Natural Revenue Without Taxation

Allan B. Meyer

[A paper written by the author during 1963 while attending
Bowling Green State University, Bowling Green, Ohio]

Prior to the Sixteenth Amendment, there was a need for a uniform system of taxation that would secure revenue for the government and promote economic stability. Ever since the passage of this amendment, in 1913, revenue has been collected by the levying of compulsory contributions of the public. Many economists and experts on taxation have long believed that the lawmakers of this amendment had given little thought, if any, to the question of whether this form of taxation was the best possible solution of collecting revenue from the public. Mr. Joseph S. Thompson's view concerning this dilemma follows:

After the establishment of the Sixteenth Amendment a cancerous, bloated, politician's plunder era commenced in which we commit as a mass, crimes that would see each one of us in jail if performed as an individual.[1]

In his book, Taxation's New Frontier, Mr. Thompson cites as an example of our present tax legislation, the fining of various modes of transportation so that they would not hinder or interfere with the movement of our troops during World War II. This tax meant to deal with the war problems of the early 1940's but has been retained to the present with no important justification for such a tax. There are many similar drawbacks of our tax system, too numerous to mention, which today reflect upon the poor legislation of our country concerning this matter.

However, the primary problem is proposed by Mr. G. Szmak, who shares his opinion with others, that: "Taxation unduly diverts social funds into the hands of individuals, thereby unbalancing the social and individual welfare."[2]

An organization named the University of Economics Foundation advocates the abolishment of the present taxation program arid the substitution of a natural revenue system based on the assessment of revenue from land and natural resources instead of taxing capital and labor. This institution is thoroughly convinced that taxation without limitation and representation has been responsible for the continuous downfall and destruction of our economy. Its economists give two valid reasons why their proposed natural revenue system would be the best remedy for solving many of our economic problems. First, government revenues can be substantially increased to produce 250 billion dollars to the federal, state, and local governments. Second, the working force could be increased by 15 to 25 million so that we could expect a gross national product of 750 billion dollars annually.

The natural revenue system is a plan that would assess those individuals occupying and using land and its resources which belong to the society as a whole, and put government, capital, and labor on a true competitive basis. In other words, all land is considered to be common property. Land is a natural gift and everyone should equally share in its benefits. Mr. Thompson states:

It must first be understood that minerals (gold, oil, water, iron, uranium, gas, copper, etc.), the natural forest, and the power of descending water are all part of the bounties of nature for which no man can claim credit or reward, and all require the touch of labor.[3]

This form of collecting revenue from land would not be a tax but a rent charge and the natural resources would provide a sound basis for meeting all social expenditures. The University of Economics Foundation states that: "Revenue collected from the use of land provides a permanent revolving fund for generating prosperity without confiscating material or capital and taxing labor."[4] In accordance with the above statement, Mr. John R. Fuchs says: "The state will collect annually the economic rent and/or royalties of all land. This is not a tax on land but the taxation of land values."[5]

Will this proposed natural revenue system work in the United States? In many cities throughout the world, the land value taxation principle has long been in effect and in some cities, it is the only source of raising public revenue. The revenue system of Sydney, Australia is a fine example of this system in action whereby this city obtains all of its revenue from rates levied on the value of land alone, while buildings and improvements are entirely tax exempt. Another example is the country of Denmark, which put this revenue system into an actual working plan by progressively introducing it over a period of years. "The best proof is that the people in these countries are peace loving, because their taxation stimulates production and improvements. …"[6] Mr. G. Szmak, representing a great number of economists' views, offers the following formula to collect revenue and end confiscatory taxation:

• One-third* x National Production Value / Nationally Held Land Acreage = Land Rate

Social Example

• 1/3* x $240 Billions / 1.9 Billion Acres = $42.11 per acre

Individual Example

• 1/3* x $4000 / 2.5 x 12.67 acres (31.67 acres per worker) = $42.11 per acre

* Land, labor and capital are three equally essential factors in production of wealth. Therefore, each is entitled to 1/3 of the return or income for an equivalent amount of investment.[7]

In contrast to Mr. Szmak's practical formula is Mr. Cullman's, which stresses the social aspects of this plan. In his formula, he also recommends rent rather than taxes:


Rent for Revenue Formula

RENT FOR GOVERMENT REVENUE (Government collects for its services - value for value received.)

