A combination of collecting land rent and imposing user fees will move us
closer to economic and social justice, and will help reduce the enormous privileges
that accrue to those who have title to our very best land and natural resources.
Robert V. Andelson Henry George
and the Reconstruction of Capitalism
Under Henry George's system,
private land titles would not be
disturbed one iota. No one would be expropriated. Instead, the
community would simply take something approaching the total annual
economic rent of land for public purposes. This amount would be
determined by the value of each site on the free market, not by any
arbitrary governmental fiat. In other words, the privilege of
monopolizing a site is a benefit received from society and for which
society should be fully compensated; and so, under the Georgist
system, the person who wished to monopolize a site would pay a rent
for it to the community, approaching 100 percent of its annual rental
value, exclusive of improvements.
Let me emphasize that last phrase,
"exclusive of improvements."
- The apartment house owner would pay the full value of his
and nothing on his building;
- the factory owner would pay the full value of his site,
nothing on his factory;
- the farmer would pay the full value of his ground, and
his structures or his
- crop, his livestock or his machinery;
- the homeowner would pay the full value of his lot, and
If the land had no market value,
the owner would pay nothing; if
it had a value, he would pay regardless of whether he were using it
or deriving income from it.
This would, of course,
eliminate all speculative profit in
landholding, squeeze the "speculative water" out of land prices, and
in effect bring back the frontier by making cheap land readily
available to everyone -- at least initially. The result would be
to raise the margin of production, increase real wages, and stimulate
building and productivity. Eventually, the flourishing
economy would cause use value to exceed the former speculative value,
but instead of being engrossed by those who make no contribution to
the economy, land rent would flow into the public coffers in place of
taxes levied upon labor and capital. The land-value charge is really
what Walt Rybeck
so aptly calls "a super user's fee." For the
privilege of exclusive access to and disposition of a site and its
natural resources, the owner pays an indemnity to those who are
thereby dispossessed -- an indemnity reflecting precisely the market
value of his privilege, collected through the tax mechanism and
relieving them of the burden of payment for public services. What
could be more fair?
Actually, I daresay that each one
of you, probably without
realizing it, frequently pays something that partakes of the
principle of such a "super user's fee" whether you own land or not.
Every time you put money in a parking meter, you are purchasing a
temporary monopoly of the parking space. Don't ever complain
about having to put money in a public parking meter; it's a bargain
for you. You're getting a free gift from the community -- the
difference between what you pay and what a commercial parking lot in
the vicinity would charge! Read the whole article
Charles B. Fillebrown: A Catechism
of Natural Taxation, from Principles of
Natural Taxation (1917)
Q5. What is meant by equal right to land?
A. The right of access upon equal terms -- preference to be secured only upon
payment of a premium that will extinguish the equal rights of all other men.
Q7. What is meant by land value?
A. Its site value -- its selling or market value -- its net value to the purchaser
-- the capitalization of its net rent -- the value supposed to be adopted by
the assessors as the basis of taxation.
Q50. How could the landowner escape the alleged burden of an increase
in his land tax?
A. Simply by assuming the legitimate role of a model landlord, by putting his
land to suitable use, in providing for tenants at lowest possible price the best
accommodations and facilities appropriate to the situation that money can buy.
... read the whole article
Fred E. Foldvary — The
Ultimate Tax Reform: Public Revenue from Land Rent
Taxes, while ostensibly payments made for the services of government, are
quite unlike payments made in the marketplace. The prominent libertarian
economist Murray Rothbard was among those who emphasized taxation as a “coerced
exchange,”3 in that few would freely choose to pay taxes if not for the
penalties imposed on those who refuse to do so. But taxes are also different
from market prices in that the tax usually has no relation to any specific
benefit. Income and spending are taxed because of “ability to pay,” meaning
there is a flow of funds from which money can be siphoned, to put it politely.
In contrast, user fees (truly voluntary fees, not excise taxes disguised
as fees) are somewhat like market prices, as the user pays for a specific
wanted benefit, such as entrance to a park. Land value taxation, too, is
based on the benefit principle and on market prices. A landowner receives
value or land rental from the government infrastructure, security, schooling,
transit, fire protection, and so on. Land rent, priced by the market, reflects
the neighborhood amenities. ...
