A Burdenless Tax:
To the Threefold to Support
upon Which the Single Tax Rests
Charles B. Fillebrown
[Reprinted from the book, Natural Taxation,
published 1917.
Part I / The Authorities / Chapter 9]
A. THE FIRST LEG OF THE SINGLE TAX TRIPOS: THE SOCIAL ORIGIN OF
GROUND RENT
Ground rent, what land is worth annually for use, is a creation of
the community, a social product -- all local taxes are spent upon
those things which make and maintain ground rent.
1. Definition of ground rent. -- (1) Ground rent is what
land is worth for use -- economic rent. (2) Strictly speaking, the "worth
for use" attaches not to the land itself, but to scores of things
exterior to the land and through it available for use, so that the
following is a fuller description:
Gross ground rent -- economic rent -- the annual site value of land
-- what land is worth annually for use -- what the land does or would
command for use per annum if offered in open market -- the annual
value of the exclusive use an control of a given area of land,
involving the enjoyment of those rights and privileges thereto
pertaining to which are stipulated in every title deed, and which,
enumerated specifically, are as follows: right and ease of access to
water, health inspection, sewerage, fire protection, police, schools,
libraries, museums, parks, playgrounds, steam and electric railway
service, gas and electric lighting, telegraph and telephone service,
subways, ferries, churches, public schools, private schools, colleges,
universities, public buildings -- utilities which depend for their
efficiency an economy on the character of the government; which
collectively constitute the economic and social advantages of the land
independence of any quality or content of the ground or land itself,
and which are due to the presents an activity of population, and are
inseparable therefrom, including the benefit of proximity to, and
command of, facilities for commerce and communication with the world
-- an artificial value created primarily through public expenditure of
taxes. For the sake of brevity, the substance of this definition may
be conveniently expressed as the value of "proximity." It is
ordinarily measured by interest on investment plus taxes.
2. The nature of ground rent. -- As defined by Mr. Shearman,
ground rent is, in its nature, "a tribute which natural laws levy
upon every occupant of land as the market price of all the social as
well as natural advantages appertaining to that land comment including
necessarily his just share of the cost of government." It is
found operative in every civilized country, automatically collecting "from
every citizen an amount almost exactly proportionate to the fair and
full market value of the benefits which he derives from the government
under which he lives and the society which surrounds him." It is
a tribute, "a tax, just, equal, full, fair, paid for full value
received."
It is not merely a tax which justice allows; it is one which justice
demands. It is not merely one which ought to be collected; it is one
which infallibly will be and is collected. It is not merely one which
the State ought to see collected; it is one which, in the long run,
the State cannot prevent being collected.... Sell them because there
been a more beautiful illustration of the wise yet relentless working
of natural law than in the proved the impossibility of justly
collecting any tax other than upon ground-rent. It shows that nature
makes it impossible to execute justly a statute which is in its nature
unjust.
This definition of Mr. Shearman's is offered as one difficult to be
improved upon or condensed.
Such, it may be added, is the nature of rent -- ground rent -- that
all the public and private improvements of a community today are
reflected in the land values of that community. Not only this, but the
value of all those ideal public improvements conceived out as being
possible under utopian conditions would be similarly absorbed, as it
were, in the ground, would be reflected in its site value. Stand
before a big mirror and you will see your image perfectly reflected
before you. If you are a man scantily, shadowy clad, so is the image
in the glass. The addition of rich and costly attire is imaged in the
glass. Load yourself with jewels and fill your hands with gold: in the
mirror, true to nature, is the image and likeness of them all. Not
more perfectly, nor more literally, is your image reflected in the
mirror, that are public improvements reflected in the value of the
land.
One peculiarity in the nature of ground rent to which we urge your
attention is the subtle relation existing between this natural income
and the artificial outgo of the public taxes -- a relation not unlike
that of cause and effect, by which the wise expenditure of the tax
contributes, in a manner especially direct, to the element of ground
rent.
Simple illustrations may help to open the mind to a consideration of
whatever may seem novel or strange in the restatement of a familiar
truth. For instance: the cook turns the crank of her coffee mill; the
whole coffee that was in the hopper comes out ground coffee, but it is
coffee just the same. To the Minneapolis miller lets on the water that
turns the crank of his flour mill; the wheat that goes into the hopper
comes out flour, wheat in a more subtle form. The people turn the
crank of a great tax mill; the taxes that go into the hopper, come out
ground rent, no tax quality lost, no rent ingredient added.
Or again: the myriad springs and rivulets of the great Mississippi
are continuously delivering themselves in one great river to see.
Suppose that some day you should read in the weather bulletin that
nature has decided to suspend the regular return of these waters in
clouds in rain and due to their point of departure. How long would it
be before the Mississippi Valley would be as parched and dry as the
Desert of Sahara, or the North End of the city of Boston, or the East
Side of the city of New York?
Or, more pertinent still, because more vital: the constant ground of
taxes and ground rent is the blood circulation of the body politics.
