for purposes of revenue while
there remains, unexhausted by taxation, any value attaching to land. We may
tax land values as much as we please, without in the slightest degree lessening
the amount of land, or the capabilities of land, or the inducement to use
land. But we cannot tax wealth without lessening the inducement to the production
of wealth, and decreasing the amount of wealth. We might take the whole value
of land in taxation, so as to make the ownership of land worth nothing, and
the land would still remain, and be as useful as before. The effect would
be to throw land open to users free of price, and thus to increase its capabilities,
which are brought out by increased population. But impose anything like such
taxation upon wealth, and the inducement to the production of wealth would
be gone. Movable wealth would be hidden or carried off, immovable wealth
would be suffered to go to decay, and where was prosperity would soon be
the silence of desolation.
And the reason of this difference is clear. The possession of wealth is
the inducement to the exertion necessary to the production and maintenance
of wealth. Men do not work for the pleasure of working, but to get the things
their work will give them. And to tax the things that are produced by exertion
is to lessen the inducement to exertion. But over and above the benefit to
the possessor, which is the stimulating motive to the production of wealth,
there is a benefit to the community, for no matter how selfish he may be,
it is utterly impossible for any one to entirely keep to himself the benefit
of any desirable thing he may possess. These diffused benefits when localized
give value to land, and this may be taxed without in any wise diminishing
the incentive to production.
To illustrate: A man builds a fine house or large factory in a poorly improved
neighborhood. To tax this building and its adjuncts is to make him pay for
his enterprise and expenditure — to take from him part of his natural
reward. But the improvement thus made has given new beauty or life to the
neighborhood, making it a more desirable place than before for the erection
of other houses or factories, and additional value is given to land all about.
Now to tax improvements is not only to deprive of his proper reward the man
who has made the improvement, but it is to deter others from making similar
improvements. But, instead of taxing improvements, to tax these land values
is to leave the natural inducement to further improvement in full force,
and at the same time to keep down an obstacle to further improvement, which,
under the present system, improvement itself tends to raise. For the advance
of land values which follows improvement, and even the expectation of improvement,
makes further improvement more costly.
See how unjust and short-sighted is this system. Here is a man who, gathering
what little capital he can, and taking his family, starts West to find a
place where he can make himself a home. He must travel long distances; for,
though he will pass plenty of land nobody is using, it is held at prices
too high for him. Finally he will go no further, and selects a place where,
since the creation of the world, the soil, so far as we know, has never felt
a plowshare. But here, too, in nine cases out of ten, he will find the speculator
has been ahead of him, for the speculator moves quicker, and has superior
means of information to the emigrant. Before he can put this land to the
use for which nature intended it, and to which it is for the general good
that it should be put, he must make terms with some man who in all probability
never saw the land, and never dreamed of using it, and who, it may be, resides
in some city, thousands of miles away. In order to get permission to use
this land, he must give up a large part of the little capital which is seed-wheat
to him, and perhaps in addition mortgage his future labor for years. Still
he goes to work: he works himself, and his wife works, and his children work — work
like horses, and live in the hardest and dreariest manner. Such a man deserves
encouragement, not discouragement; but on him taxation falls with peculiar
severity. Almost everything that he has to buy — groceries, clothing,
tools — is largely raised in price by a system of tariff taxation which
cannot add to the price of the grain or hogs or cattle that he has to sell.
And when the assessor comes around he is taxed on the improvements he has
made, although these improvements have added not only to the value of surrounding
land, but even to the value of land in distant commercial centers. Not merely
this, but, as a general rule, his land, irrespective of the improvements,
will be assessed at a higher rate than unimproved land around it, on the
ground that "productive property" ought to pay more than "unproductive
property" — a principle just the reverse of the correct one, for
the man who makes land productive adds to the general prosperity, while the
man who keeps land unproductive stands in the way of the general prosperity,
is but a dog-in-the-manger, who prevents others from using what he will not
Or, take the case of the railroads. That railroads are a public benefit
no one will dispute. We want more railroads, and want them to reduce their
fares and freight. Why then should we tax them? for taxes upon railroads
deter from railroad building, and compel higher charges. Instead of taxing
the railroads, is it not clear that we should rather tax the increased value
which they give to land? To tax railroads is to check railroad building,
to reduce profits, and compel higher rates; to tax the value they give to
land is to increase railroad business and permit lower rates. The elevated
railroads, for instance, have opened to the overcrowded population of New
York the wide, vacant spaces of the upper part of the island. But this great
public benefit is neutralized by the rise in land values. Because these vacant
lots can be reached more cheaply and quickly, their owners demand more for
them, and so the public gain in one way is offset in another, while the roads
lose the business they would get were not building checked by the high prices
demanded for lots. The increase of land values, which the elevated roads
have caused, is not merely no advantage to them — it is an injury;
and it is clearly a public injury. The elevated railroads ought not to be
taxed. The more profit they make, with the better conscience can they be
asked to still further reduce fares. It is the increased land values which
they have created that ought to be taxed, for taxing them will give the public
the full benefit of cheap fares.
