The Land Value Fee, Why It Works.

All taxes but one confiscate produced value. The "Single Tax" is as simple as it is just.
by Gene DeNardo
(liberal)
Monday, March 2, 2009

Is there a way or a tax that would provide for a government that the people choose yet not infringe on their personal liberties and instill a sense of justice rather than spreading injustice? Although it seems contradictory to the nature of taxation the answer is a definitive yes. That form of taxation, the only fair system, is referred to as the "single tax" or the "land value fee".

In the article, Is There A Just Tax?, I gave plenty of reasons why income, sales and produced property taxes were unjust and led to favoritism and advantage within society. We can give a quick summary and you can reference the article if you wish.

The income tax is a basic "taking" from labor and that which is produced in society by the members of society. Action like this can only be a disincentive and cause avoidance of work and production. Government has no inherent right to claim the products of its citizens, this is counterproductive to the well being of society, which is suppose to be the primary reason for the existence of government in the first place.

Sales tax is a variation, taxing the product at the point of exchange. Labor is taxed, as it is contained in each good, but the exchange, commerce itself, is discouraged. The tax can be difficult to install and again, the welfare of the society, the free movement of goods and services, is restricted. It does tend to check over consumption but this can be accomplished in a far superior manner through a truly free market and utilization of sound money.

Taxation of property, not including land, is a retroactive sales tax. The property is paid for and the taxation occurs after the fact. The property I am referring to is "produced" property. That which is created through labor acting on natural resources, not the resource itself [land, etc.]. When property is taxed, labor again is penalized for production and purchasing. Owning goods of any type, capital or otherwise, is discouraged.

 All other taxes are variations of the basic three. We only have the ability to tax either labor or resource or the resulting capital, although the variations on this that government is able to come up with are mind boggling!

We are left with but one alternative, that of taxing land. Why would a land "fee" or tax be somehow justified and what would its effects be?

Taxing the land is the only method of taxation that doesn't extract value from the work or products of the citizen. The value that land attains is solely due to value that society or all of us as a whole create. Land is given value by what is accomplished around it.

The examples of this truth are endless; the tiny parcel in downtown Tokyo certainly has a value many times over that of an identical parcel in the Yukon Territories, a vacant parcel sits with no improvements in a thriving region and miraculously doubles in value. It is not the land but the creation of wealth around the land and the "possibility" of similar production from a vacant parcel that creates the value. It is what we do as individuals and as a society that determines land value and the return of this value as taxation is the only justified form of government revenue, and the only revenue method that doesn't confiscate earned wealth; it merely reclaims that which is created by all of us.

Expression of this land value is known as "rent". A greater rent determines a greater possibility of use and resulting return. We must separate this concept of rent from the return that is justified when "renting" an improvement such as a structure or machine. This is "interest" so to speak, on actualized capital, which is a product of labor and resource.

No one can "produce" land, and no one is producing any more of it! If we return the "rent" back to society, we in no way degrade or affect private property. All rights and ownership are maintained, only the value that is produced by society, rather than the individual, is recovered. The landlord has no inherent right to "unearned" income. That which is produced in concert by others, this land valuation, should benefit those who produced it, not merely someone who holds title to a parcel.

This rent collection in no way affects the rights to the "utility" of the land, in fact, it enhances these rights. Any increased value or return resulting from improvements on property benefits society and government has no right to any portion of this earned income, only to the land rent. When the land rent is recovered instead of retained by the landlord, utilization is encouraged.

Land with the highest values, those with the highest production potential that would most benefit society by development also have the highest rent. When this is collected, land is not held for speculation. Instead it is put to its highest use in order to justify the rent. This is part of the natural economic flow as opposed to the disruptive effects of other forms of taxation. Land rent retention by the landlord is a holdover from the feudal period not a tenet of the free market.

With land speculation thwarted, bubbles and downturns diminish. Economic decisions are based not on what a parcel will be worth in the future, whether one should hold to capture the inflation, but what the best and highest use of the land is now, in the present. There is no fear of overvalued rents depressing economic output, as rents correlate with "real" value based on utility rather than value based on perceived future demand.

Farmers fear any type of land tax, but it is the land fee that would save farming. Speculative pricing would no longer be applicable, bringing down rent costs. Land would be freed up for the plow, including the swollen holdings of the elite, held for recreational purposes and exempt from any taxation because they "allow" a couple head of bison to roam their estates, as long as they don't munch on their private golf course! There would be no law against "Gentleman" farms and ranches, but they would bear a cost that isn't present in today's tax system. Massive corporate farms held by development companies might find their crops don't pencil out next to the dedicated farmer. Since the fee is based on rent which is intertwined in value, it would be directly proportional to the productive capabilities of the land. This is miles distant from the speculative value that is burdening farmers today.

When you tax, you increase cost and decrease supply of what is taxed. Do we want less labor? Do we want less goods and services? Do we want less real capital? The land fee cannot decrease land, there will never be more or less but it would increase the supply and lower the cost of needed land. No longer would fortunes be made simply holding title to property that the owner neither improved or cared for. Vacant land would be made available and could be put to its highest use. This captured unearned wealth would be transformed into prosperity that all who contribute could share. It is the only tax that instills rather than steals justice.

The land fee is also the simplest and most easily implemented tax. Land is always in plain view, it cannot be hidden. Values are easily ascertained, much as they are now, and the rent is simply determined. Title would be held exactly as it is today.

Exempting ten percent of the rent value from taxation would promote entitlement rather than tenancy and prohibit needless intervention in this area by the State. The landlord would be rewarded for management and collection of the rent and also receive any increase in value during his ownership. Land values would increase as Society prospers but at a much more even rate reflecting actual economics rather than malinvestment. The landlord's income becomes rooted in his own labor and expertise as opposed to the present situation where income is determined merely by title. 

A free society would most benefit from this form of taxation. The State, limited in the size needed to provide basic protection and other services deemed necessary by its citizens, merely serves as record keeper and processor of the collected funds. The amount needed for government function [a low percentage in a free state] is removed and appropriated with the remainder returned to the citizens as shared revenue. All benefit from what all have produced, the value of land.

With this shared bounty in place, there is no need for a safety net or social programs. It has been provided for by the workings of a free economy. The revenue will vary in size proportional to the output of the society. A hard working, industrious society will create much value and a comparable return to its citizens while a more relaxed nation will have a smaller return. Neither would be wealthier than the other, it would be a conscious decision by all participating on the level of development and action that is necessary. A group "preference" you could say only possible when prosperity is not denied by unjust taxation.

The land fee works because it follows natural law. What is given to all of us, the land, gives back to all of us. What we create as a whole, land value, is returned. Value that is produced by labor or enterprise of individuals is retained as it should be, by those who produce goods and services. It is not confiscated by the landlord through rent or the government by unjust taxation. Title alone should not guarantee return; it should permit access to the possibility of return. And return, in a free society, should depend on the choices made by free people.

Related Articles by Author:

The Capital Gains Hoax

Is There A Just Tax?

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©2009 Gene DeNardo, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Monday, March 2, 2009
Last modified: Monday, March 2, 2009

The views expressed in this article are those of Gene DeNardo only and do not represent the views of Nolan Chart, LLC or its affiliates. Gene DeNardo is solely responsible for the contents of this article and is not an employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.

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