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Lowering the Price of Land

We do something that, when you think of it, is quite odd.  We require our young people, if they want to live on their own (that is, not with their parents), to pay someone else for something which that other person did not create — could not possibly have created! 

Renters in almost all cities are paying a significant share of their monthly rent bill not for the apartment, hallways, landscaping, parking and other amenities created by the landlord, but for the location!  The landlord didn't create the location, didn't do anything to make it more valuable.  If you doubt this, consider the likely monthly rent on an identical unit if it were located in a small town.  How much could the building owner charge for similar quarters there?  

Similarly, when a young person buys a house or condominium, much* of their payment is for the location rather than the house, buildings and other manmade improvements.  The seller leaves town with a nest egg, and the young person is left with a sizeable mortgage payment for much of his adult life.

[*A 2006 Federal Reserve Board study suggests that as of 2004, land represents, on average, about 51% of single family home value across 46 major metropolitan areas, ranging from 20% in Oklahoma City to 89% in San Francisco.]

When wages were rising rapidly, we told ourselves that this was acceptable, that the mortgage payment would not be a significant burden for very long.  When women were entering the workforce in large numbers, and moving from part-time work to full-time work, from work requiring less education to work requiring more education, their additional wages helped fund this. 

Now that wages are no longer rising much, and there aren't all that many non-employed women who could enter the labor market to increase total earnings, we may be reaching the point where this way of doing things creates sufficient pain that people will be moved to take another look at the justice of the situation.

We say we have a housing affordability problem. True, sort of. The problem is not that people can't afford housing itself. Rather, what they can't afford is housing in a location close to their work. So they "drive until they qualify" (not just on their househunting expedition, but every day) and in addition to the money they spend to pay off the seller or the landlord, they must also spend time and money on a long commute, and in the process produce pollution that simply would not occur if they could afford to live closer to their jobs.

California and Florida are the very worst for housing affordability. Much of this can be attributed to perverse property tax provisions — California's Proposition 13 and Florida's "Save Our Homes" — which ignore all but a tiny fraction of the appreciation of land. California's assessments can rise no more than 2% per year, even when some sites are appreciating by 20% or more per year; Florida's permanent residents' assessments rise by only 3% per year. California's situation is made worse by a cap on property taxes at 1% of assessed value. This has encouraged land prices to rise far higher than they would had the land tax been higher. (Land represents 63.8% to 88.5% of the value of single family residential property in California's cities in 2004, according to a 2006 Federal Reserve Board Study; the corresponding figure for the largest 46 metro markets is 50%.)

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

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.

But while no limit can be properly fixed for the amount of taxation, the method of taxation is of supreme importance. A horse may be anchored by fastening to his bridle a weight which he will not feel when carried in a buggy behind him. The best ship may be made utterly unseaworthy by the bad stowage of a cargo which properly placed would make her the stiffer and more weatherly. So enterprise may be palsied, industry crushed, accumulation prevented, and a prosperous country turned into a desert, by taxation which rightly levied would hardly be felt. ...

To consider the nature of property of this kind is again to see a clear distinction. That distinction is not, as the lawyers have it, between movables and immovables, between personal property and real estate. The true distinction is between property which is, and property which is not, the result of human labor; or, to use the terms of political economy, between land and wealth. For, in any precise use of the term, land is not wealth, any more than labor is wealth. Land and labor are the factors of production. Wealth is such result of their union as retains the capacity of ministering to human desire. A lot and the house which stands upon it are alike property, alike have a tangible value, and are alike classed as real estate. But there are between them the most essential differences. The one is the free gift of Nature, the other the result of human exertion; the one exists from generation to generation, while men come and go; the other is constantly tending to decay, and can only be preserved by continual exertion. To the one, the right of exclusive possession, which makes it individual property, can, like the right of property in slaves, be traced to nothing but municipal law; to the other, the right of exclusive property springs clearly from those natural relations which are among the primary perceptions of the human mind. Nor are these mere abstract distinctions. They are distinctions of the first importance in determining what should and what should not be taxed.

