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User Fees

A combination of collecting land rent and imposing user fees will move us closer to economic and social justice, and will help reduce the enormous privileges that accrue to those who have title to our very best land and natural resources.

Robert V. Andelson  Henry George and the Reconstruction of Capitalism

Under Henry George's system, private land titles would not be disturbed one iota. No one would be expropriated. Instead, the community would simply take something approaching the total annual economic rent of land for public purposes. This amount would be determined by the value of each site on the free market, not by any arbitrary governmental fiat. In other words, the privilege of monopolizing a site is a benefit received from society and for which society should be fully compensated; and so, under the Georgist system, the person who wished to monopolize a site would pay a rent for it to the community, approaching 100 percent of its annual rental value, exclusive of improvements.

Let me emphasize that last phrase, "exclusive of improvements."

  • The apartment house owner would pay the full value of his lot, and nothing on his building;
  • the factory owner would pay the full value of his site, and nothing on his factory;
  • the farmer would pay the full value of his ground, and nothing on his structures or his
  • crop, his livestock or his machinery;
  • the homeowner would pay the full value of his lot, and nothing on his house.

If the land had no market value, the owner would pay nothing; if it had a value, he would pay regardless of whether he were using it or deriving income from it.

This would, of course, eliminate all speculative profit in landholding, squeeze the "speculative water" out of land prices, and in effect bring back the frontier by making cheap land readily available to everyone -- at least initially. The result would be to raise the margin of production, increase real wages, and stimulate building and productivity. Eventually, the flourishing economy would cause use value to exceed the former speculative value, but instead of being engrossed by those who make no contribution to the economy, land rent would flow into the public coffers in place of taxes levied upon labor and capital. The land-value charge is really what Walt Rybeck so aptly calls "a super user's fee." For the privilege of exclusive access to and disposition of a site and its natural resources, the owner pays an indemnity to those who are thereby dispossessed -- an indemnity reflecting precisely the market value of his privilege, collected through the tax mechanism and relieving them of the burden of payment for public services. What could be more fair?

Actually, I daresay that each one of you, probably without realizing it, frequently pays something that partakes of the principle of such a "super user's fee" whether you own land or not. Every time you put money in a parking meter, you are purchasing a temporary monopoly of the parking space. Don't ever complain about having to put money in a public parking meter; it's a bargain for you. You're getting a free gift from the community -- the difference between what you pay and what a commercial parking lot in the vicinity would charge!    Read the whole article

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

Q5. What is meant by equal right to land?
A. The right of access upon equal terms -- preference to be secured only upon payment of a premium that will extinguish the equal rights of all other men.

Q7. What is meant by land value?
A. Its site value -- its selling or market value -- its net value to the purchaser -- the capitalization of its net rent -- the value supposed to be adopted by the assessors as the basis of taxation.

Q50. How could the landowner escape the alleged burden of an increase in his land tax?
A. Simply by assuming the legitimate role of a model landlord, by putting his land to suitable use, in providing for tenants at lowest possible price the best accommodations and facilities appropriate to the situation that money can buy.

... read the whole article

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

Taxes, while ostensibly payments made for the services of government, are quite unlike payments made in the marketplace. The prominent libertarian economist Murray Rothbard was among those who emphasized taxation as a “coerced exchange,”3 in that few would freely choose to pay taxes if not for the penalties imposed on those who refuse to do so. But taxes are also different from market prices in that the tax usually has no relation to any specific benefit. Income and spending are taxed because of “ability to pay,” meaning there is a flow of funds from which money can be siphoned, to put it politely.

In contrast, user fees (truly voluntary fees, not excise taxes disguised as fees) are somewhat like market prices, as the user pays for a specific and wanted benefit, such as entrance to a park. Land value taxation, too, is based on the benefit principle and on market prices. A landowner receives extra land value or land rental from the government infrastructure, security, schooling, transit, fire protection, and so on. Land rent, priced by the market, reflects the neighborhood amenities. ...

Frank Chodorov, a fervent individualist and founding editor of The Freeman, published by the Foundation for Economic Education and still a leading libertarian journal of ideas, became in 1937 director of the Henry George School of Social Science in New York City, serving until 1942. Like most followers of Henry George, Chodorov regarded a charge on land value as not a true tax, which arbitrarily extracts wealth, but a “payment for the use of a location, determined by the higgling and haggling of the market, and it makes no difference to the land user whether he pays rent to the city fathers or to a private owner.”26 Explaining the value of a location derives to a great extent from community services, rather than the efforts of the landowner as such, Chodorov noted “it would seem logical that this value—which we call land rent—should go to defray the expenses of these common services.”27 ... read the whole document

Bill Batt: The Merits of Site Value Taxation

... Not all revenue collection on the part of government is grounded in the constitutional authority of its tax powers. Taxes in the strictest sense of the term are revenues involuntarily paid to general funds for the general purposes of government. But there are many other revenues paid to government that would never be construed as taxes: lottery revenues, fines, interest payments, environmental (green) fees, payment for information, and user fees being the most common examples. Fines, green fees, and user fees are instruments of police power precisely because their primary purpose is to correct behavior, and only secondarily to raise revenue. User fees, along with environmental fees particularly, are employed to recover the costs of use, wear or damage to environmental or government-provided "services." (Only in recent years has it been fashionable to regard use or degradation of the natural environment as a "service," necessitating "correction," as was originally explicated by Pigou earlier this century. ... Read the whole piece

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


Direct taxes fall into two general classes: (1) Taxes that are levied upon men in proportion to their ability to pay, and (2) taxes that are levied in proportion to the benefits received by the tax-payer from the public. Income taxes are the principal ones of the first class, though probate and inheritance taxes would rank high. The single tax is the only important one of the second class.

