Why the Landowner Cannot Shift
the Tax on Land Values
Henry George
[An editorial from The Standard, 1887]
A VERY common objection to the proposition to concentrate all taxes
on Land Values is that the landowner would add the increased tax on
the value of his land to the rent that must be paid by his tenants. It
is notion that increased Taxation of Land Values would fall upon the
users not upon the owners of land, that more perhaps than anything
else prevents men from seeing the far-reaching and beneficent effects
of doing away with the taxes that now fall upon labor or the products
of labor, and taking for public use those values that attach to land
by reason of the growth and progress of society.
That taxes levied upon Land Values, or, to use the politico- economic
term, taxes levied upon rent, do not fall upon the user of land, and
cannot be transferred by the landlord to the tenant is conceded by all
economists of reputation. However much they may dispute as to other
things, there is no dispute upon this point. Whatever flimsy reasons
any of them may have deemed it expedient to give why the tax on rent
should not be more resorted to, they all admit that the taxation of
rent merely diminishes the profits of the landowner, cannot be shifted
on the user of land, cannot add to prices, nor check production.
Not to multiply authorities, it will be sufficient to quote John
Stuart Mill. He says (Section 2, Chapter 3, Book 5, "Principles
of Political Economy"): "A tax on rent falls wholly on the
landlord. There are no means by which he can shift the burden upon
anyone else. It does not affect the value or price of agricultural
produce, for this is determined by the cost of production in the most
unfavorable circumstances, and in those circumstances, as we have so
often demonstrated, no rent is paid. A tax on rent, therefore, has no
effect other than its obvious one. It merely takes so much from the
landlord and transfers it to the State."
The reason of this will be clear to everyone who has grasped the
accepted theory of rent - that theory to which the name of Ricardo has
been given, and which, as John Stuart Mill says, has but to be
understood to be proved. And it will be clear to everyone who will
consider a moment, even if he has never before thought of the cause
and nature of rent. The rent of land represents a return to ownership
over and above the return which is sufficient to induce use -- it is a
premium paid for permission to use. Intake, in taxation, a part or the
whole of this premium in no way affects the incentive to use or the
return to use; in no way diminishes the amount of land there is to
use, or makes it more difficult to obtain it for use. Thus there is no
way in which a tax upon rent or Land Values can be transferred to the
user. Whatever the State may demand of this premium simply diminishes
the net amount which ownership can get for the use of land, or the
price it can demand as purchase money, which is, of course, rent or
the expectation of rent, capitalized.
Here, for instance, is a piece of land that has a value - let it be
where it may. Its rent, or value, is the highest price that anyone
will give for it - it is a bonus which the man who wants to use the
land must pay to the man who owns the land for permission to use it.
Now, if a tax be levied on that rent or value, this in no wise adds to
the willingness of anyone to pay more for the land than before; nor
does it in any way add to the ability of the owner to demand more. To
suppose, in fact, that such a tax could be thrown by landowners upon
tenants is to suppose that the owners of land do not now get for their
land all it will bring; is to suppose that, whenever they want to,
they can put up prices as they please.
This is, of course, absurd. There could be no limit whatever to
prices did the fixing of them rest entirely with the seller. To the
price which will be given and received for anything, two wants or
wills must concur - the want or the will of the buyer, and the want or
will of the seller. The one wants to give as little as he can, the
other to get as much as he can, arid the point at which the exchange
will take place is the point where these two desires come to a balance
or effect a compromise. In other words, price is determined by the
equation of supply and demand. And, evidently, taxation cannot affect
price unless it affects the relative power of one or other of the
elements of this equation. The mere wish of the seller to get more,
the mere wish of the buyer to pay less, can neither raise nor lower
prices. Nothing will raise prices unless it either decreases supply or
increases demand. Nothing will lower prices unless it either
increases supply or decreases demand. Now, the Taxation of Land
Values, which is simply the taking by the State of a part of the
premium which the landowner can get for the permission to use land,
neither increases the demand for land nor decreases the supply of
land, and therefore cannot increase the price that the landowner can
get from the user. Thus it is impossible for landowners to throw such
taxation on land users by raising rents. Other things being unaltered,
rents would be no higher than before, while the selling price of land,
which is determined by net rents, would therefore be called on to pay
more to the State.
