“This association of poverty with progress is the great enigma of our times…so long as all the increased wealth which modern progress brings goes to build up great fortunes, to increase luxury and make sharper the contrast between the House of Have and the House of Want, progress is not real and cannot be permanent” – Henry George
Henry George is most well known for his ‘single tax on land’ proposal, or what is most commonly referred to as Land Value Tax or LVT (although, he was not the first to popularise this idea). George’s theory is summed up on Econ Lib as follows:
Most taxes, noted George, stifle productive behaviour. A tax on income reduces people’s incentive to earn income; a tax on wheat would reduce wheat production, and so on. But a tax on the unimproved value of land is different. The value of land comes from two components, its natural value and the value that is created by improving it (by building on it, for example). The value of a vacant lot in its natural state comes not from any sacrifice or opportunity cost borne by the owners of the land, but rather from demand for a fixed amount of land. Therefore, argued George, because the value of the unimproved land is unearned, neither the land’s value nor a tax on the land’s value can affect productive behaviour. If land were taxed more heavily, the quantity available would not decline, as with other goods; nor would demand decline because of land’s productive uses. By taxing the whole of the value of unimproved land, the government would drive the price of land to zero.
A social advantage of the LVT is that it obtains support from across the political and economic spectrum, that is, its not strictly left, right or centre. For example, David Farrar (right wing blogger/National Member) recently commented that he supports a land tax and Stuart Nash (left wing blogger/Labour Member) did the same earlier this year on the Daily Blog .
My understanding so far is that George wanted to bring an end to privilege. He thought that the dependency relationship between land owner and non-landowner enabled the conditions for poverty to flourish and he considered that a land value tax to replace income taxes would reduce the resultant economic inequality by placing the tax burden on the unproductive gains of the land owner rather than the productive gains of the worker.
This presumably has the effect of encouraging the least well off members of society to obtain their full wage, thereby incentivising productivity and reducing the incentive of land owners to hold vacant land which drives up property prices.
As a non-economist, there are definitions I am still trying to get my head around, so any economists reading this feel free to correct any errors in the comments below. I’m still reading ‘Progress and Poverty’ (among multiple other texts) and I’ve decided that I will address Georgism in a series of posts over the next few months, with the holiday season nearing, I may be somewhat distracted. I will try to write according to the titles listed below and I will update with hyperlinks as I post:
- What is land tax
- Who does land tax apply to
- Why we should favour land tax
- How will land tax reduce economic inequality
- How we can implement land tax fairly in Aotearoa New Zealand