I have friends who take great pains to conserve water and nonrenewable energy, and I admire them. And yet I find myself troubled by the extent to which they expend their personal thought and energy to "act locally" under circumstances where at the societal level the biggest users of water and energy have no particular incentive to behave similarly. (Household water use represents perhaps 1% of national consumption.) Until we manage to align our incentives with what we as a society want to achieve, the sacrifices of principled individuals will be overshadowed by the advantage taken by others off whom the pressure is taken.

What do we want to reward? What do we want to discourage? How does our system of taxation align with that?

Land, unlike labor and capital, is in fixed supply, and some land is far more desirable than other land. Who is entitled to the value of the land? Are some of us more entitled than others? What entitled some to it?

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

Evidently this regard for the general good is the true principle of taxation. The more it is examined the more clearly it will be seen that there is no valid reason why we should, in any case, attempt to tax all property. That equality should be the rule and aim of taxation is true, and this for the reason given in the Declaration of Independence, that all men are created equal. But equality does not require that all men should be taxed alike, or that all things should be taxed alike. It merely requires that whatever taxes are imposed shall be equally imposed upon the persons or things in like conditions or situations; it merely requires that no citizen shall be given an advantage, or put at a disadvantage, as compared with other citizens.

The true purposes of government are well stated in the preamble to the Constitution of the United States, as they are in the Declaration of Independence. To insure the general peace, to promote the general welfare, to secure to each individual the inalienable rights to life, liberty, and the pursuit of happiness — these are the proper ends of government, and are therefore the ends which in every scheme of taxation should be kept in mind. ...

And the reason of this difference is clear. The possession of wealth is the inducement to the exertion necessary to the production and maintenance of wealth. Men do not work for the pleasure of working, but to get the things their work will give them. And to tax the things that are produced by exertion is to lessen the inducement to exertion. But over and above the benefit to the possessor, which is the stimulating motive to the production of wealth, there is a benefit to the community, for no matter how selfish he may be, it is utterly impossible for any one to entirely keep to himself the benefit of any desirable thing he may possess. These diffused benefits when localized give value to land, and this may be taxed without in any wise diminishing the incentive to production. ... read the whole article

H.G. Brown: Significant Paragraphs from Henry George's Progress & Poverty: 10. Effect of Remedy Upon Wealth Production (in the unabridged P&P: Part IX — Effects of the Remedy: Chapter 1 — Of the effect upon the production of wealth)

Consider the effect upon the production of wealth.

To abolish the taxation which, acting and reacting, now hampers every wheel of exchange and presses upon every form of industry, would be like removing an immense weight from a powerful spring. Imbued with fresh energy, production would start into new life, and trade would receive a stimulus which would be felt to the remotest arteries. The present method of taxation operates upon exchange like artificial deserts and mountains;

• it costs more to get goods through a custom house than it does to carry them around the world.
• It operates upon energy, and industry, and skill, and thrift, like a fine upon those qualities.
• If I have worked harder and built myself a good house while you have been contented to live in a hovel, the taxgatherer now comes annually to make me pay a penalty for my energy and industry, by taxing me more than you.
• If I have saved while you wasted, I am mulct, while you are exempt.
• If a man build a ship we make him pay for his temerity, as though he had done an injury to the state;
• if a railroad be opened, down comes the tax collector upon it, as though it were a public nuisance;
• if a manufactory be erected we levy upon it an annual sum which would go far toward making a handsome profit.
• We say we want capital, but if any one accumulate it, or bring it among us, we charge him for it as though we were giving him a privilege.
• We punish with a tax the man who covers barren fields with ripening grain,
• we fine him who puts up machinery, and him who drains a swamp.

How heavily these taxes burden production only those realize who have attempted to follow our system of taxation through its ramifications, for, as I have before said, the heaviest part of taxation is that which falls in increased prices.

To abolish these taxes would be to lift the whole enormous weight of taxation from productive industry. The needle of the seamstress and the great manufactory; the cart horse and the locomotive; the fishing boat and the steamship; the farmer's plow and the merchant's stock, would be alike untaxed. All would be free to make or to save, to buy or to sell, unfined by taxes, unannoyed by the taxgatherer. Instead of saying to the producer, as it does now, "The more you add to the general wealth the more shall you be taxed!" the state would say to the producer, "Be as industrious, as thrifty, as enterprising as you choose, you shall have your full reward! You shall not be fined for making two blades of grass grow where one grew before; you shall not be taxed for adding to the aggregate wealth."

And will not the community gain by thus refusing to kill the goose that lays the golden eggs; by thus refraining from muzzling the ox that treadeth out the corn; by thus leaving to industry, and thrift, and skill, their natural reward, full and unimpaired? For there is to the community also a natural reward. The law of society is, each for all, as well as all for each. No one can keep to himself the good he may do, any more than he can keep the bad. Every productive enterprise, besides its return to those who undertake it, yields collateral advantages to others. If a man plant a fruit tree, his gain is that he gathers the fruit in its time and season. But in addition to his gain, there is a gain to the whole community. Others than the owner are benefited by the increased supply of fruit; the birds which it shelters fly far and wide; the rain which it helps to attract falls not alone on his field; and, even to the eye which rests upon it from a distance, it brings a sense of beauty. And so with everything else. The building of a house, a factory, a ship, or a railroad, benefits others besides those who get the direct profits.

... Well may the community leave to the individual producer all that prompts him to exertion; well may it let the laborer have the full reward of his labor, and the capitalist the full return of his capital. For the more that labor and capital produce, the greater grows the common wealth in which all may share. And in the value or rent of land is this general gain expressed in a definite and concrete form. Here is a fund which the state may take while leaving to labor and capital their full reward. With increased activity of production this would commensurately increase.

