What the hell is this?
This post will be updated intermittently, as a sort of reference pad for the usual questions I get regards Georgism, geoism, the Land Value Tax, and other related items.
What is Georgism?
Georgism is a 19th century political ideology espoused by Henry George, most clearly defined in his pinnacle work Progress and Poverty. The moral grounds of Georgism were a return to classical economics’ roots, taking ideas from Locke, Adam Smith, Paine and earlier geoists, who believed that a human’s property was derived from the labor they bestowed upon it, and that as Land has always existed, it would be unfair to declare permanent exclusionary ownership of it by mere right of force. However, George did not advocate for nationalization of land, but rather allowed for private ownership, so long as a tax was levied upon the unearned increment of unimproved land. This is known as the Land Value Tax – another aspect of George’s beliefs is his desire for a universal basic income, funded through the acquired rent on land. Geoists are a broader group, of whom Georgists are a but a subset, although the two groups often share decent overlap on land issues.
What does “unearned increment of unimproved land” mean?
A simpler term could be “land rent,” but as it’s spelled out this refers to only the value of the land itself – the buildings and structures created and placed upon land are the “improved value” of land.
How do you tell the difference between the value of the land and the value of the improvements upon the land?
This process is quite extensive to implement, but has been done for years across the real estate market already. There are a few different techniques but in layman’s terms, you can think of it as us looking at what the market would be willing to pay for a similar structure in a different location, and the difference between the two is the location value of the land. The value can also be surmised from straight from the idea of “dead bids” where we see what the market would pay for the land, assuming the structures upon it were to be demolished and made open for new renovation.
For in depth reading refer here.
How do we determine how much of Land Value is Land Rent?
For in depth reading refer here (it’s a useful site!), but the basic calculation would come out to:
Land Value = (Land Rental Value – Land Taxes) / Capitalization Rate
From there, Land Rental Value / Land Value is how we determine what percent of a parcel of land has its value tied up in rent.
Assessing Land Value itself is the key first step, that is also probably the harder of the two which we must calculate.
Does the term “land” refer to physical land, or economic land?
In this sense it refers to physical land, almost as a site value tax, but many geoists also support taxes on all scarce natural resources, so this is a good question to ask whenever talking to a geoist, and to define when you are speaking on the subject yourself.
Are there any examples of a land value tax currently?
Yes! From Russia and Denmark to Singapore, Taiwan and Hong Kong, we’ve seen various rates of land taxes – but even within the United States we have a land value tax. Whenever we pay property taxes, that value is assessed as coming from the structures on the land as well as the land itself. As far as I am aware, any country with a property tax has this same structure; the difference Georgist’s promote is purely focusing on the value of the land, and not on the improvements upon it.
Do all Georgists support a “Single Tax” model?
In theory, yes. However, many Georgists are pragmatists, and willing to support an incremental change but in the direction of moving to a LVT-based system. Some Georgists have also embraced Pigouvian taxes within their ideological framework, as it’s very much in tandem with George’s original prescriptions. Geoists, on the other hand, are a broader coalition with a wider set of beliefs.
How much of our government’s budget could we fund through a LVT?
This is an open question, that has to be addressed in two parts. First, how much land value is there?
There are several estimates I’ve found, which put total land value in America over 20 trillion USD. This isn’t an easy number to pin down currently, as not all government held land has an immediately known market price on it, but for looking at land values city by city, we see large spikes, such as a 1.74 trillion USD estimate on Manhattan alone, as of 2014.
The second part of the calculation is to determine what percent of land value is economic rent, for which estimates vary wildly between 2% and 14% as I have seen them. One of the first step in many Georgist programs is obtaining these estimates accurately, and before any tax policy is implemented.
There is also a useful download here from Stiglitz and Arnott, discussing the “Henry George Theorem” (as well as providing invaluable citations within) which itself shows how spending on public goods can be financed purely through a single tax on land.
If the government implemented a LVT, wouldn’t landlords simply pass the tax burden onto tenants?
A good question often posed to Georgists; the short answer is that to pass off the tax burden on a good, suppliers must be able to alter production as well as price. In the case of a land value tax, supply is held fixed – land cannot be produced more or less of, and cannot be hidden or moved overseas for the tax to be avoided outright.
So the landlord’s only mechanism to pass off the tax burden is to raise the price. In doing so, the landlord is also raising their assessment of land value, and thus raising the amount of the tax which they themselves must pay. When combined with the lessened demand, the new revenue from increased rents is less than if no price increase had been charged at all. In some cases of pure demand inelasticity it’s possible to have revenue-neutral effects, although such cases are rare, and would require a market-wide shift in rental rates.
For a mathematical explanation of this phenomena I’ve created this post in order to clear up any problems, although plenty of outside sources are available for further reading. It’s neither an intuitive nor an easy conceptual calculation, and thus the cause of a lot of confusion.
Is this all just marxism/communism?
No, in fact George and Marx exchanged, via letter, terse words. Henry George wanted neither an intermediary state control nor commune control of land;
I do not propose either to purchase or to confiscate private property in land. The first would be unjust; the second, needless. Let the individuals who now hold it still retain, if they want to, possession of what they are pleased to call their land. Let them continue to call it their land. Let them buy and sell, and bequeath and devise it. We may safely leave them the shell, if we take the kernel. I t is not necessary to confiscate land; it is only necessary to confiscate rent.
– Henry George, Progress and Poverty p. 405
Georgists also have no qualms with private ownership of capital which was created by human toil – it’s merely in nature we draw issue with claims of exclusive ownership. If we were to split the economy up as classical economists such as Smith, Ricardo and Malthus did, we would see:
Labor (wages), Capitalists (profits), Landlords (rent).
