For these not acquainted with the work of Henry George (1839-1897), he’s best-known in the present day for the thesis of a guide referred to as Progress and Poverty, which after its unique publication in 1879 turned a best-seller within the late Eighties and into the Eighteen Nineties. He argued for a land tax as a sensible methodology of financing authorities in a means that will even be extra truthful and environment friendly.
For a contemporary take, there’s a Henry George Basis in the present day, and its web site presents an outline of a proposal for a land tax in the UK: “LVT [land value taxation] is an annual, nationally decided, nationally collected, proportion tax, paid by the freeholder, on the open market worth of all land with no exceptions.” Discover {that a} land worth tax just isn’t an identical to a property tax—which incorporates each the worth land but additionally the worth of the housing or business buildings, or land improved in numerous methods (say, for agriculture or recreation functions). Thus, a land worth tax doesn’t rise whenever you construct one thing on a given property; conversely, a plot of land with nothing constructed on it, proper subsequent to the same plot of land with a home or manufacturing unit constructed on it, can be taxed the identical quantity.
Within the late nineteenth century, when George was writing, very massive quantities of land in the UK had been owned by those that had been noble or wealthy or each. They may block this land from being developed, and thus restrict the power of cities to develop, for both housing or business. By taxing what that undeveloped land would promote for on the open market, there can be an incentive to unload a few of that land. Furthermore, if the federal government constructed, say, a railroad hyperlink via a sure space, then the worth of the undeveloped land near the railway would rise–thus offering an excellent better incentive to unload a number of the land.
A land tax would work considerably in a different way in the present day, after all. However one can think about a scenario the place a suburb has very restrictive zoning–say, one home per acre. Nevertheless, if it was potential to develop that land with, say 16 small homes or an house constructing on that acre, that property may very well be be taxed on what the underlying land was price–not simply on the worth of the only house on the property.
I cannot strive right here to argue the case for and towards a land tax in any element. As an alternative, I’ll level to an historic episode that illustrates a few of its sensible difficulties. Samuel Watling tells the story in “The failure of the land worth tax” (Works in Progress, Difficulty 18, March 13, 2025).
Within the UK circa 1900 , the nationwide authorities was primarily funded by an earnings tax, which paid for the navy and the civil service. About one-quarter of the earnings tax income was handed alongside to native governments, which had been chargeable for “poverty aid, the police, schooling, and sanitation.” In what we’d in the present day name “unfunded mandates,” the central authorities has handed legal guidelines requiring that the native governments present sure ranges of poverty aid, police, schooling (for ages 5-12) and sanitation, however with out enough funding to take action.
Native UK governments of this time had property taxes out there to them as an choice. A foremost use of property was renting the land, both for housing or enterprise. Thus, a tax on property was largely a tax on rental earnings: based on Watling, “three quarters of funding for native authorities actions – poverty aid, the police, schooling, and sanitation – got here from taxing rental earnings. Since city rents added as much as about 10 % of GDP on the time, this meant that one tenth of the economic system was chargeable for financing virtually the whole lot of native authority budgets.” As one would anticipate, a tax on rental earnings is essentially handed alongside to the renters. For well-to-do cities, these taxes on rental earnings raised sufficient cash for the general public companies they had been obligated to offer. For poorer cities, with better wants for welfare spending and fewer precious property to tax, the scenario was harder.
Within the predictions of Henry George, a land tax might deal with these points, and in a sweeping means. Watling explains:
However these marginal enhancements – decreasing the disincentive to enhance land and offering extra funds for city councils – had been solely a part of the rationale Liberal Georgists favored land worth taxation. George had promised his followers nothing wanting Utopia. George argued that since all manufacturing wants land, competitors would push labor and capital returns right down to minimal ranges, leaving all remaining financial surplus to build up as land lease. Due to this fact, he concluded taxing land lease alone might fund all authorities actions because it captured society’s complete surplus worth. Intercepting this complete social surplus with the land worth tax, he argued, would supply not simply all the cash the federal government wanted however sufficient to finish poverty and create a harmonious society during which all people might totally fulfill their innate wants and wishes.
Occasions occurred, as they do. Watling offers particulars. For my objective, the important thing reality is that the Liberal Occasion ended up enacting a set of land taxes in 1911, and set in regards to the process of inserting a price not on a given property–which may very well be valued primarily based on the lease paid or by comparability with related properties close by–however solely on the land. For properties that offered income by way of mining, this calcualation was moderately easy. However a land tax primarily based on what the land can be price, if it was developed extra totally or in any respect, was a tougher calculation. Watling once more:
There have been shut to 10 million properties within the nation that wanted valuing, and for almost all of those properties, the land and construction had been traded collectively, that means that there was no distinct market valuation of land to attract from. What’s extra, in keeping with Georgist idea, the tax was purported to credit score house owners for enhancements they made to the land. However this meant calculating a number of hypotheticals, lots of which had by no means been measured or recorded, together with constructing and construction worth and worth contributed from plumbing, entry to railways, and different infrastructure contributions. The method was past the capability of the federal government. In August 1910, the Liberals despatched out 10.5 million copies of the infamous ‘Kind 4’, which required house owners to submit particular particulars on their earnings and the use and tenure of their properties. It additionally required them to estimate the location worth themselves. Failure to return the doc carried a fantastic of £50, about £7,500 in present costs.
The pushback was excessive. There have been lawsuits galore, till one of many land taxes (there have been a number of) was invalidated fully. Setting apart the tax complianc prices being imposed on landowners, the prices to authorities of implementing the tax had been significantly better than the extra income raissed. Furthermore, though the promise of a land tax was that it will encourage use of underutilized land, it as an alternative imposed speedy prices on underutilized land, in order that house owners and potential builders of that land lacked funding for building. Charges of constructing dropped, moderately than rising.
Maybe all of this might have been labored out over time, however occasions contineud to occur, as they do–on this case, World Battle I. By the point the Nice Battle was over, the Liberal get together had misplaced its urge for food for pursuing land taxes additional, and abolished them in 1922. The difficulties for native governments throughout the UK to lift funding for his or her required actions continued–and in some methods proceed to the current day. For the land tax particularly, Watling notes:
[T]he pure land worth tax is chimerical. These international locations that elevate substantial quantities of tax from land, reminiscent of Japan and the USA, accomplish that via taxes on property … A pure tax on the unimproved worth of land has by no means been efficiently applied anyplace. Land worth taxes launched in Australia and New Zealand have been repealed. Denmark’s land worth tax is a minor quirk of the system, comprising lower than two % of complete revenues.
Henry George was writing within the context of his time and place–the UK on the tail finish of the 1800s. One can argue {that a} pure land tax might have been a wise strategy in that point and place. In different occasions and locations–and with the property tax as a confirmed and sensible different–it’s tougher to make the case.