So with railroads everywhere. And so not alone with railroads, but with
all industrial enterprises. 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
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
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
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
"There is," says M. de Laveleye, in concluding that work in which
he shows that the first perceptions of mankind have everywhere recognized
a most vital distinction between property in land and property which results
from labor, — "there is in human affairs one system which is the
best; it is not that system which always exists, otherwise why should we
desire to change it; but it is that system which should exist for the greatest
good of humanity. God knows it, and wills it; man's duty it is to discover
and establish it." ... read the whole article
Henry George: Why The Landowner
Cannot Shift The Tax on Land Values (1887)
A VERY common objection to the
proposition to concentrate all taxes on Land Values is that the
landowner would add the increased tax on the value of his land to the
rent that must be paid by his tenants. It is this notion that increased
Taxation of Land Values would fall upon the users, not upon the owners
of land, that more perhaps than anything else prevents men from seeing
the far-reaching and beneficent effects of doing away with the taxes
that now fall upon labor or the products of labor, and taking for
public use those values that attach to land by reason of the growth and
progress of society.
That taxes levied upon Land Values, or, to use the
politico-economic term, taxes levied upon rent, do not fall upon the
user of land, and cannot be transferred by the landlord to the tenant
is conceded by all economists of reputation. However much they may
dispute as to other things, there is no dispute upon this point.
Whatever flimsy reasons any of them may have deemed it expedient to
give why the tax on rent should not be more resorted to, they all admit
that the taxation of rent merely diminishes the profits of the
landowner, cannot be shifted on the user of land, cannot add to prices,
nor check production. ...
The reason of this will be clear to everyone who has
grasped the accepted theory of rent — that theory to which the name of
Ricardo has been given, and which, as John Stuart Mill says, has but to
be understood to be proved. And it will be clear to everyone who will
consider a moment, even if he has never before thought of the cause and
nature of rent. The rent of land represents a return to ownership over
and above the return which is sufficient to induce use — it is a
premium paid for permission to use. To take, in taxation, a part or the
whole of this premium in no way affects the incentive to use or the
return to use; in no way diminishes the amount of land there is to use,
or makes it more difficult to obtain it for use. Thus there is no way
in which a tax upon rent or Land Values can be transferred to the user.
Whatever the State may demand of this premium simply diminishes the net
amount which ownership can get for the use of land, or the price it can
demand as purchase money, which is, of course, rent or the expectation
of rent, capitalized. ...
But while the Taxation of Land Values cannot raise rents, it
would, especially in a country like this, where there is so much
valuable land unused, tend strongly to lower them. In all our cities,
and through all the country, there is much land which is not used, or
not put to its best use, because it is held at high prices by men who
do not want to, or who cannot, use it themselves, but who are holding
it in expectation of profiting by the increased value which the
growth of population will give to it in the future. Now the effect of
the Taxation of Land Values would be to compel these men to seek
tenants or purchasers. ...
It is also necessary to bear in
mind that the value of land is
something totally distinct from the value of improvements. It is a
value which arises not from the exertion of any particular
individual, but from the growth and progress of the community. A tax
on Land Values, therefore, never lessens the reward of exertion or
accumulation. It simply takes for the whole community that value
which the whole community creates.