And to shift the burden of taxation from production and exchange to the value or rent of land would not merely be to give new stimulus to the production of wealth; it would be to open new opportunities. For under this system no one would care to hold land unless to use it, and land now withheld from use would everywhere be thrown open to improvement.

The selling price of land would fall; land speculation would receive its death blow; land monopolization would no longer pay.* Millions and millions of acres from which settlers are now shut out by high prices would be abandoned by their present owners or sold to settlers upon nominal terms. And this not merely on the frontiers, but within what are now considered well settled districts.

* The fact that a tax on the rental value of land cannot be shifted by landowners to tenants, though recognized by all competent economists, is sometimes a stumbling block to persons untrained in economics. The reason such a tax cannot be shifted is that it cannot limit the supply of land. Landowners are presumably, before the tax is laid, charging all the rent they can get. There is nothing in a tax on the rental value of land to make tenants willing to pay more or to make land more difficult to hire. On the contrary, more land will be on the market, because of such a tax, rather than less, since the tax puts a heavy penalty on holding land out of use and unimproved for mere speculation. The competition of former vacant land speculators to get their land used will make land cheaper to rent rather than more expensive. And since only the net rent remaining after the tax is subtracted is capitalized into salable value, land will be very much cheaper to buy. H.G.B.

And it must be remembered that this would apply, not merely to agricultural land, but to all land. Mineral land would be thrown open to use, just as agricultural land; and in the heart of a city no one could afford to keep land from its most profitable use, or on the outskirts to demand more for it than the use to which it could at the time be put would warrant. Everywhere that land had attained a value, taxation, instead of operating, as now, as a fine upon improvement, would operate to force improvement. Whoever planted an orchard, or sowed a field, or built a house, or erected a manufactory, no matter how costly, would have no more to pay in taxes than if he kept so much land idle.

• The monopolist of agricultural land would be taxed as much as though his land were covered with houses and barns, with crops and with stock.
• The owner of a vacant city lot would have to pay as much for the privilege of keeping other people off of it until he wanted to use it, as his neighbor who has a fine house upon his lot.
• It would cost as much to keep a row of tumble-down shanties upon valuable land as though it were covered with a grand hotel or a pile of great warehouses filled with costly goods.

Thus, the bonus that wherever labor is most productive must now be paid before labor can be exerted would disappear.

• The farmer would not have to pay out half his means, or mortgage his labor for years, in order to obtain land to cultivate;
• the builder of a city homestead would not have to lay out as much for a small lot as for the house he puts upon it*;
• the company that proposed to erect a manufactory would not have to expend a great part of its capital for a site.
• And what would be paid from year to year to the state would be in lieu of all the taxes now levied upon improvements, machinery, and stock.

  *Many persons, and among them some professional economists, have never succeeded in getting a thorough comprehension of this point. Thus, the editor has heard the objection advanced that the greater cheapness of land is no advantage to the poor man who is trying to save enough from his earnings to buy a piece of land; for, it is said, the higher taxes on the land after it is acquired, offset the lower purchase price. What such objectors do not see is that even if the lower price of land does no more than balance the higher tax on it, (and this overlooks, for one thing, the discouragement to speculation in land), the reduction or removal of other taxes is all clear gain. It is easier to save in proportion as earnings and commodities are relieved of taxation. It is easier to buy land, because its selling price is lower, if the land is taxed. And although the land, after its purchase, continues to be taxed, not only can this tax be fully paid out of the annual interest on the saving in the purchase price, but also there is to be reckoned the saving in taxes on buildings and other improvements and in whatever other taxes are thus rendered unnecessary. H.G.B.

Consider the effect of such a change upon the labor market. Competition would no longer be one-sided, as now. Instead of laborers competing with each other for employment, and in their competition cutting down wages to the point of bare subsistence, employers would everywhere be competing for laborers, and wages would rise to the fair earnings of labor. For into the labor market would have entered the greatest of all competitors for the employment of labor, a competitor whose demand cannot be satisfied until want is satisfied — the demand of labor itself. The employers of labor would not have merely to bid against other employers, all feeling the stimulus of greater trade and increased profits, but against the ability of laborers to become their own employers upon the natural opportunities freely opened to them by the tax which prevented monopolization.

With natural opportunities thus free to labor;

• with capital and improvements exempt from tax, and exchange released from restrictions, the spectacle of willing men unable to turn their labor into the things they are suffering for would become impossible;
• the recurring paroxysms which paralyze industry would cease;
• every wheel of production would be set in motion;
• demand would keep pace with supply, and supply with demand;
• trade would increase in every direction, and wealth augment on every hand. ... read the whole chapter

Henry George: Concentrations of Wealth Harm America (excerpt from Social Problems)  (1883)

• to monopolies which we permit and create,
• to advantages which we give one man over another,
• to methods of extortion sanctioned by law and by public opinion,

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

4. CONFORMITY TO GENERAL PRINCIPLES OF TAXATION

The single tax conforms most closely to the essential principles of Adam Smith's four classical maxims, which are stated best by Henry George 19 as follows:

The best tax by which public revenues can be raised is evidently that which will closest conform to the following conditions:

1. That it bear as lightly as possible upon production — so as least to check the increase of the general fund from which taxes must be paid and the community maintained. 20
2. That it be easily and cheaply collected, and fall as directly as may be upon the ultimate payers — so as to take from the people as little as possible in addition to what it yields the government. 21
3. That it be certain — so as to give the least opportunity for tyranny or corruption on the part of officials, and the least temptation to law-breaking and evasion on the part of the tax-payers. 22
4. That it bear equally — so as to give no citizen an advantage or put any at a disadvantage, as compared with others. 23

a. Interference with Production

Indirect taxes tend to check production and cause scarcity, by obstructing the processes of production. They fall upon men as they work, as they do business, as they invest capital productively. 24 But the single tax, which must be paid and be the same in amount regardless of whether the payer works or plays, of whether he invests his capital productively or wastes it, of whether he uses his land for the most productive purposes 25 or in lesser degree or not at all, removes fiscal penalties from industry and thrift, and tends to leave production free. It therefore conforms more closely than indirect taxation to the first maxim quoted above.