When the heart throws out the lifeblood through the arteries, if that
blood does not return through the veins, the patient dies -- not of
heart failure, but from loss of blood. When the public heart charges
the arteries of the land with ground rent, if that ground rent does
not return, the body politic is prostrated or enervated by loss of
blood. The body politic today, like a man with a ravenous appetite, is
cleaning its plate of all the millions a year that it can earn, and
mortgaging the future for nearly as much more, always eating, yet
always hungry, and simply because the best part of its millions of
dollar's worth of arterial lifeblood, instead of coming back to the
public heart, ebbs rapidly away through severed blood vessels in the
private appropriation of ground rent.
These illustrations of the miscarriage of the beneficent provision
seemed to hint strongly at the true theory of ground rent, as waiting
to be naturally developed under a natural law, and as a natural social
product.
3. The operation of ground rent. -- Critical consideration
is invited to Mr. Shearman statement that the operation of ground rent
is to exact from every user of land the natural tribute which he ought
to pay in return for the perpetual public and social advantages
secured to him by his location, a part of which natural tribute now
goes to the State in the form of a tax, and the remainder to the
land-owner in the form of rent. Objection to monopolies and special
privileges is that they participate in the private appropriation of an
undue share of this natural tribute, and while recognizing that in the
end all quasi-public, as well as all public service, should be at
least practicable cost to the people, it is held that meantime
whenever monopoly is enjoyed should be obliged, through taxation, to
repay to the public a full and fair equivalent for the privilege
conceded to it.
The monopolies and special privileges which should properly share
with land values the burden of taxation may be partially enumerated as
follows: the private appropriation of natural resources such as gold,
silver, copper, iron, and coal mines, oil fields, and water powers;
all franchises of steam and electric railways; all other public
franchises, granted to one or several persons incorporated., from
which all other people are excluded, and which include all "rights,
authority, or permission to construct, maintain, or operate, under,
above, upon, or through any streets, highways, or public places,
names, pipes, tanks, conduits, or wires, with their appurtenances for
conducting water, steam, heat, light, power, gas, oil, or other
substance, or electricity for a telegraph, telephonic, or other
purposes.[1]
4. The office of ground rent. -- The true office of ground
rent is that of abortive equalization -- equalization of taxation, of
distribution, and of opportunity. The tendency of an increase in the
tax upon ground rent is not only to equalize taxation in distribution,
but to equalize the opportunity of access to those social services
attached to the land. In this clear distinction between land and land
value, which cannot be too critically noted, may there not be found an
explosion of the notion that a man has a right to the private
appropriation of ground rent, because his forefather bought and paid
for the land 50 or 100 years ago?
The question is: when he bought the land 50 or 100 years ago, did he
buy and pay for the land value of today? In 1686 a company having five
shares and five stockholders bought a lot of land in Philadelphia for
$5. In 1900 the same company, with its five shares and five
stockholders, sold the value of the same land for $1 million. Does it
sounds reasonable to say that for one pound sterling in 1686 these
five men bought and paid for the $1 million land value of 1900, with
its ground rent of $40,000 a year? Would not such a sale in 1686 and
goods to be delivered 214 years later be dealing in futures with a
vengeance? True it is that the land sold today is the same land bought
in 1686. But it is just is true to that its value today is not the
value of the land itself, but is the value of the rights and
privileges pertaining thereto, and exterior to the land itself. The
demand that enhances land value is not for land itself, but for the
command of the same rights and privileges.
Land value being a social creation, and rent being socially
maintained, equal access to the rights and privileges pertaining to
the land can be promoted by the taxation of ground rent, and by this
means only. Ground rent, the natural tax feeder, extracts from the
user of land the exact measure of his advantage over other man in his
exclusive enjoyment of rights and privileges pertaining to his own
location, and the whole tendency of the taxation of ground rent is to
equalize participation in these common rights and privileges, by
commuting into dollars and cents, which can be divided, those
indivisible advantages of location, which can only be enjoyed
individually. Whenever a rent goes into the public treasury tends to a
fairer distribution of produce in wages earned. Whatever of taxation
is transferred from other wealth to ground rent leave so much more
wealth to be distributed in wages.
Again, it is submitted that the true office of ground rent is to
offer a communal shoulder suited to bear all the burden of common
needs, leaving produce -- current wealth -- to be distributed, as fast
is produced, in wages and interest, the total volume of which will
always be increased by the amount of rent appropriated through the
taxation of whatever of economic rent there is in special privilege.
Ground rent being a social product, is not its private appropriation
of special privilege?[2]
5. The cause of ground rent. -- The dimensions, as well as
the continuous character of the contribution made by the people to the
growth and volume of ground rent, are seldom measured -- by many
persons hardly suspected. Almost anything else that he owns, except
land, a man may appropriate, destroy, tear down, burned down, remove,
consumed, change in form, wear out. To the land itself he cannot do
any of these things. The value of its use his ground rent, and annual
value, which is all that the owner of land can consume. The land value
itself survives, and usually intact.
Ground rent may be said to result from at least three distinct
causes, all connected with aggregated social activity:[3]
(1) Public expenditure: All wise public expenditures are direct
feeders of ground rent. Streets, lights, water, sewerage, fire and
police systems, public schools, libraries, museums, parks and
playgrounds, all contribute to enhance the value of land, and the
corresponding depreciation would follow the abolition of any of these
systems. If follows, therefore, that expenditure for maintaining the
services constitutes the maintenance of ground rent, if not in a
literal sense, at least in an all-sufficient common sense.
