Wealthandwant theme: The Canons of Taxation

Henry George: The Common Sense of Taxation (1881 article)

For, keeping in mind the fact that all wealth is the result of human exertion, it is clearly seen that, having in view the promotion of the general prosperity, it is the height of absurdity to tax wealth for purposes of revenue while there remains, unexhausted by taxation, any value attaching to land. We may tax land values as much as we please, without in the slightest degree lessening the amount of land, or the capabilities of land, or the inducement to use land. But we cannot tax wealth without lessening the inducement to the production of wealth, and decreasing the amount of wealth. We might take the whole value of land in taxation, so as to make the ownership of land worth nothing, and the land would still remain, and be as useful as before. The effect would be to throw land open to users free of price, and thus to increase its capabilities, which are brought out by increased population. But impose anything like such taxation upon wealth, and the inducement to the production of wealth would be gone. Movable wealth would be hidden or carried off, immovable wealth would be suffered to go to decay, and where was prosperity would soon be the silence of desolation. ...

So with railroads everywhere. And so not alone with railroads, but with all industrial enterprises. So long as we consider that community most prosperous which increases most rapidly in wealth, so long is it the height of absurdity for us to tax wealth in any of its beneficial forms. We should tax what we want to repress, not what we want to encourage. We should tax that which results from the general prosperity, not that which conduces to it. It is the increase of population, the extension of cultivation, the manufacture of goods, the building of houses and ships and railroads, the accumulation of capital, and the growth of commerce that add to the value of land — not the increase in the value of land that induces the increase of population and increase of wealth. It is not that the land of Manhattan Island is now worth hundreds of millions where, in the time of the early Dutch settlers, it was only worth dollars, that there are on it now so many more people, and so much more wealth. It is because of the increase of population and the increase of wealth that the value of the land has so much increased. Increase of land values tends of itself to repel population and prevent improvement. And thus the taxation of land values, unlike taxation of other property, does not tend to prevent the increase of wealth, but rather to stimulate it. It is the taking of the golden egg, not the choking of the goose that lays it.

Every consideration of policy and ethics squares with this conclusion. The tax upon land values is the most economically perfect of all taxes. It does not raise prices; it maybe collected at least cost, and with the utmost ease and certainty; it leaves in full strength all the springs of production; and, above all, it consorts with the truest equality and the highest justice. For, to take for the common purposes of the community that value which results from the growth of the community, and to free industry and enterprise and thrift from burden and restraint, is to leave to each that which he fairly earns, and to assert the first and most comprehensive of equal rights — the equal right of all to the land on which, and from which, all must live.

Thus it is that the scheme of taxation which conduces to the greatest production is also that which conduces to the fairest distribution, and that in the proper adjustment of taxation lies not merely the possibility of enormously increasing the general wealth, but the solution of these pressing social and political problems which spring from unnatural inequality in the distribution of wealth. ... read the whole article

Henry George: The Condition of Labor — An Open Letter to Pope Leo XIII in response to Rerum Novarum (1891)

Nor do we hesitate to say that this way of securing the equal right to the bounty of the Creator and the exclusive right to the products of labor is the way intended by God for raising public revenues. For we are not atheists, who deny God; nor semi-atheists, who deny that he has any concern in politics and legislation.

It is true as you say — a salutary truth too often forgotten — that “man is older than the state, and he holds the right of providing for the life of his body prior to the formation of any state.” Yet, as you too perceive, it is also true that the state is in the divinely appointed order. For He who foresaw all things and provided for all things, foresaw and provided that with the increase of population and the development of industry the organization of human society into states or governments would become both expedient and necessary.

No sooner does the state arise than, as we all know, it needs revenues. This need for revenues is small at first, while population is sparse, industry rude and the functions of the state few and simple. But with growth of population and advance of civilization the functions of the state increase and larger and larger revenues are needed.

Now, He that made the world and placed man in it, He that pre-ordained civilization as the means whereby man might rise to higher powers and become more and more conscious of the works of his Creator, must have foreseen this increasing need for state revenues and have made provision for it. That is to say: The increasing need for public revenues with social advance, being a natural, God-ordained need, there must be a right way of raising them — some way that we can truly say is the way intended by God. It is clear that this right way of raising public revenues must accord with the moral law.

Hence:

It must not take from individuals what rightfully belongs to individuals.

It must not give some an advantage over others, as by increasing the prices of what some have to sell and others must buy.

It must not lead men into temptation, by requiring trivial oaths, by making it profitable to lie, to swear falsely, to bribe or to take bribes.

It must not confuse the distinctions of right and wrong, and weaken the sanctions of religion and the state by creating crimes that are not sins, and punishing men for doing what in itself they have an undoubted right to do.

It must not repress industry. It must not check commerce. It must not punish thrift. It must offer no impediment to the largest production and the fairest division of wealth.

Let me ask your Holiness to consider the taxes on the processes and products of industry by which through the civilized world public revenues are collected — the octroi duties that surround Italian cities with barriers; the monstrous customs duties that hamper intercourse between so-called Christian states; the taxes on occupations, on earnings, on investments, on the building of houses, on the cultivation of fields, on industry and thrift in all forms. Can these be the ways God has intended that governments should raise the means they need? Have any of them the characteristics indispensable in any plan we can deem a right one?

All these taxes violate the moral law. They take by force what belongs to the individual alone; they give to the unscrupulous an advantage over the scrupulous; they have the effect, nay are largely intended, to increase the price of what some have to sell and others must buy; they corrupt government; they make oaths a mockery; they shackle commerce; they fine industry and thrift; they lessen the wealth that men might enjoy, and enrich some by impoverishing others.

Yet what most strikingly shows how opposed to Christianity is this system of raising public revenues is its influence on thought.

Christianity teaches us that all men are brethren; that their true interests are harmonious, not antagonistic. It gives us, as the golden rule of life, that we should do to others as we would have others do to us. But out of the system of taxing the products and processes of labor, and out of its effects in increasing the price of what some have to sell and others must buy, has grown the theory of “protection,” which denies this gospel, which holds Christ ignorant of political economy and proclaims laws of national well-being utterly at variance with his teaching. This theory sanctifies national hatreds; it inculcates a universal war of hostile tariffs; it teaches peoples that their prosperity lies in imposing on the productions of other peoples restrictions they do not wish imposed on their own; and instead of the Christian doctrine of man’s brotherhood it makes injury of foreigners a civic virtue.