24. "Taxation which falls upon the processes of production interposes an artificial obstacle to the creation of wealth. Taxation which falls upon labor as it is exerted, wealth as it is used as capital, land as it is cultivated, will manifestly tend to discourage production much more powerfully than taxation to the same amount levied upon laborers whether they work or play, upon wealth whether used productively or unproductively, or upon land whether cultivated or left waste" — Progress and Poverty, book viii, ch. iii, subd. I.

25. It is common, besides taxing improvements, as fast as they are made, to levy higher taxes upon land when put to its best use than when put to partial use or to no use at all. This is upon the theory that when his land is used the owner gets full income from it and can afford to pay high taxes; but that he gets little or no income when the land is out of use, and so cannot afford to pay much. It is an absurd but perfectly legitimate illustration of the pretentious doctrine of taxation according to ability to pay.

Examples are numerous. Improved building lots, and even those that are only plotted for improvement, are usually taxed more than contiguous unused and unplotted land which is equally in demand for building purposes and equally valuable. So coal land, iron land, oil land, and sugar land are as a rule taxed less as land when opened up for appropriate use than when lying idle or put to inferior uses, though the land value be the same. Any serious proposal to put land to its appropriate use is commonly regarded as a signal for increasing the tax upon it.

...

d. Equality

In respect of the fourth maxim the single tax bears more equally— that is to say, more justly — than any other tax. It is the only tax that falls upon the taxpayer in proportion to the pecuniary benefits he receives from the public; 29 and its tendency, accelerating with the increase of the tax, is to leave every one the full fruit of his own productive enterprise and effort. 30

29 The benefits of government are not the only public benefits whose value attaches exclusively to land. Communal development from whatever cause produces the same effect. But as it is under the protection of government that land-owners are able to maintain ownership of land and through that to enjoy the pecuniary benefits of advancing social conditions, government confers upon them as a class not only the pecuniary benefits of good government but also the pecuniary benefits of progress in general.
30. "Here are two men of equal incomes — that of the one derived from the exertion of his labor, that of the other from the rent of land. Is it just that they should equally contribute to the expenses of the state? Evidently not. The income of the one represents wealth he creates and adds to the general wealth of the state; the income of the other represents merely wealth that he takes from the general stock, returning nothing." — Progress and Poverty, book viii, ch. iii, subd. 4. ...

f. The Single Tax Retains Rent for Common Use.

To retain Rent for common use it is not necessary to abolish land-titles, nor to let land out to the highest bidder, nor to invent some new mechanism of taxation, nor in any other way to directly change existing modes of holding land for use, or existing machinery for collecting public revenues. "Great changes can be best brought about under old forms."109 Let land be held nominally as it is now. Let taxes be collected by the same kind of machinery as now. But abolish all taxes except those that fall upon actual and potential Rent, that is to say, upon land values.

109. "Such dupes are men to custom, and so prone
To rev'rence what is ancient and can plead
A course of long observance for its use,
That even servitude, the worst of ills,
Because delivered down from sire to son
Is kept and guarded as a sacred thing." —Cowper.

It is only custom that makes the ownership of land seem reasonable. I have frequently had occasion to tell of the necessity under which the city of Cleveland, Ohio, found itself, of paying a land-owner several thousand dollars for the right to swing a bridge-draw over his land. When I described the matter in that way, the story attracted no attention; it seemed perfectly reasonable to the ordinary lecture audience. But when I described the transaction as a payment by the city to a land-owner of thousands of dollars for the privilege of swinging the draw "through that man's air," the audience invariably manifested its appreciation of the absurdity of such an ownership. The idea of owning air was ridiculous; the idea of owning land was not. Yet who can explain the difference, except as a matter of custom?

To the same effect was the question of the Rev. F. L. Higgins to a friend. While stationed at Galveston, Tex., Mr. Higgins fell into a discussion with his friend as to the right of government to make land private property. The friend argued that no matter what the abstract right might be, the government had made private property of land, and people had bought and sold upon the strength of the government title, and therefore land titles were morally absolute.

"Suppose," said Mr. Higgins, "that the government should vest in a corporation title to the Gulf of Mexico, so that no one could fish there, or sail there, or do anything in or upon the waters of the Gulf without permission from the corporation. Would that be right?"

"No," answered the friend.

"Well, suppose the corporation should then parcel out the Gulf to different parties until some of the people came to own the whole Gulf to the exclusion of everybody else, born and unborn. Could any such title be acquired by these purchasers, or their descendants or assignees, as that the rest of the people if they got the power would not have a moral right to abrogate it?"

"Certainly not," said the friend.

"Could private titles to the Gulf possibly become absolute in morals?"

"No."

"Then tell me," asked Mr. Higgins, "what difference it would make if all the water were taken off the Gulf and only the bare land left."

If that were done it is doubtful if land-owners could any longer confiscate enough Rent to be worth the trouble. Even though some surplus were still kept by them, it would be so much more easy to secure Wealth by working for it than by confiscating Rent to private use, to say nothing of its being so much more respectable, that speculation in land values would practically be abandoned. At any rate, the question of a surplus — Rent in excess of the requirements of the community — may be readily determined when the principle that Rent justly belongs to the community and Wages to the individual shall have been recognized by society in the adoption of the Single Tax. 110

110. Thomas G. Shearman, Esq., of New York, author of the famous magazine article on "Who Owns the United States," estimates that sixty-five per cent of the present annual value of the land in the United States would pay all the present expenses of American government — federal, state, county, and municipal. ...

