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Eminent Domain and taking
land for public purposes
The Supreme Court decision in the Kelo case created
a lot of public outrage and controversy. But while the
justices in the majority may not have been conscious of
what most Georgists would say are the fundamental
issues (and most Georgists seem to be as outraged as
those who aren't as focused on land's importance), a
good case can be made that the decision they reached
was sound.
Urban land, even in a blighted city like New London,
Connecticut, is our most valuable natural resource, far
more valuable than gold or oil. Cities over the
centuries have been located on choice sites —
where rivers meet oceans, or where they meet other
rivers or large lakes, or where falling water could
power mills and hydro plants, or in climatologically
choice locations. Under most circumstances, it makes no
sense to abandon a city. We've invested, over decades
and usually over centuries, using local tax money,
state tax money and often federal money, in creating
infrastructure. Yes, infrastructure needs to be
maintained — like all things manmade, it is
continuously depreciating. But the natural advantages
of some locations generally continue to be
advantages.
Other locations are valuable specifically because of
infrastructure. New Canaan, Connecticut, is a good
example of this. Without the commuter train and highway
system that connect it to New York City, it would
simply be lovely, level farm land.
Over time, a piece of land that was once wilderness
becomes farm land. Farm land, depending on its
location, may be developed into residential or
sometimes commercial property, depending on the
infrastructure that serves it. Single family
residential, just as in the game of Monopoly, may yield
to multi-family housing or commercial uses.
But what happens when someone decides that they have
no intention of leaving the home they love, or the
business site they are used to, even when by most
objective measures, single family housing or
single-story commercial is no longer the appropriate
use for the site? Should the rest of the city's
residents, who do have a stake in good land use,
tolerate the extreme underuse of a piece of land, or a
whole neighborhood, that, given the investment the
community has made or is prepared to make, now should
be developed? Suppose the alternative is for the city's
center to move elsewhere, to sprawl out in one, or two
or three or four directions, so that those few property
owners can stay on the land they love? Suppose it means
that jobs just aren't created in the town, or are
created out on the fringes, where it costs both
employers and employees -- not to mention customers --
more to get there?
Should that be something we make it easy to afford?
What is in the interest of the common good? Is land
really something we all need? Is it right for some of
us to be able to monopolize such a resource? What kinds
of property do we have rights to, and which rights are
limited by the rights of our neighbors and
communities?
Henry George: The Condition of Labor
— An Open Letter to Pope Leo XIII in response to
Rerum Novarum (1891)
Your use, in so many passages of your Encyclical, of
the inclusive term “property” or
“private” property, of which in morals
nothing can be either affirmed or denied, makes your
meaning, if we take isolated sentences, in many places
ambiguous. But reading it as a whole, there can be no
doubt of your intention that private property in land
shall be understood when you speak merely of private
property. With this interpretation, I find that the
reasons you urge for private property in land are
eight. Let us consider them in order of presentation.
You urge:
1. That what is bought with rightful property is
rightful property. (RN, paragraph 5) ...
2. That private property in land proceeds from
man’s gift of reason. (RN, paragraphs 6-7.)
...
3. That private property in land deprives no one of the
use of land. (RN, paragraph 8.) ...
4. That Industry expended on land gives ownership in
the land itself. (RN, paragraphs 9-10.) ...
5. That private property in land has the support of the
common opinion of mankind, and has conduced to peace
and tranquillity, and that it is sanctioned by Divine
Law. (RN, paragraph 11.) ...
6. That fathers should provide for their children and
that private property in land is necessary to enable
them to do so. (RN, paragraphs 14-17.) ...
7. That the private ownership of land stimulates
industry, increases wealth, and attaches men to the
soil and to their country. (RN, paragraph 51.)
...
8. That the right to possess private property in land
is from nature, not from man; that the state has no
right to abolish it, and that to take the value of
landownership in taxation would be unjust and cruel to
the private owner. (RN, paragraph 51.) ...
8. That the right to possess private
property in land is from nature, not from man; that the
state has no right to abolish it, and that to take the
value of landownership in taxation would be unjust and
cruel to the private owner. (51.)
This, like much else that your Holiness says, is
masked in the use of the indefinite terms
“private property” and “private
owner” — a want of precision in the use of
words that has doubtless aided in the confusion of your
own thought. But the context leaves no doubt that by
private property you mean private property in land, and
by private owner, the private owner of land.
The contention, thus made, that private property in
land is from nature, not from man, has no other basis
than the confounding of ownership with possession and
the ascription to property in land of what belongs to
its contradictory, property in the proceeds of labor.
