Property Taxes and Single Tax
versus Other City Taxes

Robert Tideman

[Transcript of a presentation by Robert Tideman, with responses and discussion, at a meeting of the Commonwealth Club. Reprinted from The Commonwealth, Vol.XXVIII, 21 January, 1952]

PROPERTY TAXES are the traditional source of revenue for California cities. For a long time they raised most of our city budgets. But in the last twenty years, under pressure of property owners, sales taxes, license taxes, gross receipts taxes, etc. have been imposed, and property taxes reduced.

Only by culling facts can one argue that property taxes have been rising. Those who do this point with alarm to the rise of city budgets, tax rates, and tax dollars paid, but carefully avoid mention of the enormous rise in property values resulting from population growth and dollar devaluation. They never compare assessed values with market values.

Tax Rate Seldom Measures Burden

You may recall a few months ago that one of our San Francisco dailies screamingly headlined the tax of several hundred dollars that might fall on our homes. The reader was led to believe assessed value was market value. However, my own home, bought at a bargain for $8500, is assessed at $1780. The Donahue corner, sold recently for $1,750,000, was assessed at $425,000. The vacant sites, west of Stockton Street, running from Ellis through to O'Farrell, recently sold for about $1,250,000, but were valued by the assessor at $347,000. The vast King Estate in Alameda County is assessed as agricultural land, far below what home seekers have paid for sites no different at its rim. The assessment pattern is generally the same throughout the State. Assessments are so low, the tax rate seldom measures the burden. The subject of this report is: How should cities raise there revenue? Some of us have tried to meet this question squarely. We answer that a direct, annual, ad valorem property tax, even if increased, is preferable to a sales tax, a sewer tax, a receipts tax, or any other new taxes. We even hazard arguments in favor of the property tax. But those who favor the numberless new taxes do not come out and say so. Instead, their whole position is against the property tax. They seek to slip these pesky new taxes in through the back door while we are shaking our heads over the property owner's complaint.

Growing Population a Calamity?

It is claimed our growing population is a calamity to the property owner; that newcomers bring little property with them to swell assessment rolls but demand more city services, so the poor property owner gets the ax in his tax bill. But if greater population means only higher tax rates, why does the Bay Area Council point to population growth as an attraction of real estate here? Because they know increasing population boosts real estate values. Does it matter then if the newcomers bring little property? Their very arrival adds to the annual value in the property under our feet. No one claims this value is created by the landholders. Then why not call on it to support the services the newcomers need?

On page 34 advocates of new taxes say ability to pay depends on income, and when increase in land value is not accompanied by increased income from land, an increased tax may be confiscatory. Consider the Donahue corner. It has increased enormously in value, but with its one-story wooden building down, does not yield even the income from that ancient structure. Does anyone think if we raised its taxes - or did not acquiesce in the new sewer tax to relieve that site -Metropolitan would relinquish title? Of course not. They would come to terms with some prospective user to get some rent to pay the taxes.

Why Land Increases in Value

Land increases in value because people are willing to pay more for permission to use it. When a landholder's income does not go up correspondingly, it is only because he has not come to terms with those who would like to use it. He is speculating he can get a better deal by holding out. To argue that land values should not be taxed when no income is received, is to say that the holding of valuable land idle should be fostered.

The "sewer-use tax," now under debate by the Supervisors of San Francisco, is typical of new taxes. Each home owner would pay $4.20 a year. If all the revenue - about one million dollars - went to reduce the property tax, the rate could be lowered one-tenth of one percent. Thus, owners of homes assessed at more than $4200 might save more on the property tax than they would pay in the sewer tax. Many homes are worth more than $4200 but not five percent are assessed that high, so 95 percent of the home owners would lose through the sewer tax. But the holder of the Donahue corner, for instance, would save about $425 a year. Thus, the sewer tax, like other new taxes, would shift more of the burden from holders of valuable real estate to home owners and consumers.