While it is not true that a tax
on Land Values or rent falls on
the user, and thus distributes itself through increased prices, it is
true that the greater number of taxes by which our public revenues
are raised do. Thus, speaking
generally, taxes upon capital fall, not
upon the owners of capital, but upon the users of capital, and are by
them transferred to the consumers of whatever the capital is used to
produce; taxes upon buildings or building materials must ultimately
be paid in increased building rents or prices by the occupiers of
buildings; imposts upon production or duties upon imports must
finally fall upon the consumer of the commodities. This fact is far
from being popularly appreciated, for, if it were, the masses would
never consent to the system by which the greater part of our revenues
is raised. But, nevertheless, it is the vague apprehension of this
that leads by confusion of ideas to the notion that a tax on Land
Values must add to rents. This notion will disappear if it be
considered how it is that any tax gives to the person first called on
to pay it the power of shifting it upon others by an increase of
A tax on matches, for instance,
will, as we know by experience,
enable the manufacturer or dealer in matches to get a higher price.
How? Evidently by adding to the cost of producing matches for sale,
thus checking the supply of matches that can be offered for sale
until the price rises sufficiently to compensate for the tax. It is
this knowledge that the tax will add to the cost of production, and
thus, below a certain price, check competition in supply, that
enables the dealer to mark up the price of his stock of matches as
soon as the tax is imposed, or compels him to mark it down as soon as
the tax is remitted.
But a tax on Land Values does not
add to the cost of producing
land. Land is not a thing of human production. Man does not produce
land! He finds it already in existence when he comes into the world.
Its price, therefore, is not fixed by the cost of production, but is
always the highest price that anyone can give for the privilege of
using a particular piece. Land, unlike things that must be constantly
produced by labor, has no normal value based on the cost of
production, but ranges in value from nothing at all to the enormous
values that attach to choice sites in great cities, or to mineral
deposits of superior richness, when the growth of population causes a
demand for their use.
Hence a tax on Land Values,
instead of enabling the holder of
land to charge that much more for his land, gives him no power to
charge an additional penny. On the contrary, by making it more costly
to hold land idle, it tends to increase the amount of land which
owners must strive to secure tenants or purchasers for. Thus
the effect of a tax on Land Values is not to increase the rent that
the tenant must pay the owner for the use of the land, but rather to
reduce it. And since the tax must be paid out of what the land will
yield the owner, its effect would be to reduce the price for which
the land could be sold outright. ...
The general principle which
determines the incidence of taxation
is this: A tax upon anything or upon the methods or means of
production of anything, the price of which is kept down by the
ability to produce increased supplies, will, by increasing the cost
of production, check supply, and thus add to the price of that
thing, and ultimately fall on the consumer. But a tax upon anything
of which the supply is fixed or monopolized, and of which the cost of
production is not therefore a determining element, since it has no
effect in checking supply, does not increase prices, and falls
entirely on the owner.
In view of the efforts that are
made to befog the popular mind
on this point, I have deemed it worth while to show why taxes on Land
Values cannot be shifted by landlords upon their tenants. But the
fact that such a tax cannot be so shifted is realized well enough by
landowners. Else why the opposition to the Single Tax, and why the
cry of “confiscation?” Our national experience, like the
experience of every other country, proves that those who are called
on to pay a tax that can be shifted on others, seldom or ever oppose
it, but frequently favor it, and that when once imposed, they
generally resist its abolition. But did anyone ever hear of landlords
welcoming a tax on Land Values, or opposing the abolition of such a
tax? read the whole article
Louis Post: Outlines of Louis F. Post's
Lectures, with Illustrative Notes and Charts (1894)
II. THE SINGLE TAX AS A FISCAL REFORM
1. DIRECT AND INDIRECT TAXATION
Taxes are either direct or indirect; or, as they have been aptly described, "straight" or "crooked." Indirect
taxes are those that may be shifted by the first payer from himself to others;
direct taxes are those that cannot be shifted.5
5. "Taxes are either direct or indirect. A direct
tax is one which is demanded from the very persons who, it is intended
or desired, should pay it. Indirect taxes are those which are demanded
from one person in the expectation and intention that he shall indemnify
himself at the expense of another." — John Stuart Mill's Prin.
of Pol. Ec., book v, ch. iii, sec. I.
"Direct taxes are those which are levied on the very
persons who it is intended or desired should pay them, and which they
cannot put off upon others by raising the prices of the taxed article..