You do not attempt to show for it any other basis, nor
has any one else ever attempted to do so. That private
property in the products of labor is from nature is
clear, for nature gives such things to labor and to
labor alone. Of every article of this kind, we know
that it came into being as nature’s response to
the exertion of an individual man or of individual men
— given by nature directly and exclusively to him
or to them. Thus there inheres in such things a right
of private property, which originates from and goes
back to the source of ownership, the maker of the
thing. This right is anterior to the state and superior
to its enactments, so that, as we hold, it is a
violation of natural right and an injustice to the
private owner for the state to tax the processes and
products of labor. They do not belong to Caesar. They
are things that God, of whom nature is but an
expression, gives to those who apply for them in the
way he has appointed — by labor.
But who will dare trace the individual ownership of
land to any grant from the Maker of land? What does
nature give to such ownership? how does she in any way
recognize it? Will any one show from difference of form
or feature, of stature or complexion, from dissection
of their bodies or analysis of their powers and needs,
that one man was intended by nature to own land and
another to live on it as his tenant? That which derives
its existence from man and passes away like him, which
is indeed but the evanescent expression of his labor,
man may hold and transfer as the exclusive property of
the individual; but how can such individual ownership
attach to land, which existed before man was, and which
continues to exist while the generations of men come
and go — the unfailing storehouse that the
Creator gives to man for “the daily supply of his
daily wants”?
Clearly, the private ownership of land is from the
state, not from nature. Thus, not merely can no
objection be made on the score of morals when it is
proposed that the state shall abolish it altogether,
but insomuch as it is a violation of natural right, its
existence involving a gross injustice on the part of
the state, an “impious violation of the
benevolent intention of the Creator,” it is a
moral duty that the state so abolish it.
So far from there being anything unjust in taking
the full value of landownership for the use of the
community, the real injustice is in leaving it in
private hands — an injustice that amounts to
robbery and murder.
And when your Holiness shall see this I have no fear
that you will listen for one moment to the impudent
plea that before the community can take what God
intended it to take — before men who have been
disinherited of their natural rights can be restored to
them, the present owners of land shall first be
compensated.
For not only will you see that the single tax will
directly and largely benefit small landowners, whose
interests as laborers and capitalists are much greater
than their interests as landowners, and that though the
great landowners — or rather the propertied class
in general among whom the profits of landownership are
really divided through mortgages, rent-charges, etc.
— would relatively lose, they too would be
absolute gainers in the increased prosperity and
improved morals; but more quickly, more strongly, more
peremptorily than from any calculation of gains or
losses would your duty as a man, your faith as a
Christian, forbid you to listen for one moment to any
such paltering with right and wrong.
Where the state takes some land for public
uses it is only just that those whose land is taken
should be compensated, otherwise some landowners would
be treated more harshly than others. But where, by a
measure affecting all alike, rent is appropriated for
the benefit of all, there can be no claim to
compensation. Compensation in such case would be a
continuance of the same in another form — the
giving to landowners in the shape of interest of what
they before got as rent. Your Holiness knows
that justice and injustice are not thus to be juggled
with, and when you fully realize that land is really
the storehouse that God owes to all his children, you
will no more listen to any demand for compensation for
restoring it to them than Moses would have listened to
a demand that Pharaoh should be compensated before
letting the children of Israel go.
Compensated for what? For giving up what has been
unjustly taken? The demand of landowners for
compensation is not that. We do not seek to spoil the
Egyptians. We do not ask that what has been unjustly
taken from laborers shall be restored. We are willing
that bygones should be bygones and to leave dead wrongs
to bury their dead. We propose to let those who by the
past appropriation of land values have taken the fruits
of labor to retain what they have thus got. We merely
propose that for the future such robbery of labor shall
cease — that for the future, not for the past,
landholders shall pay to the community the rent that to
the community is justly due.
... read
the whole letter
Mason Gaffney: Who Owns Southern
California?
1. HOLDINGS BY ALIENS ... Non-resident
aliens own about 75% of the "major" buildings in the L.A.
CBD west of Broadway ...
2. AMERICANS FROM OTHER STATES ...
A second kind of holder is the out-of-state
American, individual or corporate.
3. CALIFORNIANS Many of our largest landholders
also live in California. This is partly because the lands
are here, but moreso because certain places in California
are good places to live. One of the advantages of
receiving property as opposed to labor income is it lets
one choose his residence. California ranks after New York
in the number of rich Americans (using Forbes' list) who
reside here.
Also included here are California-based
corporations. A corporation's "base" refers simply to the
site of its headquarters: its shareholders are scattered
around the world, and the major shareholders, who
exercise control, are effectively screened behind layers
of trusts and financial institutions, so they are
impossible to identify with certainty.
...
The Riverside Press-Enterprise. In most cities,
the dominant local paper is the largest downtown
landowner. The Riverside Press-Enterprise owns its site
from 14th to Prospect Streets, and Olivewood to Orange
Grove, right next to a Freeway interchange. Like Rohr
Industries, it benefited before 1991 by the exemption of
most of its power from the city utility user tax, and
still enjoys quantity discounts. Just across the Freeway,
using the Cridge Street overpass, is its Vine Street
garage, with land for its fleet of 265 trucks, vans, and
cars. (TPE, 19 June 86) The City recently eased its fleet
operations by stopping traffic from 14th Street, giving
the right-of-way to Kane Street, the stub connecting the
Press-Enterprise to the 91 Freeway on-ramp.
The City has also loaned its
power of eminent domain to the Press-Enterprise, helping
it acquire the land along Olivewood by condemning private
homes. Newspaper support is valuable when one runs
for public office. About this same time, however, the
Press-Enteprise shifted the focus of its news coverage
from the City that shelters it to the whole suburban
county. The families were evicted and the houses razed
several years ago, but, as of October, 1994, the land is
still vacant and derelict, not even used for parking. It
is held for - what? The possibility of future need? Did
this warrant condemning homes? Politicians are so loathe
to use eminent domain to expand parks or schools, but the
possible future expansion of a newspaper, that's
different! ...
4. INSTITUTIONS
Institutions acquire land for their operations and
then it tends to stick to them for various reasons. It is
tax free, for one, so long as they retain it (and do not
use it commercially). They are not subject to corporate
raids. Thus there is no mechanism whereby the current
opportunity cost of land is felt by management. It never
appears in their budgets; they never need compete for or
justify it. College Boards are not accountable to any
public body, a precedent set by Marshall's U.S. Supreme
Court in Dartmouth College v. Woodward,
1819. Read the whole
article
Lindy Davies: Ownership and the
Law
President Bush's announcement of his vision for an
"ownership society" met with thunderous cheers at the
Republican Convention, and much eye-rolling elsewhere.
The Bush Administration would like to start by
encouraging private ownership of our retirement funds and
our health-care decisions. They want to get the heavy
hand of government out of such things and unleash the
tremendous efficiency of millions upon millions of
Self-Interested Individual Actors, the husky, brawling,
broad-shouldered capitalism that made this country great.
Prosperity depends on the security of private property
and the potency of individual initiative! This is the
self-evident truth that has been obscured by Hollywood
Socialists, Democratic Girlie-men and purveyors of the
Homosexual Agenda.
We should realize, however, that this is hardly a
new initiative. It is really just the latest wave of an
argument that has raged throughout the history of the
United States, about just what -- if anything -- and on
what basis -- if any -- the government can require us to
surrender what we possess. There are some people out
there -- and actually a fair number, after all -- who
don't view the Bush Administration's privatization
proposals as extremist at all -- but, rather, too soft.
...
Unfortunately, though, the law is not at all
clear. Thomas Jefferson fudged the topic in the United
States Declaration of Independence, inserting "the
pursuit of happiness" where people expected the more
loaded term "property". The Bill of Rights, however, is
strong on property rights. It provides for security of
"persons, houses, papers, and effects," that "private
property shall not be taken for public use without just
compensation" and that rights not specifically prohibited
are reserved to the states or to the people. In fact, the
US Constitution was so bullish on property that it
provided for private property in human beings, a
principle made explicit in Dred Scott vs. Sandford and
many other cases.
Slavery was made unconstitutional by means of the
13th Amendment in 1865. This, however, left much to be
resolved, and the Congress had a very difficult job --
perhaps, in strictly logical terms, an impossible job --
in drafting Amendment number fourteen.
...
The 14th amendment reaffirms the rights of life,
liberty and property, and binds the states to the same
due process and equal protection restrictions as the
federal government. However, it places the Constitution's
first limit on the right of property, stating that the
United States or any state shall not pay "any claim for
the loss or emancipation of any slave". This could be
seen as somewhat fishy in terms of the Fifth Amendment.
After all the 13th amendment had taken the slaveholders'
property three years before. Had not the Supreme Court
ruled that slaves were property and had to be returned to
their owners, even if they escaped to non-slaveholding
states?
Although it would have been impracticable (to say
the least) to enforce the Takings Clause to the tune of
the market value of some four million human beings, that
was what the Constitution required the government to
do. ...
The next amendment to the Constitution following
the Reconstruction Amendments was another milestone in
the debate over property rights. The 16th Amendment,
ratified in 1913, allows Congress to “lay and
collect taxes on incomes, from whatever source
derived” -- contravening the restriction of this
practice that had been laid out in Article I. The
“from whatever source derived” part has been
making people scream bloody murder ever since.
