GOVERNMENT WITHOUT TAXATION
The 140-Year-Old Dream of ‘Government Without Taxation’
by Annika Neklason / April 15, 2019
“The U.S. tax code is infamously complicated; in 2014, its various statutes and exemptions took roughly 2,600 pages to enumerate. Americans pay income taxes, payroll taxes, sales taxes, excise taxes, property taxes, real-estate taxes, estate taxes, gift taxes, capital-gains taxes, hotel taxes, sin taxes, luxury taxes, and more. But most have never paid a pure land-value tax—the type that followers of the political economist Henry George proposed adopting as the nation’s “single tax” in the late 19th century. Among all the complicated, unpopular, and inefficient taxes that have been implemented in the interim decades, George’s simple idea to use the land-value tax to fight economic inequality could be worth another look.
Unlike other assets, George observed in his 1879 book Progress and Poverty, land—separate from any buildings constructed on it—generates wealth not through individual effort or ingenuity, but instead as a result of societal change. Communities engineered developments that prompted economic growth—building up commercial districts, for instance, or constructing railroads—and already well-off landowners reaped the benefits in the form of rising land values. George prescribed the land-value tax as a way of putting some of that collectively produced wealth back toward the commonweal. His supporters, often referred to as “Single Taxers,” advocated eliminating all other taxes and raising revenue solely through this tax, which they viewed as the most equitable and just way of funding the state.
“It may be described as government without taxation,” F. W. Garrison wrote in his 1913 Atlantic article “The Case for the Single Tax,” “for, if the Georgian contention is true, the rent of land belongs not to the individual who would be required to surrender it, but to the community as a whole.” The Single Taxers’ vision is still unrealized; the tax has never been widely implemented. But George’s simple idea to increase equity captured the imagination of workers disadvantaged by the changing economy in the decades after Progress and Poverty was published, and has retained a base of support among progressive reformers and economists for more than a century. Now interest in the land-value tax, and its promise to reduce inequality and promote economic justice, has been revived.
George’s timing was “exquisite,” says Edward T. O’Donnell, a history professor at College of the Holy Cross and the author of Henry George and the Crisis of Inequality. George made his appeal at the tail end of the Long Depression of the 1870s, a period of deflation that brought the mounting wealth disparity and apparent destitution that accompanied the rapid economic growth of the Gilded Age into stark relief. Those economic trends made his ideas popular with an unexpected audience: the working class. “He writes his book and thinks it’s going to get him a professorship at a prestigious university, and it turns out his biggest fan club are working-class members of the Knights of Labor,” says O’Donnell. “How a 500-page book of political economy could become a best seller among carpenters and bricklayers and typesetters, it’s pretty amazing. But that’s ultimately what happened.”
Progress and Poverty sold hundreds of thousands of copies before the century was over, and spawned political parties, clubs, and colonies based on the notion of a collective right to unimproved land value. He continued to attract support both from common people and from prominent figures—including Leo Tolstoy, Albert Einstein, Helen Keller, and Franklin D. Roosevelt—long after his death, in 1897. Today, with wealth disparities again widening and land values and housing prices skyrocketing in certain areas, Joan Youngman, the senior fellow and chair of the Department of Valuation and Taxation at the Lincoln Institute of Land Policy, says George’s appeal for greater economic inequality “resonates the way it did in the Gilded Age”—and it’s found vocal supporters among economists.
In June 2017, three UCLA professors made the case in a Los Angeles Times op-ed, with Georgian logic, that land-value taxes should be used to finance affordable housing in California: “Housing scarcity delivers unearned wealth to people who own housing, and it imposes unwarranted burdens on people who don’t. To solve our housing crisis fairly and effectively, we should tax that wealth and use it to ease those burdens.” Two recent Economist articles, published in 2015 and 2018, advanced support for George’s idea along similar lines, as did pieces by Peter R. Orszag, the former director of the Office of Management and Budget under President Barack Obama, and the Nobel Prize–winning economist Joseph Stiglitz, both written in 2015.
“A tax on the return to land, and even more so, on the capital gains from land, would reduce inequality and, by encouraging more investment into real capital, actually enhance growth,” wrote Stiglitz. “This is, of course, an old idea, promoted most famously by Henry George.” “From the economist’s perspective,” Youngman says, there’s also another argument for the tax: It’s uncommonly efficient. Most taxes, she says, “leave people worse off” because of the way they lead people to behave in the interest of avoiding or reducing taxation. She says land presents an appealing, and rare, contrast, because it “is not the subject of individual effort or production” and “is in fixed supply,” and so could be taxed without changing behavior for the worse.
Studies conducted on the land-value tax, though relatively limited and inconclusive on some of its alleged benefits, do support this argument. In their 1997 analysis of the impact of a two-rate property tax implemented in Pittsburgh in 1979, which increased the tax rate on unimproved land but not the structures built on it, Wallace E. Oates and Robert M. Schwab concluded: “Land-value taxation provides city officials with a tax instrument that generates revenues but has no damaging side effects on the urban economy. In this way, it allows the city to avoid reliance on other taxes that can undermine urban development.”
