Since death and taxes are certain, is that why land taxes are stillborn?

Reap As Y’all Sow

If you’re going to have taxes, consider the advice of every major economic thinker from Adam Smith on down. They noted a great tax base is land value. After the fall of the Iron Curtain, a couple dozen prominent American economists advised the new Russia to shift taxes off labor and capital, onto land.

Society need not even use a tax. A fee or dues or lease or another fiscal tool would work as well, though typically it’s a tax. On occasion, several places have taxed nature’s surface. Why? Doing so motivates owners to use their land efficiently. From that improvement cascades a bundle of benefits.

Given that track record of success, it makes a curious person wonder about curious governments. Why don’t they measure the value of Earth in America? Since nature and privilege could combine into an awesome tax base (Ch 37), why don’t officeholders have their bureaucrats figure out how much revenue is available?

Try influence. Look at Prop 13 and its sequels. Homeowners resist giving up their land value, even when it makes their community healthier. A rational politician [sic] would worry that landowners would vote against “herm” if they proposed public recovery of socially-generated land value. So if officeholders are not going to recover it, why measure it?

Because. Measuring the value of sites, resources, and government-granted privileges would put a spotlight, wanted or not, on the total value and that empowers people. Aware of that statistic, a citizen could anticipate the business cycle, to mention just one good use (Ch 38). Plus, once enough people see how much is at stake, and learn how beneficial tapping it could be, that might tempt a majority to go ahead and tap it.

Just Emote “No”

"I shall never use profanity except in discussing house rent and taxes . . .” — Mark Twain

The typical reaction to the proposal of surrendering the rental value of one’s location to government is not positive. Property is a right, so paying over rent feels like a violation of that right, a negation of what it means to own a chunk of Earth. Paying the rent to one’s community seems confiscatory.

People worry that it’d be harder to stay in their homes. And it’s their homes, for gosh sakes, sitting on land, their land! People live and die for land. If any policy triggers humanity’s territorial imperative, that’s it. All life—even ants and plants—fight for turf. Yet the fight is futile, “For the Land is Mine”—God, BC. Yet battles persist.

Other taxes on a source of rent do not trigger this emotional reaction. People are OK with taxing oil; nobody lives on oil. And they’re largely indifferent to higher fees for patents—which unbeknownst to many could rake in trillions annually—since tech giants could easily afford to cover their claims on the field of knowledge. But for us land animals, taxing territory is a totally different matter.

The tax collector—government—is the institution with unmatched power. They could charge as much as they like, evict anyone in their way. Demanding rent would turn government into an overlord landlord. Or so some worry. And not without reason, especially if one has had dealings with the IRS or felt pushed around by government exercising eminent domain.

Some angry opponents label a tax on land as leftist. However, if akin to any ideology it’d be Christian with its notion of surrendering to Caesar what is Caesar’s, or, pay over to society the values society has generated. Further, between the world wars in Eastern Europe when the proposal of taxing land was gaining popularity, it was a coalition of leftists (unionists) and rightists (gentry) who defeated basic forms of land reform.

BTW, during that decade, Hitler, Tito (who became the dictator of Yugoslavia), Stalin, a name he made up to mean “Steel man” (a generation ahead of Superman), and Freud all lived in Vienna, all but Freud within blocks of each other. They could have frequented the same cafe where political agitators and exiles met. If only they could’ve worked out their differences over a cup of coffee …

Returning to the powerful human attachment to territory … It is not fixed in strength nor in definition; it has changed over time. Now we think of this attachment as individual ownership. However, up until modern civilization, it was for communal ownership. Land was not mine but ours.

As commonplace as our practice of buying land may be today, earlier humans saw the notion as absurd. When Lewis And Clark crossed the Louisiana Purchase and met the hunters-and-gatherers already settled there, they had to explain where they’d come from. They’d cite:

  • houses that floated (ships), and of course the tribes doubted that;
  • cities packed with more people than all the surrounding tribes counted together, and the natives scoffed, “Yeah, right.” Then Lewis and Clark claimed that …
  • individuals owned the land. The Indians burst out laughing and said that then they knew the white man was lying all along because nobody could own the land.

Virtually every culture — if you go back far enough — made the argument that “nobody can own the land” or “the earth belongs to us all”, etc.

However, once tribes settled down to farm, then communities did own the land. Next, when community settlements increased and families ruled, the head of the family owned the land. Later as population and independence grew, yes, an individual could own what was once Mother Earth. Now with thick density and cold autonomy, individual ownership is the new normal.

In their gut, our pre-agrarian ancestors knew that paying any one person for land was irrational and wrong. We moderns don’t know the feeling. We feel the same way when paying for land as we do when paying for anything else. We feel the same being paid for land as we do being paid for our labor.

I bet when slavery was customary, people felt no differently paying for a slave than they did paying for a stave (to whack the slave with). Or being paid for selling a slave or a stave. Yet hardly a soul today could even conceive of paying for another human being.