...
The original advocates of the income tax (many of
them Single Taxers) sought to tax accumulation, not
industry and initiative. They saw that the massive
concentration of wealth among a privileged few was
harmful to the nation, and they persuaded the states to
accept a progressive tax that would compel robber barons
to pay for public goods while letting entrepreneurs gain
from their contributions to overall prosperity.
And yet, over the years, a tax on
income “from whatever source derived” came,
one loophole at a time, to be a tax on exactly those
productive, hardworking, middle-class people that it was
designed to help. ...
In most people's minds, after all, land is the
most solid and important kind of property; in fact, the
word "property" in general conversation most often means
"land". However, it has long been recognized that
sometimes privately-held land must be taken for public
purposes. The principle of eminent domain is not
(particularly) controversial. If the state wants to put a
highway through your house, it must pay you the fair
market value of your property.
...
This decision was important because it extended
the Takings doctrine beyond physical seizure to the
taking of value -- but it was also relatively
uncontroversial in that the state legislature had removed
all of the parcel's market value. ...
If government were to be held liable for every
single action that took away a portion of real estate
value, it could scarcely do anything at all. That might
be how some of the most strident militia-folk would like
it. However, it would certainly not suit real estate
owners in general -- who, while they might not enjoy
paying for government, do benefit from the things that
government does.
What the property-rights folks are forgetting (or
disregarding) is that if a piece of land has a market
value, that means that the net benefits conferred upon it
by the community (which includes the government) are
greater than the net costs. Location value is far and
away the most important component of land value -- and
location value is almost entirely the result of services
and infrastructure that the government provides.
...
It's no accident that the issue of "regulatory
takings" is such a stew of contradictions. Indeed, the
terms of the argument deny the possibility of coherence
(in much the same way as they did in 1868). Land is not the fruit of human labor, and its value
is not the result of any actions taken by its owner.
Therefore, private property in land is an entirely
different sort of phenomenon than private property in the
products of labor -- and as long as the law fails to
recognize this fact, it cannot hope to make sense of the
issue of "regulatory takings".
...
It could be suggested that "the conditions of the
grant" could, without doing any violence to the secure
right of private property, require the payment to the
community of the land's rental value, to cover the cost
of the community's expenses which, it turn, provide the
land's value in the first place. That would, of course,
require a clearer definition of the moral basis of
property that the United States has ever been able to
come to. Yet -- think of it for a
moment -- what would have happened if the original Bill
of Rights had articulated the individual's absolute right
to property only in the products of labor -- and the
community's right to the community-created value of the
land?
It would have saved us an awful lot of trouble.
True, the "slavery" states would have balked at joining
the union under those rules. But under them, the nation
would have been so prosperous that they would quite soon
have seen the advantage of joining. We would have avoided
the Civil War, and probably even World War I -- it is
dazzling to think about how different -- and vastly
better -- our history would have been, had the Framers
taken the brave step of setting forth the moral basis of
property along these lines.
It's interesting that we use the word "own" to
mean two different things: the sense of possession, and
the sense of personal acknowledgment, as in "owning up"
to one's responsibilities. The relationship between the
two was once closer than it now seems to be; the word
"ought" is an archaic past participle of "owe". As we
consider how to arrange our "ownership society", we'd do
well to remember what we "ought" -- and bring the two
senses of the word back together.
Read the
whole article
Winston Churchill: The
People's Land
Now let the Manchester Ship Canal tell its tale
about the land. It has a story to tell which is just as
simple and just as pregnant as its story about Free
Trade. When it was resolved to build the Canal, the first
thing that had to be done was to buy the land. Before the
resolution to build the Canal was taken, the land on
which the Canal flows -- or perhaps I should say 'stands'
-- was, in the main, agricultural land, paying rates on
an assessment from 30s. to L2 an acre. I am told that
4,495 acres of land purchased fell within that
description out of something under 5,000 purchased
altogether. Immediately after the decision, the 4,495
acres were sold for L777,000 sterling -- or an average of
L172 an acre -- that is to say, five or six times the
agricultural value of the land and the value on which it
had been rated for public purposes.
Now what had the landowner done
for the community; what enterprise had he shown; what
service had he rendered; what capital had he risked in
order that he should gain this enormous multiplication of
the value of his property! I will tell you in one word
what he had done. Can you guess it!
Nothing.
But it was not only the owners of the land that
was needed for making the Canal, who were automatically
enriched. All the surrounding land either having a
frontage on the Canal or access to it rose and rose
rapidly, and splendidly, in value. By the stroke of a
fairy wand, without toil, without risk, without even a
half-hour's thought many landowners in Salford, Eccles,
Stretford, Irlam, Warrington Runcorn, etc., found
themselves in possession of property which had trebled,
quadrupled, quintupled in value.
