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In this short article it is impossible to do more than touch on a big subject which the writer has covered more adequately in his little book, "The Self-Supporting City". To that volume we refer interested readers for more comprehensive discussion and a definite program of action.

"The Self-Supporting City" has been very well received. It is in the Armstrong list of the ten best realty books of the year and it has been endorsed by such outstanding authorities as the Hon. Lawson Purdy, former president of the N. Y. C. Department of Taxes and Assessments, Dr. William Jay Schieffelin, long active in the Citizens' Union and in every worth-while activity in New York City, Mr. Philip H. Cornick of the Institute of Public Administration, and by many others. Mr. Harold S. Buttenheim of "the American City," has also been most generous in giving encouragement, and it would be hard to find any organization or activity in the broad field of city affairs, realty interests, housing, taxation and kindred matters in which these gentlemen have not been leaders. Reviewers too have been generous, using such phrases as "worthy of study by city officials and legislators", "should be read by everyone interested in city taxation", "should be required reading for every home-owner and everyone interested in housing, taxation, real estate or civic affairs."

The book is published, by a non-profit foundation, and without royalty to the author, as a contribution to the common good. The price of "The Self-Supporting City" is $1 postpaid but discounts will be quoted on quantity orders. These reprints can be supplied postpaid, 100 for $3: 1,000 for $25. Cooperation is solicited in bringing this very vital subject to the attention of others. Address The Schalkenbach Foundation, JO East 69th Street, New York 21, N. Y.

THE HOUSING mess has brought forth a lot of impractical schemes and crackpot expedients. Real estate interests may see a glimmer of hope in some of these proposals, but generally they bring far more trouble than benefit. The cost of foolish and wasteful public housing projects must be borne by the taxpayers in several ways: first, they pay the bills, then their own taxes are raised by exemption of public projects, and finally these heavily subsidized developments compete unfairly and ruinously with private enterprise.

Such injustices certainly demand redress, but not by schemes which will injure more than they will help! Rigid limitation of tax rates may result in other levies which, in the end, prove far more burdensome. In one city water rates are boosted beyond all reason to compensate for tax limitation, and the tax burden is actually increased on good and modern homes, while slum properties, with little or no sanitation, escape. Sales taxes drive business over the border into untaxed territory and cripple trade. Taxes on utilities hit hardest the highly improved properties, while slums, which might well be taxed out of existence, feel the tax little or not at all.

Much confusion results from the term "real estate" which, bracketing together two very different forms of property, treats both alike and implies that there is only a single factor to consider. How can one reason logically in terms which include two totally unlike elements which have next to nothing in common? What should be sought is a sound reallocation of tax burdens and benefits, not trying to deal with widely diverse properties by shot-gun legislation.

Why give relief which amounts to subsidy to things people want to banish - slums, fire-traps, and malodorous rookeries? Is there either justice or wisdom in granting concessions and exemptions to the government for doing with the taxpayers' money, and doing very badly, what people would do profitably, gladly, and far better, if left alone? Are advantages to be given to the gambler-speculator whose good urban land is occupied by bill-boards, rag weed, and dead cats, while consideration is denied to those who give employment, house the people, and truly make the city? The speculator, if one likes so to call him, who takes his risks to make the city a better place in which to live and work, anticipating its growth and needs, serves all well: should he be denied the benefits granted to the later-comers and to those who do little but hold back progress and who seek to benefit from what others do?

There is no question whatever that real estate should have relief from the unjust blunders under which it labors, but a problem far more serious than the weight of taxation is the way in which it is placed. It is better to give thought to the "how" of the question rather than only to "how much," for the present system of municipal taxation is the sheerest lunacy.

Contrast Between Land and Buildings

For brevity the word "land" is used to include the surface of the earth, its natural attributes and endowments, including even such intangibles as climate, sunshine, space, and location. In "buildings" are included all construction and betterments wrought by the individual; grading, draining, planting; and the like, but not the benefits of social life nor the services and protection of government. Note the sharp contrasts between these two elements which are yoked together and treated as one and called "real estate."