. . Indirect taxes on the other hand are those which are levied on persons
who expect to get back the amount of the tax by raising the price of
the taxed article." — Laughlin's Elements, par. 249.
Taxes are direct "when the payment is made by the
person who is intended to bear the sacrifice." Indirect taxes are
recovered from final purchasers. — Jevons's Primer, sec. 96.
"Indirect taxes are so called because they are not
paid into the treasury by the person who really bears the burden. The
payer adds the amount of the tax to the price of the commodity taxed,
and thus the taxation is concealed under the increased price of some
article of luxury or convenience." — Thompson's Pol. Ec.,
The shifting of indirect taxes is accomplished by means of their tendency
to increase the prices of commodities on which they fall. Their magnitude
and incidence 6 are thereby disguised. It was for this reason that a great
French economist of the last century denounced them as "a scheme for
so plucking geese as to get the most feathers with the least squawking."7
6. Jevons defines the incidence of a tax as "the
manner in which it falls upon different classes of the population." — Jevons's
Primer, sec. 96.
Sometimes called "repercussion," and refers "to the real as
opposed to the nominal payment of taxes." — Ely's Taxation, p.
7. Though his language was blunt, the sentiment does not
essentially differ from that of "statesmen" of our day who
meet all the moral and economic objections to indirect taxation with
the one reply that the people would not consent to pay enough or the
support of government if public revenues were collected from them directly.
This means nothing but that the people are actually hoodwinked by indirect
taxation into sustaining a government that they would not support if
they knew it was maintained at their expense; and instead of being a
reason for continuing indirect taxation, would, if true, be one of the
strongest of reasons for abolishing it. It is consistent neither with
the plainest principles of democracy nor the simplest conceptions of
Indirect taxation costs the real tax-payers much more than the government
receives, partly because the middlemen through whose hands taxed commodities
pass are able to exact compound profits upon the tax,8 and partly on account
of extraordinary expenses of original collection;9 it favors corruption in
government by concealing from the people the fact that they contribute to
the support of government; and it tends, by obstructing production, to crush
legitimate industry and establish monopolies.10 The questions it raises are
of vastly more concern than is indicated by the sum total of public expenditures.
8. A tax upon shoes, paid in the first instance by shoe
manufacturers, enters into manufacturers' prices, and, together with
the usual rate of profit upon that amount of investment, is recovered
from wholesalers. The tax and the manufacturers' profit upon it then
constitute part of the wholesale price and are collected from retailers.
The retailers in turn collect the tax with all intermediate profits upon
it, together with their :usual rate of profit upon the whole, from final
purchasers -- the consumers of shoes. Thus what appears on the surface
to be a tax upon shoe manufacturers proves upon examination to be an
indirect tax upon shoe consumers, who pay in an accumulation of profits
upon the tax considerably more than the government receives.
The effect would be the same if a tax upon their leather
output were imposed upon tanners. Tanners would add to the price of leather
the amount of the tax, plus their usual rate of profit upon a like investment,
and collect the whole, together with the cost of hides, of transportation,
of tanning and of selling, from shoe manufacturers, who would collect
with their profit from retailers, who would collect with their profit
from shoe consumers. The principle applies also when taxes are levied
upon the stock or the sales of merchants, or the money or credits of
bankers; merchants add the tax with the usual profit to the prices of
their goods, and bankers add it to their interest and discounts.
For example; a tax of $100,000 upon the output of manufacturers
or importers would, at 10 per cent as the manufacturing profit, cost
wholesalers $110,000; at a profit of 10 per cent to wholesalers it would
cost retailers $121,000, and at 20 percent profit to retailers it would
finally impose a tax burden of $145,200 — being 45 per cent more
than the government would get. Upon most commodities the number of profits
exceeds three, so that indirect taxes may frequently cost as much as
100 per cent, even when imposed only upon what are commercially known
as finished goods; when imposed upon materials also, the cost of collection
might well run far above 200 percent in addition to the first cost of
maintaining the machinery of taxation.
It must not be supposed, however, that the recovery of
indirect taxes from the ultimate consumers of taxed goods is arbitrary.
