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Once upon a time, in order to raise necessary revenue, a city taxed all trees bearing fruit, all houses with roofs and all shoes with soles. In order to avoid the taxes, people cut down the fruit trees, took the roofs off their houses and the soles off their shoes.

Hordes of city officials were unable to prevent them. They all lived in poverty without proper food, shelter or clothing.

One day a new mayor was elected, and he persuaded his councillors to lift all taxes from trees, roofs and soles. They agreed, and instead put a charge on the ground where the trees grew and on the sites where the houses stood.

Now, because the citizens had to pay the charge whether they had fruit trees or not, they planted as many as they wished and not only did they have enough for the payment but had plenty left over for themselves; and since they had to pay the same charge on the site where their houses stood whether they had roofs on or not, they put roofs on their houses; and because there was no longer a "penalty" for having shoes with soles, they soled their shoes.

Immediately there was a great demand for workers to grow fruit, build houses and sole shoes. Soon the cay prospered and only the idle lived in poverty.

Introduction

The idea that governments could raise revenue without taxes, has - despite any apparent contradition in terms - immediate and popular appeal, but the concept is not new; it has an impressive history, during which the central tenet or the principle upon which it is based, has been propounded and supported in one form or another by many eminent people.

Dr. Thomas Nulty, Bishop of Meath; Adam Smith; John Stuart Mill; Herbert Spencer; The Physiocrats; Thomas Jefferson; Abraham Lincoln; Thomas Paine; the eponymous Henry George, and followers; Michael Davitt; Winston Churchill; Albert Einstein; Leo Tolstoy; Sun Yat Sen; Milton Friedman and Caspar Weinberger, have all recognised the validity of the proposal. Even Karl Marx, in his little known Volume III of Das Capital produced passages which may easily be mistaken for George's work, - and in the process he turns the previous two volumes on their heads. (See Appendix for references).

The proposal however, has never gained popular understanding. It may be grasped intuitively from a children's story, but its scientific definition has remained elusive, possibly because none of its advocates, despite all their genius, ever fully understood it. Even George made his mistakes. This may explain why it has never been fully implemented anywhere before now.

That it has been grasped intuitively without being fully understood may be due more to the nature of consciousness than to anything else. Fortunately, consciousness is evolving; and the recent consciousness of "natural resources" seems to permit full understanding of the idea.

It is perhaps an idea whose time has come.

RAISING REVENUE

The problem with the present system of raising revenue arises because its method - charges (taxes) levied directly or indirectly on individual activities -as fundamentally antagonistic to the aspect of human nature which seeks to avoid unneccessary financial outgoings; so that it acts on the economy in the same way as legal penalties act to deter law breakers.

This antagonism is well demonstrated by the incidence of tax avoidance and evasion, and also by the connotations of the word "taxing" as "burdening", "overworking" and "exhausting". (Roget's Thesaurus).

The results of the Window and Fireplace taxes in the bricking up of windows and fireplaces, under seventeenth and eighteenth century British law, well illustrate the parallel between taxation and penalisation: If it is wished that the law be upheld, financial penalties will discourage lawbreaking; if it is wished that people live in relative poverty, taxation of production, trade and earnings will discourage wealth creation. The mode of action in both cases is precisely the same.

The difference however, is that whereas lawbreaking is not essential to human life, production, trade and earning are its material quintessence. Since life must go on, the disincentive effects of taxation become woven into the whole fabric of society; the cause-and-effect links shown by the Window and Fireplace taxes are not always so apparent.

The links between modern taxation and its resultant ills are blurred to the point of invisibility; yet, a priori, such links must exist.

To those who can see the crippling and disincentive effects of taxation, the question arises as to how governments may otherwise raise revenue. The proposed alternative is given below.

To some, this proposal may appear to be just another tax; and even some of its most ardent proponents have called and continue to call it a tax. The point is however, that the subject of the charge is not the product of individual activity, so it is not, by popular understanding of the word, a tax.