Land

The gift of the Creator, not made by man.

Rigidly limited in extent, incapable of expansion by mans effort.

Land often means mere location and area. Can not be moved or duplicated. Each piece unique and with supply fixed, capable of monopoly in a way unlike most commodities.

Value of land is the product of the common life, progress, and government and not of toil of owner. His contribution, an attriute of building.

Buildings

The product of personal labor and enterprise.

Cm be increased without limit, granting access to land and willingness to work.

Buildings can be erected anywhere, moved, removed, or duplicated. Peculiar values associated with some buildings (bridges, railroad stations, power plants et cetera) are attributes of rite (land) and not of brick and mortar. Value of building, the product of personal labor. It is rightfully personal property and justly all belongs to him.

This is not at first obvious but is generally recognized by economists and becomes clear on a link thought and study.

Value of land may rite to any point especially in favored location.

Taxation of land depresses and may wipe out its price, but not its value. High tax forces unused and ill-used land into use and onto market, making land more available. Tax on land not passed on in rent for tenants pay just what they paid before, for with supply fixed, rent is set by demand. Tenant not concerned whether true rent goes to city or into landlord's pocket.

Value of building almost never rises above replacement costs.

Taxation of building swells cost and price resulting in diminished supply and scarcity. Tax on buildings passed on to tenants for owner must recover costs or fair return on them, or building will cease. Taxes are as much a part of building operation costs as heat, elevators, repairs, or janitor service. Actually, what tenant pays for building occupancy is interest on investment and not rent.

A tax on land reduces its price, but not its value. The price is based on the net value to the owner and takes no account of the value lodged in the city, represented by the taxing power. Broadly, it is the capitalized value of the net return to the owner, after payment of taxes. True value, shown by what the tenant will pay for tenure, is capitalization of the net value sJ® the owner, plus the value to the city as a source of revenue. This total true value is not affected by taxation of land (and it will be increased by tax exemption of the building values, as is shown later), but the sales price is depressed since, with increase in land value taxation, an increasing part of its capitalized value passes to the city. Effect of taxation may be shown by an example: A tax on books printed today increases cost and price and shrinks demand and market, but a tax on irreplaceable "first editions" would penalize ownership, make it less desirable, and kill demand.

Taxation of Land Only

Can these two totally different kinds of property be treated and taxed alike? If one believes in man's right to "life, liberty, and the pursuit of happiness" he must believe in man's right to the fruit of these things? If his house is his, because he has built it, or paid another for building it, only the most extreme emergency can justify confiscating it in whole or in part, even though its seizure is excess taxation.

On the other hand, "The earth is the Lord's and the fullness thereof." God made it, not for one and not for another, but for all men, and all men have some right to it and on it, especially as it is man's common life which gives it value. There must be individual title to protect persons in the enjoyment of the things which are justly theirs because they built, made, or planted them, but the landowner should make payment for the share of man's common heritage which he enjoys and for the values and the services which society and government give to it. There is far more reason for taxing land, or accurately speaking, collecting ground rent, than for confiscating the product of human life and labor.

Men are more interested in practical aspects than in theory, so consider briefly some of the benefits of taxing land values rather than buildings and labor values. The great thing is that advantage should be given to the things wanted - housing, industry, employment, decency, progress, and the things that make for better living. The greater burden should be put on things which can very .well be done without - idleness, slums, congestion, stagnation, and conditions which breed poverty, suffering, sickness, vice, and crime. If erecting a modern building, building well instead of jerry-building, or displacing an old eye-sore by a modern habitation adds not a penny to the tax bill, there will be far greater inducement to progress than when taxed on every last brick or shingle.

But "it will lead to overbuilding" - that wail is always heard, coupled with a plea for more open spaces in the cities. There is little indication that there is danger of overbuilding, particularly if costs and rents can be kept down while profits go up, and this is a chance that can well afford to be taken. Men will probably always do foolish things and show bad judgment, and no plan is known for making human nature foolproof. Certainly, no outcome can be much more foolish than the tax systems of today.

