A Direct Tax on Land Values

Warren Worth Bailey

[A statement made before the United States House of Representatives, Committee on Appropriations, and the Committee on Ways and Means, United States Senate; 1914 (estimated) ]

Mr. Chairman, I appear before your committee on behalf of the Single Tax Association of the United States. I am a member of its national committee. The measure in which we are interested is known as the Crosser bill (H. R. 4024), by which it is proposed to raise by a direct tax on land values the sum of $2,000,000,000, to be apportioned among the several States on the basis of population as required by the Constitution.

This is the only revenue proposition which has been submitted that does not carry with it the objection that it penalizes thrift, obstructs industry, and burdens labor. The tax on land values would have a directly opposite effect. Such a tax will in fact stimulate industry all along the line. It will encourage capital. It will give added impetus to industry. It will tend to lighten the burdens of labor, at once tending to raise wages and cheapen the cost of living.

Every tax thus far laid by Congress in support of the war is subject to the criticism that it hampers business, retards industrial progress, adds to the cost of living, imposes hardships on capital and labor alike, and tends more or leas definitely to lessen the Nation's ability to meet the heavy obligations imposed by war. All taxes that are now levied are discouraging in their character and many of them are of a nature which permits them to be shifted to the ultimate consumer. They fall with distressing weight upon the shoulders of those least able to bear the burden.

This, of course, is not true of the income tax or of the inheritance tax, nor is it true of the excess-profits tax. These are all direct and they are not easily susceptible to the shifting process. Yet none of these taxes actually tend to stimulate production. They certainly do not encourage thrift or invite to higher industrial activity. If we note great industrial expansion, it has come in spite of the burdens which have been laid upon it through taxation. It has come in the very face of pains and penalties that under other than war conditions would bring paralysis and that will bring paralysis ultimately in any case, for even a great rich nation can not forever pile burdens on the backs of its people without wasting their substance and crippling their energies.

The direct tax on land values proposed in the Crosser bill would have the very opposite effect from any of the other taxes now levied or that have been proposed. It would infallibly promote production. It would lend spurs to capital and to labor. It would impart a stimulus to industry of every legitimate nature. It would do the very thing we most desire at this critical time in our country's life. It would result in a greater production of food and fuel, since it would open opportunities now closed and place a premium on use, where now the premium goes to idleness or nonuse.

Food will win the war. If we can not feed our armies, they can not fight. An army, as Napoleon said, travels on its belly. It becomes mutinous when the food supply runs low. Nor can a country be kept in harmonious support of its men in the field if the women and children at home and the workers in the industries are poorly fed. We must have an abundant food supply if we are to make certain of our future in the great struggle which is now perhaps in its most critical stage. But agriculture is receiving no greater stimulus through present forms of taxation than industry in general. The farmer, too, is penalized for doing the very thing we most want him to do. His thrift is discouraged. The cost of everything he has to buy is enhanced by the taxes that are being imposed on general industry. If the farmer is prospering under the present conditions, it is in spite of all discouragements and all handicaps imposed by the fiscal policy of the Government.

Mr. Chairman, I would like to invite the attention of your committee to a most significant fact, namely, that vast bodies of productive land lying in or near our cities and industrial centers are practically if not absolutely idle, held out of use for speculation, for that certain enhancement in value which comes with increasing population and expanding industrial life. On investigation you will discover that food production in large measure has been driven back and still farther back from New York, from Boston, from Chicago, from St. Louis, from San Francisco, and from every other place of any consequence in the country. It has been driven back farther and farther by the tightening of the speculative band which is thrown around ever center of population. The effect of this can scarcely be appreciated at first blush, but it is serious, so serious that it should challenge your attention and the attention of the country, for these idle areas ought to be producing, they ought to be yielding their products to the markets, they ought to be relieving the pressure which every American now feels through the high cost of food.

