Nobody likes taxes. But not all taxes are equally bad. From a moral perspective, some taxes are more unjust than others – imposing costs, for instance, on precisely those people who are least able to afford them. And from an economic perspective, some taxes are more inefficient than others, distorting economic activity by discouraging work and/or investment.
So, if we resign ourselves to the fact that some taxation is a necessary evil, it’s worth asking the question: what is the least evil way for governments to raise revenue?
In 1879, an American social theorist named Henry George wrote a book entitled Progress and Poverty in which he proposed an intriguing answer to this question: government financing should be derived from one “Single Tax.” And that tax should be not on income, or on consumption, but on land.
By “land,” George meant not just the ground beneath your feet but all natural resources. That includes the dirt on which you’re standing but also the minerals under the dirt and the airspace above it. Anything that exists independently of human activity but which can nevertheless be appropriated and used for human purposes is a natural resource, and the unimproved value of such resources is a legitimate object of George’s Single Tax.
Why is this tax better than any other? George had two arguments: one moral, and one economic.
The moral argument starts from the same place as John Locke’s famous discussion of property, with the claim that each individual is the sole rightful owner of his body and labor. Because George accepted Locke’s idea of self-ownership, he argued that most forms of taxation are unjust – essentially a form of theft. If you own your labor, and you choose to sell your labor to somebody else, no third party – including government – can legitimately demand that you give them a portion of the income you’ve received. To do so would be, in effect, to steal your labor.
But natural resources are not the product of anyone’s labor. They simply exist, on their own, as a free gift of nature. And because nobody created them, nobody has any better claim on the raw value of those resources than anybody else. Your ownership of your body and of your body’s labor does not give you the right to put a fence around a piece of land that your labor did not create, and to prevent everybody else from using it without your consent.
Natural resources, George thought, belong to humanity as a whole, and not to any particular person. A tax on the unimproved value of those resources is therefore one way in which humanity as a whole can reclaim what has been unjustly monopolized by a few, and do so moreover without violating individuals’ self-ownership. The Single Tax, on George’s view, is the only kind of taxation that does not amount to theft.
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But not only did George think the Single Tax was more just than other forms of tax; he also believed, like Adam Smith before him and economists from Milton Friedman and Joseph Stiglitz after, that it was more economically efficient. Most taxes have a distortive effect on economic activity. A tax on income causes people to work less than they would if they simply followed the normal market forces of supply and demand. A tax on capital gains causes them to invest less. In short, any time you tax something people do, or anything that is produced by things that people do, then people are going to do less of that thing and produce what economists call “deadweight losses.” But since natural resources are not the product of human activity, a tax on their value obviously doesn’t lead to people producing less of them. All it leads to is less “rent” winding up in the hands of the landlord, and therefore less of an incentive to become a landlord in the first place, at least if all you’re going to do with the land is hold it and charge other people for its use.
Of course, many landowners do more than this. Many landowners use their land productively. They build things on it; they plant trees on it; they fertilize the soil. Insofar as landowners improve the land – or “mix their labor” with it, in Locke’s terminology – they are entitled to something in return for their labor. But what they are entitled to, George insisted, was only the value of their improvement. If you make a $10,000 improvement to a $500,000 tract of land, your labor entitles you to the $10,000 you’ve produced. It does not entitle you to the $500,000 you simply took. By allowing people to keep what they’ve produced – but only what they’ve produced – we both respect their moral claim to the products of their labor, and we maintain a strong incentive for people to use their land productively.
Henry George was someone who understood the productive powers of capitalism and free trade. But he also was someone who believed that that there was important, though strictly limited, role for government to play in a free society, and who realized that some mechanism had to be found for financing the legitimate functions of that government. In the Single Tax, George believed he had found a way to do so that was both morally just and economically efficient. If the Single Tax really is compatible with both individual self-ownership and economic efficiency then, who knows? Perhaps it’s a tax that even libertarians could learn to love.
Originally published at Learn Liberty.
2016 March 8