Although many people in government and politics are reluctant to change the tax regime, we should recognize that our present complicated system for taxation is unfair and has many faults. The biggest problem with taxation is to arrange it on a socially just basis. Many companies employ their workers in various ways and pay them diversely too, and since these companies may be registered in different countries in a number of categories, the whole business of determining what makes up a criterion for a truly just tax payment system becomes impossible, particularly if based on a fair measure of human work-activity. So why try, when there is a far better means available which is really a true and socially just method?
According to classical economist Adam Smith (Ref.1), land is one of the 3 factors of production and the usefulness of land is seen in the price that tenants are willing to pay as rent, for access to the particular site in question. Land is often thought of as being a form of capital since it is traded in the same way as other durable capital goods items; however it is not actually man-made and thus rightly does not fall under the category of capital goods. The land was originally a gift of nature for which all men (and women) should be free to share. However, its site value does depend on human effect, which grows and greatly depends on its location and is usually related to the numbers of the communities in that region plus natural resources such as rivers, minerals, animals or plants of specific use or beauty. Consequently, most of the land value is created by man within his society and therefore its advantage should logically and ethically be returned to the community for public use, as explained by Martin Adams (Ref. 2).
But due to our existing laws, land is owned and formally registered and its value is traded, even though it can't be moved to another place like many other kinds of capital goods. This right of ownership gives the landlord a big advantage over the rest of the community because he determines how it may be used or if it is to be held out of use, until the city grows and the particular site becomes more valuable. Thus speculation in land values is encouraged by the law in treating a site of land as personal property—as if it were an item of capital goods, even though it is not (see Ref.3).
Regarding taxation and local community spending, the local or municipal taxes we pay are partly used for improving the infrastructure. This means that the land becomes more useful and valuable by itself, and the landlord will always benefit from our present tax regime. This also applies when the status of unused land is upgraded and it becomes fit for community development. Associated with this are the corrupting means of payment for this restricted item of news, when it is leaked to a would-be land value speculator. However, if land values were taxed instead of the many different kinds of production based activities of workers, such as earnings, purchases, capital gains, home and foreign company investments, etc., (with all the associated regulations, their complications and loop-holes) there would be many advantages. The only persons due to lose from this would be those who have been exploiting the growing values of the land over the past many years, when “mere” land ownership confers a financial benefit without the owner doing a scrap of work! Consequently, for a truly socially just form of taxation to apply there can only be one method--Land-Value Taxation. Let us look again at the general situation.
When an explorer discovers a prospect that may be suitable for his/her settlement, (or when a new site is being developed), the land is the first consideration. He/she chooses the place having the most beneficial natural resources. As more settlers arrive they tend to spread around this location. This is because of the greater availability of man-power, when they have difficult jobs that involve coordination and help, and also for reasons of being sociable. Then they can begin to specialize and this means a growing efficiency in producing specific goods. However, the land being occupied on the boarders of the settlement is further away from the business-center and is less useful. Consequently a range of land values develops with the original settler (now holding the village center), having the greatest site value. Marginal land on the edge of the settlement has almost no value, due to the comparatively high cost for bringing its produce to the central market. We should note that this distribution in land values is created by the community and not by the natural resources. As the city expands certain speculators in land values will deliberately hold potentially useful sites out of use, until planning and development have permitted their values to grow and meanwhile there is fierce competition for access to the most suitable sites for housing, agriculture and manufacturing industries. This unavailability of useful land means that the payment of high rents by tenants makes both their residence more costly and the provision of their goods and services more expensive. It also creates unemployment, causing wages to be lowered by the monopolists, whose land has already been obtained when it was cheap. Consequently this basic structure of the macroeconomics system is working to limit opportunity and to create poverty (Ref.3).
The most basic cause of our continuing poverty is the lack of properly paid work and the reason for this is the lack of opportunity of access to the land on which work must be done. The useful land is monopolized by a landlord who either holds it out of use (for purposes in speculation in its rising value), or charges the tenant too much for its right of access. In the case when the landlord is also the producer, he/she has a monopolistic control of the produce and charges more for it than what an entrepreneur having greater opportunity normally would.