But while the Taxation of Land Values cannot raise rents, it would,
especially in a country like this, where there is so much valuable
land unused, tend strongly to lower them. In all our cities, and
through all the country, there is much land which is not used, or not
put to its best use, because it is held at high prices by men who do
not want to, or who cannot, use it themselves, but who are holding it
in expectation of profiling by the increased value which the growth of
population will give to it in the future. Now the effect of the
Taxation of Land Values would be to compel these men to seek tenants
or purchasers. Land upon which there is no taxation even a poor man
can easily hold for higher prices, for land eats nothing. But put
heavy taxation upon it, and even a rich man will be driven to seek
purchasers or tenants, and to get them he will have to put down the
price he asks, instead of putting it up; for it is by asking less, not
by asking more, that those who have anything they are forced to
dispose of must seek customers. Rather than continue to pay heavy
taxes upon land yielding him nothing, and from the future increase in
value of which he could have no expectation of profit, since increase
in value would mean increased taxes, he would be glad to give it away
or let it revert to the State. Thus the dogs in the manger, who all
over the country are withholding land that they cannot use themselves
from men who would be glad to use it, would be forced to let go their
grasp. To tax Land Values up to anything like their full amount would
be to utterly destroy speculative values, and to diminish all rents
into which this speculative element enters. And how groundless it is
to think that landlords who have tenants could shift a tax on Land
Values upon their tenants can be readily seen from the effect upon
landlords who have no tenants. It is when tenants seek for land, not
when landlords seek for tenants, that rent goes up.
To put the matter in a form in which it can be easily understood, let
us take two cases. The one, a country where the available land is all
in use, and the competition of tenants has carried rents to a point at
which the tenant pays the landlord all he can possibly earn save just
enough to barely live. The other, a country where all the available
land is not in use and the rent that the landlord can get from the
tenant is limited by the terms on which the tenant can get access to
unused land. How, in either case, if the tax were imposed upon Land
Values (or rent), could the landlord compel the tenant to pay it?
It may be well to call attention to the fact that a tax on Land
Values is not a tax on land. They are very different things, and the
difference should be noted, because a confusion of thought as to them
may lead to the assumption that a tax on Land Values would fall on the
user. Barring such effect as it might have on speculation, a tax on
land - that is to say, a tax of so much per acre or so much per foot
on all land - would fall on the user. For such a tax, falling equally
on all land - on the "poorest and least advantageously situated
as fully as on the richest arid best situated land - would become a
condition imposed oh the use of any land, from which there could be no
escape, and thus the owners of rentable land could add it to their
rent. Its operation would be analogous to that of a tax on a
producible commodity, and it would in effect reduce the supply of land
sufficient to pay the tax. But a tax on economic rent or Land Values
would not fall on all land. It would fall only on valuable land, and
on that in proportion to its value. It would not have to be paid upon
the poorest land in use (which always determines rent), and so would
not become a condition of use, or restrict the amount of land that
could be profitably used. Thus the landowners on whom it fell could
not shift it on the users of land. This distinction, as to nature and
effects, between a tax on land and a tax on Land Values, it is
necessary to bear in mind.
It is also necessary to bear in mind that the value of land is
something totally distinct from the value of improvements. It is a
value which arises not from the exertion of any particular individual,
but from the growth and progress of the community. A tax on Land
Values, therefore, never lessens the reward of exertion or
accumulation. It simply takes for the whole community that value which
the whole community creates.
While it is not true that a tax on Land Values or rent falls on the
user, and thus distributes itself through increased prices, it is true
that the greater number of taxes by which our public revenues are
raised do. Thus, speaking generally, taxes upon capital fall, not upon
the owners of capital, but upon the users of capital, and are by them
transferred to the consumers of whatever the capital is used to
produce; taxes upon buildings or building materials must ultimately be
paid in increased building rents or prices by the occupiers of
buildings; imposts upon production or duties upon imports must finally
fall upon the consumer of the commodities. This fact is far from being
popularly appreciated, for, if it were, the masses would never consent
to the system by which the greater part of our revenues is raised.