Its sponsors say the sewer tax is needed to run the new sewage disposal plants. But if these plants had not been built, and population growth had been checked, and the pedestrian count on Market Street had begun to fall off, wouldn't the downtown property owners have raised a howl? These plants maintain and increase the value of their land. The property owners get the financial benefit of these plants, but don't want to pay for what they get. Here is the "welfare state."

What is true of sewage plants is true of libraries, schools, streets, parks, firemen, police. All city services and improvements figure in the sales talk for city real estate. All go to maintain and increase the rental value of land. Why then should we submit to a sewer tax or other new taxes while the landholders get something for nothing?

"They Like These New Sales Taxes . . ."

On page 35, above paragraph (a), the proponents of more and more taxes say that "proposals to limit sources of revenue to taxes on property … are objectionable." That is to say, they like these new sales taxes, license taxes, etc., and don't want to go back to the traditional system by which cities raised their revenue in the pre-New Deal days. And the inference is that to wipe out these new taxes and to rely on the property tax again would amount to land nationalization. I guess we didn't realize our precarious state in the old days before we got the many fine taxes we now enjoy!

Why didn't the author of paragraph (a) tell us about the "nationalization," "bureaucracy," "waste," "inefficiency," "loss of incentive" and "stagnation" in Wellington, Sydney, Copenhagen, Johannesburg, or the cities of New Zealand which derive all their revenue from land value taxes? - or in Pittsburgh and Scranton, which tax land values at twice the rate on improvements? No such evidence is cited because there is none. These cities are prospering.

Not Landholders, but Labor and Capital Overtaxed

Anyone honestly troubled about nationalization should attend to the plight of labor and capital, the active producers of wealth. Federal taxes fall with full weight on them, and our states and cities in the last twenty years have been favoring landholders at their expense. Labor and capital, commerce and industry, are in great danger of nationalization by taxation.

No one has ever seriously proposed that all taxes be levied on sales or sewers or any other product or activity or earned reward. For such taxes all have bad effects. It is because land values are particularly suitable for taxation that so many wise men from Quesnay to Winston Churchill, have proposed taxing them especially. Is it not strange, then, that anyone should point to the "single tax" proposal as a reason for substituting new taxes for our traditional tax on land?

The advocates of new taxes do not deny the superiority of land value taxes over sales or sewer taxes. They know they will get scorched if they try. To evade the issue they trundle out the label "Single Tax." From the end of this handle they coolly talk of nationalization, bureaucracy and waste, while proposing more taxes and tax collectors; they talk of incentives and of stagnation, while proposing a tax policy that penalizes production and makes it easier to hold land idle; they talk of confiscating earnings, while favoring an income tax!

What's at End of This Road?

Not even those who are working hardest to reduce their land value taxes will like what lies at the end of the road they are taking. What is the way of life in countries where taxes have been loaded entirely on the producers of wealth, where land rent is treated as absolute private property, unqualified by any responsibility for public revenue? Look at Mexico, India, Iran, Spain, Brazil, or the Russia of 1917. You see countries where land is held by the few in great estates, without any financial responsibility to encourage efficient use. You see landlord and tax collector confiscating so much of the reward of labor and capital that incentives to work and accumulate tools are strangled. You see rich and poor a gulf apart, class against class, and the stage ever set for demagog and tyrant.

This question of who should pay taxes is a moral question at bottom, and the only spirit in which it can be justly solved is that spirit expressed seventy years ago by a wise and good and fearless citizen of this city: "I am for men."

Critique on Single Tax and Increased Property Taxes

Raymond D. Smith, Realtor Appraiser

I DON'T believe I have ever heard a taxpayer object to paying a property tax in a proper ratio of his holdings, nor an owner object to paying a reasonable tax upon his land and his improvements based upon the benefits that owner receives in police and fire protection and all the things that go with urban ownership.

