Did 2010′s man of the year die in 1897?

by Colby Cosh

Marxism is dead; long live Georgism! With Britain in austerity mode, its government pre-emptively decommissioning aircraft carriers that haven’t been built yet and preparing to bounce a half-million public-sector employees, everybody is looking for policy solutions to make the state’s in-flow exceed its out-go with the least possible agony. That has some progressives, including the Liberal Democrat Business Secretary Vince Cable, looking at the notion of Land Value Taxation (LVT)—applying the new tax burdens not to capital and labour income, which would discourage work and investment, but to the unimproved value of land area, where, to a first approximation, it would merely encourage efficient land use and make it more affordable.

As the Spectator‘s James Forsyth points out, LVT is an “eye-catching” policy that the Conservatives, if only for cultural or spiritual reasons, would be unlikely to adopt. (They’ll still be the party of the great country houses long after the last one is reduced to ashes and its occupants sent to the salt mines of Gliese 581g.) The Lib Dems will need distinctive policies to help preserve their identity after years of helping the Conservatives govern.

"1886 cartoon of Henry George"When Henry George fought for the “single tax” on land in the 19th century—becoming a mirror-image Marx, a preacher of land-labour rivalry rather than capital-labour rivalry—he grew to be one of the world’s most popular orators and social theoreticians. His philosophy brought together liberal modernizers, non-revolutionary radicals, and the literate working class; it was attractive to a broad spectrum of opinion between the Marxian socialists (plus the anarchists) and the great estates (plus their sycophants). George’s big idea might still have the ability to splice together a coalition of class interests and intellectual tastes. It’s not just the nerdiest of utopian Lib Dem nerds who like it; in July, Martin Wolf, perhaps the English-speaking world’s most respected finance columnist, went on a Georgiacal tear in the Financial Times:

In 1984, I bought my London house. I estimate that the land on which it sits was worth £100,000 in today’s prices. Today, the value is perhaps ten times as great. All of that vast increment is the fruit of no effort of mine. …This appropriation of the rise in the value of land is not just unfair: what have I done to deserve this increase in my wealth? It has obviously dire consequences.

First, it makes it necessary for the state to fund itself by taxing effort, ingenuity and foresight. Taxation of labour and capital must lower their supply. Taxation of resources will not have the same result, because supply is given. Such taxes reduce the unearned rewards to owners.

Second, this system creates calamitous political incentives. In a world in which people have borrowed heavily to own a location, they are desperate to enjoy land price rises and, still more, to prevent price falls. Thus we see a bizarre spectacle: newspapers hail upward moves in the price of a place to live—the most basic of all amenities.

If you’re a renter who reads the newspapers, you have spent the last few years in a constant state of low-level anger at this “bizarre spectacle”—the unexamined assumption that perpetually escalating housing prices are the natural state of human affairs, and certainly a good enough proxy for economic health that the two quantities are freely interchangeable. How much more bizarre must it look in England?

There are practical problems with LVT, the biggest one being how exactly you assess the unimproved value of a plot of land. How do you calculate the part of the asset value that’s derived not from human activity, but from the pure quantity of the footprint and its geographical station? There’s no easy answer, but, hell: the odious necessity of forcing citizens to define, document, and disclose their income is an enormous “practical problem” with the income tax, yet by some miracle, we are oh so lucky enough to have one. Towns and cities already employ an army of land-value assessors that can’t be 1% as large as the hordes of enterprise-destroying revenuers that virtually every polity considers itself obliged to provide with the necessities of life. Henry George was already falling out of favour before the industrial democracies adopted income taxation to any serious degree; contemporaries who argued against him all shrieked to heaven about the sacredness of property, hardly suspecting that the alternative was to be wholesale readoption of the corvée.

It is common for economists—like Wolf and Cable—to harbour admiration for George, a figure all but forgotten outside their profession (although 100,000 people attended his funeral, and John Dewey compared him to Plato). Milton Friedman said that “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”. (This is a quote to which undergraduates are now being exposed through the medium of Greg Mankiw’s Essentials of Economics.) Friedrich von Hayek admitted that “It was a lay enthusiasm for Henry George which led me to economics.” Paul Krugman, confronted recently by a latter-day orthodox Georgist in Germany, escaped by admitting that “urban economics models actually do suggest that Georgist taxation would be the right approach at least to finance city growth” and scrambling away, making but-of-course-it’s-impossible noises. Barry Eichengreen credits George with anticipating modern business-cycle theory.

