Will Not the Land Holder Shift the Tax?

George Tideman

[Reprinted from the Henry George Fellowship News, December, 1936]

The world has learned at last that taxes on products raises the price of products. With every gas station attendant in the land and every clerk in every store computing a tax to be paid by the retail purchaser at every sale there is abundant knowledge of this fact.

It is quite natural therefore for the average citizen to raise the question (to those who seek to abolish land speculation and its attendant evils by taxing land rent into the public treasury) as to why, if we did tax land values for this purpose, why then would not the land value tax be added to the selling price on the one hand and added to the tenant's rent bill on the other hand. It is being done on commodity taxes, why would it not also be done on land rent taxes? This is a plausible conclusion, but have not the most plausible conclusions been the greatest barriers to mankind's progress?

The fact is that in Cook County Illinois today land values are taxed about 2%. There is this: Merchants and manufacturers are notably tolerant of taxes on their business and goods, they know they can pass them on. Land holders on the other hand are notably stubborn about taxes on their lands, they know they stick where they are put. They are reminded of It every time they make a sale and every time they pay a tax bill. The following table will exhibit this inexorable fact.

Gross Ground Rent Tax Net Ground Rent Selling Value Tax Rate Current Rate of Interest
$1,050 $0 $1,050 $21,000 0% 5%
$1,050 $300 $750 $15,000 2% 5%
$1,050 $700 $350 $7,000 10% 5%
$1,050 $1,000 $50 $1,000 100% 5%
$19,000 $18,050 $950 $19,000 100% 5%

From this table it may readily be perceived that no person would pay $21,000 for a lot which would net him less than $1,050 per annum (assuming 5% to be the current rate of interest, we multiply the ground rent by 20, to get the selling price.) The land holder may add the taxes on his lot to the asking price but where will he find a buyer? Next January perhaps as the novice collector thought when his employer's debtor told him It would be a long cold day when he'd pay a certain bill!

How about the poor tenant where no sale is contemplated. If the tax on the land value Is Increased will not the land holder raise the rent to the tenant Just as the gas station operator raises the price of gas to his customers? Here too let us consider-a concrete case; we are interested in the process of operation, never mind spun theories!

Here is a cigar store operating in a high rent district where thousands of people pass every day. This example is used because of the comparative simplicity of the case, but any particular business will upon examination yield the same results and anyone is free to make his own inquiry. This cigar store sells 5,000,000 cigars a year. To be sure there are cigarettes tobaccos etc. etc. but let us say it averages out to the equivalent of 5,000,000 cigars a year, They vary in price from 2 cents to 50 cents each but for our convenience say the average price is ten cents and that the margin of profit over the actual wholesale cost is $0.005 each. That is| half a cent on a ten cent cigar or 5% gross profit, low enough!

  • Gross profit on 5,000,000 cigars at ½ cent -- $25,000.|
  • 5% Interest on Capital of $5,000 -- $250.00
  • Salaries for clerks and supervision -- $5,750.00
  • Total wages and Interest -- $6000.00

$25,000 Gross minus $6,000 as above equals $19,000 Ground rent.

Now, suppose a land value tax of 100% on the value of this site. Referring to the last item on the above table we get a tax of $18,050.00 per annum. Suppose the land holder proceeds add the tax to the rent bill. This is how it would work out:

  • Previous rent when there were no land value taxes -- $19,000
  • Land value tax -- $18,050
  • Total bill to tenant -- $37,050

But the gross profit of the tenant was and still is only $25,000. Even if the capitalist gave up all his interest and the clerks, supervlsors and janitors gave up all their salaries there would still be a shortage of $12,050 to meet this bill!

In other words the ground rent absorbs all income but the actual cost of labor and capital. To Increase the ground rent beyond this point is merely to drive labor and capital off and this is precisely what does happen to a very high degree, periodically the world over with the rise in rents that always attends prosperity and again with inexorable certainty brings on the stagnation of industry which we call depression.

This is certain: If the tax on land rent could be shifted there would be no appreciable opposition to it.