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. ... read the whole article

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

Q59. How would you compensate the man who has bought a lot in order to make a home upon it, but is not yet able to build?
A. By letting him, when he is ready to build, have a better lot for nothing. The single tax would do this by discouraging the cornering of land which now makes all good lots scarce. When land was no longer appropriated except for use, and that would result from the operation of the single tax, there would be an abundance of building lots to be had for the taking, which would be far more desirable than the kind to which men who cannot afford to build homes now resort when they buy lots for a home. ... read the book

Charles B. Fillebrown: A Catechism of Natural Taxation, from Principles of Natural Taxation (1917)

Q38. What are the three legs of the tripos, the threefold support upon which the single tax rests?
A. They are:

(1) The social origin of ground rent -- that the site value of land is a creation of the community, a public or social value.
(2) The non-shiftability of a land tax -- that no tax, new or old, on the site value of land can be recovered from the tenant or user by raising his rent.
(3) The ultimate burdenlessness of a land tax -- that the selling value of land, reduced as it is by the capitalized tax that is imposed upon it, is an untaxed value. Whatever lowers the income from land lowers proportionately its selling price, so that whether the established tax upon it has been light or heavy, it is no burden upon the new purchaser, who buys it at its net value and thus escapes all part in the tax burden which he should in justice share with those who now bear it all.

Q58. What expected result of the single tax needs studious emphasis?
A. That it would unlock the land to labor at its present value for use, instead of locking out labor from the land by a prohibitive price based upon the future value for use.... read the whole article

Joseph Stiglitz: October, 2002, interview

Q: Has President Mugabe of Zimbabwe's misuse of government power to return land to its so-called "rightful owners" given land reform a bad name?

JES: That's true, but it doesn't have to be done that way. Now, one of the things that is again in the spirit of Henry George is that, if you have land taxes, then the market value of land goes down. What you're willing to pay for land is the difference between what you pay and what you get to keep after paying your land taxes. So, in a Henry George world, the amount of compensation would be very low. So one could argue that moving toward a land tax would facilitate that reform. Once we raise rates on land taxes, the market value will have to go down. The government can buy the land and redistribute it to the workers, and they then would be able to keep the fruits of their labor. They will continue to pay the land tax, but the product of their own efforts — their labor — will be their own, as opposed to sharing fifty percent with the landlord.

Q: Do you think land reform could possibly find a way onto the political agenda in the United States?

JES: No. Land reform is not a big issue in the United States because we don't have a lot of sharecropping. There's some, but it's very limited. ... read the entire interview

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

God’s laws do not change. Though their applications may alter with altering conditions, the same principles of right and wrong that hold when men are few and industry is rude also hold amid teeming populations and complex industries. In our cities of millions and our states of scores of millions, in a civilization where the division of labor has gone so far that large numbers are hardly conscious that they are land-users, it still remains true that we are all land animals and can live only on land, and that land is God’s bounty to all, of which no one can be deprived without being murdered, and for which no one can be compelled to pay another without being robbed. But even in a state of society where the elaboration of industry and the increase of permanent improvements have made the need for private possession of land wide-spread, there is no difficulty in conforming individual possession with the equal right to land. For as soon as any piece of land will yield to the possessor a larger return than is had by similar labor on other land a value attaches to it which is shown when it is sold or rented. Thus, the value of the land itself, irrespective of the value of any improvements in or on it, always indicates the precise value of the benefit to which all are entitled in its use, as distinguished from the value which, as producer or successor of a producer, belongs to the possessor in individual right.

To combine the advantages of private possession with the justice of common ownership it is only necessary therefore to take for common uses what value attaches to land irrespective of any exertion of labor on it. The principle is the same as in the case referred to, where a human father leaves equally to his children things not susceptible of specific division or common use. In that case such things would be sold or rented and the value equally applied.

It is on this common-sense principle that we, who term ourselves single-tax men, would have the community act.

We do not propose to assert equal rights to land by keeping land common, letting any one use any part of it at any time. We do not propose the task, impossible in the present state of society, of dividing land in equal shares; still less the yet more impossible task of keeping it so divided.