There should be no difficulty in choosing between the two. To tax in proportion to ability to pay, regardless of benefits received, is in accord with no principle of just government; it is a device of piracy. The single tax, therefore, as the only important tax in proportion to benefits, is the ideal tax.

But here we encounter two plausible objections. One arises from the mistaken but common notion that men are not taxed in proportion to benefits unless they pay taxes upon every kind of property they own that comes under the protection of government; the other is founded in the assumption that it is impossible to measure the value of the public benefits that each individual enjoys. Though the first of these objections ostensibly accepts the doctrine of taxation according to benefits,12 yet, as it leads to attempts at taxation in proportion to wealth, it, like the other, is really a plea for the piratical doctrine of taxation according to ability to pay. The two objections stand or fall together.

12. It is often said, for instance, by its advocates, that house owners should in justice contribute to the support of the fire departments that protect them and it is even gravely argued that houses are more appropriate subjects of taxation than land; because they need protection, whereas land needs none. Read note 8.

Let it once be perceived that the value of the service which government renders to each individual would be justly measured by the single tax, and neither objection would any longer have weight. We should then no more think of taxing people in proportion to their wealth or ability to pay, regardless of the benefits they receive from government than an honest merchant would think of charging his customers in proportion to their wealth or ability to pay, regardless of the value of the goods they bought of him." 13

13. Following is an interesting computation of the cost and loss to the city of Boston of the present mixed system of taxation as compared with the single tax; The computation was made by James R. Carret, Esq., the leading conveyancer of Boston:

Valuation of Boston, May 1, 1892
Land... ... . .. ... .. ... .. $399,170,175
Buildings ... ... ... ... ..$281,109,700
Total assessed value of real estate $680,279,875
Assessed value of personal estate $213,695,829
.... ....
... ... ... ... ... ... .... .... .... ... .... ... $893,975,704
Rate of taxation, $12.90 per $1000
Total tax levy, May 1, 1892 $11,805,036

Amount of taxes levied in respect of the different subjects of taxation and percentages of the same:
Land .... .... .... .... $5,149,295 43.62%
Buildings .... .... .. $3,626,295 30.72%
Personal estate .. $2,756,676 23.35%
Polls ... .... ... .... .... ...272,750   2.31%

But to ascertain the total cost to the people of Boston of the present system of taxation for the taxable year, beginning May 1, 1892, there should be added to the taxes assessed upon them what it cost them to pay the owners of the land of Boston for the use of the land, being the net ground rent, which I estimate at four per cent on the land value.

Total tax levy, May 1, 1892 ... ... ... ... .... .... .... .... .... ..... .... .... .... .... .... .... ..$11,805,036
Net ground rent, four percent, on the land value ($399,170,175)..... ... ... ...$15,966,807
Total cost of the present system to the people of Boston for that year ... $27,771,843

To contrast this with what the single tax system would have cost the people of Boston for that year, take the gross ground rent, found by adding to the net ground rent the taxation on land values for that year, being $12.90 per $1000, or 1.29 per cent added to 4 per cent = 5.29 per cent.

Total cost of present system as above .. .... .... .... .... .... .... .... .... ....$27,771,843
Single tax, or gross ground rent, 5.29 per cent on $399,170,175 ... ..$21,116,102
Excess cost of present system, which is the sum of
taxes in respect of buildings, personal property, and polls .... ...... .. $6,655,741

But the present system not only costs the people more than the single tax would, but produces less revenue:

Proceeds of single tax ... ... ... ... ..... .... .... ..... .... .... .... ..... ..... .... $21,116,102
Present tax levy ... ... ... ... ... .... .... .... ..... .... .... .... .... .... .... .... ....$11,805,036
Loss to public treasury by present system ... .... .... .... .... .. ..... ..$9,311,066

This, however, is not a complete contrast between the present system and the single tax, for large amounts of real estate are exempt from taxation, being held by the United States, the Commonwealth, by the city itself, by religious societies and corporations, and by charitable, literary, and scientific institutions. The total amount of the value of land so held as returned by the assessors for the year 1892 is $60,626,171.

Reasons can be given why all lands within the city should be assessed for taxation to secure a just distribution of the public burdens, which I cannot take the space to enter into here. There is good reason to believe also that lands in the city of Boston are assessed to quite an appreciable extent below their fair market value. As an indication of this see an editorial in the Boston Daily Advertiser for October 3, 1893, under the title, "Their Own Figures."

The vacant lands, marsh lands, and flats in Boston were valued by the assessors in 1892 (page 3 of their annual report) at $52,712,600. I believe that this represents not more than fifty per cent of their true market value.

Taking this and the undervaluation of improved property and the exemptions above mentioned into consideration, I think $500,000,000 to be a fair estimate of the land values of Boston. Making this the basis of contrast, we have:

Proceeds of single tax 5.29 per cent on $500,000,000 ... .... .... .... $26,450,000
Present tax levy ... .... ... .... .... .... .... .... ..... .... .... .... .... ..... .... .... ..$11,805,036
Loss to public treasury by present system ... ... ... ... .... .... .... ....$14,644,974


To perceive that the single tax would justly measure the value of government service we have only to realize that the mass of individuals everywhere and now, in paying for the land they use, actually pay for government service in proportion to what they receive. He who would enjoy the benefits of a government must use land within its jurisdiction. He cannot carry land from where government is poor to where it is good; neither can he carry it from where the benefits of good government are few or enjoyed with difficulty to where they are many and fully enjoyed. He must rent or buy land where the benefits of government are available, or forego them. And unless he buys or rents where they are greatest and most available he must forego them in degree. Consequently, if he would work or live where the benefits of government are available, and does not already own land there, he will be compelled to rent or buy at a valuation which, other things being equal, will depend upon the value of the government service that the site he selects enables him to enjoy. 14 Thus does he pay for the service of government in proportion to its value to him. But he does not pay the public which provides the service; he is required to pay land-owners.