Q32. Is not ownership of land necessary to induce its improvement? Does not history show that private ownership is a step in advance of common ownership?
A. No. Private use was doubtless a step in advance of common use. And because private use seems to us to have been brought about under the institution of private ownership, private ownership appears to the superficial to have been the real advance. But a little observation and reflection will remove that impression. Private ownership of land is not necessary to its private use. And so far from inducing improvement, private ownership retards it. When a man owns land he may accumulate wealth by doing nothing with the land, simply allowing the community to increase its value while he pays a merely nominal tax, upon the plea that he gets no income from the property. But when the possessor has to pay the value of his land every year, as he would have to under the single tax, and as ground renters do now, he must improve his holding in order to profit by it. Private possession of land, without profit except from use, promotes improvement; private ownership, with profit regardless of use, retards improvement. Every city in the world, in its vacant lots, offers proof of the statement. It is the lots that are owned, and not those that are held upon ground-lease, that remain vacant.

Q48. Would you let money escape taxation, and so favor money lenders?
A. It is a curious fact that this question is most popular among people who clamor for cheap money. How they expect to cheapen money by taxing its lenders on their loans is past finding out. To tax money lenders is to discourage money lending, and thereby to increase interest on loans. Yes, we should let money escape taxation. It escapes taxation now, which in itself is a politic reason for exempting it; but we should exempt it (by taxing nothing but land values) for the additional and better reason that a man's money is his own and the community has no right to it, while a man's land value is the community's and the man has no right to it. This would not favor money lenders in any invidious sense. It would favor both lenders and borrowers; borrowers by enabling them to borrow on easier terms, and lenders by making their loans more secure. ... read the book

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

Q19. Why should buildings and all other improvements and personal property and capital be exempt from taxes?
A. Because a tax on them falls upon industry, and so increases the cost of living, while continuing the invidious exemption of the present net land value.

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

Weld Carter: An Introduction to Henry George

Of taxes levied on products, George said: "The present method of taxation operates upon exchange like artificial deserts and mountains; it costs more to get goods through a custom house than it does to carry them around the world. It operates upon energy, and industry, and skill, and thrift, like a fine upon those qualities. If I have worked harder and built myself a good house while you have been contented to live in a hovel, the taxgatherer now comes annually to make me pay a penalty for my energy and industry, by taxing me more than you. If I have saved while you wasted, I am mulct, while you are exempt. If a man build a ship we make him pay for his temerity, as though he had done an injury to the state; if a railroad be opened, down comes the taxcollector upon it, as though it were a public nuisance; if a manufactory be erected we levy upon it an annual sum which would go far toward making a handsome profit. We say we want capital, but if anyone accumulate it, or bring it among us, we charge him for it as though we were giving him a privilege. We punish with a tax the man who covers barren fields with ripening grain, we fine him who puts up machinery, and him who drains a swamp. How heavily these taxes burden production only those realize who have attempted to follow our system of taxation through its ramifications, for, as I have before said, the heaviest part of taxation is that which falls in increased prices." 

Turning to taxation levied on the value of land, George went on to say:

For this simple device of placing all taxes on the value of land would be in effect putting up the land at auction to whosoever would pay the highest rent to the state. The demand for land fixes its value, and hence, if taxes were placed so as very nearly to consume that value, the man who wished to hold land without using it would have to pay very nearly what it would be worth to anyone who wanted to use it.

And it must be remembered that this would apply, not merely to agricultural land, but to all land. Mineral land would be thrown open to use, just as agricultural land; and in the heart of a city no one could afford to keep land from its most profitable use, or on the outskirts to demand more for it than the use to which it could at the time be put would warrant. Everywhere that land had attained a value, taxation, instead of operating, as now, as a fine upon improvement, would operate to force improvement (1879, rpt. 1958, p. 437).

A few pages before this he had told us that, "It is sufficiently evident that with regard to production, the tax upon the value of land is the best tax that can be imposed. Tax manufactures, and the effect is to check manufacturing; tax improvements, and the effect is to lessen improvement; tax commerce, and the effect is to prevent exchange; tax capital, and the effect is to drive it away. But the whole value of land may be taken in taxation, and the only effect will be to stimulate industry, to open new opportunities to capital, and to increase the production of wealth" (1879, rpt. 1958, p. 414).

In other words, according to George, taxation of products checks production, whereas taxation of land values stimulates production. ... read the whole article

Bill Batt: Stemming Sprawl: The Fiscal Approach

Stemming Sprawl: Command-and-Control Measures

Policymakers have two modes of leverage by which to implement public will: 1) so-called command-and-control approaches that are typically enforced by what state and federal constitutions group under "police powers" and 2) fiscal approaches that typically involve a variety of taxes, fees, fines, and other charges that derive constitutionally from either police powers or "tax powers." When governments administer either of these powers, they are legitimate and authoritative. Fiscal measures available to governments can come from either ground. The charges that the private sector usually impose differ in that they usually are responsive to market forces. Prices that are established by government, however, are not necessarily responsive to market forces, nor are they intended to be. Rather, they are set in order to accomplish specific public policy goals.[19] They can be no less efficient, however, when responsibly instituted.

19. One recent exploration of this is a chapter titled "Catalytic Government: Steering Rather Than Rowing," in Reinventing Government: How the Entrepreneurial Spirit Is Transforming the Public Sector, ed. David Osborne and Ted Gaebler (New York: Penguin, 1993).