“By their fruits ye shall know them.” Can anything more clearly show that to tax the products and processes of industry is not the way God intended public revenues to be raised?

But to consider what we propose — the raising of public revenues by a single tax on the value of land irrespective of improvements — is to see that in all respects this does conform to the moral law.

Let me ask your Holiness to keep in mind that the value we propose to tax, the value of land irrespective of improvements, does not come from any exertion of labor or investment of capital on or in it — the values produced in this way being values of improvement which we would exempt. The value of land irrespective of improvement is the value that attaches to land by reason of increasing population and social progress. This is a value that always goes to the owner as owner, and never does and never can go to the user; for if the user be a different person from the owner he must always pay the owner for it in rent or in purchase-money; while if the user be also the owner, it is as owner, not as user, that he receives it, and by selling or renting the land he can, as owner, continue to receive it after he ceases to be a user.

Thus, taxes on land irrespective of improvement cannot lessen the rewards of industry, nor add to prices,* nor in any way take from the individual what belongs to the individual. They can take only the value that attaches to land by the growth of the community, and which therefore belongs to the community as a whole.

* As to this point it may be well to add that all economists are agreed that taxes on land values irrespective of improvement or use — or what in the terminology of political economy is styled rent, a term distinguished from the ordinary use of the word rent by being applied solely to payments for the use of land itself — must be paid by the owner and cannot be shifted by him on the user. To explain in another way the reason given in the text: Price is not determined by the will of the seller or the will of the buyer, but by the equation of demand and supply, and therefore as to things constantly demanded and constantly produced rests at a point determined by the cost of production — whatever tends to increase the cost of bringing fresh quantities of such articles to the consumer increasing price by checking supply, and whatever tends to reduce such cost decreasing price by increasing supply. Thus taxes on wheat or tobacco or cloth add to the price that the consumer must pay, and thus the cheapening in the cost of producing steel which improved processes have made in recent years has greatly reduced the price of steel. But land has no cost of production, since it is created by God, not produced by man. Its price therefore is fixed —

1 (monopoly rent), where land is held in close monopoly, by what the owners can extract from the users under penalty of deprivation and consequently of starvation, and amounts to all that common labor can earn on it beyond what is necessary to life;
2 (economic rent proper), where there is no special monopoly, by what the particular land will yield to common labor over and above what may be had by like expenditure and exertion on land having no special advantage and for which no rent is paid; and,
3 (speculative rent, which is a species of monopoly rent, telling particularly in selling price), by the expectation of future increase of value from social growth and improvement, which expectation causing landowners to withhold land at present prices has the same effect as combination.

Taxes on land values or economic rent can therefore never be shifted by the landowner to the land-user, since they in no wise increase the demand for land or enable landowners to check supply by withholding land from use. Where rent depends on mere monopolization, a case I mention because rent may in this way be demanded for the use of land even before economic or natural rent arises, the taking by taxation of what the landowners were able to extort from labor could not enable them to extort any more, since laborers, if not left enough to live on, will die. So, in the case of economic rent proper, to take from the landowners the premiums they receive, would in no way increase the superiority of their land and the demand for it. While, so far as price is affected by speculative rent, to compel the landowners to pay taxes on the value of land whether they were getting any income from it or not, would make it more difficult for them to withhold land from use; and to tax the full value would not merely destroy the power but the desire to do so.

To take land values for the state, abolishing all taxes on the products of labor, would therefore leave to the laborer the full produce of labor; to the individual all that rightfully belongs to the individual. It would impose no burden on industry, no check on commerce, no punishment on thrift; it would secure the largest production and the fairest distribution of wealth, by leaving men free to produce and to exchange as they please, without any artificial enhancement of prices; and by taking for public purposes a value that cannot be carried off, that cannot be hidden, that of all values is most easily ascertained and most certainly and cheaply collected, it would enormously lessen the number of officials, dispense with oaths, do away with temptations to bribery and evasion, and abolish man-made crimes in themselves innocent.

But, further: That God has intended the state to obtain the revenues it needs by the taxation of land values is shown by the same order and degree of evidence that shows that God has intended the milk of the mother for the nourishment of the babe.

See how close is the analogy. In that primitive condition ere the need for the state arises there are no land values. The products of labor have value, but in the sparsity of population no value as yet attaches to land itself. But as increasing density of population and increasing elaboration of industry necessitate the organization of the state, with its need for revenues, value begins to attach to land. As population still increases and industry grows more elaborate, so the needs for public revenues increase. And at the same time and from the same causes land values increase. The connection is invariable. The value of things produced by labor tends to decline with social development, since the larger scale of production and the improvement of processes tend steadily to reduce their cost. But the value of land on which population centers goes up and up. Take Rome or Paris or London or New York or Melbourne. Consider the enormous value of land in such cities as compared with the value of land in sparsely settled parts of the same countries. To what is this due? Is it not due to the density and activity of the populations of those cities — to the very causes that require great public expenditure for streets, drains, public buildings, and all the many things needed for the health, convenience and safety of such great cities? See how with the growth of such cities the one thing that steadily increases in value is land; how the opening of roads, the building of railways, the making of any public improvement, adds to the value of land. Is it not clear that here is a natural law — that is to say a tendency willed by the Creator? Can it mean anything else than that He who ordained the state with its needs has in the values which attach to land provided the means to meet those needs?

That it does mean this and nothing else is confirmed if we look deeper still, and inquire not merely as to the intent, but as to the purpose of the intent. If we do so we may see in this natural law by which land values increase with the growth of society not only such a perfectly adapted provision for the needs of society as gratifies our intellectual perceptions by showing us the wisdom of the Creator, but a purpose with regard to the individual that gratifies our moral perceptions by opening to us a glimpse of his beneficence.

Consider: Here is a natural law by which as society advances the one thing that increases in value is land — a natural law by virtue of which all growth of population, all advance of the arts, all general improvements of whatever kind, add to a fund that both the commands of justice and the dictates of expediency prompt us to take for the common uses of society. Now, since increase in the fund available for the common uses of society is increase in the gain that goes equally to each member of society, is it not clear that the law by which land values increase with social advance while the value of the products of labor does not increase, tends with the advance of civilization to make the share that goes equally to each member of society more and more important as compared with what goes to him from his individual earnings, and thus to make the advance of civilization lessen relatively the differences that in a ruder social state must exist between the strong and the weak, the fortunate and the unfortunate? Does it not show the purpose of the Creator to be that the advance of man in civilization should be an advance not merely to larger powers but to a greater and greater equality, instead of what we, by our ignoring of his intent, are making it, an advance toward a more and more monstrous inequality? ...

