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The Tax We Need
Tertius Chandler
[Reprint of a booklet self-published by the author]
FORWARD
"I have never seen a convincing refutation
of Henry George's proposition that it makes no sense to tax land
and capital or improvements equally; that taxing the rental
value of land not only can not interfere with supply but would
actually increase the supply offered in the market, whereas
taxing capital must to some extent interfere with the growth of
productivity. Mr. Chandler makes the case again, and cites
examples. More power to him." [ Alfred
E. Kahn, Advisor to the President on Inflation]
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The claim that poverty is eradicable may seem utopian, especially if
the remedy is land value taxation. However, LVT SPURS ECONOMIC GROWTH.
Briefly, if we tax land, we encourage fuller use, for who could afford
to keep land out of use, or in only partial use, if he had to pay a
full tax on the annual land rent? If we use this tax for revenue and
un-tax buildings and wages, then we'll have mere new construction and
renovation, and the after-tax incomes of workers will be higher. The
statistics from Australia, New Zealand, and South Africa show LVT
spurs economic growth: when a city switches to LVT, the amount of
building permits issued takes a sudden jump over previous years and as
compared to neighboring comparable non-LVT cities. [from Steven Cord,
Catalyst!, p. 75]
We Should Tax Land Values More
Nothing is certain but death and taxes. [Benjamin
Franklin]
Some taxation is necessary, for roads, police, firemen, etc. Taxes
should not fall on the poor, for they have too little to start with;
when that is taxed away they become beggars, thieves, or dead. Taxes
should fall on those who have the wherewithal to pay. Wealth is
primarily in two forms: land and money. The moneyed rich can be
reached by an income tax, though that has some defects both
theoretical and practical, as will be shown later. Land however is
most basic of all. It is on land that the principal tax should be
placed.
We have a limited supply of land on this Earth, and a good many
people to support. So anyone fortunate enough to own land, on farm or
in city, should make appropriate use of it. A good stiff tax on the
land's value can make him do this. In cities this value is site value.
Thus a vacant lot in the shopping district has a high sales' value
just because of its location. It should be taxed accordingly, whether
there is a building on it or not. The tax will force the owner to
build, or to sell out to someone else who will.
Buildings Should Be Exempt
The absence of any house tax will still further encourage the
landowner to set up a really worthwhile building. As the tax remains
the same, he may as well have the best building he can conceive! In
fact it works out about that way. Wherever the land value tax is in
effect, good buildings are plentiful, and ramshackle ones disappear as
if by magic. It is thus the free market operates, when it is spurred
by a sensible system of taxation.
Ill Effect of Taxing Improvements
All things made by man, such as houses and their contents, as well as
factories, vehicles etc., are called "improvements." All
these should be left un-taxed.
In England in the last century windows were taxed. Many
were then bricked up. This was bad for the health and comfort of the
people. In the Middle East a sultan placed a tax on date trees. They
were cut down. The food supply suffered and the country became more
arid. In South Africa, wheels have been taxed. The poor whites and
blacks who depended on ox-drawn wagons or carts removed the wheels.
That was hard on the oxen and bad for the country. Sleds tore up the
surface of the earth and greatly increased the peril of erosion. [Frank
Lucas in The Analysts' Journal, Feb. 1956]
Frank Lucas (1881-1958) got LVT adopted 1918 In Johannesburg, whence
it spread to Nairobi 1921, Durban 1923, Mombasa 1949, Bloemfonte in
1950, and Pretoria 1970. So he was responsible for the good use of
urban land In the countries of southern Africa.
Effect on Business
Tax manufacture and you check production. Tax buildings and you slow
development.
Tax trade and you hinder of prevent exchange.
Tax capital and you raise the cost of production.
Tax wages and you lessen purchasing power.
But you may take the whole value of land in taxation and the land
will not diminish nor be any less productive. On the contrary,
land-value taxation will reduce the price of land and make more land
available, stimulate trade and open up new opportunities to labor and
capital for the production of wealth. [
Cord, p. 18]
Thus the land tax is the happy exception to the rule. After all,
taxation cannot reduce the amount of land -- as it can and does cause
a fall in the production of any other commodity. When land is heavily
taxed, the effect is merely to cause its transfer from inefficient
users to efficient ones. This helps business and also the community as
a whole, as the energetic new owners put up apartments, stores, and
factories in locations suitable for them.
