As economists use the term, a public good is one whose consumption is non-rival and non-exclusive. To be non-rival means that consumption of a good or service by some does not preclude its consumption by others. To be non-exclusive means that non-payers cannot be prohibited from using that good or service. — Bill Batt (below)

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

The more it is examined the more clearly it will be seen that there is no valid reason why we should, in any case, attempt to tax all property. That equality should be the rule and aim of taxation is true, and this for the reason given in the Declaration of Independence, that all men are created equal. But equality does not require that all men should be taxed alike, or that all things should be taxed alike. It merely requires that whatever taxes are imposed shall be equally imposed upon the persons or things in like conditions or situations; it merely requires that no citizen shall be given an advantage, or put at a disadvantage, as compared with other citizens.

The true purposes of government are well stated in the preamble to the Constitution of the United States, as they are in the Declaration of Independence. To insure the general peace, to promote the general welfare, to secure to each individual the inalienable rights to life, liberty, and the pursuit of happiness — these are the proper ends of government, and are therefore the ends which in every scheme of taxation should be kept in mind.

As to amount of taxation, there is no principle which imposes any arbitrary limit. Heavy taxation is better for any community than light taxation, if the increased revenue be used in doing by public agencies things which could not be done, or could not be as well and economically done, by private agencies. Taxes could be lightened in the city of New York by dispensing with street-lamps and disbanding the police force. But would a reduction in taxation gained in this way be for the benefit of the people of New York and make New York a more desirable place to live in? Or if it should be found that heat and light could be conducted through the streets at public expense and supplied to each house at but a small fraction of the cost of supplying them by individual effort, or that the city railroads could be run at public expense so as to give every one transportation at very much less than it now costs the average resident, the increased taxation necessary for these purposes would not be increased burden, and in spite of the larger taxation required, New York would become a more desirable place to live in. It is a mistake to condemn taxation as bad merely because it is high; it is a mistake to impose by constitutional provision, as in many of our States has been advocated, and in some of our States has been done, any restriction upon the amount of taxation. A restriction upon the incurring of public indebtedness is another matter. In nothing is the far-reaching statesmanship of Jefferson more clearly shown than in his proposition that all public obligations should be deemed void after a certain brief term — a proposition which he grounds upon the self-evident truth that the earth belongs in usufruct to the living, and that the dead have no control over it, and can give no title to any part of it. But restriction upon public debts is a very different thing from restriction upon the power of taxation, and reasons which urge the one do not apply to the other. Nor is increased taxation necessarily proof of governmental extravagance. Increase in taxation is in the order of social development, for the reason that social development tends to the doing of things collectively that in a ruder state are done individually, to the giving to government of new functions and the imposing of new duties. Our public schools and libraries and parks, our signal service and fish commissions and agricultural bureaus and grasshopper investigations, are evidences of this. ...

The possession of wealth is the inducement to the exertion necessary to the production and maintenance of wealth. Men do not work for the pleasure of working, but to get the things their work will give them. And to tax the things that are produced by exertion is to lessen the inducement to exertion. But over and above the benefit to the possessor, which is the stimulating motive to the production of wealth, there is a benefit to the community, for no matter how selfish he may be, it is utterly impossible for any one to entirely keep to himself the benefit of any desirable thing he may possess. These diffused benefits when localized give value to land, and this may be taxed without in any wise diminishing the incentive to production.

To illustrate: A man builds a fine house or large factory in a poorly improved neighborhood. To tax this building and its adjuncts is to make him pay for his enterprise and expenditure — to take from him part of his natural reward. But the improvement thus made has given new beauty or life to the neighborhood, making it a more desirable place than before for the erection of other houses or factories, and additional value is given to land all about. Now to tax improvements is not only to deprive of his proper reward the man who has made the improvement, but it is to deter others from making similar improvements. But, instead of taxing improvements, to tax these land values is to leave the natural inducement to further improvement in full force, and at the same time to keep down an obstacle to further improvement, which, under the present system, improvement itself tends to raise. For the advance of land values which follows improvement, and even the expectation of improvement, makes further improvement more costly.

