Note 2. In "Progress and Poverty," book viii, ch. iv, Henry George
speaks of "the effect of substituting for the manifold taxes now imposed,
a single tax on the value of land"; but the term did not become a distinctive
name until 1888.
The first general movement along the lines of "Progress and Poverty" began
New York City election of 1886, when Henry George polled 68,110 votes as
an independent candidate for mayor, and was defeated by the Democratic candidate,
Abram S. Hewitt, by a plurality of only 22,442, the Republican, Theodore
Roosevelt, polling but 60,435. Following that election the United Labor Party
was formed, the Syracuse Convention in August, 1887, by the exclusion of
the Socialists, came to present the central idea of "Progress and Poverty" as
distinguished from the Socialistic propaganda which until then was identified
with it. Coincident with the organization of the United Labor Party the Anti-Poverty
Society was formed; and the two bodies, one representing the political and
the other the religious phase of the idea, worked together until President
Cleveland's tariff message of 1887 appeared. In this message Mr. George saw
the timid beginnings of that open struggle between protection and free trade
to which he had for years looked forward as the political movement that must
culminate in the abolition of all taxes save those upon land values, and
he responded at once to the sentiments of the message. But many protectionists,
who had followed him because they supposed he was a land nationalizer, now
broke away from his leadership, and the United Labor Party and the Anti-Poverty
Society were soon practically dissolved. Those who understood Mr. George's
real position regarding the land question readily acquiesced in his views
as to political policy, and a considerable movement resulted, which, however,
for some time lacked an identifying name. This was the situation when Thomas
G. Shearman, Esq., wrote for the Standard an article on taxation
in which he illustrated and advocated the land value tax as a fiscal measure. The
article had been submitted without a caption, and Mr. George, then the editor
of the Standard, entitled it "The Single Tax." This title
was at once adopted by the "George men," as they were often called,
and has ever since served as the name of the movement it describes.
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.,
sec. 175.
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. 64.
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
morality.
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
for Revenue."
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
depress prices.
"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, pp.209, 210.
"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,
quoting Ricardo.
"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
of
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,
you know!"
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
the assessor.
"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."
4. CONFORMITY TO GENERAL PRINCIPLES OF TAXATION
The single tax conforms most closely to the essential principles of Adam
Smith's four classical maxims, which are stated best by Henry George 19 as
follows:
The best tax by which public revenues can be raised is evidently that which
will closest conform to the following conditions:
- That it bear as lightly as possible upon production — so as least
to check the increase of the general fund from which taxes must be paid
and the community maintained. 20
- That it be easily and cheaply collected, and fall as directly as may
be upon the ultimate payers — so as to take from the people as little
as possible in addition to what it yields the government. 21
- That it be certain — so as to give the least opportunity for tyranny
or corruption on the part of officials, and the least temptation to law-breaking
and evasion on the part of the tax-payers. 22
- That it bear equally — so as to give no citizen an advantage or
put any at a disadvantage, as compared with others. 23
19. "Progress and Poverty," book viii. ch.iii.
20. This is the second part of Adam Smith's fourth maxim.
He states it as follows: "Every tax ought to be so contrived as
both to take out and to keep out of the pockets of the people as little
as possible over and above what it brings into the public treasury of
the state. A tax may either take out or keep out of the pockets of the
people a great deal more than it brings into the public treasury in the
four following ways: . . . Secondly, it may obstruct the industry of
the people, and discourage them from applying to certain branches of
business which might give maintenance and employment to great multitudes.
While it obliges the people to pay, it may thus diminish or perhaps destroy
some of the funds which might enable them more easily to do so."
21. This is the first part of Adam Smith's fourth maxim,
in which he condemns a tax that takes out of the pockets of the people
more than it brings into the public treasury.
22. This is Adam Smith's second maxim. He states it as
follows: "The tax which each individual is bound to pay ought to
be certain and not arbitrary. The time of payment, the manner of payment,
the quantity to be paid, ought all to be clear and plain to the contributor
and to every other person. Where it is otherwise, every person subject
to the tax is put more or less in the power of the tax gatherer."
23. This is Adam Smith's first maxim. He states it as
follows: "The subjects of every state ought to contribute towards
the support of the government as nearly as possible in proportion to
their respective abilities, that is to say, in proportion to the revenue
which they respectively enjoy under the protection of the state. The
expense of government to the individuals of a great nation is like the
expense of management to the joint tenants of a great estate, who are
all obliged to contribute in proportion to their respective interests
in the estate. In the observation or neglect of this maxim consists what
is called the equality or inequality of taxation."