Effect on Wages
Propping up wages above the market level helps some workers but
dis-employs others. The higher the price for goods or services, the
lower the demand for them; this is the first law of economics.
Many studies demonstrate the truth of this, and it is
particularly the young and black who get left out. When the minimum
wage was increased in 1967, white teenage unemployment immediately
Jumped 20% and black teenage unemployment 25% ["Manpower
Report of the President," 1967, pp. 203-4, 216].
And why should it be any different when unions force wage increases?
When the steel union gets a wage increase, the extra wage cost boosts
steel prices, which in turn reduces the demand for steel. Less steel
is produced and some workers and dis-employed. [Cord,
p. 73]
Land-value taxation, by bringing land into full use, tends to
increase jobs until nearly everyone is employed. In four countries --
South Africa, New Zealand, Taiwan, and Australia -- it has contributed
to lifting employment in normal years consistently over 98%, and in
none of these countries is quite the full site value of land taken in
tax. With complete LVT the employment rate would have been even
higher, perhaps 99.9% -- a figure actually reached in 1974 in New
Zealand. When employment gets that high, bosses are nervous about
losing any workers and pay them reasonable wages to keep them from
deserting to some other employer. Labor becomes a scarcity item, so
its price tends to rise; it is supply-and-demand all over again --
except that this time it is labor that tends to benefit. The hapless
usual competition between laborers for jobs that is the basis of the
case for Marxian socialism simply disappears when the unemployed
marginal laborer finds himself in immediate demand. Thus wages in the
LVT countries tend to rise to the point where laborers receive a fair
return for their labor.
This solution is automatic. It requires no special wage laws or
subsidies by the government. In 3 of the LVT countries wage disputes
are handled by compulsory arbitration boards -- a method proposed by
Charles Kingston in South Australia in 1890 and first actually set up
by Pember Reeves in New Zealand in 1893. The decisions of the courts
are practically always accepted without objection, so strikes are very
rare in those countries. Except for the traditional black-white
differential in South Africa, the LVT countries enjoy peace on the
wage front.
Effect on Inflation
It was Lenin who observed that inflation was the most effective way
to disrupt capitalism.
- It is the cruellest tax of all, hurting the poor and
fixed-income elderly in particular. Well-to-do people can protect
themselves since much of their income comes from inflating
investments; their incomes tend to rise with inflation.
- It erodes savings, the source of future economic expansion; and
since the future rate of inflation varies erratically, it is
difficult to make accurate business plans for the future.
- It sets group against group, as each group in society seeks
political power to protect its economic position by special
political advantages. Instability spreads as one group gains and
others slip, not because they make a greater or less contribution
to the productive process, but because they are more or less able
to win special privileges in the political arena, or because they
are adept at speculation. Increasing social friction and
instability rend the social fabric of capitalism. [Cord,
p. 61]
Inflation occurs when demand exceeds supply, causing prices to rise
as people bid against each other. It occurs too when faith in a
nation's money gives way because the government is sinking deep into
debt and has to print extra money or sell bonds to make its payments.
The conditions needed to avoid inflation then are a fairly stable
economy and a very stable government whose income from taxes is equal
to its expenses.
There are two main ways to get Inflation under control. Neither is in
use in this country now.
One is a balanced budget. Not just a reduced deficit. Our current
(1980) deficit is $38 billion. Military costs are $114 billion. So the
saving can be made out of the military, and still leave us with an
effective 2nd-strike force if we should be attacked by Russia. Philip
Morrison and Paul Walker have written a book showing in detail how our
military cost could be cut to $73 billion. Even that is a lot for
peacetime. A $41 billion saving on the military would give us a small
budgetary surplus.
The other basic way to cut inflation is a land-value tax of 5% or
more. Taxing land lowers its sales price. Land is a large part of the
financial market, so low, steady land prices act as a strong brake on
inflation. Our federal government could get localities to apply a
land-value tax by refusing to make grants in aid to any that didn't.
This can be done by Congress, or by the president vetoing any grant
that lacks the tax proviso. As for state constitutional roadblocks
such as Jarvis's Proposition 13 in California, those would probably be
repealed in a hurry when states found out that was the only way for
their cities to continue getting federal money. So all this plan needs
is a president or a Congress willing to put it into action.