See how unjust and short-sighted is this system. Here is a man who, gathering what little capital he can, and taking his family, starts West to find a place where he can make himself a home. He must travel long distances; for, though he will pass plenty of land nobody is using, it is held at prices too high for him. Finally he will go no further, and selects a place where, since the creation of the world, the soil, so far as we know, has never felt a plowshare. But here, too, in nine cases out of ten, he will find the speculator has been ahead of him, for the speculator moves quicker, and has superior means of information to the emigrant. Before he can put this land to the use for which nature intended it, and to which it is for the general good that it should be put, he must make terms with some man who in all probability never saw the land, and never dreamed of using it, and who, it may be, resides in some city, thousands of miles away. In order to get permission to use this land, he must give up a large part of the little capital which is seed-wheat to him, and perhaps in addition mortgage his future labor for years. Still he goes to work: he works himself, and his wife works, and his children work — work like horses, and live in the hardest and dreariest manner. Such a man deserves encouragement, not discouragement; but on him taxation falls with peculiar severity. Almost everything that he has to buy — groceries, clothing, tools — is largely raised in price by a system of tariff taxation which cannot add to the price of the grain or hogs or cattle that he has to sell. And when the assessor comes around he is taxed on the improvements he has made, although these improvements have added not only to the value of surrounding land, but even to the value of land in distant commercial centers. Not merely this, but, as a general rule, his land, irrespective of the improvements, will be assessed at a higher rate than unimproved land around it, on the ground that "productive property" ought to pay more than "unproductive property" — a principle just the reverse of the correct one, for the man who makes land productive adds to the general prosperity, while the man who keeps land unproductive stands in the way of the general prosperity, is but a dog-in-the-manger, who prevents others from using what he will not use himself.

Or, take the case of the railroads. That railroads are a public benefit no one will dispute. We want more railroads, and want them to reduce their fares and freight. Why then should we tax them? for taxes upon railroads deter from railroad building, and compel higher charges. Instead of taxing the railroads, is it not clear that we should rather tax the increased value which they give to land? To tax railroads is to check railroad building, to reduce profits, and compel higher rates; to tax the value they give to land is to increase railroad business and permit lower rates. The elevated railroads, for instance, have opened to the overcrowded population of New York the wide, vacant spaces of the upper part of the island. But this great public benefit is neutralized by the rise in land values. Because these vacant lots can be reached more cheaply and quickly, their owners demand more for them, and so the public gain in one way is offset in another, while the roads lose the business they would get were not building checked by the high prices demanded for lots. The increase of land values, which the elevated roads have caused, is not merely no advantage to them — it is an injury; and it is clearly a public injury. The elevated railroads ought not to be taxed. The more profit they make, with the better conscience can they be asked to still further reduce fares. It is the increased land values which they have created that ought to be taxed, for taxing them will give the public the full benefit of cheap fares.

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.

"There is," says M. de Laveleye, in concluding that work in which he shows that the first perceptions of mankind have everywhere recognized a most vital distinction between property in land and property which results from labor, — "there is in human affairs one system which is the best; it is not that system which always exists, otherwise why should we desire to change it; but it is that system which should exist for the greatest good of humanity. God knows it, and wills it; man's duty it is to discover and establish it." ... read the whole article

Nic Tideman: Basic Tenets of the Incentive Taxation Philosophy

Economists agree that the imposition of taxes generally retards an economy. The reason for this is that with almost all taxes, it is possible for a tax payer to reduce total tax collections by doing less of whatever is taxed--work less, spend less, save less, etc. This means that taxes generate an incentive to be less productive.

With fees for the use of government-assigned opportunities, on the other hand, the only thing that a person can do to reduce the amount of money that he or she pays is to use fewer of these opportunities. But then the opportunities can be used by someone else, who will pay the fees, and total public revenue will be unchanged. There is no possibility reducing total government revenue by being less productive. Thus these fees can be collected without dragging down the economy in the way that existing taxes do.

Our ideas provide for the natural financing of any worthwhile public expenditure that makes a particular area more attractive or productive -- parks, freeways, subways, sewer systems, etc. These public expenditures raise the rental value of land in their vicinity, and thereby raise the fees that can be collected for using the land. If the activity is worthwhile, the increase in rental values will be sufficient to pay for the activity.

