Why Tax Land?

Human society is entirely dependent on land. On it, we build the homes in which we live and the factories with which we produce our goods. We farm it for food, mine it for resources, and use its forests for our building materials. Even the rivers which provide us with fresh water and electric power all rest on land. Ultimately, land is the source of all of our wealth- it is the prerequisite for labor and capital. Even the philosopher must have a place to stand before he can move the Earth.

The question of how to manage land has existed as long as humanity, particularly because it is a finite resource. Land cannot be made or destroyed. It can be altered by flooding, or raised out of the water, as occurs in the Netherlands; it can be moved from place to place, or changed into different shapes and forms. However, more land can never be created.

These qualities have made the control of the land a source of power and conflict. The foundation of the ancient monarchies and the medieval aristocracies was control over the use of land. Disputes over land distribution rocked the Roman Republic until its demise. In large part the relative freedom and equality that characterized the early US and Canada in contrast to the nations of Europe was a result of the land available on the frontier for those able to obtain it- a benefit not available in most of the Spanish colonies of Central and South America.

Today, land is generally available for purchase, but the question of how it ought to be managed is still of vital importance. The absolute necessity of land for human life, both to live and to work, makes land an attractive vehicle for speculation in which investors purchase empty or poorly utilized land, allow it to sit idle, and finally sell it at a premium. This activity prices people out of their homes and makes it more difficult to operate a business. It creates decaying cities and urban sprawl. Ultimately, such speculation endangers the economy, and if unchecked can cause horrible recessions such as the Great Recession of 2008.

The dangers of speculation and the economic damage it causes can be effectively addressed by taxing land rather than income, investments or improvements. Because land is in fixed supply, this kind of tax is truly efficient. It cannot be passed on to the tenant; only the owner of the land pays the tax. Unlike other taxes, it does not harm the economy. Most taxes reduce or disincentivize whatever is being taxed. If building houses is taxed, fewer houses will be built. If work is taxed, people will work less. If purchasing goods is taxed, people will buy less. All such taxes harm both the taxpayer and the overall economy, because less wealth is created. However, taxing land will never result in less land, because land cannot be produced nor destroyed. The esteemed economist Adam Smith noted, “though a part of this revenue should be taken from him [the landowner] in order to defray the expenses of the state, no discouragement will thereby be given to any sort of industry. The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, would be the same after such a tax as before.”

A land tax accordingly possesses multiple benefits for both working people and the overall economy. The replacement of other taxes with land taxes would stimulate the economy by reducing the economic burdens caused by income, property, corporate and capital gains taxes. It would remove the penalty that the state levies on earning income, on creating a successful business, and on building a home. It would produce healthier cities, by reducing urban sprawl and promoting efficient land use. It would incentivize good government, by making the revenues of taxation directly dependent on the increasing quality of life in a town or neighborhood.

Henry George, the pioneer of land taxation in the modern era, described it in these terms: “The tax upon land values is, therefore, the most just and equal of all taxes. It falls only upon those who receive from society a peculiar and valuable benefit, and upon them in proportion to the benefit they receive. It is the taking by the community, for the use of the community, of that value which is the creation of the community. It is the application of the common property to common uses. When all rent is taken by taxation for the needs of the community, then will the equality ordained by Nature be attained.”