Land Value Taxation, aka the Single Tax

Land Value Taxation, aka the Single Tax: This Georgist idea would end the private collection of resource and locational rent and speculation thereon by taxing it before booms could occur, thereby curing Land-based booms and busts like the current one, forever. Furthermore, by taxing the 33%-40% of GDP that is "Rent" on location and natural resources, one could untax all actual production, thereby vastly simplifying the tax code (and removing opportunities for corruption), and freeing up vast American productive capacity in a naturally efficient, green, and sustainable way. There is over half a trillion in assessed values in NYC alone, which, if properly taxed at 8%, would eliminate the need for all other municipal taxes. This idea has been successfully applied hundreds of times in towns and cities all over the world and is perhaps the most established economic theorem in the world.
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Land Value Taxation

I've long been an admirer of Henry George and John Stuart Mill
(Mill is the originator of many of the concepts I used in the stuff I have written here on polling/voting).

The thing is, we are faced with some issues that are bit different than George's day. The monopolies of scale we are dealing with, in the form of assets concentrated into the hands of the 1% exceed that George was dealing with-even with substantial taxes that indirectly lower property values in various ways.

I think if George was alive today, he'd understand why I think a tax on all assets held by the upper 1% is urgently needed.

http://progressandpoverty.org/files/henrygeorge.drake/pchp33.htm

The great class of taxes that do not interfere with production are taxes on monopolies. The profit of monopoly is in itself a tax on production. Taxing it would simply divert into public coffers what producers must pay anyway.

There are various sorts of monopolies. Some businesses are, in their nature, monopolies. These are generally the proper function of government. Delivering the mail, for example. For the same reason, railroads should belong to the public, as roads do.

Patent and copyright laws create temporary monopolies. Though the two are often confused, they are not alike.* Indeed, they are essentially different. Copyright does not prevent others from using facts, ideas, knowledge, laws, or combinations for similar productions. It only prohibits using the identical form. That is, it protects the actual labor expended in producing the work. It does not interfere with the similar right of anyone else to do likewise. It rests, therefore, upon our natural, moral right to enjoy the products of our own exertion -- and it would be unjust and unwise to tax them.

The patent, on the other hand, prohibits anyone from doing a similar thing. Therefore, it is an interference with the equal liberty on which the right of ownership rests. Everyone has a moral right to think what I think, or to perceive what I perceive, or to do what I do. It does not matter whether someone gets the hint from me or independently of me.

Discovery can give no right of ownership. Whatever is discovered must have already been there to be discovered. If someone makes a wheelbarrow, a book or a picture, the inventor has a moral right to that particular product, but no right to prevent others from making similar things. Though such a prohibition is intended to stimulate discovery and invention, in the long run it actually discourages them.

Finally, there are also onerous monopolies resulting from the aggregation of capital in certain businesses. (See Chapter 20.) It would be much better to abolish such monopolies than to try to tax the returns of their monopoly.

But all these other monopolies are trivial compared with the monopoly of land. The value of land expresses a monopoly, pure and simple. The value of a railroad or a telegraph line, or the price of gas or a patent medicine may partly express the cost of monopoly. But it also expresses the effort of labor and capital. On the other hand, the value of land does not include labor or capital at all. It expresses nothing but the advantage of appropriation. It is, in every respect, tailored for taxation.

Conventional economics, written by corporate mouthpieces like George Stigler tend to grossly underestimate just how large these monopoly of scale returns are. Here is some more honest work-but it doesn't lay out the connection between the data here
www.levyinstitute.org/pubs/wp_589.pdf

and what George established.

The other big issue:
the 33-40% of GDP attributed to Rent is actually low estimate. If taxes were removed from labor, globalization is exerting enough downward pressure on wages, that we wouldn't seen much staying in the hands of workers in developed countries in the long term. The trickle up effect would mean that we'd see upward pressure on property values, assets held by the upper 1% and values in some specific companies most immune from market forces.