Similar examples could be compounded endlessly, but the basis for George’s big idea isn’t merely theoretical: see, for example, the 2008 OECD paper that ranks types of taxes on their apparent growth-friendliness, and finds, unsurprisingly, that the worst-to-best order runs 1) corporate income taxes, 2) personal income taxes, 3) consumption taxes, 4) “Property taxes, and particularly recurrent taxes on immovable property.” It must be remembered, however, that economists count non-avoidability as a virtue. The main reason they find land-value taxation attractive in principle is basically this: good luck finding a place to stand that’s not land, sucker.

[A glowing biographical notice of George, which highlights his fleeting connection to British Columbia, can be found at the website of the Federal Reserve Bank of Dallas. It was, naturally, written by the Dallas Fed's senior economist (who carelessly describes pre-Confederation B.C. as part of "Canada"). The OECD paper was brought to my attention by Brian Dell, who has so many degrees there must be one with "economics" scribbled on it somewhere in the pile, and who did a little Georgizing himself a few days ago.]

Did 2010′s man of the year die in 1897?

  1. "The main reason they find land-value taxation attractive in principle is basically this: good luck finding a place to stand that's not land, sucker."

    Therefore, the first unintended consequence of adopting LVT would be to promote seasteading.

    • By Henry George's definition of what "land" is, the seas — as part of the commons — are also part of land. It may be the case today that some parts of the seas could be lived on without payment to society, but already today many people who live on houseboats pay a rental charge to a landlord for "docking rights" or a similar legal right to hook up to utilities, etc.

      E.J. Dodson / United States

    • LVT could not possibly promote seasteading. Land value is what people are WILLING TO PAY to use the land. LVT just requires them to pay it to the community that creates the value rather than to the owner who does not.

  2. Interesting post. I don't know enough about LVT to know the answer to the following, but how does LVT address the core problem of any form of property/asset taxation: the fact you own a valuable asset doesn't necessarily mean you have the income to afford to pay an annual tax levy on it, aka the"house rich/income poor" problem. In this regard, consumption taxes are clearly the "least worst" as it is a precondition to a consumption tax liability that you have sufficient funds to actually consume.

    • If you own valuable land then you should have a substantial income from that land. If you don't then you must be wasting that land somehow. The extreme but all too common example is a derelict building or empty lot in a city. The valuable asset of a very accessible site is being wasted, to the detriment of all those who could use that space. LVT advocates often take the position that though you may have the right to waste your capital, you do not have a right to waste land, because other people can make their own capital (build their own house etc.) but can't make their own land. To be blunt: by sitting on valuable land you are keeping other people homeless, or at the very least commuting further than they should have to.
      There is a big one-off problem with the loss of asset value on the day a LVT is introduced hurting retirees etc, but there are also ways of phasing it in which mitigate that problem. This is only a transition problem though. If you grew up in a community which always had LVT you wouldn't choose to put yourself in that "house rich" position unless you knew you could afford it. You would use other (and incidentally more productive) means of saving.

    • If you are occupying land you can't afford to pay the LVT on, the market is telling you to seek accommodation better suited to your needs and means. The movement of resources into more productive hands is a BENEFIT of market economies that our current system of welfare subsidy giveaways to idle landowners prevents us from enjoying.

  3. It seems really complicated. Reading a couple of explanations of LVT's intent and implementation only made it more confusing. From what I did manage to piece together, it's interesting but I see a few problems.

    Attempting to asses the value of unimproved land seems highly subjective and could be warped into grant favors/punish adversaries bureaucratic nightmare.

    Those that are most likely to want to own a bit of "unimproved" land are also those that are the most self-reliant and independent. In a way, this form of taxation works in favor of those who like high density urban environments at the expense of those who value wide open spaces. It also has the whiff of collectivism about it (we all own the land and should share in the profits).

    If all other taxes are eliminated and only the LVT remains, won't this be incompatible with with our entitlement culture? Those that pay little or no tax are unlikely to curb their expectation of expanding cradle to grave entitlements. Completely severing the link between entitlements and taxation could lead to bigger government. At what point in this viscous cycle would land tax rises cause land abandonment.

    I still like a form of a small flat income tax and higher consumption tax better. Only the poorest should be excluded from tax burdens. The more people that pay taxes, the greater the chance that they will be offended by government waste.

