The Single Tax Movement

 

 

Henry George

(1839-1897) 

High birth rates and an influx of millions of immigrants in nineteenth-century America triggered rapid growth. Frontier lands were homesteaded, and urban land values boomed. Henry George and his followers believed landowners unjustly reaped huge benefits from economic growth, which George viewed as rightfully due to society in general. In Progress and Poverty (1879), George proposed a single tax on land equal to the surplus landowners receive, and argued that these revenues could replace all other taxes and finance all government spending. His reasoning is illustrated in this figure.

Equilibrium rent per acre before the land tax is to (point a). A tax equal to half of annual rent would cut the net rent per acre to landowners down from to to t. They cannot change the supply of land to drive its rental rate up. Attempts to raise rents would fail because surpluses of vacant land would develop. Rent that can be charged land users is strictly demand determined, so landowners cannot avoid the full burden of a pure land tax.

The central thrust of George's notion is that land rent can be taxed heavily without distorting production incentives. If untaxed land were used optimally, the most profitable uses would remain so after imposing the tax. (If you are able to keep half of all rent, 50 percent of the highest possible economic rent is the best you can do.) Thus, land taxes seem allocatively neutral.

George felt that "nothing short of making land common property can permanently relieve poverty and check the tendency of wages to the starvation point." He proposed to do this not by directly nationalizing land, but by the roundabout method of taking away the unearned income that proprietors enjoyed from land rents. Progress and Poverty became his era's best selling work on economics and the bible of the single-tax movement.

A single tax on land sounds appealing, but it suffers from several flaws: (a) potential revenue would probably not cover all current government spending; (b) administration would be complex, because distinguishing the values of land from its improvements-clearing, irrigation, buildings-is quite difficult; (c) land is not the only resource that generates economic rents, and (d) rent does provide resource owners with incentives to find users who most highly value the resources. A single tax on land rent would impose the full burden of paying for government on landowners. This seems unfair from the vantage point of current landowners, who may have purchased land at very high prices.

George's single-tax movement reached its apex in his 1886 race for mayor of New York City. Running as the candidate of the United Labor Party, George finished second, but there was wide speculation that he might have won an honest ballot count. Henry George died during another run at the mayor's office in 1897, but left his imprint on economic reform movements at home and abroad.

 

Author: Ralph Byrns

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