"Windfall" sounds extremely
benign, and even noble: apples that have been blown to the ground,
and are available for some industrious soul to pick up for free. It almost
has a romantic "Horatio Alger" feel about it.
But how many windfalls for the "lucky" (privileged)
come at the expense of those who work hard — not out of thin
air, but out of the taxes on the labors of others or at the price
of others not being fully compensated for their labor? How much
of our extremely tilted playing field, our wildly distorted distributions
come from so-called "windfalls"
like the privilege of collecting — and keeping —
the rent on land value? How many windfalls are actually organized,
are the effects on the rest of us?
But before this time the reader,
unless he has given previous attention to the subject, is full of objections
to the above doctrine: "How
about the law?" he is asking. "Hasn't a man the right to buy a
piece of land as cheaply as he can, to do what he pleases with it, and hold
on to it till he gets ready to sell?" The answer is that at present
he certainly has this statutory right, which has been so long and so
universally recognized that most people suppose it to be not only a
legal, but a real
or equitable right. A shrewd man, foreseeing the direction of growth
of population in a city, for example, can buy a well-located block
at a moderate figure
from some less far-seeing owner, can let it grow up to weeds, fence
it off against all comers and give it no further attention except to
small tax usually imposed upon vacant land.
Meantime the increasing community builds up all around it with homes, banks,
stores, churches, schools, paving and lighting the streets, giving police
and fire protection, etc., and at last comes to need this block so urgently
that the owner is fairly begged to sell it, at three or ten or fifty times
what it cost him. Quite often the purchaser at this enormous advance is the
very community which has through its presence and the expenditure of its
taxes created practically the whole value of the land in question!
It was said above that an individual has a statutory right to pursue this
very common course. That was an error. The statement should have been that
he has a statutory wrong; for no disinterested person can follow the course
of land speculation as almost universally practiced, without feeling its
How did so evident a wrong become so firmly established? ...
Being the high financiers of
their days and generations, they managed to contrive taxes which could
be plausibly and gradually imposed
upon the landless, until within a few generations they had succeeded
in shifting most of the cost of government on to the plebeians without
giving up a foot
of land or any considerable part of the income therefrom. The "common
people" were deftly loaded with the heavy end of the beam, which
they have been carrying ever since; while the arbitrarily created landlords
their successors, down to the present day, have kept their tight hold
on the community's natural income.
The landlords, being also the lawmakers, have seen to it that their tenure
of this easy money should not be disturbed, but on the contrary have so buttressed
it with centuries of legislation, precedents, and judicial decisions, that
any proposition to hark back to the terms of the original bargain, whereby
the owners of the land agreed to pay the expenses of the government, is now
denounced as anarchy and sacrilege.
Lapse of time, however, never can transform wrong into right, nor can a buyer
acquire any better title than the seller possessed. The economic rent belongs
to the community, which can and will begin to reclaim it as soon as the
voters thoroughly awake to the facts and the right and wrong of the matter,
which are not hard to grasp when the subject is presented in its simplest
An illustration has already been given of the case of a piece
of farm land. Let us take an example in a large city. Let us take a corner
lot centrally located in New York City, the title to which lot is held by,
say, Mr. John William Rhinelastor. This lot was a part of an old Dutch farm,
and is an heirloom. It did not cost the present owner anything, nor his father
nor his grandfather. There is a little old building on it, which has always
been rented at a figure ten times as large as the taxes imposed, so that
the owner has been handsomely subsidized each year for storing his title-deeds
during a period of the city's growth in which the increase in population
and the expenditure of public money in that neighborhood have raised the
value of this corner location to, say, two hundred times its early value.
About now, Mr. Rhinelastor decides that he will go abroad to live, and can't
be bothered with this piece of property. But knowing that the pressure of
population is sure to increase and that the expenditure of public money to
the benefit of this land must continue, he will not sell it. So he gives
a twenty-one year lease to the corner for, say, $20,000 a year net, with
a privilege to the lessee of renewals at advancing figures. The lessee agrees
to pay all taxes.
Now what is this net $20,000
a year, which will be regularly remitted to Mr. Rhinelastor, in Europe
or wherever he may be, given in payment for? Not
for the old building — the first thing the lessee does is to pull it
down. Not for the land itself — it is all rock, which has got
to be blasted out as part of its improvement.
Clearly it is paid for a location or site value, which the community, and
the community only, has built up and paid for. In other words, the present
$20,000 rental, and the larger one which that location will command in later
years, is strictly a community product, and as such belongs to the community
and not to Mr. Rhinelastor.
