The Taxation of Land Values:
A Proposal for Economic and Social Reform

Frederic C. Howe

[A pamphlet published by The Joseph Fels Fund of America, Cincinnati, Ohio, undated]

January, 1909, Joseph Fels, of Philadelphia and London, member of the Fels Naptha Soap Company, contributed $25,000 a year for five years to promote Land-Value Taxation in America. The control of this fund, with the subscriptions obtained in America, has been placed in the hands of the undersigned committee. It is known as The Joseph Fels Fund of America.

This Fund is a propaganda fund. It is endowed to promote the adoption of the Taxation of Land Values in our states and cities. Already this has become a political issue of commanding importance in the Empire of Germany and Great Britain, while the cities of the former country as well as of New Zealand, New South Wales and Northwest Canada have ushered in its partial application by the levying of a special tax on "unearned increment" or by the exemption of all improvement values from taxation.

THE FELS FUND COMMISSION

• Lincoln Steffens, Riverside, Connecticut
• Jackson H. Ralston, Washington, D.C.
• Frederic C. Howe, Cleveland, Ohio
• George A. Briggs, Elkhart, Indiana
• C.H. Ingersoll, New Jersey
• Daniel Kiefer, Chairman, Cincinnati, Ohio
• A.B duPont, Treasurer

The Conditions that Confront Us

It is not necessary to portray the industrial conditions that have made their appearance in America within the past few years. Two generations ago there was opportunity for all. In so far as poverty existed, it was accidental or temporary. During the intervening years the public domain has been enclosed, the resources of the nation have been appropriated, and the difficulties of making a living have greatly increased. Opportunities for employment have not kept pace with the demand for employment. Recurring industrial crises and irregularity of employment have created a residuum of unemployment resulting in an army of vagrants, tramps and semi-criminals. Poverty has become a permanent condition to an increasing number, if not to an increasing percentage, of our people. Poverty has become a National problem.

The expenditures of Nation, States and cities have grown with great rapidity. The ordinary revenues of the Federal government approximate $600,000,000. Those of the States, cities and local divisions aggregated $1,038,347,023 more in 1904. The burden of taxation to-day amounts to nearly two billion dollars, or twenty dollars per capita. This does not include the indirect cost of the tariff.

The Remedy Suggested

The remedy proposed is the abolition of all taxes levied on personal property, on houses, buildings, farm animals and improvements, machinery, tools and goods of all kinds, as well all State and Federal taxes on consumption by means of excise or tariff duties. In lieu of the taxes abandoned, we propose a tax levied upon that value which attaches to land alone; on that value which exists because of the growth of population, the development of industry and the necessities of humanity. We do not propose to tax land, but the value irrespective of improvements of urban, suburban and rural lands; of mines, of railways, and mineral resources, which is conservatively estimated at from two to four thousand million dollars a year. It is not proposed to tax land as land, but the value of land that comes with social growth.

The remedy proposed is within the realm of practical politics in our cities and States at least. It can be accomplished by abandoning the taxes now levied on personal property and improvements, and by shifting all State and local taxes onto land values. Then the revenues of the cities and the State would be collected from economic rent. Here they would rest, for it is admitted by economists that land-value taxes cannot be shifted to tenants in higher rent. They remain where they originally fall.[1]

Feasibility of the Proposal

The separate assessment of land values and improvements is already an accomplished fact. New York City has separated its assessments since 1903. It-values its land with ease and scientific accuracy. Boston has done the same thing for many years. Cleveland, Detroit, San Francisco and many other cities separate valuations in the same way. Certain provinces of Northwest Canada do not tax improvements at all. New South Wales, New Zealand and other Australasian colonies have relieved improvements from local taxes altogether. The British Budget of 1909 proposes the valuation of city and agricultural land and mineral sites for the purpose of levying a special "unearned increment" tax, while the German cities have been collecting an average of 9.5 per cent, of the profit of the land speculator since 1904. There is no longer any question of the simplicity of land valuation, nor of the feasibility of levying a tax on "unearned increment."

The Growth of Land Values

The assessments of certain cities enable us to ascertain the colossal growth in urban land values. The land values of New York City amounted to $3,057,161,290 in 1904. Two years later the valuation increased to $3,391,771,526. By 1907, the value had increased again to $3,557,591,504, while in 1908, it had still further grown to $3,843,165,597. In four years' time, land values alone had increased by $786,004,307, or nearly $200,000,000 a year. The total ordinary expenditures of the city during these years were about $600,000,000, all of which could have been met from the speculative increase alone, leaving nearly two hundred millions for the landlords. The land underlying the metropolis was originally bought from the Indians for $24. Today it is worth 166,000,000 times its original cost.[2]

Everywhere land increases in value and at much the same rate. Nowhere is the rise in value due to the enterprise or thrift of the owner. Land values are a social growth, an "unearned increment," contributed by society to the owners of the land.