But, nevertheless, it is the vague apprehension of this that leads by
confusion of ideas to the notion that a tax on Land Values must add to
rents. This notion will disappear if it be considered now it is that
any tax gives to the person first called on to pay it the power of
shifting it upon others by an increase of price.
A tax on matches, for instance, will, as we know by experience,
enable the manufacturer or dealer in matches to get a higher price.
How? Evidently by adding to the cost of producing matches for sale,
thus checking the supply of matches that can be offered for sale until
the price rises sufficiently to compensate for the tax. It is this
knowledge that the tax will add to the cost of production, and thus,
below a certain price, check competition in supply, that enables the
dealer to mark up the price of his stock of matches as soon as the tax
is imposed, or compels him to mark it down as soon as the tax is
remitted.
But a tax on Land Values does not add to the cost of producing land.
Land is not a thing of human production. Man does not produce land! He
finds it already in existence when he comes into the world. Its price,
therefore, is hot fixed by the cost of production, but is always the
highest price that anyone can give for the privilege of using a
particular piece. Land, unlike things that must be constantly produced
by labor, Has no normal value based on the cost of production, but
ranges fn value from nothing at all to the enormous values that attach
to choice sites in great cities, or to mineral deposits of superior
richness, when the growth of population causes a demand for their use.
Hence a tax on Land Values, instead of enabling the holder of land to
charge that much more for his land, gives him no power to charge an
additional penny. On the contrary, by making it more costly to hold
land idle, it tends to increase the amount of land which owners must
strive to secure tenants-or purchasers for. Thus the effect of a tax
on Land Values is to increase the amount of land which owners must
strive to secure tenants or purchasers for. Thus the effect of a tax
on Land Values is not to increase the rent that the tenant must pay
the owner for the use of the land, but rather to reduce it. And since
the tax must be paid out of what the land will yield the owner, its
effect would be to reduce the price for which the land could be sold
outright.
Here, let us say, is a lot on the principal select street of a city
having an annual or rental value of $10,000. Such a lot would now
command a selling price of some $250,000. An increased tax upon Land
Values would not reduce its rental value, except as it might have an
effect in forcing into use unoccupied land at a greater distance from
the center of the city. But as less of this rental value could be
retained by the owner, the selling price would be diminished. And if a
tax on Land Values could be imposed with such theoretical perfection
that the whole rental value would be taken by the community, the owner
would lose both his income from its present value and any expectation
of profit from its future increase in value. While it would be still
worth as much as before to the user, it would be worth nothing at all
to the mere owner. Instead of having a selling value of $250,000, it
would not sell for anything, since what the user paid for the
privilege of using it would go in full to the community. Under a tax
of this kind, even though it could not be imposed with theoretical
nicety, the mere owner of land would disappear. No one would care to
own land unless he wanted to improve or use it.
The general principle which determines the incidence of taxation is
this: A tax upon anything or upon the methods or means of production
of anything, the price of which is kept down by the ability to produce
increased supplies, will, by increasing the cost of production, check
supply, and thus add to the price of that thing, and ultimately fall
on the consumer. But a tax upon anything of which the supply is fixed
or monopolized, and of which the cost of production is not therefore a
determining element, since it has no effect in checking supply, does
not increase prices, and falls entirely on the owner.
In view of the efforts that are made to befog the popular mind on
this point, I have deemed it worth while to show why taxes on Land
Values cannot be shifted by landlords upon their tenants. But the fact
that such a tax cannot be so shifted is realized well enough by
landowners. Else why the opposition to the Single Tax, and why the cry
of "confiscation"? Our national experience, like the
experience of every other country, proves that those who are called on
to pay a tax that can be shifted on others, seldom or ever oppose it,
but frequently favor it, and that when once imposed, they generally
resist its abolition. But did anyone ever hear of landlords welcoming
a tax on Land Values, or opposing the abolition of such a tax?
|