When shoe manufacturers, or tanners, or merchants add taxes to prices,
or bankers add them to interest, it is not because they might do otherwise
but choose to do this; it is because the exigencies of trade compel them.
Manufacturers, merchants, and other tradesmen who carry on competitive
businesses must on the average sell their goods at cost plus the ordinary
rate of profit, or go out of business. It follows that any increase in
cost of production tends to increase the price of products. Now, a tax
upon the output of business men, which they must pay as a condition of
doing their business, is as truly part of the cost of their output as
is the price of the materials they buy or the wages of the men they hire.
Therefore, such a tax upon business men tends to increase the price of
their products. And this tendency is more or less marked as the tax is
more or less great and competition more or less keen.
It is true that a moderate tax upon monopolized products,
such as trade-mark goods, proprietary medicines, patented articles and
copyright publications is not necessarily shifted to consumers. The monopoly
manufacturer whose prices are not checked by cost of production, and
are therefore as a rule higher than competitive prices would be, may
find it more profitable to bear the burden of a tax that leaves him some
profit, by preserving his entire custom, than to drive off part of his
custom by adding the tax to his usual prices. This is true also of a
moderate import tax to the extent it falls upon goods that are more cheaply
transported from the place of production to a foreign market where the
import tax is imposed than to a home market where the goods would be
free of such a tax — products, for instance, of a farm in Canada
near to a New York town, but far away from any Canadian town. If the
tax be less than the difference in the cost of transportation the producer
will bear the burden of it; otherwise he will not. The ultimate effect
would be a reduction in the value of the Canadian land. Examples which
may be cited in opposition to the principle that import taxes are indirect,
will upon examination prove to be of the character here described. Business
cannot be carried on at a loss — not for long.
9. "To collect taxes, to prevent and punish evasions,
to check and countercheck revenue drawn from so many distinct sources,
now make up probably three-fourths, perhaps seven-eighths, of the business
of government outside of the preservation of order, the maintenance of
the military arm, and the administration of justice." — Progress
and Poverty, book iv, ch: v
10. For a brief and thorough exposition of indirect taxation
read George's "Protection or Free Trade," ch. viii, on " Tariffs
Whoever calmly reflects and candidly decides upon the merits of indirect
taxation must reject it in all its forms. But to do that is to make a great
stride toward accepting the single tax. For the single tax is a form of direct
taxation; it cannot be shifted.11
11. This is usually a stumbling block to those who, without
much experience in economic thought, consider the single tax for the
first time. As soon as they grasp the idea that taxes upon commodities
shift to consumers they jump to the conclusion that similarly taxes upon
land values would shift to the users. But this is a mistake, and the
explanation is simple. Taxes upon what men produce make production more
difficult and so tend toward scarcity in the supply, which stimulates
prices; but taxes upon land, provided the taxes be levied in proportion
to value, tend toward plenty in supply (meaning market supply of course),
because they make it more difficult to hold valuable land idle, and so
"A tax on rent falls wholly on the landlord. There
are no means by which he can shift the burden upon anyone else. . . A
tax on rent, therefore, has no effect other than its obvious one. It
merely takes so much from the landlord and transfers it to the state." — John
Stuart Mill's Prin. of Pol. Ec., book v, ch. iii, sec. 1.
"A tax laid upon rent is borne solely by the owner
of land." — Bascom's Tr., p.159.
"Taxes which are levied on land . . . really fall
on the owner of the land." — Mrs. Fawcett's Pol. Ec. for Beginners,
"A land tax levied in proportion to the rent of land,
and varying with every variation of rents, . . . will fall wholly on
the landlords." — Walker's Pol. Ec., ed. of¥ 1887, p. 413,
"The power of transferring a tax from the person
who actually pays it to some other person varies with the object taxed.
A tax on rents cannot be transferred. A tax on commodities is always
transferred to the consumer." — Thorold Rogers's Pol. Ec.,
ch. xxi, 2d ed., p. 285.
"Though the landlord is in all cases the real contributor,
the tax is commonly advanced by the tenant, to whom the landlord is obliged
to allow it in payment of the rent." — Adam Smith's Wealth
of Nations, book v, ch. ii, part ii, art. i.
