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Henry George: Justice the Object -- Taxation the Means (1890)
We certainly want more houses. There are a few people who have bigger houses than any one reasonable family can occupy; but the great mass of the American people are underhoused. There, in the city of New York, the plight to which all American cities are tending, you will find that 65 % of the population are living two families or more to the single floor. Yet let a man put a house in any part of the United States, and down comes the tax-gatherer to demand a fine for having put up a house.
We say that industry is a good thing, and that thrift is a good thing; and there are some people who say that if a man be industrious, and if a man he thrifty, he can easily accumulate wealth. Whether that be true or not, industry is certainly a good thing, and thrift is certainly a good thing. But what do we do if a man be industrious? If he produces wealth enough, and by thrift accumulates wealth at all, down comes the tax-gatherer to demand a part of it.
We say that that is stupid; that we ought not by our taxes to repress the production of wealth; that when a farmer reclaims a strip of the desert and turns it into an orchard and a vineyard, or on the prairie produces crops and feeds fine cattle, that, so far from being taxed and fined for having done these things, we ought to be glad that he has done it; that we ought to welcome all energy; that no man can Produce wealth for himself without augmenting the general stock, without making the whole country richer. We impose some taxes for the purpose of getting rid of things, for the purpose of having fewer of the things that we tax. In most of our counties and States when dogs become too numerous, there is imposed a dog tax to get rid of dogs. Well, we impose a dog tax to get rid of dogs, and why should we impose a house tax unless we want to get rid of houses? Why should we impose a farm tax unless we want fewer farms? Why should we tax any man for having exerted industry or energy in the production of wealth?
Tax houses and there will certainly be fewer houses. If you go east to the city of Brooklyn, you may see that demonstrated to the eye. What first surprised me in the city of churches was to see long rows of buildings, of brown-stone houses, two stories in front and three stories behind; or three stories in front and four stories behind; and I thought for a moment what foolish idea ever entered the brains of those men, to have left out half an upper story in that way? I found out by inquiring that it was all on account of tax. In the city of Brooklyn, the assessor is only supposed to look in front, and so by making the house in that way, you can get a three-story building behind with only a two-story front and a two-story tax.
So in England, in the old houses, there you may see the result of the window tax. The window tax is in force in France today, and in France there are two hundred thousand houses, according to the census, that have no window at all — in order to escape the tax.
So if you tax ships there will be fewer ships. What old San Franciscan cannot remember the day when in this harbour might be seen the graceful forms and lofty spars of so many American ships, the fleetest and best in the world? I well remember the day that no American who crossed to Europe thought of crossing on any other than an American ship. Today, if you wish to cross the Atlantic, you must cross on a British steamer, unless you choose to cross on a German or French steamer. On the high seas of the world the American ship is becoming almost as rare as a Chinese junk. Why? Simply because we have taxed our ships out of existence. There is the proof.
Tax buildings, and you will have fewer or poorer buildings; tax farms, and you will have fewer farms and more wilderness; tax ships, there will be fewer and poorer ships; and tax capital, and there will be less capital; but you may tax land values all you please and there will not he a square inch the less land. Tax land values all you please up to the point of taking the full annual value — up to the point of making mere ownership in land utterly unprofitable, so that no one will want merely to own land — what will be the result? Simply that land will be the easier had by the user. Simply that the land will become valueless to the mere speculator — to the dog in the manger, who wants merely to hold and not to use; to the forestaller, who wants merely to reap where others have sown, to gather to himself the products of labour, without doing labour. Tax land values, and you leave to production its full rewards, and you open to producers natural opportunities. Read the entire article
1. Common Property in Land is Compatible with the Market Economy.
2. The Net Product of Land is the Taxable Surplus
A. To socialize the taxable surplus, land rent, effectively, you must define and identify it carefully, and structure your taxes to home in on it.