That the value attaching to land with social growth is intended for social needs is shown by the final proof. God is indeed a jealous God in the sense that nothing but injury and disaster can attend the effort of men to do things other than in the way he has intended; in the sense that where the blessings he proffers to men are refused or misused they turn to evils that scourge us. And just as for the mother to withhold the provision that fills her breast with the birth of the child is to endanger physical health, so for society to refuse to take for social uses the provision intended for them is to breed social disease.

For refusal to take for public purposes the increasing values that attach to land with social growth is to necessitate the getting of public revenues by taxes that lessen production, distort distribution and corrupt society. It is to leave some to take what justly belongs to all; it is to forego the only means by which it is possible in an advanced civilization to combine the security of possession that is necessary to improvement with the equality of natural opportunity that is the most important of all natural rights. It is thus at the basis of all social life to set up an unjust inequality between man and man, compelling some to pay others for the privilege of living, for the chance of working, for the advantages of civilization, for the gifts of their God. But it is even more than this. The very robbery that the masses of men thus suffer gives rise in advancing communities to a new robbery. For the value that with the increase of population and social advance attaches to land being suffered to go to individuals who have secured ownership of the land, it prompts to a forestalling of and speculation in land wherever there is any prospect of advancing population or of coming improvement, thus producing an artificial scarcity of the natural elements of life and labor, and a strangulation of production that shows itself in recurring spasms of industrial depression as disastrous to the world as destructive wars. It is this that is driving men from the old countries to the new countries, only to bring there the same curses. It is this that causes our material advance not merely to fail to improve the condition of the mere worker, but to make the condition of large classes positively worse. It is this that in our richest Christian countries is giving us a large population whose lives are harder, more hopeless, more degraded than those of the veriest savages. It is this that leads so many men to think that God is a bungler and is constantly bringing more people into his world than he has made provision for; or that there is no God, and that belief in him is a superstition which the facts of life and the advance of science are dispelling.

The darkness in light, the weakness in strength, the poverty amid wealth, the seething discontent foreboding civil strife, that characterize our civilization of today, are the natural, the inevitable results of our rejection of God’s beneficence, of our ignoring of his intent. Were we on the other hand to follow his clear, simple rule of right, leaving scrupulously to the individual all that individual labor produces, and taking for the community the value that attaches to land by the growth of the community itself, not merely could evil modes of raising public revenues be dispensed with, but all men would be placed on an equal level of opportunity with regard to the bounty of their Creator, on an equal level of opportunity to exert their labor and to enjoy its fruits. And then, without drastic or restrictive measures the forestalling of land would cease. For then the possession of land would mean only security for the permanence of its use, and there would be no object for any one to get land or to keep land except for use; nor would his possession of better land than others had confer any unjust advantage on him, or unjust deprivation on them, since the equivalent of the advantage would be taken by the state for the benefit of all.

The Right Reverend Dr. Thomas Nulty, Bishop of Meath, who sees all this as clearly as we do, in pointing out to the clergy and laity of his diocese* the design of Divine Providence that the rent of land should be taken for the community, says:

I think, therefore, that I may fairly infer, on the strength of authority as well as of reason, that the people are and always must be the real owners of the land of their country. This great social fact appears to me to be of incalculable importance, and it is fortunate, indeed, that on the strictest principles of justice it is not clouded even by a shadow of uncertainty or doubt. There is, moreover, a charm and a peculiar beauty in the clearness with which it reveals the wisdom and the benevolence of the designs of Providence in the admirable provision he has made for the wants and the necessities of that state of social existence of which he is author, and in which the very instincts of nature tell us we are to spend our lives. A vast public property, a great national fund, has been placed under the dominion and at the disposal of the nation to supply itself abundantly with resources necessary to liquidate the expenses of its government, the administration of its laws and the education of its youth, and to enable it to provide for the suitable sustentation and support of its criminal and pauper population. One of the most interesting peculiarities of this property is that its value is never stationary; it is constantly progressive and increasing in a direct ratio to the growth of the population, and the very causes thatincrease and multiply the demands made on it increase proportionately its ability to meet them.
* Letter addressed to the Clergy and Laity of the Diocese of Meath, Ireland, April 2, 1881.

There is, indeed, as Bishop Nulty says, a peculiar beauty in the clearness with which the wisdom and benevolence of Providence are revealed in this great social fact, the provision made for the common needs of society in what economists call the law of rent. Of all the evidence that natural religion gives, it is this that most clearly shows the existence of a beneficent God, and most conclusively silences the doubts that in our days lead so many to materialism.

For in this beautiful provision made by natural law for the social needs of civilization we see that God has intended civilization; that all our discoveries and inventions do not and cannot outrun his forethought, and that steam, electricity and labor-saving appliances only make the great moral laws clearer and more important. In the growth of this great fund, increasing with social advance — a fund that accrues from the growth of the community and belongs therefore to the community — we see not only that there is no need for the taxes that lessen wealth, that engender corruption, that promote inequality and teach men to deny the gospel; but that to take this fund for the purpose for which it was evidently intended would in the highest civilization secure to all the equal enjoyment of God’s bounty, the abundant opportunity to satisfy their wants, and would provide amply for every legitimate need of the state. We see that God in his dealings with men has not been a bungler or a niggard; that he has not brought too many men into the world; that he has not neglected abundantly to supply them; that he has not intended that bitter competition of the masses for a mere animal existence and that monstrous aggregation of wealth which characterize our civilization; but that these evils which lead so many to say there is no God, or yet more impiously to say that they are of God’s ordering, are due to our denial of his moral law. We see that the law of justice, the law of the Golden Rule, is not a mere counsel of perfection, but indeed the law of social life. We see that if we were only to observe it there would be work for all, leisure for all, abundance for all; and that civilization would tend to give to the poorest not only necessities, but all comforts and reasonable luxuries as well. We see that Christ was not a mere dreamer when he told men that if they would seek the kingdom of God and its right-doing they might no more worry about material things than do the lilies of the field about their raiment; but that he was only declaring what political economy in the light of modern discovery shows to be a sober truth.

