At least four major land-based income taxes developed from George’s 1890 Platform (after the 16th Amendment was ratified of course).
In the first national Georgist Platform of the Single Tax League of the United States (1890), Henry George mentioned two general categories of actual land transactions, the “premiums” from which should be heavily taxed by government for the general welfare: (1) “the premium which the user of land must pay to the owner in purchase money;” and (2) “the premium which the user of land must pay to the owner in rent.”
Here are Paragraphs 6 and 7 from the 1890 Platform: (For a copy of the entire 11-paragraph Platform, see here.)
“The single tax we propose is not a tax on land, and therefore would not fall on the use of land and become a tax on labor.” Paragraph 6
“It is a tax, not on land, but on the value of land. Thus it would not fall on all land, but only on valuable land and on that not in proportion to the use made of it, but in proportion to its value—the premium which the user of land must pay to the owner, either in purchase money or rent, for permission to use valuable land. It would thus be a tax, not on the use or improvement of land, but on the ownership of land, taking what would otherwise go to the owner as owner, and not as user.” Paragraph 7
(1) The tax on the “premium” in “rent” which a land occupancy tenant pays to a landowner
This is perhaps the most easy to understand of the four taxes. A landlowner hunts around for tenants to occupy his land or real estate, and then charges the most the market will bear, deducts his wages if he’s an active on-site landlord, deducts depreciation for buildings, and other expenses, and then arrives at taxable net rental income.
(2) The tax on the “premium” from land sales in “purchase money.”
This tax is also fairly easy to understand, but has been disabled because of certain loopholes and exemptions which artificially prevent the taxability of land gains (which land gains we usually mistakenly call “capital gains”). For example, the “step up in basis” exemption ignores passive land value increases, and the “flow through entity” ignores that land titles have transferred between corporations, thus foregoing many opportunities to collect the tax.
(3) The tax on the “premium” in “rent” which a labor tenant pays to a landowner.
This tax is levied on corporate profits and dividends derived from using a land monopoly to underpay workers, who are effectively “labor tenants” subject to control of the landlord, and who are not treated as partners in the use of land.
(4) The tax on the “premium” in “rent” which an onsite landowner pays to mortgagee bank landowner.
This is perhaps the most difficult tax of the four to understand, mainly because most of our money is created as debt owed to the Federal Reserve banks, and to adequately tax this money created as debt would be to leave the economy short of a circulating medium. But my point is that when a landowner takes out a mortgage with the bank, the bank becomes the superior landowner, a partner of the onsite landowner, with the actual rents paid to the onsite landowner being shared with the bank in mortgage interest payments. Thus, almost all of bank net profits from mortgage lending is unearned, and someday should be heavily taxed for the general welfare.
(1) land-gain income tax #1, derived from the 1890 Platform, is what we now call the income tax on "net rental income;"
(2) we call land-gain income tax #2 the "capital gains tax," but calling land "capital" is forbidden in Georgist theory, so it should really be called the "land gains tax" or "land sale gains tax:"
(3) the tax on profits from hiring laborers is today recognized as the tax on corporate profits, on excessive salaries taken by upper level employees, and on dividends paid out to passive shareholder; and
(4) the tax on bank profits from lending at interest is the income tax on "net interest income."
All of these are derived from that simple sentence in George's Paragraph #7, where he says the single tax is a tax on "the premium which the user of land must pay to the owner, either in purchase money or rent, for permission to use valuable land."
Another major loophole which prevents land sale gains from being taxed is the "like kind exchange." A major complaint about income taxes, from Georgist circles at least, is that a person can hold land idle too long, without being taxed, therefore it's critical that every opportunity to tax land gain is taken advantage of. The "like kind exchange" ignores the land gain, and lets the landowner get away tax-free if he purchases a land parcel which is of "like kind."
George’s use of the word “premium” in Paragraph 7 is ingenious. It refers to what we may call “that extra something,” over and above ordinary costs and wages, that a tenant, land buyer, or labor tenant must pay to a landowner who has monopoly power over a land parcel.
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Rick is a self employed attorney from Boston, Massachusetts. He graduated from Boston College and studied law at the Massachusetts School of Law at Andover. He also administers the Facebook group called Common Wealth Tax, which seeks to explore the (currently obscure) link between modern income tax laws and the Land Value Tax (LVT) advocated by political economist and “Greenbacker” Henry George (1839-1897).