WHERE THE PROPERTY TAX SHIFT HASWORKED:
26 CASE SUMMARIES
by Jeffery J. Smith
Usually, a “reform” of taxes fails to live up to its advance billing. Yet there is one reform, albeit little known, that has an unbroken record of customer satisfaction. For whatever accidents of history, some peoples have tried it; and wherever tried, to the degree tried, it has worked. What is this tax reform that has remained a secret to most taxpayers? It is to reduce levies on wages and enterprise while collecting natural Rent.1, France, 1790s
. Back when the noble savage and natural law and natural rights were all the rage, the in philosophy was physiocracy, the idea that economies could run best by themselves, sans state interference, and government should sustain itself off the Rent people pay for nature. In 1798, the nouveau Republic of France paid for 80% of its budget out of collected land Rent. Might this tapping into the flow of Rent, as much as any other revolutionary reform, have motivated Europe’s monarchs, whose fortunes were little more than concentrations of land Rent, to attack France en masse? If the monarchies had left France in peace, might the Revolution have been less bloody? In 1807 Napoleon’s government crafted a tax on the increase in land value to be levied when parcels were sold but never applied the law (probably due to war, also why England never applied its land tax law a century later). By 1830, Rent as revenue was down to 25%. In 1980, France still collected enough Rent to fund 13% of its budget, more than do many other far less successful nations. (Vincent Renaud in Lincoln Institute monograph #82-3; Land taxation and land use;
Laconte, editor)2, Denmark, 1840s
. One crown prince was so convinced of the rightness of physiocracy that he impatiently overthrew his uncle, the king, in 1784. The new King Frederick then ended serfdom, proclaimed tenants’ rights, and helped peasants become owners. He also proposed reforming the land tax so that its amount was geared to site value, not size (as was traditional thru-out Europe). His reform finally became law in 1844, giving Denmark the widest distribution of titles to land in Europe, a distinction the nation has held since. (Michael Silagi, American Journal of Economics & Sociology,
After the physiocrats, the best-known proponent of this tax and property reform was the American Henry George (1839-1897), author of the classic Progress and Poverty
(1879). An inspiring speaker, George toured most of the US and British Empire, planting the seed of reform. He left a legacy we can measure today.3, California, 1890s
. Back then, many farmers and miners went without water because cattlemen like Henry Miller owned 1,000,000 acres of land. Miller could drive his herds from Mexico to Oregon and spend every night on his own land. In 1886 Miller won full rights to the water of the Kern River.
Some people concerned with justice figured the cattlemen had gone far enough. The state government passed the 1887 Wright Act which allowed communities to create by popular vote irrigation districts to build dams and canals and pay for them by taxing the resultant rise in land value. Once irrigated, land was too valuable to use for grazing, and the tax made it too costly for hoarding. So cattlemen sold off fields to farmers and at prices the farmers could afford.
In ten years, the Central Valley was transformed into over 7,000 independent farms. Over the next few decades, those tree-less, semi-arid plains became the “bread basket of America”, one of the most productive areas on the planet. (magazine of the Historical Society of California)4, Kiaochow, China 1900s
. The German Imperial Commissioner for Kiaochow (by the Yellow Sea, also Chiaochou and now Jiaoxian) was Ludwig Wilhelm Schrameier, also a member of the German Land Reformers. Having read the works of Henry George, at the founding of the colony (about 200 square miles in Shangdong, formerly Shantung) in 1898, Schrameier established a land-value tax. At 6%, this levy prevented land speculation, collected about half the land Rent, and funded government services until the Germans lost their colony at the outbreak of World War I. Sun Yat-sen (below #10) was impressed by the results in Kiaochow whose main city, Qingdao (also Tsingtao) had modernized. (Adapted from www.progress.org by Fred Foldvary, after Michael Silagi in the American Journal of Economics and Sociology,
1984 April)5, Australia, 1900s
. While some towns Down Under were born taxing land (late 1800s), some states adopted the idea in the wee 1900s (New South Wales in 1905), and the federacy did so in 1910. In 1920 the continent’s capitol (designed by a Georgist) was established on public land. Canberra owns and lets its land to residents and businesses. The biggest city, Sydney, levies only one tax - on land. Neither Sydney’s tax nor Canberra’s lease recovers all the land’s Rent, so these cities also get revenue from the federal government. But the poorer sections of both cities bear no resemblance to the degrading slums of nearly all American cities.
Around Melbourne, some towns tax land alone. Dr. Ken Lusht, visiting from Penn State, found they have 50% more built value per acre than those that tax both land and buildings. Between 1974 and 1984 (last year the government released these statistics), coinciding with some recession years, the number of businesses in the towns taxing property decreased by 20% while in the towns taxing only land it increased by more than 10%. (Phil Anderson, Economic Indicator Services, Melbourne, Australia)6, New Zealand, 1910s
. Many settlements in “Kiwi Country” began with taxing land, peaking at 80%. Even the nation levied land. Employment averaged 99% from 1966 until 1975. When the oil shock hit, making their export goods too expensive since they had to be shipped so far by oil-burning freighters, employment dropped to a true (not fudged) 94%. Then the federal government repealed the national land tax, leaving Rent to localities, who did not always pick it up. Now about 2/3 of the jurisdictions tax land, not buildings.(Incentive Taxation)7, Western Canada, 1910s
. As they came into being, many towns of the prairie provinces decided to go with the collection of site Rent exclusively. Generally they outgrew and out-served their neighboring towns. Besides the surface, British Columbia recognized living nature as a legitimate source of public revenue, too. Royalty from forests funds much of BC’s budget. (ex-BC Assessor Ted Gwartney, Incentive Taxation,
‘87 March)8, England, 1910s
. Impressed by George’s argument but skeptical of its political chances, Ebenezer Howard began the Garden Cities. These exist on land owned by a corporation that consists of residents and investors. Letchworth, the oldest of these model towns, serves residents grandly from vaultfuls of collected land Rent. The experiment spread as far as Russia. For a while, Great Britain did pass land value taxation but could not implement it until reassessing all the land, and due to manpower constraints could not do that until World War I was over. By then, the political winds had shifted and the reform was never adopted. Between the world wars in Vienna and Budapest, Georgists also had success briefly, but an alliance of left and right quickly repealed the reform. (Michael Silagi, American Journal of Economics & Sociology,
1994 Oct) Elsewhere, Alexander Kerensky proposed taxing land in Russia and Francisco I. Madero did so in Mexico. Kerensky was thwarted by revolution, Madero by assassination. (Steve Cord, Henry George Fdn). One country did buck the trend that Howard hoped to circumvent. In Denmark in the wee 1900s, the Liberals replaced the land value tax with a conventional property tax plus an income tax. In the 1920s, Georgists reformed the property tax so that it fell more heavily on land, lighter on buildings.9, New York City, 1920s
. After World War I, many New Yorkers suffered from lack of housing. To solve the problem, Governor Al Smith borrowed a page from Henry George (who ran for mayor of New York City in 1886, finishing second ahead of Teddy Roosevelt, and again in 1897, dying four days before the election). Smith persuaded the New York legislature to pass a law allowing New York City for the next ten years to tax land but not the buildings on it.
New construction more than tripled while in other big cities it barely doubled. Not only was there more housing, and thus lower cost apartments, there were more jobs and higher wages for construction workers, and more business for merchants who sold goods to the employed workers.
Economic good times in New York came to an end, though, when owners in 1928 began to anticipate the expiration of the tax-shift law. (“How New York Solved Its Housing Crisis”,Charles Johnson Post, 1931?, Schalkenbach Fdn, Mason Gaffney, 2001) Some say that the drastic decline in building starts, not the stock market crash of 1929, was the real trigger of the Great Depression of the 1930s. Other geonomists say it was the Dust Bowl, the collapse of the agrarian sector of the economy. Watching land prices inflate in the 80’s, followed by farm takeovers and slowed housing starts, land-focused econometricians predicted land prices to hit bottom in about 1990, then next around 2008.10, South America, 1930s
. Some Hispanic republics continued the physiocratic tradition. In the 1840s, Argentina had a president who tried to capture ground rent for social betterment - until the army put an end to his flirtation with justice. In the 1920s, both Colombia and Uruguay passed laws letting commissions build new roads using funds collected from roadside landowners. After a few decades of success, this mechanism declined. Confusion arose when one property was near more than one road. And as the roads pushed up land values, land assessments lagged behind. With corruption and inflation, poor people could not afford to pay even the assessments lagging behind. Still, as late as the 90s, Bogota used resultant rent to pay for 80% of a new road. For the general fund, Columbia has a city land tax at 1% and a national one at 2%, and a land gains tax up to 50%, yet land is registered at 20% of its value. (Ortiz, Alexandra. Economic analysis of a land value capture system used to finance road infrastructure: the case of Bogota, Colombia;
1996, and Prest, A. P. Transport Economics in Developing Countries;
Praeger, 1969)11, Taiwan, 1940s
. Old Formosa was mired in poverty and fast-breeding. Hunger afflicted the majority of people who were landless peasants. Less than 20 families monopolized the entire island. Then the Nationalist Army, led by Chiang Kai-shek, retreated to Taiwan. General Chiang figured he lost mainland China in part by not reforming land-holding. Chiang did not want to risk losing his last refuge - east of that isle lay nothing but open ocean.
A follower of Sun Yat-sen, the father of modern China and an adherent of Henry George, Chiang knew of the Single Tax. Borrowing a page from George via Sun, the new Nationalist Government of Taiwan instituted its “land to the tiller program” which taxed farm land according to its value. Soon the large plantation owners found themselves paying out about as much in taxes as they were getting back as Rent. Being a middle-man was no longer worth the bother, so they sold off their excess to farmers at prices the peasants could afford.
Working their own land with newly marketed fertilizers, new owners worked harder. They produced more, and after years of paying taxes to cover the onerous public debt, at last kept more and lived better. From 1950 to 1970 population growth dropped 40%, and hunger was ended. Taiwan began to set world records with growth rates of 10% per annum in their GDP and 20% in their industry. (Fred Harrison, Power in the Land)
12, Third World, 1950s
. While British territories, Jamaica (1957-1962) and East African nations taxed land and exempted all improvements. However, as land value grew, the governments did not keep assessments in pace. Today, there’s little to show for such meager taxes on land. (Dr. Mason Gaffney, UC-Riverside)13, Denmark, 1950s
. The Danes built on their land tax heritage. In 1957, the tiny Georgist Justice Party won a few seats and a role in the ruling coalition. Anticipating a higher rate on land, investors switched from real estate to real enterprise. One year later, inflation had gone from 5% to under 1%; bank interest dropped from 6.25% to 5%. By 1960, 100,000 unemployed in a country of just five million had found jobs.
Tho’ many people were better off, next election landowners spent enough money to convince people otherwise. The Justice Party lost its seats, the land rate lost its boost, and investors again became land speculators. Quickly inflation climbed back up to 5% and by 1964 reached 8%. From 1960 to 1981, land prices sky-rocketed, increasing 19-fold while prices of goods and services went up merely fourfold. (Knud Tholstrup, MP, A Third Way)
14, Denmark, 1960s
. In 1968, the Danish government decided to redefine taxable income. To make this bureaucratic change, they froze everyone’s maximal tax liability for one year. Earners realized that all income above the previous year’s amount would not be taxed. Their response, from 1968 to 1969, was to double the increase in production (4% to 8%), halve the inflation rate (8% to 3.5%), quadruple investment increases (5% to 20.5%), raise savings by a quarter (from 2.9 million kroner to 3.8), and employ nearly all workers. (Knud Tholstrup, MP, A Third Way)
15, Hawai’i, 1960s
. To build up their tourist economy, the newest state in 1963 reformed their conventional property tax. In place of one rate on both land and buildings, they began to lower the rate on structures while leaving a high rate on sites (with many technical complexities yet no surcharges to protect open space). Within a few years, this property tax shift led to 30 large resort hotels in Honolulu’s Waikiki Beach. Built value was up to 25% more than it would have been, concluded Richard Pollack and Donald C. Shoup in Land Economics 53,
no 1 (1977), p 67-77. Opponents of Rent-sharing dragged out implementation for years, and as growth drove up site values, and no collected Rent was returned as a dividend or voucher, residents and speculators rebelled. In 1977, the legislature knuckled under and repealed this graded property tax, phasing out in two years what had taken 14 to phase in.16, San Diego City, 1960s
. When under Spanish, then Mexican control, much good land in California was “pueblo” (public). Very little of that remains today. Some of it, tho’, is quite valuable. One lucrative pueblo land is the Port District of San Diego, formed in the ‘60s by the various towns sitting on San Diego Bay. The Port Authority collects hundreds of millions of dollars of Rent each year and is the only local government agency with a positive cash flow (SDPD Annual Report). Where does that cash flow? Not into the bank accounts of its owners - the “pueblo”. The Rent collected from the Yacht Club, a social club for millionaires, is only $1.00 per annum. (The San Diego Union-Tribune)
17, Kansas City (Missouri), 1970s
. KC levied one site value tax for parks and parkways (pleasant streets that wend through parks in ravines) built in the 1930s. Another was for trafficways, multilane throughways that move traffic with synchronized traffic lights built in the 1940s or 1950s. To fund boulevards (thru streets with synchronized lights that preceded the trafficways), KC levied a “front-foot” tax rate on each lot’s front footage on the boulevard. This is close to a land value basis because all the boulevards are straight and in a grid pattern. When the city charter was revised in the 1950s, the site-value tax was included.
Under the leadership of Mayor Bartels, the city used straw parties in the 1950s to secretly buy up half of Platte County (then rural farmland) for an airport. The city leased sites around its new airport opened in 1972 at full market value for hotels, warehouses, an aircraft overhaul base, postal distribution center, etc - even to farmers. Outside airport land, investors bought land and built hotels. When the 1970s recession hit, all the hotels buying land went broke while the hotels renting city land survived. Able to learn, some big hotel chains survived the crash at the end of the 80s by separating the hotel real estate into REITs apart from corporate hotel operators.
In the 1980s, voters approved by referendum doubling the land tax rates. Speculators challenged the land taxes as against the state requirement for all real estate taxes to be levied on the value of land and buildings. The Missouri court (most of KC is not in Kansas but in Missouri) ruled that the land taxes were “special assessments” and not subject to the state requirements for taxes.18, Vermont, 1970s
. To thwart speculators, Vermont taxes land sales when the turnaround is under six years. Now more people, including lower income people, are buying land for farming. Conversely, fewer people, especially out-of-state investors, are buying land for speculation or sprawl-type development. (R. Lisle Baker, Suffolk U Law Schl, Boston, MA)19, Arabia, 1970s
. Thanks to the oil under desert sands, Saudi Arabia, United Arab Emirates, and Kuwait collect enough oil royalty that they can afford to build a modern, large-scale infrastructure without taxing their citizens. Kuwait even paid their people Heritage Shares. Formerly nomadic tribesmen moved to cities where they live more sophisticated lives. Now Kuwait pays citizens (not guest workers, about 2/3 the population) bonuses for marriage and monthly stipends for children and provides free schooling and doctoring ChrSciMnr,
2001 Apr 18). Another Muslim petrol-nation, tho’ beyond the Persian Gulf, is Bahrain; like the others, it is taxless and busily building.20, North America, 1980s
. Thanks to the oil under Arctic-windswept plains, the province of Alberta, Canada, and the state of Alaska, America, have lower taxes. Alberta has no sales tax, pays part of its citizens federal income tax, part of their utility bills, a small, unvarying energy refund, and provides more free social services, such as excellent health care and university education. (Alberta Heritage Fund Annual Report) In Canada, all minerals and forests belong to the people. In America, we don’t enjoy that justice. But with 12.5% of the market value of Prudhoe Bay oil, Alaska pays 80% of its state budget. It also pays a share to its citizens, about $1500 per annum (varying with the price of oil and the return on their investments).
While mineral land, such as oil fields, is an obvious source of plentiful public revenue, old-fashioned surface values also abound.21, Georgist Colonies, 1980s
. Followers of Henry George after his passing (1897) founded three country towns: Free Acres (New Jersey), Arden (Delaware), and Fairhope (Alabama). As trusts they leased land, collecting Rent for public goods. Compared to other towns in their counties, they are cleaner, enjoy more services at lower costs (parks, libraries, and schools) and make decisions in town hall meetings. Fairhope, whose Quakers resettled in Monte Verde, Costa Rica to avoid the draft and taxes of the Korean War, was one of only four towns on the Gulf of Mexico recommended in the 80s for retirement by Consumers’ Guide.22, The “Four Tigers”, 1980s
. Hong Kong, often voted the world’s best city for business, exists on crown land, funding 4/5 of their budget with 2/5 of site Rent (Yu-Hung Hong, Landlines, 1999 March, Lincoln Inst., Cambridge, MA). Hong Kong also uses land rent to fund their new metro. Singapore, founded on Georgist tax principles, now taxes land at 16%. Taiwan (above) also taxes land. Gen. Douglas MacArthur, an admirer of Henry George, forced the Japanese provisional government to write land reform into their new democratic constitution that limited Rent paid by tenants to owners. South Korea adopted a similar Rent reform.
