Little justification exists for taxing buildings, or
improvements of any sort, so this question is easily
disposed of. The practice is explained largely as a
matter of historical inertia. Only in the recent century
or two have buildings represented any significant capital
value; prior to the rise of major cities, the value of
real property lay essentially in land. American cities
today typically record aggregate assessed land values
– at least when the valuations are well-done
– at about 40% to 60% of total taxable value, that
is, of land and buildings taken together.31 Skyscrapers
reflect enormous capital investment, and this expenditure
is warranted because of the enormous value of locational
sites. Each site gets its market price from the fact that
the total neighborhood context creates an attractive
market presence and ambience. By taxing buildings,
however, we impose a penalty on their optimum development
as well as on the incentives for their maintenance.
Moreover, taxes on buildings take away from whatever
burden would otherwise be imposed on sites, with the
result that incentives for their highest and best use is
weakened. Lastly, the technical and administrative
challenges of properly assessing the value of
improvements is daunting, particularly since they must be
depreciated for tax and accounting purposes, evaluated
for potential replacement, and so on. In fact most costs
associated with administration of property taxation and
appeal litigation involve disputes over the valuation of
structures, not land values.
Land value taxation, on the other hand, overcomes all
these obstacles. Locations are the beneficiaries of
community services whether they are improved or not. As
has been forcefully argued by this writer and others
elsewhere,32 a tax on land value conforms to all the
textbook principles of sound tax theory. Some further
considerations are worth reviewing, however, when looking
at ground rent as a flow rather than as a “present
value” stock. The technical ability to
trace changes in the market prices of sites – or as
can also be understood, the variable flow of ground rent
to those sites – by the application of GIS
(geographic information systems) real-time recording of
sales transactions invites wholesale changes in the
maintenance of cadastral data. The transmittal
of sales records as typically received in the offices of
local governments for purposes of title registration over
to Assessors’ offices allows for the possibility of
a running real-time mapping of market values.
Given also that GIS algorithms can now calculate
the land value proportions reasonably accurately, this
means that “landvaluescapes” are easily
created in ways analogous to maps that portray other
common geographic features. These landvaluescapes reflect
the flow of ground rent through local or regional
economies, and can also be used to identify the areas of
greatest market vitality and enterprise. The flow of
economic rent can easily be taxed in ways that overcomes
the mistaken notion that it is a stock. Just as income is
recognized as a flow of money, rent too can (and should)
be understood as such.
The question still begs to be answered, “why tax
land?” And what happens when we don’t tax
land? Henry George answered this more than a century ago
more forcefully and clearly, perhaps, than anyone has
since. He recognized full well that the economic surplus
not expended by human hands or minds in the production of
capital wealth gravitates to land. Particular land sites
come to reflect the value of their strategic location for
market exchanges by assuming a price for their monopoly
use. Regardless whether those who acquire title to such
sites use them to the full extent of their potential, the
flow of rent to such locations is commensurate with their
full capacity. This is why John Stuart Mill more than a
century ago observed that, “Landlords grow richer
in their sleep without working, risking or economizing.
The increase in the value of land, arising as it does
from the efforts of an entire community, should belong to
the community and not to the individual who might hold
title.”33 Absent its recovery by taxation this rent
becomes a “free lunch” to opportunistically
situated titleholders. When offered for sale, the
projected rental value is capitalized in the present
value for purposes of attaching a market price and sold
as a commodity. Yet simple justice calls for the recovery
in taxes what is the community’s creation.
Moreover, the failure to recover the land rent connected
to sites makes it necessary to tax productive activities
in our economy, and this leads to economic and technical
inefficiency known as “deadweight loss.”34 It
means that the economy performs suboptimally.
Land, and by this Henry George meant any natural
factor of production not created by human hands or minds,
is ours only to use, not to buy or sell as a commodity.
In the equally immortal words of Jefferson a century
earlier, “The earth belongs in usufruct to the
living; . . . [It is] given as a common stock for men to
labor and live on.”35 This passage likely needs a
bit of parsing for the modern reader. The word usufruct,
understood since Roman times, has almost passed from use
today. It means “the right to use the property of
another so long as its value is not diminished.”36
Note also that Jefferson regarded the earth as a
“common stock;” not allotted to individuals
with possessory titles. Only the phrase “to the
living” might be subject to challenge by
forward-looking environmentalists who, taking an idea
from Native American cultures, argue that “we do
not inherit the earth from our ancestors; we borrow it
from our children.” The presumption that real
property titles are acquired legitimately is a claim that
does not withstand scrutiny; rather all such titles owe
their origin ultimately to force or fraud.37
If we own the land sites that we occupy only in
usufruct, and the rent that derives from those sites is
due to community enterprise, it is not a large logical
leap to argue that the community’s recovery of that
rent should be the proper source of taxation. This is the
Georgist argument: that the recapture of land rent is the
proper – indeed the natural – source of
taxation.38
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