It becomes then a matter of equalization of the relationships between land and improvements. Most people feel that land alone should not carry the entire load. It should carry as fair a proportion of the load as the tax assessor may determine.

Tax Assessments Go Up - Seldom Down

The tax assessor assesses upwards but he seldom assesses downwards. In a deflated dollar market like that of today, the assessed valuation goes sharply up. But when the assessor gets ready to cut assessed valuations, he makes a blanket reduction of $100, $500, usually in those areas where the most votes exist. In San Francisco in 1946 or 1947, assessments of downtown industrial or commercial properties were drastically increased. There are few votes in those areas.

But in the residential district, a blanket decrease of $100 was made, irrespective of the value of land and building.

If the assessors could reassess every year (which would be prohibitive in cost), I don't believe there would be much criticism of the property tax.

"Single Tax" Not a Tax Problem Primarily

I look at the "single tax" - placing a tax purely upon the land - not as a taxation problem but as a social problem - a matter of trying to establish a new social order. I am a practical man, and I don't believe it will work because of practical limitations on assessors.

Our big question in today's discussion is municipal revenue. But I don't believe people are interested one bit in taxes.

For ten years I have gone to the San Francisco City Hall to appear before the Finance Committee of the Board of Supervisors, and I have analyzed our annual budget, item by item, not once but three times.

During Mayor Lapham's administration he called some five of us into his office during formation of the budget, and the reports from the heads of the various departments were thrown on the table. Al Smith of the Bureau of Governmental Research and myself were asked to criticize every item. We spent days there.

Taxpayers Net Interested

When the budget went to the Board of Supervisors and was referred to the Finance Committee, I went over that budget with several others, item by item, line by line. When it went on to the floor of the Board of Supervisors, the same thing occurred again.

At none of those meetings did anyone ever appear to protest. Al Smith and I were the only ones there. We were paid to be there. But there were no taxpayers there. You can't tell me that real property taxes are onerous when the people won't appear to oppose them.

Look Closely at Non-Governmental Spending

If we are to cut taxes and spending, we must look critically at nongovernmental services. How much should the ordinary citizen expect to receive from government outside of actual governmental service?

Take our school system. Some friends are attending a free class on the study of old china. They learn about dishes and how to read what's on the back. This class has a paid instructor under the Board of Education. Is the study of old china a function of government which should be paid for out of the school budget? I don't think it is. They have classes in aesthetic dancing. I don't think aesthetic dancing is a fit subject for public funds.

I am a photographic "bug." There is a large amount in the recreation budget covering an excellent laboratory at which they teach photography free and supply chemicals and other things to adults who want education in photography.

They have a real estate class and offered me a salary once for teaching there. If a man wants to learn real estate, he shouldn't be entitled to get it out of my tax dollar.

Welfare Money in Every Budget

There isn't a department in the San Francisco City Hall that does not have some "welfare" in it. The police department has a boys' club, and it is a fine thing, and some support may come from police contributions. But things like that belong to the welfare department, not the police department.

Your Board of Health budget is loaded with welfare matters of all kinds: hospitalization, child care. Your recreation department budget is loaded with free lunch programs. True, they get a subsidy. Is that a function of government to be paid for out of the taxpayer's dollar?

We must know whether we are paying for governmental functions or nongovernmental activities.

Public employment must be regulated. We must have some sort of Hoover plan. Employments are created to increase the importance of the head of a department and get him more money.

We Need Budget Criteria

Because a budget was X dollars last year, doesn't mean X dollars plus or minus this year is a proper budget. We must eliminate the philosophy of building a budget on this sort of basis. We must have some criteria of measurement.

I don't think real property taxes have reached a maximum, for this reason. Some years ago I thought of organizing a taxpayers' association in San Francisco. We need one badly. I spoke to several influential, large property owners. Without exception those fellows said, "Well, I am friendly with the Assessor and I like the Mayor. Besides, these items are deductible."