14. Land values are lower in all countries of poor government than in any country of better government, other things being equal. They are lower in cities of poor government, other things being equal, than in cities of better government. Land values are lower, for example, in Juarez, on the Mexican side of the Rio Grande, where government is bad, than in El Paso, the neighboring city on the American side, where government is better. They are lower in the same city under bad government than under improved government. When Seth Low, after a reform campaign, was elected mayor of Brooklyn, N.Y., rents advanced before he took the oath of office, upon the bare expectation that he would eradicate municipal abuses. Let the city authorities anywhere pave a street, put water through it and sewer it, or do any of these things, and lots in the neighborhood rise in value. Everywhere that the "good roads" agitation of wheel men has borne fruit in better highways, the value of adjacent land has increased. Instances of this effect as results of public improvements might be collected in abundance. Every man must be able to recall some within his own experience.

And it is perfectly reasonable that it should be so. Land and not other property must rise in value with desired improvements in government, because, while any tendency on the part of other kinds of property to rise in value is checked by greater production, land can not be reproduced.

Imagine an utterly lawless place, where life and property are constantly threatened by desperadoes. He must be either a very bold man or a very avaricious one who will build a store in such a community and stock it with goods; but suppose such a man should appear. His store costs him more than the same building would cost in a civilized community; mechanics are not plentiful in such a place, and materials are hard to get. The building is finally erected, however, and stocked. And now what about this merchant's prices for goods? Competition is weak, because there are few men who will take the chances he has taken, and he charges all that his customers will pay. A hundred per cent, five hundred per cent, perhaps one or two thousand per cent profit rewards him for his pains and risk. His goods are dear, enormously dear — dear enough to satisfy the most contemptuous enemy of cheapness; and if any one should wish to buy his store that would be dear too, for the difficulties in the way of building continue. But land is cheap! This is the type of community in which may be found that land, so often mentioned and so seldom seen, which "the owners actually can't give away, you know!"

But suppose that government improves. An efficient administration of justice rids the place of desperadoes, and life and property are safe. What about prices then? It would no longer require a bold or desperately avaricious man to engage in selling goods in that community, and competition would set in. High profits would soon come down. Goods would be cheap — as cheap as anywhere in the world, the cost of transportation considered. Builders and building materials could be had without difficulty, and stores would be cheap, too. But land would be dear! Improvement in government increases the value of that, and of that alone.

Now, the economic principle pursuant to which land-owners are thus able to charge their fellow-citizens for the common benefits of their common government points to the true method of taxation. With the exception of such other monopoly property as is analogous to land titles, and which in the purview of the single tax is included with land for purposes of taxation, 15 land is the only kind of property that is increased in value by government; and the increase of value is in proportion, other influences aside, to the public service which its possession secures to the occupant. Therefore, by taxing land in proportion to its value, and exempting all other property, kindred monopolies excepted — that is to say, by adopting the single tax — we should be levying taxes according to benefits.16

15. Railroad franchises, for example, are not usually thought of as land titles, but that is what they are. By an act of sovereign authority they confer rights of control for transportation purposes over narrow strips of land between terminals and along trading points. The value of this right of way is a land value.

16. Each occupant would pay to his landlord the value of the public benefits in the way of highways, schools, courts, police and fire protection, etc., that his site enabled him to enjoy. The landlord would pay a tax proportioned to the pecuniary benefits conferred upon him by the public in raising and maintaining the value of his holding. And if occupant and owner were the same, he would pay directly according to the value of his land for all the public benefits he enjoyed, both intangible and pecuniary.

And in no sense would this be class taxation. Indeed, the cry of class taxation is a rather impudent one for owners of valuable land to raise against the single tax, when it is considered that under existing systems of taxation they are exempt. 17 Even the poorest and the most degraded classes in the community, besides paying land-owners for such public benefits as come their way, are compelled by indirect taxation to contribute to the support of government. But landowners as a class go free. They enjoy the protection of the courts, and of police and fire departments, and they have the use of schools and the benefit of highways and other public improvements, all in common with the most favored, and upon the same specific terms; yet, though they go through the form of paying taxes, and if their holdings are of considerable value pose as "the tax-payers" on all important occasions, they, in effect and considered as a class, pay no taxes, because government, by increasing the value of their land, enables them to recover back in higher rents and higher prices more than their taxes amount to. Enjoying the same tangible benefits of government that others do, many of them as individuals and all of them as a class receive in addition a tangible pecuniary benefit which government confers upon no other property-owners. The value of their property is enhanced in proportion to the benefits of government which its occupants enjoy. To tax them alone, therefore, is not to discriminate against them; it is to charge them for what they get.18

17. While the landholders of the City of Washington were paying something less than two per cent annually in taxes, a Congressional Committee (Report of the Select Committee to Investigate Tax Assessments in the District of Columbia, composed of Messrs. Johnson, of Ohio, Chairman, Wadsworth, of New York, and Washington, of Tennessee. Made to the House of Representatives, May 24, 1892. Report No. 1469), brought out the fact that the value of their land had been increasing at a minimum rate of ten per cent per annum. The Washington land-owners as a class thus appear to have received back in higher land values, actually and potentially, about ten dollars for every two dollars that as land-owners they paid in taxes. If any one supposes that this condition is peculiar to Washington let him make similar estimates for any progressive locality, and see if the land-owners there are not favored in like manner.

But the point is not dependent upon increase in the capitalized value of land. If the land yields or will yield to its owner an income in the nature of actual or potential ground rent, then to the extent that this actual or possible income is dependent upon government the landlord is in effect exempt from taxation. No matter what tax he pays on account of his ownership of land, the public gives it back to him to that extent.