Governments face the challenge of knowing which of the tools at their disposal — command-and-control approaches or "pricing" approaches — will best serve effective and efficient achievement of public policies. Only in recent years, however, has there been a renewed interest in fiscal levers to achieve goals that policymakers seek to achieve. There is particular interest among students of welfare economics in incorporating costs earlier regarded as externalities, especially in designing environmental policies. Moreover, the use of pricing approaches to recover costs of government services that have a high level of private good about them can bring about more attractive and achievable goals than reliance on conventional police power approaches. User fees, environmental fees, and other such fiscal tools have become more fascinating — at least to students of public policy — than conventional taxes.

The renewed interest in fiscal approaches comes in recognition of the fact that traditional command-and-control approaches have not been successful. Government authority is far more effective at prohibiting and controlling than it is inducing and channeling.[20] Three illustrations of failed command-and-control approaches will demonstrate this: zoning, urban growth boundaries, and altering (usually expanding) political jurisdictions. ... read the whole article

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

Impact on behavior

Income taxes impose on the economy a large administrative cost by government and a cost to payers of filling out forms, paying lawyers and accountants, and trying to comprehend the complex requirements. The compliance cost of lost time in the U.S. is 5 billion hours per year, the equivalent of two million people working full time just to process the income tax. In dollar terms, the compliance cost is estimated to be more than $200 billion per year.29

Reformers who want to impose a national retail sales tax are well aware of the substantial impact taxes have on human behavior. That, indeed, is often why such reforms are proposed: The reformer wishes to discourage borrowing, reduce consumption, or encourage savings, for example. But moving to a national retail sales tax results in little improvement.

Most people use their wage income to pay for goods and services and sales taxes. Switching from an income to a sales tax is like taxing you when you leave a room instead of when you enter the room.

Income taxes punish savings, but sales taxes punish borrowing. If you borrow $10,000 to buy a car and there is a 20 percent sales tax, you need to borrow an extra $2,000 to pay the tax. Some folks might decide to not buy the car, spending the $10,000 on something else, without borrowing $2,000.

There is no good economic reason to tax-punish consumption or borrowing. The purpose of production is consumption! If we punish consumption, we punish production. Consumption is not an evil to be thwarted, but the very benefit we get from the economy. We may as well also tax fun and joy! Those seeking to tax consumption act as though they have a Puritan streak that considers enjoying goods to be evil and working and saving to be good for their own sake.

Tapping rent or land value, by contrast, avoids the manipulation of an individual’s choice to save or borrow, consume or invest. A well-constructed land value levy has no distortive effect at all on human action or decisions, since it taps a pure surplus, what is left over after paying for the economic costs of production. The effect of shifting public revenue from labor and capital to land would be to liberate human action from the disincentives currently imposed by other taxes.

As Henry George noted,
The advantages which would be gained by substituting for the numerous taxes by which the public revenues are now raised, a single tax levied upon the value of land, will appear more and more important the more they are considered ... With all the burdens removed which now oppress industry and hamper exchange, the production of wealth would go on with a rapidity undreamed of ... [It would be] like removing an immense weight from a powerful spring.30

... An ideal public revenue policy respects a person’s right to privacy, does not discourage work or savings, and does not induce dishonesty. While income, sales, and value-added taxes fall woefully short of this ideal, land value taxation meets each requirement.

Imagine the increased prosperity and opportunities for advancement that would exist if people could keep all of the money they earn; if billions of dollars wasted on efforts to avoid high income taxes were suddenly turned to productive endeavors; and if the growth of government were constrained by a tax system that would raise only enough to pay for services actually provided. ... read the whole document

Wyn Achenbaum: Eminent Domain and Government Giveaways

It seems to me that there are better ways than eminent domain to provide the incentives that will lead the private sector to develop choice land. ...

While at one time this area might have been an appropriate place for a neighborhood of single family homes, it appeared to me that that time had passed a decade or so ago. It seemed to me that the path of progress would -- if the incentives were logical and the market responsive to signals -- have caused the private sector to have redeveloped that site. Such re-development might have been painful to the residents of the neighborhood, but would have put now-choice land to a higher and better use than single-family homes.

But our system wasn't designed to send signals all that well -- Connecticut law required properties to be reassessed once every decade (and I've heard that once in early '70s and once in the late 80's was construed to satisfy that requirement). Now assessments are required every 4 years (though my town decided it didn't like the 2003 revaluation and is keeping the 1999 for a few more years).

But if the properties had been reassessed on a regular basis, with market-based values assigned first to the land and the residual being assigned to the existing buildings, the homeowners themselves would have been in a position to make their own rational decisions on whether it was worth it to them to continue to occupy extremely valuable land (and pay the taxes on it), or more to their advantage to accept an offer from someone who was prepared to put it to a higher and better use, and take that equity and buy elsewhere. ...

Our land, particularly the best-located land, is a common asset on which we are all dependent. Allowing individuals or corporations to occupy it without compensating the rest of us for its value is the underlying problem, and solving that problem through good assessment and rational (that is, land value) taxes is the way to solve it. When we do that, a lot of problems will begin to fall away.  Read the whole article

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

Peter Barnes: Capitalism 3.0 — Chapter 1: Time to Upgrade (pages 3-14)

All thought processes start with premises and flow to conclusions. Here are the main premises of this book.

1. WE HAVE A CONTRACT ...
2. WE ARE NOT ALONE ...
3. ILLTH HAPPENS ...
4. FIX THE CODE, NOT THE SYMPTOMS— If we want to reduce illth on an economy-wide scale, we need to change the code that produces it. Ameliorating symptoms after the fact is a losing strategy. Unless the code itself is changed, our economic machine will always create more illth than it cleans up. Moreover, illth prevention is a lot cheaper than illth cleanup.

5. REVISE WISELY ...
6. MONEY ISN’T EVERYTHING ...
7. GET THE INCENTIVES RIGHT

Notwithstanding the above, an economic system works best when it rewards desired behavior. As Mary Poppins put it, “A spoonful of sugar helps the medicine go down” (and as I’ve never forgotten, offering a free pint of Ben & Jerry’s was the best way Working Assets ever found to get customers). While we’re looking for methods to protect nature and future generations, we need to make the incentives work for living humans as well.

