Henry George -- Site Value Charges

Alfred Katzenberger

[Reprinted from GroundSwell, January-February 2007]

A letter to St. Louis Post-Dispatch's Business Columnist David Nicolaus regarding his 1-24-07 column "City must Replace Its Earnings Tax to Survive". (That column referred to U. of MO-Columbia Prof. Joseph Haslag's study just published that proposes replacing the earnings tax with a new tax on the value of all land in the city.)

To collect a different rate of government revenue from land and buildings (improvements) will require an amendment to the state constitution. That is why you and the Post-Dispatch need to keep informing the public of the importance of doing such a revenue shift. Reducing taxes on buildings and increasing fees / charges on land should start out revenue neutral. It should not be used to increase revenue immediately. As suggested it should be changed gradually over ten years and watch the revenues grow from the improvement in the economy and the city. Yes, other taxes could be reduced by ever increasing revenues from land fees. Housing costs go down when homes (the buildings) are not taxed. Now homes (housing) are taxed out of existence...look at all the vacant buildings in the City of St. Louis.

Wherever there is idle land there will be idle (under employed and unemployed) people.

We should all be laughing at the foolish politicians who do not understand "economic ground rent."

Government revenue from land is a fee not a tax. When you park your car you pay a fee for time and space. There are buildings parked in the city at various locations. Just like parking, some space cost more than others because of where they are located. The same holds true for buildings.

Yesterday in the Post-Dispatch on page A8 in the World section there is an article about a tiny studio apartment being sold for $335,000. The apartment is 77 square feet and needs electricity that will cost another $59,000.

[Henry George's Answer -- England is still playing King and Queen. It refuses to become a mature democracy. The queen when asked to pay taxes quickly volunteered to pay income taxes on her government dole of over $20,000,000. She did not want to pay any taxes on her and her family's extensive real estate holdings. When governments continue to give privileges to a privileged class of people there will never be an end to various forms of involuntary servitude.]

The city is giving out taxes abatements to a privileged group of people who are politically powerful, politically astute, politically rich, and / or politically crafty.

Everyone including churches, veterans organizations and any other kind of nonprofit should pay "land fees" or ground rent if they have title / deed to land.

I want to thank you for your article. Write more of the same.

ST. LOUIS FEDERAL RESERVE BANK STUDY SUPPORTS LVT ADOPTION

"An Introduction to Two-Rate Taxation of Land Buildings" is authored by Jeffrey P. Cohen and Cletus C. Coughlin, who quote Nobel Laureates Milton Friedman and William Vickey. The study's sections on The Welfare Effects of Taxation Using Demand and Supply Curves has subsections on Consumer Surplus, Producer Surplus, Effects on Taxes, and Taxes and Welfare. The study has a section on The Theory of Land Taxation and a section on Two-Rate Taxation in the United States. The section on Effects of Two-Rate Taxation has subsections on The Pittsburgh Experience, Short-Run Initial Effects, and Simulation Studies. There is a section on Implementing Two-Rate Taxation: Some Practical Problems, and a section on The Political Economy of Two-Rate Taxation which includes subsections on Efficiency and on Opposition.

The Conclusion says: "Proponents of two-rate taxation stress that the taxation of real property involves two taxes. One falls on man-made capital, such as buildings, while the other falls on land, which is provided by nature. The taxation of capital tends to deter its formation. The higher the tax rate is in a specific location, the larger the incentive for investors to direct their capital elsewhere. The taxation of land, however, does not deter either the formation of land or encourage its relocation because land is essentially fixed in quantity and immobile. Therefore, the taxation of land does not generate the changes in behavior that one sees with the taxation of capital. This differential effect of taxation provides a justification for real property taxation that taxes buildings and land at different rates. ..."