18. Take for illustration two towns, one of excellent government and the other of inefficient government, but in all other respects alike. Suppose you are hunting for a place of residence and find a suitable site in the town of good government. For simplicity of illustration let us suppose that the land there is not sold outright but is let upon ground rent. You meet the owner of the lot you have selected and ask him his terms. He replies:

"Two hundred and fifty dollars a year."

"Two hundred and fifty dollars a year! " you exclaim. "Why, I can get just as good a site in that other town for a hundred dollars a year."

"Certainly you can," he will say. "But if you build a house there and it catches fire it will burn down; they have no fire department. If you go out after dark you will be 'held up' and robbed; they have no police force. If you ride out in the spring, your carriage will stick in the mud up to the hubs, and if you walk you may break your legs and will be lucky if you don t break your neck; they have no street pavements and their sidewalks are dangerously out of repair. When the moon doesn't shine the streets are in darkness, for they have no street lights. The water you need for your house you must get from a well; there is no water supply there. Now in our town it is different. We have a splendid fire department, and the best police force in the world. Our streets are macadamized, and lighted with electricity; our sidewalks are always in first class repair; we have a water system that equals that of New York; and in every way the public benefits in this town are unsurpassed. It is the best governed town in all this region. Isn't it worth a hundred and fifty dollars a year more for a building site here than over in that poorly governed town?"

You recognize the advantages and agree to the terms. But when your house is built and the assessor visits you officially, what would be the conversation if your sense of the fitness of things were not warped by familiarity with false systems of taxation? Would it not be something like what follows?

"How much do you regard this house as worth? " asks the assessor.

"What is that to you?" you inquire.

"I am the town assessor and am about to appraise your property for taxation."

"Am I to be taxed by this town? What for?"

"What for?" echoes the assessor in surprise. "What for? Is not your house protected from fire by our magnificent fire department? Are not you protected from robbery by the best police force in the world? Do not you have the use of macadamized pavements, and good sidewalks, and electric street lights, and a first class water supply? Don't you suppose these things cost something? And don't you think you ought to pay your share?"

"Yes," you answer, with more or less calmness; "I do have the benefit of these things, and I do think that I ought to pay my share toward supporting them. But I have already paid my share for this year. I have paid it to the owner of this lot. He charges me two hundred and fifty dollars a year -- one hundred and fifty dollars more than I should pay or he could get but for those very benefits. He has collected my share of this year's expense of maintaining town improvements; you go and collect from him. If you do not, but insist upon collecting from me, I shall be paying twice for these things, once to him and once to you; and he won't be paying at all, but will be making money out of them, although he derives the same benefits from them in all other respects that I do." ... read the book

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

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

Correcting Distortions by Pricing: Increasing the Collection of Land Rent
Recovering the economic rent from urban parcels helps people to appreciate the true costs of the transportation versus location trade-off. It brings the carrying costs of site choices back to the present time and makes them comparable with travel choices. The payment of site rent becomes an operating cost. The other corrective policy needed is to raise transportation costs to a level commensurate with their full value as private goods. Transportation user fees, in the form of motor fuel taxes, green taxes, congestion fees, and administrative costs (for the administration of drivers' licenses and registration fees) could easily provide the needed price corrections to bring into balance marginal transportation costs and land rent collection. Doing so would equilibrate choices between people living and working in high rent urban centers and those in peripheral low rent (but higher travel cost) locales.

Figure 2 shows how a tax on land value (or alternatively the tax on land rent) coupled with the proper design of transportation fees can equilibrate the competitive advantage of markets in urban areas relative to suburbs, thereby reducing, and perhaps even reversing, the centrifugal forces of sprawl development. The land tax cannot alone redress the problem, especially so long as such inordinate social subsidies are granted to private motor vehicle transportation services. Nor can transportation fees, raised to a level fully commensurate with the social and private costs they incur, alone ensure that the price of locations will be matched. But to the extent that both are assessed, they reach far toward correcting this disequilibrium. One could even argue that all site rent should be recaptured by society and that all transportation costs that are identifiable as consumption of private goods should be priced accordingly. Some advocates even suggest that doing so will not only foster economic efficient behavior but also provide sufficient revenue for a citizen's dividend consistent with economic justice.... read the whole article

Maurie Fabrikant: An Open Letter to Wayne Swan

The "Great Australian Dream" now - as in preceding years - has been to own your own home. From their earliest years of adulthood, most citizens have attempted to purchase "a roof over their head." It used to be - no more than two human generations ago - "a three-bedroom weatherboard - or brick veneer, if you could afford it! - on a quarter-acre block in the suburbs." Most citizens - then - succeeded in realising that dream; at least they started repaying a loan that was large compared with their earnings. Nowadays, it's quite impossible for most. Why? Simply because land-price has escalated out of the reach of most. Allow me to give you a specific instance:- ...

As you can very clearly see, it now costs couples - or singles - a great deal more to own a residence. Naturally, if they don't own their own residence, they must

  • pay rent to somebody else or
  • live in a caravan park or
  • share a home with relatives or friends or
  • have no place to call "home". 
None of these alternatives lead to a high quality lifestyle and undoubtedly are potent factors in separation and divorce and reliance on drug abuse which, itself, leads to anti-social - even criminal - behaviour. We also know to our great regret that these aberrations are becoming increasingly prevalent. So is there a solution? And if so, what is it?

