Experience

Fred E. Foldvary — The Ultimate Tax Reform: Public Revenue from Land Rent

Significant land value taxation was adopted in several countries. In Japan, after a revolution in the 1860s, the government transferred agricultural lands to farmers, who then paid a tax on its value. The Japanese government used this tax to finance public works and education, which further increased land values and thus the proceeds from the land value tax. This created a powerful upward spiral that turned Japan into a major industrial power. (Japan later switched to taxing income due to political pressure from landowners.)34

The German colony of Kiaochow, China, established in 1898, had a single tax on land value set at 6 percent.35 Its principal city, Tsing-tao, developed into a fine modern city. The Germans lost the colony in 1914 at the outbreak of World War I, but their experience influenced the Chinese revolutionary Sun Yat-sen, who became head of the government of China. He and his successors in the Nationalist Party were not able to implement land value taxation in that country, but when they moved to Taiwan in 1950 after the communists took the mainland, Chiang-kai shek implemented a land-to-the-tiller reform accompanied by a tax on land value. Taiwan has since developed into a major industrial power. Hong Kong and Singapore became major commercial centers in large part because much of their public finance is based on taxing land values, or in the case of Hong Kong, from selling land leases, with low taxes on trade and commerce.

Of course there are many reasons for the success of economies such as Hong Kong’s, but the evidence is that more economic freedom is widely associated with greater growth and per-capita income, in accord with the economic theory that the deadweight loss caused by restricting and taxing production leads to lower production.

Many cities worldwide, including Johannesburg, South Africa and Sydney, Australia, have levied real estate taxes on land values only. Some cities in Pennsylvania have had a two-rate system, where land values are taxed at a rate higher than the tax on improvements.36

Followers of Henry George established several model communities. In one of them, Arden, Delaware, all residential land is owned by a trust. It leases the land to the residents, who pay rent only on their leaseholds. The trust itself pays property taxes to the county. Arden has prospered as a community with fine houses and lively community activities.37

Many private communities implement the single tax on land in effect, collected as a fee or assessment. A condominium owner, for example, owns his unit and a share of the “common elements” such as building exteriors, landscaping, and recreation facilities. The unit owner pays an assessment often calculated as a “percentage interest,” based on the market value of the unit relative to other units. In effect, the unit owner is paying rent for use of the common elements.38

Guests in a hotel pay a rental for one room and receive hotel amenities such as transportation (elevators), the lobby, hallways, and swimming pool. Owners of mobile homes pay rent for sites along with services, and boat owners similarly pay for a space along with amenities. All are examples of paying rent for the use of private community services and location amenities.39 In the private sector, rent is viewed as an efficient form of financing community services, while governments tend instead to levy taxes on sales or income or wealth, with little or no direct relationship to services. ... read the whole document