If the US had no trade barriers or immigration barriers, wages would be about 9% of present GDP. About 6% of GDP services private "capital" in the form george recognized-with a bit less, maybe 3% going to assets that are publicly held. If we really could eliminate all monopoly rent, site rents could plausibly rise to 82% of GDP(minus a bit for "human capital" like medical school training which would similarly depreciate if the US really moved towards world market wages).

The thing is, the US economy is SO structured around privilege in various forms, this is hard for most of us to fathom. Few Americans realize just how different their lives are in key ways from folks in other parts of the world.

Scott has written elsewhere on bringing back greenbacks. The value of the monopoly the fed has on creating money alone, is probably worth at least $15 Trillion, assuming that one simply created money at the level needed to keep expanding the money supply at a level needed to avoid deflation.

I don't think the world necessarily wants/expects the US to collapse or economically devolve. I think they would like the US to cease focusing on being a playground for the rich and becoming again a major engine for creating technologies that change the world in positive ways.

Nature was not made by human labor, yet it is being bought and sold in private transactions. How can there ever be justice, peace, and prosperity under these worldwide conditions?

Natural opportunities, including land, resources, frequencies, satellite orbits, etc., form the locations and materials upon which human productivity and exchange occurs.

If you believe in equal rights, would you believe that the rental value of natural opportunities would, rightfully, have to be returned to the public, in exchange for private use of them? I do.

As the two comments above have mentioned, the rental value of Nature makes up a lion's share of total transactions in our economy. It is abundantly adequate to fund all public needs and a citizen's dividend - giving equal share of the natural opportunities to everyone. No need for payroll taxes, income tax, sales tax! This is the Single Tax - aka Land Rent made public.

This rent of Nature is being paid by all of us, regardless. Shouldn't it be public rather than private revenue?

The public figure today most familiar with these issues is probably Ralph Nader. He worked with a Georgist at the Christian Science Monitor where he was introduced to a lot of this.

The interview he did in 2004
www.theamericanconservative.com/2004_06_21/cover.html

When we go back to the origination of the Single Tax, Mill suggested a more gradual approach than George did a bit later on. I suspect that Mill's gradualist approach would be a bit more politically palatable today when it comes to the bottom 99% of the taxpaying public.

Our problem today is gradually shifting away from stuff like payroll taxes that are incredibly economically and environmentally destructive onto a tax that has fewer negative side effects.

The effects of the Reagan tax cuts made it pretty clear that the combined increases in real estate values and the trickle up effect into the hands of the top 1% were pretty strong(I've never seen a good analysis of how great they were but I think had we had an asset concentration tax and a tax only on the increases of property values, revenues might have exceed the lost tax revenue-a kind of real-life equivalent of the laffer curve).

Trying my best to get a hold of this concept. While I mull it over (its much too late to be reading this kind of stuff!) I just want to point out that:

Yes! Philadelphia would benefit greatly from this kind of thing. Speculators are rampant here and all they do is sit on the property and flip it when the values go up. Much of the inner city is in decay. Some are architectural gems, but they just sit and crumble while the owners wait to get the best price for the land.

Harrisburg PA is mentioned in the WIKI link. I work a lot in that city and have to admit, it seems to have benefited from this tax, BUT- Harrisburg just declared bankruptcy and may be taken over by the state. Has a lot to do with wasted money on a trash incinerator plant. Just ironic I guess.

-Paul

One of the best - and most thorough - analysis of the sources and amounts that could be raised on various taxes on resources and locations was done by Prof. Mason Gaffney here:
The Taxable Capacity of Land: Enough and To Spare
Gaffney tends towards the 40% estimate of rent in Land and locations, but he is including things people don't always think of, like airplane slips, radio spectrum, etc. It is indeed, "enough and to spare" (originally George's term).
A California state proposal to shift taxes completely over to LVT, except for sin taxes and an 8% income tax for incomes above $150,000, is calculated to raise some $160 billion/year, by the independent legislative analyst. See here: Prosper California.
But this "revenue-neutral" proposal really understates the case, because the improvements generated by rewarding that, plus work, would re-create the conditions that made California such an attractive state to live in, in the first place, so that the productive base would be built up while the speculative base is brought down. Then too, the loss of corrupting factors when labor, sales, and true capital are untaxed can hardly be overestimated. First, fire all the loophole hunters...
Interestingly, our original Articles of Confederation, Article 8, provided for a property tax in every state, to be split between the states and the federal government. Franklin is quoted as saying that the rich landowners, secure in their landownings by the late 1780s, did not want to pay the property tax, and that is why this form of taxation did not make it into the Constitution, ratified in 1789 (of course, a similar amendment today should only tax the land, not the improvements upon it).
Of course, we have environmental challenges the founders could never have dreamed of when there were less than 20 million people in the new America. The Land Value Tax is scalable - the more resources you use/abuse, the more you pay. The choicer your location, the more you pay. Ever increasing demand means ever-increasing rent, which leads to ever-increasing efficiency, naturally, through the free market, which should please Libertarians and Greens alike.