That the latter has no good right
to it is at once evident when we remember that "When one man gets something for nothing somebody
else has got to give something for nothing." Here are $20,000
that some men and women have got to work to earn every year to hand
a man who
does not render,
and does not feel any obligation to render, one dollar's worth of public
or private service in return. Such is the wild travesty of justice
which we call law. It is not comical only because it is frankly tragic
social results. ... read the whole article
Bill Batt: Painless Taxation
Real tax reform could do away with those taxes that are resented
by the large proportion of our population. We could replace all taxes on
wages and on interest by instead taxing economic rent. Rent is windfall
income; it is income that arises not from the efforts of any person or
corporation; it comes about as a surplus gain from common social enterprise.
There is ample moral warrant for society to lay claim to that which it
has created, as well as to that which no individual or party has earned.
Analysis increasingly makes clear that economic rent in all its forms is
far larger than official government figures indicate; in fact it is likely
sufficient to supplant all current taxes on labor and capital (wages and
interest) which are acknowledged to have so many negative effects. Recovering
economic rent in all its manifestations by taxing its various bases actually
can foster economic performance and yield other benefits that make it the
natural source of revenue for governments. Such a tax is essentially painless.
Under current tax regimes, some people get hit with onerous bills while
others get windfall gains. If
taxes only on windfalls were collected, we could eliminate those burdens
that fall unfairly upon people who have rightfully earned their income
and wealth, and the total would likely remain revenue neutral. This is
my thesis here, one which should compel the attention of those who would
redesign our tax system.
1. A windfall, usually defined, is "an unexpected
financial gain, or a stroke of luck." But, as one exhaustive
study makes clear, it is typically the consequence of some public
policy decision. ...
... Any tax on capital has its downside effects, so that taxing savings
causes people to save less, taxing consumption causes people to buy less,
and taxing buildings causes people to build less. The result is that
economists as well as businessmen usually frown upon taxing capital.
Another alternative is to tax labor, but it is even more widely understood
that taxing labor normally discourages people from working as much as
they would in the absence of a tax. From this comes sentiment against
taxing labor, even though for want of any alternative, people have today
commonly come to accept it as a necessity. But electing to tax labor,
just as for taxing capital, forecloses a discussion of the virtues of
taxing land — not necessarily land as earth, but rather land as
location. Yet land rent is the most attractive tax base of all,
as rent is not earned; it is windfall income, entirely the result of
situated in any market of scarce natural resources and where community
demand (rather than one's own efforts) leads to an appreciation of that
land's price. To be sure many people have learned to position themselves
in situations where a land's market value is likely to rise — indeed
these people come to think of themselves as astute investors. But the
fact is that that market gain is not of their own doing at all; it is
the result of common enterprise creating a surplus that comes to settle
on land sites. An investment in land, in any form it might take, is speculation
in greater or lesser degree. ...
To be sure, by replacing taxes on labor and capital with taxes on land
rent, people will enjoy greater returns for their enterprise and will
be able to keep what they have earned. But people will also cease, at
least those few who have been so lucky, to be able to rely on windfall
unearned gains that they have in many cases come to regard as their entitlements.
The greatest forfeiture of such windfall gains will be homeowners who
have come to see their title to a home as an investment, and not a place
to live. But whereas some residential locations have seen enormous increases
in market prices — as much as 20 percent yearly on occasion — others
have enjoyed no such fortune. People may come to understand that houses
depreciate just like cars, refrigerators and computers. They may also
see that it is only land value that increases, and realize that any gain
which their land has is due to the general vitality of their community
and region. It may help them to realize that they are linked to and dependent
upon the society as a whole, and that their fortune is not in this dimension
of their own making.
Well over a century ago, John Stuart Mill recognized that
landlords grow richer in their sleep without working, risking
or economizing. The increase in the value of land, arising as it
from the efforts of an entire community, should belong to the community
and not to the individual who might hold title. ... read the
Frank Stilwell and Kirrily Jordan: The
Political Economy of Land: Putting Henry George in His Place
Indeed, one could say that the term ‘tax’ is
a misnomer because what is really involved is value created by the
community being retained by the community rather than being appropriated
by private landholders. For example, under current arrangements landowners
receive ‘windfall’ gains when the market value of their
land rises as a result of publicly provided infrastructure being built
nearby, or when local government zoning decisions reclassify their
land as appropriate for further development. In this way, individual
landowners stand to reap huge benefits at the expense of community-generated
processes. Such arrangements create an odd incentive: allowing landholders
to appropriate the unearned wealth generated by rising land values,
thereby rewarding this unproductive activity, while taxing productive
endeavour. The Georgist land tax ‘remedy’, by contrast,
would eliminate such perverse incentives and thereby more effectively
align private and public interests in the use of society’s resources.
Georgist analysis strongly emphasises landownership as a principal
source of inequality. Because land is a strictly limited resource,
its private ownership necessarily excludes large sections of the
community from its benefits. A landowning class thereby gains political
economic power. In George’s own time the social identity and
power of this landowning class was distinctive. Those who could not
afford to buy land were forced to pay rent to the wealthier few who
could. By taxing the value of land, George posited that publicly
created wealth could be recouped from the private landowners and
redistributed throughout the community more equitably in order to
address social goals.
