The Rental Tax
and Government Expenditure
Joseph Carroll
[Reprinted from Land and Freedom, July-August
1936]
In the May-June issue of LAND AND FREEDOM, John F. White writes
interestingly on the lack of general statistics of land values. The
information which Mr. White presents, however, and he cites actual
assessment figures of one important state and three large cities,
seems on the face of it sufficient to prove that a Single Tax on land
values even at the high rate of five per cent, would provide little
more than half the amounts actually expended by states and local
governments, with no allowance at all for federal requirements.
Your contributor, who submits that this revelation is disconcerting
as indicating inadequacy of a Single Tax on land values, seems
nevertheless to feel that it leaves our fundamental principle
unshaken. With this, some of us cannot agree. If it is true that total
appropriation of ground rent would not suffice for all normal
governmental needs, national, state and local, it would seem that our
philosophy to that degree is unsound.
However, there is something more to be said about assessment figures
and governmental needs. There is a practically universal tendency on
the part of tax officials to undervalue land. The writer knows a case
where a town paid about $10,000 for land for a public use. The same
person, a citizen of the greatest integrity, functioning as appraiser
for the town, valued the land at the above figure. Functioning as town
tax assessor, he had for years been valuing it at only $1,000. (The
owner had been keeping it idle, and therefore had been receiving no
income from it.) Just recently an eastern city needed three small
plots for a street extension. Functioning as assessor, the city had
been valuing them for taxation at $29,400. Functioning as purchaser,
the same city appraised the lots at $57,500, and paid that sum for
them. In the newspaper discussion of the transaction, there was
criticism of the large expenditure, but no one claimed that the lots
were worth less than the city paid for them Such instances are so
common that it is hardly too much to say that they illustrate the rule
and not the exception.
People, such as landowners, against whom direct taxes are assessed,
and who cannot shift them to others, naturally will resist stubbornly
and generally with considerable success, under present arrangements,
the attempts of the authorities to assess their holdings at full
value. On the other hand, taxes on improvements are generally of the
indirect type, capable of being shifted to tenants and customers, and
objection on the part of the original payer to fair assessments is
therefore very much weaker in such cases, with the result that there
is a powerful tendency in the tax load to gravitate to the shoulders
of the indirect tax payers.
This principle operates in other fields. Mechanics know that a drill
being driven into a mental non-uniform hardness, instead of following
a straight line, will tend to "drift" to one side, toward
the softer portions of the mass. In the sinking of deep oil or
artesian wells, it is said that the bore will usually drift far to one
side of the vertical, because of a preference for softer portions of
the rock through which it is being driven. The phenomenon appears in
the military field, as in the case of an attack being made along a
wide front. Enemy weakness in front of your right flank, for example,
may cause your entire force to drift laterally, toward the right,
perhaps with disastrous results, instead of advancing straight ahead.
It seems to the writer that this drift tendency operates with peculiar
effectiveness in the field of tax assessment, and that it accounts to
an important extent for the inadequate land value figures found by
your contributor.
It may be in order to remark that in the domain of taxation, as well
as in that of currency systems, we have a Gresham's Law, which, it
will be recalled, states that wherever two types of currency are in
concurrent use, a superior and an inferior type, the latter will
continue to circulate while the former will tend to disappear. "The
bad coin will drive out the good," because people will try to
retain the good coins; in trading they will spend only the bad ones,
thus keeping them in circulation. Similarly, so long as we have both "good",
or direct, and "bad," or indirect taxes,, we shall have a
gravitational effect always tending to make the load slide toward the
latter.
It may be said in passing that this principle tends to justify the
position of those Single Taxers who hold that a step-by-step programme
will never get us anywhere. The principle of direct taxation cannot
make much progress while the indirect tax payer is legally available
and can be exploited with such ease.
It may be asked: Suppose we had Single Tax in operation; would not
adequate assessments still meet with strong resistance from land
owners, as they do now? No doubt they would, but it could not be
effective, in the absence of alternative legal sources of revenue.
This resistance might, however, have a valuable corrective effect, as
tending toward precision in assessments, a tendency somewhat lacking
now, because of the intricacy of present methods of taxation. In
particular, it could be of great value as tending to check the
destructive progress of what Albert Jay Nock calls the State, towards
absorption of all social power, with concomitant degradation of the
citizens into subjects; a progress which is closely allied with
indirect taxation.
In regard to the figures of governmental expenditure cited by your
contributor, it may be said that they have to do largely with the
cost, to government, of the intense economic and social order now
prevailing. This disorder is a necessary consequence of government's
failure to perform its first and most vital function that of
collecting its own natural revenue, economic rent. Discontinue this
functional failure of government, with the disorder which it imposes
upon the economic system, and an immense reduction in governmental
expenditure can be made.
As a means for meeting the present swollen costs of government,
existing taxation is grossly inadequate. Government in its various
forms is spending two dollars for every dollar it takes in. And we can
afford to admit that Single Tax would not currently yield enough
revenue to meet the current, normal expenditures of government in all
its forms, plus the enormous load of relief and emergency costs. Does
this admit any doubt as to the essential soundness of our Single Tax
claims? No. If government would take all the income to which ethically
it is entitled, and that income only, ceasing its destructive raids
upon the earnings of labor and capital, the resulting good order in
the economic field should enable it to reduce its expenditures
greatly. Moreover, the substitution of economic good order for the
disorder inseparable from present taxation methods would of itself
cause an increase of economic rent that is, an increase in the revenue
of government.
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