Land rent and wealth diagram showing the effects of land-value taxation in which
burden of the tax is entirely on the landowner when the tax is implemented. The rental price of land does not change and there is no
deadweight loss.
Henry George is best known for popularizing the argument that government should be funded by a
tax on land rent rather than
taxes on labor. He believed that although
scientific experiments could not be performed in political economy, theories could be tested by comparing different societies with different conditions and by
thought experiments about the effects of various factors. Applying this method, he concluded that many societal problems, such as poverty, inequality, and economic booms and busts, can be attributed to private ownership of the necessary resource: land rent. In his most celebrated book,
Progress and Poverty, George argues that the appropriation of land rent for private use contributes to persistent poverty in spite of technological progress, and causes economies to tend toward boom-and-bust cycles. According to George, people justly own what they create, but natural opportunities and
land belong equally to all. Although equal rights to land might be achieved by nationalizing land and then leasing it to private users, George preferred taxing
unimproved land value and leaving the control of land mostly in private hands. His reason for leaving land in private control and slowly shifting to land value tax was that it would not penalize existing owners who had improved land and would also be less disruptive and controversial in a country where land titles have already been granted. Georgists have observed that privately created wealth is socialized via the tax system (e.g., through
income and
sales tax), while socially created wealth in land values are privatized in the price of land titles and bank mortgages. The opposite would be the case if land rents replaced taxes on labor as the main source of
public revenue; socially created wealth would become available for use by the community, while the fruits of labor would remain private. According to Georgists, a land value tax can be considered a user fee instead of a tax, since it is related to the market value of socially created locational advantage, the privilege to exclude others from locations. Assets consisting of commodified privilege can be considered wealth since they have exchange value, similar to
taxi medallions. A land value tax, charging fees for exclusive use of land, as a means of raising public revenue is also a
progressive tax tending to reduce
economic inequality, and there is generally no means by which landlords can shift the
tax burden onto tenants or laborers. Landlords cannot pass the tax on to tenants because the
supply and demand of rented land is unchanged. Because the supply of land is perfectly
inelastic, land rents depend on what tenants are prepared to pay, rather than on the expenses of landlords, and so the tax cannot be passed on to tenants.
Economic properties Standard economic theory suggests that a land value tax would be extremely efficient—unlike other taxes, it does not reduce economic productivity.
Joseph Stiglitz argues that a land value tax can improve the use of land and redirect investment toward productive, non-
rent-seeking activities. Because land value tax would apply to foreign land speculators, the Australian Treasury estimated that land value tax was unique in having a negative marginal excess burden, meaning that it would increase long-run living standards.
Adam Smith first noted the efficiency and distributional properties of a land value tax in
The Wealth of Nations Henry George wrote that his plan for a high land value tax would cause people "to contribute to the public, not in proportion to what they produce ... but in proportion to the value of natural [common] opportunities that they hold [monopolize]". He went on to explain that "by taking for public use that value which attaches to land by reason of the growth and improvement of the community", it would, "make the holding of land unprofitable to the mere owner, and profitable only to the user". A high land value tax would discourage speculators from holding valuable natural opportunities (like urban real estate) unused or only partially used. Henry George claimed this would have many benefits, including the reduction or elimination of tax burdens from poorer neighborhoods and agricultural districts; the elimination of a multiplicity of taxes and expensive obsolete government institutions; the elimination of corruption, fraud, and evasion with respect to the collection of taxes; the enablement of true free trade; the destruction of monopolies; the elevation of wages to the full value of labor; the transformation of labor-saving inventions into blessings for all; and the equitable distribution of comfort, leisure, and other advantages that are made possible by an advancing civilization. In this way, the vulnerability that market economies have to
credit bubbles and property manias would be reduced. While the philosophy of Georgism does not say anything definitive about specific policy interventions needed to address problems posed by various sources of economic rent, the common goal among modern Georgists is to capture and share (or reduce) rent from all sources of natural monopoly and legal privilege. Henry George shared the goal of modern Georgists to socialize or dismantle rent from all forms of land monopoly and legal privilege. However, George emphasized mainly his preferred policy known as
land value tax, which targeted a particular form of
unearned income known as
