On Collecting Our Rent: ...
or West Virginia Legislature We Need Your Help in Order
to Achieve Economic Prosperity

Carl Shaw

[Reprinted from GroundSwell, May-June 2005]

The following was sent by Carl Shaw in 2004 as part of a packet of proposals and related documents to every West Virginia legislator, the Governor, and others. Carl Shaw is now mailing out to a list of 30 people and groups, monthly, some of his various writings.

This is another installment in a series of messages attempting to get our Legislature to enact the 2 Rate property tax (like they use in Pennsylvania). This 2 Rate (one rate on improvements, the other on land) is a step on the path to the Single-Tax. The Single Tax is a step on the path to social and economic justice. Any tax on land is a tax on the rent of land, not on the soil.

First, I guess I had better define Rent. Rent is the payment for the use of land (not automobiles, chain saws, hotel rooms, or houses). And how is it determined? "The rent of land is determined by the excess of its produce over that which the same application of labor and capital can secure from the least productive land in use at the margin of production." So said David Ricardo (Scottish economist). "Rent is the economic surplus of civilization." (French economist, Francois Quesnay).

What land value taxation is NOT- it is not a tax on wages, on interest, stock and bond investments, savings, Social Security, profits, buildings, or improvements. No matter how high the land tax rate, none of the above assets of labor and capital will ever be touched as long as we tax only rent. We are NOT talking about leaving the land idle and taxing the owners' wages, etc. We are talking about collecting the rent, which is already there by virtue of society's presence, expenditures for public improvements, and economic activities.

Rent is proportional to location- you know the old question, "What are the three factors in land valuation, "location, location, and location." Most of the rent I'm talking about is the potential rent which only gets collected upon sale of the site, or when used. Low taxed land is heaven for speculators, but hell for those looking for a job. Some owners of WV live elsewhere -- they did not buy our land for its scenery. All vacant land whose owner has no development plans can be classified as speculated land. Speculators are owners who can pay land taxes out of their pocket savings, and who never worry about laborers who can't find work because they don't have access to natural resources or site.

Rent is a societal product -- land far from population is not worth much. All WV land is worth something. I have not heard of any free land in the Mountain State. So all WV land has a rental value, whether actual or potential, and if low taxed a potential sale value which the owner will collect upon sale. No matter how hard the owner works, he can't add rental value to his rural land (improvements on the land are capital, not rent). Municipal land is usually worth a fortune. ALL the land rent is really OURS. Our WV land laws allow owners to invest in something the Creator must have made for all of us as a free gift. So if God made the land for all of us, and rent is a societal product, why do we allow owners to profit from the sale of land. Why do we allow owners to withhold land from potential workers? Some people think we should protect speculators from increased taxation, because they have spent 30 years paying for it, and that we should then pay the young, jobless folks unemployment compensation. Paying on long-term mortgages is a needless sacrifice and holding land idle is a denial of opportunity to the young. Others think that we should create government jobs, space flight, missle defense, and wars to provide employment for workers, meanwhile keeping land idle, and the hands of speculators.

The solution to our economic problems is obviously to increase the tax on rent (land) to both share the rent among society, and to stimulate better land use. Taxing the land rent reduces its sale price. At present WV taxes land at nearly the nation's lowest rates. Owners must be alerted to the change so they can make appropriate plans for better utilizing their land. When we do that, the owners will be encouraged to put an appropriate improvement on their land to help them collect the potential that is already there due to its location. This reform should be done gradually, and there are several phase-in methods; limits on rate increases, and even deferring the full collection of rent until the parcel has been sold. (Circuit breaker) Landowners will welcome the concomitant of the 2 Rate tax, that is, lessening taxes on buildings.

We land taxers focus on land of real value in and near the cities. This is where the value is, where the people live, and where the jobs are. City land should be developed. We are talking about forcing the use of land by collecting its rent.

Not all rural land is being used to its potential -- most is just raw land growing trees, or containing oil and gas, coal, gravel, sand, and clay. Of course, there are people who prefer life in a less crowded venue, but we should not allow them to hoard large unused parcels, keeping younger potential growers and resource developers from access to the land. Denmark too is mostly rural and largely without resources, but has a well-developed farm industry, due to a high land value tax system. Its current unemployment rate is 5%, which is Europe's lowest, while being first in per capital income.

Land value taxation is the most important subject the Legislature can discuss, more important than Workers Compensation, tobacco taxes, or school consolidation. This because it deals with land tenure, tax revenues, economic development, jobs, housing renewal, and out-migration. If LVT is carried out to a great extent, some of our typical WV economic statistics (of which we are not proud), will move on to Mississippi.

The Legislature is in charge of our economy. The business world alone cannot make decisions which will drive fundamental land use changes in every county. The 2 Rate tax involves strictly the property tax function (not sales, income etc.). It should be gradually developed, reducing the rate on improvements, while increasing the rate on land. It could remain revenue neutral, not increasing overall revenue at all. In 10 to 15 years the land part could come to be the primary revenue producer. Better yet, tax only the land (Single-Tax).

Here is another approach to land value taxation. Use it to reduce another tax. This is your chance to reduce the most regressive tax of all (sales tax), which hurts every business transaction in WV. It hurts those with high disposable income, but it hurts mostly the poor. It is insidious, stealing small dollar amounts with every sale, but totaling much over the year. The 6% sales tax raised $894,511,000 in 2003. The amount of untaxed rent last year was $560,000,000. If sales tax were to be reduced to 3% it would then raise $447,255,500. The Tax Department could calculate tax rates needed to raise the half billion from land to replace the 3% of sales tax given up. Taxes on sales, incomes, buildings, etc. only raise revenue, and are negative influences on the economy.

Raising one-half billion dollars from rent would provide a stimulus heretofore unimagined in our history. The average income earner will pay at least $1,500 per year sales tax, based on $25,000 net income @ 6%. Are there low-income folks who do not have to pay income taxes? Yes, but there aren't any people who are exempt from the sales tax. I paid about $300 last year on property tax (building, minerals, auto, land), but about $1,500 in sales tax. West Virginians living near Virginia shop in Virginia and save 2% on sales taxes. How does WV benefit from that transaction?

An example of how increased land taxation works -- suppose the rent of a site is $50 and the current tax is $2.50. After notice that land taxes are to be increased, the owner erects an improvement on the site appropriate to the neighborhood. The owner will then collect or charge the building user $50 per year land rent (plus a rental charge to cover the cost of the improvement.) If the tax will ultimately be $45, constructing an improvement is to the owners benefit, as the site has been yielding no income at all until now.

The community will now have a new building, a tenant will now have a place to live or work, construction workers will have had a chance to labor (reducing unemployment), suppliers will have furnished materials, and the community now has increased tax revenues. When most of the rent has been taxed, selling prices for land will largely disappear. Is this a WIN, WIN, WIN, WIN situation or not? Who will be hurt by this? No owner of valuable land will be hurt by this tax change. You can't make a moral case for allowing owners to sit on valuable land, denying a place for others to live and work.

I've said much of this before, but this truth needs a hearing. Our poor and unemployed need more than hope or prayer. They need reform. Homes need to be renovated and/or constructed, and without taxation. Laid off workers, such as steel mill people, can find another job when land is taxed, because opportunity will be made available. We will always need more houses, food, clothing, health care, autos, appliances, etc. which labor will construct.

Give land owners 6-12 months to think about how they are going to improve their land or they can lease it to an operator who will then use this valuable land in some positive economic, beneficial way, and who then will pay the owner rent for the use of the site. Collecting the rent is a current activity, because rent is a monthly, if not daily charge, it is not from past savings. It is today, this month.

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