Land Taxation as an
Evasion-Proof Revenue Source

C. Lowell Harriss, Ph.D.

[A speech delivered at the 49th Congress of the International Institute of Public Finance, Berlin, Germany, August [1993?]. Reprinted from The American Journal of Economics and Sociology, January 1994]

TAX EVASION weakens government treasuries. And, of course, escaping taxes plays a major role in the origins of "irregular activities"--the underground economy, unreported economic activity, the shadow economy, whatever term one uses. The Congress will present evidence on the size, the nature, and the results of hidden, off-the-books, economic activity. Unquestionably, revenue loss is significant. Governments are pressed to spend, to spend more than their revenues. They suffer from tax evasion. (For present purposes, I refrain from bringing tax avoidance--the use of legal methods to escape taxes--into the discussion although much of what I shall say applies to some extent to tax avoidance.)

Taxes based on income, on sales, on value added, on inheritance, and on other bases are vulnerable to evasion. Tax rates at present levels are high enough to provide incentives, often powerful incentives, to evade. And as this Congress will reveal, what people do to evade taxes will have adverse non-tax results. One tax base, however, is essentially evasion proof - -land. Land cannot be hidden, nor moved to other taxing jurisdictions to escape tax as can income and sales.

Governments can use the uniqueness of land's immobility as a consideration in constructing a revenue system. An annual tax on land value--price or capital value being preferable to rental value--would be essentially evasion-proof. The physical characteristics of the land surface cannot be concealed. Nor can the many non-tangible elements affecting land values be hidden or distorted to any appreciable extent. (Taxing structures, however can present problems, but this is not the concern here.)

Land deserves a prominent place in a tax system for reasons articulated long before tax evasion became a recognized problem. Henry George in Progress and Poverty (1879) argued that land should be the only tax base. Today the "single tax" would not finance all government. But taxes on land values could raise far more revenues in the United States and permit desirable reductions in other taxes--notably those property taxes on buildings and machinery.

Land is a productive resource whose total quantity is not diminished by the taxes imposed. The payment made for use does not go to reward the producer (creator) of the resources as do our payments for labor and man-made capital. Most of the value of land depends upon past and present community developments, not upon the efforts of past and present land owners (as distinguished from building owners). If the tax is not paid, the government can take the land. Other reasons for using land as a tax base cumulate into an impressive total -- to which one adds the merits of uniqueness among revenue sources as being evasion-proof.