ground rent. George emphasized ground-rent because basic locations were more valuable than other monopolies and everybody needed locations to survive, which he contrasted with the less significant streetcar and telegraph monopolies, which George also criticized. George likened the problem to a laborer traveling home who is waylaid by a series of highway robbers along the way, each who demand a small portion of the traveler's wages, and finally at the very end of the road waits a robber who demands all that the traveler has left. George reasoned that it made little difference to challenge the series of small robbers when the final robber remained to demand all that the common laborer had left. George predicted that over time technological advancements would increase the frequency and importance of lesser monopolies, yet he expected that ground rent would remain dominant. George even predicted that ground-rents would rise faster than wages and income to capital, a prediction that modern analysis has shown to be plausible, since the supply of land is fixed. Spatial rent is still the primary emphasis of Georgists because of its large value and the known dis-economies of misused land. However, there are other sources of rent that are theoretically analogous to ground-rent and are debated topics of Georgists. The following are some sources of economic rent. • Extractable resources (minerals and hydrocarbons) • Severables (forests and stocks of fish) • Extraterrestrial domains (geosynchronous orbits and airway corridor use) • Issuance of
legal tender (see
seigniorage) • Privileges that are less location dependent but that still exclude others from natural opportunities (
patents) Where free competition is impossible, such as telegraphs, water, gas, and transportation, George wrote, "[S]uch business becomes a proper social function, which should be controlled and managed by and for the whole people concerned." Georgists were divided by this question of
natural monopolies and often favored public ownership only of the rents from common
rights-of-way, rather than public ownership of utility companies themselves. Some ecological economists still support the Georgist policy of
land value tax as a means of freeing or
rewilding unused land and conserving nature by reducing
urban sprawl. Pollution degrades the value of what Georgists consider to be
commons. Because pollution is a negative contribution, a taking from the commons or a cost imposed on others, its value is
economic rent, even when the polluter is not receiving an explicit income. Therefore, to the extent that society determines pollution to be harmful, most Georgists propose to limit pollution with taxation or quotas that capture the resulting rents for public use, restoration, or a ''citizen's dividend''. Georgism is related to the school of
ecological economics, since both propose market-based restrictions for pollution. The schools are compatible in that they advocate using similar tools as part of a conservation strategy, but they emphasize different aspects.
Conservation is a central issue of ecology, whereas
economic rent is the central issue of geoism. Ecological economists might price pollution fines more
conservatively to prevent inherently unquantifiable damage to the environment, whereas Georgists might emphasize mediation between conflicting interests and
human rights.
Geolibertarianism, a market-oriented branch of Geoism, tends to take a direct stance against what it perceives as burdensome regulation and would like to see auctioned pollution quotas or taxes replace most
command and control regulation. Since
ecologists are primarily concerned with conservation, they tend to emphasize less the issue of equitably distributing
scarcity/pollution rents, whereas Georgists insist that unearned income not accrue to those who hold title to natural assets and pollution privilege. To the extent that geoists recognize the effect of
pollution or share
conservationist values, they will agree with ecological economists about the need to limit pollution, but geoists will also insist that
pollution rents generated from those conservation efforts do not accrue to polluters and are instead used for public purposes or to compensate those who suffer the negative effects of pollution. Ecological economists advocate similar pollution restrictions but, emphasizing conservation first, might be willing to grant private polluters the privilege to capture pollution rents. To the extent that ecological economists share the geoist view of social justice, they would advocate auctioning pollution quotas instead of giving them away for free.
Revenue uses The revenue can allow the reduction or elimination of taxes, greater public investment/spending, or the direct distribution of funds to citizens as a pension or
basic income/
citizen's dividend. In practice, the elimination of all other taxes implies a high land value tax, greater than any currently existing land tax. Introducing or increasing a land value tax would cause the purchase price of land to decrease. George did not believe landowners should be compensated and described the issue as being analogous to compensation for former slave owners. Other geoists disagree on the question of compensation; some advocate complete compensation while others endorse only enough compensation required to achieve Georgist reforms. Some geoists advocate compensation only for a net loss due to a shift of taxation to land value; most taxpayers would gain from the replacement of other taxes with a tax on land value. Historically, those who advocated for taxes on rent tax only great enough to replace other taxes were known as endorsers of
single tax limited. == Synonyms and variants ==