"The way taxes raise prices is by increasing the
cost of production and checking supply. But land is not a thing of human
production, and taxes upon rent cannot check supply. Therefore, though
a tax upon rent compels land-owners to pay more, it gives them no power
to obtain more for the use of their land, as it in no way tends to reduce
the supply of land. On the contrary, by compelling those who hold land
on speculation to sell or let for what they can get, a tax on land values
tends to increase the competition between owners, and thus to reduce
the price of land." — Progress and Poverty, book viii, ch.
iii, subd. i.
Sometimes this point is raised as a question of shifting
the tax in higher rent to the tenant, and at others as a question of
shifting it to the consumers of goods in higher prices. The principle
is the same. Merchants cannot charge higher prices for goods than their
competitors do, merely because they pay higher ground rents. A country
storekeeper whose business lot is worth but few dollars charges as much
for sugar, probably more, than a city grocer whose lot is worth thousands.
Quality for quality and quantity for quantity, goods sell for about the
same price everywhere. Differences in price are altogether in favor of
places where land has a high value. This is due to the fact that the
cost of getting goods to places of low land value, distant villages for
example, is greater than to centers, which are places of high land value.
Sometimes it is true that prices for some things are higher where land
values are high. Tiffany's goods, for instance, may be more expensive
than goods of the same quality at a store on a less expensive site. But
that is not due to the higher land value; it is because the dealer has
a reputation for technical knowledge and honesty (or has become a fad
among rich people), for which his customers are willing to pay whether
his store is on a high priced-lot or a low-priced one.
Though land value has no effect upon the price of good,
it is easier to sell goods in some locations than in others. Therefore,
though the price and the profit of each sale be the same, or even less,
in good locations than in poorer ones, aggregate receipts and aggregate
profits are much greater at the good location. And it is out of his aggregate,
and not out of each profit, that rent is paid, For example: A cigar store
on a thoroughfare supplies a certain quality of cigar for fifteen cents.
On a side street the same quality of cigar can be bought no cheaper.
Indeed, the cigars there are likely to be poorer, and therefore really
dearer. Yet ground rent on the thoroughfare is very high compared with
ground rent on the sidestreet. How, then, can the first dealer, he who
pays the high ground rent, afford to sell as good or better cigars for
fifteen cents than his competitor of the low priced location? Simply
because he is able to make so many more sales with a given outlay of
labor and capital in a given time that his aggregate profit is greater.
This is due to the advantage of his location, and for that advantage
he pays a premium in higher ground rent. But that premium is not charged
to smokers; the competing dealer of the side street protects them. It
represents the greater ease, the lower cost, of doing a given volume
of business upon the site for which it is paid; add if the state should
take any of it, even the whole of it, in taxation, the loss would be
finally borne by the owner of the advantage which attaches to that site — by
the landlord. Any attempt to shift it to tenant or buyer would be promptly
checked by the competition of neighboring but cheaper land.
"A land-tax, levied in proportion to the rent of
land, and varying with every variation of rent, is in effect a tax on
rent; and as such a tax will not apply to that land which yields no rent,
nor to the produce of that capital which is employed on the land with
a view to profit merely, and which never pays rent; it will not in any
way affect the price of raw produce, but will fall wholly on the landlords." — McCulloch's
Ricardo (3d ed.), p. 207
2. THE TWO KINDS OF DIRECT TAXATION
Direct taxes fall into two general classes: (1) Taxes that are levied upon
men in proportion to their ability to pay, and (2) taxes that are levied
in proportion to the benefits received by the tax-payer from the public.
Income taxes are the principal ones of the first class, though probate and
inheritance taxes would rank high. The single tax is the only important one
of the second class.
There should be no difficulty in choosing between the two. To tax in proportion
to ability to pay, regardless of benefits received, is in accord with no
principle of just government; it is a device of piracy. The single tax, therefore,
as the only important tax in proportion to benefits, is the ideal tax.
But here we encounter two plausible objections. One arises from the mistaken
but common notion that men are not taxed in proportion to benefits unless
they pay taxes upon every kind of property they own that comes under the
protection of government; the other is founded in the assumption that it
is impossible to measure the value of the public benefits that each individual
enjoys. Though the first of these objections ostensibly accepts the doctrine
of taxation according to benefits,12 yet, as it leads to attempts at taxation
in proportion to wealth, it, like the other, is really a plea for the piratical
doctrine of taxation according to ability to pay. The two objections stand
or fall together.
