What Percentage of Economic Rent Should We Collect?

Should we collect 100% of Rent? 95%? 90%? This question is sometimes raised among Georgists. There is no agreement, but most Georgists would also say that society would be in a far better position if this was the question we were considering — that is, if a consensus had been reached that we should indeed collect Rent as the underlying basis for the revenue we need to provide government services, and had begun doing so. And most of us would not quibble about the difference between collecting 90% and collecting 95%. Most of us would advocating something less than 100%, but likely more than 90%.

Harry Pollard, of the Henry George School of Social Science in Los Angeles, has often said that it would be better for us to collect economic rent and throw it into the sea, than not to collect it at all. By this, I think he means that it is even more important that it not be left in private hands because of the mal effects of that, than that we collect it and use the revenue to reduce or replace some of the dumb, market-dulling taxes we currently use.

Every dollar of economic rent we collect means a revenue dollar we don't need to collect from wages, or sales, or buildings. Both aspects move us toward a more just society and a more efficient economy

Currently, we tend to collect less than 1/5 of economic rent. (At the same time, we collect property tax on the assessed value of buildings and other improvements to property. In California, with Proposition 13, some properties which haven't changed hands in more than 10 years see only a small fraction of the economic rent collected.) This is the most important explanation for California's high housing prices, low housing affordability, high barriers to entry for new businesses.

Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894)

f. The Single Tax Retains Rent for Common Use.

To retain Rent for common use it is not necessary to abolish land-titles, nor to let land out to the highest bidder, nor to invent some new mechanism of taxation, nor in any other way to directly change existing modes of holding land for use, or existing machinery for collecting public revenues. "Great changes can be best brought about under old forms."109 Let land be held nominally as it is now. Let taxes be collected by the same kind of machinery as now. But abolish all taxes except those that fall upon actual and potential Rent, that is to say, upon land values.

109. "Such dupes are men to custom, and so prone
To rev'rence what is ancient and can plead
A course of long observance for its use,
That even servitude, the worst of ills,
Because delivered down from sire to son
Is kept and guarded as a sacred thing." —Cowper.

It is only custom that makes the ownership of land seem reasonable. I have frequently had occasion to tell of the necessity under which the city of Cleveland, Ohio, found itself, of paying a land-owner several thousand dollars for the right to swing a bridge-draw over his land. When I described the matter in that way, the story attracted no attention; it seemed perfectly reasonable to the ordinary lecture audience. But when I described the transaction as a payment by the city to a land-owner of thousands of dollars for the privilege of swinging the draw "through that man's air," the audience invariably manifested its appreciation of the absurdity of such an ownership. The idea of owning air was ridiculous; the idea of owning land was not. Yet who can explain the difference, except as a matter of custom?

To the same effect was the question of the Rev. F. L. Higgins to a friend. While stationed at Galveston, Tex., Mr. Higgins fell into a discussion with his friend as to the right of government to make land private property. The friend argued that no matter what the abstract right might be, the government had made private property of land, and people had bought and sold upon the strength of the government title, and therefore land titles were morally absolute.

"Suppose," said Mr. Higgins, "that the government should vest in a corporation title to the Gulf of Mexico, so that no one could fish there, or sail there, or do anything in or upon the waters of the Gulf without permission from the corporation. Would that be right?"

"No," answered the friend.

"Well, suppose the corporation should then parcel out the Gulf to different parties until some of the people came to own the whole Gulf to the exclusion of everybody else, born and unborn. Could any such title be acquired by these purchasers, or their descendants or assignees, as that the rest of the people if they got the power would not have a moral right to abrogate it?"

"Certainly not," said the friend.

"Could private titles to the Gulf possibly become absolute in morals?"

"No."

"Then tell me," asked Mr. Higgins, "what difference it would make if all the water were taken off the Gulf and only the bare land left."

