| The dismal science|
“”If property is theft, and taxation is theft, then the only legitimate form of taxation is upon property.
Georgism is an economic philosophy developed by American 19th century economist Henry George, the primary focus of which is the "Single Tax" on land values (a 'Land Value Tax') and elimination of all other taxes. George and classical economics define 'Land' broadly as all materials, forces, and opportunities found in nature - not made by man. There are many variations on this philosophy, but most would agree with the following central tenet:
- Land was not created by humans. Economic community activity soaks into the land crystallizing as land values - how land values are created. This accumulated wealth is termed as economic rent. The economic rent is common, as community economic activity created the value in land, not the landowner. Thus Georgists believe that economic rent should be treated as common property (as distinct from collective or state owned property). The economic rent is reclaimed via a levy on the unimproved value of land. Georgism is clear that buildings and other improvements are exempt. The mechanism Georgists advocate to capture commonly created wealth in land is a levy on nearly the full market rental value of land (what it would cost to rent the land), based on frequent reassessments. Public ownership of land titles and public control of land are not usually considered to be within the Georgist philosophy, only the capture of commonly created wealth (economic/commons rent). The exception is in Georgist communities that make use of land value trusts, public leasing systems (e.g., Hong Kong and Singapore), and Georgist proposals for 'land value covenants'. In these cases, land-titles may be altered or be transferred to the public as a technicality. Georgists are usually opposed to taxing what they consider to be legitimate forms of private wealth, wages, or man-made capital.
This system does, in theory, have the distinct advantage of eliminating the economic inefficiencies or "dead weight loss" that other taxes create as all land that has a rental value is supposed to be taxed according to that value, avoiding disincentives towards productive activity. However, assigning the "unimproved land value" necessary for the tax is a contentious point indeed. The market price of land and frequency of vacant lots decrease as the rate of land value taxation increases (as intended), so it becomes difficult to ascertain true value based on the sale prices of vacant land, requiring the assessment process of finding "the residual" land value after subtracting the value of improvements. Although the accuracy of land assessment varies by method and level of effort, there is much room for improvement with the assistance of modern GIS. Even with mostly primitive methods, land values are already assessed around the world wherever property/council taxes exist, and some municipalities even collect all their revenue from land values. Though these are market-based measures, they can still prove difficult and require upfront investment.
Georgists believe that the potential value of land is greater than the current sum of government spending, since the abolition of taxes on labor and investment would further increase the value of land. Conversely, the libertarian strain in Georgism is evident in the notion that their land tax utopia also entails reducing or eliminating the need for many of the things governments currently supply, such as welfare, infrastructure to support urban sprawl, and military & foreign aid spending to secure resources abroad. Therefore, many Georgists propose a citizen's dividend. This is a similar concept to basic income but its proponents project its potential to be much larger due to supposedly huge takings from the land tax, combined with lowered government spending.
It has been recognized since Adam Smith and David Ricardo that a tax on land value itself cannot be passed on to tenants, but instead would be paid for by the owners of the land:
“”A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground.
|—Adam Smith, Wealth of Nations|
“”A tax on rent would affect rent only; it would fall wholly on landlords, and could not be shifted to any class of consumers. The landlord could not raise his rent, because he would leave unaltered the difference between the produce obtained from the least productive land in cultivation, and that obtained from land of every quality.
|—David Ricardo, On the Principles of Political Economy and Taxation|
While some might wish to reinterpret the notion that all have an equal right to land in Marxist terms, this would run rather antithetically to the firm free-market beliefs of Henry George himself. This confusion has existed since George's time, and he carried on public disagreements with Karl Marx. George clarified that he could no more accept the label of "socialist" than he could the label of "individualist". George also explained how his ideas would open a just pathway to voluntary communism, for those who find the idea appealing.
Georgism has influenced a number of individuals, among whom included Chinese leader Sun Yat-sen and American industrialist Henry Ford. He has also been cited in observations by many winners of the Nobel Prize in Economics, such as Milton Friedman, James Tobin, Joseph Stiglitz, William Vickrey, James Buchanan, Paul Samuelson, and others. There have also been a few political movements and parties in the last century aiming to implement a single-tax regime, and there still are a few people who live in Georgist-inspired communities — although they don't collect the full rent of land, and they still have to pay national taxes, so they are not completely Georgist from a strict ideological standpoint.
Georgism proved to be an entry point for some into either Progressivism or Libertarianism, as many founders of both movements got their start as political activists as Georgists. George's views on land were egalitarian and appealed to those with a desire to alleviate the squalor of the working classes during the early Industrial Revolution, while his views on other matters were laissez-faire and free market oriented, on the assumption that his land tax was all government needed to fund beneficial expenditures. Depending on which of George's views one took the ball and ran with, Georgism could be an entry point in either direction. Examples include John Dewey, one of the founders of the Progressive movement, and on the other hand, Albert Jay Nock, Frank Chodorov, and others associated with The Freeman magazine of the 1920s, which began as a Georgist publication but with some writers who were also libertarian.
Modern economic consideration and awareness of Georgism is rare because it has thus far been difficult to implement, both practically and politically. Issues include:
- Technical complexity of valuation and administration. However, assessing land values is easier and more reliable than assessing regular property values that include improvements. Bryan Caplan and others have pointed out that without careful assessments, a land value tax might result in the taxation of certain productive "searching" activities related to the discovery of new land value or uses.. This has been known for a long time, and it is the reason why Georgists would offer tax abatements or discovery awards to people who find new deposits of oil.