Today if one builds a $10,000 house on a $10,000 lot, both investments are taxed alike. If the house is exempt and the tax on the site heavier, how about building a better house a little further out, on a $1,000 lot, keeping the investment in land down and keeping the taxes correspondingly low? If it is a $19,000 house on a $1,000 lot, the tax will be about a tenth of what would be paid today on a $20,000 property with values equally divided, and there would be a far better house. Incidentally, there will be less congestion, and the city will show a better balanced growth.

If the house is insulated against heat and cold and to cut the fire risk, it will not be penalized. Today in many cities insulation of an old house or fire-proofing operations brine increased assessments. Is it any wonder that there are terrific fire losses? Some day, builders, material people, and insurance men will wake up to the fact that, regardless of what is done to land, untaxed building will mean more building, better building, safer building, and the saving of a tremendous toll in property loss and in human life.

Effect on Parks and Open Areas

As for parks, playgrounds, and breathing spaces, they are needed, and collecting ground rent instead of levying taxes will make it far easier both to buy" and to pay for them. It will be easier to buy land and clear slums when the tax on land is high and, inasmuch as wise public improvements practically always increase land values by enough to cover their costs, improvements can be made self-liquidating.

If one must place a mortgage on that new home, which will be the safer, cheaper, and easier to handle, a mortgage secondary to a tax charge of about $800 or one on which this prior lien is only a tenth as much? The tax saving will often equal the interest on the necessary mortgage. It will be far safer to the bank and bring no such disasters as those many savings banks experienced in depression years.

Problems of assessment will be simpler when only land is taxed and not buildings, and many sources of both honest error and of dishonest politics will be eliminated. There will be far less foreclosure, delinquency, and forfeiture, for realty values will be restored and earnings will be higher. The great gain to the city will be a strengthening of city finances and the prospect of virtually ending all true taxation.

The city can become a self-supporting corporation, living on the honest-to-goodness earnings of its huge investments in streets, pavements, utilities, transit systems, parks, playgrounds, schools, its services of safety, and a hundred things. All these automatically raise land values (but not building values) and increase potential ground rents, easily paid for. Such payment is not extortion, but fair payment for values and benefits actually received.

Value to Municipal Corporations

Today, instead of collecting this income on a tremendous investment, it is allowed, to dribble away, and then the pockets of the people are picked to keep municipal corporations afloat. A great subway increased land values by far more than its cost: in another city a great viaduct had precisely die same effect. But today, instead of harvesting the earnings of these great public undertakings, the best is done to prevent anyone from benefiting by taxing prohibitively those who would build in the benefited areas, and thus much of .the profit is destroyed which would result.

If ground rent was collected instead of confiscatory taxation, a lot of wrangling about subway fares, taxes, teachers' salaries, and what not would be eliminated. The city would enjoy a natural, sufficient, and earned income and, instead of forever running to Washington or to the state legislature, it would become a prosperous, self-respecting, self-supporting corporation with no housing problems, no municipal crises, and far fewer political rumpuses.

In each of the two cities with which the writer is most familiar -Albany and New York - the assessed value of buildings about equals that of land, Therefore^ if the former is untaxed, this loss of revenue must be compensated by doubling the levy on land, but the process could be spread over a half a dozen years to make readjustment easy. "Tax exemption is poisonous" - yes, emphatically so, as practised today. But the uniform exemption of things people want to encourage, yoked with a compensating added levy where it won't hurt and will often help, would bring countless benefits and save a lot of headaches to property owners and to city officials.

City land seldom earns any substantial income unless built upon. There is some demand for parking lots and, when the circus comes to town, a vacant lot may earn a goodly sum for a couple of days, but it is almost invariably true that a vacant city lot brings in little but tax bills. There may be a possibility of gain through enhancement of values resulting from what others do, the buildings they put up or municipal improvements, but this profit is uncertain at best and is justly called unearned income for the vacant lot produces nothing and earns nothing.