    • LC Bennett is correct to note that a land tax taken to extremes will cause abandonment of land.

      Further, a significant tax rate on land value lowers the market price (or value), which results in less revenue.

      What many modern Georgists have agreed is that the public is entitled to the market value of the unimproved
      rent of all sites within their borders. The private owners are entitled to any rent from improvements.

      Collecting only this SITE REVENUE is market-based, naturally-limited, and fairly easily determined
      by local assessors, and can be adjusted with an owner's right of appeal.

      • Not quite right. A perfect LVT would leave the value of properties at the value of the improvements to the land itself. A bare plot of land would face a tax according to the value of the next best use of the property. The tax is not based on the value of the property at all, but with the goal of reducing the value of the land to zero. Think of it as renting the land from the state…

      • LVT would reduce the land's unimproved value, but that would not reduce revenue overall. It would make the pattern of land use more efficient and productive, meaning that in some locations the tax would decline, but in other places it would increase as the land became more desirable. History is unanimous on this point: LVT causes such explosive economic growth that land's rental value increases rapidly — usually so rapidly that land value actually rises. To make land value fall, the tax rate would have to be more than the long-term economic growth rate, like property taxes in New Hampshire. It is no accident that New Hampshire was one of a handful of jurisdictions that escaped the effects of the recent global land bubble and crash.

    • If you are talking about incentives: Given a fixed amount of land and an approximately fixed population, those who like high density urban environments are ALLIES of those who value wide open spaces. Their common foe: people who like sprawling suburbs.
      If you are talking about distribution of tax burden: urban land is order of magnitude more valuable than remote rural land, and so it is not necessarily so that the self-reliant individual on a "bit" of remote land pays more than the urban dweller.

  4. The biggest problem i see with a 'land' tax is that it targets specific sectors of industry. Specifically agriculture would be discouraged, where owning large tracts of land is essential to productivity, raising the cost of food and therefore the cost of living for everyone without any corresponding increase in the median wage. Meanwhile a web business feeding off advertising revenue doesn't have to pay any land tax at all basically, because all it needs is one room, or even part of a room in which to host servers. If on the other hand you valued the 'undeveloped' value of a property by proximity to population so that farmland isn't excessively taxed you risk either encouraging sprawl because it's much more affordable to live outside the 'high-value' zone, or abandoned neighbourhoods because existing development is unaffordable to live in but the need to redevelop it isn't there yet.

    In short, supplementary taxes on land to cover municipal expenses aren't that big a deal precisely because they're a small tax and mostly don't guide people's choices. Using an undeveloped-value property tax as a main tax with the idea of it being large enough to encourage 'efficient land use' is likely to have unintended consequences against needed or desired 'inefficient' land uses.

    • Not at all. Farmers would be able to get land without laying out millions of dollars in capital (and the concomitant mortgage). They would be on the hook to pay the LVT on the land each year. Zoning to prohibit development decreases the value of the land, and hence the tax on that value.

    • Also, LVT tends to encourage denser living, as suburbs would have fewer residents per unit of land, and higher taxes per resident, than a more urban development.

      The value of an apartment at, say, Yonge and Eglinton is probably north of 70 or 80% improvements, which would not be taxed. A house in North York or Forest Hill might only have 20 or 30% of the value of the property in improvements, and the rest in land.

      • You make it sound like land ownership is no longer a factor(stating that farmers 'rent' the land through tax rather than having to purchase it). What happens when a piece of land you've developed and used for say 20 years gets encroached on by a city (or the core of the city encroaches on your suburb or even high rises encroach on your smaller apartment building), your taxes go up because suddenly 'denser' development is possible, perhaps you can no longer pay them… but you don't own the land, and noone wants to buy the improvement since the land, its now taxed as though hundreds or thousands of people lived on it.

        Transition seems to be where i most get lost in such a scheme. It's not like people live in tents, permanent structures get affixed to land, and those structures are not cheap. The prospect that all it takes is the government bean-counters deciding it's now time the land was better used to force you off that land, losing any investment you may have made in improving the land seems like a truly scary prospect. At least under the current land ownership scheme a prospective developer would happily compensate you to take over your land so they can demolish your house.

        I can appreciate the fuzzy generalities of what it's trying to accomplish, but have a hard time imagining a practical approach to using it as a main tax that isn't going to cause some sort of calamity.