We propose — leaving land in the private possession of individuals, with full liberty on their part to give, sell or bequeath it — simply to levy on it for public uses a tax that shall equal the annual value of the land itself, irrespective of the use made of it or the improvements on it. And since this would provide amply for the need of public revenues, we would accompany this tax on land values with the repeal of all taxes now levied on the products and processes of industry — which taxes, since they take from the earnings of labor, we hold to be infringements of the right of property.

This we propose, not as a cunning device of human ingenuity, but as a conforming of human regulations to the will of God.

God cannot contradict himself nor impose on his creatures laws that clash.

If it be God’s command to men that they should not steal — that is to say, that they should respect the right of property which each one has in the fruits of his labor;

And if he be also the Father of all men, who in his common bounty has intended all to have equal opportunities for sharing;

Then, in any possible stage of civilization, however elaborate, there must be some way in which the exclusive right to the products of industry may be reconciled with the equal right to land.

If the Almighty be consistent with himself, it cannot be, as say those socialists referred to by you, that in order to secure the equal participation of men in the opportunities of life and labor we must ignore the right of private property. Nor yet can it be, as you yourself in the Encyclical seem to argue, that to secure the right of private property we must ignore the equality of right in the opportunities of life and labor. To say the one thing or the other is equally to deny the harmony of God’s laws.

But, the private possession of land, subject to the payment to the community of the value of any special advantage thus given to the individual, satisfies both laws, securing to all equal participation in the bounty of the Creator and to each the full ownership of the products of his labor. ... read the whole letter

H.G. Brown: Significant Paragraphs from Henry George's Progress & Poverty: 12. Effect of Remedy Upon Various Economic Classes (in the unabridged P&P: Part IX: Effects of the Remedy — Chapter 3. Of the effect upon individuals and classes)

When it is first proposed to put all taxes upon the value of land, all landholders are likely to take the alarm, and there will not be wanting appeals to the fears of small farm and homestead owners, who will be told that this is a proposition to rob them of their hard-earned property. But a moment's reflection will show that this proposition should commend itself to all whose interests as landholders do not largely exceed their interests as laborers or capitalists, or both. And further consideration will show that though the large landholders may lose relatively, yet even in their case there will be an absolute gain. For, the increase in production will be so great that labor and capital will gain very much more than will be lost to private landownership, while in these gains, and in the greater ones involved in a more healthy social condition, the whole community, including the landowners themselves, will share.

  • It is manifest, of course, that the change I propose will greatly benefit all those who live by wages, whether of hand or of head -- laborers, operatives, mechanics, clerks, professional men of all sorts.
  • It is manifest, also, that it will benefit all those who live partly by wages and partly by the earnings of their capital -- storekeepers, merchants, manufacturers, employing or undertaking producers and exchangers of all sorts from the peddler or drayman to the railroad or steamship owner -- and
  • it is likewise manifest that it will increase the incomes of those whose incomes are drawn from the earnings of capital.

Take, now, the case of the homestead owner -- the mechanic, storekeeper, or professional man who has secured himself a house and lot, where he lives, and which he contemplates with satisfaction as a place from which his family cannot be ejected in case of his death. He will not be injured; on the contrary, he will be the gainer. The selling value of his lot will diminish -- theoretically it will entirely disappear. But its usefulness to him will not disappear. It will serve his purpose as well as ever. While, as the value of all other lots will diminish or disappear in the same ratio, he retains the same security of always having a lot that he had before. That is to say, he is a loser only as the man who has bought himself a pair of boots may be said to be a loser by a subsequent fall in the price of boots. His boots will be just as useful to him, and the next pair of boots he can get cheaper. So, to the homestead owner, his lot will be as useful, and should he look forward to getting a larger lot, or having his children, as they grow up, get homesteads of their own, he will, even in the matter of lots, be the gainer. And in the present, other things considered, he will be much the gainer. For though he will have more taxes to pay upon his land, he will be released from taxes upon his house and improvements, upon his furniture and personal property, upon all that he and his family eat, drink and wear, while his earnings will be largely increased by the rise of wages, the constant employment, and the increased briskness of trade. His only loss will be, if he wants to sell his lot without getting another, and this will be a small loss compared with the great gain. ... read the whole chapter