Are George’s arguments about land ownership and wealth inequality
relevant today? Australia provides an interesting example, because
land is the single largest item in national wealth. Laurie Aarons
outlines the concentration of farming land in particular in the hands
of a few very wealthy corporations and individuals – what he
refers to as ‘corporate squattocracy’ (Aarons, 1999:
23). The relentless increase in urban land values in recent years
has also produced dramatic redistributions of wealth. In the State
of New South Wales, for example, land values increased by about $361
billion over the period 1993 – 2003. The existing land-based
taxes clawed back only $44 billion in government revenues, comprising
only about 12% of the land-related economic surplus. So 88% was retained
as ‘unearned income’ by landowners (Stilwell and Jordan,
forthcoming). A higher rate of land tax with fewer exemptions could
have substantially reduced this private wealth appropriation. This
is not necessarily to posit the desirability of recouping 100% through
land tax, because that would certainly raise major problems of people’s
ability to pay, given that much of the increased wealth resulting
from land price inflation has not been realised as current income.
But it is indicative of the current imbalance between private and
public appropriations of the surplus arising from increases in land-based
wealth. ... read the whole article
Bill Batt: The
Compatibility of Georgist Economics and Ecological Economics
critically important in Georgist economics,
because rent is the increment of market gain that accrues to choice
land parcels. This insight arose originally in the context of
agricultural societies, where differential qualities of land were
recognized by varied payment in rent. An individual’s return on
investment was represented by his labor — that was his and his alone to
keep. So also were whatever capital goods he acquired through the
efforts of his past labor. On the other hand, whenever land offered a
higher yield separate from whatever the individual’s labor investment
might represent, this constituted a
windfall gain above and beyond what
might be minimally expected. This is land rent, and it exists
it isn’t collected. Today, as earlier noted, the greatest land rents
derive from their location, grown out of nearby social investment. ...
The Georgist main agenda, as earlier noted, is economic justice.
If one searches the term “economic justice” online, the first site
that will appear is the Georgist website, progress.org.
The starting point
is that people are entitled to what they earn, but only to what they
fruits of the commons generated in rent might also be distributed to citizens
equally if not used to finance the general services of
government. In practice this means the abolition of those taxes that
represent an unjust capture of one’s personal property — taxes
such as income, sales, and other nuisance taxes. It accepts, to be sure, the
need to collect user fees, Pigouvian taxes, and perhaps sumptuary (sin)
taxes. It argues aggressively for the collection of economic rent in
support of government and, for any remaining surplus, its distribution
as a citizens’ dividend. The justification for the collection of
rent has several grounds:
the first is to preclude the entitlement of
windfall gains to those who have unfairly captured monopoly control of
parts of what are rightfully the public commons.
A second reason is to
enhance the efficiency of economic productivity which the failure to
collect rent prevents. It is not just that monopoly control of commons
sites drives less attractive and less valuable land into production
because the primary choices are unavailable; it is also that the use of
alternative taxes leads to a deadweight loss in the economy which
reduces the wealth of every citizen except the monopoly titleholder.The
proper collection of land rent leads to increases in economic
efficiency in a way that wages are not artificially depressed and more
opportunities arise in the labor market.
The result of these factors
leads to a greater equality in the income of each person. ...
Pricing resources of nature at their marginal rates is a clearly
understood economic principle. To do otherwise fosters extravagant and
wasteful use of such, or leads to inefficient use of their locations.
Hence both a moral reason — the unjust
windfall gain that otherwise
befalls such monopoly titles — and an economic reason —
call for such practices. It is the compelling impetus of politics and
not economic rationality that frustrates the implementation of such
designs. With the advent of greater and more accurate data, as well as
the increased power of computer analysis, there is every reason to
argue for and anticipate the collection of economic rent from every
source where it arises. ... read the whole article
Bill Batt: Stemming Sprawl: The Fiscal Approach
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
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
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. 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. 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
Charles B. Fillebrown: A Catechism
of Natural Taxation, from Principles of
Natural Taxation (1917)
Q22. What is privilege?
A. Strictly defined, privilege is, according to the Century Dictionary, "a
special and exclusive power conferred by law on particular persons or classes
of persons and ordinarily in derogation of the common right."
Q23. What is today the popular conception of privilege?
A. That it is the law-given power of one man to profit at another man's expense.
Q24. What are the principal forms of privilege?
A. The appropriation by individuals, or by public service corporations, of
the net rent of land created by the growth and activity of the community
without payment for the same. Also, the less important privileges connected
with patents, tariff, and the currency.
Q25. Where in does privilege differ from capital?
