Have you wondered if there might be a root cause for the many problems faced
daily by government officials and citizens in general? Problems such as
overtaxation and yet insufficient revenue; environmental degradation through
urban blight and urban sprawl; high land prices contributing to higher housing
costs; relocation of industries to areas with lower land costs and lower wages
for labor.
There is a root cause, and to understand it, one needs to
recognize an economic truth. There are three basic factors needed in the
production of wealth: land (natural resources), and
labor (both blue collar and white collar), and
capital (things created by labor — tools, equipment,
buildings, goods, etc.). The Creator created a fixed quantity of land. Since
the supply of land is limited, and labor needs access to land (building sites,
farms, etc.) In order to create capital, land investment for speculative
purposes causes problems. Location value accrues to sites, bid up by private
investment around the site, and as urbanized areas develop and expand, and as
governments provide zoning, infrastructure and municipal services to land.
Income taxes, that at the state and federal level take such a huge bite from
workers' pay checks and corporations' profits, are a tax on the productivity of
labor and in some measure on capital. The state (and in some places, county)
sales taxes are a tax on capital. Neither income taxes nor sales taxes are
incentives to more productivity.
The much-maligned local property tax, widely regarded as one tax, is
actually two taxes: a tax on the site value and also a tax on capital.
It is the tax on capital that is regressive. The tax on site value could
actually promote productivity. As presently levied, the lightly taxed site
value contributes to withholding, from more productive use, of unused and
underutilized well-situated sites. This is because the present property tax on
site value is insufficient to spur the owner to put the site to a more
productive use, versus inventorying the site at low holding cost for a bigger
profit at a later sale. Those productive persons who need a site then have to
go farther out for reasonably priced sites, leaping over the withheld parcel,
contributing to sprawled development and the attendant costs of providing
municipal services in a sprawled area. Conversely, in areas (primarily
Pennsylvania cities with the "two-rate" tax) where the property tax on
buildings and improvements is lowered (while raising the property tax on
sites), construction is spurred. When the property tax penalty for building is
decreased, building increases. (For more information on Pennsylvania cities,
email to centerforthestudyofeconomics@msn.com.
Besides reversing the disincentives to urban blight and urban sprawl, site
value taxation helps to take back, in revenue to the local community, the
increase in site values which the community itself created. Presently that
"unearned increment" is going to land speculators who are costing the community
through urban sprawl. When the asking price is speculatively high for sites in
already developed areas, and when overtaxed buildings fall into a state of
blight, those who can afford to will relocate farther out. This not only
contributes to loss of more farmland, but when those relocations involve
industry it also leaves labor stranded in the older area. Current efforts to
redress these problems through federal and state tax breaks are currently being
paid for by taxpayers at large.
Land inflation, which is much worsened by land speculation, is based on an
artificial shortage, to which site withholding and inventorying contribute.
Eventually the artificially inflated price bubble bursts. A worldwide
bestseller classic, Progress and Poverty--An Inquiry into the Cause of
Industrial Depressions and of Increase of Want with Increase of Wealth...the
Remedy, by Henry George, delved deeply into the relation between land, labor,
and capital. Copies of the book are probably available at your local library.
Copies can be purchased from the Robert Schalkenbach Foundation, New York City,
email schalkenba@aol.com.
Common Ground-U.S.A. is an activist organization with chapters coast to coast. For a membership brochure, email President Nadine Stoner or National Membership Chair Sue Walton.