Winston Churchill: Land Price as a Cause of Poverty (1909 speech in Parliament)

I do not think the Leader of the Opposition could have chosen a more unfortunate example than Glasgow. He said that the demand of that great community for land was for not more than forty acres a year. Is that the only demand of the people of Glasgow for land? Does that really represent the complete economic and natural demand for the amount of land a population of that size requires to live on? I will admit that at present prices it may be all that they can afford to purchase in the course of a year. But there are one hundred and twenty thousand persons in Glasgow who are living in one-room tenements; and we are told that the utmost land those people can absorb economically and naturally is forty acres a year.

What is the explanation? Because the population is congested in the city the price of land is high upon the suburbs, and because the price of land is high upon the suburbs the population must remain congested within the city. That is the position which we are complacently assured is in accordance with the principles which have hitherto dominated civilised society.

But when we seek to rectify this system, to break down this unnatural and vicious circle, to interrupt this sequence of unsatisfactory reactions, what happens? We are not confronted with any great argument on behalf of the owner. Something else is put forward, and it is always put forward in these cases to shield the actual landowner or the actual capitalist from the logic of the argument or from the force of a Parliamentary movement.

Sometimes it is the widow. But that personality has been used to exhaustion. It would be sweating in the cruellest sense of the word, overtime of the grossest description, to bring the widow out again so soon. She must have a rest for a bit; so instead of the widow we have the market-gardener -- the market-gardener liable to be disturbed on the outskirts of great cities, if the population of those cities expands, if the area which they require for their health and daily life should become larger than it is at present.

What is the position disclosed by the argument? On the one hand, we have one hundred and twenty thousand persons in Glasgow occupying one-room tenements; on the other, the land of Scotland. Between the two stands the market-gardener, and we are solemnly invited, for the sake of the market-gardener, to keep that great population congested within limits that are unnatural and restricted to an annual supply of land which can bear no relation whatever to their physical, social, and economic needs -- and all for the sake of the market-gardener, who can perfectly well move farther out as the city spreads and who would not really be in the least injured.... Read the whole piece

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

It does not matter whether the tax is based on the land value or the land rent. I suggest basing it on the land value, similar to current real property taxes. The price of land is related to the rent by a formula, where p is the price, r the annual rent (assuming constant rents), i the real interest rate (after subtracting the inflation rate), and t the tax rate on the price (so if t = .1, the tax is 10 percent of p):

p = r / (i+t).

The fraction f of the rent taken is

f = t / (t+i)

Alternatively, given the fraction of the rent that is taxed, the tax rate on the land price p, given interest rate i, is

t = fi / (1-f),

i.e. the (fraction of rent) times (the real interest rate) divided by (one minus the fraction).

For example, suppose we want to tax 80 percent of the geo-rent, hence f=.8. Suppose the real interest rate is 5 percent, hence i=.05. Then the tax rate on land value is:

t = .80 * .05 / .20 = .04/.20 = 20 percent.

A tax of 20 percent of land value taps 80 percent of the economic rent. Note that the land price falls as either the interest rate or the tax rate rises. The approximate ratio of the price of taxed land to non-taxed land is:

i / (i + t)

So if t is 20 percent and i is 5 percent, then the price of the taxed land would be about one-fifth of the price of the untaxed land. ... read the whole document

Charles T. Root — Not a Single Tax! (1925)

Every community, whatever its political name and extent -- village, city, state or province or nation -- has its own normal, unfailing income, growing with the growth of the community and always adequate to meet necessary governmental expenditure.

To explain: Every community has an indefeasible original right to the land on which it exists, and to all the natural, unmodified properties and advantages of that particular area of the earth's surface. To this land in its natural state, undrained, unfenced, unfertilized, unplanted and unoccupied, including its waters, its contents and its location, every individual in the community (which may consist of any political unit selected) has an equal right, while all the individuals together have a joint right to the value for use which society has conferred upon these natural advantages.

