Response to Edwin Mills
on Land Value Taxation
[Reprinted from a Land-Theory online
discussion, 29 April 2002]
1. p.1, Mills asserts with certitude that land rents are 5-7% of GDP
(sic) today, and have been the same for 120 years.
- A. He offers no support (but see #2).
- B. He later makes as his major point that no one can know what
land rents really are. How, then, does he know? He apparently does
not see the contradiction.
- C. He does not comment on studies by others showing rents to
be much higher.
- D. The relevant datum would be NET Domestic Product, not
- E. He later writes, p.5, that land value is 15% of real estate
value (again with no support). With a little figuring, if land
rent is 7% of GDP, and therefore, say, 9% of NDP, and land rent is
15% of real estate income (as he implies), then real estate income
would be over half of NDP. He does not seek to reconcile that with
the general showing of data sources that it is much less.
- F. He does not define "real estate," so we don't
know if he includes corporate-owned industrial and mining lands,
eleemosynary holdings, or what.
2. He cites unpublished "technical study" held by the
publisher, and "available on request"; but gives no specific
references. It later seems this "technical" study is really
a theoretical one, based on some indefensible assumptions, discussed
3. He misquotes or misreads H. George on population, saying George
wrote that rising population would hold down wage rates. George wrote
the opposite, most explicitly. George wrote that the misuse and
underuse of good land, forcing recourse to worse land, and overpricing
good land, is what holds down wages.
This lets Mills say, p.2, that the ONLY (sic) reason for switching to
LVT is to raise the capital-intensity of land use. George's reason was
to make jobs, and raise the marginal productivity (hence wage rates)
4. Mills issues several dubious statements ex cathedra, on his own
- A. P.1, real labor earnings have risen greatly since 1900.
- B. The causes of the rise are limitations on population growth
(!), more human capital, and a larger stock of capital.
- C. No one could understand the above without neoclassical
As to "A", one should consider:
- i. How much of the rise was due to the practical implementation
of Georgist taxation - heavy reliance on the property tax, a
tendency to overassess the land element, and an income tax, before
1941, that spared wages and focused on land income?
- ii. It is widely believed that real wage rates peaked in the
1980s, even before taxes.
- iii. It is doubtful if the CPI adequately reflects the higher
cost of housing.
- iv. Taxes are increasing focused on wages and salaries.
- v. If higher wages are due to more human capital, the process
of absorbing human capital - i.e. deferred entry into the labor
force - should be debited from nominal wages.
5. p.1, col. 3, Mills says he will focus on whether a land rent tax
is less distorting than "other taxes for which it might be
substituted." He departs immediately from that, however, and
discusses only the property tax on buildings - ignoring sales,
payroll, excise, and income taxes. In fact, California after 1978
underwent a massive substitution of sales and income taxes for land
and building taxes, but mostly for land taxes. That substitution could
be reversed, and without incurring any of the problems that Mills
poses about separating land from building values.
6. Pp. 2-3, Mills gives a brief glimpse of the theoretical model of
his "technical analysis." It includes the assumption that "halving
land while doubling labor" would "leave output unchanged."
This is alleged to tell us "what the numbers show."
Apparently these numbers are hypothetical, spun off from this model.
I would have no faith in a model with such a bizarre content, nor
would I blame it on Paul Douglas who, by the way, supported LVT
strongly when he, as a U.S. Senator, headed a housing commission under
Inconsistently, on p.5, Mills touts the "hedonic" approach
to valuation, where the effects of improvements are "non-linear."
7. P.4, Mills alleges that a tax on buildings, by suppressing
building, lowers a city's demand for land overall. Here he forgets
entirely about how the tax induces substitution of land for capital,
increasing land requirements. He never mentions timing of replacement
and the tax-inducement of derelict buildings, and their negative
neighborhood effects, that force demand outwards. Not a word about
Land values are marked by continuity in space. To the extent the
market is free to determine where new buildings go up (free of
building taxes), the city will be compact, as builders add strength to
strength. The market, unbiased by distorting taxes, combats urban
sprawl and lowers the aggregate demand for land. Many critics of LVT
have faulted it for promoting centralization, by letting the market
work without bias. Now comes Mills with the opposite complaint - at
least, at this point. But read on.
In his last column on p.5, however, Mills avows that to exempt
buildings will lead to more centralization and higher ratios of
buildings/land - i.e. to lower a city's overall demand for land. Here
he is making a different attack on LVT -- too much street congestion
-- and he reverses his analysis to suit the attack of the moment. This
kind of self-contradiction is vexing to the reader, and makes one
wonder how objective this work is.
8. Mills avers it is impossible to put a value on land, if it is
- A. P.3, "most taxable metro land is already developed."
A few aerial photographs dispel that notion. Parking lots, e.g.,
are ubiquitous in CBDs. (Wonder what he means by "metropolitan
- B. P.3, He rejects sales before tear-downs as being land sales
("they simply do not provide ANY basis for assessing land
values"), for what look like captious reasons.