Frank Chodorov, a fervent individualist and founding editor of The Freeman,
published by the Foundation for Economic Education and still a leading libertarian
journal of ideas, became in 1937 director of the Henry George School of Social
Science in New York City, serving until 1942. Like most followers of Henry
George, Chodorov regarded a charge on land value as not a true tax, which
arbitrarily extracts wealth, but a “payment for the use of a location,
determined by the higgling and haggling of the market, and it makes no difference
to the land user whether he pays rent to the city fathers or to a private
owner.”26 Explaining the value of a location derives to a great extent
from community services, rather than the efforts of the landowner as such,
Chodorov noted “it would seem logical that this value—which we
call land rent—should go to defray the expenses of these common services.”27
... read the
Bill Batt: The
of Site Value Taxation
... Not all revenue collection
on the part of government is grounded in
constitutional authority of its tax powers. Taxes in the strictest
sense of the term are revenues involuntarily paid to general funds for
the general purposes of government. But there are many other revenues
paid to government that would never be construed as taxes: lottery
revenues, fines, interest payments, environmental (green) fees, payment
for information, and user fees being the most common examples. Fines,
green fees, and user fees are instruments of police power precisely
because their primary purpose is to correct behavior, and only
secondarily to raise revenue. User fees, along with environmental fees
particularly, are employed to recover the costs of use, wear or damage
to environmental or government-provided "services." (Only in recent
years has it been fashionable to regard use or degradation of the
natural environment as a "service," necessitating "correction," as was
originally explicated by Pigou earlier this century. ... Read
the whole piece
Louis Post: Outlines of Louis F. Post's
Lectures, with Illustrative Notes and Charts (1894)
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
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
3. THE SINGLE TAX FALLS IN PROPORTION TO BENEFITS
To perceive that the single tax would justly measure the value of government
service we have only to realize that the mass of individuals everywhere and
now, in paying for the land they use, actually pay for government service in
proportion to what they receive. He who would enjoy the benefits of a government
must use land within its jurisdiction. He cannot carry land from where government
is poor to where it is good; neither can he carry it from where the benefits
of good government are few or enjoyed with difficulty to where they are many
and fully enjoyed. He must rent or buy land where the benefits of government
are available, or forego them. And unless he buys or rents where they are greatest
and most available he must forego them in degree. Consequently, if he would
work or live where the benefits of government are available, and does not already
own land there, he will be compelled to rent or buy at a valuation which, other
things being equal, will depend upon the value of the government service that
the site he selects enables him to enjoy. 14 Thus does he pay for the service
of government in proportion to its value to him. But he does not pay the public
which provides the service; he is required to pay land-owners.
14. Land values are lower in all countries of poor government
than in any country of better government, other things being equal. They
are lower in cities of poor government, other things being equal, than
in cities of better government. Land values are lower, for example, in
Juarez, on the Mexican side of the Rio Grande, where government is bad,
than in El Paso, the neighboring city on the American side, where government
is better. They are lower in the same city under bad government than
under improved government. When Seth Low, after a reform campaign, was
elected mayor of Brooklyn, N.Y., rents advanced before he took the oath
of office, upon the bare expectation that he would eradicate municipal
abuses. Let the city authorities anywhere pave a street, put water through
it and sewer it, or do any of these things, and lots in the neighborhood
rise in value. Everywhere that the "good roads" agitation of
wheel men has borne fruit in better highways, the value of adjacent land
has increased. Instances of this effect as results of public improvements
might be collected in abundance. Every man must be able to recall some
within his own experience.
And it is perfectly reasonable that it should be so.
Land and not other property must rise in value with desired improvements
in government, because, while any tendency on the part of other kinds
of property to rise in value is checked by greater production, land can
not be reproduced.
Imagine an utterly lawless place, where life and property
are constantly threatened by desperadoes. He must be either a very bold
man or a very avaricious one who will build a store in such a community
and stock it with goods; but suppose such a man should appear. His store
costs him more than the same building would cost in a civilized community;
mechanics are not plentiful in such a place, and materials are hard to
get. The building is finally erected, however, and stocked. And now what
about this merchant's prices for goods? Competition is weak, because
there are few men who will take the chances he has taken, and he charges
all that his customers will pay. A hundred per cent, five hundred per
cent, perhaps one or two thousand per cent profit rewards him for his
pains and risk. His goods are dear, enormously dear — dear enough
to satisfy the most contemptuous enemy of cheapness; and if any one should
wish to buy his store that would be dear too, for the difficulties in
the way of building continue. But land is cheap! This is the
type of community in which may be found that land, so often mentioned
and so seldom seen, which "the owners actually can't give away,
But suppose that government improves. An efficient administration
of justice rids the place of desperadoes, and life and property are safe.
What about prices then? It would no longer require a bold or desperately
avaricious man to engage in selling goods in that community, and competition
would set in. High profits would soon come down. Goods would be cheap — as
cheap as anywhere in the world, the cost of transportation considered.
Builders and building materials could be had without difficulty, and
stores would be cheap, too. But land would be dear! Improvement
in government increases the value of that, and of that alone.
Now, the economic principle pursuant to which land-owners are thus able
to charge their fellow-citizens for the common benefits of their common government
points to the true method of taxation. With the exception of such other monopoly
property as is analogous to land titles, and which in the purview of the
single tax is included with land for purposes of taxation, 15 land is the
only kind of property that is increased in value by government; and the increase
of value is in proportion, other influences aside, to the public service
which its possession secures to the occupant. Therefore, by taxing land in
proportion to its value, and exempting all other property, kindred monopolies
excepted — that is to say, by adopting the single tax — we should
be levying taxes according to benefits.16
15. Railroad franchises, for example, are not usually
thought of as land titles, but that is what they are. By an act of sovereign
authority they confer rights of control for transportation purposes over
narrow strips of land between terminals and along trading points. The
value of this right of way is a land value.
16. Each occupant would pay to his landlord the value
of the public benefits in the way of highways, schools, courts, police
and fire protection, etc., that his site enabled him to enjoy. The landlord
would pay a tax proportioned to the pecuniary benefits conferred upon
him by the public in raising and maintaining the value of his holding.
And if occupant and owner were the same, he would pay directly according
to the value of his land for all the public benefits he enjoyed, both
intangible and pecuniary.
And in no sense would this be class taxation. Indeed, the cry of class
taxation is a rather impudent one for owners of valuable land to raise against
the single tax, when it is considered that under existing systems of taxation
they are exempt. 17 Even the poorest and the most degraded classes in the
community, besides paying land-owners for such public benefits as come their
way, are compelled by indirect taxation to contribute to the support of government.