In my opinion, there certainly is a solution ... but, seemingly, very few want to know it. Judging by your article, I think you do. Here it is: ...
Modern conventional wisdom is that increasing land price signifies a healthy economy. Exactly the reverse is true! Increasing land price demonstrates that much money is being invested in real estate and that necessarily means that less money is being invested in productive ventures. Increasing land price causes increasing rents ... because the land owner must derive sufficient income to pay the interest charged on the loan needed to buy the land and its improvements. This makes it increasingly difficult for businesses to trade profitably ... especially when there is a plethora of complicated taxes that cause extremely high compliance costs. It's no wonder that more and more goods are now imported as local manufacturers choose to close their operations. In many places in Australia, land lies relatively idle. For example, in Melbourne's CBD, several large blocks have been idle for years and in the suburbs, shops remain empty for months, even years. Yet government-released figures on unemployment - the reality may well be much worse! - admit that unemployment exceeds 6%. The old adage, "Idle lands cause idle hands" is clearly demonstrated in Australia ... and elsewhere.
The only possible "winners" in this "game" are those who presently own land; the more they own, the more they have the potential to "win". Land owners enjoy enormous increase in the price of land they own simply because they were able to purchase it when its price was comparatively low. They do not - in their role as owners - contribute in any way to the prosperity of the nation. Indeed, because they grow wealthier without producing, they are, in fact, parasites! That sounds incredible but it is true nonetheless. How so? Simply because those owners receive part of the wealth earned by all citizens; at least some of that wealth is used to push up land prices but only owners enjoy those increased prices. Tenants certainly do not! All who labour - and this includes land owners who perform labour! - are thereby effectively robbed of some of their earnings. (Please note that I do not blame landowners personally; most would - I'm certain - be horrified to think that they are parasites. The fault lies in the parliamentary enactments that permit such a situation to prevail.)

Difficult as the situation is now, it will be worse still in another two human generations' time. How so? Because the same forces that have been exerted in the past continue unabated. In fact, these forces appear to be intensifying! Taxation is continuing to escalate as pressure groups clamour ever louder for financial assistance. The average rate at which personal income tax is levied is increasing - even though the maximum rate levied is falling - and sales taxes and the like are being applied to a widening range of goods and services. The wealthy continue to derive benefit from the tax-minimisation experts they employ - because they save more tax than they pay to those experts - leaving the relatively poorly-paid employees to carry most of the burden. Unless, of course, steps are taken to change these tendencies, Australia will become an increasingly unpleasant country in which to live. That's definitely not the future I want for my 3 children and 7 grandchildren. And I'm sure you don't, either!

The solution to this conundrum is, perhaps amazingly, incredibly simple; namely, require all owners of land - in fact, all natural resources, including intangibles such as broadcast bands, to pay to all Australians, via the government, an annual rental in exchange for exclusive ownership rights to those natural resources. What could be fairer? If a citizen has exclusive ownership rights to a natural resource, that obviously means that all others have no rights to it whatsoever. Therefore, that citizen must pay compensation - in the form of a periodic rent - to all others. Now that's a perfect manifestation of "user pays". How big is this periodic rent? That's simply answered, too. It's what the citizens, generally, think that natural resource is worth! And that's easily - and accurately - determined by valuers, individuals who have great experience because they simply note the prices at which similar natural resources in the vicinity - both in space and in time - are sold then use those prices to predict that of a similar resource.

This would constitute real tax reform and - when implemented - would obviate the need for income taxes and sales taxes. How is this? When a continuing rent is charged for ownership rights to a natural resource, that natural resource will have little or no purchase price. Setting up a business or residence will be much cheaper first up as only the improvements must be paid for initially. Money that presently must be borrowed to pay for access to natural resources will become available for productive purposes. Because rents will be payable on all natural resources that are privately owned - whether or not they are in use - those natural resources will become used or will return to the nation as public land. Speculation in natural resources will be immediately terminated thus eliminating a major factor in escalating price. The converse of the old adage quoted earlier is apposite:- Far less idle land will translate into far fewer idle hands! That will translate into a reduced need for social security expenditure. Additionally, lower levels of unemployment will cause reduced anti-social and criminal activity with consequent savings in law enforcement, punishment and rehabilitation. And elimination of most of our taxation regulations will cause compliance costs to all but disappear. The brakes that presently retard Australia's productivity will not merely be released; they will be discarded! ... read the entire article

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

You assume that the labor question is a question between wage-workers and their employers. But working for wages is not the primary or exclusive occupation of labor. Primarily men work for themselves without the intervention of an employer. And the primary source of wages is in the earnings of labor, the man who works for himself and consumes his own products receiving his wages in the fruits of his labor. Are not fishermen, boatmen, cab-drivers, peddlers, working farmers — all, in short, of the many workers who get their wages directly by the sale of their services or products without the medium of an employer, as much laborers as those who work for the specific wages of an employer? In your consideration of remedies you do not seem even to have thought of them. Yet in reality the laborers who work for themselves are the first to be considered, since what men will be willing to accept from employers depends manifestly on what they can get by working for themselves.

You assume that all employers are rich men, who might raise wages much higher were they not so grasping. But is it not the fact that the great majority of employers are in reality as much pressed by competition as their workmen, many of them constantly on the verge of failure? Such employers could not possibly raise the wages they pay, however they might wish to, unless all others were compelled to do so.

You assume that there are in the natural order two classes, the rich and the poor, and that laborers naturally belong to the poor.

It is true as you say that there are differences in capacity, in diligence, in health and in strength, that may produce differences in fortune. These, however, are not the differences that divide men into rich and poor. The natural differences in powers and aptitudes are certainly not greater than are natural differences in stature. But while it is only by selecting giants and dwarfs that we can find men twice as tall as others, yet in the difference between rich and poor that exists today we find some men richer than other men by the thousandfold and the millionfold.

Nowhere do these differences between wealth and poverty coincide with differences in individual powers and aptitudes. The real difference between rich and poor is the difference between those who hold the tollgates and those who pay toll; between tribute-receivers and tribute-yielders. ... read the whole letter



Mason Gaffney: Red-Light Taxes and Green-Light Taxes

The need for user charges

My fellow Green-lighters have a lot to learn about Red Light Taxes and charges, too. Much of what all of us need to learn has been worked out by those often-awful but sometimes-useful economists, under the name of "marginal-cost pricing." On private land, where the owner controls access, there is little need for user charges (except for externalities). The owner's self-interest takes care of finding the optimal intensity of use. On public land, however, with unrestricted access, it is another matter. Witness, for example, the crowding of Oxford sidewalks relative to the undercrowding of private and University lands abutting them.