PDT wrote:Trying my best to get a hold of this concept. While I mull it over (its much too late to be reading this kind of stuff!) I just want to point out that:

Yes! Philadelphia would benefit greatly from this kind of thing. Speculators are rampant here and all they do is sit on the property and flip it when the values go up. Much of the inner city is in decay. Some are architectural gems, but they just sit and crumble while the owners wait to get the best price for the land.

Harrisburg PA is mentioned in the WIKI link. I work a lot in that city and have to admit, it seems to have benefited from this tax, BUT- Harrisburg just declared bankruptcy and may be taken over by the state. Has a lot to do with wasted money on a trash incinerator plant. Just ironic I guess.

-Paul

Pennsylvania is a Commonwealth - literally a state where the commons are considered wealth to the citizens equally. Several towns and cities have some form of Land Value Taxation, and this has been spearheaded by the Center for the Study of Economics, a practical, boots-on-the-ground organization headed by a leading Georgist, Josh Vincent. The CSE recently helped Altoona go all LVT and stop taxing buildings. The transition took 10 years, but during that time, it was already apparent that comparable cities, like Johnstown, were falling behind in every standard of living measure. Wiki says "Altoona is unique in the United States as being the only city that imposes no property tax on buildings, taxing land values only.[5]" Altoona, Pennsylvania.
Harrisburg did indeed bet too big on its spanking new incinerator, but one has to wonder if it would have been such a bust had we had a true pigovian (Georgist) tax on land pollution and use. Perhaps the regional incentives are incomplete and wrong?

One thing I'm surprised Gaffney didn't mention on page 74 is the huge increase of property values-and the monopoly rent incomes of the upper 1% we saw that accompanied the Reagan Bush tax cuts. It is much bigger than much of the other stuff he mentions.

http://www.levyinstitute.org/pubs/wp_589.pdf

Green taxes are one of the approaches I Think that is most politically palatable early on. Just complying with kyoto would take about $500-650 Billion/year in carbon taxes-which could be taken out of something like payroll taxes which are of course highly regressive.

In time, revenue from green taxes would go down as less polluting technologies were adopted-but the reduction in pollution would tend to increase property values by a greater amount.

I think the economic case is pretty strong. One question is just how do you go about handing it politically? Hong Kong had a strong land tax-but the property owners lobbied to get their assessments reduced. We've seen some real positive effects from land taxes in places like Japan-but governments that for some reason or another get away from them. How do we handle that? In a country like the US: how do we handle the transition? This is important because we have a lot of small property holders that are highly leveraged. It might mean changing the Fannie Mae/Freddie Mac regulations-essentially trading debt forgiveness for property tax increases.

Do you have any good polls on Land taxes-and how opinion breaks down? I tend to think that in the OWS movement, there is a stronger immediate political consensus for a Nader-like asset tax on the monopoly of scale we see among the top 1% of wealth holders-which is why I've mentioned that first.

Declare it. Preserving our world and our environment must be a human right. Without it, there is no life, no pursuit of happiness. We are not free.