But landowners as a class go free. They enjoy the protection of the courts,
and of police and fire departments, and they have the use of schools and
the benefit of highways and other public improvements, all in common with
the most favored, and upon the same specific terms; yet, though they go through
the form of paying taxes, and if their holdings are of considerable value
pose as "the tax-payers" on all important occasions, they,
in effect and considered as a class, pay no taxes, because government, by
increasing the value of their land, enables them to recover back in higher
rents and higher prices more than their taxes amount to. Enjoying the same
tangible benefits of government that others do, many of them as individuals
and all of them as a class receive in addition a tangible pecuniary benefit
which government confers upon no other property-owners. The value of their
property is enhanced in proportion to the benefits of government which its
occupants enjoy. To tax them alone, therefore, is not to discriminate against
them; it is to charge them for what they get.18
17. While the landholders of the City of Washington were
paying something less than two per cent annually in taxes, a Congressional
Committee (Report of the Select Committee to Investigate Tax Assessments
in the District of Columbia, composed of Messrs. Johnson, of Ohio, Chairman,
Wadsworth, of New York, and Washington, of Tennessee. Made to the House
of Representatives, May 24, 1892. Report No. 1469), brought out
the fact that the value of their land had been increasing at a minimum
rate of ten per cent per annum. The Washington land-owners as a class
thus appear to have received back in higher land values, actually and
potentially, about ten dollars for every two dollars that as land-owners
they paid in taxes. If any one supposes that this condition is peculiar
to Washington let him make similar estimates for any progressive locality,
and see if the land-owners there are not favored in like manner.
But the point is not dependent upon increase in the capitalized
value of land. If the land yields or will yield to its owner an income
in the nature of actual or potential ground rent, then to the extent
that this actual or possible income is dependent upon government the
landlord is in effect exempt from taxation. No matter what tax he pays
on account of his ownership of land, the public gives it back to him
to that extent.
18. Take for illustration two towns, one of excellent
government and the other of inefficient government, but in all other
respects alike. Suppose you are hunting for a place of residence and
find a suitable site in the town of good government. For simplicity of
illustration let us suppose that the land there is not sold outright
but is let upon ground rent. You meet the owner of the lot you have selected
and ask him his terms. He replies:
"Two hundred and fifty dollars a year."
"Two hundred and fifty dollars a year! " you
exclaim. "Why, I can get just as good a site in that other town
for a hundred dollars a year."
"Certainly you can," he will say. "But
if you build a house there and it catches fire it will burn down; they
have no fire department. If you go out after dark you will be 'held up'
and robbed; they have no police force. If you ride out in the spring,
your carriage will stick in the mud up to the hubs, and if you walk you
may break your legs and will be lucky if you don t break your neck; they
have no street pavements and their sidewalks are dangerously out of repair.
When the moon doesn't shine the streets are in darkness, for they have
no street lights. The water you need for your house you must get from
a well; there is no water supply there. Now in our town it is different.
We have a splendid fire department, and the best police force in the
world. Our streets are macadamized, and lighted with electricity; our
sidewalks are always in first class repair; we have a water system that
equals that of New York; and in every way the public benefits in this
town are unsurpassed. It is the best governed town in all this region.
Isn't it worth a hundred and fifty dollars a year more for a building
site here than over in that poorly governed town?"
You recognize the advantages and agree to the terms.
But when your house is built and the assessor visits you officially,
what would be the conversation if your sense of the fitness of things
were not warped by familiarity with false systems of taxation? Would
it not be something like what follows?
"How much do you regard this house as worth? " asks
"What is that to you?" you inquire.
"I am the town assessor and am about to appraise
your property for taxation."
"Am I to be taxed by this town? What for?"
"What for?" echoes the assessor in surprise. "What
for? Is not your house protected from fire by our magnificent fire department?
Are not you protected from robbery by the best police force in the world?
Do not you have the use of macadamized pavements, and good sidewalks,
and electric street lights, and a first class water supply? Don't you
suppose these things cost something? And don't you think you ought to
pay your share?"
"Yes," you answer, with more or less calmness; "I
do have the benefit of these things, and I do think that I ought to pay
my share toward supporting them. But I have already paid my share for
this year. I have paid it to the owner of this lot. He charges me two
hundred and fifty dollars a year -- one hundred and fifty dollars more
than I should pay or he could get but for those very benefits. He has
collected my share of this year's expense of maintaining town improvements;
you go and collect from him. If you do not, but insist upon collecting
from me, I shall be paying twice for these things, once to him and once
to you; and he won't be paying at all, but will be making money out of
them, although he derives the same benefits from them in all other respects
that I do." ... read the book
Charles B. Fillebrown: A Catechism
of Natural Taxation, from Principles of
Natural Taxation (1917)
Q3. What is meant by economic rent?
A. Gross ground rent -- the annual site value of land -- what land, including
any quality or content of the land itself, is worth annually for use -- what
the land does or would command for use per annum if offered in open market
-- the annual value of the exclusive use in control of a given area of land,
involving the enjoyment of those "rights and privileges thereto pertaining" which
are stipulated in every title deed, and which, enumerated specifically, are
as follows: right and ease of access to
* water, and
* health inspection,
* fire protection,
* steam and electric railway service,
* gas and electric lighting,
* telegraph and telephone service,
* public schools,
* private schools,
* public buildings --
utilities which depend for their efficiency and economy on the character
of the government; which collectively constitute the economic and social
advantages of the land which are due to the presence and activity of population,
and are inseparable therefrom, including the benefit of proximity to, and
command of, facilities for commerce and communication with the world -- an
artificial value created primarily through public expenditure of taxes. For
the sake of brevity, the substance of this definition may be conveniently
expressed as the value of "proximity." It is ordinarily measured
by interest on investment plus taxes.
