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Justifications for Land Value Taxation

Nic Tideman:  Applications of Land Value Taxation to Problems of Environmental Protection, Congestion, Efficient Resource Use, Population, and Economic Growth

I. Justifications of Land Value Taxation

Land value taxation is sometimes justified on the ground that, unlike almost all other sources of public revenue, a tax on land value does not impose an excess burden on an economy. This argument can be found in the writings of the Physiocrats, Adam Smith, David Ricardo, and numerous modern writers. It is based on the fact that, with a properly administered tax on land value (unlike other taxes), it is not possible for a person to lower the tax that is due by being unproductive.

If people were concerned only with efficiency, this would be a fine reason to use land value taxation. But people are also concerned with issues of justice, or fairness. And so the question arises of whether taxing land values is fair. The fairness of taxing land values is generally defended on the basis of the postulate that natural opportunities are everyone's common heritage; collecting the value of exclusive use of these opportunities and using the proceeds for public purposes is a way of sharing the value of these opportunities while retaining the efficiency of private control of resources.

The idea that natural opportunities are everyone's common heritage is often defended with religious language. John Locke said:

Whether we consider natural reason, which tells us that men, being once born, have a right to their preservation, and consequently to meat and drink, and such other things as nature affords for their sustenance, or revelation, which gives us an account of those grants God made of the world to Adam, and to Noah, and his sons, 'tis very clear that God, as King David says, Psal. CXV. xvi. has given the Earth to the children of men, given it to mankind in common.2

John Locke did not advocate land value taxation. Writing in about 1690, he said that there was so much unclaimed land in America that no one could properly complain about the private appropriation of land in Europe.3 Writing nearly 200 year later, when it was becoming impossible for people to appropriate good unclaimed land in America, Henry George said:

If we are all here by the equal permission of the creator, we are all here with an equal title to the enjoyment of his bounty -- with an equal right to the use of all that nature so impartially offers. This is a right which is natural and inalienable; it is a right which vests in every human being as he enters the world, and which during his continuance in the world can be limited only by the equal rights of others. There is in nature no such thing as a fee simple in land. There is on earth no power which can rightfully make a grant of exclusive ownership in land. If all existing men were to unite to grant away their equal rights, they could not grant away the right of those who follow them.4

George preceded this argument with a psychological and linguistic one. He said that our conception of property, of a right of exclusive possession, is based on the idea that each person has a right to his or her productive powers, and therefore to what he or she produces. Since no one produced land, no one can properly claim to own it.5

This psychological and linguistic argument is not entirely convincing. It seems clear that humans, like other species, have an impulse toward the appropriation and defense of territory. Natural selection has worked in favor of those who are skilled in appropriating natural opportunities and deterring others from encroaching on them. It seems possible that, as a way of limiting violence, humans have merged an idea of ownership based on production with an idea of ownership based on the ability to appropriate territory and deter encroachment.

If this is the social and biological reality, then there is a different argument for treating natural opportunities as everyone's common heritage. Realizing that we are participants in a game of territorial appropriation and its extension into the politics of special interest legislation and other manifestation of privilege, we should also realize that substantial gains are possible from ending the game of encroachment and appropriation. We might aspire to end the waste of effort on all forms of rent-seeking and on defense against rent-seeking. But our efforts to end the game have been based primarily on enshrining the status quo: The last successful appropriator gets to keep what has been appropriated. This deference to power might be considered simply realistic. However, it has a high cost. The practice of legitimating successful past appropriations -- as when the world declines to challenge Indonesia's 1976 annexation of East Timor, or when any number of dictators become recognized as the rightful heads of nations -- induces selfish egoists to calculate that if they can grab something and hang on to it long enough for the expected furor to subside, then it will be regarded as just as legitimately theirs as North America is regarded as the legitimate property of the descendants of European settlers rather than the previously occupying natives. (And of course, in many cases those previously occupying natives had forcibly displaced earlier occupants.) A statement of the form, "No appropriation before year X will be questioned, but all aggressive appropriations after year X will be overturned," is not credible. Year X keeps getting moved, and successful aggression pays.

Much more credible is a statement of the form, "We will share equally the value of natural opportunities that might be appropriated." This is the potential of land value taxation: to provide a framework in which the value of natural opportunities will be shared equally, both as an expression of the idea that all persons have equal rights to natural opportunities, and as a formula whose potential to remove the motive for future aggression is greater than that of enshrining the status quo of any particular year. And in addition, land value taxation is one way of achieving allocative efficiency with respect to a wide variety of public issues.

Land value taxation is usually thought of as a possible source of revenue for local governments. But the ethical principle that supports it is most coherent when the principal is applied on a global basis: All persons in the world have equal rights to natural opportunities. This does not mean that all persons in the world have equal rights to all land rent. To the extent that the rent of land arises as a result of the provision of infrastructure, that rent is the natural income of the polity that provided the infrastructure, and the logical source for financing it. What all persons in the world have equal rights to is the "pre-development" rental value of land, the rental value that land would have to the potential developer of a new community if there were no community and no infrastructure. To motivate the application of land value taxation to other areas of economic life, I will assume that there is a global agreement that, because all persons have equal rights to natural opportunities, there will be transfers among nations to equalize per capita pre-development rent. The principle behind this agreement is then extended to other issues. ... Read the entire article

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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper