The Essential Reform:
Land Value Taxation
In Theory and Practice
C. H. Chomley and R. L. Outhwaite
[Part 4 of 15]
In the wider field of national taxation the method of collecting the
tax is precisely the same as the method of collecting it for local
purposes. The land value is charged with a payment of so much in the
pound of its capital value as Parliament may provide. In New Zealand
the tax begins at ld. in the pound on properties above £500 in
value, smaller properties being exempted, and large estates being
charged at higher rates. In South Australia the tax begins at 1/2d. in
the pound, without any exemptions on small properties; South
Australian legislation in this respect being more in accord with
principle than the legislation of New Zealand, for land values great
and small are equally the product of society and not of the
individual. No person can add a farthing to the value of his own land
by his labour, though he put upon thousands of pounds worth of
improvements. The added value thus given to a property rests in the
improvements and not in the site, and if they are destroyed the added
value disappears. On the other hand, the added value given to a
property by increase of population, or the construction of roads or
railways, which create a greater demand for land is quite independent
of any improvements the owner may effect upon it; it is indestructible
as it is uncreatable by the individual and attaches solely to the
site. That will bring much money while there is a population which
wants the land to live and work upon, though it be absolutely bare,
and will bring nothing at all, though covered with factories or
palaces, if the population drifts away.
Be it great or small, therefore, land value is a proper subject of
taxation, and the tax upon it has many practical advantages besides
the pre-eminent one of its fairness. In the first place it taps a
steadily increasing fund, which expands with the expanding demands
upon revenue as industry develops and society becomes more complex. In
a new country land values are very small, because no one will pay a
great price for land when all a man can require is to be had for
nothing or a nominal price. But in new countries the revenue required
is small also: Government is of the simplest description; highly paid
judges, a great education system, public libraries and museums, old
age pensions, a great police force, extensive prisons, asylums and
workhouses would be useless and a mere embarrassment to a handful of
people engaged in primary production upon land to be had for the
taking. As the settlement grows in numbers, land values come into
existence to provide payment for the social services demanded of the
Government. New Zealand with its million inhabitants has £150,000,000
worth of land value, which increases yearly with the coming of
emigrants and the natural increase of the people. The United Kingdom
with its 44,000,000 inhabitants has at least' £6,000,000,000
worth of land value -- a greater potential source of revenue
proportioned to its social needs. It is only by drawing upon this
source that these needs can be adequately met.
Another great merit of the, tax on land values is the impossibility
of its evasion, for while income may be under-stated, many kinds of
property may be hidden and customs officers may be cheated, and
excisable goods escape duty, land can be neither concealed nor removed
from the country. Its value can be assessed, and should the owner or
occupier neglect or refuse to pay the tax, it can be recovered without
difficulty by renting or selling the land; and while the tax cannot be
evaded, neither can it be passed on to another by the person legally
chargeable. Unlike most other taxes, the tax upon land values stays
where it is put. The importer who pays the tea duty at the customs
house collects it again -- with something added for interest on his
capital laid out on duty -- from the purchasers of his tea. Just so,
it is alleged, will the land-owner, when taxed, recover from his
tenants in increased rents. No doubt he would do so if he could, but
it is beyond his powers. In the first place landlords now ask all that
their tenants can pay; a poor landlord is not able by reason of his
poverty to extort a higher rent than a rich one; and the mere fact
that a tax makes all landlords poorer will not put them in a position
to collect more rent from their tenants. They cannot raise rents, for
instance, when their income tax is increased. When the land values tax
comes into operation they will be obliged to reduce rents, because the
tax will force land hitherto unused or only partially used into the
market, and rents will naturally fall with the increased supply. Its
effect in reducing the price of land is a peculiarity of the tax which
distinguishes it from taxes on every other form of property, and this
distinction results from the difference between the conditions which
determine the price of commodities and the conditions which determine
the price of land. Briefly put, the price of commodities made by
labour is what their sellers will take; the price of land (made by
nature) is what its users will give. Unless the growers of tea or the
builders of houses, for example, receive a price sufficient to
recompense for the cost of production, they will cease to grow tea or
to build houses. As some of these people are already working at the
lowest margin of profit they cannot bear the increased cost of a tax,
and must therefore add it to the price which the consumer pays, or
else give up their business. The producers of commodities have power
to limit the supply, and will cease production when it is not
profitable.