There are sundry other things that could help against inflation, well
summed up in Time, April 8, 1974, pp. 79-82, such as cutting
tariffs and import quotas, fixing prices in hospitals, and ending crop
supports -- but although worthwhile, they are trifling compared to
those two main measures.
If LVT were applied and accompanied by testraint in governmental
expenditures, inflation should be brought well under control.
Meanwhile, a windfall profits tax can be used to take for public use
some of the profit in oil -- a natural monopoly and part of land in
Henry George's sense.
Depressions
As Henry George was perhaps the first to point out, in 1879, runaway
land speculation is the underlying main cause of major depressions. It
is the central trouble, that turns little depressions into big ones.
Every depression has been preceded by a rampant land speculation.
During a period of prosperity, people start to buy land not at prices
reflecting current use but future price appreciation (rise). With the
demand for land Increasing, and the supply fixed, who can doubt the
price will rise? The mania to buy land now for resale at a higher
price later is fed by numerous stories of private fortunes being made,
made, made. The tempo quickens. Inexorably, the cost of land
speculation is reflected in higher and higher prices of all goods and
services until the current money supply becomes Inadequate to clear
the market.
As incoming orders diminish, and as land costs rise, the active
producers, labor and employers, are gradually being squeezed,
squeezed. The awful day of collapse is postponed by the extension of
credit to the active producers -- but only postponed. Eventually, as
production costs rise beyond demand, the collapse comes with a snap,
like the breaking of an overextended rubber band.
"But," will come the rejoinder, "we haven't had
depressions in recent times, not since 1929-39. And yet, neither has
there been any substantial amount of land-value taxation. This doesn't
accord with your analysis."
Ah, yes, but not quite. Rather than attack land speculation
rationally by taxing the profit out of it, we have been narcotizing
the problem by injecting additional money supply into the economy.
This puts more money into the hands of consumers so that they can buy
the products of industry at the higher price reflected by the onrush
of speculation. The, result is not depression, but inflation!
Let us once stop the inflation used to cover up the effects of land
speculation, and we will be plunged into depression.
We have dealt with symptoms, not causes. Like morphine addicts, we
require ever-increasing doses of -- well, not morphine, but inflation.
We are shooting ourselves full of money supply, putting off the evil
day when the money will lose all value and the economy collapses. What
happened in 1929 will then look like a minor recession by comparison.
[
Cord in his Incentive Taxation, May
1979]
I differ only with the last sentence. Inflation might succeed in
curing the effects of an unbalanced economy, by distributing the loss
over all who possess any money. So it may be possible to avoid an
outright depression in this way, unwholesome and unsound though it is,
provided the economy slowly gets onto its feet. If however federal
expenses overrun income by a large enough amount, or land speculation
runs on unchecked, the government can indeed collapse in total
bankruptcy. Chaos would then follow, as professor Cord suggests.
Speculation
Land speculation is the holding of land out of full use
in expectation of selling it for a higher price in the future.
Speculation in labor-produced things is generally short-lived, since
if the price goes up, an increase in supply becomes profitable,
supply then increases and the price returns to normal. But in the
case of land, no increase in supply is possible; thus, land
speculation is self-sustaining. When we keep land out of use as
determined by current market demand, an artificial land shortage is
created. This boosts land prices, and this extra price of land due
to the artificial shortage is reflected in the increased price of
other commodities. [Cord, p. 62]
Land in the years 1958-66 rose in price 6.2 times as fast as the
consumer price index. [Douglas Commission
report]
Our system taxes the value of unimproved or underdeveloped land so
lightly that land owners are under no pressure to sell until they are
offered many times what their land is worth; and land so lightly that
there is no tax restraint on its price. So the price of our land --
which reflects the capitalized difference between the rent the land
can be expected to earn and the taxes it must expect to pay -- has
soared clear through the roof. The home builders have voted 3 to 1
that this land price inflation is their number one problem in trying
to meet this country's need for better housing. I will go even further
than that: this intolerable, tax-subsidized inflation in land prices
is the only reason why private enterprise cannot hope to build
new big-city housing cheap enough to meet the needs of middle income
families and the biggest reason why private enterprise cannot meet the
housing needs of low Income families.