Youngman says this aspect of the tax is undervalued. “Sometimes the idea of doing no harm is very hard to convey as a rallying cry,” she says. “But it’s actually huge … actually improving people’s lives and improving economic well-being by not having a drag on the economy, by choosing a form of taxation that is efficient.” Unfortunately, she notes, that’s a challenging case to make politically. And she says widely codifying a pure land-value tax “would require a lot of political support” in order to create the systems needed to accurately assess, and frequently reassess, unimproved value.
Realizing George’s vision would also necessitate challenging a conception of American land ownership older than the country itself; from frontier farmers to modern-day real-estate moguls, generations of Americans have made their fortunes by laying claim to valuable land. The beneficiaries of those fortunes might not welcome a new tax premised on the understanding of land value as communal wealth.
Those political challenges have prevented the tax from ever being widely adopted, Jeffrey Chapman, a retired Arizona State University economics professor, believes. He also identifies another obstacle to implementing it as the Single Taxers envisioned it: The numbers don’t add up. “It was … ridiculous then and certainly ridiculous now,” he says. “The land tax would have to be almost confiscatory to raise enough money to cover all the expenditures in government, and even if it was, it still wouldn’t raise enough money.”
In 2009, the United States Bureau of Economics reported that the total value of land in the country was $23 trillion. A Forbes writer estimated that the rental value of that land, which George wanted to tax at 100 percent, made up roughly 5 percent of the total, or $1.15 trillion. If the land-value tax were adopted as the sole means of raising government revenue, it would have funded less than half of the federal budget that year, and none of the budgets of all 50 states and thousands of cities, towns, and counties.
For these reasons, the land-value tax, when implemented, has almost never been adopted in its pure form or as a singular source of revenue. A pure land-value tax did replace other property taxes for five years in the city of Altoona, Pennsylvania, from 2011 to 2016—making it, the Altoona Mirror noted, “the only municipality in the country that taxes property solely on the value of land”—but the city council ultimately eliminated the tax, reportedly because it “never proved to be effective and … caused confusion.”
More popular variants include a two-rate tax such as the one used in Pittsburgh; value-capture taxes, which convert any unearned land value produced by public investments directly into public revenue; and the nation’s property taxes, which draw on the value of unimproved land as well as anything built on it. All are used to supplement other revenue sources.
In this way, George’s proposed solution remains little more than an economic fantasy. But that fantasy is just a small part of his legacy, according to O’Donnell. “People [did] fall in love with the single tax,” he says. “But I would say probably three out of four supporters were really into his critique, his diagnosis, not his prescription … People liked the stark diagnosis that we can’t keep doing this, that inequality will crush us … and the positive assertion that we can fix it.”
O’Donnell traces a “long tradition of resurging progressivism” from Progress and Poverty, as well as like-minded sources, to the “generations of social reformers” who directly cited George’s influence, to FDR’s New Deal, to Bernie Sanders, Alexandria Ocasio-Cortez, and the democratic-socialist and socialist movements in the present-day United States. At the heart of all of it, he says, lies the powerful idea George articulated that America is more than individualism—that in the end, amid great surges of economic growth and technological advancement and great wealth, “we’re [still] nothing without attending to the common good.”
a SINGLE TAX
A Primer on Henry George’s “Single Tax”
by Amy Gluckman / 2006
“At the turn of the last century, Henry George and the “Single Tax” movement he inspired were household names. George’s 1879 book Progress and Poverty captured the imagination of millions in the United States and elsewhere, who found in his ideas a blueprint for an economic system that would retain capitalism’s productive dynamism and distribute its fruits more fairly. To summarize George’s political-economy: George began from the premise that the land, along with all other natural resources, is the common inheritance of all. No persons or firms should own land; they should only be able to rent it. Furthermore, that rent should be paid to the public, as the rightful collective owner of all land.
Individuals and firms should own entirely whatever results from their efforts to make the land productive, however, whether by farming it or building a factory on it. They should also own entirely whatever profit they can create through the investment of accumulated capital. (In other words, George was not a socialist.) The single-tax program was George’s plan for implementing this view. The “single tax” was to be a property tax, on land but not on improvements, at a rate high enough to provide adequate revenue to the government. These tax payments would represent the “rent” those who use the land owe to the public. At the same time, taxes on labor income and on capital earnings would be eliminated.
George argued that the single-tax program would boost the economy. A sound economic system encourages both work and capital investment, so governments should avoid taxing labor income or returns on capital. At the same time, a productive system discourages rentier behavior – holding onto resources like land, living off of rents or waiting for speculation to raise land prices. With a high property tax, he believed, land will tend to end up in the hands of those who can make it most productive.
Echoes of George’s ideas can be found in many strains of progressive economic thought today. For example, activists have proposed creating a so-called Sky Trust that would collect fees from firms that emit carbon dioxide. These firms are using up our common inheritance of a low-CO2 atmosphere, Sky Trust proponents argue, so they owe the public a “rent” that would serve as both an incentive to clean up their emissions and a source of funds for environmental protection efforts or “dividend” payments to the public.”