With the land it is otherwise. It is not subject to a labour cost
which fixes its price. Not being made by labour, its supply cannot be
limited by curtailment of production, and the artificial limitation of
supply which it is now possible for owners to effect by holding land
out of use, or out of full use, will become impossible when they are
taxed sufficiently to make full use of all land imperative in order to
meet the requirements of the tax. The price of land is, as we have
said, what men will consent to pay. When the supply is artificially
limited, their competition with one another for land will induce them
to pay more than when the supply is enlarged and competition thereby
rendered less keen. Owing to these facts the owner of land values must
meet the tax upon them out of his own pocket, being unable to recoup
himself from land-users by charging higher rents or prices.
In common with other direct taxes an impost upon land values has the
great merit of conveying to the Treasury all the money taken from the
taxypayer, and once the first valuation is made the expenses of
collecting the tax are exceedingly small. Customs and excise duties
which might be replaced land values taxation not only require a host
of officials for their collection, but, even when levied for revenue
purposes alone, put a burden on the taxpayer beyond the amount of the
duty, for, as already mentioned, the importer -- and also the
wholesale merchant and the retailer -- who pay the duty in the first
instance, all require their trade profit from the ultimate purchaser,
upon the money they have spent at the customs office as well as upon
their outlay in buying goods. Thus a duty of 6d. per lb. upon tea will
cost the consumer 7d., even if the profits of all the middle-men, who
pay the duty and collect it from their customers, do not amount to as
much as 20 per cent.
In the case of protective duties the difference between the sums paid
by consumers and those received by the Treasury is vastly greater, for
all protected interests within the country raise their prices and thus
levy taxes which enrich them and give nothing to the State. The
manufacturers and farmers who gave evidence before the late "Tariff
Commission" frankly admitted that they wanted duties on imported
goods, not to increase the revenue, but to enable them to charge more
for what they sold.
If our reasoning thus far has been sound we have established the
claim of land values taxation to justice and the efficiency of the tax
as an instrument for raising revenue. The next point for consideration
is the extent to which this form of taxation may be carried without
committing injustice. Let us recapitulate to see what data we have
before us for forming a judgment on this matter. We have found that
the tax is fair; that it is more fair than any other tax; that while
these other taxes all take private property for public purposes, the
tax on land values draws upon a fund created not by individuals but by
society. These conclusions will carry us very far. In the first place,
if a tax on land values is not only fair, but the most just of all
taxes, it follows that its revenue-producing capacity should be
exhausted before recourse is made to taxes which are less just.
Indisputably these could be justified only by necessity. Again, a fund
created by society is morally the property of society, and the State
should take every possible penny from this fund, should spend all that
belongs to it, before demanding what belongs to others. If the State
did this it would put an end to private property in land, would in
effect nationalise land by taking rent for public purposes, but
without making crude endeavours to administer any estates, and without
interfering with the title to or the possession of a single acre. The
present landowners would remain in possession, secure and undisturbed
as long as they paid the tax, which would be a fair measure of the
socially created land value in their possession. At the same time they
would enjoy absolute ownership of all improvements on the land -- an
ownership which at present is limited by the obligation to pay rates,
and other burdens -- and would be able to buy and sell landed property
subject to the payment of the tax. The tax would be a full ground
rent; land without any improvements would, of course, lose its selling
value; but the value of improved properties might be very high, for,
though the site would be taxed to its full value, the improvements
incorporated with it would be free from all taxation.
Not only would things attached to the land be untaxed, but so also
would be incomes earned in all manners of ways, the purchases of all
the goods which now pay such heavy toll at the customs house, the
business transactions now penalised by stamp duties, the multifarious
activities upon which in one way or another the modern State levies
tribute. This new respect for private property, this release of the
mass of the people from the grip of the tax collector, would become
possible if land values were taken by the State, because this one tax,
as we shall show later on, would yield sufficient revenue to defray
all the national and municipal expenses of the country. The State and
the municipality would share in the socially created value according
to their respective needs. It would not be expedient or practicable to
make a complete and a sudden change in the financial system of the
country by causing the people to immediately resume the whole of its
rightful property, the land value, which has been allowed to find its
way into private hands. Long-continued wrong and injustice cannot be
swept out of existence in a day, and further on in this book will be
found a statement of the measure of land values taxation now
practicable as a step towards the ultimate establishment of a really
just fiscal system under which the land values tax would replace all
other taxes.
To some people who admit that land values are a social product and
that the present owners of them enjoy a special privilege, which
should in justice be paid for at its full value, it nevertheless seems
an injustice that those who make use of land should be taxed and that
all others should get off "scot free." To such objectors it
may be pointed out in the first place that there is no one who would
go "scot free," since every one in a country is more or less
a participant in the enjoyment of land values: the shopkeeper who
rents a shop in Bond Street to a greater extent than the lessee of a
similar shop in a London suburb; the lodger in a city boarding house
to a greater extent than the lodger in a provincial town. All persons
who use or occupy land of any value for any purpose, whether it be
only a few square feet as a dwelling-place, a city block as a place of
business or many acres for agriculture, will pay each their fair quota
of the tax. The lodger and the lessee will pay it in their rent or
board money to some one else, who will pass it on to the landlord
through whom eventually it reaches the Treasury; the freeholder will
pay his quota direct to the State. The tax paid by some persons will,
it is true, be extremely small, because their participation in land
values is extremely limited, but this is only common justice.
Those still unconvinced of the fairness of a system which gives the
benefits of civilised government freely to citizens whether
land-owners or not, these benefits being provided out of payments made
by land-owners for privileges accorded to them alone, be helped by a
homely illustration of a similar principle in the conduct of business.
Food and drink are provided in a restaurant where a charge is made for
these things according to their value, and no charge is made for the
enjoyment of music, the opportunity of reading papers, playing games,
and generally participating in the comfort of a well-appointed
establishment. The profits made on the sale of refreshments meet the
cost of providing all these things without charge, for the benefit of
those who enter the restaurant. The guest who spends a trifle on a cup
of tea, or accompanying a friend pays nothing at all, can listen to
the band, and turn over the paper, as freely as the man who spends a
large sum on an expensive dinner. Regard the State as a restaurant,
the land values as the viands, the proceeds of which suffice to pay
all expenses. Then the holder of great land values who pays much in
taxation is the man who consumes much food and settles a big bill at
the counter. The tenant of a single room or the rare occupant of
valueless land is the customer who drinks a cup of tea or takes a seat
without consuming anything. These types contribute little or nothing
towards the expenses of the State in the one case and to the expenses
of the restaurant in the other. Yet the State which should permit the
man who used little land to enjoy all the common benefits of
citizenship on these terms would be only following the usual example
of a restaurant company which permitted the man who ate little food to
enjoy all the common benefits of a guest on analogous terms. If the
much-taxed land-holder objects that the landless man should pay for
benefits of citizenship, e.g. protection to life and property,
the answer is that the land-holder should also pay, for he too
receives them freely. Just as reasonably might the consumer of a big
dinner at a restaurant argue that the visitor who consumed little or
nothing should be made to pay something for the band; and he would be
met with a similar answer; that the music was provided gratis, for
large customers and small alike, being paid for by the profit on the
service of supplying food, just as the State's expenses are paid for
out of money received for special privileges conferred on land-owners.
Following the analogy a little further, let us imagine circumstances
to arise in which fair payment for land values was insufficient to med
public expenditure, then it would be reasonable to make both the great
and small participants in land values pay some extra sum to provide
what was needed. Similarly if profits on meals at fair prices in the
restaurant were insufficient to pay for a band, its expenses would be
equitably met by a levy on all customers, whether they spent much or
little on their food.
We have now by a logical development of the principles of taxation
arrived at the conclusion that, save perhaps in cases of possible
emergency, the only tax should be one upon land values, which would
yield a revenue adequate for all national and municipal purposes; and
we have seen that justice demands the ultimate raising of this tax to
a point at which it would absorb the whole rental value and
practically abolish private property in land. This conclusion is of
such great importance that, though this book deals primarily with the
land in its relation to taxing problems and is not intended as a
treatise on general problems of land ownership, space must be found
for some extraneous considerations which support the conclusion we
have come to by following the dictates of just taxation whither they
have led us.
Perfect taxation would abolish private property in land: there are
unanswerable reasons for condemning private property in land if
taxation were non-existent. The most obvious of these is that land,
while limited in quantity, is a necessity of human existence, and that
its ownership by one set of men makes them the arbiters of the
conditions upon which the rest of humanity shall live. To put the
matter in another way, let it be granted that all men have an equal
right to live, and it follows of necessity that all have an equal
right to land, for since they cannot live except on the land, rights
to life would be unequal if one man were bound and another were not,
to pay for land on which a foothold at least is a necessity of living.