Zero Taxation

Before dealing with the proposed revenue raiser, it must be stressed that this proposal ultimately involves the complete abolition of all taxes.

The benefits to society, the economy and the environment that would flow from such a change are difficult to describe: Just imagine the stimulating effects of doing away with all taxes: Profits, Capital, Income Related, Value Added and all the rest of them.

The proposal outlined below is alternative to taxation and not additional to it; any speculation as to its effects must take the benefits of zero taxation into full account.

The Natural Resource Rent

Definition

Revenue may be raised from an annual charge levied as a percentage of the sale value of the "natural resources" held by each individual or company; "natural resources" being defined as real estate minus all developments.

(Cash flow problems caused by once-a-year payment may be remedied by instituting payments at suitably regular intervals, such as once-a-month).

(The use of the terms "land" or "site" instead of "natural resource" tends to cause misunderstanding due to their ambiguity: both terms may include developments. The term "ground" is perhaps more accurate, but its use is politically inapposite due to the history of injustice surrounding "ground rents").

The mind hesitates: it is impossible to separate the natural resources from such articles of human fabrication as buildings and land improvements - separation of their sale values seems consequently fraught. This is the only genuine problem to be encountered, and its resolution is the key to understanding and implementing the proposal. The following description of the mechanism by which this is solved is the central point of this paper.

Operation

In order to implement this proposal the sale value of each holding of natural resource must be carefully assessed. In this, absolute accuracy is at first impossible; approximation is the best that can be managed, and this may be done by taking the sale value of the complete real estate - read from the market - and subtracting from it an estimated value for all developments and improvements it includes.

Real Estate value - Developments value = Natural Resource value.

Operated by professional assessors using standard codes of practice, aided by resource maps along with the compilation of resource value maps, this method will produce consistent valuations. However, they are only approximations, which, while accurate in certain circumstances may not be so in others.

Such inaccuracy is likely to be relative rather than absolute and to be confined between the major resource types, e.g. urban v rural, fertile v infertile soils; because the use of resource value maps (which would show value contours, zero/very low for mountains and bogs, rising to peaks at urban centres and mineral deposits) should rule out inaccuracies among neighbouring or similar holdings. The inaccuracies which do occur are likely to be small in any case.

Market Feedback

If then the charge is implemented on the first approximation, the errors will lead to over and under charging on the affected resource types. The injustice of this aside, (it would be unjust only for the first year and would be very slight compared with the injustice of any other form of revenue raising) the market response would be the readjustment of the price of affected real estate, so that at subsequent reassessment the errors would be redressed, i.e. The price of real estate with under-charged resources would- rise (relatively), and that with over-charged resources would fall (relatively); subsequent reassessment of natural resource values would reflect these changes and the new charges based on them would be more fairly distributed.

This constitutes an inherent feedback mechanism, ensuring that the approximations correspond more and more closely to true valuations at each reassessment.

(Perhaps a philosophical note should be sounded here: "value" is, in the final analysis, relative only to demand or need, and is therefore subjective. It may be objectified at particular points in space and time in the form of price at particular transactions. Being such a slippery animal, "valuation" requires dexterous handling).

So potent is this feedback that even if the codes of practice and the assessors were in error, or the rates of charge not exactly uniform, the correct charges would inevitably be reached. In fact, once set into operation, and all taxation abolished, it would be the free market that determines the charge distribution, and no-one else.

Resource Rent

For the charge is in effect a rent (The word "rent" is used throughout this paper in the common English or classical economic sense and not the neo-classical economic sense) for the exclusive private use of natural resources, with the rates set by the "higgling" of the market.

This also makes it difficult to say accurately in advance how much typical individuals would be paying; all that can be said is that the charge would fall justly everywhere, and that only those who hold more natural resources than they use would find it a burden; all others would find it an easy payment, made in good faith for services rendered.

