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Sources of Rent

Mason Gaffney: Land Rent in a Tax-free Society  (Outline of remarks by Mason Gaffney, for use at Moscow Congress, 5/21/96) 

Many varieties of natural resources generate rents. City land is the greatest single source. For example, one city, Vancouver, contains half the value of taxable property in B.C. - a province of 934,000 sq. kilometers, or 70% larger than France.

However, many other resources yield rents. Some of them are also huge in value, even though some are inconspicuous. Here are a few varieties of them:

  • access points to transportation (by water, rail, highway, air, etc.);
  • clean air (or the license to pollute it);
  • aircraft time-slots and gates in airports;
  • amenities (good views, warm weather, soft breezes, freedom from pests, riparian access, etc.);
  • aquifers;
  • dam and reservoir sites;
  • water in arid zones;
  • rights of way;
  • preferential use of "common" lands (e.g. street parking in New York);
  • covenants over lands of others (e.g., covenants against competition);
  • easements (e.g. the right to pass over land);
  • fisheries;
  • forests;
  • franchises (exclusive right to sell in certain areas);
  • the gene pool;
  • geothermal energy;
  • grazing;
  • licenses;
  • minerals and gas (rent includes the rise of value of minerals in situ);
  • orbits;
  • some patents (giving effective control over minerals);
  • ability to wield political influence (meetings at private estates; special voting rights);
  • rights of way;
  • foreign holdings and ocean shipping routes protected by national forces;
  • soils;
  • spectrum (radio, TV, communications);
  • legal standing;
  • strata rights;
  • space on the streets;
  • advertising sites;
  • water;
  • wildlife (for hunting, viewing, etc.);
  • wind (for power);
  • zoning permissions; etc.

Some of those varied resources are highly valued. For example,

  • newly minted fishing permits offshore of Washington State sell for $1 million each. Their owners retire and rent the permits to working fishermen, creating an instant class structure where before there was equal opportunity. Imagine the value of an exclusive right to take Caspian sturgeon.
  • Radio spectrum amassed by the McCaw Company recently passed to AT&T for $13 billions.
  • Dmitri Lvov estimates that your oil and gas revenues alone could support the entire national government (Practicable Course of Economic Reforms in Russia. Moscow: Russian Academy of Sciences, Central Economics and Mathematics Institute, 1994). They might even surpass urban rents in value, if they were valued at world market prices.
  • In arid lands, access to water is life itself.Read the whole article

Mason Gaffney: Property Tax: Biases and Reforms
Tax All Natural Resources Uniformly and Comprehensively

Advances in the arts and sciences keep disclosing new values in old resources. Owing to institutional lag, these values can grow huge without finding their way onto the tax rolls. A thoughtless reaction is, "Bureaucrats want to tax everything!" The point is to tax all natural resources uniformly and comprehensively, to end the lowering taxes on incomes. productive business, and sales! Land taxation will not win wide support, nor will it deserve to, if it is perceived as a tax focusing on median homeowners, farmers, and merchants, while exempting oilmen, media tycoons, and timber barons.

In addition to newly awakened resources, many resources long known (like water) are held in odd tenures that have not been recognized as taxable property, although they should be. Any comprehensive move toward using resource rents for public revenue must include these varied resources and tenures. I have a list of 30 or so, too many to treat here. To give a sampling, they include

  • pollution easements over air and water;
  • aircraft landing time-slots and gates;
  • aquifers;
  • benefits from covenants;
  • access easements;
  • power drops;
  • concessions;
  • fisheries;
  • franchises;
  • the gene pool;
  • grazing licenses;
  • minerals;
  • orbits;
  • soils;
  • radio spectrum;
  • rights-of-way;
  • shipping lanes;
  • standing to sue;
  • strata titles;
  • use of the streets;
  • wildlife;
  • wind; and
  • zoning.

In tapping these many varieties of resources and tenures for public revenues, citizens and their representatives may have to set priorities. Two practical criteria rise to the top:

  • go first for the big values, and
  • go for the soft targets.

The biggest values are probably in energy, communications, water, rights-of-way, zoning and street use. Let's just look at what we are learning about communications. Knowledge and entertainment appear both at top and bottom on man's hierarchy of needs. People without even adequate shelter may be seen huddled around tv sets; people in war, or under totalitarian governments, risk their lives to hear smuggled broadcasts. People with higher incomes and security equip themselves with mobile telephones, and call around the world; they rush to get on the information highway. AT&T was the biggest non-financial corporation in the world before splitting up. Newspapers depend on their "wire" services: one of the first Great American Monopolies was Western Union and its news appendage, AP.

Recent FCC auctions have fetched billions of dollars for spectrum licenses, but this is like selling the badlands after giving away the beachfronts. The values of extant licenses given away ion the past, especially spectrum in top locations, are much higher. AT&T recently paid $112.5 billion for the McCaw Company's spectrum licenses, which are a smattering of all that is out there. These licenses should be on the property tax rolls in the jurisdictions that they cover. The revenue possibilities are staggering.

