Progress and Poverty (George)/Chapter XVIII
Chapter XVIII Endorsements and objections
The grounds from which we have drawn the conclusion that the tax on land values or rent is the best method of raising public revenues have been admitted expressly or tacitly by all economists of standing, since the determination of the nature and of the law of rent.
Ricardo says: "A tax on rent would affect rent only; it would fall wholly on landlords, and could not be shifted to any class of consumers," for it "would leave unaltered the difference between the produce obtained from the least productive land in cultivation and that obtained from land of every other quality.... A tax on rent would not discourage the cultivation of fresh land, for such land pays no rent, and would be untaxed." (Principles of Political Economy and Taxation, chapter 10)
McCulloch declares that "in a practical point of view, taxes on the rent of land are among the most unjust and impolitic that can be imagined," (Note No. 24 Of the "Supplemental Notes and Dissertations" in his edition, 1838, of Adam Smith's Wealth of Nations) but he makes this assertion solely on the ground of his assumption that it is practically impossible to separate the gross rent of land in an old settled and highly improved country into its components or to distinguish between the sum paid for the use of the soil and that paid on account of the capital expended upon it. On the other hand, he asserts that, if this separation were effected "the sum paid to landlords for the use of the natural powers of the soil might be entirely swept away by a tax, without their having it in their power to throw any portion of the burden upon anyone else," and without affecting the price of produce.
In fact, that rent should be the peculiar subject of taxation, on grounds both of expediency and justice, is involved in the accepted doctrine of rent, and may be found in embryo in the works of all economists who have accepted the law of Ricardo. That these principles have not been pushed to their necessary conclusions evidently arises from the indisposition to endanger or offend the enormous interest involved in private ownership in land, and from the false theories in regard to wages and the cause of poverty that have dominated economic thought.
The French Physiocrats
But there has been a school of economists who plainly perceived, what is clear to the natural perceptions of men when uninfluenced by habit, that the revenues of the common property, land, ought to be appropriated to the common service. As I am acquainted with the doctrines of Quesnay and his disciples only at second hand, through the medium of the English writers, I am unable to say how far his peculiar ideas as to agriculture being the only productive avocation, etc., are erroneous apprehensions, or mere peculiarities of terminology. But of this I am certain from the proposition in which his theory culminated - he saw the fundamental relation between land and labour that has since been lost sight of, and he arrived at practical truth, though, it may be, through a course of defectively expressed reasoning. The causes that leave in the hands of the landlord a "produce net" were by the Physiocrats no better explained than the suction of a pump was explained by the assumption that nature abhors a vacuum. But the fact in its practical relations to social economy was recognized, and the benefit that would result from the perfect freedom given to industry and trade by a substitution of a tax on rent for all the impositions that hamper and distort the application of labour was as clearly seen by them. One of the things most to be regretted about the French Revolution is that it overwhelmed the ideas of the Economists, just as they were gaining strength among the thinking classes, and were apparently about to influence fiscal legislation.
Separating the value of land
The only objection to the tax on rent or land values that is to be met with in standard politico-economic works is one which concedes its advantages. It is that, because of the difficulty of separating the value of land from the value of improvements, we might, while taxing the rent of land, tax something else. McCulloch, for instance, declares taxes on the rent of land to be impolitic and unjust because the return received for the natural and inherent powers of the soil cannot be clearly distinguished from the return received from improvements and meliorations, which might thus be discouraged. If it discourages production to tax values that labour and capital have intimately combined with the value of land, how much greater discouragement is involved in taxing not only these, but all the clearly distinguishable values that labour and capital create?
But as a matter of fact, the value of land can always be distinguished from the value of improvements. In countries like the United States there is much valuable land that has never been improved; and in many of the States the value of the land and the value of improvements are habitually estimated separately by the assessors, though afterwards re-united under the term real estate. Frequently land is owned by one person and the buildings by another, and when a fire occurs and improvements are destroyed, a clear and definite value remains in the land. In the oldest country in the world no difficulty whatever can attend the separation, if all that be attempted is to separate the value of the clearly distinguishable improvements, made within a moderate period, from the value of the land, should they be destroyed. This, manifestly, is all that justice or policy requires. Absolute 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 it is impracticable. A swamp drained or a hill terraced by the Romans constitutes now as much a part of the natural advantages of the British Isles as though the work had been done by earthquake or glacier. The fact that after a certain lapse of time the value of such permanent improvements would be considered as having lapsed into that of the land, and would be taxed accordingly, could have no deterrent effect on such improvements. The fact is that each generation builds and improves for itself, and not for the remote future.
Attitude of interested parties
But it may be asked: If the tax on land values is so advantageous a mode of raising revenue, how is it that so many other taxes are resorted to in preference by all governments?
The answer is obvious: The tax on land values falls upon the owners of land, and there is no way in which they can shift the burden upon any one else. Hence a large and powerful class is directly interested in keeping down the tax on land values and substituting, as a means for raising the required revenue, taxes on other things, just as the landowners of England, in the seventeenth century, succeeded in substituting an excise, which fell on all consumers, for the dues under the feudal tenures, which fell only on them.
There is thus a definite and powerful interest opposed to the taxation of land values; but to the other taxes upon which modern governments so largely rely there is no special opposition. The ingenuity of statesmen has been exerted in devising schemes of taxation that drain the wages of labour and the earnings of capital. Nearly all of these taxes are ultimately paid by the consumer; and he pays them in a way that does not call his attention to the fact - pays them in such small amounts and in such insidious modes that he does not notice it, and is not likely to take the trouble to remonstrate effectually. Those who pay the money directly to the tax collector are not only not interested in opposing a tax they so easily shift from their own shoulders, but are very frequently interested in its imposition and maintenance, as are other powerful interests that profit, or expect to profit, by the increase of prices such taxes bring about. Licence taxes are generally favoured by those on whom they are imposed, as they tend to keep others from entering the business. Imposts upon manufactures are frequently grateful to large manufacturers for similar reasons. Duties on imports not only tend to give certain producers special advantages, but accrue to the benefit of importers or dealers who have large stocks on hand. And so in the case of all such taxes, there are particular interests, capable of ready organization and concerted action, which favour the imposition of the tax, while, in the case of a tax upon the value of land, there is a solid and sensitive interest ready to oppose it steadily and bitterly.
- (3) This alleged difficulty can only apply to expenditures on improvements like manuring, draining, levelling, embankment and reclamation that merge in the land and are therefore not readily observable in the eyes of the valuer whose instructions are to assess the value of land on the assumption that any buildings and improvements thereon or therein did not exist. Making allowance for improvements that merge in the land is a familiar feature in the legislation in several countries where land value taxation is in some measure already in operation. For example, in Denmark, provision for such allowance is made on proof of the expenditure incurred, setting however a time limit of thirty years during which the expenditure is considered to have been recouped. Of similar effect are the provisions in United Kingdom law whereby occupiers of farm land are indemnified, on the transfer or sale of land, for the unexhausted value of the improvements they have made at their own expense during their tenure. A.W.M.