A wise and sensible government would recognize that this problem derives from lack of opportunity to work and earn. It can be solved by the use of a tax system which encourages the proper use of land and which stops penalizing everything and everybody else. Such a tax system was proposed 136 years ago by Henry George, a (North) American economist, but somehow macro-economists seems never to have heard of him, in common with a whole lot of other experts. (I would guess that they don't want to know, which is worse!) In Ref. 4, George proposed a single tax on land values without other kinds of tax on produce, services, capital gains etc. This regime of land value tax (LVT) has 17 features which benefit almost everyone in the economy, except for landlords and banks, who do nothing productive and expect that their land dominance will be its own reward, and believe in having a free lunch!
17 Aspects of LVT Affecting Government, Land Owners, Communities and Ethics
Four Aspects for Government:
1. LVT, adds to the national income as do other taxation systems, but it replaces them.
2. The cost of collecting the LVT is less than for all of the production-related taxes--tax avoidance becomes impossible because the sites are visible to all.
3. Consumers pay less for their purchases due to lower production costs (see below). This creates greater satisfaction with the management of national affairs.
4. The national economy stabilizes—it no longer experiences the 18 year business boom/bust cycle, due to periodic speculation in land values (see below).
Six Aspects Affecting Land Owners:
5. LVT is progressive--owners of the most potentially productive sites pay the most tax.
6. The land owner pays his LVT regardless of how his site is used. A large proportion of the ground-rent from tenants becomes the LVT, with the result that land has less sales-value but a significant "rental"-value (even when it is not used).
7. LVT stops speculation in land prices and the withholding of land from proper use is not worthwhile.
8. The introduction of LVT initially reduces the sales price of sites, even though their rental value can still grow over a longer term. As more sites become available, the competition for them is less fierce.
9. With LVT, land owners are unable to pass the tax on to their tenants as rent hikes, due to the reduced competition for access to the additional sites that come into use.
10. With LVT, land prices will initially drop. Speculators in land values will want to foreclose on their mortgages and withdraw their money for reinvestment. Therefore LVT should be introduced gradually, to allow these speculators sufficient time to transfer their money to company-shares etc., and simultaneously to meet the increased demand for produce (see below).
Three Aspects Regarding Communities:
11. With LVT, there is an incentive to use land for production or residence, rather than it being unused.
12. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper too, because entrepreneurs have less difficulty in starting-up their businesses and because they pay less ground-rent--demand grows, unemployment decreases.
13. Investment money is withdrawn from land and placed in durable capital goods. This means more advances in technology and cheaper goods too.
Four Aspects About Ethics:
14. The collection of taxes from productive effort and commerce is socially unjust. LVT replaces this extortion by gathering the surplus rental income, which comes without any exertion from the land owner or by the banks-- LVT is a natural system of national income-gathering.
15. Bribery and corruption on information about land cease. Before, this was due to the leaking of news of municipal plans for housing and industrial development, causing shock-waves in local land prices (and municipal workers' and lawyers’ bank balances).
16. The improved use of the more central land reduces the environmental damage due to a) unused sites being dumping-grounds, and b) the smaller amount of fossil-fuel use, when traveling between home and workplace.
17. Because the LVT eliminates the advantage that landlords currently hold over our society, LVT provides a greater equality of opportunity to earn a living. Entrepreneurs can operate in a natural way-- to provide more jobs. Then earnings will correspond to the value that the labor puts into the product or service. Consequently, after LVT has been properly introduced it will eliminate poverty and improve business ethics.
1. Adam Smith: “The Wealth of Nations”, 1776.
2. Martin Adams: “LAND-- A New Paradigm for a Thriving World”, North Atlantic Books, California, 2015.
3. Mason Gaffney and Fred Harrison: “The Corruption of Economics”, Shepheard-Walyn, London, 2005.
4. Henry George: “Progress and Poverty” 1897, reprinted by Schalkenbach Foundation, NY, 1978.
thank you very much teacher for your opinion yes
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