(2) Quasi-Public expenditure: In the same way, the expenditure by
municipality or by private corporations for steam and electric
railways, gas and electric lights, telegraph and telephone facilities,
subways and ferries, contributes to the value of land, at least, to
the extent of their actual cost.
(3) Private expenditure: Equally, and by parity of reasoning, private
or voluntary social expenditure for churches, private schools,
colleges and universities, all private buildings, apartment houses,
stores, and office buildings, contributes to ground rent, the annual
value of land.
In an enumeration of the causes of ground rent, population is usually
the one first named. But passive population gives little value to
land; it is rather the activities consequent upon the character of
population that create the value.
It is generally conceded that, as a matter of fact, ground rent is
what land is worth annually for use; but it is of far greater
importance to understand clearly what is the source of that worth, and
especially to what extent it may be regarded as a social product.
Inasmuch as all the contributions representing social activities, so
far as enumerated, are paid for from the treasuries of the people, it
is correct and proper to say that ground rent is chiefly and
peculiarly a social product.
6. The maintenance of ground rent. -- So far as the cost of
streets, lights, water, sewerage, fire, police, schools, with
libraries, museums, parks, playgrounds, steam and electric railways,
gas and electric lights, telegraph and telephone companies, sub ways,
ferries, churches, private schools, colleges, and universities, public
buildings, well-appointed houses, stores, and office buildings is what
constitutes the cost of land value, just so far the maintenance of all
this public or social services constitutes the maintenance of ground
rent.
A simple illustration may help to an appreciation of the absurd
absence of the true to economy in tax affairs today. A landlord owns a
factory which requires steam power, and which is useless and worthless
without it. Another man owns a steam plant, and furnishes steam to
factories at so much per horsepower. The man who hires in uses the
factory pays factory rent to his landlord, who furnishes the factory,
and steam rent to the man who furnishes the steam. He would smile if
you should talk to him about paying his steam rent to the landlord who
does not furnish it. In vivid contrast with this sensible performance
we may take the case of another landlord who owns a store, requiring
public service and convenience, and useless without it. The
municipality owns in runs a public service plant, and furnishes public
service at a cost of so much per thousand dollars worth. The man who
hires in uses the store pays store rent to his landlord, who furnishes
the store, but, by a strange perversion, he pays his public service
rent to the same landlord. Should he not pay his public service rent
to the public that furnishes it? Inasmuch as all these contributions
to its maintenance, so far as enumerated, are from the treasuries of
the people, what can ground rent possibly be, if it is not a social
product?
7. An illustration: the ground rent in Boston. -- A dense
skepticism and, indeed, a denser ignorance, seem to obtain even in
regard to the simple fact that there is such a thing as ground rent,
and yet much more in regard to what is the volume of gross ground
rent. It has been questioned whether the ground rent of the city of
Boston, for instance, under the single tax, with the accompanying
shrinkage in speculative values, would exceed today five per cent on
the assessed valuation of land, or $32 million. Indications are that
the net rent of the land itself might not, but our investigations are
directed to ascertaining not the net, but the gross, ground rent,
which is net rent plus the taxes.
In a systematic attempt to dispel these clouds of ignorance and
skepticism -- now to be found in surprisingly high places -- and to
demonstrate beyond a reasonable doubt about how much gross ground rent
there is in the city of Boston, actual sales for the year 1902 and
actual rentals have been collected from official sources.
One hundred and twenty pieces of real estate in various sections of
the city are shown to have been sold at prices averaging one-fifth
higher than their assessed valuation, indicating that at least in
these one hundred and twenty cases evaluations were less than
five-sixths of the selling price.
Seven-hundred and fifty-one rentals of estates, together with their
assessed valuations, averaging $47,680 each, were also obtained from
reliable sources. In the total for these it is found that the net rent
is five per cent (4.8) and the gross rent -- net rent plus taxes -- is
six per cent of the assessed valuation.
Based upon this indicated ratio the gross ground rent of Boston is,
by conservative estimate, not less than $50 or $55 million.
The valuation of Boston's land in 1887 was $322 million
The value of the same land in 1907 land was $653 million
Thus the increase in the valuation of land in 20 years was $331
million.
Five per cent on this 20 year's increase of $331 million would be
$16,550,000 which, added to the $4,300,000 assessed upon the land in
1887, would be $20,800,000, as compared with Boston's taxes of
$21,254,000 in 1907.
Those who agree with John Stuart Mill that it would be sound public
policy and no injustice to landowners to take for public purposes the
future increase in ground rent will be interested to know what an
opportunity for putting such a plan in operation in Boston is shown by
the foregoing figures to have been lost twenty years ago.
The fifty-five millions are, we submit, the "income" in
very truth earned by the city and people of Boston -- created by their
actual labor and actual expenditure. Under the single tax Boston would
pay all its current expenses out of this legitimate $55,000,000 income
of its own, earned by itself, instead of allowing $40,000,000 more or
less of this amount to be divided, through the channel of privilege,
and into unearned incomes, thus aggravating those inequalities in
distribution of wealth which people are wont to declaim against as
partial and wrong.
While that part of the ground rent of Boston that goes to individuals
may be said to be unearned, having been produced by society, it may
truthfully be said to be earned by society, and hence it may go to it
as its wages, just as properly as his earnings go to the individual
who works for wages.
B. THE SECOND LEG OF THE SINGLE-TAX TRIPOS:
THE NON-SHIFTABILITY OF A LAND TAX
A tax upon ground rent cannot be shifted upon the tenant by
increasing the rent. If it could, the selling value of land would not
the reduced, as it is now, by the capitalized tax that is imposed upon
it.
The question is whether, if a new tax should be put upon land, the
owner would not escape by adding it to his tenants rent.
It is not a sufficient answer to quote the authorities. The query
still remains: what are the arguments upon which the authorities rely?
Following is an attempt at the clear statement which these arguments
deserve.
Ground rent, "what land is worth for use," is determined,
not by taxation, but by demand. Ground rent is the gross income, what
the user pays for the use of land; a tax is in the nature of a charge
upon this income, similar to the incumbrance of mortgage interest. It
is a matter of everyday knowledge that even though land be mortgaged
nearly to its full value, no one would think for a moment that the
owner could rid himself of the mortgage interest that he has to pay
through raising his tenant's rent by a corresponding amount. Mortgage
interest is a lien held by an individual; similarly a tax may be
clearly conceived as a lien held by the State. Both affect the
relation between the property owner and lien holder; neither has any
bearing upon the relations between owner and tenant. "Tax"
is simply the name of that part of the gross ground rent which is
taken by the state in taxation, the other part going to the owner; the
ratio these two parts bear to one another has no effect upon the gross
rent figure, which is always the sum of these two parts, viz., net
rent plus tax. The greater the tax, the smaller the net rent to the
owner, and vice versa. Ground rent is, as a rule, "all the
traffic will bear;" that is, the owner gets all he can for use of
his land, whether the tax be light or heavy. Putting more tax upon
land will not make it worth anymore for use, will not increase the
desire for it by competitors for its tenancy, will not increase its
market value.
To illustrate, let us consider the case of a piece of land for which
the land owner gets $1,000 rent from the man who uses it.
(1) The owner, let us say, pays over to the city in taxes $100 of
this $1,000 rent. Is there any indication that this $100 tax has any
influence in fixing the present rent at $1,000?
(2) Let us suppose that next year the city decides to take another
$100 of the $1,000 rent in taxes. Could be owner then add $200 tax to
the tenant's rent, making it $1,200?
(3) Let us suppose that the following year the taxes increased by
another $100 and so on, by an annual increase, until, for extreme
illustration, the tax is $1,000, an amount equal to the entire rent;
would such a condition make it possible for the owner to raise his
tenant's land rent to $2000?
These questions would seem to answer themselves in the negative, and
thus bring us to a fair conclusion in the matter.
WHAT THE AUTHORITIES SAY
OF THIS SECOND LEG OF THE SINGLE-TAX TRIPOS,
THAT A TAX UPON ITS RENT CANNOT BE SHIFTED
The weight of authority upon such a question is worthy of
attention, although by no means decisive. Now, while a few respectable
and sincere students of economic science hold to the doctrine of
transferability of the ground-rent tax to the tenants, no one will
dispute that an overwhelming weight of authority, both in numbers and
a reputation, scout that doctrine as absurd. Not only the entire
school of Ricardo and Mill, but also nine-tenths or more of other
economic writers may get a fundamental doctrine of their science that
such attacks never can be transferred to tenants. -- Thomas G.
Shearman, Natural Taxation, pp. 129 -- 32.
Though the landlord is in all cases the real contributor, the tax is
commonly advanced by the tenant, to whom the landlord is obliged to
allow it in payment of the rent. -- Adam Smith, the Wealth of Nations,
Book V., chap. II, part 2, part.1.
A land tax, levied in proportion to the rent of land, and varying
with every variation of rent, is in effect a tax on rent; and such a
tax will not applied to that land which yields no rent, nor to the
produce of that capital which is employed on the land with a view to
profit merely, and which never pays rent; it will not in any way
affect the price of raw produce, but will fall wholly on the
landlord's. -- Ricardo, The Principles of Political Economy and
Taxation, McCullough's edition, page. 107. A tax on rent would
affect rent only; it would fall wholly on landlords, and could not be
shifted. The landlord could not raise his rent, because he would have
unaltered the difference between the produce obtained from the least
productive land in cultivation, and that obtained from land of every
other quality. -- Ricardo, The Principles of Political Economy and
Taxation, chap, X, sec.62.
A tax on rents fall wholly on the landlord. There are no means by
which he can shift the burden upon anyone else..... A tax on rent,
therefore, and has no affect other than its obvious one. It merely
takes so much from the landlord and transfers it to the state's. --
John Stuart Mill, The Principles of Political Economy, book
V,. Chap. III, sec.2.
The power of transferring attacks from the person who actually pays
it to some other person varies with the object asked. A tax on rents
cannot be transferred. Attacks on commodities is always transferred to
the consumer. -- Thorold Rogers, Political Economy, second edition,
chap. 21, p. 285.
A land tax levied in proportion to the rent of land, and varying with
every variation of rents,..... Will fall wholly on the landlords. --
Francis A. Walker, Political Economy, ed. of 1887, p. 413,
quoting Ricardo approvingly.
A tax laid upon rent is borne solely by the owner of land. -- J.
Bascom, Treatise, p. 159.
Some of the early German writers on public finance, such as
Sartorius, Hoffman, and Murhard, went so far as to declare that,
because of this capitalization, a land tax is no tax at all. Since it
acts as a rent charge capitalized in the decreased valuable land, they
argue, a land tax involves the confiscation of the property of the
original owner. On the other hand, since the future possessors would
otherwise goes scot free, it becomes necessary to levy some other kind
of a tax of them. -- E. R. A. Seligman, Shifting and Incidence of
Taxation, p. 139.
The incidence of the ground tax, in other words, is on the landlord.
He has no means of shifting it; for, if a tax were to be suddenly
abolished, he would nevertheless be able to extort the same rent,
since the ground rent is fixed solely by the demand of the occupiers.
The tax simply diminishes his profits. --E. R. A. Seligman, Shifting
and Incidence of Taxation, pp. 244, 245.
If land is taxed according to its pure rent, virtually all writers
since Ricardo agree that the tax will fall wholly on the landowner,
and that it cannot be shifted to any other class, whether tenant
farmer or consumer..... The point is so universally accepted as to
require no further discussion..... A permanent tax on rent is thus not
shifted to the consumer, nor does it rest on the landowner who has
bought since the tax was imposed. -- E. R. A. Seligman, Shifting
and Incidence of Taxation, pp. 222, 223.
With these assumptions, it is quite clear that the tax on economic
rent cannot be transferred to the consumer of the produce, owing to
the competition of the marginal land that pays no rent, and therefore
no tax, nor to the farmer since competition leaves him only ordinary
profits.
The amount of each particular rental depends upon units of surplus
produced (varying to any extent according to the superior natural
conditions), and on the marginal price, which is independent of the
superior conditions, and, accordingly, a tax that strikes the surplus
only, remains where it first falls. -- J. S. Nicholson, Principles
of Political Economy, Book V, chap. xi, secs. 1 and 4.
C. THE THIRD LEG OF THE SINGLE-TAX TRIPOS:
THE ULTIMATE BURDENLESSNESS OF A LAND TAX
Every landowner is exempt from taxation on his investment, to the
extent of the tax which is land was subject at the time of his
purchase, and, therefore, practically speaking, nearly all land is
today owned free of any tax burden.
The purpose of the following illustrations to make clear by means of
iteration and reiteration two facts, viz.:
Fact 1. The landowner of today who has purchased since the present
tax was imposed escapes taxation upon his investment.
Fact 2. The burden of a land tax cannot be made to survive a change
of ownership.
The illustration is intended to show the effect in normal or
advancing community of mortgage interest and taxes upon the market
value in cost to the user of a lot of land and a house respectively
having equal purchase and rental value, and each subject to the same
mortgage interest and taxes.
First: the land. -- Proposition 1. -- Let it be supposed
that you want a piece of urban land that is worth $300 a year to you
for use. You can afford to pay $300 a year and no more, and it can be
had at an annual cost of $300 a year.
Let us then proceed to acquire this piece of land, exercising
diligence and caution to profit by each step in the transaction.
(a) At the very outset the question arises, what is the thing for
which you are proposing to pay $300? Surely it is not the soil itself,
because it is a question of a building site, which could be had out in
the country for little or nothing. It is not nearly the area upon
which to dig a whole in the ground, wall it about, and erect a
building, for the same space can be had elsewhere for a song. In
short, it is not the earth's surface; it is not the inherent
capabilities of the soil; it is not light and air, or other bounties
of nature resident in that lot of land, it is not natural resources of
which you are thinking as worth to you $300 a year.
(b) But what you are going to pay for is the accompanying and
incidental use of a great many expensive things outside of the piece
of land, things which you will need and must have, which you cannot
afford to provide your own expense, but for the use of which you can
afford to pay in proportion as you use them. It is these outside
things, available by their proximity, for which you were called upon
to pay $300 a year. To innumerate again, specifically, they are common
in a town or city lot, right and ease of access to water, health
inspection, sewerage, fire protection, police, schools, libraries,
museums, parks, playgrounds, steam and electric railway service, gas
and electric lighting, telegraph and telephone service, subways,
ferries, churches, public schools, private schools, colleges,
universities, public buildings -- utilities which depend for their
efficiency and economy on the character of the government; which
collectively constitute the economic and social advantages of the
land; and which are due to the presence in activity of population, and
are inseparable therefrom, including the benefit of proximity to and
command of facilities for commerce and communication with the world --
and artificial value created primarily through the public expenditure
of taxes. In practice, the term "land" is erroneously made
to include destructible elements which require constant replenishment;
but these form no part of this economic advantage of situation or site
value.
