What Do We Need to Know about Land Value Taxation? (Public Policy Implications)
Netzer, Dick, The American Journal of Economics and Sociology
DICK NETZER (*)
MORE THAN A century ago, Henry George concluded that poverty existed in America's rapidly growing cities in the midst of unparalleled rates of economic growth and prosperity for some people because the owners of land and other "natural opportunities," who do not contribute to the productive process, were appropriating the fruits of labor and capital. His solution lay in the taxation of the rent of land and natural opportunities -- that is, the recapture of rent for public use, rather than the taxation of labor and capital. George's insights were foreshadowed in the writings of the classical economists a few generations before him. They, however, had not pressed ahead with the policy implications; in Progress and Poverty, George did just that.
The political movement created by that book had some early, partial successes in the form of adoption of various types of differentially heavy taxes on land. But, by World War I, the momentum had given out, and there were some retrograde developments, like reducing the already low taxes on land in some places (notably, the local "rates" in England and Wales). There have been very few political successes since then.
In recent years, more and more public finance and urban economists have had positive things to say about land value taxation, but with no policy effect. That lack of success has always been something of a mystery, and there are various unproven hypotheses to explain away the mystery. At least one explanation that has a degree of plausibility is that land value taxation has an antiquarian flavor about it. From this perspective, it was a good idea in its time (when the only important level of government in the U.S. was local, and the only important tax was the property tax), but the world is so much more complicated today, and its problems call for complicated solutions. So there is an obvious challenge: is land value taxation still relevant to and feasible in today's world? To respond, we need to answer the question in the title of this essay: what do we need to know about land value taxation?
Economists and Land Value Taxation: Then and Now
I AM ABOUT to take some liberties, but the story might best begin by looking, in very general terms, at what we economists knew about land value taxation thirty years ago and what we know now. I choose thirty years ago, because there was little attention by economists--in North America or anywhere else-to the property tax, in any of its manifestations, from about 1930 until the 1960s. In the U.S., most public finance economists had been convinced that the property tax was a dying, anachronistic institution by three factors: 1) decades of savage criticism of the low quality of tax administration, which had not improved much, 2) the collapse in property tax collections during the Great Depression of the 1930s, and 3) its replacement by state-collected sales or income taxes. As late as 1956, a leading economist forecast that, in another 20 years, "the property tax will ... have become an all-but-forgotten relic of an earlier fiscal age" (Mitchell 1956). Even as he wrote, however, the role of the property tax in American state and local finance had stabilized. A new decline began in the mid-1960s, to be followed by stabilization in the years since 1980, but in the late 1950s, economists began to examine the property tax once again, and an extensive literature emerged.
What did we learn specifically about land value taxation from that literature? As you will see, I do not think we learned a great deal. To me at least, that is reason enough for first-rate scholars to direct their attention to the appropriateness of land value taxation in the contemporary world, which is now being done under the sponsorship of the Lincoln Institute of Land Policy.
Thirty Years Ago
The state of knowledge of land value taxation in the economics profession up through the 1960s can be summarized as follows:
1) The theoretical literature on land value taxation after Henry George was very sparse indeed. …