It follows then that if building is impossible, the land itself becomes worthless, and the great difficulty today is that often the tax-collector leaves so little of the earnings of a building to the owner that there is little inducement to improve property. By taxing buildings much or all or their value is first destroyed and then, when they earn little or nothing, the value of the site evaporates.

Albany Examples

How this operates is shown by an actual case in Albany but matched many a time in every city. A fine lot, eighty feet wide with frontage on two very good streets, well located near the Capitol and where demand for housing seems to be limitless, was bought years ago for apartment house development. After existing houses had been razed to cut taxes -thereby destroying their value both to the owners and to the city as a source of tax revenue - it was found that, were plans carried out, taxes would absorb so large a part of earnings that the investment would not be attractive. Things dragged along for some years, the owners paying taxes, but finally, seeing no way out, they quit. The property is now in forfeiture, worth nothing to the owners and yielding not a penny of tax revenue.

This principle operates in greater or less degree on nearly every property, for the higher the tax on buildings, the less will they earn, and the lower will be the value of the site. The idiotic tax system prolongs the life of old and obsolete buildings, discouraging replacement by modern housing, and thereby holds down the earning power and undermines the value of the site. Un-tax the buildings and it will restore their value, encourage improvement, and automatically increase the value of the site.

On the same block in Albany there is a fine old house, but changing conditions make it obsolete. No longer is there demand for the large one-family residences of half a century ago; it is small houses and apartments that are sought today. The house long struggled to earn its taxes. Had it been possible to displace it by modern apartment houses, for it was a wide lot running through to another good street, the property should have proved very valuable. Both lot and location are ideal for such development, but the present tax system puts that out of the question.

In this instance, as in the first, the proposed change would result in higher taxes, and yet in both cases the owners would have been far better off. On the larger property, taxes would be increased From about $2,000 to twice dial sum but, with nothing at all paid for some years, the actual gain to the city would have been a clear $4,000. The owners, instead of being cleaned out, would have had an exceedingly valuable property because the site would have justified a development of at least a half a million dollars and it would always have been fully rented and at a good figure.

What would a $4,000 tax bill signify? Taxes on the old house would have jumped about $300 a year, but what of it? Two modern apartment houses would have earned a very good return had they been tax free, and the owner would have been far happier than finally selling the house for a small fraction of either cost or assessed value.

But would it not be hard on the owners of the vacant lot? Looking at another example, in the outskirts of Albany there has been a premature subdivision into building lots assessed at $400 each. A very few are occupied by $3,600 houses, taxed about $144 a year - nearly enough to meet the interest on their cost - but most of the lots are vacant, taxed about $16. Nearly all are delinquent and in process of forfeiture, for they are worth nothing as long as suitable houses are prohibitively taxed. Were it possible to erect untaxed $3,600 houses, the saving in tax costs would cover interest and amortization payments on a loan which would enable many to build; the lots would find a ready sale; houses would spring up like mushrooms; the promoters would be saved; and the city would have little difficulty in collecting $$z taxes on each lot where generally not a cent is paid today.

Benefit from Higher Tax Bill

Now note that in each one of these cases the change would result in a higher tax bill, but every one of the owners would benefit. They would not have tax reduction, but they would have tax relief - the relief from a system which now practically debars them from the use of their property. The doubling of the tax on site would be a negligible consideration, but the city would collect a materially larger yield, and this is a most important point, answering a question often raised.

It is often argued that if some gain, others must lose. Who is it that gets stuck? Fortunately men's lives are not planned on a vicious philosophy which means that they can never profit except by wronging others and that one man's gain must be another's loss. All would gain - gain through the opportunity to employ their resources wisely and profitably - an opportunity denied them today by their own folly. They should gain by contributing to the life and housing of the city and by improving its living conditions. This is the point which should be emphasized, and it is vastly more important than a mere cutting of one tax to be made up by the imposition of another. It is this which will restore lost values, reinstate many tottering investments, strengthen the cities, and make them great, strong, and prosperous.