U. S. Pays the Bill

So long as real property taxes are deductible from the Federal income tax and the Federal Government is paying from thirty to seventy percent of them, you are not going to have much opposition to the ad valorem tax bill.

Some day incomes from these properties will diminish, and taxpayers will wake up and say, "Look at our tax rate, it is $6.29. Where have I been all this time?" They've been asleep, but the day of reckoning will come.

I think the solution to our tax problem lies in a critical analysis of the operation of our municipal budgets.

Discussion From the Floor

Remarks by J. Rupert Mason
President, International Union for Land Value Taxation and Free Trade

MR. MASON: I've never heard a more able support of the need for the principles of Henry George than has just been given us by Mr. Smith. I could easily trace each bad effect he enumerated to a primary cause.

Mr. Kroeger commented about people voting who don't pay taxes. Public schools have been traditionally supported by means of an ad valorem real property tax. If a man held half the land values in a school district, he paid half the school costs regardless of the number of his children. The question of voting rights irrespective of land holding is as old as this Republic. I thought that issue had been buried.

Those who oppose raising public revenue by ad valorem land taxes are putting themselves in bed with Socialists. They are unwittingly advocating the socialization of earned incomes and the fruit of man's work by taxation.

I believe it is possible for people to live and work together in a community, state or nation and enjoy the full fruit of their industry, untaxed.

Remarks by Joseph S. Thompson
President, Pacific Electric Manufacturing Corporation

MR. THOMPSON: For forty years or more I have advocated the principle that Mr. Tideman so speedily put before you.

Each of us knows what his own personal and private earned income is. Did we ever think that there is also a public earned income, a creation of all of us as a mass for which no one of us is responsible? So much so that each individual that adds himself to Skid Row, each baby picked up and slapped to start him crying, raises land value? Land value is the public earned income.

It sounds socialistic, let us say communistic, to say people as a mass and not as individuals create land rental,/i> value - not land value (if you want land, you can get hundreds of acres in Nevada for $3 an acre) - but land rental is location value. We created this value - we should collect it.

If we knew we were justified in taking what we create as the people, we would not collect from those who create, who labor, who organize, that return which should stay in their pockets. A tax on industry is a fine. When we tax an industry, we drive it out of the city.

Remarks by F. B. Magrader
Tax Commissioner, Southern Pacific Company

MR. MAGRUDER: When this Section selected a subject, "Tax Problems of Cities," it was thought that we would stick to the subject and come up with a final report that would be informative. But the subject has been so distorted that its own mother cannot recognize it.

Too much time has been given to the Henry George single tax theory. The question has become: Should the single tax be adopted?

The single tax theory should not have been considered in this study. If it was desired that it be given consideration, it should have been done in a separate study.

Remarks by E. R. Ben

MR. ZION: I'd like to ask Mr. Smith if he attended the San Francisco City budget meeting where $4,400,000 was appropriated to build a juvenile home for two hundred juvenile delinquents?

MR. SMITH: I was there and opposed it every step of the way.

MR. ZION: Expenses like that give us our problem in taxation. That is $22,000 for every child. Can you beat that for outright waste or graft?

You ask single tax advocates to tell why land should pay a little more taxes, maybe. You should first give one reason why personal property should pay any tax.

It's like the difference between Ford and Rockefeller. Rockefeller got his vast fortune from natural resources. He deprived the rest of us, disinherited us, from a share of these. But Ford added to the world's wealth. Should the two be taxed the same?

We have too many tax exemptions. Everybody likes to get exemptions, but when they get exempted they don't come to meetings on tax problems any more. It used to be, when the San Francisco Board of Supervisors met on tax problems, the Archbishop had a representative present, and the gas, water and telephone companies; the railroad and other companies had their representatives - because their property would have to pay the taxes.

Then you exempt them, and you lose not only the value of the exemption, but you lose the careful attention of these citizens to tax and expenditure problems.

