Why the Taxaton of Land Values Helps Farmers
Harry Gunnison Brown
[Reprinted from Land and Freedom, March-April
1928. Orginally published
with the title "Let the Farmers Themselves Answer"]
Although extensive and definite statistics have not been gathered,
there seems reason to believe that the removal of taxes from
improvements and concentrating them on bare-land values would mean a
real relief to most working farmers. This is especially the case now
when we have been going through a period of agricultural depression.
Why don't the farmers agitate, then, for such taxation? Well, most of
them like most other people don't know what is meant by bare-land
value. The bare-land value of a farm is what would be left after
subtracting the value of buildings, of fruit trees, of fences,
installed drainage, growing crops, tools and machinery, horses and
cattle, and fertility also in so far as it has been built up or
maintained by fertilization and careful cultivation. A tax on the
bare-land value of a farm would therefore, be really, a tax on the "run
down" value of the land, after the value of all the so-called
improvements had been subtracted. Where such "run-down"
value is zero, a tax on the bare-land value of the farm, no matter how
high the rate of taxation, would be a zero tax! If American farmers
realized this, would they not, like farmers in Denmark, try to get the
tax system changed in that direction?
Another way of expressing the matter is to say that a bare-land-value
tax certainly should not take more than the entire economic rent, and
the entire economic rent, in the case of many farms, is nothing. For
what is economic rent? Suppose a man owns a farm which he leases to a
tenant by the year. Before we know what is the economic rent, we must
subtract from the yearly payment made for the farm by the tenant, not
only enough to cover depreciation of improvements, but also a
reasonable percentage of interest on the value of all improvements,
including fruit trees and including the fertility value built up or
maintained by fertilization, careful crop rotation, etc. Only the
surplus above such interest is economic rent or the rent of the bare
land. A tax on bare-land value could not take any thing beyond such
economic rent. If it did, it would be a tax on improvements, too, and
not just a tax on bare-land value. A tenant farmer, of course, doesn't
receive any economic rent at all.
Let's look at the matter in still another way. If the owner runs his
own farm i.e. if he is a typical American working farmer what really
is his economic rent which is all that would be taxed under a
bare-land-value tax? To find what is his economic rent, we must first
subtract from his total income as pay for his work, all that he would
make as a tenant if someone else owned the farm. Then, second, we must
subtract from the remainder enough to cover not only depreciation but
also a reasonable percentage return as interest on the value of all
improvements. And in these improvements must be counted the fertility
value built up or maintained by wise cultivation and proper
fertilization. Only what is left after making these subtractions, is
economic rent. A tax on this remainder would be a tax on bare-land
values. And a tax on bare-land values alone could not take more than
this remainder. A tax taking more than this would not be a tax on
bare-land values alone but on improvements also. A bare-land value tax
is a tax on the run-down value of the land not counting any
improvements. It is important that those who submit land-value
taxation measures to the public should see that their proposed changes
clearly conform to the principle of not penalizing the maintenance or
improvement of fertility.
One would think that farmers and farm leaders would devote themselves
enthusiastically to putting into effect such a scheme of taxation of
bare-land values. For this would be practically no tax at all on a
considerable proportion of farmers. Especially in this recent period
of agricultural depression when all sorts of nostrums have been
advocated to cure the evil, is it not amazing that more farmers have
not demanded scientific taxation which would leave them all the wages
of their labor and interest on all their improvements, which would tax
only their economic rent, if and when they received any, and which
would never penalize them for improving their farm, by raising their
taxes? How great is their surplus above wages for their work and
interest on all their improvements? How many farmers think they get
any such surplus? How much of a burden on them would be a
bare-land-value tax which would not take more than such a surplus? Is
it not one of the most amazing things of all the ages that farm
leaders don't look into this matter and "start something"?
Do they think the farmers can not understand it and will throw over
the leaders who advocate it? Or are they afraid of the opposition of
land speculators? Or are our so-called leaders, in practice, usually
followers, lest they lose their "leadership" by leading!
Such a tax system would be much fairer than the present system. In
taxing bare-land value we are taxing a value which is due to the
growth and development of the community rather than to individual
labor and thrift. We all know that the annual rent which an owner
could charge for a piece of bare land in Chicago's Loop district, to a
prospective builder desiring a long lease, is not a consequence of the
owner's saving the land or making the land, but is the consequence of
the growth of Chicago and surrounding territory. An eighth of an acre
at the corner of State and Madison streets in Chicago has been
expertly appraised as worth, bare-land value, about two and a half
million dollars or at the rate of twenty million per acre. Wherein is
such an eighth of an acre better than an eighth of an acre of farm
land worth twelve or fifteen or twenty dollars? Is the additional
value of the land in Chicago due to the owner's activities? Everyone
who is honest with himself knows it is not. It is the result of the
growth and development of the geographically tributary country, and of
Chicago as a port and a market center.
The same is true of the several billions of dollars of land value in
New York City. New York is situated on a great natural harbor. If
there were none to use it except a few pioneer farmers on Manhattan
Island trading some of their surplus produce for the textiles and
other goods of Europe, landing space for a very few boats or perhaps
for a single one would be all that would be needed. But as the rich
interior of the North American continent was settled, with its mines
of iron ore, copper and coal, its prairie and river-bottom wheat and
corn lands, and its other resources, more and more goods were produced
to be poured through the port of New York into foreign countries and
more and more foreign goods were wanted in exchange which could most
advantageously pass through the same port. Today there is needed in
New York City a large population to meet the requirements of this
great hinterland (as the Germans would say) or tributary country.
If all the present working population of New York were whisked away
overnight, the land of New York would still have great value because
of the need for millions of men and women on it to serve the commerce
of the back country. A new population would move in and take up the
important work for the rest of us which can be done nowhere else so
well; and those who own that part of the earth's surface would be in a
position to make this new population pay handsomely for the privilege
of working for us and of living where we need to have them live in
order that this work may be effectively done.
The demand of the tributary country for this service makes a demand
for the use of the land by the people who must live and work there to
render the service. Incidentally, too, it makes a tremendous demand
and correspondingly high rents and values for the use of especially
well- situated lots for the location of department stores, lunch
rooms, banks, lawyer's offices, etc., necessary to supply near-at-hand
the requirements of those who live there to serve the non-seacoast
sections.
It is fair enough, then, that the economic rent of valuable city
land, which is due so largely to the development and trade of the
surrounding country, should be taken in taxation and used for the
benefit of all. Thus, the children of the more remote country
districts, where bare-land value may be almost nothing, can have good
schools, good roads, and other advantages, paid for by land value in
the cities but which value their country communities help to create.
Why don't more farmers agitate for this change and work for and
support it as do so many farmers in Denmark? These Danish farmers,
some of our American "farmers' friends" politicians claim to
admire for their development of cooperative marketing, but the Danish
farmers' support of land-value taxation they say nothing about. Yet
recently, and with large support from the farmers, Denmark has passed
legislation providing for higher local rates of tax on land values
than on improvement values. When will American farmers wake up! Let
the farmers themselves answer whether a bare-land value tax would not
be better for them than the present system?
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