... read the whole article
Bill Batt: The Nexus of
Transportation, Economic Rent, and Land Use
Distortions by Pricing:
Increasing the Collection of Land Rent
Recovering the economic rent from urban parcels helps people to
appreciate the true costs of the transportation versus location
trade-off. It brings the carrying costs of site choices back to the
present time and makes them comparable with travel choices. The payment
of site rent becomes an operating cost. The other corrective policy
needed is to raise transportation costs to a level commensurate with
their full value as private goods. Transportation user fees, in the
form of motor fuel taxes, green taxes, congestion fees, and
administrative costs (for the administration of drivers' licenses and
registration fees) could easily provide the needed price corrections to
bring into balance marginal transportation costs and land rent
collection. Doing so would equilibrate choices between people living
and working in high rent urban centers and those in peripheral low rent
(but higher travel cost) locales.
Figure 2 shows how a tax on land value (or alternatively the tax
land rent) coupled with the proper design of transportation fees can
equilibrate the competitive advantage of markets in urban areas
relative to suburbs, thereby reducing, and perhaps even reversing, the
centrifugal forces of sprawl development. The land tax cannot alone
redress the problem, especially so long as such inordinate social
subsidies are granted to private motor vehicle transportation services.
Nor can transportation fees, raised to a level fully commensurate with
the social and private costs they incur, alone ensure that the price of
locations will be matched. But to the extent that both are assessed,
they reach far toward correcting this disequilibrium. One could even
argue that all site rent should be recaptured by society and that all
transportation costs that are identifiable as consumption of private
goods should be priced accordingly. Some advocates even suggest that
doing so will not only foster economic efficient behavior but also
provide sufficient revenue for a citizen's dividend consistent with
economic justice.... read the whole article
Maurie Fabrikant: An
Open Letter to Wayne Swan
The "Great Australian Dream" now
in preceding years - has been to own your own home. From their
earliest years of adulthood, most citizens have attempted to purchase "a roof over their head." It used to be - no more than two human
generations ago - "a three-bedroom weatherboard - or brick veneer, if
you could afford it! - on a quarter-acre block in the suburbs." Most
citizens - then - succeeded in realising that dream; at least they
started repaying a loan that was large compared with their earnings.
Nowadays, it's quite impossible for most. Why? Simply because
land-price has escalated out of the reach of most. Allow me to give you
a specific instance:- ...
As you can very clearly see, it now costs couples - or singles - a
great deal more to own a residence. Naturally, if they don't own their
own residence, they must
- pay rent to somebody else or
- live in a caravan park or
- share a home with relatives or friends or
- have no place to call "home".
None of these alternatives lead
high quality lifestyle and undoubtedly are potent factors in separation
and divorce and reliance on drug abuse which, itself, leads to
anti-social - even criminal - behaviour. We also know to our
great regret that these aberrations are becoming increasingly
prevalent. So is there a solution? And if so, what is it?
In my opinion, there certainly is a solution ... but, seemingly, very
few want to know it. Judging by your article, I think you do. Here it
conventional wisdom is that increasing land price signifies a healthy
economy. Exactly the reverse is true! Increasing land price
demonstrates that much money is being invested in real estate and that
necessarily means that less money is being invested in productive
ventures. Increasing land price causes increasing rents ... because the
land owner must derive sufficient income to pay the interest charged on
the loan needed to buy the land and its improvements. This makes it
increasingly difficult for businesses to trade profitably ...
especially when there is a plethora of complicated taxes that cause
extremely high compliance costs. It's no wonder that more and more
goods are now imported as local manufacturers choose to close their
operations. In many places in Australia, land lies relatively idle. For
example, in Melbourne's CBD, several large blocks have been idle for
years and in the suburbs, shops remain empty for months, even years.
Yet government-released figures on unemployment - the reality may well
be much worse! - admit that unemployment exceeds 6%. The old adage,
"Idle lands cause idle hands" is clearly demonstrated in Australia ...
The only possible "winners" in
"game" are those who presently own land; the more they own, the more
they have the potential to "win". Land owners enjoy enormous increase
in the price of land they own simply because they were able to purchase
it when its price was comparatively low. They do not - in their role as
owners - contribute in any way to the prosperity of the nation. Indeed,
because they grow wealthier without producing, they are, in fact,
parasites! That sounds incredible but it is true nonetheless. How so?
Simply because those owners receive part of the wealth earned by all
citizens; at least some of that wealth is used to push up land prices
but only owners enjoy those increased prices. Tenants certainly do not!
All who labour - and this includes land owners who perform labour! -
are thereby effectively robbed of some of their earnings. (Please note
that I do not blame landowners personally; most would - I'm certain -
be horrified to think that they are parasites. The fault lies
parliamentary enactments that permit such a situation to prevail.)
Difficult as the situation is
will be worse still in another two
human generations' time. How so? Because the same forces that
have been exerted in the past continue unabated. In fact, these forces
appear to be intensifying! Taxation is continuing to escalate as
pressure groups clamour ever louder for financial assistance. The
average rate at which personal income tax is levied is increasing -
even though the maximum rate levied is falling - and sales taxes and
the like are being applied to a widening range of goods and services.
The wealthy continue to derive benefit from the tax-minimisation
experts they employ - because they save more tax than they pay to those
experts - leaving the relatively poorly-paid employees to carry most of
the burden. Unless, of course,
steps are taken to change these tendencies, Australia will become an
increasingly unpleasant country in which to live. That's definitely not
the future I want for my 3 children and
7 grandchildren. And I'm sure you don't, either!