Veterans are another big group that are exempt - and just recently schools, hospitals and many others. And so it's no longer to their interest to attend tax meetings.

Adam Smith, John Stuart Mills, Walker, Ricardo - all agreed "rent" is the excess profit over no-rent land. Henry George was the only one who followed this up. If this statement is true, every new labor-saving machine, every new chemical process, increases rent. And it does. None of the economists will deny it. This is the justification for more land taxes.

Remarks by Monte Dernham

MR. DERNHAM: Mr. Magruder, if I understood him correctly, told us the single tax should be the issue of a distinct study. It has been the subject of a distinct study in this Club-fourteen years ago. In the fall of 1938 there was a proposed Constitutional amendment, Proposition 20, providing in general for a state-wide single tax.

The matter was studied by this Section. The Club in its entirety voted against the single tax, 693 to 66.

The question has been dealt with by this Club. It is behind us and should remain behind us.

MR. MAGRUDER: I didn't say the single tax should be given a separate study. I said the single tax theory should not have been considered in this study and if it was desired that it be given consideration, it should have been done in a separate study.

Remarks by Assemblyman Edward M. Gaffney

MR. GAFFNEY: School tax exemptions have been attacked. In the case of the parochial and other non-profit private schools, we of the Legislature looked at tax exemption from a business-like viewpoint.

We found that there are approximately 170,000 children attending the non-public schools, and that these schools are over-burdened with taxation. Through a new interpretation in Los Angeles county, this taxation has been multiplied three-fold and in some parts of the southland, four-fold.

If all the non-public schools were to close their doors because of oppressive taxation, the State would have to provide public education for some 170,000 children at a cost the first year of at least $120 per average daily attendance, totaling $25,000,000. In capital outlay, unless we leased the present buildings of the non-public schools (in addition to the almost $300,000,000 already spent by the State Allocation Board of recent bond issue funds voted by the people), it would cost at least $600,000,000 more to build schools for children now attending private non-profit schools.

Even now our public schools are over-crowded. In some areas children go to school on half-day shifts; in Eureka, it has been reported, there are three shifts daily. It should be borne in mind also California is the only state that taxes non-public schools whereas we should encourage all schools devoted to the education of children.

JUSTICE A. F. BRAY: I can't stand by and have Contra Costa County outdone. Assemblyman Gaffney said in Eureka there are three school shifts a day. For a while during the war in Contra Costa County, we had four.

Remarks by Robert Tldeman
Director, Henry George School of Social Sciences

MR. TIDEMAN: When I joined the Club a first draft of the Section's report was being considered, telling how increased population was a "calamity" to the property owner, and about the dire predicament of our landholders. I pointed out additional facts and soon realized I was playing with dynamite. And soon, in reply, came not arguments but labels - "single tax," "Henry George theory," a "new social order," and so on.

But the taxation of land values is "old hat" in this State. The writers of the State Constitution provided for it, and its advantages are obvious to anyone who studies the subject impartially. It is certainly not wise or fair to approach the subject as if it were the mere doctrine of a nineteenth century economist. It has immediate significance. If we are to get new revenues will we get them from sales taxes or from land value taxes?

We are asked to believe that, because some men have proposed collecting all revenue from land value, we must therefore adopt new sales taxes. That is hardly logical. It is only by giving doctrinaire associations to perfectly sensible 'principles that they get fenced into a separate compartment of the mind. Insanity is just that: keeping things in different compartments of the mind where they cannot interact - avoiding painful integration.

Remarks by Raymond D. Smith
Realtor Appraiser

MR. SMITH: I don't favor the extension of the tax base in sales taxes or the other taxes. Governments will spend whatever they can get. The more tax sources, the more they spend.

We should put our tax eggs in one basket but watch that basket.

One thing that would benefit San Francisco would be for citizens to organize a budget examination committee like that in Los Angeles.

CHAIRMAN BRAY: The meeting is adjourned.