A World Bank study credited land reform with creating the basis for their economic miracles. To develop successfully, economies must build on a healthy base of secure farmers who can afford to consume manufactured goods. Such markets can attract investment and modernize without too much outside aid (altho’ Taiwan did receive a billion dollars from the US, mostly military aid, spread out over eight years). Soon they become independent industrial powers and trading partners with other developed nations.
Today, to try to control their skyrocketing location values, both Japan and Korea have tried to tax land, tho’ still minuscully. In many of the United States, the land tax is unconstitutional. When the Single Tax movement was at its peak and a threat to absentee landlords, they lobbied legislators to require the taxing of location and improvement together. Many states, such as California, succumbed to the pressure. In other states, such as New York, localities may levy separate rates only with permission from the legislature.23, Pennsylvania, 1980s
. Penn’s Woods is the only state granting cities outright the option to levy different rates. The state went from two cities in 1975 (Pittsburgh and Scranton), to 16 in 1996 who practiced this reform. All these cities, sited in the midst of impoverished Appalachia, are developing 16% more per year than their neighbors (Dr. Nic Tideman, VPI, Blacksburg, VA), and growing denser, meaning they can provide public services like mass transit at lower cost.
Pittsburgh renewed its urban core without substantial federal subsidy and created an urban park out of its most prime location, the Golden Triangle, without an agonizing citizens effort to overcome developer resistance. Housing costs and crime rate, like a small town’s, are far below the national average. Rand-McNally named the Steel City “America’s Most Livable City” twice, in 1985 and 1986.24, Mexicali, BC, Mexico, 1990s
. Seeking funds for new and better infrastructure, the mayor of Mexicali, Baja California, Milton Castellanos Gout, on the advice of a graduate from the U of California - Berkeley (Sergio Flores Pena), jettisoned the entire conventional property tax and replaced it with a land tax. For a few years, bureaucrats opposed updating the cadastre, yet subsequent civic administrations continued to modernize official land values. Revenue went from under three million pesos in 1988 from the property tax to over 63 million in 1998 from the land tax. This rapid rise was accompanied by no complaints from landowners. It must be better to own serviced land that is taxed than unserved land that is tax-free. In 1995, Mexicali drew 15.3% of its revenue from its land tax while others cities in BC drew only 8.4% from their property tax, and other cities around the country averaged only 10.3%. Hence the Mexicali land tax has been adopted by other cities in BC and in the neighboring state of BC Sur. (Lincoln Inst’s Land Lines, 1999 Sep)25, Ethiopia, 1990s
. Around the outskirts of the capital, Addis Ababa, shanty towns sprung up on land that had been used to feed the city, pushing out farmers on to land that had lain fallow for centuries. The longer trek to central markets raised the price of food there. So the Regional Government, against the advice of the IMF, adopted a tax on land values and parcel size. The tax on structures inside city limits was drastically reduced. The Economics Section of the Ethiopian Embassy in Washington, DC reports greater occupancy and refurbishing of older structures in the city. (Henry George Fdn, Columbia, MD)26, Estonia, 1990s
. After the break up of the Soviet Union, each newly separate republic had to find its own way of raising revenue. Estonia, across the gulf from Finland, found the tax for farmland. Because neither land nor its value can be hidden, it was the most feasible way for the new government to raise funds. Collecting from farmowners was vastly more successful than trying to collect from others, succeeding over 95% of the time. The low rate of 2%, which even governmental owners of public land had to pay, was still enough to spur efficient use of land. (The Economist,
1998 Feb 28)
These 26 case summaries of real-world successes suggest that the number should grow. Society could secure everyone’s earning while sharing Earth’s worth. Which society will be next to prove the merit of geonomics?
Copyright 1990, 1999-2001 by Jeffery J. Smith. All rights reserved.
The Geonomy Society
Jeffery J. Smith, President
1611 SE Nehalem St, #2
Portland OR 97202-6700 USA
503/236-1968; [email protected]; www.progress.org/geonomy
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