        • xiv writes:

          "What happens when a piece of land you've developed and used for say 20 years gets encroached on by a city (or the core of the city encroaches on your suburb or even high rises encroach on your smaller apartment building), your taxes go up because suddenly 'denser' development is possible, perhaps you can no longer pay them… but you don't own the land, and noone wants to buy the improvement since the land, its now taxed as though hundreds or thousands of people lived on it."

          - The LVT wouldn't change much as long as the designated (zoned) use didn't change. I.e., if a user is not allowed to build a high-rise apartment building on the land, it won't be taxed as though it had a high-rise apartment building on it because speculation would no longer be a factor (there would be no way to profit from it). So the value of farmland next to a city, and thus its LVT, would not rise as long as it could only be used for farming. When the community wanted to change the designated use of a land parcel, it would just compensate the current user for the value of his improvements and let the high bidder use it.

          "The prospect that all it takes is the government bean-counters deciding it's now time the land was better used to force you off that land, losing any investment you may have made in improving the land seems like a truly scary prospect."

          - It would be much like current rezoning practice: the designated use would normally only be chaged when the improvements had depreciated to little or no value.

          "I can appreciate the fuzzy generalities of what it's trying to accomplish, but have a hard time imagining a practical approach to using it as a main tax that isn't going to cause some sort of calamity.'

          - LVT has never caused a calamity yet. Just the opposite.

  5. I quite like the idea of a land tax. (and yes I own some land) However, I would suggest that if you want to grab hold of a very big snake that you do it so the mouth full of teeth is not able to reach your forehead.

  6. Thus we see a bizarre spectacle: newspapers hail upward moves in the price of a place to live—the most basic of all amenities.

    This fact alone exposes just how incredibly biased our media is, and how incredibly biased economists are (many of them own houses). Meanwhile, the opinions of young adults are ignored as they spout this balderdash. For people to be so ridiculously biased as to claim that while lower prices of food and clothing are a good thing, lower prices of housing are an incredibly bad thing. It's such a stupid assumption it's maddening. It's the improbably insistence that a Ponzi scheme can somehow work – that as prices rise, there are more and more buyers out there willing to pay these ever-rising prices, and that somehow these ever-rising payments are actually good for the economy, not bad.

    Food, clothing, cars, cell phones or televisions: lower prices are good. Houses: lower prices are bad.

    Idiocy.

    • The media are biased for very good reasons: the owners of most media are also major landowners, and real estate advertising is the largest single source of revenue for most newspapers. Few people realize that even the editorial content of the huge "homes" section of their newspaper is just PR bumpf paid for by the real estate industry.

  7. This is an excellent article, and major props to Mr Cash for having the courage to submit it. If he had written it 100 years ago, he would probably have been fired for it; yes, the press's war on Henry George was that vicious. It was no accident that he "fell out of favor."

    Just one minor correction: land value is not "the part of the asset value that's derived not from human activity," but the part that is not derived from the OWNER's activity. Land value includes the value of all the services and infrastructure government provides, and all the opportunities and amenities the community provides, as well as the physical qualities nature provides, at that location. It just doesn't include anything the landowner provides. It is precisely equal to the minimum value of what the landowner expects to take from the community and not repay in taxes.

  8. Hear hear! A wonky tax proposal, and a policy wonk for Calgary mayor in the same week. Is it too early to dream of a Calgary led renaissance in Canada?

  9. Nice answer Roy L. But I also think Mr Bennet could gain from the observation that Governments and Landlords are essentially the same thing on different scales. His fear seems to be of nasty Gov, but it at least has to appear responsive to its citizens. Landlords have no such compulsion, and are only limited in their taxes(= land rent) by what the market could bear. Citiizens and tenants only remedy to either is to move beyond their reach. The only way to distribute the essential freedom of land access is to socialize it. Privitising land value is privitising freedom aka slavery.

    The essential action and freedom of life is to access and manipulate nature. So the difference between chattel slavery and land slavery is which side of labor and material the chains of "ownership" are attached to.

  10. Yep, everybody who's anybody has at some point been inspired by, or given a plug for, Henry George. Don't forget Joseph Stiglitz. However, few ever get up the gumption to actively advocate Georgist policy. Why? I think Stiglitz himself explained it well when he said that economists get behind whatever they sense has "marketability." Just like politicians.

    Georgism offers both a coherent ethic and a coherent political-economic system. Makes so much sense, it's no wonder we've never really tried it.

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