(c) in other words, you are to pay $300 a year for the value of what
the law calls "the rights and privileges thereto pertaining,"
specified in every deed of land conveyance. This $300 is ground rent,
"what the land is worth for use."
Proposition 2. -- Assuming this piece of land to be free from all
charges and encumbrances, and assuming the current rate of interest to
be 5 per cent per annum, you would purchase the lot for $6,000,
because interest upon that some would amount to the stipulated $300 a
year. But if on the contrary, the lot bears a mortgage of $2,000, upon
which the annual interest charges $100, then the lot will cost you
$4,000.
(a) The mortgage interest charge of $100 reduces the selling price of
the land by the amount of the mortgage, $2,000, and you will buy the
land, not at $6000, but at $4000, the value of the equity remaining
after mortgage interest has been paid.
(b) By purchasing title you will assume the mortgage and will pay the
mortgage interest, $100, but that $100 will not come out of your $200,
the net income from your investment of $4,000; it will come out of the
gross income, the ground rent, $300. It is a part of, and not in
addition to, the ground rent. You will pay the interest, but you will
not bear it, because you will have bought yourself clear of the
burden.
(c) The lot will thus cost you annually for use: interest on your
purchase price ($4,000 and 5 per cent), $200, plus mortgage interest
($2000 and 5 per cent), $100, equal in all to $300, all that the land
is worth for use, use being the only relation of land command with
which economics has reasonable concern.
Proposition 3. -- But, besides being subject to a mortgage of $2,000,
assume further that this lot of land is subject also to one old tax of
$100, which charge the purchaser must also assume. You will then
purchase the land not at $4,000, but at $2,000.
(a) As has already seen, the mortgage interest charge of $100 reduces
the selling price of the land by the amount of the mortgage, $2,000.
It is equally true that the tax charge of $100 reduces it by the same
amount, $2,000; the mortgage and the tax together therefore reduced by
$4,000; and you will buy the land at $2,000, the value of the equity
which remains after both mortgage interest and tax have been paid.
This $2,000 is the capitalization of the annual value of the lot to
you after all charges have been met.
(b) In purchasing you will assume both mortgage interest and tax and
will pay them, but you will pay them out of the gross income of $300,
and not out of the net income of $100 from your investment of $2,000.
Therefore no part of the $2,000 which you pay for the equity will be
taken from you in taxation, either as principal or interest.
(c) The lot of land will bus cost you for use: interest on your
purchase price ($2,000 at 5 per cent), $100; plus mortgage interest
($2,000 at 5 per cent), $100; plus taxes, $100; and these together
aggregate $300, what the land is worth for use, the same as before.
(d) It follows and that, under the present system, assuming free
competition, the selling value of land is an untaxed value, and
landowners who invest today are exempt from taxation -- not indeed
upon their land, but upon its annual net or income value to them, or,
in other words, upon their investment. The gross value is a taxed
value. The net value is an untaxed value.
(e) As this exemption of the present holder holds true today, so it
will be true in future of each new purchaser subsequently to the
imposition of any new tax. It is in the very nature of things that the
burden of a land tax cannot be made to survive a change of ownership.
(f) This is equally true of a bond, but it is assumed that a tax levy
should be not upon intangible bonds legally conceived as property, but
only upon tangible goods and estates. It is, to be sure, just as true
that a man who builds a house to rent pays no tax on his investment,
but for a different reason. The tax, in that case, is shifted upon the
user in increased house rent, except so far as, by discouraging
building, it is reflected in lower wages for the building. But an old
tax upon the land is a burden neither upon present owner nor user. The
tax on land is absorbed, that on the house is shifted.[5]
(g) We cannot too soon or too rigidly fix in mind the fact that this
ground rent of $300 is the governing factor in the situation; that it
is a tax laid not by the State but by nature, which every man must pay
for the use of land, either to a private owner as rent, or to the
State as a tax, or to both. No statute or ordinance can increase or
reduce, exempt from, or abolish the payment of this "economic
rent," or ground rent, to somebody. Its amount is neither fixed
nor affected by the tax that is put upon it, whether large or small.
Taxing it cannot increase it; cannot decrease it; cannot abolish it.
Its amount may always be calculated by this simple formula: ground
rent equals interest on purchase price, plus interest on any mortgage,
plus taxes.
Proposition 4. -- Neither a tax upon ground rent, nor the ground
rent itself, adds anything to the cost of land for use.
(a) Economic rent, ground rent, measures the value of all public,
quasi-public, and social service. If the whole ground rent is not a
burden, but merely an equivalent for social values received, neither
can interest and taxes, two of the parts of which ground rent in our
illustration is composed, be a burden upon the user. A tax upon rent
comes out of rent, which, as has been explained, is the natural tax
that every user has to pay to someone, and hence it subtracts nothing
from wages and adds nothing to the cost of living.
Proposition 5. -- You cannot pay $6,000 for the land and in
addition pay either the mortgage interest of $100 or the tax of $100,
because that would make the land cost you $400 per annum which, by our
assumption comment is worth only $300.