To cite only one example: The average price of New York City land
taken for redevelopment has recently been $485,000 an acre. How can
private enterprise be expected to provide low-cost housing in the face
of land prices like that? When you have to pay too much for your land,
you have no choice but to build high-rise structures to spread the
too-high land cost over as many units as possible -- and building
high-rise structures costs at least 50% more. [Perry
Prentice in The Architectural Forum, Nov. 1965]
Profit from land value in the U.S. in 1977 was $87 billion [Peter
Meyer in "Harper's," Jan. 1979]. This profit -- made
possible by governmental services such as roads -- should go in taxes,
so the government can maintain and expand those services. Private
speculators shouldn't get it. Realtors should be allowed a normal
payment for clerical work done and of course for any building they do
to improve the site -- but not more.
The profit on land, excluding inflation, tends to be about 8-1/2%.
With improved use under a land-value tax, it would surely be more. No
city collects nearly that much. But a tax 5 or 6% on land value is
enough to drive speculators off, as they can then make more in other
investments.
The change to LVT, if made in one stroke as in New Zealand,
Australia, etc., is a bit hard on those who have recently purchased
land. Therefore the city of Pittsburgh, which moved halfway to LVT,
took 12 years to do it by gradual stages, 1913-25. On the other hand,
people who have just bought land are usually well off and quite able
to stand a little set-back. Moreover, the greater injustices of
unemployment, inflation, and crime are all relieved best by the
immediate change. Then too, most landowners actually pay less under
LVT -- because the wasted or under-used land that gets taxed more
under LVT Is usually held by only a few people or corporations. So it
is that the landowners themselves in New Zealand etc. vote for
immediate change. They are better off that way. In those countries
only landowners are allowed to vote on this issue. I see no reason why
renters should not be allowed to vote on it too, as the rate of rent
reflects land-tax policies. Renters stand to gain even more than
landowners from LVT, so if properly informed they should be a
substantial help in getting LVT adopted in this country. That is, if
they don't agitate so tactlessly as to create a backlash, as has
happened already here sometimes in the past. On this issue poor
renters and prosperous businessmen should stand together, and the lead
should perhaps be taken by economists such as university professors,
as they understand so thoroughly what this subject is all about.
With such a united front, perhaps the speculators can be overcome.
Effect on Cities
Any policy which anchors poor people in a declining city
-- whether it be by generous welfare payments, subsidized housing or
subsidized employment -- is bound to be cruelly counterproductive. [Irving
Kristol]
Raising the tax on land makes it less desirable, hence cheaper to
buy. So builders can afford to buy it sooner and have more funds left
over with which to make better buildings.
It is in cities that the land-value tax is most effective. Indeed it
may be the only way to save the urban cores. Urban revivals by the use
of federal money can be so costly as to bankrupt the federal
government. A land-value tax does the job automatically.
Perry Prentice got the U.S. Chamber of Commerce's urban affairs
committee to come out for the land-value tax in a resolution, Feb. 17,
1971, saying among other things:
We believe it obvious that heavy taxes on imports inhibit
and often prevent investment in improvements. Conversely we believe
heavier taxation on location values could put effective pressure on
the owners of underused or misused locations to put their property
to better use or sell it to someone who will.
We believe that many businessmen have insufficient understanding of
the harm today that widespread misadministration of the property tax
may be doing in their communities.
Gurney Breckenfeld summed up the case more recently in Fortune,
March 1977:
The real tragedy of our shrinking cities is that they
have hastened their own decline by giving individuals and companies
a self-interest in doing what is bad for the community.
Among disincentive taxes the property tax has by far the largest
and most pernicious effect.
The trouble with the property tax is not what it is commonly
thought to be: soaring tax bills that burden hard-pressed
homeowners. The real trouble is the basic structure of the tax -- a
confusing and little-understood fusion of two separate taxes, one on
the building and one on the location.
Most cities collect two or three times as much tax from buildings
as from the site value of land. The low tax on land rewards
speculators, making it easy to keep idle or under-used sites off the
market until urban growth drives the price up enough for a fat
profit. The high tax on improvements discourages both the
construction of new buildings and the maintenance of aging ones.
The remedy is to turn the property tax upside down so it will hitch
the profit motive to the right objective. States should adopt
legislation allowing localities to abolish the tax on buildings and
impose a corresponding increase (Indeed any Increase -- TC) in the
tax on land. Under such a tax shift, several studies have found that
most homeowners would pay less. More important, the incentive in
really good buildings would increase, while the lure of land
speculation would diminish.