In changing this Mr. George says ("Progress
and Poverty," book viii, ch. iii, subd. 4): "Adam Smith
speaks of incomes as enjoyed 'under the protection of the state'; and
this is the ground upon which the equal taxation of all species of
property is commonly insisted upon — that it is equally protected
by the state. The basis of this idea is evidently that the enjoyment
of property is made possible by the state — that there is a value
created and maintained by the community; which is justly called upon
to meet community expenses. Now, of what values is this true? Only
of the value of land. This is a value that does not arise until a community
is formed, and that, unlike other values, grows with the growth of
the community. It only exists as the community exists. Scatter again
the largest community, and land, now so valuable, would have no value
at all. With every increase of population the value of land rises;
with every decrease it falls. This is true of nothing else save of
things which, like the ownership of land, are in their nature monopolies."
Adam Smith's third maxim refers only to conveniency of
payment, and gives countenance to indirect taxation, which is in conflict
with the principle of his fourth maxim. Mr. George properly excludes
it.
a. Interference with Production
Indirect taxes tend to check production and cause scarcity, by obstructing
the processes of production. They fall upon men as they work, as they
do business, as they invest capital productively. 24 But the single
tax, which must be paid and be the same in amount regardless of whether the
payer works or plays, of whether he invests his capital productively or wastes
it, of whether he uses his land for the most productive purposes 26 or in lesser
degree or not at all, removes fiscal penalties from industry and thrift, and
tends to leave production free. It therefore conforms more closely than indirect
taxation to the first maxim quoted above.
24. "Taxation which falls upon the processes of production
interposes an artificial obstacle to the creation of wealth. Taxation
which falls upon labor as it is exerted, wealth as it is used as capital,
land as it is cultivated, will manifestly tend to discourage production
much more powerfully than taxation to the same amount levied upon laborers
whether they work or play, upon wealth whether used productively or unproductively,
or upon land whether cultivated or left waste" — Progress
and Poverty, book viii, ch. iii, subd. I.
b. Cheapness of Collection
Indirect taxes are passed along from first payers to final consumers through
many exchanges, accumulating compound profits as they go, until they take
enormous sums from the people in addition to what the government receives.25
But the single tax takes nothing from the people in excess of the tax. It
therefore conforms more closely than indirect taxation to the second maxim
quoted above.
25. It is common, besides taxing improvements, as fast
as they are made, to levy higher taxes upon land when put to its best
use than when put to partial use or to no use at all. This is upon the
theory that when his land is used the owner gets full income from it
and can afford to pay high taxes; but that he gets little or no income
when the land is out of use, and so cannot afford to pay much. It is
an absurd but perfectly legitimate illustration of the pretentious doctrine
of taxation according to ability to pay.
Examples are numerous. Improved building lots, and even
those that are only plotted for improvement, are usually taxed more than
contiguous unused and unplotted land which is equally in demand for building
purposes and equally valuable. So coal land, iron land, oil land, and
sugar land are as a rule taxed less as land when opened up for appropriate
use than when lying idle or put to inferior uses, though the land value
be the same. Any serious proposal to put land to its appropriate use
is commonly regarded as a signal for increasing the tax upon it.
26. "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 on money loaned, as has been
often attempted, the lender will charge the tax to the borrower, and
the borrower must pay it or not obtain the loan. If the borrower uses
it in his business, he in his turn must get back the tax from his customers,
or his business becomes unprofitable. 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. If we impose a tax upon manufactures or imported
goods, the manufacturer or importer will charge it in a higher price
to the jobber, the jobber to the retailer. and the retailer to the consumer.
Now, the consumer, on whom the tax thus ultimately falls, must not only
pay the amount of the tax, but also a profit on this amount to everyone
who has thus advanced it — for profit on the capital he has advanced
in paying taxes is as much required by each dealer as profit on the capital
he has advanced in paying for goods." — Progress and Poverty,
book viii, ch. iii, subd. 2.
c. Certainty
No other tax, direct or indirect, conforms so closely to the third maxim. "Land
lies out of doors." It cannot be hidden; it cannot be "accidentally" overlooked.