I wish that time permitted, so that I might go into this phase of the subject with some attention to detail. I am certain that the figures I might lay before you would startle every member of this committee and perhaps most people whom they might reach. But I may say in passing that hundreds of thousands, perhaps millions, of acres of the best land in the country adjacent to our industrial centers are today practically out of use, yielding little, if anything; held solely for speculation.

The adoption of the Crosser plan would tend to cure this evil. It would tend to force idle land into use. It would discourage the speculator, but only him. It would impart a stimulus to every one else. It would raise the margin of cultivation, bringing it nearer to the center, to the market, to the point where the produce is required for consumption. And at the same time this direct tax on land values would stimulate building operations in towns and cities. In every center of population in America the vacant-lot industry is a flourishing one. Urban development is hampered by it. Cities do not grow in normal ways. They sometimes have to make wide jumps to clear an obstruction in the form of vacant spaces held out of use by speculators. And in consequence there is overcrowding on the one hand and relative isolation on the other, population being herded in the tenements and widely scattered in the suburbs. Every observer must have noted this fact. It is not so certain that everyone who has noted the fact has grasped its significance or understood the reason back of it. Cities ought to grow normally, like a tree grows; but as a matter of fact they grow sometimes in the very opposite direction from that expected, because the vacant lot held for speculation stands in the way, diverting growth and sometimes arresting it altogether.

The constitutionality of the Crosser proposition is hardly open to question. And it is not without precedent in the history of the Republic. Direct taxes have been laid and collected in the United States by the Federal Government at least three times; first in 1798, second in 1813, and third in 1861. But while the direct tax in these cases fell on land and its improvements, it is the purpose and the high merit of the Crosser bill to confine the tax to land values alone, improvements of whatever name or nature to be entirely exempt. Were the tax to fall on improvements as well as on land values the effect would be the opposite of the one aimed at, since taxes on improvements tend to discourage them and they place a premium on holding valuable opportunities out of use or out of their best and fullest use.

I believe in President Wilson's policy of pay as you go. I do not look with favor on the blanketing of the future with bonds. We should pay for our own wars and let our children and their children's children pay for their wars if they shall not know how to avoid appeals to the sword. President Wilson has taken the right ground in this matter, but Congress has not seen how it could raise sufficient money to carry forward our great undertaking without resorting to a mortgage on the future. It has plainly perceived that it can not go indefinitely forward in piling burdens on business and on thrift and industry. It has been said before this committee and by the chairman himself, I think, that there is already some fear that the taxes under existing legislation may so operate as to lessen the ability of the country to meet its obligations next year.

The goose that lays the golden egg is perhaps being rendered unfit for future effort. And there is a grave prospect that this very thing may come to pass. No man who has really studied the subject of taxation can have failed to note how taxes in many cases tend and strongly tend to lessen production, to check enterprise, to discourage capital, to dishearten labor, and in general to obstruct social growth. This is the necessary tendency of every tax which falls on labor or on industry. But the very opposite tendency is observed where the tax falls on land values. The land-value tax can not be shifted. It stays where it is put. It can not possibly be passed along. It is more easily assessed and collected than any other tax. It infallibly and unfailingly encourages the use of the land affected. It tends to open opportunities to labor and capital which speculation sets itself to deny. It drives the dog out of the manger and gives the ox a chance at the hay. It offers capital and labor alike a premium for engaging in production, offering no premium whatever for idleness or nonuse.

I feel profoundly certain that the adoption of the Crosser proposition in providing revenue for carrying on the war and for meeting the obligations of the Government would be enormously helpful to the Nation in more ways than I have time to point out here. The committee can not go into this subject, I believe, without becoming convinced that here is a resource which can be drawn upon without in the least hampering the Nation in its economic life, without offering even a temporary setback to capital, without injuring labor, without hindering industry, without penalizing thrift, and without any of the evil effects which follow the taxation of labor and capital and the products thereof. It is my earnest hope that the committee may seriously consider the Crosser proposition. It is economically sound and morally unassailable. Through it and through it alone we may secure ample revenue to meet the stupendous cost of the war without crippling our industry or penalizing enterprise.