The solution to this conundrum
perhaps amazingly, incredibly simple; namely, require all owners of
land - in fact, all natural resources, including intangibles such as
broadcast bands, to pay to all Australians, via the government, an
annual rental in exchange for exclusive ownership rights to those
natural resources. What could be fairer? If a citizen has exclusive
ownership rights to a natural resource, that obviously means that all
others have no rights to it whatsoever. Therefore, that citizen must
pay compensation - in the form of a periodic rent - to all others. Now
that's a perfect manifestation of "user pays". How big is this
rent? That's simply answered, too. It's what the citizens, generally,
think that natural resource is worth! And that's easily - and
accurately - determined by valuers, individuals who have great
experience because they simply note the prices at which similar natural
resources in the vicinity - both in space and in time - are sold then
use those prices to predict that of a similar resource.
This would constitute real tax reform and - when implemented - would
obviate the need for income taxes and sales taxes. How is this? When a
continuing rent is charged for ownership rights to a natural resource,
that natural resource will have little or no purchase price. Setting up a
business or residence will be much cheaper first up as only the
improvements must be paid for initially. Money that presently
must be borrowed to pay for access to natural resources will become
available for productive purposes. Because rents will be payable on all
natural resources that are privately owned - whether or not they are in
use - those natural resources will become used or will return to the
nation as public land. Speculation in natural resources will be
immediately terminated thus eliminating a major factor in escalating
price. The converse of the old adage quoted earlier is apposite:- Far less idle land will translate into far
fewer idle hands! That will
translate into a reduced need for
social security expenditure. Additionally, lower levels of
unemployment will cause reduced anti-social and criminal activity with
consequent savings in law enforcement, punishment and rehabilitation.
And elimination of most of our taxation regulations will cause
compliance costs to all but disappear. The brakes that presently retard
Australia's productivity will not merely be released; they will be
discarded! ... read
the entire article
Henry George: The Condition of
Labor — An Open Letter to Pope Leo XIII in response to Rerum Novarum (1891)
You assume that the labor question is a question between wage-workers and
their employers. But working for wages is not the primary or exclusive occupation
of labor. Primarily men work for themselves without the intervention of an
employer. And the primary source of wages is in the earnings of labor, the
man who works for himself and consumes his own products receiving his wages
in the fruits of his labor. Are not fishermen, boatmen, cab-drivers, peddlers,
working farmers — all, in short, of the many workers who get their
wages directly by the sale of their services or products without the medium
of an employer, as much laborers as those who work for the specific wages
of an employer? In your consideration of remedies you do not seem even to
have thought of them. Yet in reality the laborers who work for themselves
are the first to be considered, since what men will be willing to accept
from employers depends manifestly on what they can get by working for themselves.
You assume that all employers are rich men, who might raise wages much higher
were they not so grasping. But is it not the fact that the great majority
of employers are in reality as much pressed by competition as their workmen,
many of them constantly on the verge of failure? Such employers could not
possibly raise the wages they pay, however they might wish to, unless all
others were compelled to do so.
You assume that there are in the natural order two classes, the rich and
the poor, and that laborers naturally belong to the poor.
It is true as you say that there are differences in capacity, in diligence,
in health and in strength, that may produce differences in fortune. These,
however, are not the differences that divide men into rich and poor. The
natural differences in powers and aptitudes are certainly not greater than
are natural differences in stature. But while it is only by selecting giants
and dwarfs that we can find men twice as tall as others, yet in the difference
between rich and poor that exists today we find some men richer than other
men by the thousandfold and the millionfold.
Nowhere do these differences between wealth and poverty coincide with differences
in individual powers and aptitudes. The real difference between rich and
poor is the difference between those who hold the tollgates and those who
pay toll; between tribute-receivers and tribute-yielders. ... read the whole letter
Mason Gaffney: Red-Light Taxes
and Green-Light Taxes
The need for
My fellow Green-lighters have a
lot to learn about Red Light Taxes
and charges, too. Much of what all of us need to learn has been
worked out by those often-awful but sometimes-useful economists,
under the name of "marginal-cost pricing." On private land, where the
owner controls access, there is little need for user charges (except
for externalities). The owner's self-interest takes care of finding
the optimal intensity of use. On public land, however, with
unrestricted access, it is another matter. Witness, for example, the
crowding of Oxford sidewalks relative to the undercrowding of private
and University lands abutting them.
On public lands, when a bridge is
new, and oversized for its
traffic, no toll should be charged: circumstances call instead for a
Green Light Tax on the benefited lands, to hasten their settlement.
When traffic queues up, however, it is time to charge a toll (and/or
to widen the bridge).
Likewise, when demand for water
exceeds supply, it is time to
price it and charge people for withdrawing it from Nature. The
history of irrigation in California is instructive. During the
Populist and Progressive eras Californians developed the legal
framework for what we call Irrigation Districts, to divert,
store and distribute water. They raised funds by taxing land; most of
them delivered water free of variable cost. Likewise, no one charged
them for taking our water from our rivers. There was ample water, so
it seemed, running to waste, or into swamps. The result, from
1900-30, was to convert California from pasture and wasteland to the
#1 farm state in America. It was a Georgist object lesson, and a
brilliant success story. Quoth Albert Henley, a prominent
"The discovery of the
legal formula of these organizations
was of infinitely greater value to California than the discovery of
gold a generation before. They are an extraordinarily potent engine for
the creation of wealth."