Your Holiness, even to see this is deep and lasting joy. For it is to see for one’s self that there is a God who lives and reigns, and that be is a God of justice and love — Our Father who art in Heaven. It is to open a rift of sunlight through the clouds of our darker questionings, and to make the faith that trusts where it cannot see a living thing. ... read the whole letter

Rev. A. C. Auchmuty: Gems from George, a themed collection of excerpts from the writings of Henry George (with links to sources)

THE mode of taxation is quite as important as the amount. As a small burden badly placed may distress a horse that could carry with ease a much larger one properly adjusted, so a people may be impoverished and their power of producing wealth destroyed by taxation, which, if levied in another way, could be borne with ease. — Progress & Poverty — Book VIII, Chapter 3, Application of the Remedy: The Proposition Tried by the Canons of Taxation

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 & Poverty — Book VIII, Chapter 3, Application of the Remedy: The Proposition Tried by the Canons of Taxation

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 on rent compels the landowners 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 & Poverty — Book VIII, Chapter 3, Application of the Remedy: The Proposition Tried by the Canons of Taxation

... go to "Gems from George"

Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894)

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 25 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.

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.

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.26 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.

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

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

Abstract
Real tax reform could do away with those taxes that are resented by the large proportion of our population. We could replace all taxes on wages and on interest by instead taxing economic rent. Rent is windfall income; it is income that arises not from the efforts of any person or corporation; it comes about as a surplus gain from common social enterprise. There is ample moral warrant for society to lay claim to that which it has created, as well as to that which no individual or party has earned. Analysis increasingly makes clear that economic rent in all its forms is far larger than official government figures indicate; in fact it is likely sufficient to supplant all current taxes on labor and capital (wages and interest) which are acknowledged to have so many negative effects. Recovering economic rent in all its manifestations by taxing its various bases actually can foster economic performance and yield other benefits that make it the natural source of revenue for governments. Such a tax is essentially painless. ...

Tax Principles

The starting points should be the lessons that have been learned over the course of the past three hundred and more years about what is a good tax. Most basic textbooks in public finance enumerate them in very clear form, and they constitute benchmarks against which to measure the soundness of any particular tax. They are listed as few as three or as many as eight such principles but little disagreement exists as to their substance, regardless of ideology or government. Most commonly enumerated are neutrality, efficiency, equity, administrability, simplicity, stability, sufficiency.[3] Tax theorists typically measure revenue structures according to any or all of these criteria:

Tax neutrality refers to the influence (or absence of such) that any particular design has on economic behavior. Typically taxes are perceived as a damp on economic activity — taxing income reduces the incentive to work, taxing sales discourages retail transactions, and taxing savings reduces the propensity to save. The more a tax is perceived to be neutral the less the identifiable distortions it imposes on the economy. The common assumption of most tax theorists is that all taxes impose distortions; it's simply a matter of which ones are least burdensome to economic health. A tax which imposes no distortions is ideally best.

Tax efficiency is much like tax neutrality, and is the measure of how much shifting of behavior it imposes, resulting in what is called "excess burden," or "deadweight loss" on the economy. Tax economists usually hold that the best taxes are those that are shifted little if at all. Because the elasticities (a technical word for the slope of supply and demand curves) of each are very different, a tax on land values and a tax on improvement values have very contrastive effects on economic choices. Using a tax base that has little or zero elasticity is the best way of assuring that taxes are not shifted. Zero elasticity is another way of saying fixed supply.

The principle of equity is central to any discussion of tax design. Tax design requires concern with both what is fair and the extent to which it must sometimes be compromised to satisfy the other principal criteria. Fairness can be evaluated according to what is termed "horizontal equity" -- the extent to which those in similar circumstances will pay similar tax burdens, and "vertical equity" -- how well those in different classes bear different burdens in the tax structure. It is this latter perspective that leads to the use of terms like "proportional," "progressive," and "regressive" in referring to tax structures. A tax is progressive with respect to income if the ratio of tax revenue to income rises when moving up the income scale, proportional if the ratio is constant, and regressive if the ratio declines. There is an ancillary question of whether taxing to reach greater equity should employ measures of income or of wealth, difficult as this is to measure. Such questions of equity are a matter particularly central when discussing the property tax.

Administrability refers to the ease with which a tax can be administered and collected. Taxes which distort the economy are inefficient but so are taxes that cost lots to administer. This is measured not only in the direct costs of tax avoidance and accounting expenses, but in the level of evasion and cheating, and by the cost of government auditing and policing. When the taxpaying public perceives that a tax is easily evaded, cumbersome, and unfair, it loses its legitimacy and calls government itself into question.

This is why the principle of simplicity is important: the more complex the tax design, the more lawyers and accountants will find loopholes, encourage the appearance of unfairness, and drive up the cost of its administration. People know that with simple taxes other parties are also paying their fair share, and all this enhances the legitimacy and therefore the compliance of the tax system.

Stability refers to the ability of a tax to produce revenue in the face of changing economic circumstances. Income and sales taxes, for example, vary greatly according to phases in the economic cycle; the property tax, in contrast, is highly stable regardless of the state of the economy. This is one reason why school administrators have typically been supportive of using the property tax base rather than some other tax to support school services.

The certainty of a tax's collection ensures that the number and types of tax changes be kept to a minimum. Frequent changes in tax rates and bases interfere with business decisions and the ability to make long-term financial plans. This concept reinforces the need for stability because an unstable revenue system is more likely to require continual adjustments.

In assessing the value of a tax it is also important, of course, to understand its potential to bring in revenue for the purposes of government, usually deemed revenue sufficiency. Income, sales and property taxes, along with corporation taxes to a lesser extent, have come to be regarded as the workhorses of the American revenue structure. But, as anti-tax politicians are quick to note, the higher these taxes are, the more they impose a drag on the economy. This is why one should ponder whether to consider raising taxes which have demonstrable distorting effects. ... read the whole article

Bill Batt: The Fallacy of the "Three-Legged Stool" Metaphor

Tax experts, especially at the state level, ply their trade by invoking one metaphor above all others: the three-legged stool. It rests on the claim that a sound and successful tax regime for any government needs to rely on a three tax bases: income, property and sales. This is repeated so often that it passes today without much examination.

There seem to be three arguments for this:

that taxes should be drawn from as wide an array of sources as possible so as not to overburden any one base or sector.
that the spread of tax burdens over a number of bases will ensure greater stability and reliability.
that reliance upon a wider number of revenue streams minimizes the downside consequences which all taxes impose on the economy.