The following quotation bears out the above claim:
All apartment buildings in Pittsburgh pay less with the Graded Tax
(limited LVT) in force there as compared to what they would pay with a
flat-rate property tax. [Cord, p. 47, citing
former chief assessor Percy R. Williams]
Nothing demoralizes a town more than blight at the core, the central
business district with empty stores or shabby cheap ones. Jobs are
lost, momentum too. The commercial potential may be there -- a ring of
prosperous shopping centers attest to this -- but the city is weak at
the heart. It's a sick thing to see.
There are many things a city council can do to help downtown
businesses. How about getting rid of sales taxes, inventory taxes
(abolished in California in 1979), business privilege (!) taxes,
license taxes and who knows what taxes which are hobbling and harrying
our downtown businesses.
Don't we want retail sales, downtown businesses and Jobs? So why tax
them? Suburban shoppers rarely if ever have to pay these taxes. For
example, movie theatres in Pittsburgh are going out like lights; they
can't compete with suburban theatres which don't pay the heavy
entertainment tax they have to pay. What is the matter -- is
entertainment something evil that we should tax out of existence?
ANOTHER SOURCE OP TAX REVENUE. Of course, our cities need tax
revenue. But instead of taxing downtown businesses into trouble or out
of existence, they should tax land assessments instead …The
up-tax on land (not buildings) will encourage landowners to use their
land more fully … just as in Australia, creating jobs and helping
business. [Cord, p. 17]
Let a businessman use his machinery inefficiently, and he will soon
go bankrupt. But if a landowner uses his land inefficiently, then he
suffers no penalty for so doing. He merely foregoes an extra income he
could earn -- unless, of course, he has to pay a tax on land value.
Then his out-of-pocket expenses would encourage him to use his land
efficiently or sell to someone who would. The higher the tax, the more
incentive he has to use the land efficiently -- and incidentally
contribute to the re-employment of some other people. The higher the
tax, the higher the employment, and with unemployment diminished to
the quintessential nub, the higher will go the general demand for
labor and the general wage level! Let the free market work in land as
it does elsewhere, and the wage level will naturally float on upward.
Land is a vast storehouse of raw materials and locational advantages
which workers and businessmen must draw upon in order to make a
living. ...But the active producers, labor and businessmen, must have
access to land. ...The only way to do this is to tax land values. [Cord,
pp. 73-4]
A recent study in Montreal came up with this fascinating statistic:
if local land owners had to pay the city 5% interest on the city's
investment in ... community facilities -- roads, streets, sewers,
schools, water supplies, fire protection, police, etc. -- then the
city could run its government and operate its plant without collecting
any taxes at all! [Perry Prentice]
HOW TO ATTRACT NEW INDUSTRY. Any town can attract new industry with
land-value taxation. Here's how:
- By reducing the price of land, LVT would reduce considerably
the initial investment required by new industry. Industrial
prospects need shell out less for land -- less for the privilege
of entering the community to provide much-needed Jobs and
services.
- By abolishing the tax on the factory building which the new
industry would construct, the operating costs of a new factory
would be considerably reduced -- another attraction to new
industry. [See studies by Schwartz &
Wert on Bethlehem, Pa., Lehigh U,
1958, p. 19 and by Cord on Lancaster, Pa. Cord, p. 19, revised]
In 1953 Dunedin, New Zealand, adopted LVT. A tremendous increase
in construction and renovation ensued in the old town. In the 6
years before, the average value of building permits issued was
$7,400,000 annually. In the year following, the value jumped to
$12,500,000 -- a 69% leap! [Cord, p. 98,
condensed]
Buninyong, 73 miles from Melbourne, in 1972 voted to switch to
land-value taxation. Buildings were completely untaxed in April
that year. What happened?
Boom. Construction in neighboring localities grew that year by
13% while Buninyong, which had been stagnating, saw construction
rise by 400%, and so it continued in the years following. [Cord,
pp. 20-1, condensed]
Under the striking headline "The kiss of life,"
Melbourne's newspaper The Herald on Dec. 2, 1972 ran a
full-page article on suburban South Melbourne City. It described
its amazing renaissance, shedding off long years of deep sleep and
bouncing back to exciting times again. To quote from the article:
"Resurrecting a city is a magical thing, but it
takes toil and great purpose when man is attempting a miracle.