If you disagree with any of these premises, you’re unlikely to fancy my conclusions. If, on the other hand, these premises make sense to you, then welcome to these pages. I won’t bore you with statistics, or tell you, yet again, that our planet is going to hell; I’m tired, as I suspect you are, of numbers and gloom. Nor will I tell you we can save the planet by doing ten easy things; you know it’s not that simple. What I will tell you is how we can retool our economic system, one step at a time, so that after a decent interval, it respects nature and the human psyche, and still provides abundantly for our material needs.

Perhaps capitalism will always involve a Faustian deal of some sort: if we want the goods, we must accept the bads. But if we must make a deal with the devil, I believe we can make a much better one than we presently have. We’ll have to be shrewd, tough, and bold.

But I’m confident that, if we understand how to get a better deal, we will get one. After all, our children and lots of other creatures are counting on us. ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 4: The Limits of Privatization (pages 49-63)

Socially Responsible Corporations
To survive over time, every organization needs to take in more money than it spends. (The only possible exception may be the U.S. government.) This means that even nonprofit organizations must, in a sense, make a profit. But making a profit isn’t the same as maximizing profit. In the first instance, profit is a means to an end; in the latter, it’s the purpose that trumps all others. Millions of organizations earn enough money to stay alive, yet pursue goals other than profit. Is it possible for publicly traded corporations to be like that? Can they have multiple bottom lines? Can they, in other words, rise above their profit-maximizing algorithm?

There are several ways this might be possible: enlightened managers might choose a higher goal than profit, shareholders might insist on it, and government might require it. Let’s consider each possibility.

ENLIGHTENED MANAGERS

Managers are human beings; they don’t care just about money, they also care about the larger world. The problem is, they’re trapped in a cold-hearted system. Managers are paid to do one thing, and to do it well. At best, they can be public-spirited as long as they don’t harm the bottom line. This gives them some range to operate — for example, if using recycled paper adds minimally to their costs without reducing quality, they might use it. But if it adds substantially to their costs, they won’t — or more accurately, can’t — sacrifice profit for the sake of a few trees. What matters at the end of the day isn’t the managers’ personal values, but the difference in price between recycled paper and paper made from newly felled trees.

There are other reasons not to rely upon the voluntary benevolence of corporate executives. As The Economist has written, “The great virtue of the single bottom line is that it holds managers to account for something. The triple bottom line does not. It is not so much a license to operate as a license to obfuscate.”

As a businessperson, I find this argument compelling. Every large organization, to be managed well, needs a mission. That mission should be as clear as possible. It’s hard enough to manage to one bottom line; it’s more than thrice as hard to manage to three. How do managers know, much less quantify, the external consequences of what they do? And even if they know, what do they do when goals conflict? Does profit trump nature or vice versa? If managers are accountable to shareholders for profit-based performance, to whom are they accountable for commons-based performance?

Hypothetical answers to such questions can no doubt be drafted, but what would happen in the real world, I suspect, is what The Economist surmises: profit maximization would dominate, accompanied by obfuscation about other goals. Corporate communications departments would try to maximize the appearance of social responsibility for the lowest actual cost. We’d see beautiful ads and reports, but little change in core behavior.

It’s important to remember that the profit-maximizing algorithm is enforced not just by laws, but by a variety of carrots and sticks. For example, CEO compensation is typically based on a list of goals established by the board. These often include nonfinancial goals, but the goal that carries the most weight, and is least amenable to obfuscation, is profit. Further, the CEO and other top managers usually receive stock options. Since stock prices are driven by reported quarterly earnings, managers who own stock or stock options strive to maximize these.

When carrots fail to motivate, sticks come into play — and they can be brutal. An “underperforming” corporation will be devalued by the stock market. This makes it susceptible to takeover. A classic example is the Pacific Lumber Company of California, the largest private owner of old-growth redwood trees in the world. Prior to 1985, Pacific Lumber was a family-run business that took a long-term perspective. When it logged, it left up to half the trees standing, creating natural canopies and keeping much of the soil stable. It was also generous to its workers, renting them housing at below-market rates and refraining from layoffs during downturns.

Sadly, however, Pacific Lumber’s responsible behavior made it easy prey for a takeover. Its concern for nature and its employees diminished its profits and hence its share price. Because of its cutting practices, it held tremendous stands of virgin redwoods that could be liquidated quickly. In addition, its pension plan was overfunded. Spotting all this, corporate raider Charles Hurwitz offered to buy the company in 1985 through a holding company called Maxxam. At first the directors refused, but when Hurwitz threatened to sue them for violating their fiduciary duty to shareholders, the directors succumbed.

Hurwitz financed his purchase with junk bonds, the interest on which was more than the historical profits of the company. To service this debt, he terminated the workers’ pension plan and began harvesting trees at twice the previous rate. Such were the fruits of the previous managers’ enlightened practices.

It is possible for a company to pursue multiple bottom lines if it’s closely held by a group of like-minded shareholders — that was the case at my former company, Working Assets. But once a corporation goes public — that is, sells stock to strangers — the die is pretty much cast. Strangers want a stock that will rise when they plunk down their money, and profit is the sure path to doing that. It’s just a matter of time, then, until the profit-maximizing algorithm kicks in.

I’ve spent a good part of my life talking with people who wish publicly traded companies could be socially responsible — not just cosmetically, but sufficiently to make a difference. They contend that corporations were once dedicated to public purposes, escaped their bounds, and can be put back in. They recall a time when companies were rooted in their communities, hired workers for life, and contributed to local charities. The trouble is, those days are irreversibly gone. Today, owners live nowhere near workers, labor and nature are costs to be minimized, and it’s hard to see what might displace profit as the organizing principle for publicly traded corporations. ...