It is even claimed that revenue streams should rely on each such base in roughly equal proportions, lest structural imbalances will otherwise eventuate that jeopardize public support of government. There are of course exceptions. States that have rich mineral wealth have the luxury of imposing taxes that relieve them of the need to rely equally on the "big three." So also for states that have a rich tourist industry or that can rely heavily on gambling revenue. But a state is open to the charge that its revenue structure is unbalanced, unfair, or worse unless such special circumstances warrant. ...

The power with which the three-legged stool analogy has underpinned tax policy is in fact rather disconcerting, because a close examination of its premises shows that they are very questionable. These benchmark measures of a tax regime are scrutinized here in order to cast doubt on the claims so often made on their behalf.

Taking first the argument that spreading the tax burden over as wide a base of sources as possible, it is best to begin by noting that revenue streams can be drawn from only three elements of the economy:

Land,
Labor, and/or
Capital.

Standard textbooks for Economics 101 typically start with recognition of these factors, even if they usually give insufficient attention to Land as a component. Classical economics, culminating particularly in the tradition of Henry George, includes in the idea of Land any and all components of value not created by human hands or minds. It therefore means not just locational sites on the earth's surface that might be bought and sold as real estate, but other elements of so-called "natural capital" as well:

the electromagnetic spectrum,
air,
water,
fish in the ocean,
mineral wealth,
airport time slots, and so on.

Those elements have a market price, and can be -- indeed are -- often subject to taxation. It is important to note, however, that taxes on such Land are capitalized in the market value of their worth; they cannot be passed forward or backward because their supply is essentially inelastic.

This is important, as will be noted below, because imposing such taxes incurs no excess burden on their use or upon the general economy. Taxing such bases is totally neutral and completely efficient. Indeed, it is the failure to tax Land as stated that leads to economic distortions and causes an economy to function at a sub-optimal level. Land, whatever its form, has a market value only to the extent that a human presence exists to make use of it, and it acquires that value due to the accretion of economic rent, the return that comes to rest on such factors.

Taxes on Labor and Capital, in contrast, are always shifted. ... The shift in taxes, as economic theory makes clear, are ultimately converted to rent, and that rent, as capitalized in land prices, is its final resting place. It is a truism of classical economics as carried through in the present day tradition of Georgist economics that all taxes come out of rent -- an adage that has come to be abbreviated as ATCOR.

What this insight means is that all taxes not first imposed on Land and collected from the rent that rests thereon are instead passed through the economy from one party to another until they ultimately come to rest on Land, thereby increasing the price of real estate. The passing along of tax burdens not only creates distortions in economic transactions; it also constitutes an excess burden and an inefficiency that handicaps economic performance. ...

The passing along of tax burdens not only creates distortions in economic transactions; it also constitutes an excess burden and an inefficiency that handicaps economic performance.

Taxing any form of Capital makes it more expensive and leads to less saving and investment;
taxing Labor, in the same way, depresses wages and discourages enterprise.

Contemporary economists and conventional tax theorists well recognize that taxing Labor and Capital is detrimental to economic vitality -- politicians thrive on repeating this ad nauseam. Currently the Republican party candidates seem best able to exploit resentment about the negative impact of taxes.

Far from spreading the burden of distribution over a wide array of tax bases, the ideal tax, then, should be imposed solely on those factors of production that form an inelastic base, i.e., that constitute forms of Land -- whether they be locational sites, natural resources, the spectrum, time slots, or others as they may arise in the future. Land, in any of its forms, is totally inelastic. Will Rogers in his pithy way said it well, "Buy land. They ain't making any more of the stuff." Mark Twain said it too.

A second claim among advocates of spreading tax burdens over the "big three" bases (and sometimes more if possible) is that it insures greater reliability and stability of the revenue streams supportive of government services. ...

Economic cycles are accepted as a given in both government and business circles. But there is compelling evidence that such cycles have their roots in the tendency for elements of the financial community to speculate in real estate, fostering bubbles in their market prices that ultimately must be reconciled with the real demand. Because the market price of Land is in good part a function of the settling of rent, the recapture of that rent in the form of taxation can both stabilize those markets and remove the cause of those periodic cycles. ...

The third claim, that reliance upon a wider number of revenue streams minimizes the downside consequences that all taxes impose, requires an extensive examination of the various options available. What, first of all, are those aspects that must be avoided? What are the standards against which various taxes can and should be measured? These are typically listed as anywhere from four to seven depending upon their description. Most common are
But they are not alone in failing to appreciate the nature of tax shifting. What all fail to realize is that there are notable exceptions to the rule that taxes are oppressive: any tax imposed on an inelastic base -- that is, any form of Land -- constitutes no distortion or excess burden whatsoever.

neutrality,
efficiency,
equity,
administrability,
simplicity,
stability,
sufficiency. ...

To be sure, the "big three" taxes all have negative consequences. This is because all three are imposed largely on Capital and Labor; only a minor component of taxes on property constitutes collection of economic rent. ...

The one criticism often levied against the conventional property tax is its regressivity. This is somewhat belied by the facts. Only two empirical studies have ever been done on the subject, but both concluded that the real property tax is mildly progressive. ...

The upshot is that a tax on Land value alone -- totally neutral, efficient, certain, progressive, stable, and administrable -- measures up so well that it looks like the perfect tax! It is even argued that a land tax is "better than neutral," in that it actually fosters the kind of economic activity that fosters vibrant communities. ... Read the whole article

Robert V. Andelson Henry George and the Reconstruction of Capitalism

Why did George take so many pieces from the Capitalist table? Because, I think, they are all corollaries of one big piece, namely, the moral justification for private property. You see, George, who was a devout though non-sectarian Christian, had a stout belief in the God-given dignity of the individual. This dignity, he held, demands that we recognize that the individual possesses an absolute and inalienable right to himself, which is forfeited only when he refuses to accord the same right to others. The right to one's self implies the right to one's labor, which is an extension of one's self, and therefore to the product of one's labor -- to use it, to enjoy it, to give it away, to destroy it, to bequeath it, or even (if one so desires) to bury it in the ground.