Assessments

All of the above is dependent on a free market and on regular and frequent reassessments, no less than one each year. Difficult and expensive as the latter may seem, it should be neither, given our age of telecommunications and computers. Indeed, once set up, a computer program could carry out a reassessment of the entire country within a matter of hours; dependent largely on details of all real estate transactions since the last assessment.

Natural resource values are not affected by the operations of individual owners (with the exception of the working out of mineral deposits) but rise (and fall) with the general demand for them. Reassessments are therefore very much more simple than reassessments of, say, property values.

Provisions would of course have to be made for appeals in the usual manner. Public display of value maps, as in Denmark, ensures that people can see that valuations are fair. There are few appeals in Denmark.


ADEQUATE REVENUE
One question immediately arises: Can a Resource Rent on its own raise as much as is raised by all present day taxes? Is this single source of revenue enough?

The proposition that it might not be adequate rests on the assumption that a charge levied on natural resource sale values would reduce those values, necessitating an increase in the charge rate to make up for lost revenue; the increased rate would further depress values, leading to further rate increases ... and so on.

While this argument may be true, it omits the other half of this proposal and therefore becomes circuitous and nonsensical. The balance of the argument is that the abolition of taxation would stimulate an equivalent increase in natural resource sale values, - as happens in tax-free enterprise zones. Thus the net effect would be for total tax revenues to be supplanted by Resource Rent revenue, with little overall effect on natural resource values.

However, the increase in individual incentives from the whole proposal would be such as to increase wealth production directly, and synergistically, via reduced need for government interventions leading to reduced revenue requirements. Such economic improvement would lead directly to increased demand for natural resources. Capital inflow from abroad would be another consequence and would also increase natural resource values.

The answer to the question of adequate revenue then is that a Resource Rent is likely to raise as much revenue as is required for legitimate government; it being simply a question of finding the correct percentage rate of charge.

There is likely to be an upper limit to the rate beyond which natural resource values and revenue would fall (analogous to the experience of alcohol and tobacco duties) thus providing a natural limit to the public domain. This in turn would depend on the relative efficiencies of the private and public services.

CONFLICT WITH GEORGIST THEORY

The theory that full implementation of this proposal would maintain or (increase the natural resource sale values, is contrary to the Georgist theory that such values would fall to zero ( Progress & Poverty, Book IX Ch. 3). George's theory seems to be based not so much on logic as on the powerful moral principle that since no man made the natural resources, it is wrong for someone to demand payment from another for title to those resources.

The point missed in George's theory is that Title is very much a human artifact; produced not by any individual but by agreement among a community of individuals. It has been the fundamental prerequisite of natural resource owners (landowners) to establish and maintain government, law, defence and police, ensuring the security of tenure enshrined in such Title Deeds, without which civilisation would have made little or no progress.

Although founded on conquest or theft, Title Deeds represent the work of succeeding generation in ensuring security and continuity. The value of each Deed is proportional to the natural resources it secures for the holder; and additionally, the value of the attached developments.

Evidence from South Africa and Taiwan suggest that ground values are maintained or increased, and therefore George was wrong on this point.

IMPLEMENTATION

The fundamental changes which would follow from the adoption of this proposal make it unlikely to be accepted easily or implemented quickly. It does however lend itself to gradual implementation and in fact exists in part in some countries under the name Land-Value tax. Taiwan, some Australian states, some South African and American cities, New Zealand and Denmark all apply the proposal to some extent. Though none base it on annual reassessments, and only Taiwan applies it to an extent that has allowed significant reductions in taxation.

A start towards drafting legislation and establishing a valuation system could be made as soon as the political will exists, and when the first assessments were complete, the charge could be implemented beginning at a low rate, and the taxation system dismantled concurrent with revenue raised.

Notes

The main object of this paper has been to show how the only real problem that this proposal encounters may be solved - that is the question of how to place a charge on natural resources without also taxing the developments and improvements on those resources.