Apart from the high prices which were paid, there
was a heavy bill for compensation, severance,
disturbance, and injurious affection where no land was
taken -- injurious affection, namely, raising the land
not taken many times in value -- all this was added to
the dead-weight cost of construction. All this was a
burden on those whose labour skill, and capital created
this great public work. Much of this land today is still
rated at ordinary agricultural value, and in order to
make sure that no injustice is done, in order to make
quite certain that these landowners are not injured by
our system of government, half their rates are, under the
Agricultural Rates Act, paid back to them. The balance is
made up by you. The land is still rising in value, and
with every day's work that every man in this
neighbourhood does and with every addition to the
prosperity of Manchester and improvement of this great
city, the land is further enhanced in vaIue. ... Read the
whole piece
Charles T. Root — Not a Single Tax! (1925)
To illustrate simply, let us suppose a state which has
never parted with its natural income but is supported by
its own economic rent. A farmer wishes to take up a tract
or [sic] government land in this state and offers an
economic rent of fifty cents per year per acre in its raw
condition. The government (i.e., the community) accepts
this rent, subject to re-adjustment every five years. The
farmer then gets his deed without other cost than that of
drawing and recording the instrument, or a nominal price
of, say, one dollar an acre.
He works his new property vigorously, clears, fences,
drains and plants it, and puts up his buildings and
stocks them. He has no taxes to pay, and at the end of
his first five-year period he is making $10 per acre per
year. Will his economic rent for the next five-year
period be raised because he has prospered or because he
has invested money in buildings and improvements? Not a
penny. All the results of his own capital and labor
belong to him and not to the community. If the
neighborhood has not grown much, and fifty cents an acre
is still all that is bid as economic rent for the same
kind of raw ground as our farmer originally took, then
his rent for the second five years will be the same as
the first.
But suppose that during the second five years something
of a boom has set in, and a community is growing up. Land
is in demand, and for the lessening area in the hands of
the government two dollars per acre is freely offered as
economic rent. Now our typical farmer must come up to the
market price and pay two dollars an acre for his third
five years, irrespective of whether he is making more or
less out of his place.
In his third five years the boom continues, and the
community grows so fast that before the close of that
period one corner of our friend's farm finds itself near
the middle of a flourishing town. Five acres of it are
needed for a public park, and five acres adjoining are
wanted to cut up into building lots. As building lots,
this part of the land will command a voluntary offer of a
hundred dollars per year per acre of economic rent; and
this fact establishes the land-value of the adjoining
five acres needed for park purposes.
In this situation what shall our farmer do?
He has two courses open to him. If he doesn't want to
relinquish his land, and can afford to withhold it from
further improvement, he can pay the hundred dollars per
acre per year of economic rent which these ten acres will
now command, and keep his farm intact. If this appears to
him too costly a luxury, he can signify his willingness
to sell to the town the five acres wanted for the park,
and the other five to individual builders.
Now, what price should he get for it? He did not pay
the government much for his title deed, but he has worked
on this land for fifteen years, and deserves some
compensation when he transfers it. By his labor and also,
in part, by reason of his clearing, draining and fencing,
he has been able to make twelve dollars an acre from his
ground, while his economic rent had not until now gone
above five dollars an acre. Furthermore, he has built on
these parcels a barn and two storehouses.
The method of computing the proper selling price under
such circumstances would have to be the result of
experience, but that price would certainly include the
present value of the improvements and probably some lump
sum besides, as compensation for loss of farming
opportunity. But just as certainly it would not include,
(as it would do under our present conditions), the
increased location value which the town itself has
created by its own growth and public works, and which in
all justice belongs to the town or community and not to
the individual.
This principle of economic rent applies to all the users
of land, including mining, use of waterpower, and rights
of way over or under its surface. Had this principle
always been recognized, and the economic rent always been
retained by the community, taxation would never have been
heard of. When the economic rent is reclaimed by the
community, the need of taxation will disappear.
Let us roughly restate the proposition: All members of
the community having a joint right to the income which
the social advantages of the land will command, they are
all partners in this income.
Therefore, when one of their number wishes to take for
his private use a parcel of this land, he should buy out
his partners, i.e., the rest of the community, by paying
regularly into the common treasury the economic rent of
that parcel, instead of paying, as at present, the
purchase price, i.e., the right to collect the economic
rent, in a lump, to some other individual who has no more
original right to it than himself.
But before this time the reader, unless he has given
previous attention to the subject, is full of objections
to the above doctrine: "How about the law?" he is asking.