A worm in the apple was waste of
water. The same policy that
promoted close economy and rapid conversion of land also tolerated
waste of water, and even subsidized it by basing the quantity of
rival water claims on histories of use - what economists now call
"rent-seeking." It was once a minor problem, but times change, and
"circumstances alter cases." Today we are stuck with much of our
water, a limiting natural resource, frozen in lower uses and withheld
from higher ones - exactly what Georgist policy is supposed to
prevent. The solution, clearly, is for the State to charge each
Irrigation District (and other diverters) per unit of water they
take, and reallocate the great surpluses they would immediately stop
Traditional "Green Light"
Georgists need to introspect deeply over
this case, and many like it, and master the theory and practice of
marginal-cost pricing as developed so ably by closet Georgist
economists like Harold Hotelling and William
pricing is a flexible, adaptable theory that allows for both Green
Light and Red Light taxes, each in the its season. Using this basic,
simple tool of economic analysis, Red Light and Green Light champions
can compose their differences and move ahead in triumphant
unity. ... read the whole article
Bill Batt: Stemming Sprawl: The Fiscal Approach
We do an awful lot of driving just to do what we need to do. This is because
transportation engineers and land use planners have confused two fundamental
concepts: access and mobility.
By confusing these two principles, we spend an inordinate amount of money
on transportation services, most of it on roads and highways. One 1993 study
calculated that the total costs of motor vehicle transportation to our society
equal approximately a fourth of our gross domestic product (GDP). The
study concluded that "when the full range of costs of transportation
are tallied, passenger ground transportation costs the American public
of $1.2 to $1.6 trillion each year. Just the costs of automobile crashes
represents a figure equal to 8 percent of the American GDP. Japan,
by way of comparison, spends an estimated 10.4 percent to satisfy all its transportation
requirements, although the figure might be a bit low because not all externalities
are included in the calculation. Road
user fees in 1991 totaled only about $33 billion, whereas the true costs to
society were ten times that; put
another way, drivers pay only 10 percent of the true costs of their motor vehicle
use. The balance is paid
by society, effectively subsidizing highway use by paying for all but the marginal
out-of-pocket operating costs. ...
Stemming Sprawl: Pricing Measures for Transportation
From the foregoing, it is clear that insofar as the causes of sprawl development
are economic, the solution needs to be economic as well. The equilibrium of
forces can be restored in two ways:
1) by charging the true marginal costs of motor vehicle transportation to
2) by recovering the economic rent from urban site owners that
is really the socially created value.
It is easy to distinguish five elements of transportation service cost: capital
investment, maintenance costs, regulation costs, environmental externalities,
and congestion costs. Each of these calls for a different treatment with respect
to revenue design. Capital costs are best recovered by recapturing the land
rent proximate to the highway corridors. This is socially created value, which
is better used to honor debt service of infrastructure investment than allowing
it to be retained as windfall gains by titleholders to property close by. User
fees, most aptly linked to the purchase of motor fuel and tire wear, serve
as a proxy for the use of the roads and can be designed to be commensurate
with use. As the wear and tear of roads as well as police patrol, snow and
ice control, and signaling all involve operating and maintenance costs, such
charges are easily linked with benefits received. In the future, still more
accurate systems of service charges are likely to appear: Singapore, Hong Kong,
and New Zealand are already reliant on electronic devices that record road
use by time, place, and vehicle weight.
Ensuring the safety of drivers and vehicles through licenses, registrations,
and inspections is most appropriately financed by fees commensurate with the
costs of their administration. This way, if a vehicle is used but seldom, it
is charged on the basis of its identification rather than assuming any projected
level of use. Environmental externalities such as pollution costs can be linked
to the polluting source, such as diesel fuel and gasoline consumption, to the
full extent necessary to equilibrate air quality and other environmental ambiences.
Congestion costs, the last of the major components of a pricing design for
highway use, are partially paid for by the time loss of those caught in traffic.
The costs of time lost due to highway congestion are enormous: In 2000, the
average driver spent 62 hours sitting in traffic at a nationwide cost of $68
billion in gas and time lost In Los Angeles, the average driver spent 136 hours
stalled in traffic at an average cost of $2,510. Commuting
times were also 20 percent longer than they were a decade ago, about 22 minutes
one way nationally on average but as high as 32 minutes on average in New York. But
not all people's time is valued equally, and people themselves value their
time differently at different times, and it is unfair to require people to
impose their congestion on others. Therefore, congestion pricing, being explored
in several urban regions, provides a rationing of limited highway space. In
a sense, that payment for space usage, in time or money, is a form of land
rent. ... read the whole article
Fred Foldvary: The Rent,
the Whole Rent, and Nothing but the Rent
The use of rent for public
revenues therefore has no excess burden, no
burden on society or the economy. Taxes on income, goods, and
transactions do have an excess burden, since by raising the price and
reducing the quantity of goods, resources do not get allocated to where
the people most want them. Taxes on labor and goods raise prices, while
rent-based payments do not affect the rent, and they lower the price of
land rather than raise it.
Rent is therefore the ideal
general public and community revenue. Tax reform should
therefore shift to rent as the primary source of general funds.