Morality or Normalcy Bias?

Ironically, an objective study of the issue shows these fears to be unfounded. What should be feared is government’s failure to recover socially-generated values. Where governments thus fail, there elites gobble the rent up. They erect a steep hierarchy, widen the gap between haves and have-nots, and behave more oppressively. The World Bank showed this true for nations but it applies to states, too.

While some voice outrage about paying land value to government and having government confiscate their land—things that remain largely figments of imagination—their outrage is muted about paying mortgages inflated by speculation and banks foreclosing on homeowners—actual tragedies afflicting sizable numbers. It’s banks—property of elites—who do the most confiscating of land, governments not so much.

Governments do confiscate—a portion of income directly and indirectly by taxing sales. Most people consider such taxation as moral or amoral but not immoral, despite those values being individually generated as opposed to socially generated as are site values. For most of us, socially generated is a foreign concept.

"If you get up early, work late, and pay your taxes, you will get ahead -- if you strike oil.” — J. Paul Getty

What people do complain about is the amount. A land tax would be yet another tax. While true, how much people would pay equals how much mortgage people would not pay. That’s so because as the tax on land goes up, the price of land goes down. When society chooses to “socialize” land rent, none is leftover for speculators and other owners to capitalize into price. Thereby the land tax does not change how much one pays but to whom one pays, to neighbors rather than to a banker. That keeps it in the family, so to speak.

Despite paying over more land value than they’d like, people do receive a bigger bang for the buck. While it’s a small sample, the State of New Hampshire only levies a property tax—falling on both land and buildings. The Granite State ranks much higher than most other states by almost every measure.

More irony: the only way to solve foreclosures is to levy land. When owners must pay out site rent rather than keep it, speculators lose their reason to withhold sites from use. They reverse course and develop their sites. The resultant greater supply of sites in use also lowers what buyers and tenants pay for underlying land. So mortgages shrivel and with it a buyer’s inability to pay. Thus foreclosures, too, decrease.

Turn from emotion to cool self-interest. Most people own some land themselves (whether outright or not). Many view this payment as a tax on the middle class, and as a tax that would spare the rich. Which is ironic; it’s an urban myth the rich are happy to hear. They know where their fortunes come from—downtown locations, along with oil and privileges like monopolies on fields of knowledge (patents and copyrights). A tax on land would mean far heftier payments by them than by anyone in the middle class.

Furthermore, sad to say but many Americans have no more savings than the equity in their—not home, as we’re want to say but, in their—location. Stack all these objections together. Of course the property tax—a close cousin of a land tax—is the tax most people most love to hate.

Motivated Owners Up Output

Turn from concern for an individual owner to concern for a society’s economy. Opponents to the idea of taxing land claim it’d discourage development. Yet the reverse is true. Where government fails to recover ground rent, there a few owners can own more than they can possibly use and keep many prime sites out of productive use. Hence the economy is sluggish, both investment and wages are low, the income and wealth gaps are wide, and poverty appears intractable.

Despite the above objections, some jurisdictions have levied land. There, owners waste less land and improve more locations. Having to pay land dues spurs them to put land to good use or sell to someone who will. The owners turn vacant lots, parking lots, and abandoned buildings into new high-rises, etc. Building all that and running businesses out of all that employees people. It spurs the economy, develops the entire region, and spreads prosperity. Does being beneficial indicate public recovery of rent is also ethical?

Every jurisdiction that has shifted its property tax off buildings, onto locations, has attracted investment and expanded employment.

* Denmark got inflation down to 1%.

* Pittsburgh renewed itself totally from private investment, without one penny of public subsidy. The Steel City was named America’s Most Livable City two years running.

* Honolulu developed its Waikiki Beach.

* New Zealand knew 99% employment for an entire decade.

* Australia experienced an increase of startups… during a recession!

That’s a very impressive resume for any economic policy.

Singapore, along with Hong Kong, is often rated as the best city in the world for doing business plus the freest city. The people doing the ratings are capitalists who have their own ideas of freedom and justice. Those raters note both cities levy fewer and smaller taxes yet those judges leave out the fact that both places recover lots of socially-generated land value.

In Singapore, all the land is private, owned by the building owners, but taxed at a high rate. In Hong Kong, all the land is owned by the public and leased to the owners of buildings. Semantically, there’s a difference, but functionally the two policies are pretty much the same. And the benefits are laid out for all to see—prosperity, big middle classes (now shrinking in places like America and Germany), and enough public revenue to afford quality public services, even a dividend in Singapore.

Happily for lifeforms, the new development is tempered, benefitting the environment. Where the community does require owners to pay “land dues” (or the equivalent), there owners tend to take no more than they can use and and to use that wisely. Those kinds of decisions reduce both depletion and pollution. Without even thinking about it, people leave behind fewer byproducts that pollute (Ch 29).