This value for use is known as "Land Value," or by the not particularly descriptive but generally adopted name of "Economic Rent."

Briefly defined the land value or economic rent of any piece of ground is the largest annual amount voluntarily offered for the exclusive use of that ground, or of an equivalent parcel, independent of improvements thereon. Every holder or user of land pays economic rent, but he now pays most of it to the wrong party. The aggregate economic rent of the territory occupied by any political unit is, as has been stated above, always sufficient, usually more than sufficient, for the legitimate expenses of the government of that unit. As also stated above, the economic rent belongs to the community, and not to individual landowners.

On the other hand, the result of every utilization or enhancement of the natural advantages of land (such as farm profits, the rent and selling value of buildings and other improvements), when accomplished by an individual, belongs wholly to that individual, and should never, and need never, be taken from him by taxation.

One must be careful not to confuse land-value with the price of land. The price of land is the sum demanded for the transference from one individual to another of the privilege to collect and retain land-value and thus to divert public earnings to private pockets.... read the whole article

Nic Tideman: Basic Tenets of the Incentive Taxation Philosophy

Making Housing Affordable
The implementation of our ideas would have a dramatic effect in making housing more affordable. The principal reason why housing costs have risen so much is that the price of land has risen enormously. Some increase in the price of access to land is a natural accompaniment of an increasing population.

But the very great increases of recent years, which have made it nearly impossible for young families to afford houses of their own, have additional causes. The implementation of our ideas would bring down the price of access to land in three ways.

  • First, much land is held off the market by speculators who may wait generations do decide to develop it. The introduction of a fee for holding land, whether used or not, equal to the rental value of the land, will induce speculators to either develop this land themselves or turn it over to someone who will.
  • Second, an important cause of higher prices for access to land by those who wish to build low-cost housing is zoning restrictions. These restrictions are introduced by political factions that already have their houses and do not mind if housing becomes scarcer. It just raises the market value of their homes. But if a rise in land values were accompanied by rises in the fees that existing residents had to pay for the use of the land on which their houses sit, they would have an incentive to do what they could to make land plentiful rather than scarce, and zoning restrictions could be expected to diminish.
  • Third, a person who wishes to own a house must borrow money to cover the price of buying the title to the land on which the house sits as well as the cost of the house itself. If the use of land required the payment of a fee equal to the rental value of land, so that the selling price of land titles became virtually zero, then the amount of money that a family would have to borrow to purchase a house would fall....  Read the whole article
Mason Gaffney: George's Economics of Abundance: Replacing dismal choices with practical resolutions and synergies

... Untaxing buildings obviously draws in outside capital, which is good locally, but is not capital formation to the whole economy. In Keynesian models, higher income leads to higher saving, and does create new capital. Supply-siders today worry more about raising the rate of saving from any given income. In supply-side models it is more important to increase the rate of saving, without depending entirely on the Keynesian effect, where higher income raises saving. Also, from the nationalist viewpoint, it is better to supply investable funds from domestic savings, to minimize foreign ownership.

Land taxation helps here, too. Land taxation, if heavy enough to count, lowers the investment value of land, through "tax capitalization". There is a diminishing marginal utility of savings to any wealth-holder, meaning the more you have, the less you need more. With land devalued, those needing wealth seek substitute assets to replace land in their portfolios. To acquire those additional assets they must save more, and invest the savings in real new capital, rather than land.

Thus, Georgist taxation meets the proper goals of supply-side economics: raising output, and raising saving. It reconciles supply-side economics with taxation by providing a mode of taxation that stimulates instead of dragging down production and employment. 10 ... read the whole article

Mason Gaffney:  Oil and Gas Leasing: a Study in Pseudo-Socialism

... The impact of land taxes is analogous to that of credit sales. The specter of future taxes is capitalized into lower current land prices. They in turn let one buy cheaper up front, in return for a higher level of deferred payments. The net effect is like extending permanent credit on equal terms to all potential buyers, something private credit markets never do or could be expected to do.

Thus, the property tax, especially on land, is twice effective as an instrument of Distributive Socialism.