(a) The tax upon land cannot be added to the ground rent -- which is
kept at its maximum by market demand -- but is a part of, and must
come out of, ground rent. If it could be added, that fact would itself
indicate that the ground rent was $400 instead of $300, which is
contrary to supposition. Land worth only $300 a year cannot be made
worth $400 a year by putting a tax of $100 upon it.
(b) Let it not be forgotten that ground rent, in the sense in which
the word is used, is the same homogenous thing, one and indivisible,
the world over -- what land is worth for use. It is rent -- or use
value -- not cost of construction or cost of production -- that fixes
the price of land. Economic rent is the initial and governing factor
from which all calculations must proceed.
Second: the house. --
Proposition 6. -- The lot having been acquired, let it be
supposed that you are in need of a house, and that such a house as you
want would cost to build $6,000, or, in interest, $300 a year, the
same as the annual cost of the land.
You will observe at once that the problem of the house is quite
different from that of the land. The cost of acquiring land depends
primarily upon its rent. Conversely, the rent of a house depends
primarily upon its cost. Builders will not build houses unless they
can get interest on the cost of construction. Competition among
builders will not allow one builder normally to get more than interest
on cost of construction.
Proposition 7. -- If such a house were free of tax, but mortgaged
for $2,000, it would cost you to buy only $4,000, and it would cost
you to use, as in case of the land, interest on purchase price ($4000
at 5 per cent), $200, plus interest on mortgage ($2000 at 5 per cent),
$100, making $300 as before.
The mortgage upon a house, like that upon land, will add nothing to
the cost of the house for use.
Proposition 8. -- But you find that such a house is subject also
to a tax of $100, which you will have to pay in addition to the above
$300, interest on purchase and mortgage, making the house cost you for
use altogether $400, instead of $300 a year, or $100 more on account
of the tax.
(a) Unlike the tax upon land, the tax of $100 upon the house cannot
come out of the $300 rent (house rent or interest) except indirectly
through its effect upon wages as before mentioned, because house rent
cannot normally be less than interest on the actual cost of building
the house; it must instead be paid by the user of the house, over and
above his interest, making his house rent, the annual cost of his
house for use, $400 instead of $300.
(b) To repeat: a house rent, otherwise $300, is increased to $400 by
a tax of $100 on the house. In contrast with this, you may either take
off the present tax of $100 from the land, or you may increase that
tax to $200, and in neither case will the cost of the land to the user
be affected. Take off the $100 tax from the house, and the cost of the
house to the user will be reduced from $400 to $300 a year; all of
land and house together, from $700 to $600.
Proposition 9. -- The moral of this illustration is that you get
for use annually $300 worth of land for $300, at a house costing $300
for $400. In other words, a tax upon land is a part of, is included
in, and comes out of, ground rent, and is no burden to the user; while
a tax upon a house is a clear addition to house rent, and comes
principally out of the user of the house.
To recapitulate: a) It has been shown that a house tax of $100 that
has been regularly levied takes in taxation $100 a year of the user's
income.
(b) It has been shown to tax of $100 takes in taxation no part of the
income of the user or present owner, provided that he purchased the
land after the tax was imposed.
The beauty of this illustration is that (in a classification which
excludes duplication by certificates or mere legal evidences of
property, like stocks, bonds, etc., and includes only actual tangible
property) while land stands as always for everything except the
products of labor, a house is here made to stand as the representative
of any and all products of individual labor, that is, for everything
except land, and the illustration thus becomes all-inclusive.
If you have had the patience to follow it understandingly you may
rest assured that you have mastered a basic principle of taxation and
have solved one of the most perplexing problems of political economy.
It has been suggested that this doctrine of the ultimate
burdenlessness of the land tax bears the stamp of truth which Herbert
Spenser affirmed to be the final test of a verity, that is, that its
negation, or opposite, is unthinkable. It also ushers us into the
perfect repose of a scientific conclusion that the single tax, instead
of involving hostility to the landowner, might be inaugurated in all
its fulness by the simple exercise of impartiality in taxation.
There is another mode which, only give time, would facilitate the
same work. It may be shown that if a special tax be imposed upon land,
and if it be suffered to subsist, it will in course of times cease to
be felt as a tax. Land will be bought and sold subject to it; offers
will be made and prices will be settled with a reference to it; and
each purchaser who buys for the purpose of earning the average rate of
profit will reduce the purchase money, owing to the existence of the
tax. If he does not, it will be because he prefers something to
profits. Hence that land tax imposed in 1693 so far as it is not
redeemed, has probably ceased to be felt as a tax..... Hence, too, it
follows that if it was originally fair to impose a tax of 4 shillings,
it is now fair to add a tax of the same amount; or, in other words, if
the landowner of the reign of Victoria may be justly called upon to
bearer as heavy a burden as that borne by his forefather, the land tax
must be raised to 8 shillings, of which 4 shillings will be a
rent-charge or the share of a joint tenant, and only the remainder
will be of the nature of a tax..... In the course of time the same
causes which effaced the first four shillings would remove the weight
of the 8 shillings: wherever land is sold, it will be so with an eye
to the existence of the latter tax. The process will not stop here;
assuming that rents do not fall, that land is freely sold, that no
equivalent taxes levied upon personalty, and that the increments of
taxation are imposed at very distant intervals, in the lapse of time
each addition to the land tax will be shifted from the landowners.