=

Free Citizens Democracy Prosperity[8]

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.

The above is the Sixteenth Amendment to the United States Constitution which provides for a tax on the net income of individuals and corporations. In the United States, the taxation program falls under the jurisdiction of both the Federal and the State organizations. According to Mr. William R. Green:

This often results in a conflict of authority by the Federal Government and the government of some State based on claim, which may or may not be well-founded, that one governing power is interfering with the powers granted to the other by the Constitution.[9]

In addition to the above situation, there are others that reflect the complicated tax laws of this nation: (1) Taxes tend to discourage economic activity and investment; (2) High taxes lead to complicated tax laws; (3) Complicated laws lead to increased taxpayer's annoyance. The tax burden in this country is heavy since we must pay for survival in this time of peril and for public improvement in this time of opportunity. However, only with tax reform can we expect to support this burden. The University of Economics Foundation has proposed an amendment to the Constitution for "stabilizing peace, progress, and prosperity." The amendment is as follows:

ARTICLE 3 (XXV)

Section 1. All the manifold foreign and domestic compulsory local, state and national taxes, tariffs, duties, tolls, fees, premiums, dues and other deductions shall be abolished.

Section 2. Communities, states and countries shall derive their social income solely from a land revenue to provide a permanent revolving fund for building, operating and maintaining public improvements, institutions and services; thus the circulation of prosperity is stabilized.

Section 3. The revenue is payable only by landholders and the rate shall not be more than one-third of gross social and individual income during current year in any country, nor less than current net income in any community, state or country, divided by its land area.[10]

This amendment will immensely add to the stability of the national income since the most serious weakness of the income tax is its instability to provide revenue. This is due to the failure to furnish adequate revenue in time of depression. It will also aid the agrarian element since Section I abolishes foreign and domestic taxes, from which the fanner has greatly suffered in the past.

How can this proposed amendment become a reality? The most important factor in determining the success of this tax reform is the will of the people. The general public is influenced by many misconceptions concerning the feasibility of amending the Constitution. The public has a duty and a right to be well informed. Unless they realize that they are a majority, tax reforms will be hindered and neglected. There are factors that must be considered as drawbacks to the possible passage of this amendment; (1) the political party system and its influence in Congress; (2) the reaction to change by the conservative faction of the nation's voters. The idea here is that many people feel secure in practices that have been firmly rooted in the past. However, it must be said that change makes for greater progress for future generations, and revolutionary ideas must be tested in order to see if they meet the demands that need to be solved. Mr. G. Szmak points out a particular "blind spot" which obstructs the average citizen's understanding of established economic order:

They do not understand that there is no need for taxing labor and capital when the income from land and other natural resources is used to pay for the facilities provided and social services rendered by public agencies.[11]

This viewpoint summarizes once again the basic problem to be overcome if the proposed natural revenue system will be adopted.

There are many advocates of the above proposal made by The University of Economics Foundation. Most of these men are specialists in the field of taxation and real estate. For example, Mr. John R. Fuchs's book, Constructive Taxation For Free Enterprise, contains many statements by prominent men who advocate a plan in accordance with the natural revenue system.

• The burden of taxation should be so shifted as to put the weight upon the unearned rise in value of land itself, rather than upon the improvements. [Theodore Roosevelt]
• I believe in Land Value Taxation. I count it a great privilege to have been a friend of Henry George. [Samuel Gompers]
• I favor the gradual reduction, so far as possible of the tax burden on industry and labor; and taking instead the Economic Rent of the Bare Land. [Professor Irving Fisher]
• I am a believer in Land Value Taxation. This would be the means of bringing about the sanitary conditions I so much desire. [William C. Gorgas, M.D.]