With our current relationship to land as property—versus land as “trusterty” in the language of Ralph Borsodi—we guarantee ourselves periodic recessions. When bankruptcies mount up and the newly unemployed line up at (un)employment offices, our recurring recessions slash the ranks of property owners. Our self-imposed recessions keep ownership a dream for many and a memory for others.

While property is wonderful, it’s even more wonderful when more people can hang on to theirs. Which they can when their economy is not in recession. If other jurisdictions were to duplicate what certain Australian towns achieved—an increase in factory openings while factories were closing in neighboring towns—recessions would become a thing of the past.

The notion that the worth of Earth could benefit everybody is not pure theory. It is also sound practice. Not too many economic proposals can make that claim.

For many people, it’s hard to believe the public recovery of site value really works that well. And if it’s such a good idea, why is not better known and more widely used? All these examples are from the past, not the present. Even when society took these first steps to economic perfection, next they got derailed. Repeatedly. Why? How?

Public recovery of social surplus sows the seeds of its own destruction. It gets repealed because it works. It greatly improves an economy’s performance. Its participants, getting more income, spend more money on land, pushing up location value. Speculators see that climb in price and want it for themselves. Given the political power of the real estate lobby, they get the landward tax-shift repealed much more quickly than it ever took proponents to get it adopted.

The Pot Stirs

In the past, some societies did adopt the public recovery of location value. In the future, others might. There is support, even from surprising places. Economic nerds like the policy because it spurs efficient use of land.

* Many commentators abroad; here: Salon, Sightline, et al.

* At Fortune magazine, a blogger, Tim Worstall, shines a positive light on the land value tax for his readers.

* At Bloomberg, an important voice in the business press owned by a billionaire, a columnist, Noah Smith (no relation, surprisingly), calls for a real solution, no matter how cutting edge and ahead of the pack—"tax the value of locations". He adds, for affordable housing … “there’s one very powerful policy that cities and the activists who love them haven’t yet employed -- the land value tax.” A land-value tax is an efficient and fair way to take a city that now works only for lucky prosperous landowners, and turn it into a place where the working class can afford to make a decent life.

Where Americans fear to tread, others move forward. More confident Chinese, unlike rulers elsewhere, are more able to face reality, more willing to try what works. They buy prime land worldwide and move to tax property at home which contains a land tax.

On the investment side, the Chinese now own princely properties in America, as did the Japanese before them back in the 80s, and the Germans before them, and the English nobility forever. Investors from abroad are not under the thumb of the American rentiers. Rather than take “unknown” or “irrelevant” as an answer for the worth of the Earth in America, I bet they find out the true value of what they purchase. To get their money’s worth, they may also determine the phase of the land-price cycle.

What’s different about the Chinese compared to other foreign investors, though, is they’re bigger, faster growing, more rational, and have trillions of dollars to spend. If they buy up greater parts of America and that worries you, don’t let it. Just recover land value and enjoy the benefits. Plus your public treasury will be flush.

Of course, not just foreigners or speculators would pay. Everyone would. Unlike buyers paying sellers to leave the lot behind, it’d be residents compensating their neighbors for displacing them. That would feel different from the indifference one gets when paying any other price. It’d feel more like contributing one’s share to a common kitty.

If the worth-of-earth figure were available and were huge and if you’re not getting any or much of it, then you’d know it’s concentrated. Not that you’d do anything about that. But the few who now get the lion’s share, they don’t know how obedient and lethargic you are. They might worry that a fat rent figure could light a fire under you, and make bounty a boon for everybody, not for just those lucky few. Social movements need such fires.

Knowing the size of land value could give timid politicians the confidence to shift taxes: off people’s efforts—off wages, sales, and buildings—and onto the low-hanging fruit no individual produced—the ground beneath one’s community.

There may be a way to embolden politicians and sway the public—combine the taking with a sharing. That’s how a sort of land tax won in Aspen—the raised revenue returned to workers (including highly paid doctors) as affordable housing. That’s how Alaska’s oil tax passed—by funding a dividend to all residents. The dividend from rent revenue could become a difference maker, increasing the incidence of land levies. Getting money in the pocket—a rent share—greater than the land dues one pays in makes the paying more than palatable but a no-brainer.

Savvy residents would be happy to pay in, knowing owners of supremely valuable sites would be paying in much, much more, swelling the dividend. Paying in is like investing in a more comfortable lifestyle. As long as the periodic dividend is hefty enough, paying in would pay off. With that cushion, we could shorten our workweek, make the economy work for us instead of we for it, and improve our quality of life. So how big would this dividend actually be?

This article is Part 39 of a series highlighting the forthcoming book, “Bounty Hunter: a gadfly’s quest to know the worth of Earth,” by Jeffery J. Smith. To date, the experts have not risen to meet the challenge. Indeed, some have even stood in the way. Yet the payoff for knowing this datum is huge.

© Text Copyright Jeffery J. Smith rights reserved.
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