One Tax to Rule Them All

The Single Tax Movement was a political movement that emerged in the late 19^th and early 20^th centuries, following the publication of Progress and Poverty in 1879. Its core idea, evident in its name, was to replace all existing taxes with a single tax on the unimproved value of land. Classical Georgists assert that this tax is the only necessary and sufficient one to fund a government, not to mention the only morally justified one.

The intellectual foundation of the Single Tax Movement influenced the thoughts of many political thinkers and important historical reformers. However, throughout the 20th century, most of its real-world influence took place in Asia, while in the West, it was slowly forgotten. In the present Henry George’s ideas are experiencing a small resurgence in popularity, however the current political climate is very different from the one in which this philosophy was born.

Many modern-day Georgists have been influenced by the social liberal ideas that have been popularized by economists and politicians of the last one hundred years or so. A central tenet of this school of thought is the notion that under a free-market economy some people become “too rich” and, therefore, the state has the social responsibility of engaging in some kind of redistribution of wealth, usually in the preferred form of taxes on productive activity, like income and capital.

According to many people, therefore, Georgism on its own is an inadequate solution to the socioeconomic issues faced by modern society and alone it cannot provide the massive public wealth that is necessary to sponsor the modern welfare state.

This brief article will explore the scientific evidence along with the potential benefits of sourcing public revenue from rent alone. By doing so I hope to show that the aforementioned eclectic idea of combining the neoliberal and georgist approach to fiscal policy is deeply flawed and stems from a poor understanding of georgist economics, as well as from the resistance to abandoning the neoliberal approach to the relationship between state and economy.

In the neoliberal mindset taxes are a “sacrifice we endure to live in civilized society”, but the possibility of funding the public sector with rent changes the whole idea of taxes as something that can bring harmony to society instead of a necessary sacrifice, and government as something that can work in conjunction with the private sector rather than in opposition to it.

Within the realm of academia this concept of funding a government with rent only has been sparingly discussed for a long time. In 1977, the idea came back into the spotlight with a publication from Columbia University Economist and Nobel prize laureate Joseph Stiglitz, who produced a theoretical derivation that showed that, under ideal conditions, aggregate rent increases at least as much as positive investment in public goods. This conclusion came to be known as the Henry George Theorem¹.

Named after the renowned economist and social theorist, the Henry George Theorem shines light on the relationship between land, economic activity and wealth distribution. The theoretical constraints introduced by Stiglitz’s model were later relaxed and follow-up studies showed that the thesis remains valid even with more generalized assumptions². Of course, theoretical studies are only a starting point, and especially in a field that examines complex systems like economics, people want to see real world data that confirms the findings, and rightfully so.

It seems one of the main concerns of people that argue against the adequacy of land taxes comes from past and current estimates of aggregate land value from all over the world. Many studies have been published on the subject, most of which report assessments that would correspond to a rather small fraction of government spending.

A few years back, Lars Doucet published an online review of some of these studies, estimates vary considerably, with aggregate values falling into a window that span from about one tenth of total federal spending to about three fourths; estimates for other countries fall into similar ranges³.

At first sight, studies such as this one seem to support the thesis of the skeptics, however there are two major issues with this conclusion.

The first problem is straightforward, the data we have reflects land value under existing fiscal policy, the entire point of shifting taxes onto land is to eliminate of the deadweight that is generated by impositions onto productive economic activities: current income and capital taxes have the effect of depressing land value below the level that we would observe under a georgist fiscal regime, observations of current land values, therefore, do not disprove the georgist thesis. Real-world observations confirm this.

For example, in Denmark, a Georgist party exercised significant political power during a brief period of three years, from 1957 to 1960. In this brief interval no new taxes where levied while many existing taxes were shifted onto land; this resulted in a steady increase in land value and, with it, public revenue. So while, relatively speaking, taxes where reduced, private and public wealth had raised, confirming the georgist idea that current production and consumption taxes negatively affect land value⁴. Estonia introduced a tax on land after the fall of the Soviet Union, at first, it levied less than 2% of ground rent, yet it supplied a similar percentage of all public revenue⁵.

A second issue has to do with the reliability of current estimates. Georgist economist Mason Gaffney has identified several problems with most of these studies. Many rely heavily on data provided by entities like the IRS and the Federal Reserve; their valuations are know to be problematic.

For example, IRS data usually comes from tax returns, in these documents people employ various tax avoidance tactics to keep most of their earnings; when it comes to land as an asset, owners will make use of write offs citing depreciating land values, other issues involve land subsidies, conversion of rent into capital gains (effectively underestimating the land fraction of real estate) and so on. It is not surprising that in Doucet’s review IRS estimates are usually the most conservative by quite a bit⁶.

This is not all. Up until now we have only discussed rent as a function of physical land value, while in the field of economics the word “land” has a different definition. The concept of economic land encompasses not just the ground we stand on but also all the natural resources that we have access to in the world: water, minerals, fossil fuels, sunlight are only a few of the things that human beings require access to to engage in productive economic activity.