12. It is often said, for instance, by its advocates,
that house owners should in justice contribute to the support of the
fire departments that protect them and it is even gravely argued that
houses are more appropriate subjects of taxation than land; because they
need protection, whereas land needs none. Read note 8.
Let it once be perceived that the value of the service which government
renders to each individual would be justly measured by the single tax, and
neither objection would any longer have weight. We should then no more think
of taxing people in proportion to their wealth or ability to pay, regardless
of the benefits they receive from government than an honest merchant would
think of charging his customers in proportion to their wealth or ability
to pay, regardless of the value of the goods they bought of him." 13
13. Following is an interesting computation of the cost
and loss to the city of Boston of the present mixed system of taxation
as compared with the single tax; The computation was made by James
R. Carret, Esq., the leading conveyancer of Boston:
Valuation of Boston, May 1, 1892
Land... ... . .. ... .. ... .. $399,170,175
Buildings ... ... ... ... ..$281,109,700
Total assessed value of real estate $680,279,875
Assessed value of personal estate $213,695,829
.... .... ... ... ... ... ... ... .... .... .... ...
.... ... $893,975,704
Rate of taxation, $12.90 per $1000
Total tax levy, May 1, 1892 $11,805,036
Amount of taxes levied in respect of the different subjects
of taxation and percentages of the same:
Land .... .... .... .... $5,149,295 43.62%
Buildings .... .... .. $3,626,295 30.72%
Personal estate .. $2,756,676 23.35%
Polls ... .... ... .... .... ...272,750 2.31%
But to ascertain the total cost to the people of Boston
of the present system of taxation for the taxable year, beginning May
1, 1892, there should be added to the taxes assessed upon them what
it cost them to pay the owners of the land of Boston for the use of
the land, being the net ground rent, which I estimate at four per cent
on the land value.
Total tax levy, May 1, 1892 ... ... ... ... .... ....
.... .... .... ..... .... .... .... .... .... .... ..$11,805,036
Net ground rent, four percent, on the land value
($399,170,175)..... ... ... ...$15,966,807
Total cost of the present system to the people
of Boston for that year ... $27,771,843
To contrast this with what the single tax system would
have cost the people of Boston for that year, take the gross ground
rent, found by adding to the net ground rent the taxation on land values
for that year, being $12.90 per $1000, or 1.29 per cent added to 4
per cent = 5.29 per cent.
Total cost of present system as above .. .... .... ....
.... .... .... .... .... ....$27,771,843
Single tax, or gross ground rent, 5.29 per cent
on $399,170,175 ... ..$21,116,102
Excess cost of present system, which is the sum
taxes in respect of buildings, personal property,
and polls .... ...... .. $6,655,741
But the present system not only costs the people more
than the single tax would, but produces less revenue:
Proceeds of single tax ... ... ... ... ..... .... ....
..... .... .... .... ..... ..... .... $21,116,102
Present tax levy ... ... ... ... ... .... ....
.... ..... .... .... .... .... .... .... .... ....$11,805,036
Loss to public treasury by present system ...
.... .... .... .... .. ..... ..$9,311,066
This, however, is not a complete contrast between the
present system and the single tax, for large amounts of real estate
are exempt from taxation, being held by the United States, the Commonwealth,
by the city itself, by religious societies and corporations, and by
charitable, literary, and scientific institutions. The total amount
of the value of land so held as returned by the assessors for the year
1892 is $60,626,171.
Reasons can be given why all lands within the city should
be assessed for taxation to secure a just distribution of the public
burdens, which I cannot take the space to enter into here. There is
good reason to believe also that lands in the city of Boston are assessed
to quite an appreciable extent below their fair market value. As an
indication of this see an editorial in the Boston Daily Advertiser for
October 3, 1893, under the title, "Their Own Figures."
The vacant lands, marsh lands, and flats in Boston were
valued by the assessors in 1892 (page 3 of their annual report) at
$52,712,600. I believe that this represents not more than fifty per
cent of their true market value.