A. Capital is a material thing, a product of labor, stored-up wages; an instrument
of production paid for in human labor, and destined to wear out. Capital
is the natural ally of labor, and is harmless except as allied to privilege.
Privilege is none of these, but is an intangible statutory power, an unpaid-for
and perpetual lien upon the future labor of this and succeeding generations.
Capital is paid for and ephemeral. Privilege is unpaid for and eternal. A
man accumulated in his profession $5,000 capital, which he invested in land
in Canada. Ten years later he sold the same land for $200,000. Here is an
instance of $5,000 capital allied with $195,000 privilege. This illustrates
that privilege and not capital is the real enemy of labor.
Q26. How may franchises be treated?
A. Franchise privileges may be abated, or gradually abolished by lower rates,
or by taxation, or by both, in the interest of the community.
Q27. Why should privilege be especially taxed?
A. Because such payment is fairly due from grantee to the grantor of privilege
and also because a tax upon privilege can never be a burden upon industry
or commerce, nor can it ever operate to reduce the wages of labor or increase
prices to the consumer.
Q28. How are landlords privileged?
A. Because, in so far as their land tax is an "old" tax, it is a
burdenless tax, and because their buildings' tax is shifted upon their tenants;
most landlords who let land and also the tenement houses and business blocks
thereon avoid all share in the tax burden.
Q29. How does privilege affect the distribution of wealth?
A. Wealth as produced is now distributed substantially in but two channels,
privilege and wages. The abolition of privilege would leave but the one proper
channel, viz., wages of capital, hand, and brain.
... read the whole 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
While all landholders will be encouraged to put their land to
optimal use, land speculators will be particularly affected by LVT. The
former head of the Town Planning Department of the University of
Queensland, Philip Day, characterises the current lure of windfall increases
in land value operating as a standing invitation to "develop" land by
seeking approval for a change of use, irrespective of its environmental
significance and regardless of how such rezoning repeatedly leads to
the environmentally destructive process of urban sprawl.
While, at first sight, the
sprawling cities with lots of open space and possible greenery might be
appealing from an environmental perspective, a closer examination
should lead to a different conclusion. The inducement to collect
windfall profits (resulting from the failure of society to apply LVT)
encourages some landholders to withhold vacant land from the market and
forces new development to "leapfrog" this land and move further out.
Hence there is an unnecessary outlay in roads, pipelines, power
supplies and other infrastructure which must service a greater area.
Commuting journeys, similarly, must now consume greater resources.
Financially inducing land to be put to its optimal use is not
"flogging" the land, but is rather ensuring land is carefully used and
that we only exploit as much as we properly need. ...
A simple model will serve to illustrate. Presently, rail/metro
infrastructure is almost prohibitively expensive because the windfall
benefits are effectively handed over to landowners. To partially recoup
the outlay, authorities are forced to set fares so high as to act as a
disincentive to potential low-impact commuters. ... read the entire article
Karl Williams: Landlording
It Over Us
But the rewards of land go far beyond status, evidenced by how, over
the centuries, the land-owning elite has pulled the levers of power in
society, politics and the world of commerce. The Earl of Derby’s 1881
candid analysis of the benefits of owning land perhaps says it best,
- “One, political influence;
- two, social importance;
- three, power exercised over tenantry;
- four, residential enjoyment including what is called
- five, the money return – the rent.”
Since then, the reform of the
House of Lords has dented the political
influence that was previously wielded by the landowning class (titles
and land were once synonymous). But who needs status? – let’s get crass
and just go for the cash. The great windfall profits which are dropped
into landowners’ laps (which rightly belongs to the community) occurs
with rezoning and the growth in residential/industrial values. In the
UK between 1991 and 2001, the total return by this measure (including
capital growth and rental income) averaged a healthy 12.6% per year.
The gross injustice of handing over community-created values to
landowners is revealed by cold, hard figures. According to Yolande
Barnes, head of research at FPD Savills, the average UK building plot –
at £709,650 for a greenfield acre – is worth around 403 times the
equivalent agricultural land. Nationwide, through this form of
rezoning, around £5bn. windfall profit is handed over to UK
landowners each year.
Barnes explains further, “In many parts of the South and
is certainly true that prices are paid for agricultural land that
wouldn’t be justified by its agricultural value.” She said further that
it is impossible to know how much of this differential is accounted for
by a "hope" factor – a speculative play on future change of use – and
much represents the premium for land’s amenity value when it is in such
short supply. But she adds: “There has certainly been a deal of
strategic holding and buying on
city and town fringes by agricultural owners and farmers. New
development land is usually designated in “fill-ins” and close to
existing developments.” She added further that farmers buy around
towns because they can’t lose. They’ll farm the land anyway, and if
permission is given to build, they’ve won the lottery.
A great way to run a casino,
but what sort of way to run an economy and
a society? Read the whole article