How about soft targets? A soft target is any tenure recently created, in a field that is easy to understand. Fisheries come to mind. In the last few years governments in Canada and the U.S. have limited allowable fish hauls by excluding new fishing boats and imposing quotas on the owners of old ones. This "imposition" amounts to a gift. Some quotas swiftly rose in value to over $1 million each, suddenly creating a class society where before there was equal opportunity. There is now a class of nouveau, instant millionaires and parlor fisherman who rent out their quotas to working fishermen.

Very likely it is wise to limit fish catches and avoid the "tragedy of the commons." It is also necessary to police the waters and keep out alien interlopers, a dicey business calling for the full power of a strong national government. It is not necessary, however, to give away the quotas so dearly policed. It is obvious to any objective observer that the quotas should be sold or (better) leased to the highest bidder. If the Feds insist on giving them away, states and localities should class them as taxable property subject to a high rate. The best time to levy appropriate charges is when quotas are new, and the injustice of the present dispensation is apparent to all.

Another soft target is the Manhattan taxi license, or "medallion." For some reason this has long been a favorite object lesson among economists, even as they shut their eyes to grosser sources of rent. It may be because cabbies are rude and visible and lower class, but whatever the reasons these writers have shown their consciousness of the rent aspect of medallions, and raised the consciousness of others.

The reason for pursuing soft targets is not for the money they may yield, but for principle. Once the principle is understood and established, wider applications should follow. In economic principle, fishing quotas and taxi medallions are just like conventional land titles: privileged control over limited natural resources. If it makes sense to socialize the rent from quotas and medallions, why not land titles too?... Read the whole article

Mason Gaffney: Sounding the Revenue Potential of Land: Fifteen Lost Elements
Previous estimates of rent and land values have been narrowly limited to a fraction of the whole, thus giving a false impression that the tax capacity is similarly narrow. We are adding Fifteen Elements to the traditional narrow “single tax” base:
  • correcting omissions and understatements in standard data sources
  • updating ancient sources that use obsolete low values
  • raising the Land Fraction of Real Estate Values (LFREV)
  • adding rents that are best taxed by use of variable excises
  • adding rents taxable by income taxes
  • substituting taxes for subsidies to foster conservation
  • adding current unearned increments as part of ongoing rent
  • adding previously invisible and undervalued resources to the tax base
  • adding lands held under variant forms of tenure
  • adding rents that are now dissipated, but need not be
  • noting the feasibility of much higher tax rates on a base that is both non-erosive, and concentrated in ownership
  • noting the great mass of holdout prices exceed visible market prices by a large factor
  • adding the revenue from most existing taxes to the potential land tax base, on the ATCOR principle
  • adding (tentatively) the value of mortgage debt
  • adding the favorable multiplier effect on balance of payments   ...   Read the whole article

Mason Gaffney:  Rent, Taxation, Dissipation and Federalism

I premise we understand "rent" to mean the income imputable to natural resources, and natural resources means gifts of nature, fixed and limited in quantity. We understand there are marginal resources yielding little or no rent, grading up to superior ones yielding much. We understand there is a dynamic secular tendency for rents to rise with rising population and moreso with rising disposable income per capita. There is a tendency for marginal exhaustible resources to rise in value with the depletion of superior ones that are normally used up first.

Because land is not produced, rents may be zero or less, and rise without limit. There is no competition from new production.

I premise resource rents are the joint product of three distinguishable factors:

  • nature;
  • complementary private activity; and
  • public works and services, publicly financed.

I premise rent is the most basic and general source of taxable surplus, especially in an open economy in which other input costs and product prices are set at world levels in world markets.

Triffin's epigram says "Surpluses are either competed away or imputed away." Rent is what we call it when they are imputed away. He might have added, they may also be frittered away: that is what we seek to avoid.

Imputed rent is the foregone gain of withholding land from the market, i.e. from others. It is equal to the marginal product of land. I premise (some others differ) that rent is the prior distributive claim, not a "residual." Thus, unused valuable land costs the owner as much rent as though he were paying cash to a landlord. Failure to realize this rent is imputable to management, not land as such.

Rent is a levelized concept to give a unitary, commensurable expression to costs and yields that have variable time patterns. Selecting time patterns optimally is part of maximizing rent. That is a fortiori true of exhaustible resources. ... Read the whole article

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

Q3. What is meant by economic rent?
A. Gross ground rent -- the annual site value of land -- what land, including any quality or content of the land itself, is worth annually for use -- what the land does or would command for use per annum if offered in open market -- the annual value of the exclusive use in control of a given area of land, involving the enjoyment of those "rights and privileges thereto pertaining" which are stipulated in every title deed, and which, enumerated specifically, are as follows: right and ease of access to

* water, and
* health inspection,
* sewerage,
* fire protection,
* police,
* schools,
* libraries,
* museums,
* parks,
* playgrounds,
* steam and electric railway service,
* gas and electric lighting,
* telegraph and telephone service,
* subways,
* ferries,
* churches,
* public schools,
* private schools,
* colleges,
* universities,
* public buildings --

utilities which depend for their efficiency and economy on the character of the government; which collectively constitute the economic and social advantages of the land which are due to the presence and activity of population, and are inseparable therefrom, including the benefit of proximity to, and command of, facilities for commerce and communication with the world -- an artificial value created primarily through public expenditure of taxes. For the sake of brevity, the substance of this definition may be conveniently expressed as the value of "proximity." It is ordinarily measured by interest on investment plus taxes. ... 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