I agree with Scott Baker taxing land & other natural resources & untaxing labor & capital is the only way to have a just & healthy economy.If you tax anything that's man made you have less of it but if you tax land you have more land available for use because you get rid of the land speculator. You can't do anything without access to the natural resources, that's at the heart of the whole economy.
Henry George saw the problem & solution in his great book, that was the most widely read economic book of his time '"Progress & Poverty"

Most of the comments above show a rather sophisticated knowledge of this concept. For folks who are new, let me discuss just a small, bite-size chunk.

If you want to weatherize your building, after you pay for labor and materials, you must also pay a higher property tax because a weatherized building is more valuable than one that isn't. A typical property tax in the USA is about 1% or 2% of value. That doesn't sound like much. But unlike a sales tax (which is paid only once -- at the time of sale), a property tax is paid each and every year that an improvement adds value to a property. If you collapse all these payments into a one-time payment (economists call this a "net present value" calculation), the economic impact of the property tax on building values is equivalent to a one-time sales tax of between 10% and 20%. That's a substantial cost penalty that reduces the amount of weatherization projects. Thus, the traditional property tax penalizes those who construct, improve or maintain buildings.

On the other hand, those who allow buildings to deteriorate are rewarded with lower property taxes. Owners of boarded-up buildings and vacant lots pay the least. Isn't this upside-down?

Yet public goods and services contribute the same value to vacant land as to adjoining properties that are well-developed and well-utilized. Some jurisdictions address this situation by reducing the property tax rate on building values while increasing the property tax rate on land values. They collect the same revenue, but the incentives facing property owners are much more productive.

Because the tax on building values is a cost of production, reducing the tax on building values makes buildings cheaper to build, improve and maintain. This is helpful to households and to businesses too. Because land is not produced, a tax on land value is not a cost of production. Instead, it reduces the benefits of land ownership and actually helps keep land prices lower than they otherwise would be.

By reducing a tax on production (buidling values) and increasing a tax on community-created wealth (land values), this tax reform makes housing and commercial space more affordable, encourages development of high-value land (which tends to be urban land served by existing infrastructure), and promotes weatherization and other building improvement and maintenance activities that create jobs.

For more information, see http://www.justeconomicsllc.com

I have no background in economics and I don't know much about the land-tax. What you're all saying makes sense. I just have one question.
I live in a touristy area in New England with beautiful scenery and recreational activities year round. Now, because my area has become very popular for vacation/second/retirement home building, our land values continue to rise. Is this a situation in which the middle and working classes will eventually be priced out of the area?
I guess what worries me is that the end-result of such a tax would mean that the wealthy would end up living on all the desirable land and everyone else would end up living on, at the very least, less beautiful land, and at the most, unproductive, remotely-located or even toxic land!
Can someone please put my fears to rest?
Peace,
Johanna

@ Johanna,

"I guess what worries me is that the end-result of such a tax would mean that the wealthy would end up living on all the desirable land and everyone else would end up living on, at the very least, less beautiful land, and at the most, unproductive, remotely-located or even toxic land!"

In your quote above, I think that you describe the current situation. Low land taxes allow speculators to hoard land and this drives up land prices more than they otherwise would go. While there is not a perfect correlation between property value and wealth, there is a closer correlation between land value and wealth. In other words, there are not a lot of poor folks who own very valuable land. The property tax reform described above would make it more expensive for people to hoard land, and this should bring land prices down in your community. But the very wealthy are always in a position to outbid everyone else for the most desireable goods of any sort.

Under a land tax, the premium land values in your community would no longer be windfalls for the private owners. Instead, they would be a source of community wealth. The community could use that revenue to provide housing subsidies or other services for the 99%. (NOTE: Our current tax system provides huge housing subsidies to the affluent through the mortgage interest and property tax deductions. The lion's share of these subsidies go to the most affluent households.)

People of modest means can locate in high-value areas by sharing land. Thus, townhouses and multi-family homes are ways in which people consume less land per household in order to afford a good location. Although zoning has frequently been used to exclude people of low and modest means from neighborhoods, it can be used to foster affordability if the densities are set correctly. Rent control and inclusionary zoning are also tools that can be used in markets where high demand by affluent households skews the real estate markets to the disadvantage of low- and moderate-income households.

Thanks for the explanation, Rick! Appreciate it -
peace,
Johanna