On public lands, when a bridge is new, and oversized for its traffic, no toll should be charged: circumstances call instead for a Green Light Tax on the benefited lands, to hasten their settlement. When traffic queues up, however, it is time to charge a toll (and/or to widen the bridge).

Likewise, when demand for water exceeds supply, it is time to price it and charge people for withdrawing it from Nature. The history of irrigation in California is instructive. During the Populist and Progressive eras Californians developed the legal framework for what we call Irrigation Districts, to divert, store and distribute water. They raised funds by taxing land; most of them delivered water free of variable cost. Likewise, no one charged them for taking our water from our rivers. There was ample water, so it seemed, running to waste, or into swamps. The result, from 1900-30, was to convert California from pasture and wasteland to the #1 farm state in America. It was a Georgist object lesson, and a brilliant success story. Quoth Albert Henley, a prominent attorney,

"The discovery of the legal formula of these organizations was of infinitely greater value to California than the discovery of gold a generation before. They are an extraordinarily potent engine for the creation of wealth."

A worm in the apple was waste of water. The same policy that promoted close economy and rapid conversion of land also tolerated waste of water, and even subsidized it by basing the quantity of rival water claims on histories of use - what economists now call "rent-seeking." It was once a minor problem, but times change, and "circumstances alter cases." Today we are stuck with much of our water, a limiting natural resource, frozen in lower uses and withheld from higher ones - exactly what Georgist policy is supposed to prevent. The solution, clearly, is for the State to charge each Irrigation District (and other diverters) per unit of water they take, and reallocate the great surpluses they would immediately stop taking.

Traditional "Green Light" Georgists need to introspect deeply over this case, and many like it, and master the theory and practice of marginal-cost pricing as developed so ably by closet Georgist economists like Harold Hotelling and William Vickrey. Marginal-cost pricing is a flexible, adaptable theory that allows for both Green Light and Red Light taxes, each in the its season. Using this basic, simple tool of economic analysis, Red Light and Green Light champions can compose their differences and move ahead in triumphant unity.   ... read the whole article

Bill Batt: Stemming Sprawl: The Fiscal Approach

We do an awful lot of driving just to do what we need to do. This is because transportation engineers and land use planners have confused two fundamental concepts: access and mobility.

By confusing these two principles, we spend an inordinate amount of money on transportation services, most of it on roads and highways. One 1993 study calculated that the total costs of motor vehicle transportation to our society equal approximately a fourth of our gross domestic product (GDP).[3] The study concluded that "when the full range of costs of transportation are tallied, passenger ground transportation costs the American public a total of $1.2 to $1.6 trillion each year. Just the costs of automobile crashes represents a figure equal to 8 percent of the American GDP.[4] Japan, by way of comparison, spends an estimated 10.4 percent to satisfy all its transportation requirements, although the figure might be a bit low because not all externalities are included in the calculation.[5] Road user fees in 1991 totaled only about $33 billion, whereas the true costs to society were ten times that;[6] put another way, drivers pay only 10 percent of the true costs of their motor vehicle use.[7] The balance is paid by society, effectively subsidizing highway use by paying for all but the marginal out-of-pocket operating costs. ...

Stemming Sprawl: Pricing Measures for Transportation

From the foregoing, it is clear that insofar as the causes of sprawl development are economic, the solution needs to be economic as well. The equilibrium of forces can be restored in two ways:

1) by charging the true marginal costs of motor vehicle transportation to users and
2) by recovering the economic rent from urban site owners that is really the socially created value.

It is easy to distinguish five elements of transportation service cost: capital investment, maintenance costs, regulation costs, environmental externalities, and congestion costs. Each of these calls for a different treatment with respect to revenue design. Capital costs are best recovered by recapturing the land rent proximate to the highway corridors. This is socially created value, which is better used to honor debt service of infrastructure investment than allowing it to be retained as windfall gains by titleholders to property close by. User fees, most aptly linked to the purchase of motor fuel and tire wear, serve as a proxy for the use of the roads and can be designed to be commensurate with use. As the wear and tear of roads as well as police patrol, snow and ice control, and signaling all involve operating and maintenance costs, such charges are easily linked with benefits received. In the future, still more accurate systems of service charges are likely to appear: Singapore, Hong Kong, and New Zealand are already reliant on electronic devices that record road use by time, place, and vehicle weight.

Ensuring the safety of drivers and vehicles through licenses, registrations, and inspections is most appropriately financed by fees commensurate with the costs of their administration. This way, if a vehicle is used but seldom, it is charged on the basis of its identification rather than assuming any projected level of use. Environmental externalities such as pollution costs can be linked to the polluting source, such as diesel fuel and gasoline consumption, to the full extent necessary to equilibrate air quality and other environmental ambiences. Congestion costs, the last of the major components of a pricing design for highway use, are partially paid for by the time loss of those caught in traffic. The costs of time lost due to highway congestion are enormous: In 2000, the average driver spent 62 hours sitting in traffic at a nationwide cost of $68 billion in gas and time lost In Los Angeles, the average driver spent 136 hours stalled in traffic at an average cost of $2,510.[33] Commuting times were also 20 percent longer than they were a decade ago, about 22 minutes one way nationally on average but as high as 32 minutes on average in New York.[34] But not all people's time is valued equally, and people themselves value their time differently at different times, and it is unfair to require people to impose their congestion on others. Therefore, congestion pricing, being explored in several urban regions, provides a rationing of limited highway space. In a sense, that payment for space usage, in time or money, is a form of land rent. ... read the whole article

Fred Foldvary:  The Rent, the Whole Rent, and Nothing but the Rent

The use of rent for public revenues therefore has no excess burden, no burden on society or the economy. Taxes on income, goods, and transactions do have an excess burden, since by raising the price and reducing the quantity of goods, resources do not get allocated to where the people most want them. Taxes on labor and goods raise prices, while rent-based payments do not affect the rent, and they lower the price of land rather than raise it.