Pollution charges can supplement the rent, and indeed can be considered
a rental charge for using and abusing the atmosphere, land, soil, and
other forms of land. There could also be user fees for services
specific to users, fines for violating traffic rules, and profits from
The economic rent from
water, and oil would be natural resource royalties that could be paid
by bidding for the rights to extract, from payments based on the amount
of mining, and the profits from the operations, depending on the
Nic Tideman: Using
Policy to Promote Urban Growth
The efficiency that is entailed in using
the rent of land to finance public activities applies to certain other sources
of public revenue as well:
1. Charges on any publicly granted privileges, such as
the exclusive right to use a portion of the frequency spectrum for radio
and TV broadcasts.
2. Payments for extractions of natural resources. Such payments
should be set at levels that yield the greatest possible revenue
of the resources, in present value terms.
3. Taxes on pollution. Every individual or enterprise that
pollutes the air, water or ground should be required to pay the estimated
cost of the pollution it generates. The effect of pollution on the
rental value of surrounding land is one possible measure of its cost.
4. Taxes on any other activities that reduce the rental value
of surrounding land.
5. Taxes on activities such as driving or parking in crowded
streets, where one person's activities reduce opportunities for others.
The administration of such charges may be so expensive that it is
not worth implementing them, but if the administration can be handled
sufficiently cheaply, these charges are efficient to the extent that
they only charge people for costs imposed on others.
6. Taxes on activities, such as the consumption of alcohol,
which impose costs on others (e.g., higher traffic fatalities).
7. Charges for local public services, such as water, electricity,
sewer connections, etc. It is not generally desirable to make every
service completely self-financing. Rather, what is desirable is that
each user be required to pay the marginal cost of the service he
receives. Extensions of service networks are efficient when they
increase publicly collected land rents by enough to cover the costs
not covered by user charges.
8. A self-assessed tax on permanent improvements to land, at
a very low rate (perhaps 1/10 of 1% per year). With a self-assessed
tax, each possessor of land names a price at which he would be willing
to part with the land he possesses (and any immovable improvements).
He pays a tax proportional to the value he names, and anyone who
wishes to may take over possession at that price. The value of such
a tax is that it makes it much easier to assemble land for redevelopment,
and to identify appropriate compensation when land is taken for public
of the above taxes are positively beneficial and should be collected
even if the revenue is not needed for public purposes. Any excess can
be returned to the population on an equal per capita basis. If
these attractive sources of revenue do not suffice to finance necessary
public expenditures, then the least damaging additional tax would probably
be a "poll tax," a uniform charge on all residents. If some residents
are regarded to be incapable of paying such a tax, then the next most
efficient tax is a proportional tax on income up to some specified
amount. Then there is no disincentive effect for all persons who reach
the tax limit. The next most efficient tax is a proportional tax on
It is important not to tax the
profits of corporations. Capital moves from where it is taxed
to where it is not, until the same rate of return is earned everywhere.
If the city refrains from taxing corporations they will invest more
in St. Petersburg. Wages will be higher, and the rent of land, collected
by the government, will be higher. The least damaging tax on corporations
is one that provides a complete write-off of investments, with a carry-over
of tax credits to future years. Such a tax has the effect of making
the government a partner in all new investments. With such a tax the
government provides, through tax credits, the same share of costs that
it later receives in revenues. However, the tax does diminish the incentive
for entrepreneurial activity, and it raises no revenue when investment
is expanding rapidly. Furthermore, the efficiency of such a tax requires
that everyone believe that the tax rate will never change. Thus it
is best not to tax the profits of corporations at all. If the people
of St. Petersburg want to share in the profits of corporations, then
they should invest directly in the corporations, either privately or
publicly. The residents of St. Petersburg would be best served by refraining
from taxing the profits of corporations. Creating a place where profits
are not taxed can be expected to attract so much capital that the resulting
rises in wages and in government-collected rents will more than offset
what might have been collected by taxing profits.
The taxes that promote urban growth have at least one of two features.
A city that confines itself to these taxes can expect to attract capital
rapidly, and therefore to experience rapid growth, raising the wages of its
citizens and the publicly-collected rent of its land.
- The first feature that a growth-promoting tax can have is that
it can serve to allocate a naturally occurring resource among competing
potential users. Charges for the use of land, for the use of the frequency
spectrum and for depleting natural resources share this feature.
- The second feature that a growth-promoting tax can have is that
of being a charge for the costs imposed on the city by the person who
pays the tax. This feature is shared by taxes on pollution, taxes on
other activities that reduce the value of surrounding land, taxes on
imposing congestion and other costs on other residents of the city,
charges for the marginal cost of publicly provided services, and a
self-assessed tax on property, reflecting the hindrance to future growth
represented by existing development.
...Read the whole article
Nic Tideman: Land Taxation and Efficient
Effects of Taxing Land
One consequence of levying additional taxes on land is that it becomes possible
to lower taxes on other things. One of the things most likely to be taxed less
when land is taxed more is improvements. Lowering taxes on improvements makes
the present value of land development very much less costly, and hence is likely
to accelerate development although it would be possible to construct cases
in which the effect of lowering taxes on improvements would be to postpone
development. Whether it retards or accelerates development, the lowering of
taxes on improvements results in more intensive development when development
occurs. The possibility of promoting more intensive development by reducing
or eliminating taxes on improvements is an important beneficial effect of an
increase in taxes on land.