Mr. Otto Cullman is also in favor of the natural revenue system but he calls it the "Volmatic Revenue System." He says that, "Far more than the prosperity it would bring to all, financing government with the Volmatic system would establish permanent world peace."[12] Still another businessman, Mr. Joseph S. Thompson, states that:

…general taxation should be abolished or used only as a repressive measure, and that the public collection of the entire rental of land is not taxation at all and should become the major source of public income.[13]

However, there are taxation experts who believe that our present system of taxation needs revamping instead of the adoption of a completely new system. Mr. Roswell Magill, of Columbia University, stresses the need for a more adequate and better designed tax system:

Ours, (tax system) with the best intentions is beginning to function as a brake (on incentive) today. Hence, it is certainly worthwhile to consider, as best we can, how a fairer and more adequate tax system may be constructed which will be as little harmful as possible to the economy we fight to preserve.[14]

Mr. Roy Blakey, of the University of Minnesota, holds the following opinion concerning our present income tax:

A good income tax should be an important part of any system for Americans of this generation. That is, no other important tax is more in harmony with the ideals of democracy.[15]

After having studied the proposed natural revenue system and the various pros and cons of the present system, I definitely believe that our tax program should be reformed in some way. Although the proposal made by the University of Economics Foundation seems more radical than other proposals, this does not mean that it cannot work to our benefit. I have found indications of a trend towards using the raw land as the basic source of income. This is possible because the United States possesses a rich abundance of natural resources and a large territorial expanse. In view of the predicted increase in population by 1970, more public services will be necessary to meet the demands of these future citizens. With our present tax system, many small businesses are seriously hindered each year. The natural revenue system would benefit the small businessman since it would collect revenue in proportion to the individual capacity to pay, without taxing capital and labor.

With small business being a major link in our nation's economy, it is sure that some other form of taxation will have to be adopted. This proposed natural revenue system will not replace our present tax program overnight, due to the many previously mentioned obstacles it has to face, the main one being the people. Legislation should reflect the public's needs and wants but rarely does this majority make known its desires by the very powerful political instrument -- the initiative. If people would become more aware of their democratic processes and rights, they would realize that they do constitute a majority in the United States. Of course, it is impossible to act as the ancient Greeks acted, but we can hope to obtain a reasonable facsimile of such a democracy in action. This can be best achieved through educating the public concerning the basic problems of our present tax system and the benefits of the natural revenue system. I believe that this system is economically sound and worthy of greater attention than it has been given.

REFERENCE	BIBLIOGRAPHY
#15, pp. 471, 577	Blakey, Roy G., The Federal Income Tax. London: Longmans, Green & Co.
#8, p.46, #12, p.95	Cullman, Otto, Behold The Future. Chicago: Columbia Printing Co., 1942
#5, p.35, #6, p.141	Fuchs, John R., Constructive Taxation for Free Enterprise. New York: Exposition Press, Inc., 1956
#9, pp.315-16	Green, William R., The Theory and Practice of Modern Taxation. New York: Commerce Clearing House, Inc., 1938
#14, p. viii	Magill, Roswell, The Impact of Federal Taxes. New York: Columbia University Press, 1943
#11	Szmak, G., "The Four Blind Spots". New York: University of Economics Foundation, 1957. RELEASE No. 1, EWC
#2	Szmak, G., "Letter to President Kennedy". New York: June 9, 1962
#1, p.23, #3, p.45, #13, p.53	Thompson, Joseph S., Taxation's New Frontier. New York: Robert Schalkenbach Foundation, 1961
#4 & 7	University of Economics Foundation, "Ethics, Mathematics and Economics". New York: 1956. RELEASE No. 30
#10	University of Economics Foundation, "Why Amend the Constitution?". New York: 1953. RELEASE No.38