In South Melbourne the revivers are in a rage of earnest.
"Some begin earlier than others: suddenly it's all
happening at once. "Big industrialists and bold young
professionals are pushing up commercial castles there. Faded
mansions are being re-vamped into fashionable town houses.
Quaint cottages in forgotten streets are being resuscitated by
loving hands. Once-despised architectural styles have become
treasures again.
"The influx of work-places and home-makers has trebled the
value of building permits in the past 3 years."
It all began back in November 1964, when the property owners
voted in referendum to switch to the land-value tax system.
In the first 6 months of 1965, the value of new building permits
was 2.4 times what it had been for the four preceding 6-month
periods. ...Not only that, but the growth in construction
continued unabated in the ensuing years. [Cord,
pp. 96-7]
14 of the 28 largest cities in South Africa tax land values only
and exempt buildings entirely. 9 cities tax land much more than
buildings (2-15 times more), while only 4 tax land and buildings
at the same rate.
How goes it in Johannesburg, the largest of South Africa's
cities? Here follow extracts from an article by J. McCulloch, city
valuer (chief assessor):
"As regards the benefit to a city of site value
rating, this is obvious in Johannesburg with its tremendous
development in the relatively short period of its existence.
There are more new developments and more replacements of
non-viable buildings than in any other city in the Western
World. ...In central Johannesburg, once a building becomes
incapable of producing rentals comparable with adjoining modern
developments the trend is to demolish and redevelop, and
buildings have been replaced 3 times in 80 years to retain
viability...
"In Johannesburg a site fully developed pays exactly the
same rate as a similar site partially developed or vacant. And
the stimulus to develop with no increase in rates has produced
the modern development which is not evident in other cities of
the world. A house owner who develops his property to the
maximum is not penalized by having to pay on his improvements."
[McGulloch in Land & Liberty,
Jan. 2, 1976, quoted in Cord, pp. 98-9]
Effect on Crime
Many proponents of land-value taxation are still unaware that it has
any usefulness in reducing crime. But it does.
The effect is indirect but nonetheless real. LVT clears out slums. So
criminals have no dismal districts in which to congregate. If a few
people are hard up in an LVT city, they will tend to live separated
from each other, in prospering districts which can easily afford to
carry them. They do not need to slip into crime from mutual despair in
a sordid, broken-down neighborhood.
Along with this wholesome lodging situation goes the abundance of
Jobs. LVT puts land into full use, which in turn means more employment
-- usually virtually full employment. New Zealand had over 99%
employed from 1966 through 1975 (despite the mounting oil crisis) and
so did South Africa, while Taiwan and Australia despite a sizeable
influx of immigrants did nearly as well. Employed people are much less
likely than the unemployed to get into crime. Thus of U.S. Americana
in jail in 1979, 43% were jobless at the time of their arrest [
National Enquirer, Sept. 4, 1979].
In view of these considerations it should come as no surprise that
New Zealand shows the lowest murder rate in the world for 1975, the
latest date for which comparative figures are available: .16 per
100,000 inhabitants. Violent crimes there are about 1/35 as common per
capita as in the U.S. Both countries grew up largely at the same time
and with similar speed, with similar British traditions, and it is
useless to say the racial mix in America excuses any such inferiority
as a ratio of 35:1.
Clearly, LVT is valuable against crime. Indeed this may well be its
most appealing aspect.
Public Transportation
Here's how we can make public transportation self-sufficient:
- The fares should cover operating and maintenance expenses only
-- in which case, such fares should be rather moderate.
- The construction costs of subways, surface trains, highways and
bus systems can be paid for completely by a tax on the increase in
land values resulting from these desirable public Improvements.
"But," one might ask, "would a tax on the
increased land value really pay for the huge construction costs?"
The answer is yes and here are some facts to prove it:
New York State taxpayers spent more than $400 million to build
the New York Thruway, but land values along the route increased by
much more [Perry Prentice in Architectural
Forum, Nov. 1965, p.6].
Since the Toronto subway was built, land values have skyrocketed.
A 100 square foot plot purchased in 1947 for $22,000 sold ten
years later f"r $257, 000 [Life
editorial, 1965].