- Communism originally wished to do away with all private ownership of the preceding factors, and see a completely stateless (and moneyless) form of living.
- Socialism meanwhile wished to only maintain personal property via wages, and allow free personal consumption.
- Georgism has no qualms with private capital or labor rights, but rather question the place of landlords.
- Capitalism in our current conception wishing for the private ownership of all of the above factors (although many iterations are willing for taxation of the various factors).
Notably, some older capitalists and socialists did have more lenient crossover with geoists, and when discussing ideologies as widely interpreted as socialism and capitalism and the ilk, you should rid yourself of all semantic problems and simply ask everyone involved to define their terms before stepping further into the conversation. These are the terms as I have come to understand them over many years of study, and you can take issue with the definitions as you please.
Do Georgists believe in the labor theory of value?
I really don’t know why this one pops up so often, but it’s plainly untrue, as the core of our ideology demands that *non-labor endowed* land has a subjective value that fluctuates based on relevant demand.
Is it possible to rent apartments, or will landlords be an extinct class?
As we know them now, there would be no more “landlords” after a LVT… or rather everyone would become an equal part landlord. However, a property manager could still charge rent on housing and buildings, but they would be compelled to pay a tax on whatever rent they are charging for the usage of the land.
Wouldn’t this hurt farmers and anyone in rural areas?
A LVT would hurt these two groups less than those living in urban areas, in fact. It’s a phenomena observed as far back as von Thünen (who has excellent theories on rent) that economic rent occurs far more within cities than in the countryside. The value of a 1km^2 parcel of land in Manhattan, being near such social activity, is far more value than a randomly chosen 1km^2 parcel of land in the Yukon. Under the Georgist model, a significant number of taxes currently in place would also be lifted on rural residents, and a UBI provided from land rents, to take into your accounting.
Keep in mind as well that the agricultural product upon the land is not subject to a LVT, and can almost be considered an improvement upon the land as human toil was used to create the crop.
Would a LVT Cause Urban Sprawl?
By all available evidence and theory, no. In Pittsburgh from 1979-1980, the city saw an increase in building and renovation within the city, and a decrease in urban blight. In Harrisburg in 1984, the city saw their number of vacant structures decrease from 4200 in 1982 to under 500 by 2001. The Land Value Tax discourages speculation, not production. We see even in New York that much of the blight/vacancy causes urban sprawl, as landlords hold out for a richer tenant to rent out the land, and smaller businesses forced away from once active city centers.
Is there a cost associated with mining speculation/new resource discovery?
Yes, new resource discovery would be marginally more expensive, but not by as much as many believe, and it would depend on the scenario. First, it’s important to understand how finding new resources, such as rare earth metals or oil operates. In one case, a contractor will pay the landowner so that he or she may run tests on the land to see what indicators (nitrates, various microbes, NORMs) are in the soil. Other times, they’ll pay for small portions of land based on models, and then go from there. In the first case with the land value tax, that payment to run tests will not be going to any landlord, and the whole process made *more* affordable. In another case, instead of paying full market price to the land owner, a portion will go (as rent) to the government, and then back again to the people. The value of speculation has not changed, only the distribution of the rents.
Would the discovery of new oil or another valuable resource be considered as the value of the land itself increasing, or the value of an improvement on the land increasing?
This would definitely not be counted as an “improvement” on the land, but this question is probably best answered by referring back to to the question of whether a land value tax applies to all economic land, including natural resources, or just the site value of the land. Since the increased value of the land due to an oil well is entirely dependent upon the amount of oil present, we can effectively separate the LVT from specific taxes on mineral rights and natural resources. So the site value of the land has not increased inherently (what would be garnered by a traditional LVT) but the value of natural resources contained by the land has. For a less subtle comparison, let’s look at a mathematical example:
Site value of 1km^2 parcel of land in the Yukon: $1,000
Site value of 1km^2 parcel of land in Manhattan: $1,000,000
100 bricks of of gold: $100,000
If 100 bricks of gold are found in the Yukon, the overall value is now $101,000, but a LVT would be able to only tax $1,000 of the site value, whereas the the other $100,000 would have to be considered separately. Another way of thinking of this is to see the natural resources as capital separate from the land, if only to be able to fathom the concept.
What will the effect of this be on indigenous peoples?
The land value tax, as a matter of policy, only affects the land controlled by that government, and would not apply to any reservations or sovereign people.
Will the structure of the LVT move tax revenue from local sources to the federal level?
Georgism as it currently stands is a largely localist movement, with organizations and advocacy groups cropping up from state to state (county to county at times). A larger federal plan could take various shapes, although the idea of keeping economic rent localized isn’t necessary in tandem with the base idea of universal land rights.
Would LVT revenue, in ideal conditions, be used to fund other public services or will they first be handed out as UBI first?
This is a more modern division; classical Georgists would stick more to the UBI model and focus on that as a priority for distributing land rents, however more modern geoist/georgist denominations often look more to use LVT as a mechanism to support current programs, than transfer over to a UBI based system.
What are the best resources for more reading on Georgism?
- The Henry George Institute
- The School of Cooperative Individualism
- Wealth and Want
- Georgist Journal
- Progress and Poverty Book Review
- Forrest of Doors Georgism Archive
- Council of Georgist Organizations
(These are working lists, to be updated by submission)
If you have any questions (with or without an answer) you wish to submit, message me on twitter @bluerepublik for the fastest response.