MANDATORY RESPONSIBILITY
I don’t think it will ever happen, but consider this scenario. Imagine Congress passes a law requiring every corporation — in exchange for limited liability — to have a triple bottom line. The law also says that at least a third of corporate directors should represent workers, nature, and communities in which the company operates. And it protects directors from lawsuits if they favor nature over profit. You’re the CEO of Acme Corporation. What changes do you make after the law takes effect?

Well, you might start by increasing your accounting budget. You’ll need, henceforth, to keep track not only of money but also of your nonmonetary impacts on society and nature. This isn’t easy, though presumably shortcuts will be developed. Next, you assign people to find ways to reduce Acme’s negative impacts on nature and society, ranking the proposals by years to payback. You budget a modest sum for the most cost-effective projects, giving preference to those with public relations value. You publish ads and reports, patting yourself on the back for doing what the law requires. And you remind your board of directors that, if they choose, they can snub offers from the likes of Charles Hurwitz and forgo large capital gains for shareholders.

All this would be well and good. But given the algorithms that still rule, how much difference would it make? And even if it did have some effect, would it make enough difference in the right ways? After all, you might spend your small green budget on one thing, while nature most needs something else.

Now, as an alternative, imagine that the price of nature is no longer zero. All of a sudden, it costs big bucks to pollute or degrade ecosystems. Overnight, your managers scramble to cut pollution and waste. The higher the price, the faster their behavior changes. And it changes in response to specific natural scarcities, as indicated by specific prices.

The question is, which of these approaches would work better — mandatory social responsibility, or increases in the price of nature? The answer, without doubt, is the latter. ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 6: Trusteeship of Creation (pages 79-100)

By contrast, if pollution rights are assigned to trusts representing pollutees and future generations, and if these trusts then sell these rights to polluters, the trusts rather than the polluters will capture the commons rent. If the trusts split this money between per capita dividends and expenditures on public goods, everyone benefits.

At this moment, based on pollution rights allocated so far, polluting corporations are getting most of the commons rent. But the case for trusts getting the rent in the future is compelling. If this is done, consumers will pay commons rent not to corporations or government, but to themselves as beneficiaries of commons trusts. Each citizen’s dividend will be the same, but his payments will depend on his purchases of pollution-laden products. The more he pollutes, the more rent he’ll pay. High polluters will get back less than they put in, while low polluters will get back more. The microeconomic incentives, in other words, will be perfect. (See figure 6.1.)

What’s equally significant, though less obvious, is that the macroeconomic incentives will be perfect too. That is, it will be in everyone’s interest to reduce the total level of pollution. Remember how rent for scarce things works: the lower the supply, the higher the rent. Now, imagine you’re a trustee of an ecosystem, and leaving aside (for the sake of argument) your responsibility to preserve the asset for future generations, you want to increase dividends. Do you raise the number of pollution permits you sell, or lower it? The correct, if counterintuitive answer is: you lower the number of permits. ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 9: Building the Commons Sector (pages 135-154)

According to a near-unanimous consensus of scientists, the world is very close to a tipping point on atmospheric carbon: we must drastically curtail our carbon burning or climate hell will soon break loose. This means every nation must install economy-wide valves for reducing their carbon use. I described earlier how America might do this using a carbon, or sky trust. Since we can’t halt global warming by ourselves, however, the necessary complement to such an American trust is a global trust.

A global carbon trust would require national governments to recognize that, just as they can, and should, delegate internal trusteeship duties to trusts, so should they delegate global trusteeship duties. The alternative, I’d argue, is paralysis in the face of clear and present danger.

Consider the long and tortuous climate negotiations that began in the early 1990s. They produced, first, a toothless pledge by all nations — the Rio Convention of 1992 — to voluntarily reduce their greenhouse gas emissions to the 1990 level by 2010. Five years later, they produced a slightly toothier protocol in Kyoto, which took another five years to ratify and translate into operational rules. An equally prolonged negotiation now looms for the successor to Kyoto, which expires in 2012.

No doubt these negotiations could move faster if the current U.S. administration weren’t so obstinately opposed to them. But the deeper problem is that nearly two hundred sovereign nations are trying to negotiate a deal that satisfies everyone. The process is inherently cumbersome, and not surprisingly, the results fall far short of what scientists say is necessary. Perhaps, therefore, it’s time to delegate. I can imagine a global atmosphere trust working something like this. It would be governed by a smallish board of trustees and a general membership consisting of all signatory nations. The general membership would appoint the trustees. There might be, as in the U.N. Security Council, a number of seats reserved for “great powers” (in this case, large emitters) and another number set aside for regions. However, once trustees are appointed, their loyalty would shift from individual nations or regions to future generations. This is critical.

The trustees would decide, based on peer-reviewed scientific evidence, where to set a global cap on carbon emissions. Each year, they’d issue tradeable carbon emission permits up to that year’s limit. A portion of these permits (initially, a majority) would be distributed at no cost to participating nations based on a pre-agreed formula. The remainder would be auctioned by the trust, with the revenue used to remediate damage caused by climate change and aid the inevitable victims. The trust would determine on a yearly basis how many permits were needed for these purposes, and how the remediation funds would be spent.

The trustees would make decisions by majority vote, with no vetoes. Like a court, they’d explain their decisions in writing, showing exactly how they protect future generations. The general membership could override a trustee decision by, say, a two-thirds majority. In this way, signatory nations could put short-term interests over long-term ones, but they’d have to do so explicitly, and implicitly admit to stealing or borrowing from future generations.

