Private Communities

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

The tax reform presented here is not new. It has been working to some degree in many cities and countries around the world. The idea probably obtained its greatest popularity in the U.S. in the late 1800s, when the economist Henry George analyzed taxing land value and untaxing labor and capital in his book, Progress and Poverty.

Many economists have since then expanded on George’s writing, examining both the theory and the evidence. There is even a “Henry George Theorem,” which proves that in a community with optimal population, the land rent equals the value of the community’s public goods. Modern economics thus affirms George’s theory in a more comprehensive and more rigorous form, although the empirical question of how much revenue could be obtained from rent would benefit from more research.

An advance on George made by Spencer Heath, Spencer MacCallum, myself, and others has been to apply the economic concept of rent-based public revenue to private communities, showing that proprietary communities such as hotels, as well as associations such as condominiums, in effect use site rentals for their revenue, with the implication that most government programs could be shifted to private communities, where the rentals would be collected by contract. Examining this application would take us away from the focus of tax reform and the analysis of land rent for government revenue, but it is useful to point out that economic actors in a competitive market use rentals to pay for public goods because that is most efficient. ...

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