Questions about Georgism

 

I, like you if you are reading this, was convinced of the truth and justice of Georgism by the Astral Codex Ten Book Club entry on Progress and Poverty, by Lars Doucet. So much so, that I went and read the entire book, and have slowly made my way through a few of the resources that Lars provided, or that I’d otherwise dredged up about Georgism. However, after all my haphazard reading, there seems to be a few questions and concerns left over for which I just can’t seem to get a satisfactory answer:

Georgist markets & valuations

If Georgism works and land prices go to zero after a 100% land value tax is implemented, and no one is willing to pay anything anymore for unimproved land, how do evaluators get their estimations for the value of land to tax? How would we know when land prices increase, or more important, when they decrease? Would the level of tax just become arbitrary?

The distribution of wealth and ATCOR

Henry George claims that essentially landlords are able to squeeze every last cent out of common people until they are barely able to meet the basic requirements for life. If governments implement a 100% land value tax, and the stable value of land is that where the common man is reduced to a beggar, would governments necessarily have to beggar their citizens like landlords do in order to implement Georgism? Sure, Georgists also want to implement a universal basic income, but then we have to trust the government to redistribute the wealth back to the people. How far are we going to trust the government not to siphon off the top of that massive pool of wealth?

Furthermore, there is a theory that All Taxes Come Out of Rents (ATCOR), which, as the name implies, says that really any taxes collected only affect landlords’ ability to collect rents, and not citizens’ residual ability to spend. If this is true, then how much more just is a land value tax than an income tax, which would accomplish much the same thing if ATCOR is true? Is this not in effect a weak argument for a higher level of income taxes?

Inability to shift the tax to consumers

Georgism claims that landlords couldn’t really shift the burden of the tax off to consumers, but this seems to me like a bit of economic hand waving. Normally, most real estate transactions bundle some land and improvements (buildings, structures, farms, etc.) together (at least in non-commercial settings). If we were to compare two taxes, say a 50% property tax assessed on the combined value of land and improvements, and a 100% LVT which was assessed only on the unimproved value of land, and assume in our hypothetical example that these end up at the same amount of tax, can we really assume that in the former case a part of the tax can be passed on to the consumer, but in the latter case, it cannot? How would the participants in this transaction “know” how they should behave? I have seen the graph explaining why there cannot be any amount of the tax passed on in a land transaction, but I question whether the same can possibly hold true in transactions where land is bundled in with a bunch of other goods. I have something of a suspicion this might have to do with the broader market and how in the former case more and less valuable improvements would have lesser price differentials between them since no tax is being charged, but I feel like I’m missing some formalism to this.

Land ownership vs stock ownership

Georgists focus on land for taxation since land ownership is a kind of monopoly that can prevent people from working independently of the land owners, and which allows the value created by a human collective to be captured by only the landowners. However, I question whether the same does not in some way happen with company stock, aside even from land ownership bundled into stock values. Under the current system, company stock is typically owned only by a single or small group of founders, and perhaps another small group of investors and early employees. Most of the appreciation of value from the growth of the company therefore is captured by this small group of people, who aren’t necessarily the ones who are causing all of that growth in value. This growth in value, furthermore can be divorced from land ownership – many companies, particularly in the startup phase don’t own any land; they are in fact renters. Nonetheless, the same pattern of monopoly occurs, where the owners are able to collect the right to intellectual property generated by its employees, and get 100% of the appreciation of the value of the company. In Lars’ original post, he claims that stocks are really just pointers to wealth, but I question whether there are some similar dynamics going on between land and stock ownership, particularly related to intellectual property.

Antidosis and land tax rates

One possible answer to the query I raised above about land valuations in a world with 100% LVT – In ancient Athens public works were privately financed by wealthy individuals (liturgists). While the individual would have the honour of their name being affixed to the project in question, they could actually get out of it by claiming that there was someone more wealthy than they who could pay for the work. The accused individual would either have to pay for the work, or counter that actually they weren’t wealthier than their accuser. If they claimed that their accuser was the wealthier one, the dilemma was resolved by a simple offer – would the accuser accept to exchange all of their belongings for the belongings of the other? If so, the accused was the wealthier individual, if not, the accuser must have been wealthier all along.

I’m not sure how often, if ever, this actually happened, and how attachment and human biases could distort this system, but it could in fact be a model for price discovery in a world without an active land market – if an individual (or company) feels that they are being unfairly taxed, they can just offer to return it to the government, who must then subsequently do the work of finding a new owner. Obvious possible flaws with this system include where people might go after having returned their land to the government, what happens to the assets on the land when such a transaction were to occur, and as previously mentioned, human biases. Perhaps a simple open auction system might be better, where the government leases out the land for an annual rate of tax, where the rate is determined by auction?

Public works and Georgism

Finally, how does public land fit into all of this? Georgism kind of treats land as being common property, which is kind of like treating it like the government’s property unless otherwise determined (and in practice would no doubt 100% be like treating it as the government’s property). Under a Georgist framework, how would public land be treated from a tax perspective, and an ownership perspective? While there is the Henry George Theorem, formalised by economist Joseph Stiglitz, which claims that 100% of the value of public goods is absorbed into the land value of properties which benefit from them and therefore a land value tax would necessarily recapture the benefits of those goods, true public goods are in reality rare. Would club goods and common-pool goods also have their value be recaptured by increases in land value? Also, how would we distinguish between good and bad public works (i.e. where the value to society is greater than the capital and maintenance costs)? Would distinguishing between these goods really be any more or less of a problem than under our current system? Would we levy a kind of tax on these goods? Who would pay that tax if so? Could anyone bid on the land on which public goods are built? Could the government arbitrarily restrict which plots of land are open for bidding?

Unfortunately for the moment, I have a lot of questions, but not a lot of answers – if anyone finds this article and has any answers, do let me know.