(Not) Taxing Enterprise and Land Value Taxation

(Not) Taxing Enterprise and Land Value Taxation

- in Γεωφορολόγηση

from the Athenian

The topic of taxation always engages our interest – as long as it is not heavily dressed in technical terms.  However, our concern is chiefly, and not unnaturally, with  the effect on our own income and ways of  paying as little tax as possible.  Here we examine taxation itself and attempt to indicate a very different system of collecting public revenue.

Taxation is today, at least in capitalist economies (USA, Eurozone, Japan etc), the chief means of public revenue.  Few people doubt that the government needs its own income whereby to finance its own administration but even fewer wonder whether the present way of going about it (i.e. taxing just about every form of income) is a valid or just mode.

The current system can be described, in a simplified form, as “the more people work and increase their income, the more tax they’ll pay”.  This has an insidious aspect that commonly passes unnoticed.  Take the example of two farmers, Andrew and Thomas, with identical farms.  In 1990 they both produced 100.  In subsequent years Andrew put in more capital, made improvements and got all members of the family to lend a hand so that in 1994 his production increased to 150.  Thomas carried on as before and in 1994 showed a loss.  Now Andrew will pay more tax whereas Thomas will pay none and probably get a subsidy, which will come from Andrew’s tax-payment and that of others like him.  Nothing could be more blatantly absurd and unjust.

There is a different way.

In the beginning of the 20th cent. Professor Alfred Marshall*, and recently Dr Ronald Burgess**, make a distinction between “private value” and “public value”.  To avoid lengthy technical analysis, let us say that private value is the product which is due to a producer’s own capital-outlay and work, as in the case of Andrew above.  What is public value?  This appears only in the increased market-value of land, as when, say, a railway station or a harbour is constructed somewhere.

We can look at this more closely.  Unused lands on a slope close to a bay, had in 2000  a certain market-value, of say, a 100.  Now, in 2010, after an adjacent road was constructed to reach the bay where a resort and/or harbour has appeared, the value of these lands has increased, say, to 150 (or 200 or 300).  This increase, obviously, is not the result of any work or capital put in by their owners.  It is the direct result of the public road and the particular development of the harbour/resort. The increase is a public value. This is what should be collected as public revenue (=taxed) – the increased value which is not due to the owner’s work.

The differential market-values of all sites (all lands everywhere) are public values.  These increase only with the development of infrastructure, with technological advance with the appearance or betterment of public services and other cultural manifestations.  Unlike the market-value of buildings, cultivations, mines, etc, which can be increased by the owners’ own work, a landowner can do nothing to increase the value of his site.  And here we should stress that “sites” or “lands” denote bare sites or bare lands, i.e. without improvements, mines, plantations or buildings upon them.  These public values are, claim Marshall, Burgess and some other economists, the proper source of public revenue.  These should be collected instead of the usual forms of tax on incomes, goods and services.

The modern taxes on real property and on incomes therefrom are not really the collection of public values.  “Real property” is a misleading term because it denotes both bare land and improvements upon it.  Improvements such as fences, ditches, mines, plants, houses, shops, etc, are private values, generated by the owners’ own use of outlay and work, and these should not be taxed.  Any valuer or estate agent knows fairly well the market-value of any site as distinct from that of the building upon it.  Constructors who buy a site for redevelopment do not pay anything for the old building on it; in fact, they often take into account the cost of demolition and subtracted from the initial price.  Thus it is not difficult to separate the two values anywhere.

This system is called collecting the public values (or taxation of land-values or, more commonly, LVT, that is Land-Value Taxation).

Let us go back to our example of Andrew and Thomas.  Under this different system, Andrew will not have to pay more taxes.  The market-value of his land has not increased; what has increased is his productivity. He should therefore make no additional contribution to the Public Treasury.

Obviously several details need elucidation.  But the main feature of this other system is clear enough.  It does not tax income derived from private enterprise thus strangulating effort, industry and initiative.  The current system of taxation gradually taxes most of us into a subtle form of economic slavery.

* Principles of Economics, V, ch 10 and 11, London 1890.

** Public Revenue without Taxation, London, 1993.


  1. In theory, LVT causes no economic distortions, is more efficient in terms of resource allocation and in principle more fair.
    In reality, property taxes in the US and other capitalistic economies make up a relatively small percentage of a family's tax burden and government's tax revenue. Should LVT replace income, sales and other forms of taxation, wouldn't tax rates have to be so high that they would resemble unconstitutional "taking" of property? Thanks.

    1. The Athenian

      First, see Φορολογική Μεταρρύθμιση Γ, § 3a by Nikodemos where he gives several examples of CPV (=Collecting Public Values) or LVT, particularly the case of Harrisburg, Pennsylvania.
      We myst distinguish between CPV (or LVT) from a Property Tax. As I explain (4th paragraph from end) taxes on real property are not CPV/LVT. Nikodemos too explains the difference in Φορολογική Μεταρρύθμιση Β §4, β, and the usual confusion regarding CVP and property taxes.
      Any tax is repressive or prohibitive.
      In 1790 in Britain, the government wanted more revenues; it decided to impose a tax on windows. The more windows the house had the more tax the owner would pay. So the owners of the lordly manors blocked with bricks and mortars as many windows as they possibly could!
      Say now there is a tax 10% on all property below the value €300000 and 15% on all property values above this amount. Your house is old and small on a large plot. The market value of the whole property is now €280000 (€180000 the plot, €100000 the house). But the house needs an extension and repairs costing €40000. If these are done, the value of the property will be raised to €320000. Obviously, it is not in your interest to do the repairs as you will pay almost twice in taxes.
      CPV or a tax on the bare land value, which is, say, €180000, will not have the same effect. You pay €18000 now and when you have made the repairs you will stillbe paying €18000 although the house is now worth €140000.
      However, if a Metro station is constructed 500 metres from your house, the value of your land could now reach €300000. All land values around the station will go up. Your house will still be worth €140000 but the plot on which it stands is now worth €300000. Now you will pay €30000.
      What does this mean?… It means that the location is suitable not for houses but for other uses (shops or offices or block of flats) as the community develops. It means that the rise in value is due to the new service (easier transport) which is the result of municipal or governmental work and expenditure and you reap the benefit. So it is right that you should pay more for the cost of creating this service.
      If all public values were collected, then no other taxes need be imposed. Since public values are generated by the development of the community, by advance in science and technology, by increase and improvement of services and the like, then it is sheer theft for landowners (always of bare land!) to enjoy the benefit of increased land-values. These increases which are public values should be collected by the State. The State should live on that revenue and should levy other taxes (on income or imports or whatever) only in the very special circumstances of a natural disaster or war.
      See also the example of Hong Kong in Φορ Μετ Γ §3β.
      If I have not answered satisfactorily, please ask again!

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