Nor can its value be seriously misstated. Neither under-appraisement nor
over-appraisement to any important degree is possible without the connivance
of the whole community. 27 The land values of a neighborhood are matters
of common knowledge. Any intelligent resident can justly appraise them, and
every other intelligent resident can fairly test the appraisement. Therefore,
the tyranny, corruption, fraud, favoritism, and evasions that are so common
in connection with the taxation of imports, manufactures, incomes, personal
property, and buildings — the values of which, even when the object
itself cannot be hidden, are so distinctly matters of minute special knowledge
that only experts can fairly appraise them — would be out of the question
if the single tax were substituted for existing fiscal methods. 28
27. The under-appraisements so common at present, and
alluded to in note 25, are possible because the community, ignorant of
the just principles of taxation, does connive at them. Under-appraisements
are not secret crimes on the part of assessors; they are distinctly recognized,
but thoughtlessly disregarded when not actually insisted upon, by the
people themselves. And this is due to the dishonest ideas of taxation
that are taught. Let the vicious doctrine that people ought to pay taxes
according to their ability give way to the honest principle that they
should pay in proportion to the benefits they receive, which benefits,
as we have already seen, are measured by the land values they own, and
underappraisement of land would cease. No assessor can befool the community
in respect of the value of the land within his jurisdiction.
And, with the cessation of general under-appraisement,
favoritism in individual appraisements also would cease. General under-appraisement
fosters unfair individual appraisements. If land were generally appraised
at its full value, a particular unfair appraisement would stand out in
such relief that the crime of the assessor would be exposed. But now
if a man's land is appraised at a higher valuation than his neighbor's
equally valuable land, and he complains of the unfairness, he is promptly
and effectually silenced with a warning that his land is worth much more
than it is appraised at, anyhow, and if he makes a fuss his appraisement
will be increased. To complain further of the deficient taxation of his
neighbor is to invite the imposition of a higher tax upon himself.
28. If you wish to test the merits in point of certainty
of the single tax as compared with other taxes, go to a real estate agent
in your community, and, showing him a building lot upon the map, ask
him its value. If he inquires about the improvements, instruct him to
ignore them. He will be able at once to tell you what the lot is worth.
And if you go to twenty other agents their estimates will not materially
vary from his. Yet none of the agents will have left his office. Each
will have inferred the value from the size and location of the lot.
But suppose when you show the map to the first agent you
ask him the value of the land and its improvements. He will tell you
that he cannot give an estimate until he examines the improvements. And
if it is the highly improved property of a rich man he will engage building
experts to assist him. Should you ask him to include the value of the
contents of the buildings, he would need a corps of selected experts,
including artists and liverymen, dealers in furniture and bric-a-brac,
librarians and jewelers. Should you propose that he also include the
value of the occupant's income, the agent would throw up his hands in
despair.
If without the aid of an army of experts the agent should
make an estimate of these miscellaneous values, and twenty others should
do the same, their several estimates would be as wide apart as ignorant
guesses usually are. And the richer the owner of the property the lower
as a proportion would the guesses probably be.
Now turn the real estate agent into an assessor, and is
it not plain that he would appraise the land values with much greater
certainty and cheapness than he could appraise the values of all kinds
of property? With a plot map before him he might fairly make every appraisement
without leaving his desk at the town hall.
And there would be no material difference if the property
in question were a farm instead of a building lot. A competent farmer
or business man in a farming community can, without leaving his own door-yard,
appraise the value of the land of any farm there; whereas it would be
impossible for him to value the improvements, stock, produce, etc., without
at least inspecting them.
d. Equality
In respect of the fourth maxim the single tax bears more equally— that
is to say, more justly — than any other tax. It is the only tax that
falls upon the taxpayer in proportion to the pecuniary benefits he receives
from the public; 29 and its tendency, accelerating with the increase of the
tax, is to leave every one the full fruit of his own productive enterprise
and effort. 30
29 The benefits of government are not the only public
benefits whose value attaches exclusively to land. Communal development
from whatever cause produces the same effect. But as it is under the
protection of government that land-owners are able to maintain ownership
of land and through that to enjoy the pecuniary benefits of advancing
social conditions, government confers upon them as a class not only the
pecuniary benefits of good government but also the pecuniary benefits
of progress in general.
30. "Here are two men of equal incomes — that
of the one derived from the exertion of his labor, that of the other
from the rent of land. Is it just that they should equally contribute
to the expenses of the state? Evidently not. The income of the one represents
wealth he creates and adds to the general wealth of the state; the income
of the other represents merely wealth that he takes from the general
stock, returning nothing." — Progress and Poverty, book
viii, ch. iii, subd. 4. ... read the book