Now, taxation as ordinarily understood, especially when based upon the "ability to pay" principle, is a denial of this right. It is a denial of it because it represents a tribute levied on the product of an individual's labor. It is a denial of it because it rests upon the assumption that the community at large has a right to assess individuals disproportionately to the benefits which they receive from the community at large. And so George rejects as collectivistic many institutions that most present-day defenders of free enterprise would never dream of questioning -- income taxes, tariffs, sales taxes, corporate taxes, personal property taxes, etc. This makes him in one sense an arch-Conservative, yet prominent Socialists like Walter Rauschenbusch and George Bernard Shaw have testified that it was Henry George who first kindled their concern for social justice. To understand the reason for this, we must direct our attention to the other table, the table labeled "Socialism."

In fitting together the economic jigsaw puzzle, George took only two pieces from the Socialist table. But what large and what strategic pieces they were!

The first of these was his insistence that all persons come into the world with an equal right of access to the goods of nature.
The second was his contention that the community has a right to take that which the community produces.

Actually, these pieces had landed on the Socialist table only by default. They had originally been part of the theory of Capitalism, as outlined by John Locke, the Physiocrats, and Adam Smith. But Capitalism in practice ignored them, and so became a distorted caricature. George's notion was to rescue these lost elements, and restore balance and proportion to the Capitalist table.

Now, if private property derives its moral justification from the right of a human being to the fruits of his or her own efforts, clearly the land and the other goods of nature do not belong in the category of private property because no human efforts created them. And the value that attaches to them is not the result of anything their title-holder does to them; it is the result of the presence and activity of the community around them. Someone can build a skyscraper in the desert and the ground upon which it stands will not be worth a penny more because of it, yet a city lot with nothing on it may be worth a fortune simply because of the number of people who pass by it daily.

Why, asked Henry George in effect, should private individuals be allowed to fatten upon the unearned increment of land -- upon the rise in value which the community creates because of population increase and the growth of public services? Why should certain people be allowed to levy tribute upon others who desire access to their common heritage? But, you might object, the present owner may have paid hard-earned money for his land. Has he not, therefore, a vested right? To this, George would have answered: If one unwittingly buys stolen goods, the rectitude of one's intentions establishes no right against the legitimate owner of those goods. Read the whole article

Herbert J. G. Bab: Property Tax -- Cause of Unemployment (circa 1964)

Three criteria are generally used to judge the merits of a tax.

First, it must be satisfactory as a revenue producer,
second it must be equitable and
third its economic effects should not collide with the public interest.

For instance if full employment and economic growth are regarded as desirable, the question to be examined is what effects will this tax have on achieving these objectives?

The shortcomings of property taxes as revenue producers have been obvious for a long time and are widely known. The main difficulty is that revenues from property taxation do not keep pace with the ever-increasing requirements of local governments. Every county, every city official and every school administrator will testify, that there are not enough funds available to meet the requirements of local governments.

The inability of local government to raise enough revenues from property taxation has forced them to borrow at an ever-increasing rate. The debts of local governments have increased from about $16 billions in 1947 to over $61 billions in 1963, an increase of about 382%. During the same period private debt increased by 279% and federal debt by only 26%.

To satisfy the second criterion, a tax must be equitable. It must be either based on the ability to pay principle or on the benefit principle. The Federal income tax for instance is based on the ability to pay principle. Gasoline taxes used exclusively for the construction of roads are benefit taxes. The property tax cannot be justified by either of these principles. The ownership of property is not a yardstick of ability to pay, though this was probably true before the industrial revolution. In that age land was the main, if not the only, form of wealth and intangible forms of wealth did not exist. As to the benefit principle most of the services rendered by local governments benefit the community as a whole rather than property owners. This is especially true of schools, police protection, welfare expenses and many others.

An analysis of the social and economic effects of a particular tax system would indicate the third criterion.

When analysing property taxes we shall distinguish between that part of the tax which is assessed on improvements and that part which is assessed on land.

That part of the tax that is assessed on buildings penalizes everybody who improves his land, his buildings or intends to construct residential, commercial or industrial property. The most serious incidence of property taxes is on new housing. When rental property or houses are newly constructed these taxes add 15 to 20% to the annual cost depending on assessment practices and tax rates.

"In 1962 property taxes on new F.H.A. insured houses averaged $14.30 per month, or $171.60 per year, excluding that part of the tax that was assessed on the land. Assuming that a family spends 20% of its income on housing, the income of a family must increase by $858 per year in order to afford the purchase of a home. In this way many families in the lower income group are priced, or taxed, out of the market. And residential construction, a mainstay of our economy, is discouraged."

"In 1963 HOUSING STARTS reached a level of 1.6 million units, representing a value of about $20 billions. Yet very few houses were built in the central areas of our cities and a large part of these houses were built for families in the middle or upper income group. Of these single-family homes, only 15% were sold for less than $12,500. Another 15% sold for between $12,500 and $15,000. Thus 70% of these homes cost $15,000 or more. This is so because under our income tax laws property taxes and interest charges are deductible items. A person in the 75% bracket pays only 25% of these costs and a person in the 50% bracket pays only half the property taxes and half the interest charges."
The ever widening gap between the level of rentals and the urban family income constitutes a rental squeeze, which has brought untold misery and hardship to families in the lower income group, especially to those belonging to minority groups. The rental squeeze has also aggravated overcrowding and slum conditions.

In the press, on the radio and on television we are often warned about the threat of inflation. Hardly ever are we told, that the increase in the cost of living is to a large extent due to the increase in housing costs brought about by the housing shortage. The inflationary effects of property taxation are reinforced by the fact that property taxes themselves are included in the cost of living index and that property tax rates have the tendency to rise.

A defect of our property tax system that is seldom mentioned is that it puts a premium on obsolescence and penalizes new housing. This is so because property taxes are ad valorem taxes. Every piece of real estate except land is subject to depreciation. Thus the owners of old and obsolete real estate will pay little in taxes, while newly constructed buildings will bear the brunt of the tax.

This characteristic of the property tax is obscured by the rising trends of land values, which in many cases offset the loss in value of the improvement. Increases in tax rates and differences in assessment procedures and practices further hide the fact that ad valorem taxes favor obsolete real property.

Let us now turn to that part of the tax that is assessed on land. Increases in population, immigration from the farms and other forces have led to a rapid increase in the population of our large cities and metropolitan areas. Population pressure is bound to increase the value of urban land. Yet an adequate system of land taxation could have prevented the steep rise in urban land values.