Another way in which our ideas promote a more efficient economy is by eliminating the opportunity grow rich by having government promote one's own interest at the expense of others. Such distortions of the political process can occur either by persuading a government agency to spend money in a way that raises the value of land that one owns while others foot the bill, or by persuading a government agency to prohibit others from doing what one is permitted to do. In both kinds of cases, the person who promotes his or her own interest has no reason to take account of the costs that are thereby imposed on others, and typically these costs to others are greater than the self-seeking benefits. This makes the economy less productive.

Furthermore, the very possibility of growing rich by manipulating government action draws talented people into the effort to manipulate government decisions, when they could be employed doing something useful....  Read the whole article

While the bill of economic rights and obligations does not address the issue explicitly, it should be understood that people have a right to redress for past injustice, no matter how far back in the past. If some persons have inferior starting positions because they are the descendants of slaves who, because of that status, were unable to provide what others provided to their children, then there should be a levy on the property of the descendants of slave-owners to rectify that injustice.

In fulfilling its obligation to ensure that future generations had opportunities at least as great as those of the present generation, people would want to take account of:

1. The amount of land per capita, adjusted for the quality of land;
2. The level of technology that will be available;
3. The education and any initial wealth that is provided to all children;
4. The level of public infrastructure;
5. The level of public debt;
6. Environmental quality;
7. The price of depletable natural resources.

Decreases in some items could be offset by increases in others. If people wanted to have more children than could be provided with opportunities equal to those of the present generation, Congress and state legislatures would have an obligation to tax those who wanted to have children, so that people would have fewer children, and so that all children could be provided with an initial endowment upon attaining maturity, to compensate for reductions in other items on the list.  Read the entire article

Peter Barnes: Capitalism 3.0 — Chapter 6: Trusteeship of Creation (pages 79-100)

A Second Set of Books

Mental models begin with assumptions. Most economists today assume there are only two kinds of property, private (that is, corporate or individual) and state. There are no shared assets, no inter- or intragenerational obligations, and no nonhumans other than those we eat.

Yet as we’ve seen, many things are missing here. The most obvious omission is the great economy of nature within which the human enterprise operates. We’re borrowing prodigiously from that economy, but not recording the loans. Equally absent are future generations, from whom we’re borrowing just as wantonly and surreptitiously. In a proper bookkeeping system, every loan shows up on two balance sheets, the borrower’s and the lender’s. One entity’s liability is another entity’s asset. But this isn’t true in contemporary economics. When the human economy grows, assets on corporate and individual balance sheets go up, but nowhere is there a debit. In fact, there aren’t any accounts that could be debited. There’s only good growth on one side of the ledger, and on the other, a void in which illth and debt accumulate, uncounted and unnoticed.

In recent years, economists have added a few bits to this stripped-down model. For example, they now recognize public goods and ecosystem services as contributors of economic value. Public goods are services like national defense, education, and flood control, which benefit everyone but can’t easily be sold at a profit. Because markets don’t adequately supply them, governments step in and do so. Economists sometimes debate whether the value of these public goods exceeds the “burden” they impose on taxpayers, but they don’t see the expenditures as adding value to any account, or to any asset owned by anyone.

Similarly, many economists now recognize ecosystem services as valuable inputs to the economy. However, the ecosystems that produce these services have no owners or balance sheets. They’re just there, floating in space, with no connection to humans. What I’m suggesting is that economists treat them as if they were common property held in trust. This simple supposition would not only put ecosystems on the books, enabling us to track them better; it would also pave the way to real-world property rights that actually protect those ecosystems. ... read the whole chapter

Mason Gaffney:  Megabucks for Negabucks: Solving the Water Crisis

Bill Batt: The Nexus of Transportation, Economic Rent, and Land Use

• The public good proportion of road use reflects the amount of reliance by services provided by the government and associated agencies like mail service, national defense, public safety (ambulance, police and fire departments), and so on.
  
• The private use of the roads constitutes the overwhelming amount of its use. This means that as a rule 80 percent of the highway use charges should be paid by individual drivers, directly or indirectly.