It would be easy to show how great is the tax reduction to many property owners under this plan. On six bank buildings tax savings will range from $3,000 a year to $8,000, and on one great industrial building the taxes would be cut by about $140,000. Such experiences would set an example to others, and many an old office building and fire-trap would give way to new construction. They could be readily absorbed for they are badly needed and, with tax overhead and rents being reduced, there would be no difficulty. The largest gross savings are generally to the owners of large buildings, but it is interesting to note that the greatest percentage saving is to home-owners and particularly to the owners of the modest houses.

On a residential property worth $18,000 the tax would be cut in half: on a similar property, worth only half as much, the reduction would be about two-thirds. On the simple little home of a working man it would tie more than three-quarters. In Pittsburgh, where a very small start has been made on a very wise program, it is significant that nine out of ten of the home-owners in a typical residential ward effect tax savings.

Is not such tax relief better than blind, wholesale slashing of rates, with no effort to correct inequities or to remove iniquities? A mere flat tax cut jeopardizes city finances and must bring disaster in one way or another. It may mean state subsidy and higher state taxes, or running to, Washington for national handouts, and whichever is gotten comes out of the taxpayers' own pockets and mean a centralization of power and a loss of local responsibility and autonomy. Or they may mean wild tax experiments which are dangerous.

Bases of Assessment

Sometimes it is asked how land values are to he assessed and if, with land taxation depressing sales prices, there will not be a shrinking, or perhaps a vanishing, tax base. This difficulty arises from confusing sales price with value. There is no reason why true value should decline just because more of it is lodged in the city where it can not be reflected in sales price. Value is indicated by ground rent which any parcel commands. There are no reasons why the approved scientific systems for the assessment of land values can not be modified and rephrased to work in terms of rental instead of capitalized value which is, in last analysis, derived from rent.

If for incidental reasons such as the control of bonded indebtedness or for sharing in either the revenues or the expenses of the state, it is desirable to work out the capitalized value of the city's income, the problem would not present the slightest difficulty. It is quite possible that a minor legal change must be sought from a common requirement that assessed values be based on safes to an acceptance of values in terms of rent, but that is a trifling matter.

Prejudice and Misrepresentation

Unfortunately, to achieve reform there is much prejudice and some downright misrepresentation to be overcome. A supposed authority says: "The inevitable premise of any land tax system is that . . . land can constitute a monopoly. This just isn't true." Well, that's what he says, but the very fact that land is limited and that no two pieces re exactly alike refutes his statement as does everyday experience.

This supposed authority also says, "Most of the vacant lots in our cities are worthless and should be carried as liabilities." Often true, but why does not this expert who is in a position of leadership in the realty field find out why and how the values may be restored? Surely, there is something wrong when such a lot as that in Albany becomes worthless. He vaguely declares that "what our cities are interested in is that somebody use the land fruitfully." If he can tell a better way to encourage fruitful use than to untax it, he should divulge it.

He delivers the sage observation that "there is an assumption that land itself is productive." Lands untouched by man grow trees, and God's forests, hills, and valleys produce beauty and serenity of soul, but why drag that in? It has nothing to do with municipal tax questions. Practically, it is necessary to make land produce by the exertion of labor, and the way to encourage that is to untax the labor and its product.

But controversy seldom profits, and these supposed rebuttals are mentioned only to show the prejudice and tight-mindedness with which one must contend. Most of those who dispute this proposed doctrine at first are open-minded and readily accept it after fair-minded thought. The questions raised herein are a call to broaden men's opportunities and to put to productive use the earth which God has given, freeing labor from oppression and its products from seizure. Little hope is given by the use of stopgaps, expedients, and futile attempts to make the other fellow pay taxes while our group escapes. The people are faced with constant political meddling, the growing usurpation of their rights, responsibilities, and liberties, by the odious paw of bureaucracy intruding into every field, while government in every branch runs amuck and extends its control.

The popular answers to the housing problem are worse than worthless: they only compel people to do, through taxation and bureaucracy, what they will not do voluntarily because they know it is folly. Something must be done and done soon for a fast rising tide of discontent is apparent. Is it not well to get down to fundamentals and find an answer, an answer which is effective, right, and just, and which will save private enterprise and self-respect?