Have you wondered if there might be a root cause for the many problems faced daily by
government officials and citizens in general? Problems such as overtaxation and yet
insufficient revenue; environmental degradation through urban blight and urban sprawl;
high land prices contributing to higher housing costs; relocation of industries to areas
with lower land costs and lower wages for labor.
There is a root cause, and to understand it, one needs to recognize an economic
truth. There are three basic factors needed in the production of wealth: land (natural
resources), and labor (both blue collar and white collar), and capital (things created by
labor -- tools, equipment, buildings, goods, etc.). The Creator created a fixed quantity of
land. Since the supply of land is limited, and labor needs access to land (building sites,
farms, etc.) In order to create capital, land investment for speculative purposes causes
problems. Location value accrues to sites, bid up by private investment around the site,
and as urbanized areas develop and expand, and as governments provide zoning,
infrastructure and municipal services to land.
Income taxes, that at the state and federal level take such a huge bite from workers' pay
checks and corporations' profits, are a tax on the productivity of labor and in some
measure on capital. The state (and in some places, county) sales taxes are a tax on
capital. Neither income taxes nor sales taxes are incentives to more productivity.
The much-maligned local property tax, widely regarded as one tax, is actually two taxes:
a tax on the site value and also a tax on capital. It is the tax on capital that is regressive.
The tax on site value could actually promote productivity. As presently levied, the lightly
taxed site value contributes to withholding, from more productive use, of unused and
underutilized well-situated sites. This is because the present property tax on site value is
insufficient to spur the owner to put the site to a more productive use, versus inventorying
the site at low holding cost for a bigger profit at a later sale. Those productive persons
who need a site then have to go farther out for reasonably priced sites, leaping over the
withheld parcel, contributing to sprawled development and the attendant costs of
providing municipal services in a sprawled area. Conversely, in areas (primarily
Pennsylvania cities with the "two-rate" tax) where the property tax on buildings and
improvements is lowered (while raising the property tax on sites), construction is spurred.
When the property tax penalty for building is decreased, building increases. (For more
information on Pennsylvania cities, email to centerforthestudyofeconomics@msn.com.
Besides reversing the disincentives to urban blight and urban sprawl, site value taxation
helps to take back, in revenue to the local community, the increase in site values which
the community itself created. Presently that "unearned increment" is going to land
speculators who are costing the community through urban sprawl. When the asking price
is speculatively high for sites in already developed areas, and when overtaxed buildings
fall into a state of blight, those who can afford to will relocate farther out. This not only
contributes to loss of more farmland, but when those relocations involve industry it also
leaves labor stranded in the older area. Current efforts to redress these problems through
federal and state tax breaks are currently being paid for by taxpayers at large.
Land inflation, which is much worsened by land speculation, is based on an artificial
shortage, to which site withholding and inventorying contribute. Eventually the
artificially inflated price bubble bursts. A worldwide bestseller classic, Progress and
Poverty--An Inquiry into the Cause of Industrial Depressions and of Increase of Want
with Increase of Wealth...the Remedy, by Henry George, delved deeply into the relation
between land, labor, and capital. Copies of the book are probably available at your local
library. Copies can be purchased from the Robert Schalkenbach Foundation, New York
City, email schalkenba@aol.com.
Common Ground-U.S.A. is an activist organization, with chapters coast to coast. For a membership brochure, email CG-USA President at NadStoner@aol.com or email the CG-USA National Membership Chair at sns@swwalton.com.