- Nobody knows the value of possible revenue, because most governments no longer estimate aggregate land values, though potential land rent is often assumed to be small, because economists mistakenly limit their calculations to explicit rents or land profits from appreciation, and make other methodological errors. This creates uncertainty, since both government spending and land values have increased dramatically since Georgism was first proposed. Joseph Stiglitz's "Henry George Theorem" states that under certain ideal theoretical conditions optimal levels of public spending could be financed with land rents alone. Subsequent studies have generalized the principle and found that the Henry George Theorem holds even after relaxing the assumptions. Economists of a Georgist or libertarian bend who have empirically studied land values claim that the potential value of land is much greater than current public spending. However, land remains understudied in economics.
- Widespread public skepticism of new property taxes.
These factors mean that Georgism is usually not considered to be of much practical importance by economists and policymakers despite its theoretical economic efficiency and positive externalities. However, there are still some determined economists and activists searching for a silver-bullet economic policy who turn to Henry George.
While some prominent economists dismissed George in his time and most today don't consider him, Georgism and land value taxation is seeing a revival of interest from commentators.
Political parties based on Georgism
Most political parties promoting the idea, such as the Single Tax League of Australia and the Commonwealth Land Party of the US, are now defunct.
The current Danish political party Retsforbundet was founded in 1919 and is explicitly based on Georgism.[note 1] The party has enjoyed some success in the past, being continuously represented in the Danish parliament from 1921-60, and even participated in a coalition government from 1957-60 with the Social Democrats and the social-liberal Radical Party (an experience that culminated in the Georgists failing to get a single MP elected in the subsequent 1960 election). Since then the Danish Georgists have only been intermittently represented in the Danish parliament in the years between 1973 and 1981 and they haven't managed to pass the 2% electoral threshold since the 1979 election. Their last appearance in elected office seems to have been in 1984-'94 when then party leader Ib Christensen was elected to the European Parliament for the Danish Eurosceptic cross-party initiative, the People's Movement against the EU.[note 2]
The Kuomintang, which was founded by Sun Yat-sen, is as of yet still active in Taiwan and is still alive and kicking enough to be the second most powerful party in the government.
The New Physiocratic League is an organization to create a network of Georgist political parties and organizations.
- Some students at Copenhagen University decided to re-brand the party as a project in strategic communication (KU-studerende spinner støvet af Retsforbundet (in Danish), Universitetsavisen, November 29th, 2012).
- Back then, it was still called the People's Movement against the EC and it has a history of "odd bedfellows", comprising Eurosceptics of every stripe, incl. Georgists, communists, various New Left parties and social democrats, as well as liberals, social liberals, conservatives and independents.
- Charles Hooper. The Concise Encyclopedia of Economics: Henry George
- Ted Gwartney. Estimating Land Values
- German, Jerome C., Dennis Robinson and Joan Youngman. Land Lines: July 2000, Volume 12, Number 4 Traditional Methods and New Approaches to Land Valuation
- One Hundred Years of Land Values; Gabriel Ahlfeldt; Lincoln Institute for Land Policy
- Transport for London Property value study – Assessing the change in values attributable to the Jubilee Line Extension, paragraph 2.2.3
- Famous Georgists
- Quotable Nobels
- Robert Clancy. The Freeman and We Georgists, 1957
- Dick Netzer. Land Value Taxation: Could It Work Today? March 1998
- Bryan Caplan. A Search-Theoretic Critique of Georgism
- Did All the Land Go? In 1993, the Fed. estimated all land owned by nonfinancial corporations to have a negative value
- From 9.56% of GDP in 1914 to 37.38% in 2014 in the US and from US$14.86 billion in 1914 to US$3452.17 billion in 2014 in real terms (2005 US$)
- In Australia land value has almost tripled as a share of GDP in the last 100 years.
- The Theorem
- Raymond G. Batina. e-Study Guide for: Public Goods
- http://www.wealthandwant.com/themes/HG_Theorem.html Henry George Theorem
- http://www.cirje.e.u-tokyo.ac.jp/research/dp/2010/2010cf773.pdf The Henry George Theorem in A Second-Best World; November 2010
- Adequacy of Land as a Tax Base
- Mason Gaffney. The Hidden Taxable Capacity of Land: Enough and to Spare 2009
- Fred Foldvary. The Ultimate Tax Reform: Public Revenue from Land Rent January 2006
- Ashok Rao, How Much Money Could a Land Value Tax Raise?, Slate, October 17th, 2013
- Levying the Land The Economist
- It's a Lonely Quest for Land-Tax Fans, But, by George, They Press On, Wall Street Journal
- Phillip J. Bryson. The Economics of Henry George : History's Rehabilitation of America's Greatest Early Economist, 2011
- Noah Smith. This 100-year-old idea could end San Francisco’s class war. Quartz. 2014 January 23.
- Matthew Yglesias. Property Taxes Are A Barbarous Relic: Tax The Value of Land Instead. Slate. 2012 June 14.
- Jesse Myerson. End the 1 percent’s free ride: Taxing land would solve America’s biggest problems. Salon. 2013 November 22.
- Jesse Myerson. Five Economic Reforms Millennials Should Be Fighting For. Rolling Stone. 2014 January 3.
- The name literally translates as The Justice League, but they prefer to be known as The Justice Party.
- The party's website (in Danish)