Economists agree that taxes on land can not be shifted but are capitalized. For instance a lot having a value of $10,000 -- will have an imputed or expected income of $500 -- assuming a 5% rate of capitalization. A 2-1/2% yearly "ad valorem" tax would reduce the imputed income by $250 -- or 50%. Such a tax would naturally reduce the value of the land by the same percentage.

"Sir Winston Churchill has been most of his life an advocate of land taxation. He stated on one occasion that 'Land monopoly is not the only monopoly, but ... it is the mother of all other forms of monopoly' ".

For these reasons increases in land values can be prevented by taxing land at an appropriate rate. Yet urban land values have increased tremendously during recent years. For instance in Los Angeles county the assessed value of land increased from $1,972 millions in 1952 to $4,002 millions in 1962, an increase of a little over 100%. The assessed values, are supposed to represent 25% of the market value. Thus the unearned increment in land values during this period amounted to not less than $8 billions. Even this figure is an understatement because it is based on assessed values and land is greatly underassessed. While land values have risen by about 10% yearly, property taxes assessed on land averaged about 1.5%. Thus a person owning vacant or underimproved land would have earned about 8 1/2% per year just by withholding land from its proper use.

A higher tax on vacant or unimproved land would make it unprofitable to hold such lands. It will tax land into better use and it will lead to a spurt in construction activity. While all other taxes are deterrents to employment and economic growth, though to a varying extent, land taxes are the only genuine incentive taxes.

Inflated land values must necessarily increase the cost of new homes, the cost of home-ownership and rentals. It discourages residential construction, prices many families out of the housing market and aggravates the housing shortage. Read the whole article

Bill Batt: Who Says Cities are Poor? They Just Don't Know How to Tax Their Wealth!

The Perfect Tax

In the final analysis, a tax should be evaluated according to the tenets of sound tax theory that have evolved over the course of recent centuries, and much of what has been said above is recaptured by a review of those principles. These measures of what is a "good" tax or a "bad" tax are often listed differently in textbooks, but they are largely agreed upon. Failure to conform to these venerable benchmarks is by itself sufficient cause to explain an economy's faltering — a particularly noteworthy example today is the city of Philadelphia which appears to have done everything backward! It taxes income, sales, building capital and even business privilege, the result being that its fisc is destitute.[20] The principles by which to measure tax design are enumerated here so as to make quite clear how recapturing economic rent in the form of taxes — in all the several forms where 'land' can be identified — constitutes the best method of financing government services and the most advantageous to cities.[21]

The first measure of a good tax is its neutrality. A neutral tax in no way alters the behavior of its partners from what would transpire were there no tax at all. A simple example illustrates the case: today many consumers will travel to alternate jurisdictions to avoid paying a sales tax on particular items, be they food, medication, clothing, or whatever. Taxes fully absorbed ("capitalized") in a market price such as land taxes in no way distort behavior, the volume of transactions, or gross prices. They are neutral.

A tax should also be efficient. To be sure, efficiency has many meanings even in economics. But here, rather than speaking of the administrative efficiency of its collection as will be addressed below, the measure is whether and how much it constitutes an excess burden on the economy, thereby slowing down performance and market vitality. Many taxes, as was mentioned earlier, exert so much drag on market transactions that they are destructive, however much revenue is brought to government coffers. Because land has a fixed supply there is no excess burden at all.

People are frequently most concerned about the fairness of a tax, which is typically measured according to both horizontal and vertical equity. Horizontal equity means that those in similar circumstances will bear similar burdens. Vertical equity prescribes that those with greater resources will pay more. Although studies have yet to show this, land taxes are likely the most "progressive" of any levy, as tenants bear no passed-through burden at all.[22] Not only does no household or office tenant bear any tax burden, locational sites distant from the urban core, mostly homeowners and farmers, typically find their burden reduced. Vacant or underused lots in high value areas pick up the difference, employing a design that employs an alternate criterion of equity: taxing according to use. "Paying for what you take and not for what you make" encourages efficient consumption of space and resources in an automatic and non-coercive manner. The one-third of households that own no land are relieved of all taxes, and residential and non-residential property owners split the rest. Farmers, whose land is typically of inconsequential value relative to sites in urban areas, are likely to pay little if anything even if they are not already protected by other save-harmless provisions. By eliminating taxes on building improvements they typically enjoy savings just as do other businesses.

All this makes for a far simpler and more comprehensible system of taxation. Land taxes are totally transparent, impossible to evade, and therefore much more administrable. This further engenders the legitimacy of taxation and of government itself. What it also does is assure stability to the tax system, for the reason that land values are not subject to the variations and vacillations that other tax bases frequently have. Indeed, the removal of economic rent from locational sites discourages speculative bubbles and the related economic cycles that are associated with them. This greater stability and reliability is to the advantage of every sector of the economy — private, public, and non-profit.

A tax that collects economic rent offers a win-win proposition to every sector of the community — except to those who speculate in land. But who wants to favor land speculators? They are not held in high regard anywhere; their destructive behavior is the bane of cities, recognized everywhere for what it is: parasitic and passive. Speculators provide no added value to a community's well-being, and taxing rent is a foolproof means by which to eliminate it. Land speculation is highest where the most rent can be privately captured, but it forces those who choose to develop to look to sub-optimal locations when the primary locations they hoped for are held off the market for opportunistic gain. By collecting rent, primary choice locations become available for use and to facilitate the development of land use configurations ideal for the economic health and efficient allocation. Urban ambience is improved, public sector service costs are reduced, and sprawl development is stemmed. ... read the whole article

Bill Batt: The Merits of Site Value Taxation

... The place to start is taking advantage of what economists and tax theorists have learned over the course of the past three hundred years about a government's role in the economy. Far from assuming that the economy works best by a total "hands-off" policy as Adam Smith was falsely believed to have advocated by his invocation of an "invisible hand," policy leaders need to recognize that certain values we hold dear are outside the economy, and are threatened by our failure to price them properly. That we treat certain goods and "services" in nature as "free" means that we overuse them and our environment is degraded. Clean water and air, for example, aren't given any value in our economic system, and when they are degraded by agricultural runoff, industrial pollutants, or auto-emissions, those who are "using up" these resources go untaxed. The notion that the economy is a self-regulating system, operating according to defined laws and in ongoing equilibrium, is no longer entertained by serious students of economic and fiscal policy. The debate rather is over which government interventions are constructive and which ones are dysfunctional. The best place to start correcting property tax inequities and environmental degradation is by the right kind of taxes.

Tax theorists evaluate revenue structures according to the criteria of economic neutrality, efficiency, equity, administrability, simplicity, stability, and sufficiency. ... Read the whole piece

Bill Batt: How Our Towns Got That Way (1996 speech)

There were many arguments to be made for the classical tradition, the result of which would be to rely upon payment of rent of land according to its value to society. George recognized that land value is largely a function of how society has elected to invest in any general neighborhood; there is no argument for any one titleholder to reap the reward of what others have invested. Gaffney points out that, from the standpoint of economic theory, the framework had the following virtues:

It reconciled common land rights with private tenure, free markets and modern capitalism, a growing and persistent problem as the industrial society took hold.
It enabled the lowering of taxes on labor without raising taxes on capital.
It reconciled equity and efficiency. It constituted a progressive tax because land is concentrated so much among the wealthy and because the tax cannot be shifted. It was efficient because it is neutral among different land-use options.
It constituted no disincentive to business location or population settlement. In this way it encouraged the most efficient land use and discouraged sprawl.
It created jobs without inflation, and raised government revenue without any penalty upon its base.
It strengthened public revenues and at the same time promotes economy in government.

Those economists who today still persistently hold to the view that there is something special about land that make it unwise to treat as a form of capital are known as Georgists. They represent a small minority of the economics profession, but, little known as they are, they are among its most esteemed members. ...

What David Ricardo called the "law of rent," and which Henry George integrated to a comprehensive economic theory, can be made the basis of a perfect tax measured by contemporary principles of tax theory. Public finance textbooks typically list them as

economic neutrality,
efficiency,
equity,
administrability,
simplicity,
stability, and
sufficiency.

Each of these words embodies an important virtue of sound of taxation going back to the insights of Adam Smith two centuries ago. And now you know a bit of where I'm headed. ... read the whole article

Bill Batt: Comment on Parts of the NYS Legislative Tax Study Commission's 1985 study “Who Pays New York Taxes?”

Little justification exists for taxing buildings, or improvements of any sort, so this question is easily disposed of. The practice is explained largely as a matter of historical inertia. Only in the recent century or two have buildings represented any significant capital value; prior to the rise of major cities, the value of real property lay essentially in land. American cities today typically record aggregate assessed land values – at least when the valuations are well-done – at about 40% to 60% of total taxable value, that is, of land and buildings taken together.31 Skyscrapers reflect enormous capital investment, and this expenditure is warranted because of the enormous value of locational sites. Each site gets its market price from the fact that the total neighborhood context creates an attractive market presence and ambience. By taxing buildings, however, we impose a penalty on their optimum development as well as on the incentives for their maintenance. Moreover, taxes on buildings take away from whatever burden would otherwise be imposed on sites, with the result that incentives for their highest and best use is weakened. Lastly, the technical and administrative challenges of properly assessing the value of improvements is daunting, particularly since they must be depreciated for tax and accounting purposes, evaluated for potential replacement, and so on. In fact most costs associated with administration of property taxation and appeal litigation involve disputes over the valuation of structures, not land values.

Land value taxation, on the other hand, overcomes all these obstacles. Locations are the beneficiaries of community services whether they are improved or not. As has been forcefully argued by this writer and others elsewhere,32 a tax on land value conforms to all the textbook principles of sound tax theory. Some further considerations are worth reviewing, however, when looking at ground rent as a flow rather than as a “present value” stock. The technical ability to trace changes in the market prices of sites – or as can also be understood, the variable flow of ground rent to those sites – by the application of GIS (geographic information systems) real-time recording of sales transactions invites wholesale changes in the maintenance of cadastral data. The transmittal of sales records as typically received in the offices of local governments for purposes of title registration over to Assessors’ offices allows for the possibility of a running real-time mapping of market values. Given also that GIS algorithms can now calculate the land value proportions reasonably accurately, this means that “landvaluescapes” are easily created in ways analogous to maps that portray other common geographic features. These landvaluescapes reflect the flow of ground rent through local or regional economies, and can also be used to identify the areas of greatest market vitality and enterprise. The flow of economic rent can easily be taxed in ways that overcomes the mistaken notion that it is a stock. Just as income is recognized as a flow of money, rent too can (and should) be understood as such.

The question still begs to be answered, “why tax land?” And what happens when we don’t tax land? Henry George answered this more than a century ago more forcefully and clearly, perhaps, than anyone has since. He recognized full well that the economic surplus not expended by human hands or minds in the production of capital wealth gravitates to land. Particular land sites come to reflect the value of their strategic location for market exchanges by assuming a price for their monopoly use. Regardless whether those who acquire title to such sites use them to the full extent of their potential, the flow of rent to such locations is commensurate with their full capacity. This is why John Stuart Mill more than a century ago observed that, “Landlords grow richer in their sleep without working, risking or economizing. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title.”33 Absent its recovery by taxation this rent becomes a “free lunch” to opportunistically situated titleholders. When offered for sale, the projected rental value is capitalized in the present value for purposes of attaching a market price and sold as a commodity. Yet simple justice calls for the recovery in taxes what is the community’s creation. Moreover, the failure to recover the land rent connected to sites makes it necessary to tax productive activities in our economy, and this leads to economic and technical inefficiency known as “deadweight loss.”34 It means that the economy performs suboptimally.

Land, and by this Henry George meant any natural factor of production not created by human hands or minds, is ours only to use, not to buy or sell as a commodity. In the equally immortal words of Jefferson a century earlier, “The earth belongs in usufruct to the living; . . . [It is] given as a common stock for men to labor and live on.”35 This passage likely needs a bit of parsing for the modern reader. The word usufruct, understood since Roman times, has almost passed from use today. It means “the right to use the property of another so long as its value is not diminished.”36 Note also that Jefferson regarded the earth as a “common stock;” not allotted to individuals with possessory titles. Only the phrase “to the living” might be subject to challenge by forward-looking environmentalists who, taking an idea from Native American cultures, argue that “we do not inherit the earth from our ancestors; we borrow it from our children.” The presumption that real property titles are acquired legitimately is a claim that does not withstand scrutiny; rather all such titles owe their origin ultimately to force or fraud.37

If we own the land sites that we occupy only in usufruct, and the rent that derives from those sites is due to community enterprise, it is not a large logical leap to argue that the community’s recovery of that rent should be the proper source of taxation. This is the Georgist argument: that the recapture of land rent is the proper – indeed the natural – source of taxation.38 ... read the whole commentary

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