  • First, it rifles in on the rent surplus and socializes it.
  • Second, it democratizes the ownership and operating control of land.
Thus it achieves something akin to the "worker control" that is an ideal avowed by many modern Socialists, melding egalitarian distribution with egalitarian management and control. To be sure, it does so in a small-business framework, an ideal that is traditionally Populist, not Marxist. However, in this new post-Communist age, when Socialists are seeking new ways to express their yearnings for the good society, they might want to reconsider the value of this approach to worker control. Perhaps Marx, like other reformers of his generation, was oversold on the economies and inevitable triumph of large scale capital and organization, and the substitution of capital for labor. Perhaps small is beautiful, after all. Read the entire article

Karl Williams:  Land Value Taxation: The Overlooked But Vital Eco-Tax

I. Historical overview
II. The problem of sprawl
III. Affordable and efficient public transport
IV. Agricultural benefits
V. Financial concerns
VI. Conclusion: A greater perspective
Appendix: "Natural Capitalism" -- A Case Study in Blindness to Land Value Taxation

Note that advocates of LVT, often nowadays called Geoists, call for the full collection of the LVT and not the partial and misapplied (with all manner of exemptions and thresholds) forms collected by some local, state and federal governments in Australia and elsewhere. When the land occupier is repaying his/her full dues (which is only just, as they represent the value of the amenities of the land), then land will have no market price. The improvements on the land (buildings etc.) retain their market value as they are not being taxed, so production is not penalised or discouraged. The social justice implications of having land with no market price (i.e. all humanity having their very birthright) are profound, but are again outside the domain of this paper. ... read the entire article
Jeff Smith and Kris Nelson: Giving Life to the Property Tax Shift (PTS)
John Muir is right. "Tug on any one thing and find it connected to everything else in the universe." Tug on the property tax and find it connected to urban slums, farmland loss, political favoritism, and unearned equity with disrupted neighborhood tenure. Echoing Thoreau, the more familiar reforms have failed to address this many-headed hydra at its root. To think that the root could be chopped by a mere shift in the property tax base -- from buildings to land -- must seem like the epitome of unfounded faith. Yet the evidence shows that state and local tax activists do have a powerful, if subtle, tool at their disposal. The "stick" spurring efficient use of land is a higher tax rate upon land, up to even the site's full annual value. The "carrot" rewarding efficient use of land is a lower or zero tax rate upon improvements. ...

To send a clear message to new businesses that their growth will not be unnecessarily impeded, government can permanently shift taxes off sales, income, and buildings and onto land. Since taxing land lowers its cost, business could pay this greater land tax from what otherwise would be spent on purchasing land. This higher land levy would remain affordable as long as owners use their land efficiently.

Developers argue that abundant land lowers its price and thus the property tax burden. While true, newly-available land need not be current open space. Without baring the countryside to new development, both land price and the property tax can be lowered. The price of land drops when the tax rate on land is raised. And yet this higher rate, if coupled with a lower or absent rate on buildings, does not swell the property tax burden of most residents. Indeed, this property tax shift (PTS) is progressive, providing relief for most residents. And by taxing land, society impels owners who had been speculatively withholding or underutilizing theirs to develop or offer their parcels for development. Hence the newly-available land comes from recycled sites, not from open space.

The PTS not only lowers the price of land, it also lowers the cost of buildings. Untaxing structures, besides reducing their cost, also augments their supply. More buildings means lower prices and rents. As the prices of both buildings and land drop, more people are able to purchase a home, apartment, or condominium. ...