The landowners on Staten Island, NYC, pocketed a $700 million
windfall because other taxpayers put up the Verrazano Narrows
Bridge, making their land much more accessible than before. And
one can wonder about the increase in land value on the Brooklyn
side of the bridge [Perry Prentice in The
Commercial and Financial Chronicle, Aug. 22, 1968].
The opening of the George Washington Bridge increased land values
on the New Jersey side alone by $300 million, or more than 6 times
the construction cost [Gilbert Tucker, The
Self-Supporting City, p. 11].
And so on and on we can go. And there is good reason for it: a
necessary transportation improvement makes a neighborhood more
accessible, more convenient to live in. It thus increases the
value of its location, and this is directly expressed in increased
land prices. [Q.E.D. Cord, pp. 26-7]
The California legislature unanimously passed a bill by James
Mills to finance the San Francisco Bay area subway by taxing
increased land values, and the law was signed by governor Ronald
Reagan -- before land speculators got into action and somehow got
the law scrapped and the cost passed onto the general taxpayers,
who are still paying it by an increased sales tax. A good chance
was missed. [See Harlan Trott in Contra
Costa Times, May 7, 1978]
Suburban Sprawl
It is worth keeping in mind that every empty acre in our
cities required the development of dozens of acres out on the rural
fringe." [Mason Gaffney, quoted in Cord,
p. 38]
It might be thought a high tax on urban land would drive people out
into the suburbs and take farmland out of cultivation. This is in fact
the commonest criticism I have met. Yet nothing could be further from
the truth.
A high land-value tax, by lowering the price of land, makes it easy
for merchants and residents to buy into the inner cities, while the
removal of the tax on buildings under LVT is a further boon,
encouraging people to set up fine buildings, good enough to let them
make more than enough to pay the land tax each year. This goes not
only for shopkeepers but also for apartment builders, who set up under
LVT a lot of good, moderate-height residential structures. These
buildings house and employ more people than formerly, while
low-density slums disappear. So population in the inner suburbs and
even in the central city tends to increase, and the drift toward the
countryside is reversed. Farmland is preserved. Urban land is better
used. Smog is reduced, as commuters travel shorter distances, and some
workers come to live near enough to their jobs not to need to drive to
them at all. After all, many people live in the suburbs so as to avoid
the derelict central districts; once those districts become pleasantly
liveable and crime-free, there is much less point in living out in
suburbs.
The pleasant scenario pictured above is borne out by the facts
wherever LVT has been tried, whether fully or in part: in Wellington
(where it was already tried back in 1849 -76 and again since 1901),
Brisbane (first Australian city with it, 1891), Sydney, Taipei,
Johannesburg, Durban, Pittsburgh, Scranton, Harrisburg, etc.
Up taxing land in and close to the city offers the one
best hope of stopping the premature subdivision of land that should
be left open for farming and recreation for many years to come. No
developer in his right mind would leapfrog out into the boondocks if
today's underassessment and undertaxation of the close-in land
needed now for urban growth did not make it so easy for its owners
to hold it off the market until they can exact a ransom price.
...Land prices have been shooting up [multiple] times as fast as the
rest of the price level according to the Douglas Commission Report
and faster since. [Perry Prentice in American
Journal of Economics and Sociology, Jan. 1977]
The second commonest criticism I get is that LVT might cause cities
to become too much built-up. Again, not so. Here is the answer to that
one:
Could it cause land to be used too intensely? Will we
have shoulder-to-shoulder apartment houses? Will urban parks
disappear? Will cities be congested with traffic, and will people be
elbow to elbow?
No, because land-value taxation keys land use to demand. A heavier
tax on land values would tend to put land into its optimum use as
determined by the demand of potential users, but it won't favor more
intensive use than that. In short, the people will get what they
want. In fact, rather than cause over-intensive use, LVT will
alleviate the problem, for these specific reasons:
- LVT encourages more even land use. No underuse, but no
overuse either.
- LVT makes parks easier to establish because it lowers the
purchase price and also because it makes the city more
prosperous and hence more able to buy and hold the desired
parkland. [Cord, pp. 38-9, revised]
Zoning
Zoning is an unnecessary interference in the free flow of economic
development. Houston has no zoning, and leads the nation in new
building in 1981. For details on Houston, see Dick Bjornseth, "Houston
Defies the Planners," in
Reason, Feb. 1978.