“Henry George is best remembered as a proponent of the “single tax” on land. The government should finance all of its projects, he argued, with proceeds from only one tax. This single tax would be on the unimproved value of land—the value that the land would have if it were in its natural state with no buildings, no landscaping, and so on. George’s idea was not new; it was largely borrowed from David Ricardo, James Mill, and John Stuart Mill. In his heyday Henry George was very popular, with his ideas inspiring passionate debate among young intellectuals. After George published Progress and Poverty in 1879, a political movement grew in the United States around his work. He later narrowly missed being elected mayor of New York.
Most taxes, noted George, stifle productive behavior. A tax on income reduces people’s incentive to earn income, a tax on wheat would reduce wheat production, and so on. But a tax on the unimproved value of land is different. The value of land comes from two components, its natural value and the value that is created by improving it (by building on it, for example). The value of a vacant lot in its natural state comes not from any sacrifice or opportunity cost borne by the owners of the land, but rather from demand for a fixed amount of land.
Therefore, argued George, because the value of the unimproved land is unearned, neither the land’s value nor a tax on the land’s value can affect productive behavior. If land were taxed more heavily, the quantity available would not decline, as with other goods; nor would demand decline because of land’s productive uses. By taxing the whole of the value of unimproved land, the government would drive the price of land to zero.
George was not simply trying to design a system of taxation devoid of untoward consequences; he felt that virtually all economic problems arise from “the fact that the land on which and from which all must live is made exclusive property of some.” His goal was nothing less than to make all land common property, but he realized that, “[i]t is not necessary to confiscate land; it is only necessary to confiscate rent.”
George was right that other taxes may have stronger disincentives, but some economists now recognize that the single land tax is not innocent, either. Site values are created, not intrinsic. Why else would land in Tokyo be worth so much more than land in Mississippi? A tax on the value of a site is really a tax on productive potential, which is a result of improvements to land in the area. Henry George’s proposed tax on one piece of land is, in effect, based on the improvements made to the neighboring land.
And what if you are your “neighbor”? What if you buy a large expanse of land and raise the value of one portion of it by improving the surrounding land. Then you are taxed based on your improvements. This is not far-fetched. It is precisely what the Disney Corporation did in Florida. Disney bought up large amounts of land around the area where it planned to build Disney World, and then made this surrounding land more valuable by building Disney World. Had George’s single tax on land been in existence, Disney might never have made the investment.
So even a tax on unimproved land can reduce incentives. As certain as George was that “the value of land can always be readily distinguished from the value of improvements,” he was aware that over a long period some improvements blend with the natural state of the land and can be “considered part of the value of that land.” George was also aware that “[a]bsolute accuracy is impossible in any system, and to attempt to separate all that the human race has done from what nature originally provided would be as absurd as impracticable.”
Frank Knight argued that the entire value of land is the value of its improvements because of a need to discover it and bring it into production. Zachary Gochenour and Bryan Caplan have pointed out that while the surface value of land is more apparent, especially for farming purposes, many lands have hidden natural resources, such as gold, water, and oil. These resources require investment on the part of owners to discover and produce. “Information about the land can be considered an improvement in its own right.” To tax the entire, or even a large, value of the mineral resources would create enormous disincentives for exploration and production. 1
Objections aside, Henry George may have been arguing for what is really the least offensive tax. As Milton Friedman said almost a century after George’s death: “In my opinion, the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago” (Mark Blaug. Economica, New Series, 47, no. 188  p. 472). Henry George was also a passionate advocate of free trade and opponent of protectionism. He saw clearly that protectionism is a misleading term for barriers to trade and identified whom “protectionism” hurts.
George wrote: To every trade there must be two parties who mutually desire to trade, and whose actions are reciprocal. No one can buy unless he can find some one willing to sell; and no one can sell unless there is some other one willing to buy. If Americans did not want to buy foreign goods, foreign goods could not be sold here even if there were no tariff. The efficient cause of the trade which our tariff aims to prevent is the desire of Americans to buy foreign goods, not the desire of foreign producers to sell them. Thus protection really prevents what the “protected” themselves want to do. It is not from foreigners that protection preserves and defends us; it is from ourselves. (Henry George 1980, Protection or Free Trade, pp. 45–46)”
1879. Progress and Poverty. 1912 ed. Garden City, N.Y.: Doubleday, Page. Available online at: http://www.econlib.org/library/YPDBooks/George/grgPP.html.
1886. Protection or Free Trade. 1905 ed. New York: Doubleday, Page. Available online at: http://www.econlib.org/library/YPDBooks/George/grgPFT.html
Zachary Gochenour and Bryan Caplan, “A Search-Theoretic Critique of Georgism, February 4, 2012”, online edition http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1999105.
1. Zachary Gochenour and Bryan Caplan, “A Search-Theoretic Critique of Georgism, February 4, 2012”, online edition http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1999105
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