- C. He rejects evidence gleaned by city purchases and sales of
land. He raises the irrelevant bogey of the failed "Urban
Renewal" program of the LBJ years, but that was not designed
to garner data for assessment purposes, but rather to placate a
few big city mayors (like Presidential hopeful Henry Maier) who
wanted to evict poor blacks. At the same time, the suburb of
Whitefish Bay, WI, had its own homegrown program of buying old
houses and reselling land at the market, quietly amassing enough
data to value the entire suburb.
9. P.3, it is much harder to value land alone than land with
structures - he says, from his own authority without any support or
10. P.3, he alleges that Vancouver uses only "rules of thumb"
to value land separately from buildings.
- A. His source for this is an article on Pittsburgh, by Oates
and Schwab. I am not aware that they studied Vancouver. As for
Pittsburgh, it is true that its assessments were very bad, but
there is no evidence to blame Vancouver for Pittsburgh's faults.
- B. I have assessment data from Vancouver and environs ("The
Lower Mainland"), by neighborhoods, showing that the fraction
of residential real estate value that is land value varies from a
low of 40% in some less desirable suburbs up to over 80% in the
Point Grey and University Endowment Land districts in the
southwest city. What rule of thumb does Mills allege that that
follows? He does not say.
- C. The officer who was in charge of assessments for the whole
Province, Ted Gwartney, is available for Mills to consult (he now
lives in Bridgeport, CT).
11. He overlooks the many cities around the world that base taxes on
land without improvements; and the healthy condition of those cities.
Among them are Sydney, Brisbane, Adelaide, and perhaps half the
municipalities of Australia and New Zealand; Hong Kong; Taipeh;
Johannesburg, and dozens of other cities in South Africa; Copenhagen;
12. On p.4, col. 1, unless the taxing body can estimate both land and
improvements both before and after the tax shift to LVT, "no
improvement in resource allocation can result."
That is a pretty violent non-sequitur. Wm. Vickrey, an enthusiastic
advocate of LVT, often remarked that its incentive effects do not
depend at all on the accuracy of valuations; they only depend on the
tax remaining unchanged when improvements are made. Perhaps he
overstated the matter to make a point and a little stir, but he was a
Nobel Laureate, and worth heeding.
13. P.5, Direct controls over land use have replaced the market, so
there is no point in improving the market, anyway, says Mills. There
are many reasons to improve the market, but the short answer to that
foolish comment is, "Well, Prof. Mills, since it doesn't matter
to you, let's do it my way."
14. p.5, Untaxing buildings would increase jobs in the center, and
call for new infrastructure.
- A. It surely would make mass transit more viable, cutting
- B. It would abate urban sprawl, which so inflates
- C. It would attract residences as well as jobs to the center,
and reduce most trip lengths, thus lowering overall linkage costs.
15. On p.1, Mills misuses John Whitakers's article on Walker and
- A. Mills has Walker and George in an "emotional"
battle, like "romantic rivals," "that blocks
intelligent exchange among thinkers." On this he cites
Whitaker's 1997 article. That is not Whitaker's emphasis at all;
he has them both contributing to forwarding intelligent thought in
- B. Perhaps Mills has in mind the semi-popular debate between
Walker and George on the U.S. Census' unwarranted conclusion that
farm sizes were becoming more equal, because the mean size had
fallen. This was spirited on both sides. However, Whitaker omits
it from his article (an omission I do not understand).
- C. As for forwarding intelligent thought, George in this
debate advised Walker he needed something like the Lorenz Curve (a
term not then yet invented). Walker's views had been quite
primitive. In 1900, however, the Census of Agric. adopted George's
- D. As for "emotion," Walker was clearly carried away
with contempt, led with his chin, and made a fool of himself.
Later, in his text, he wrote of the land tax that "I will not
insult my readers by discussing a proposal so steeped in infamy."
Now, THAT is emotion! George seemed relatively calm.
16. On p.1, Mills crowns Walker as "the greatest 19th Century
American economist." Not any modest "in my opinion," or
"perhaps," but simply "the greatest," on Mills'
authority, ex cathedra.
- A. Perhaps Mills is not aware of Susan Carter and Richard
Sutch, 1995. "Fixing the Facts: Editing of the 1880 U.S.
Census of Occupations ... " NBER Historical Paper 74. Carter
and Sutch conclude that Walker (then-Director of the U.S. Census)
doctored 1880 Census returns to understate the incidence of child
labor, "which was far greater in 1880 ... than has been
previously thought." (pp.28-29). Why the doctoring? Their
main burden is to show that doctoring occurred, but "Perhaps
he was afraid of igniting social protest."
- B. Perhaps Mills has not read the journal debate between
George and Walker (reprinted as an Appendix to most editions of
George's Social Problems). Walker's bumbling with means and
measures of dispersion is not in the manner of "the greatest."
His motive, aside from sheer negligence and overcommitment, may
well have been the same as what Carter and Sutch suggest above.
In summary, this is a most unsatisfactory paper, and does not begin
to meet its burden of showing that land taxation is not practical.