Georgism’s Pragmatic Land Value Tax
Ahead of his time and able to see what few others could, Henry George had his own ideas to rid the economy and society of its ills. In 1879, George wrote what would be one of the most influential books of his generation: Progress and Poverty.
It would not do justice to his writing to try to explain it in words other than his own. However, we will review the basic principles and how his policy prescription would work to resolve the ills of modern economic policy, and how it can be modernized to meet the needs of today’s economy.Henry George’s followers were known as single-taxers, because they believed in eliminating all taxes except a tax on the value of unimproved land. This meant taxing the land itself, but not the buildings or crops upon it. This would have the effect of discouraging unused or underutilized land, without penalising people for building or adding value to it. It would also force unused and underutilized housing supply on to the market. Both the left and right endorsed the land value tax (LVT). Economists from Adam Smith to Milton Friedman and Joseph Stiglitz recognized that the land value tax was the only tax that does not disincentivize economic activity, and can even encourage it. Unlike a property tax, which taxes the value of anything that is on the land (in addition to the land itself), an LVT does not penalize someone for improving the land, by building a house, a factory, or an office on it; only the underlying land it is taxed. Under an LVT, a plot of vacant land is taxed at the same rate as the land next to it that is being used productively (with a home, building, factory, farm, etc.) for its highest and best use. This penalizes the land speculator who is holding on to the vacant land, while not penalizing those who are using the land productively. The LVT encourages more land and housing supply, discourages speculators, and shares the wealth of the land with citizens.
It is like fire under the feet of the landowners, encouraging the land’s development. LVT drives down the cost of housing, and the entire burden of the tax is borne by the landowners, which allows labor and business to be relieved of taxation.Unlike labor or capital, land cannot be moved, hidden, or transported to a tax haven. It cannot disappear if taxed; it cannot be hidden from tax authorities, and is therefore incredibly transparent. With a public land registry, it is simple to see who owns a given plot of land, its value, and the tax paid or due on it; tax evasion is nearly impossible.
Henry George also addressed the moral case for LVT. While labor and business activity is something we earn, land and its natural resources are inherited from nature. George argued that we are entitled to keep our wages from every hour worked because they are a product of our own labor. However, land is inherited from nature and is owned by whoever was first to arrive to it. The owner is then monopolizing that particular location, potentially keeping its use from those who can use it more productively. As the land is inherited from nature, it is therefore fair to tax it.
The combination of ethical and moral arguments wrapped up into one elegant solution made him immensely popular for a time. However, the Georgist movement never truly gained momentum. There were also questions about the feasibility of its implementation, and although it garnered support from both the left and right, there were no unified set of Georgist values to bring the movement together. The world changed a lot since George’s era, but the Georgist movement did not.
More recently, economist Thomas Piketty famously analysed the trends of wealth inequality, but failed to acknowledge the fact that land prices have been responsible for the majority of this trend. Instead, he advocated for wealth taxes, which are not only impossible to administer, but also don’t address the root causes of inequality.
He also failed to address some issues that are a matter of fairness, such distinguishing between wealth gained through land price increases (wealth obtained from nature and the community) versus wealth gained through capital development (wealth obtained through labor). His proposal of a wealth tax was also riddled with feasibility issues, and was unfair and disincentivizing to those who create wealth with their own efforts.Taiwan and Denmark, along with some states in the U.S., and Australia are a few places where the Georgist movement took hold for some time, and its policies were immensely successful, as seen in how these places have developed. Taiwan and Denmark still maintain strong, balanced economic development, with healthy current accounts. Some countries and municipalities still use an LVT with a great deal of success.
Although policy experts of all stripes frequently endorsed Georgist economic policy, without a modernized platform, without a flag, and without a leader like Henry George, sadly, the movement faded away, and its great ideas were quietly buried. Compounded by the interests of major landholders, and modern economists’ tendency to censor the separation of land from capital, the ideas have struggled to return. In a world looking for answers to the big policy questions of our time, it is now up to the New Physiocrats to study, modernize, and implement these transformative ideas.