Industrial Capacity

When too much of an entrepreneur's funds must be spent securing a site on which to do business, he has little left for equipment or wages. Land value taxation fixes that and levels the playing field between long-established businesses and newer ones.

Herbert J. G. Bab:  Property Tax -- Cause of Unemployment  (circa 1964)

... Under the impact of spectacular advances in technology the actual level of employment and production falls short of the full use of our manpower and industrial capacity. ...

In view of this it would be difficult to contend that we have solved the twin problems of full employment and economic growth. The truth is that we have lived all these postwar years on borrowed time.

What have these considerations to do with property taxation? The purpose of my talk is to show that the relation of property taxation to unemployment and lack of economic growth is that of cause to effect. ...

Ricardo believed that ground rents and the value of land have a tendency to rise continuously and that this benefits solely the landowners. The progress of industrialization and urbanization in the second half of the 19th century resulted in a rapid increase in the value of urban land and the owners of such land reaped tremendous profits. This led John Stuart Mill to observe, that "Only the landowners grow richer, as it were in their sleep without working, risking and economizing". He called for the taxation of land in order to recapture the unearned increment accruing to the land owners.

The apostle of land taxation is Henry George. In his famous book Progress and Poverty he develops his single tax theory. He tries to show that poverty and unemployment and other evils are caused by the land monopolists. Henry George's theory is similar to that developed by John Stuart Mill. Land values are based on ground rents which are created by the community and not by the land owners. Therefore the community is justified in recapturing these rents by a single tax on land. ...

An analysis of the social and economic effects of a particular tax system would indicate the third criterion.

When analysing property taxes we shall distinguish between that part of the tax which is assessed on improvements and that part which is assessed on land.

That part of the tax that is assessed on buildings penalizes everybody who improves his land, his buildings or intends to construct residential, commercial or industrial property.  ...

A defect of our property tax system that is seldom mentioned is that it puts a premium on obsolescence and penalizes new housing. This is so because property taxes are ad valorem taxes. Every piece of real estate except land is subject to depreciation. Thus the owners of old and obsolete real estate will pay little in taxes, while newly constructed buildings will bear the brunt of the tax.

While land values have risen by about 10% yearly, property taxes assessed on land averaged about 1.5%. Thus a person owning vacant or underimproved land would have earned about 8 1/2% per year just by withholding land from its proper use.

A higher tax on vacant or unimproved land would make it unprofitable to hold such lands. It will tax land into better use and it will lead to a spurt in construction activity. While all other taxes are deterrents to employment and economic growth, though to a varying extent, land taxes are the only genuine incentive taxes. ...

Property taxes shape the pattern of our cities. ...

The paradox of property taxation consists in the fact that lower rates on improvements produce the same results as higher rates on land and conversely higher rates on improvements produce the same results as lower rates on land. Read the whole article