"Hasn't a man the right to buy a piece of land as cheaply
as he can, to do what he pleases with it, and hold on to
it till he gets ready to sell?" The answer is that at
present he certainly has this statutory right, which has
been so long and so universally recognized that most
people suppose it to be not only a legal, but a real or
equitable right. A shrewd man, foreseeing the direction
of growth of population in a city, for example, can buy a
well-located block at a moderate figure from some less
far-seeing owner, can let it grow up to weeds, fence it
off against all comers and give it no further attention
except to pay the very small tax usually imposed upon
vacant land.
Meantime the increasing community builds up all around
it with homes, banks, stores, churches, schools, paving
and lighting the streets, giving police and fire
protection, etc., and at last comes to need this block so
urgently that the owner is fairly begged to sell it, at
three or ten or fifty times what it cost him. Quite often
the purchaser at this enormous advance is the very
community which has through its presence and the
expenditure of its taxes created practically the whole
value of the land in question!
It was said above that an individual has a statutory
right to pursue this very common course. That was an
error. The statement should have been that he has a
statutory wrong; for no disinterested person can follow
the course of land speculation as almost universally
practiced, without feeling its rank injustice. ...
read the whole
article
Clarence Darrow: How to Abolish Unfair
Taxation (1913)
Fundamentally, all law recognizes the right to eminent
domain, to take the portion of any human being for the
welfare of the public — that no man's claim to any
portion of the earth shall stand in the way of the common
good. This is a common law, but in practice it only
applies where a rich railroad wants to get the land of
some poor widow.
Everybody who works is poor; nobody would work if they
were not poor, and nobody can get rich working. I never
tried it, but I have seen others try it. The land boomer
comes along and gets good car service to this poor man's
home, and then charges him ten dollars per month instead
of five. A lot of reformers are trying to get parks laid
out in the slums, which only make the poor move, for they
cannot pay the increased rent. The greater the
population, the less the worker gets. As the land becomes
valuable, more and more goes to rent. The bigger the
city, the deeper the poverty; the bigger the city the
more degradation, there are the almshouses and gaols
filled to overflowing. It is better for the men who own
the earth to have big cities — but for no one else.
Every man, woman, and child adds to the wealth of the
land owner; the others must secure land upon which to
live, and they must bid with each other for the right to
live. ... read the whole
speech
Wyn Achenbaum: Eminent Domain and Government
Giveaways
It seems to me that there are better ways than eminent
domain to provide the incentives that will lead the
private sector to develop choice land.
...
While at one time this area might have been an
appropriate place for a neighborhood of single family
homes, it appeared to me that that time had passed a
decade or so ago. It seemed to me that the path of
progress would -- if the incentives were logical and the
market responsive to signals -- have caused the private
sector to have redeveloped that site. Such re-development
might have been painful to the residents of the
neighborhood, but would have put now-choice land to a
higher and better use than single-family homes.
But our system wasn't designed to send signals all that
well -- Connecticut law required properties to be
reassessed once every decade (and I've heard that once in
early '70s and once in the late 80's was construed to
satisfy that requirement). Now assessments are required
every 4 years (though my town decided it didn't like the
2003 revaluation and is keeping the 1999 for a few more
years).
But if the properties had been reassessed on a regular
basis, with market-based values assigned first to the
land and the residual being assigned to the existing
buildings, the homeowners themselves would have been in a
position to make their own rational decisions on whether
it was worth it to them to continue to occupy extremely
valuable land (and pay the taxes on it), or more to their
advantage to accept an offer from someone who was
prepared to put it to a higher and better use, and take
that equity and buy elsewhere. ...
Our land, particularly the best-located land, is a
common asset on which we are all dependent. Allowing
individuals or corporations to occupy it without
compensating the rest of us for its value is the
underlying problem, and solving that problem through good
assessment and rational (that is, land value) taxes is
the way to solve it. When we do that, a lot of problems
will begin to fall away. Read the whole
article
Nic Tideman: Using Tax Policy to
Promote Urban Growth
The efficiency that is entailed in using the
rent of land to finance public activities applies to
certain other sources of public revenue as
well:
1. Charges on any publicly granted
privileges, such as the exclusive right to use a
portion of the frequency spectrum for radio and TV
broadcasts.
2. Payments for extractions of
natural resources. Such payments should be set at
levels that yield the greatest possible revenue of
the resources, in present value terms.
3. Taxes on pollution. Every
individual or enterprise that pollutes the air, water
or ground should be required to pay the estimated
cost of the pollution it generates. The effect of
pollution on the rental value of surrounding land is
one possible measure of its cost.