If that were done it is doubtful if land-owners could any longer confiscate enough Rent to be worth the trouble. Even though some surplus were still kept by them, it would be so much more easy to secure Wealth by working for it than by confiscating Rent to private use, to say nothing of its being so much more respectable, that speculation in land values would practically be abandoned. At any rate, the question of a surplus — Rent in excess of the requirements of the community — may be readily determined when the principle that Rent justly belongs to the community and Wages to the individual shall have been recognized by society in the adoption of the Single Tax. 110

110. Thomas G. Shearman, Esq., of New York, author of the famous magazine article on "Who Owns the United States," estimates that sixty-five per cent of the present annual value of the land in the United States would pay all the present expenses of American government — federal, state, county, and municipal. ...

Q2. Would the single tax yield revenue sufficient for all kinds of government?
A. Thomas G. Shearman, Esq., of New York, estimates that sixty-five per cent of the rent that the land in the United States now yields actually and potentially to its owners, would be sufficient. But whether it would or not is as yet an unimportant question. If all revenues ought to be raised from land values, then no revenues should be drawn from other sources while any land value remains in private possession. Until land values are exhausted the taxation of labor cannot be excused.

Q5. If the full rental value were taken would it not produce too much revenue and encourage official extravagance? If only what was needed for an economical administration of government, would not land still have a speculative value?
A. In the first part of your question you are thinking of a vast centralized government as administering public revenues. With the revenues raised locally, each locality being assessed for its contribution to the state and the nation, there would be no such danger. The possibility of this danger would be still further reduced by the fact that private business would then offer greater pecuniary prizes than would public office, wherefore public office would be sought for purer purposes than as money-making opportunities. As to the second part of your question, the speculative value of land would be wiped out as soon as the tax on land values was high enough and that on improvement values low enough to make production more profitable than speculation. And this point would be reached long before the whole rental value was absorbed in taxation.

Q16. Should the whole rental value of land be taken for common use, or only enough for government purposes?
A. Only enough for government purposes. When the people see that this method of taxation improves business, increases wages, cheapens land, and generally promotes prosperity, they will not hesitate to increase their taxes so long as public improvements are needed and land values are unexhausted. As is said in "Progress and Poverty" (book viii, ch. ii): "When the common right to land is so far appreciated that all taxes are abolished save those which fall upon rent, there is no danger of much more than is necessary to induce them to collect the public revenues being left to individual landholders."

Q33. Would not the full single tax destroy the basis of all credit — land values?
A. The full single tax — one hundred per cent of annual ground rent — would wipe out land values, which are but the capitalization of rent. But land values are not the basis of credit. Merchants do not prefer mortgages on land as security for commercial debts, unless they hope to get the ownership of the land through foreclosure. The true basis of every man's credit, from the consumer at the cross-roads store to the great retail merchant at the factory or the jobbing house, is honesty, opportunity, and ability. He who will pay his debts if he can, and has an opportunity to earn enough to pay them with, and is able to make good use of the opportunity, needs no land values to offer as a basis for commercial credit. He has the ideal basis of all credit. And this basis of credit every man could have if the single tax were in operation. ... read the book

Charles B. Fillebrown: A Catechism of Natural Taxation, from Principles of Natural Taxation (1917)

Q10. What is the distinction between the taxation of land and the taxation of rent?
A. Taxing land means, in the ordinary use of the words, to tax the land upon its capital value, or selling value, at a given rate per $100 or $1,000 of that value. Taxing rent means taxing the annual value, or ground rent, at a given percentage of that rent. It is in one case a tax on rent; in the other is a tax on capitalized rent.

Q15. What should be the limit of revenue under the single tax?
A. The same as under any other system of taxation, the cost of government economically administered.

Q16. Did not Henry George hold that the full ground rent of land should be taken in taxation?
A. No! Not only did he concede a margin of rent to the landlord, but as a matter of fact, as Thomas G. Shearman said, "not all the power of all governments" could collect in taxation all of ground rent.

Q40. What is meant by a capitalized tax?
A. It is a sum, the interest of which would pay the tax.

Q62.  Would it be wise to take gradually in taxation, say, 1/4, one half, or 3/4 of the future increase in economic rent?
A. One hundred and one professors of political economy have answered "Yes." Twenty-nine have answered "No."

Q63.  How could the single tax be put into operation?
A. By gradually transferring to land all taxes not already on it.

Q64.  How might such a plan be worked out?
A. If fifty cents per thousand should be deducted yearly for 30 years from the rate on all property other than land, the reduction would finally amount to $15 per thousand, and it would then be practically exempt from all taxation.

