We Need Land Reform

Paul Douglas

[Reprinted from Incentive Taxation, September, 1987]

Paul H. Douglas, until his death some years ago, had a long and distinguished career both as professor of economics and as U.S. Senator from Illinois. When he left the Senate in 1966, Lyndon Johnson appointed him chairman of the National Commission on Urban Problems, an advisory panel which eventually submitted numerous recommendations to meet the urban challenges of our time.

Senator Douglas failed in his attempt to have land value taxation included in this list of recommendations. The final report only urged the states to study the proposal. Dissatisfied with this, Douglas wrote a minority report urging the immediate adoption of land value taxation, and he was joined in this by three fellow commissioners - Coleman Woodbury, Jeh Johnson and Ezra Ehrenkrantz. Here are selections from their report:

"The Commission has done well to recognize some of the injustices connected with the non-taxation of land or location values. Hitherto, land has been assessed at a lower ratio to market value than buildings. To tax both of these types of real property on the basis of what they would bring in the market would be, in the first place, only common honesty. This is no more than the state property tax laws have long required. Obeying instead of disregarding the law would also have the wholesome effect of causing some shifting of investment towards buildings and improvements and away from land speculation. Lessening the relative tax burden on structures should therefore reduce one of the obstacles to the construction of new housing.

"We regret, however, that the Commission as. a whole did not see fit to endorse some wider applications of the Pittsburgh Plan, which taxes the gifts of nature - - such as land - - at twice the rate that it taxes the product of men's labor and saving. For this would further diminish the burdens on effort, and hence stimulate improvements.

"Alien Manvel's statistics are the clincher. He shows that whereas bare land values amounted to $270 billion in 1956, they had amounted by 1966 to $520 billion. This meant that they had virtually doubled in ten years, or at an average yearly increase of $25 billion.

The owners of the land received these enormous gains without strain or effort on their part. They owned a relatively scarce and limited asset which acquired more and more value as population grew and as the Gross National Product increased. The progress of society created these values; the owners of the land received them. The increase of $250 billion in the value of the land was not caused by the labor or abstinence of its owners. It was instead an 'unearned increment.'

"The owners of the land can go to Hawaii and rest languidly on the beaches or make prolonged safaris into the inmost regions of Africa. They may study Shakespearian literature at Stratford-upon-Avon, or Zen Buddhism in Japan, or ponder urban problems in Washington. They can go up in space capsules or down a hole in the ground. They will become richer and richer without toil or sweat. For, as Doctor Johnson once remarked in another connection, here are 'riches beyond the dreams of avarice.'

"What we advocate is modest, namely that within a general system of taxation a special effort should be made for society to recapture for itself an appreciable share of the values which it has created.

"The amount of the tax could, for example, be increased by one percent a year over a long period of time until the economic rent would be virtually all absorbed except for the collection fee.

"A still more moderate approach is to couple the gradual increase of taxation on land values with the gradual and simultaneous decrease of taxation on buildings (as in the Pittsburgh Plan). If the mass of home-owners, businessmen, industrialists, and developers stand to gain at least as much if not more by the reduction of taxes on their building improvements as they stand to lose from the increase of taxes on land values, this should help to satisfy those who are looking for tax reforms that will not only be just but palatable as well.

"We ask only that the men and women who make up society should be allowed to share in the increases in value which their presence and productivity have created. Unless there is such a public awareness and commitment, we shall repeat the history of the past and permit those who sit tight and hold on to a scarce factor of production to reap a large part of the product created by others.

"We are becoming properly aware of the need for land reform in the country sides of Asia and Latin America. There is an even greater need for land reform in the cities and suburbs all over the world -- our own country included. This is not to be obtained by a subdivision of the land, which is possible in farming but not in crowded cities and suburbs, but rather by society asserting the right to the differential rents and values which the forces of fertility and productivity create.

"So we wish to raise our voices, feeble as they may be, to appeal to the intelligence and conscience of mankind."

Amen.