The land values of New York City carry an annual ground-rent of nearly. $200,000,000 to their few thousand possessors. The ground-rent of all America is not far from $4,000,000,000. This exceeds by two thousand million dollars all of the revenues of the Federal Government as well as of the States, counties and municipalities. The progress of civilization has produced an annual fund far in excess of the present or prospective needs of society.

The Fels Fund Commission contends that taxes as now levied discourage enterprise. They tax thrift. They obstruct business. They check employment. Taxes on land values, on the other hand, encourage enterprise and thrift, they stimulate employment and reduce the cost of living. They are a natural form of taxation.

Taxation of Land Values Will --

First, Put an End to Idle Land Holding.
It will destroy speculation. It will make it impossible to hold land out of use. As the British Chancellor of the Exchequer said: "It will make the dog in the manger pay for his manger." The owner will have to use his land, and use it in the most productive way, in order to pay the taxes. That increasing land-value taxes check speculation and stimulate use is a commonplace of experience. Surely society has a right to insist that those who own the land, on which all life depends, should either use the land or turn it over to some one who will.

Second, Cheapen Land.

First. Many owners will sell their unused land in order to be relieved of the burden of taxation.

Second. The taxation of rent will lessen the value of land, for economists' agree that the selling value of land is its untaxed value. For taxes levied on land values reduce rent. They fall on the landlord and cannot be shifted to tenants in higher rent. Thus, the competition of sellers and the reduction of rent will cheapen land and throw upon the market idle holdings that will be available for industry, agriculture and home-building.

Third, Solve the Housing Problem.

The Housing Question is a land question, not a house question. It exists only where land values are prohibitive. If we cheapen land we open it up to use; if we tax it heavily enough we compel it to be built upon. Idle land holding is only possible where the tax rate is low. Increase the rate and the land is put to productive use. Moreover the removal of taxes on improvements will encourage improvements just as the present taxation of improvements discourages them. Under the Land-Value Tax he who builds would be rewarded, while he who refused to do so would be fined. The house tax is like the old French window tax, which caused the peasant to close his cottage to the sunlight.

The taxation of land values would cut like a surgeon's knife at the root of city land monopoly. Shacks and tenements would be improved, while new structures would increase the housing capacity of the city. The tenement and the slum would disappear. No longer would thrift be penalized and the idle speculator be rewarded.

Rents would fall in consequence of the increased supply of houses. Building materials in transition from the mine, the forest and the factory would be free from taxes, as would houses, office buildings, machinery and factories. All of these forces together would solve the housing question in a few years' time. They would solve it by the law of competition.

Fourth, Destroy all Monopolies Bottomed on Land

The United States Steel Corporation has capitalized its iron ore and coal fields at $800,000,000. Twenty-five years ago they were farming lands of little value. The anthracite coal combination is capitalized at hundreds of millions by virtue of its ownership of all the anthracite coal in the East. The Standard Oil Company is a monopoly because of its railway and land privileges. Direct land-value taxes upon these resources could not be shifted to consumers. They would be deducted from monopoly profits. More than this, idle mineral resources would be forced into use, while labor would be given new opportunities for employment. With the tax sufficiently high, the nation would regain the splendid resources that have been in large measure filched from it by stealth and illegal means. The rent, which now goes to monopoly, would be converted in taxes to the state.

Fifth, Improve the Condition of Capital and Labor

What would labor gain in the new dispensation? Obviously, cheap land means high wages. The history of all new countries proves this. And if the city, suburban and agricultural landowners were taxed on the opportunities held out of use, they would use their land or sell it. A demand for labor would arise: a demand for miners, and agricultural workers, for masons, carpenters and builders. All other industries would be awakened into life in the process. All business would be stimulated. In a short time - a very short time - there would be more jobs than men seeking them. Now, the entire continent is appropriated, yet it peoples but twenty-three persons to the square mile. America could home ten times its present population were the natural resources opened to use. This the taxation of land values would do. It would increase opportunity, as did the discovery of the continent four hundred years ago.

Sixth, Effect a "Just Distribution of Wealth

Even a slight increase in land-value taxes would stimulate the use of land. A doubling of the present rate would usher in an era of industrial prosperity. Were the land value tax fully applied social justice would ensue, the landlord fulfilling the useful function of tax collector, while labor and capital would each get the full value of its product. There would be plenty of alternatives for employment in this country. Wages would rise to the full product of men's toil. The opening up of new opportunities all about us, and the increase in wages, would awaken other industry. It would flood mills, factories, mines and railways with business: for the wants of mankind know no limit.