The knotty question is, What formula should be used to distribute carbon emission permits among nations? The key to crafting such a formula, given the disparate interests of so many nations, is to ground it on some universal principle of equity. The Kyoto Protocol didn’t do this; it was a hodgepodge of deals and escape hatches aimed at pleasing the United States, which in the end didn’t ratify anyway. The next international regime, however, must appeal to the poor and the up-and-coming, as well as to the United States and other developed countries. Without an organizing principle based on equity, it’s hard to see how any deal can be reached.

Fortunately, an equitable organizing principle has been advanced: it’s known as contract and converge. Here’s how it would work.

First, an overall reduction schedule would be agreed to; this is the contract part of the equation. Then, rights to the global atmospheric commons would be divided among nations in proportion to their populations — in other words, one person, one share.

However, absolute proportionality wouldn’t kick in for a decade or two, during which time the allocation formula would converge toward proportionality. The rate of convergence would be a topic for negotiation; the goal of per capita equity would be accepted at the outset.

Before and after convergence, poor and populous countries with more permits than emissions could sell their excess permits to rich and relatively underpopulated countries that are short on them. In this way, nations could pollute at different levels, with overusers of the atmosphere paying underusers for the privilege. Americans could, in other words, extend our present level of carbon use for another decade or so, but we’d have to pay poor countries to do so.

Would a global atmospheric trust be too great a surrender of national sovereignty? I think not. We’re not talking about world government here. We’re talking about a trust to manage a specific worldwide commons. The one and only job of that trust would be to set and enforce limits on certain emissions into that commons. Some loss of sovereignty is involved, but less than we’ve already yielded to the World Trade Organization. Compared to the benefit we and all nations would gain — a stabilized climate — our loss of sovereignty would be small potatoes.

If a global atmosphere trust could be established, it would be a watershed twenty-first-century event. Geopolitically, it could lay the foundation for a harmonious century, much as the Versailles Treaty paved the way for a disharmonious one in the twentieth. It would also help the world deal gracefully with the decline in global oil production that experts say is imminent.

Economically, a global atmosphere trust would spur some important changes. Corporations the world over would immediately pour money into energy efficiency and noncarbon energy infrastructure. There’d be a rush to deploy new technologies. Economies — including ours — would boom, not despite higher carbon prices, but because of them.

Why would this happen? The simplest reason is that a global atmosphere trust would remove an enormous cloud of uncertainty. Businesses would see the future of carbon burning, and be more confident that a price shock — more damaging than a gradual rise — wouldn’t derail their plans. Such a trust would also remove a major source of international tension — the scramble for declining oil supplies — that could easily lead to war. In addition, the flow of money to poor countries (from sales of emission permits to rich countries) would lift their economies and wages, help U.S. exports and slow U.S. job loss. All these things would ensure that while high-carbon activity declines, low-carbon activity rises at a comparable rate.

But growth in aggregate economic activity isn’t the only benefit we’d see; qualitative improvements would also occur. Thus, as long-distance transport costs rose, manufacturers would shift from global to local production. Farmers would return to practices they used before cheap petrochemicals became available. They’d grow more food organically and sell more through farmers’ markets and urban buying clubs, cutting out middlemen and keeping more of their products’ value. For nonperishables, consumers would shop more on the Internet and less at drive-and-haul malls. Thanks to eBay, Craigslist, and similar services, they’d also buy more secondhand goods and dump fewer into landfills. More workers would ride bikes, jitneys, and trains, and work online from home. Cities would favor footpower, suburbs would reorganize around transit hubs, and new forms of co-housing would spread. All these changes would be profitable and even exciting. And they’d proceed with relative smoothness if we placed the global atmosphere in trust.

On the other hand, if we leave our atmosphere as an unmanaged waste dump, our glorious industrial party will abruptly end, brought to its knees by oil price shocks, climate disasters, or a monetary panic. After that, no one can know what will happen. That’s the stark choice we face. ... read the whole chapter

Bill Batt: Comment on Parts of the NYS Legislative Tax Study Commission's 1985 study “Who Pays New York Taxes?”

Henry George’s Solution: Taxing the Flow of Land Rent

If land values are really the present values of anticipated future ground rents, one can certainly treat them as flows rather than stocks, just as community services are continuous flows. The amount of rent flowing through a site and through the economy is not negligible; what estimates have been made, where indeed the economic data allow it to be made, suggest that it is roughly a third of a nation’s GDP.29 The question is whether it makes more sense to. Should we elect to continue property tax regimes as we do, it would make better sense to tax buildings as stocks and lands as rent flows. But this raises the question whether real property should be exempt from all taxes, as some have argued.30 What rationale exists for taxing lands, whether as stocks or flows; and why do we tax buildings? I will argue below that taxing buildings and the failure to adequately tax land both have deleterious consequences for the whole economy.

Little justification exists for taxing buildings, or improvements of any sort, so this question is easily disposed of. The practice is explained largely as a matter of historical inertia. Only in the recent century or two have buildings represented any significant capital value; prior to the rise of major cities, the value of real property lay essentially in land. American cities today typically record aggregate assessed land values – at least when the valuations are well-done – at about 40% to 60% of total taxable value, that is, of land and buildings taken together.31 Skyscrapers reflect enormous capital investment, and this expenditure is warranted because of the enormous value of locational sites. Each site gets its market price from the fact that the total neighborhood context creates an attractive market presence and ambience. By taxing buildings, however, we impose a penalty on their optimum development as well as on the incentives for their maintenance. Moreover, taxes on buildings take away from whatever burden would otherwise be imposed on sites, with the result that incentives for their highest and best use is weakened. Lastly, the technical and administrative challenges of properly assessing the value of improvements is daunting, particularly since they must be depreciated for tax and accounting purposes, evaluated for potential replacement, and so on. In fact most costs associated with administration of property taxation and appeal litigation involve disputes over the valuation of structures, not land values. ... read the whole commentary