And this equal right to life, with its corollary an equal right to
land, belongs to generations unborn as well as to those living to-day.
This fact justifies two conclusions: the first is, that no sale o£
this right which might conceivably be alleged to have been acquiesced
in by living people can be urged against the child to be born
to-morrow, who has had no possible chance of selling his birthright;
the second is, that no wild scheme of dividing the land among its
inhabitants would have the support of reason or justice. Not only is
it impracticable, but even if it could be done it would fail to secure
the equal rights to land of persons born after the division was made;
there could not be a new division every day. There is indeed only one
method of giving equal rights to land to every individual, and that is
to make all persons in occupation of land pay its fair rental to the
State; whose duty it is; as the trustee of all its citizens, to spend
its revenues for their equal benefit.
In exacting this rental to preserve the equal rights of all to the
land, it will be seen that the State would be taxing land values in
the manner which an independent line of inquiry led us to maintain is
just and necessary. And that this method of securing human beings in
their birthright is founded on common sense and example can be shown
by its analogy with the procedure which sensible men would adopt when
faced with a somewhat similar problem, arising, for instance, in the
case of a man leaving his property equally to several sons. One of
them, we will suppose, is farming the estate, and wishes to continue
doing so, while the others have no desire for a country life. No need
arises to cut up the land; the farmer-son can remain in possession,
paying the fair rent of the land into a fund which is equally divided
between himself and his brothers. Their equal rights to the land are
thereby made absolutely effective, and similarly the State can allow
its children to occupy land for agriculture, mining, manufacturing, or
business, as the case nay be, at their pleasure, subject only to the
payment of a fair rent, which it is the business of the State to spend
for the common advantage of all. If it be objected that many citizens
will want the best land, the answer is that competition, which makes
land value, will give the best sites to those who will pay the price
-- and those who do not desire to pay so much will be participants in
the extra rent paid by those who do. Similarly in the case of our
family with equal rights to an estate, all their claims would have
been satisfied with fairness if two of the sons had desired to farm
the land, and the lease had gone to him who was willing to pay the
highest rent.
In earlier chapters we have endeavoured to make it clear that land
obtains a value or price through the growth of population, and
improved methods of production which result in increased demand, and
that this value therefore cannot equitably be private property.
Consequently there is no need to labour this point here; but one more
argument will not be out of place to sh6w that private property in
land unjust and that existing injustice can be remedied taxation. A
ready assent will be given, we imagine, a person who does not scent
danger in the conclusion to be drawn from it, to the proposition that
equal amounts of work of equal efficiency are in justice entitled to
an equal reward. This proposition, we admit, cannot be proved; its
truth is axiomatic. Nature, of course, takes no heed of it, for nature
is not concerned with justice, and in one year and in one spot will
give a bounteous return to labour which in another year or another
spot she will render barren and fruitless. But to secure equal justice
to its people is the first duty of the State. If justice does demand
that equal amounts of labour of equal efficiency should be equally
rewarded, in so far as social action can secure equality, then it
follows that where one man is working on land which yields forty
bushels of wheat to his labour and another man is forced to work on
land which gives only twenty bushels to the same amount and quality of
labour, the State has a duty to perform in securing equality of
reward. If it maintains private property in land, its hands are tied,
it can do nothing; and the first man will take forty bushels for such
labour, as yields his less fortunate neighbour only twenty bushels.
And still later comers into a privately owned world will get some only
fifteen bushels, some ten, some nothing, not even the opportunity to
dig the most hungry soil in a despairing effort to grow food, while
yet others in multitudes will find no opportunity of employing their
labour in any way to buy a crust from those who own the land from
which alone food and all good things come. This, which is the
deplorable state of affairs in England to-day, can only be put right
by the State taking in taxation for common purposes the excess product
of the best land over the worst land which labour is obliged to use,
thereby equalising the returns of equally efficient labour. In other
words, it must appropriate the rent, which is paid in town and country
for the use of land which owes nothing of fertility or value to its
owner, at the same time leaving him in full untaxed possession 0£
any improvements which he has made, or bought from those who made
them.
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