A second consequence of levying additional taxes on land is that it becomes
possible to price public services more efficiently. Services to land such
as sewers, water and electricity are used most effectively when they are
at marginal cost. The costs of these services, however, are generally such
that the sum of marginal costs will not cover total costs. Land taxes have
the potential to provide a fund to cover the difference between total costs
and the sum of marginal costs. If land taxes are so used, the reductions
in the costs of using services that complement development will promote more
development. ... read the whole article
Nic Tideman: The Morality of Taxation:
The Local Case
Consider first the question of adequacy of revenue. There is a theorem in
economics, known as the
Henry George Theorem, that addresses this question (Arnott and Stiglitz,
1979). One of the
simpler versions of this theorem is:
If the following three conditions are met:
1. Public expenditures provide benefits
only over a limited area,
2. People can move costlessly, and
3. The number of persons who value a public service as highly as anyone does
exceeds the number of persons who can live in the area where the service
then for any public service that is worth at least as much as it costs to those
who receive it, the increase in the rental value of land that results from
providing the service exceeds the net cost of the service.
The Henry George Theorem is true because people who can move costlessly will
bid up the rental value of land to reflect the value of public services that
are not available elsewhere. The assumption that the number of bidders exceeds
the number of people who can benefit from the public service guarantees that
the upward movement of rents will not end until all the benefits of the public
service are reflected in these rents. If some people who receive a public service
value it more highly than others, then they will receive a surplus in addition
to the rent they pay for land, and some worthwhile increments of public services
will not add quite enough to rent to pay for themselves (Tideman 1993). But
rent increments will go a very long way toward paying for worthwhile local
With some local public services, such as weather reports that are broadcasted
by radio at a specified wattage, there is no social cost of having another
person within the reception area use the service. With others, such as distribution
of water, the extra cost of one additional user will be noticeable, but still
a relatively small fraction of the average cost of the service. For public
services to provide the greatest possible net value, users must be charged
the costs of additional use (what economists call marginal cost). If they are
charged less than marginal cost, self-interest will motivate them to use the
service wastefully. And if they are charged more than marginal cost, self-interest
will motivate them to economize inefficiently on the service.
Thus local public services are financed efficiently when users are required
to pay marginal costs, and the component of total cost that is not covered
by marginal cost charges is financed by levies on land that collect the increases
in rental value of land that result from provision of the service. If
all citizens in a locality valued the service equally, then every increment
in the level of the service that was worthwhile would have a cost that was
less than or equal to the sum of the revenue that could be raised from charges
for use equal to marginal cost and the increase in the rental value of land
in the community that resulted from the availability of the service. When
people value the service differently, the increase in the rental value of
land that results from the provision of a service will be less than the value
of the service to those who receive it. By a criterion of maximizing the
real incomes of residents, the best outcome that covers the full cost of
a service will involve a level of service somewhat lower than that for which
marginal cost is equal to the sum of marginal benefits, along with charges
that exceed somewhat the marginal cost of providing the service to additional
persons. Still, in general, the combination of user fees approximately equal
to marginal cost and taxes on land to finance the remainder of costs is capable
of providing financing for local public services that is adequate and reasonably
Next consider fairness. The fairness of such financing is the fairness
of incremental decisions in an environment in which the initial allocation
is fair. (It does not provide special opportunities for disadvantaged persons.
They would need to be provided for by insurance that operated independently
of the provision of public goods.) A person who is treated fairly in the absence
of public goods cannot reasonably complain about being required to pay for
a service according to its marginal cost, or about have to pay the value that
is added to his land by the availability of a public service. ... read the whole article
Frank Stilwell and Kirrily Jordan: The
Political Economy of Land: Putting Henry George in His Place
What about the relevance of Georgist ideas to current concerns with environmental
quality and ecological sustainability? Here too there is a strong claim to
consider. Interest in Georgism has been reinvigorated in recent years by
the need to develop public policies that reflect the nature of land as a
finite natural resource. From a ‘green’ perspective, land tax
is a useful tool in discouraging the excessive and wasteful use of land.
That is, the prospect of paying a high rate of land tax can be expected to
discourage people from purchasing more land than they need directly for their
own purposes. It accords with the principle that people should be taxed according
to their use of scarce environmental assets.
This ‘ecological take’ on Georgism is particularly powerful
at a time of intensifying global environmental problems and recognition of
the need for remedial policy responses. It requires creative extension of
Georgist principles because the limitation of George’s own analysis
in this context is its primary focus on land. A range of other natural resources
needs to be considered, linking up with the broader concerns of modern environmentalists
such as Herman Daly (see, for example, Daly and Cobb, 1990). Hence, land
tax should be seen as an adjunct to taxes on the use of other scarce environmental
assets, including mineral, forestry and fishing stocks, and also bandwidth
for radio and telecommunications, for example (Stilwell, 2002: 316-317).
It should also be seen as a corollary to other taxes that discourage environmental
damage, including resource rental taxes, carbon taxes and fuel excises.
The case for these environmental taxes need not necessarily rest on Georgist
principles, of course, but Georgism can claim to provide a unifying analytical
framework. A common feature of ‘environmental taxes’ is that
they are all targeted, like land tax, at reducing the scope for profiting
from the private appropriation of natural resources, and thereby restricting
the profligate use of those resources.
A tension remains, reflecting the Georgist orientation towards taxes rather
than more directly regulatory interventions. Whether the use of the price
mechanism in this ‘environmental fine tuning’ is sufficient for
dealing with pervasive environment threats is a moot point. The nature and
severity of environmental stresses is such that more directly proscriptive
environmental policies are commonly needed to protect natural resources.
The creation and maintenance of national parks, for example, constitutes
a necessary direct regulation of land-use: the market, even when modified
by taxes, cannot absolutely guarantee the conservation of such crucial assets.
In other words, protection of ‘natural capital’ may commonly
require regulation as well as taxation. ... read the whole article