Taking this and the undervaluation of improved property
and the exemptions above mentioned into consideration, I think $500,000,000
to be a fair estimate of the land values of Boston. Making this the
basis of contrast, we have:
Proceeds of single tax 5.29 per cent on $500,000,000
... .... .... .... $26,450,000
Present tax levy ... .... ... .... .... .... ....
.... ..... .... .... .... .... ..... .... .... ..$11,805,036
Loss to public treasury by present system ...
... ... ... .... .... .... ....$14,644,974
... read the book
Weld Carter: An Introduction to
Another area in which George
applied these inherent differences
between land and products was the field of taxation. To determine the
incidence of taxation, George had to know what was to be taxed,
products or the value of land. In each case he traced out the effect
from the essential nature of the thing to be taxed: "...all taxes
upon things of unfixed quantity increase prices, and in the course of
exchange are shifted from seller to buyer, increasing as they go.
...If we impose a tax upon buildings, the users of buildings must
finally pay it, for the erection of buildings will cease until
building rents become high enough to pay the regular profit and the
tax besides. ...In this way all taxes which add to prices are shifted
from hand to hand, increasing as they go, until they ultimately rest
upon consumers, who thus pay much more than is received by the
government. Now, the way taxes raise prices is by increasing the cost
of production, and checking supply. But land is not a thing of human
production, and taxes upon...[land value] cannot check
supply. Therefore, though a tax on...[land value] compels the
land owners to pay more, it gives them no power to obtain more for
the use of their land, as it in no way tends to reduce the supply of
land. On the contrary, by compelling those who hold land on
speculation to sell or let for what they can get, a tax on land
values tends to increase the competition between owners, and thus to
reduce the price of land." ...
However, what is the effect on
production of taxes levied on
products and of taxes levied on the value of land?
Of taxes levied on products,
George said: "The present method of
taxation operates upon exchange like artificial deserts and
mountains; it costs more to get goods through a custom house than it
does to carry them around the world. It operates upon energy, and
industry, and skill, and thrift, like a fine upon those qualities. If
I have worked harder and built myself a good house while you have
been contented to live in a hovel, the taxgatherer now comes annually
to make me pay a penalty for my energy and industry, by taxing me
more than you. If I have saved while you wasted, I am mulct, while
you are exempt. If a man build a ship we make him pay for his
temerity, as though he had done an injury to the state; if a railroad
be opened, down comes the taxcollector upon it, as though it were a
public nuisance; if a manufactory be erected we levy upon it an
annual sum which would go far toward making a handsome profit. We say
we want capital, but if anyone accumulate it, or bring it among us,
we charge him for it as though we were giving him a privilege. We
punish with a tax the man who covers barren fields with ripening
grain, we fine him who puts up machinery, and him who drains a swamp.
How heavily these taxes burden production only those realize who have
attempted to follow our system of taxation through its ramifications,
for, as I have before said, the heaviest part of taxation is that
which falls in increased prices" (1879, rpt. 1958, p. 434).
Turning to taxation levied on the
value of land, George went on to
For this simple device of placing
all taxes on the value of land
would be in effect putting up the land at auction to whosoever would
pay the highest rent to the state. The demand for land fixes its
value, and hence, if taxes were placed so as very nearly to consume
that value, the man who wished to hold land without using it would
have to pay very nearly what it would be worth to anyone who wanted
to use it.
And it must be remembered that
this would apply, not merely to
agricultural land, but to all land. Mineral land would be thrown open
to use, just as agricultural land; and in the heart of a city no one
could afford to keep land from its most profitable use, or on the
outskirts to demand more for it than the use to which it could at the
time be put would warrant. Everywhere that land had attained a value,
taxation, instead of operating, as now, as a fine upon improvement,
would operate to force improvement.
A few pages before this he had
told us that, "It is sufficiently
evident that with regard to production, the tax upon the value of
land is the best tax that can be imposed. Tax manufactures, and the
effect is to check manufacturing; tax improvements, and the effect is
to lessen improvement; tax commerce, and the effect is to prevent
exchange; tax capital, and the effect is to drive it away. But the
whole value of land may be taken in taxation, and the only effect
will be to stimulate industry, to open new opportunities to capital,
and to increase the production of wealth."
In other words, according to
George, taxation of products checks
production, whereas taxation of land values stimulates production.
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