Getting results—or not

American Journal of Economics and Sociology, The, July, 2003 by Lowell Harriss

Drawing upon her extended experience, Ms. Vi Peterson once told some of us-I paraphrase and exaggerate a bit-that any group of X persons calling themselves Georgists would have X plus Y versions of Georgism. Warren Samuels's valuable paper helps us to see a point that I would emphasize: over time, a plurality of aspects and concerns has diffused the attention of Georgists.

Progress and Poverty and Henry George's other writings present a richness that has made effective focus elusive--impossible (?). In a century and a quarter what has been accomplished from Georgist effort? Too little. Yet one must recognize that land continues to be part of the base of property taxation--used by every community in the country. Many barriers to free trade have been reduced.

And now for a quarter of a century the varied programs of the Lincoln Institute of Land Policy, year after year, involve elements of significance in the modern world--and "land" embraces more than one might initially expect. The Institute's programs also include much within the scope of the terms "progress" and 'poverty." Disclaimer: my many associations with the Institute, some with compensation, began even before it started operating.

Taxation, a central element of "Georgism," needs our continuing attention, because there ARE ways in which property taxation can be changed to help human beings do better in making the lives they desire. An essential message is old but generally unutilized. One repeats for the Xth time--a doable job remains undone.

Taxes, needed to pay for collective (governmental) services, modify behavior. They impose burdens beyond the transfer of funds from families and businesses to governments. Such burdens are "dead weight," hurting human beings in ways they never see. The total cost of government exceeds the dollars spent. So be it--but not quite. Government can get some dollars without impairing the source--by using pure land rents, as Professor Samuels reminds us.

The amount, nature, and location of man-made capital will depend upon the taxes from one community to another. The quantity of land will not be changed. Land cannot be moved to Swiss bank accounts. The quantity (space on the earth's surface or in the community) will not change when the price (pure rental of land) changes. Etc., etc. This audience needs no more reminding of this essential of classical economics.

In the years that Professor Samuels surveys, and certainly in the more than half a century of my direct association, there has been almost exclusive emphasis on the tax to be imposed, e.g., land-value tax (LVT), without much attention to the taxes to be reduced--or eliminated. Adoption of a "single tax" would involve the abolition of other taxes. In George's day what were they? No income taxes. No payroll taxes. No retail sales taxes. No motor-vehicle-related taxes. No estate taxes. There was, however, property tax on man-made capital to be reduced as an offset to higher tax on pure land rents.

George did not have reliable figures. He did not use numbers as would be expected today. Quite possibly, land rents would have financed local and state governments. Farmers growing crops, factories, rail tracks, etc., would have benefited from ending tax on manmade capital. Why so little explicit attention by Georgists? They might have served more effectively if they had focused more on the benefits achievable from reducing taxes.

Georgist discussions often refer to tax justice. I am not clear as to the definition of "justice" appropriate for property tax concerns. (Justice IS a good thing. On a par with "mercy"? Or other good things?) Certainly, there have been unearned increments in land prices. But how to distinguish them from earned increments?

I bought my house half a century ago. A neighbor bought last year. Both of us now pay property taxes at (real) rates that are high by almost any standard--except in relation to the services (schools especially) provided.

Anyone citing large unearned increments of the past as a justification for (much) higher land taxes today seems to me to ignore a basic reality. I refer to tax capitalization. This reality does not rule out on grounds of justice the heavier reliance on land taxes. And not merely in the long run. The land portion of the property tax can be raised and the portion on man-made capital (buildings, machinery, autos, etc.) lowered--the two-rate system. If there is no change in total tax as part of the revision of tax structure, the reduction of the tax on man-made capital will essentially equal the higher tax on land rents. The typical homeowner will not experience much net change. Of course, the actual rates will influence relative change.

The equity/justice/fairness results are likely to be more nominal than momentous in the initial years. Over time, though, more (most?) of the fruits of community growth and improvement will go to the community treasury as against the owners of land. And if assessment is generally good, owners of land in deteriorating neighborhoods will pay less tax.