Thus it would seem that there is no taxing them always, unless the
land tax be repeatedly raised, and that, if such an impost is just at
all, the State must in fairness keep whittling at the portion of the
landowner until, at some distant period, it is absorbed by taxation.[7]
Mr. George has not only been consistent throughout all his writings
in the implication of the ultimate burdenlessness of a tax on land
values, but he explicitly declared in address to the Knights of Labor,
that "to take land values for public purposes, is not really to
impose a tax, but to take for public purposes of value created by the
community," to which may be added Mr. Shearman's testimony that "scientifically
speaking, a tax upon ground rent is not a tax at all."
Professor Seligman at Saratoga in 1890 made the following statement:
It is apparent that the value of the land will fall in
exact proportion to the increase of the tax, until when the tax
equals the entire rent the value of the land will be zero. During
these successive stages, however, the new purchasers lose nothing.
The diminished rent will still yield them the same rate of interest
as before, because of the diminished capital value on which the
interest is computed.
Professor F. Spencer Baldwin, in an editorial in the Boston
Transcript, March 16, 1909, said:
The broad basis of this tripos of the single tax will
doubtless withstand the assaults. Since the ground rent of land is a
social product, it is just to take at least enough of it in taxation
to meet the expenses of government. Such a tax, furthermore, cannot
be shifted from the landowners to other classes in the community,
but must be paid wholly and finally by them. It is, moreover, just
that they should be taxed especially in this fashion; because in
most cases they have bought their land tax-free under the operation
of the principle that the selling value of land is an untaxed value
and a land tax cannot survive a change of ownership. This threefold
support of the single tax is the stoutest that has been erected by
any champion of the policy. Anyone who will take pains to study the
economic principles involved, and their application, must concede
the substantial validity of the arguments.
The figures of the city of Boston for 1915 illustrate the relative
incidence upon landlords as a class under the proposed system.[8]
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The net increase ($2,200,279) in the tax bills of landowners
collectively under the single tax is three dollars per thousand (three
tenths of one per cent) of their present land values.[9]
To sum up, the single tax would relieve the poll taxpayer, and a few
persons who now pay taxes on personal estate and on nothing else, but
it would increase the total now paid by the landowners collectively
certainly less than 10 per cent, probably not more than 5 per cent.
The proportions in which the landowner would bear the "burden"
would be changed, that is all. The changes would be favorable to those
who have improved and made the best use of their land, a long stride
toward equalization in taxation. The landowner's now pay no taxes on
land[10] and all the single
tax would do to the landowner in Boston is to take less than $3 out of
the privileged, unearned net income which he now enjoys from $1,000
worth of land, and there is no doubt that this net income averages $35
to $40 at least.
Among other authorities on the burdenlessness of the land tax are Sir
Robert Giffen, Essays in Finance, First Series, page 242; Mill, Principles
of Political Economy, Vol. II, Book V, chap. II, sec. 6; Bastable,
Public Finance (1903), page 440; Thomas N. Carver, Yale
Review, Nov. 1896.
FOOTNOTES
- Quoted from the Ford Franchise
Tax Act of New York.
- A question for the future to
decide. - For the sake of argument, let there be assumed the
following hypothesis:
Ground rent is due to three principal causes in proportion as
follows: (1) to Public Expenditure, say one-half, (2) to
Quasi-Public Expenditure, say one-quarter, (3) to Private
Expenditure, say one-quarter. Queries: (1) Would not the right of
the community to the first half be beyond dispute? (2) Would the
community have as full a right to the third quarter as to the
first half? (3) Would not private enterprise and expenditure have
a larger right in the last quarter than in the other parts? In
practice would not justice and fact coincide, because the greater
the private improvement, the greater the profit to the improver
through exemption of his improvement. No present discussion of the
foregoing hypothesis is invited; it is suggested only as food for
thought when the time shall come, if ever, to decide the exact
percentage rent that ought to be absorbed by taxation.
- By the term "old tax"
is intended the tax in force at time of last purchase; by "new
tax," one imposed since last change of ownership.
- Landlords who own and let both
land and tenement houses, apartment houses, and business blocks
thereon, escape the burden of the tax on their land, and at the
same time shift upon their tenants the building tax, thus avoiding
all share in the tax burden.
- This is indeed the point from
which the whole discussion proceeds.
- Macdonell, The Land
Question, p. 74.
- The writer is indebted to Mr.
Jonas M. Miles, a Boston attorney, for the above statement.
- The landowner's share of
personalty tax is estimated from examination of tax lists to be
two-thirds of the total.In most towns it is more than that. As to
poll taxes, it is here estimated that less than 12 per cent is
paid by landowners, though in most towns the proportion is found
to be larger.
- See Fillebrown, C.B., The A B
C of Taxation, chap. III, Doubleday, Page & Co., New York,
1909.
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