Zoning wastes half of economic rent in the process of redistributing
it, as Mason Gaffney said in his speech in San Francisco, Aug. 1979.
With an adequate land-value tax, land prices even on the rural fringe
of growing cities would remain low. So zoning could and should be
dispensed with. It is a needless regimentation.
Irrigation
Ever since 1909, California law requires that when new irrigation
networks are built, they are to be financed by a tax on the affected
land values only; all privately owned improvements were to be property
tax exempt. The theory was that since land values jumped due to the
publicly owned irrigation networks, the expense of those networks
should be borne by the affected landowners.
The result has been beneficial to the local farmers, particularly the
smaller ones. The irrigated valleys are among the most productive in
the world, and in 1914 the Modesto Chamber of Commerce stated that "as
a result of the change many of the large ranches have been cut up and
sold in small tracts. The new owners are cultivating these farms
intensively. The population of both county and city has greatly
increased. ...The new system of taxation has brought great prosperity
to our district. Farmers are now encouraged to Improve their property.
Industry and thrift are not punished by an increase in taxes." [
Congressional Research Service, "Property
Taxation," p. 48. Cord, p. 41]
Farmers and LVT
Farmers have been in the forefront of the land tax movement wherever
in the world it has been widely adopted, as in Australia, New Zealand,
western Canada, and Denmark.
For instance in largely rural Queensland, Australia, the rural shires
there all pay a land value tax of 5.8% on assessed value (1953; the
1980 figure is similar - TC). In the state of New South Wales, the
farmers in all the rural shires have chosen to pay for all local
governmental expenses by a tax on land values only.
In North Dakota, all farm improvements are exempt from property
taxes, which consequently fall on land values alone [
U.S. News and World Report, April 3,
1978, p. 54].
In short, the government should tax first what it has created --
i.e., land values -- and as much as possible leave to individuals what
they have created --i.e., wealth and income. [Cord,
pp. 41-2]
The North Dakotan rural land-value tax has been in effect since 1919.
Full Assessment
The law of every state in the nation says that all real estate should
be assessed at full market value or at least a uniform percentage
thereof. But in fact in almost every jurisdiction, land is assessed at
a smaller percentage of market value than are buildings. Result: land
is undertaxed and buildings overtaxed in open violation of current
law.
Prof. Philip Finkelstein has found these variations in the average
ratio of assessment to value:
| Metro Area |
Residential |
Business |
Vacant Land |
| New York |
3.6% |
5.0% |
2.3% |
| New Jersey |
2.8% |
3.5% |
2.8% |
There is an obvious inequity in this situation. It amounts to a
negative land value tax -- granting a premium for under-use and a
penalty for individual initiative! Does your taxing district suffer
from the same assessment inequity? [Cord, pp. 31, 13, condensed]
In Nassau County, Long Island, there is evidence that idle land is
assessed at an average of less than 1% of its market value. [Perry
Prentice in The Architectural Forum, Nov. 1965]
Assessment -- How It's Done
Involved calculations need be made only for selected benchmark
properties, and the values established for the bench marks may be
extrapolated to all properties.
Properties which were sold and redeveloped provide clear market
evidence of site value. When properties are redeveloped without a
change of ownership, the construction and operating cost data and
rentals paid for the new building space provide market data for
calculating site values. [
R. W. Archer, "Site Value Taxation in
Central Business District Redevelopment" (Sydney), p. 22]
Assessors in Australia have found assessing land takes only 1/7 as
much time as doing it for land and buildings.
There are also far fewer complaints, as land value can be quite
accurately determined for the whole district, whereas comparing
buildings is almost impossible, as each is individual with endless
special characteristics, to say nothing of the degree of depreciation.
Land Rent Is Huge
Land rent for the U.S. in 1980, including mineral land values, could
amount to $440 billion or even as much as $600 billion. [
Cord, pp. 59-60]
This is a huge sun. If taken as taxes, it would be nearly enough to
finance all our government, federal and state and local. If we would
pay off our national debt so we'd no longer have to pay interest on
it, and if we furthermore reduce our military costs, this huge income
from land rent gathered in land-value taxation would finance our
governmental expenses with a margin to spare -- which could be rebated
to the people on a per capita basis.
As it would be a Single Tax adequate to all needs, there would be no
reason for other taxes. None whatever. What a blessing that would be!
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