4. Taxes on any other
activities that reduce the rental value of
surrounding land.
5. Taxes on activities such as
driving or parking in crowded streets, where one
person's activities reduce opportunities for others.
The administration of such charges may be so
expensive that it is not worth implementing them, but
if the administration can be handled sufficiently
cheaply, these charges are efficient to the extent
that they only charge people for costs imposed on
others.
6. Taxes on activities, such as
the consumption of alcohol, which impose costs on
others (e.g., higher traffic fatalities).
7. Charges for local public
services, such as water, electricity, sewer
connections, etc. It is not generally desirable to
make every service completely self-financing. Rather,
what is desirable is that each user be required to
pay the marginal cost of the service he receives.
Extensions of service networks are efficient when
they increase publicly collected land rents by enough
to cover the costs not covered by user
charges.
8. A self-assessed tax
on permanent improvements to land, at a very low rate
(perhaps 1/10 of 1% per year). With a self-assessed
tax, each possessor of land names a price at which he
would be willing to part with the land he possesses
(and any immovable improvements). He pays a tax
proportional to the value he names, and anyone who
wishes to may take over possession at that price. The
value of such a tax is that it makes it much easier
to assemble land for redevelopment, and to identify
appropriate compensation when land is taken for
public purposes.
All of the
above taxes are positively beneficial and should be
collected even if the revenue is not needed for public
purposes. Any excess can be returned to the population
on an equal per capita basis. If these
attractive sources of revenue do not suffice to finance
necessary public expenditures, then the least damaging
additional tax would probably be a "poll tax," a
uniform charge on all residents. If some residents are
regarded to be incapable of paying such a tax, then the
next most efficient tax is a proportional tax on income
up to some specified amount. Then there is no
disincentive effect for all persons who reach the tax
limit. The next most efficient tax is a proportional
tax on all income.
It is important
not to tax the profits of corporations. Capital
moves from where it is taxed to where it is not, until
the same rate of return is earned everywhere. If the
city refrains from taxing corporations they will invest
more in St. Petersburg. Wages will be higher, and the
rent of land, collected by the government, will be
higher. The least damaging tax on corporations is one
that provides a complete write-off of investments, with
a carry-over of tax credits to future years. Such a tax
has the effect of making the government a partner in
all new investments. With such a tax the government
provides, through tax credits, the same share of costs
that it later receives in revenues. However, the tax
does diminish the incentive for entrepreneurial
activity, and it raises no revenue when investment is
expanding rapidly. Furthermore, the efficiency of such
a tax requires that everyone believe that the tax rate
will never change. Thus it is best not to tax the
profits of corporations at all. If the people of St.
Petersburg want to share in the profits of
corporations, then they should invest directly in the
corporations, either privately or publicly. The
residents of St. Petersburg would be best served by
refraining from taxing the profits of corporations.
Creating a place where profits are not taxed can be
expected to attract so much capital that the resulting
rises in wages and in government-collected rents will
more than offset what might have been collected by
taxing profits.
The taxes that promote urban
growth have at least one of two features.
- The first feature that a
growth-promoting tax can have is that it can serve
to allocate a naturally occurring resource among
competing potential users. Charges for the use of
land, for the use of the frequency spectrum and for
depleting natural resources share this
feature.
- The second feature that a
growth-promoting tax can have is that of being a
charge for the costs imposed on the city by the
person who pays the tax. This feature is shared by
taxes on pollution, taxes on other activities that
reduce the value of surrounding land, taxes on
imposing congestion and other costs on other
residents of the city, charges for the marginal
cost of publicly provided services, and a
self-assessed tax on property, reflecting the
hindrance to future growth represented by existing
development.
A city that confines itself to these taxes
can expect to attract capital rapidly, and therefore
to experience rapid growth, raising the wages of its
citizens and the publicly-collected rent of its
land. ...Read
the whole
article
Henry George, author of Progress and Poverty,
argued that, while some forms of wealth are produced by
human activity, and are rightly the property of the
producers (or those who have obtained them from the
previous owners by voluntary gift or exchange), land
and natural resources are bestowed by God on the human
race, and that every one of the N inhabitants of the
earth has a claim to 1/Nth of the coal beds, 1/Nth of
the oil wells, 1/Nth of the mines, and 1/Nth of the
fertile soil. God wills a society where everyone may
sit in peace under his own vine and his own fig
tree.
The Law of Moses undertook to implement this by
making the ownership of land hereditary, with a man's
land divided among his sons (or, in the absence of
sons, his daughters), and prohibiting the permanent
sale of land. (See Leviticus 25:13-17,23.) The most a
man might do with his land is sell the use of it until
the next Jubilee year, an amnesty declared once every
fifty years, when all debts were cancelled and all land
returned to its hereditary owner.