Q65.  But how could it be worked out in case of the land?
A. Recognizing that a right thing may be done in a wrong way, it is insisted that a right way ought to be found to do a thing that ought to be done. The following is presented as a natural and convenient unit of calculation: To be exact, an average of about 20 percent of the gross ground rent of land is now taken in taxation, for instance, in Boston, as well as for the whole state of Massachusetts. If an additional one percent should be taken each year for 30 years, it would amount at the end of that period to 30 percent, which, added to 20 percent, would make 50 percent, or one half, which is about the average proportion that present taxes levied on all property bear to gross ground rent. Meantime few landowners would feel the change, much less be prejudiced by it.

The following variable illustrations, A, B, and C, make clear.

A "Modus Operandi"

A Increase of Present Tax

 

For instance, applied to the assessment of a specific lot of land for which the user pays a gross ground rent of say ......  $68.00
Of which amount there is taken in taxation, 1915 ..... $18.00

Leaving a net income to the owner of  .... $50.00
The selling value (presumably also the assessed valuation) would be at 5 per cent ... $1,000.00
Proceeding to take yearly from now on 1 per cent additional of the gross ground rent of $68 for a period of thirty years would amount in all to 30 per cent of $68, equal to   .... $20.40
Which, added to the tax already taken .... $18.00
Would give at the end of thirty years, from the $1,000 worth of land alone, everything else being exempted, a total tax of .... $38.40.
Which is not much more than one half of the gross ground rent of ... $68.00

The opening exhibit in detail would stand as follows:
In 1915 the tax on this $1,000 worth of land was $18.00
In 1916 the tax would be $18 plus 68 cents (1 per cent of the gross ground rent, $68); equal to .... $18.68
Reducing the owner's net rent from $50 to $49.32
In 1917 the tax would be $18 plus $1.36 (2 per cent of the $68), totaling .... $19.36
Reducing the owner's net rent from $50 to $48.64,
In 1918 the tax would be $18 plus $2.04 (3 per cent of the $68) or $20.45
Reducing the owner's net rent from $50 to $47.96
In 1945 the tax on the land would be $18 plus $20.40 (30 per cent of the $68) or  ... $38.40
With all improvements exempted.
Reducing the owner's net rent from $50 to $29.60.

B
For a Future Increment Tax

The taking in taxation of any desired proportion of the future increment could be accomplished simply by continuing the present valuation and present rate as constant factors, and making a separate individual assessment of the increment tax after the following or similar formula, according to the proportion to be taken.  For instance, to take in taxation 50 per cent of the future increase:

Year	Valuation	Increment	Rate Per M.	Tax for Each Year
1915	$1,000
1916	$1,040	$40	$25	Tax for year 1916, $1
1915	$1,000
1917	$1,080	$80	25	Tax for year 1917, $2
1915	$1,000
1918	$1,120	$120	25	Tax for year 1918, $3
1915	$1,000
1919	$1,160	$160	25	Tax for year 1919, $4
1915	$1,000
1920	$1,200	$200	25	Tax for year 1920, $5

In applying this formula it would be necessary after the first few years at least to increase the rate to correspond to the decrease in assessed valuation due to this new tax.  For computations upon this and related points, see the Report of the New York City Commission on New Sources of City Revenue (1913), p. 7 and Appendices X to XV.

C
The Assessment of Rent

It should be reiterated that inasmuchas gross ground rent, actual or potential, is the initial factor in getting at the value of land, it cannot be unprofitable to become familiar with a more correct formula as expressed in terms of rent.

Starting with the present unit of annual value for use to take in taxation in 25 years 50 per cent of the future increase in ground rent:

Year	Net Ground Rent	Increment	Percentage of Rent	Tax for Each Year
1915	$50
1916	$52	2	50	Tax for year 1916, $1
1915	$50
1917	54	4	50	Tax for year 1917, $2
1915	$50
1918	56	6	50	Tax for year 1918, $3
1915	$50
1919	58	8	50	Tax for year 1919, $4
1915	$50
1920	60	10	50	Tax for year 1920, $5
1915	$50
1940	100	50	50	Tax for year 1940, $25

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