Rent is therefore the ideal source of general public and community revenue. Tax reform should therefore shift to rent as the primary source of general funds. Pollution charges can supplement the rent, and indeed can be considered a rental charge for using and abusing the atmosphere, land, soil, and other forms of land. There could also be user fees for services specific to users, fines for violating traffic rules, and profits from enterprises.

The economic rent from minerals, water, and oil would be natural resource royalties that could be paid by bidding for the rights to extract, from payments based on the amount of mining, and the profits from the operations, depending on the circumstances.  ... Read the whole article

Nic Tideman: Using Tax Policy to Promote Urban Growth

The efficiency that is entailed in using the rent of land to finance public activities applies to certain other sources of public revenue as well:
1. Charges on any publicly granted privileges, such as the exclusive right to use a portion of the frequency spectrum for radio and TV broadcasts.

2. Payments for extractions of natural resources. Such payments should be set at levels that yield the greatest possible revenue of the resources, in present value terms.

3. Taxes on pollution. Every individual or enterprise that pollutes the air, water or ground should be required to pay the estimated cost of the pollution it generates. The effect of pollution on the rental value of surrounding land is one possible measure of its cost.

4. Taxes on any other activities that reduce the rental value of surrounding land.

5. Taxes on activities such as driving or parking in crowded streets, where one person's activities reduce opportunities for others. The administration of such charges may be so expensive that it is not worth implementing them, but if the administration can be handled sufficiently cheaply, these charges are efficient to the extent that they only charge people for costs imposed on others.

6. Taxes on activities, such as the consumption of alcohol, which impose costs on others (e.g., higher traffic fatalities).

7. Charges for local public services, such as water, electricity, sewer connections, etc. It is not generally desirable to make every service completely self-financing. Rather, what is desirable is that each user be required to pay the marginal cost of the service he receives. Extensions of service networks are efficient when they increase publicly collected land rents by enough to cover the costs not covered by user charges.

8. A self-assessed tax on permanent improvements to land, at a very low rate (perhaps 1/10 of 1% per year). With a self-assessed tax, each possessor of land names a price at which he would be willing to part with the land he possesses (and any immovable improvements). He pays a tax proportional to the value he names, and anyone who wishes to may take over possession at that price. The value of such a tax is that it makes it much easier to assemble land for redevelopment, and to identify appropriate compensation when land is taken for public purposes.

All of the above taxes are positively beneficial and should be collected even if the revenue is not needed for public purposes. Any excess can be returned to the population on an equal per capita basis. If these attractive sources of revenue do not suffice to finance necessary public expenditures, then the least damaging additional tax would probably be a "poll tax," a uniform charge on all residents. If some residents are regarded to be incapable of paying such a tax, then the next most efficient tax is a proportional tax on income up to some specified amount. Then there is no disincentive effect for all persons who reach the tax limit. The next most efficient tax is a proportional tax on all income.

It is important not to tax the profits of corporations. Capital moves from where it is taxed to where it is not, until the same rate of return is earned everywhere. If the city refrains from taxing corporations they will invest more in St. Petersburg. Wages will be higher, and the rent of land, collected by the government, will be higher. The least damaging tax on corporations is one that provides a complete write-off of investments, with a carry-over of tax credits to future years. Such a tax has the effect of making the government a partner in all new investments. With such a tax the government provides, through tax credits, the same share of costs that it later receives in revenues. However, the tax does diminish the incentive for entrepreneurial activity, and it raises no revenue when investment is expanding rapidly. Furthermore, the efficiency of such a tax requires that everyone believe that the tax rate will never change. Thus it is best not to tax the profits of corporations at all. If the people of St. Petersburg want to share in the profits of corporations, then they should invest directly in the corporations, either privately or publicly. The residents of St. Petersburg would be best served by refraining from taxing the profits of corporations. Creating a place where profits are not taxed can be expected to attract so much capital that the resulting rises in wages and in government-collected rents will more than offset what might have been collected by taxing profits.

The taxes that promote urban growth have at least one of two features.

  • The first feature that a growth-promoting tax can have is that it can serve to allocate a naturally occurring resource among competing potential users. Charges for the use of land, for the use of the frequency spectrum and for depleting natural resources share this feature.
  • The second feature that a growth-promoting tax can have is that of being a charge for the costs imposed on the city by the person who pays the tax. This feature is shared by taxes on pollution, taxes on other activities that reduce the value of surrounding land, taxes on imposing congestion and other costs on other residents of the city, charges for the marginal cost of publicly provided services, and a self-assessed tax on property, reflecting the hindrance to future growth represented by existing development.
A city that confines itself to these taxes can expect to attract capital rapidly, and therefore to experience rapid growth, raising the wages of its citizens and the publicly-collected rent of its land. ...Read the whole article

Nic Tideman: Land Taxation and Efficient Land Speculation

Indirect Effects of Taxing Land

One consequence of levying additional taxes on land is that it becomes possible to lower taxes on other things. One of the things most likely to be taxed less when land is taxed more is improvements. Lowering taxes on improvements makes the present value of land development very much less costly, and hence is likely to accelerate development although it would be possible to construct cases in which the effect of lowering taxes on improvements would be to postpone development. Whether it retards or accelerates development, the lowering of taxes on improvements results in more intensive development when development occurs. The possibility of promoting more intensive development by reducing or eliminating taxes on improvements is an important beneficial effect of an increase in taxes on land.

