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SCI LIBRARY

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.