Once the concept is understood there are a great many questions, implications and points that arise; a selected few are presented here.

Ability to Pay

Since a resource charge is a rent and not a tax, the individual ability-to-pay criteria does not apply. (A Resource Rent would relate to the ability-to-pay of the resource holding).

Cases of hardship that might - in spite of taxation being abolished - arise, such as the handicapped or widowed can be relieved by increasing relevant welfare payments.

Exemption of any resource from the charge on account of the occupier would be contrary to the principles of the proposal, and would hinder it's operation.

Property Transaction

It may be argued that there are not enough property transactions each year to guide annual reassessments; however there are two points to note.

Firstly there are a number of taxes that may be levied on present transactions, including Stamp duties, capital gains, capital transfer, gift and inheritance taxes, all of which deter property exchanges and which would disappear under this proposal.

Secondly, the Resource Rent would spur those who do not use their holdings to transfer them to someone who will.

Both factors would act to increase the number of property deals.

Beneficial Effects

The moral, philosophic, economic and social benefits of this proposal have all, to a large extent, been advanced by other, mostly Georgist writers, (See Henry George's works and particularly F. McEachran's "Freedom the Only End" 1961 Johnson Pub. Ltd. London). These will not be elaborated much here except to point out that the average rise in individual incomes which would result from the implementation of this proposal would derive, not from reduced revenue demand, but from an increase in wealth production following the removal of present disincentives to that production.

Ease of administration, certainty and unavoidability are benefits which accrue in the collection of this revenue. It is also the broadest possible base from which to raise revenue.

Reconciliation of Ideologies

There is however one point which needs emphasising given the present state of East West relations and Nuclear armament, and it is this:

The absence of taxation and the requirement of rental payment for the use of natural resources is an effective reconciliation of Individualist and Collectivist ideology, for it recognises that the product of individual enterprise belongs 100% to the individual, and that the natural resources are common heritage for which exclusive private use demands indemnification in full.

This potential for reconciliation of ideologies holds out the hope that one day, the world will not be as it is now.

Benefits to the Environment

There is yet another aspect of life that would benefit, but it has been inadequately addressed by others, and since it is the concern of the most extensive and important political movement in recent years, it is worthwhile developing the point here. This aspect is the environment, both natural and man-made.

A substantial proportion, if not the bulk of present day revenue is derived from taxes on individuals or their incomes. Thus it is human work which suffers most under the present tax regime; and - since human scale work is always the most environmentally benign way of doing anything - the environmental problems are aggravated. The correlative rise of income taxation and the growth of environmental problems is highly significant, suggesting that they may be largely cause and effect.

As a principle: There is generally more than one method and scale for doing any particular job; and taxes on individuals (labour) always tend to push the job towards the capital-intensive, larger scale, environmentally-destructive methods. Abolition of such taxes would return work to the human scale giving enormous relief to the environment, (and remove involuntary unemployment).

The beneficial effect of this is far greater than these few words can convey, because it would affect every single economic activity, benefiting the environment at every point. And this would far outweigh the effects that a Resource Rent would have in bringing some presently unused resources into use; the point being that without taxation, work and development would naturally tend to be ecologically harmonious.

CONCLUSION

Probably the most famous and influential words on taxation have been, "Render unto Caesar...", with all that they imply. The context however was a trap question from the Pharisees concerning the conflict between Roman and Hebrew laws.

Modern translations show that some time previously, while still at Capernaum, Jesus himself had brought up the subject of taxation in a question to Simon Peter, (Matthew 17:25):

"Who pays duties or taxes to the kings of this world? The citizens of the country or the foreigners?"

When the disciple answered, "The foreigners", Jesus replied (verse 26 Today's English Version 1976 translation)

"Well, then that means that the citizens don't have to pay."

History shows that taxes are a means of oppression; we can see now that they are unnecessary.