Industry would reflect the changed conditions. For prosperity means increased demands for all those goods which labor and capital produce. Were the incomes of the salaried, professional and working classes doubled to-morrow there would arise an era of prosperity the like of which the world has never known. For the purchasing power of America would be doubled in consequence. And in the last analysis, prosperity depends not on the cheapness of labor but on the amount of money which the consuming classes have to spend. Industrial prosperity depends on the well-being of the great mass of the people rather than of the few. Through the same influences child labor would disappear; vagrancy would be reduced to a minimum and crime would be checked at its source. For child labor, vagrancy and crime are not to be found among those who are well-to-do. They are the costs of poverty.

Seventh, Reduce the Cost of Living Despite Increased Wages

The Federal revenues, amounting to $700,000,000 a year, are collected from consumers. They increase the cost of living. It has" been estimated by Professor William G. Sumner of Yale and John A. Hobson of England, that the indirect cost of the tariff, due to the monopoly prices it makes -possible, is approximately a billion and a half dollars a year. This is equivalent to $100 a family. The abolition of indirect taxes alone would reduce the cost of living to that extent, while the abolition of the taxes now levied on houses, improvements, tools, machinery and all other labor products would reduce it still further.

Land-Value Taxation is a Social Philosophy

Land-value taxation requires no new machinery and but little new legislation; no State control of industry is necessary. The throwing of taxes onto land values would open up the resources of America to those best fitted and having a natural .right to use them. It would eliminate the speculator and the land monopolist as toll-takers in distribution. It would destroy private monopoly. It would create opportunities for tens of millions of workers, and would stimulate the production of wealth beyond our present dreams. It would equitably distribute the wealth produced and would increase many-fold the amount available for distribution. We believe it would usher in industrial conditions in which want and the fear of want, poverty and its attendant evils of vice, disease and crime would rapidly disappear.

That these results are desirable all agree. Would they follow from the reform suggested? Is the logic in harmony with experience and the teachings of political economy? We ask your comments and criticisms.

The Fels Fund has been created in the belief that the taxation of land values is not only a natural and just method of raising all public revenues, but an adequate cure for the social and industrial evils which confront us. This conviction has united hundreds of thousands of persons in this country, in England, Germany, Switzerland, Denmark, Sweden, Norway and Australasia, for carrying it into execution.

NOTES

1. Land-value taxes are different from other taxes in this, they cannot be passed on to some one else as can taxes on houses, goods and other wealth that is used or consumed. '' A tax on rent,'' says the British economist Ricardo, "would affect rent only; it would fall wholly on landlords, and could not be shifted to any class of consumers. The landlord could not raise rent." John Stuart Mill says : "A tax on rent falls wholly on the landlord. There are no means by which he can shift the burden upon any one else. A tax on rent, therefore, has no other effect than its obvious one. It merely takes so much from the landlord and transfers it to the state.'' In any growing community such a tax would do little if any more than tax the speculative increase of the future. It would take for public uses that which does not yet exist. It would appropriate the '' unearned increment'' of the future.
2. All growing cities show a similar condition. The land values of Boston increased $168,240,145 from 1892 to 1900, or $42,060,036 a year. The speculative increase in land values in San Francisco averaged $9,218,254 a year from 1885 to 1904, while a study of the City of Washington showed an increase in land values of ten per cent, per annum, or upwards of $10,000,000 a year. Cleveland, Ohio, made a scientific valuation of its real estate in 1910. I/and values were separated from improvements. The assessment shows that in ten years the land alone of the city had increased in value by $177,000,000, while the population had increased by 172,000. Every man, woman and child coming to the city had added $1,000 to the value of the land. In each case, the speculative increase exceeded the total budget of the cities.
   ... The census valuation of the entire United States for the year 1904 shows the land values of the country to be approximately forty billion dollars. Statisticians have placed this land valuation at from sixty to eighty billion dollars. In town and country, land values mirror the birth rate. Every man, woman and child adds from $500 to $1,000 to the value of land. ... The Secretary of Agriculture has stated that agricultural land values increased from fifty to one hundred per cent, during the period from 1900 to 1905, due to the "exhaustion" of land and "the consequent pressure of new demand." ... The Census Department shows that the value of a little less than one-half the acre property of the country increased by one and one-half billion dollars from 1900 to 1904. Other American cities and foreign countries confirm New York's experience. In Berlin the value of the land increased by $875,000,000 from 1870 to 1890. The examples cited by the Chancellor of. the Exchequer, during the recent Budget debate in Great Britain, show similar conditions in that country.