A big problem needs a big solution which in turn needs a matching shift of our prevailing paradigm. Geonomics -- advocating that we share the social value of sites and natural resources and untax earnings -- does just that. Read the whole article

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

One could argue that the failure to tax every bit of economic rent that accretes to land sites also has destructive consequences, although this is somewhat open to debate. Classical economists agree that rent collection ought to be at least the sum of inflation plus interest, otherwise the public is facilitating speculation in ways that distorts urban configurations even more than they constitute an inequity. But land sites frequently rise in market price far more than the rate of inflation, especially in times (as is perhaps true today) that a "bubble" in an economic cycle is in full flower. Some municipalities, especially on the east and west coasts of US, are today claiming to have increases in housing prices of as high as 20 percent per annum, a fever that surely will not last and will be especially destructive when it collapses.[19] Land values are what create that bubble; buildings are subject to continuing depreciation just like cars, computers, refrigerators or any other manufactured (capital) item. Recovering the economic rent reduces and perhaps even eliminates the speculative bubbles and swings that (some argue) account for economic cycles, fostering stability and regularity in economic planning and development that make for improved financial health to all.

This reality brings into stark relief the choices which local political leaders have. They may suggest increasing taxes on economic rent (i.e., on land value) or recognize that most property owners are counting on treating their homes and other property not as places to live and work so much as investments and then lament the poverty of their cities. Owners expect to reap a gain from their property when they sell, and they are often positioned to make any threat to that entitlement politically unpalatable. Farmers sometimes regard selling their farms as their retirement security. Homeowners sell with the expectation that this gain will provide them the means to enter long term end-of-life facilities if necessary. Heirs also oppose that recapture just as with a reverse mortgage. But for every long-term property owner that walks away with a lifetime's benefit of increased rent attached to a land title, there are just as many — if not more — young households or emerging businesses that are prohibited from acquiring a property because of the prohibitively expensive costs. In this sense, a title to a socially created stream of rental benefits constitutes a monopoly privilege to an unearned windfall gain for a lucky few. It is both unjust and is socially and economically destructive to the greater good.... read the whole article

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

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. Read the whole article

Nic Tideman: Private Possession as an Alternative to Rental and Private Ownership for Agricultural Land

One of the reasons that the debate is so fierce between the advocates of rental and the advocates of private ownership of agricultural land is that each position has important strengths as well as important weaknesses. This paper argues that there is a third possibility between rental and private ownership that retains the strengths of both while avoiding the weaknesses of both. The third possibility is private possession of land.

I. The Concept of Private Possession of Land

Like private ownership, a system of private possession of land involves titles to land that have no termination date and are freely transferable. Therefore the possessor of land can be confident of receiving the full benefit of any improvements that are made to land. Like rental, a system of private possession of land involves an obligation to make regular payments to the government for the use of land. However, the payment is not for the full rental value of land, but only for the rental value that land would have in an unimproved condition. This collection by the government of the value that is provided by nature and location gives recognition to the idea that land is the common heritage of all generations, and should be available to all generations on the same terms. It insures that prices for titles of possession will correspond only to the cost of improvements, and will therefore not be excessive. It eliminates the profit from land speculation. And it provides a continuing source of government revenue. ... read the whole article

Nic Tideman: The Structure of an Inquiry into the Attractiveness of A Social Order Inspired by the Ideas of Henry George

How much growth can a community expect if it shifts taxes from improvements to land?

Discussion: This is the subject of my current investigation in Pennsylvania. A number of other investigations have been made as well.

One potential source of growth, discussed by Mason Gaffney, is that taxes on land that lower the selling price of land can be expected to make land relatively more attractive to persons who face high borrowing rates because of imperfections in capital markets. Gaffney suggests that such persons tend to be more entrepreneurial, so that giving them greater relative access to land will increase productive activity. ... read the whole article

Weld Carter: An Introduction to Henry George

Another area in which George applied these inherent differences between land and products was the field of taxation. To determine the incidence of taxation, George had to know what was to be taxed, products or the value of land. In each case he traced out the effect from the essential nature of the thing to be taxed: "...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 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. ...In this way all taxes which add to prices are shifted from hand to hand, increasing as they go, until they ultimately rest upon consumers, who thus pay much more than is received by the government. Now, 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...[land value] cannot check supply. Therefore, though a tax on...[land value] compels the land owners to pay more, it gives them no power to obtain more for the use of their land, as it in no way tends to reduce the supply of land. On the contrary, by compelling those who hold land on speculation to sell or let for what they can get, a tax on land values tends to increase the competition between owners, and thus to reduce the price of land." ... read the whole article


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