Henry George's proposed implementation is to tax all
land at about 99.99% of its rental value, leaving the
owner of record enough to cover his bookkeeping
expenses. The resulting revenues would be divided
equally among the natural owners of the land, viz. the
people of the country, with everyone receiving a
dividend check regularly for the use of his share of
the earth (here I am anticipating what I think George
would have suggested if he had written in the 1990's
rather than the 1870's).
This procedure would have the effect of making the
sale price of a piece of land, not including the price
of buildings and other improvements on it, practically
zero. The cost of being a landholder would be, not the
original sale price, but the tax, equivalent to rent. A
man who chose to hold his "fair share," or 1/Nth of all
the land, would pay a land tax about equal to his
dividend check, and so would break even. By 1/Nth of
the land is meant land with a value equal to 1/Nth of
the value of all the land in the country.
Naturally, an acre in the business district of a
great city would be worth as much as many square miles
in the open country. Some would prefer to hold more
than one N'th of the land and pay for the privilege.
Some would prefer to hold less land, or no land at all,
and get a small annual check representing the dividend
on their inheritance from their father Adam.
Note that, at least for the able-bodied, this solves
the problem of poverty at a stroke. If the total land
and total labor of the world are enough to feed and
clothe the existing population, then 1/Nth of the land
and 1/Nth of the labor are enough to feed and clothe
1/Nth of the population. A family of 4 occupying 4/Nths
of the land (which is what their dividend checks will
enable them to pay the tax on) will find that their
labor applied to that land is enough to enable them to
feed and clothe themselves. Of course, they may prefer
to apply their labor elsewhere more profitably, but the
situation from which we start is one in which everyone
has his own plot of ground from which to wrest a living
by the strength of his own back, and any deviation from
this is the result of voluntary exchanges agreed to by
the parties directly involved, who judge themselves to
be better off as the result of the exchanges.
Some readers may think this a very radical proposal.
In fact, it is extremely conservative, in the sense of
being in agreement with historic ideas about land
ownership as opposed to ownership of, say, tools or
vehicles or gold or domestic animals or other movables.
The laws of English-speaking countries uniformly
distinguish between real property (land) and personal
property (everything else). In this context, "real" is
not the opposite of "imaginary." It is a form of the
word "royal," and means that the ultimate owner of the
land is the king, as symbol of the people. Note that
English-derived law does not recognize "landowners."
The term is "landholders." The concept of eminent
domain is that the landholder may be forced to
surrender his landholdings to the government for a
public purpose. Historically, eminent domain does not
apply to property other than land, although
complications arise when there are buildings on the
land that is being seized.
I will mention in passing that the proposals of
Henry George have attracted support from persons as
diverse as Felix Morley, Aldous Huxley, Woodrow
Wilson, Helen Keller, Winston Churchill,
Leo Tolstoy, William F Buckley Jr, and Sun
Yat-sen. To the Five Nobel Prizes authorized by Alfred
Nobel himself there has been added a sixth, in
Economics, and the Henry George Foundation claims
eight of the Economics
Laureates as supporters, in whole or in part, of
the proposals of Henry George (Paul Samuelson, 1970;
Milton Friedman, 1976;
Herbert A Simon, 1978; James Tobin, 1981; Franco
Modigliani, 1985; James M Buchanan, 1986; Robert M
Solow, 1987; William S
Vickrey, 1996).
The immediate concrete proposal favored by most
Georgists today is that cities shall tax land within
their boundaries at a higher rate than they tax
buildings and other improvements on the land. (In case
anyone is about to ask, "How can we possibly
distinguish between the value of the land and the value
of the buildings on it?" let me assure you that real
estate assessors do it all the time. It is standard
practice to make the two assessments separately, and a
parcel of land in the business district of a large city
very often has a different owner from the building on
it.) Many cities have moved to a system of taxing land
more heavily than improvements, and most have been
pleased with the results, finding that landholders are
more likely to use their land productively -- to their
own benefit and that of the public -- if their taxes do
not automatically go up when they improve their land by
constructing or maintaining buildings on it.
An advantage of this proposal in the eyes of many is
that it is a Fabian proposal, "evolution, not
revolution," that it is incremental and reversible. If
a city or other jurisdiction does not like the results
of a two-level tax system, it can repeal the
arrangement or reduce the difference in levels with no
great upheaval. It is not like some other proposals of
the form, "Distribute all wealth justly, and make me
absolute dictator of the world so that I can supervise
the distribution, and if it doesn't work, I promise to
resign." The problem is that absolute dictators seldom
resign. ... read the whole
article
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