A second consequence of levying additional taxes on land is that it becomes possible to price public services more efficiently. Services to land such as sewers, water and electricity are used most effectively when they are priced at marginal cost. The costs of these services, however, are generally such that the sum of marginal costs will not cover total costs. Land taxes have the potential to provide a fund to cover the difference between total costs and the sum of marginal costs. If land taxes are so used, the reductions in the costs of using services that complement development will promote more efficient development. ... read the whole article



Nic Tideman: The Morality of Taxation: The Local Case

Consider first the question of adequacy of revenue. There is a theorem in economics, known as the Henry George Theorem, that addresses this question (Arnott and Stiglitz, 1979). One of the simpler versions of this theorem is:

If the following three conditions are met:

1. Public expenditures provide benefits only over a limited area,
2. People can move costlessly, and
3. The number of persons who value a public service as highly as anyone does exceeds the number of persons who can live in the area where the service provides benefits,
then for any public service that is worth at least as much as it costs to those who receive it, the increase in the rental value of land that results from providing the service exceeds the net cost of the service.

The Henry George Theorem is true because people who can move costlessly will bid up the rental value of land to reflect the value of public services that are not available elsewhere. The assumption that the number of bidders exceeds the number of people who can benefit from the public service guarantees that the upward movement of rents will not end until all the benefits of the public service are reflected in these rents. If some people who receive a public service value it more highly than others, then they will receive a surplus in addition to the rent they pay for land, and some worthwhile increments of public services will not add quite enough to rent to pay for themselves (Tideman 1993). But rent increments will go a very long way toward paying for worthwhile local public services.

With some local public services, such as weather reports that are broadcasted by radio at a specified wattage, there is no social cost of having another person within the reception area use the service. With others, such as distribution of water, the extra cost of one additional user will be noticeable, but still a relatively small fraction of the average cost of the service. For public services to provide the greatest possible net value, users must be charged the costs of additional use (what economists call marginal cost). If they are charged less than marginal cost, self-interest will motivate them to use the service wastefully. And if they are charged more than marginal cost, self-interest will motivate them to economize inefficiently on the service.

Thus local public services are financed efficiently when users are required to pay marginal costs, and the component of total cost that is not covered by marginal cost charges is financed by levies on land that collect the increases in rental value of land that result from provision of the service. If all citizens in a locality valued the service equally, then every increment in the level of the service that was worthwhile would have a cost that was less than or equal to the sum of the revenue that could be raised from charges for use equal to marginal cost and the increase in the rental value of land in the community that resulted from the availability of the service. When people value the service differently, the increase in the rental value of land that results from the provision of a service will be less than the value of the service to those who receive it. By a criterion of maximizing the real incomes of residents, the best outcome that covers the full cost of a service will involve a level of service somewhat lower than that for which marginal cost is equal to the sum of marginal benefits, along with charges that exceed somewhat the marginal cost of providing the service to additional persons. Still, in general, the combination of user fees approximately equal to marginal cost and taxes on land to finance the remainder of costs is capable of providing financing for local public services that is adequate and reasonably efficient.

Next consider fairness. The fairness of such financing is the fairness of incremental decisions in an environment in which the initial allocation is fair. (It does not provide special opportunities for disadvantaged persons. They would need to be provided for by insurance that operated independently of the provision of public goods.) A person who is treated fairly in the absence of public goods cannot reasonably complain about being required to pay for a service according to its marginal cost, or about have to pay the value that is added to his land by the availability of a public service. ... read the whole article

Frank Stilwell and Kirrily Jordan: The Political Economy of Land: Putting Henry George in His Place

What about the relevance of Georgist ideas to current concerns with environmental quality and ecological sustainability? Here too there is a strong claim to consider. Interest in Georgism has been reinvigorated in recent years by the need to develop public policies that reflect the nature of land as a finite natural resource. From a ‘green’ perspective, land tax is a useful tool in discouraging the excessive and wasteful use of land. That is, the prospect of paying a high rate of land tax can be expected to discourage people from purchasing more land than they need directly for their own purposes. It accords with the principle that people should be taxed according to their use of scarce environmental assets.

This ‘ecological take’ on Georgism is particularly powerful at a time of intensifying global environmental problems and recognition of the need for remedial policy responses. It requires creative extension of Georgist principles because the limitation of George’s own analysis in this context is its primary focus on land. A range of other natural resources needs to be considered, linking up with the broader concerns of modern environmentalists such as Herman Daly (see, for example, Daly and Cobb, 1990). Hence, land tax should be seen as an adjunct to taxes on the use of other scarce environmental assets, including mineral, forestry and fishing stocks, and also bandwidth for radio and telecommunications, for example (Stilwell, 2002: 316-317). It should also be seen as a corollary to other taxes that discourage environmental damage, including resource rental taxes, carbon taxes and fuel excises.

The case for these environmental taxes need not necessarily rest on Georgist principles, of course, but Georgism can claim to provide a unifying analytical framework. A common feature of ‘environmental taxes’ is that they are all targeted, like land tax, at reducing the scope for profiting from the private appropriation of natural resources, and thereby restricting the profligate use of those resources.

A tension remains, reflecting the Georgist orientation towards taxes rather than more directly regulatory interventions. Whether the use of the price mechanism in this ‘environmental fine tuning’ is sufficient for dealing with pervasive environment threats is a moot point. The nature and severity of environmental stresses is such that more directly proscriptive environmental policies are commonly needed to protect natural resources. The creation and maintenance of national parks, for example, constitutes a necessary direct regulation of land-use: the market, even when modified by taxes, cannot absolutely guarantee the conservation of such crucial assets. In other words, protection of ‘natural capital’ may commonly require regulation as well as taxation. ... 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