Rent that is generated by these resources must be captured with different instruments, like severance taxes on minerals and hydrocarbons, ad valorem taxes on fishing rights and water rights etc. Other sources of rent come from locations of specialized interest, like planetary orbits and airspaces, radio frequencies as well as littoral zones, even congestion taxes can be considered land taxes since traffic is the result of vehicles claiming public spaces⁶.

When estimating aggregate rent, these alternative sources are often ignored despite the fact that many of them are incredibly valuable. The governments of some countries, like Brunei, fund their activity with severance taxes alone, while in Norway a severance tax on oil is mostly responsible for preserving the Government Pension Fund, one of the largest pension funds in the world with over 300.000$ per citizen; in the U.S. a similar entity is the Alaska Permanent Fund, maintained by oil and mineral rent, it pays dividend to Alaskan residents and is often cited as a major reason why Alaska often ranks as the state with the lowest tax burden in the union.

Certain Pigouvian taxes can also be interpreted as taxes on rent, if using a lot as a dump is a legitimate use of land then I don’t see why using the sea or the atmosphere in the same way shouldn’t also be taxed similarly. One might argue that by emitting pollutants into the air or the sea one isn’t taking up any space but this isn’t true; polluted waters aren’t susceptible to the same uses as clear waters and the process effectively reduces their use cases which means that opportunities for others to make use of the resource are reduced. So, in principle, pollution and emission taxes can also fall into the category of land taxes.

Since all these sources of rent are almost always ignored, existing assessments of aggregate rent are always underestimated and it’s most likely that even current values of rent are more than sufficient to fund a modern government, even if we chose to ignore the georgist argument for sparing production from taxation.

Empirical evidence, as we see, is squarely in favor of the single tax, or, at the very least, taxes on rent in general. However, it is essential to reexamine the theory behind the HGT, as its thesis is frequently misunderstood. Though this varies in its many iterations, the HGT generally states that public spending increases public wealth.

This is an important premise, after all people that favor government wealth over private wealth do so because they perceive increase government spending as beneficial to society as a whole, else there’d be no point to it.

However, this is often not the case, and, in fact, outside of certain activities government spending can actually decrease the aggregate wealth of a country. This is true for HGT as well, the thesis that public wealth increases land values applies only to funding that is directed at increasing public goods, but many kinds of public spending can often fall outside this category: things like spending directed to foreign countries, aggressive military actions, sponsoring of special interest groups and lobbying etc. certainly doesn’t increase land value in any way.

So, it is not true that HGT proves that arbitrary levels of public wealth can be financed from rent alone, only government spending that actually increases collective goods can be funded with rent. In this way the HGT can also work as an indicator of the effectiveness of a government, as a government that requires more than the already massive amount of wealth generated by rent is certain to employ it in unproductive endeavors.

So, in summary, according to theoretical analysis there is no reason to believe that a tax on land value would be insufficient to fund an effective government. Quite the opposite, the Henry George Theorem proves that taxing land and only land is the optimal way to provide funding for a government regardless of the desirable “size” of the government in question, and real-world data support this theory.

It is hard for some people to accept new ideas, solutions to problems that have afflicted society for such a long time are bound to sound radical to those that are used to the status quo. My impression is that this might be the reason many feel an impulse to modify new ideas to make them fit an existing narrative; while this is not a mistake, per se, it is important that we maintain intellectual honesty in the process.

The thesis that land is adequate to fund a government is supported by strong evidence, it must not be sacrificed on the altar of compromise. It is the duty of the truth-seeker to follow the evidence wherever it leads, like Henry George said:

“I propose to beg no question, to shrink from no conclusion, but to follow truth wherever it may lead. Upon us is the responsibility of seeking the law, for in the very heart of our civilization today women faint and little children moan. But what that law may prove to be is not our affair. If the conclusions that we reach run counter to our prejudices, let us not flinch; if they challenge institutions that have long been deemed wise and natural, let us not turn back.”

References

1. Stiglitz, Joseph E. 1977. “The Theory of Local Public Goods.” In Economics of Public Services: 274-333.

2. Mattauch, Linus; Siegmeier, Jan; Edenhofer, Ottmar; Creutzig, Felix. 2013. “Financing Public Capital through Land Rent Taxation: A Macroeconomic Henry George Theorem”. CESifo Working Paper, No. 4280, Center for Economic Studies and ifo Institute (CESifo)

3. Lars A. Doucet. 2021. “Is Land a Really Big Deal?” Game of Rent. https://gameofrent.com/content/is-land-a-big-deal#how-much-money-can-we-raise-from-land-rents

4. Viggo Starke. 1970. “Triumf eller Fiasko?” Stig Vendelkaers Forlag

5. 1998. “Taxation of Land and Buildings in Estonia—Present and Future.” European Community Commission—PHARE Programme

6. Gaffney, Mason. 2009. “The Hidden taxable Capacity of Land: Enough and to Spare”. International Journal of Social Economics

7. Foldvary, Fred. 1992. “Public Goods and Private Communities”