B. Taxable surplus is also what you can tax without driving land into the wrong use.
C. To tax rent we must be sure there is rent to tax, and we must adopt public policies to husband and maximize it, and avoid policies that lower and dissipate it.
i. Avoid "perverse subsidies."
ii. Avoid letting lessees of public land conceal their revenues.
iii. Avoid letting lessees or taxpayers pad their costs to understate their net revenues.
iv. Avoid dissipating rent by allowing open access to resources like fisheries,
v. Avoid trying to distribute rents to consumers by capping prices below the market.
D. Raising output by removing tax bias
E. Maximizing public revenue.
F. Sustaining the tax base
3. Taxing the Net Product of Land Permits Untaxing Labor
4. Taxing the Net Product of Land Permits Untaxing Capital
5. Taxing the Net Product of Land Provides Ample Public Revenues: a Master Solution to Many Problems
A. Public revenues will support the ruble.
B. Your public credit will, of course, recover to AAA rating when lenders see that there is a strong flow of revenue to pay public debts.
C. Never again need you bend to any "advice" or commands from alien lenders, nor endure patronizing, humiliating homilies from alien bankers, nor beg any foreign power for aid.
D. If you again feel the need (as I hope you will not) to rebuild your military, you will of course require strong revenues.
E. Strong national revenues are required to unite Russia, and keep it one nation.
4. Taxing the Net Product of Land Permits Untaxing Capital
The IMF, World Bank, and various U.S. advisors tell you and the world that you must make a hard choice: you must cut spending on social welfare, even on needed pensions and back wages, in order to attract and retain capital. The supposed hard choice is false, and the advice is bad.
When you tax Net Land Revenue, as advised here, you are not taxing at all the investor who uses his capital to improve land, or equip it with machinery and stock it with goods. The landowner or manager gets to deduct the User Cost of Capital from the tax base (as shown in Section 2). The improver gets to keep, free of tax, the entire increment in production that his capital generates. Taxes are limited to the Net Product of land, which you may even evaluate and tax prior to the owner's using the land at all. In the acronyms of finance, the investor who applies real capital to Russian land will get to keep the entire "Marginal Return" (MR) from the capital. This MR after-tax (MRAT) will become the same as the MR before-tax (MRBT). Few other nations can offer such an attraction.
This change will reverse the capital flight you now suffer from, and help recall over $100 billions of expatriate capital now stashed abroad. More, it will attract foreign capital, whose supply is highly elastic, into private ventures. Russia will become like a "tax haven" for mobile capital (and all capital is mobile within a few years). This will not be done clandestinely in the sometimes sinister manner we associate with Cyprus, Switzerland, or Bermuda, but quite openly and honestly. Russia will not, like the present tax havens of the world, serve merely as a broker or transit station for capital headed elsewhere; Russia will be the final destination, to your great advantage.
Foreign capital will not come here primarily to buy Russian land and collect Russian rents, for you will be taxing that land heavily. It will come primarily to improve, stock and equip Russian land with new capital that you will NOT be taxing.
Will the IMF object and make trouble for you? They should be happy to see their loans used to create capital in Russia, and restructure your industries to earn income to repay the loans. That is what they say they want, at any rate, and this will be a good way to test their sincerity. If they do make trouble, you need not care, for you will no longer need them: world capital will be beating a path to your door.
The OECD will surely object, for they are waging a campaign to force all nations to adopt the same kind of oppressive, biased, counterproductive tax systems they use themselves. So far, however, they cannot even compel several small island nations to bend to them, so I think giant Russia, with its proud sovereign traditions, can resist. If you do exempt capital from taxation, as recommended here, and begin to suck in significant amounts of capital from the whole world's pool, your competition will alarm and embarrass many OECD and other nations, who may be forced to follow suit. That, however, is a problem, if it is one, for a somewhat speculative future. Your immediate problem and crisis calls for recalling $100 billions of your own expatriate capital, and few could object to, or feel threatened by that. Read the entire article
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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper