In the March 1 UK Prospect, economist James Galbraith offers the Brits, and us, two proposals to repair a broken economy. The first, unsurprisingly, is a heavy tax on estates, with a high exemption. Not inheritances, but estates, because that encourages philanthropy, which creates jobs. A highly progressive income tax, though desirable, still misses a lot of income, notably unrealized capital gains. But an annual tax on personal wealth, as touted by Elizabeth Warren and some prominent economists, would be “a full employment scheme for appraisers, consultants, money laundries and tax lawyers.”
Galbraith’s second proposal is a land tax. Yes! This was the preferred tax of the classical economists, the one Adam Smith called “the most equitable of all taxes.” This tax—at the extraordinary rate of 4 shillings to the pound or 20%—launched the British Empire in 1692, by funding the British fleet. (The tax was eventually wiped out by inflation.)
A land tax is part of the ordinary tax on property, the part of property value that makes owners “grow richer in their sleep,” and that blows up in a bubble and then collapses. Some cities in Pennsylvania tax mostly land and not buildings; many Australian cities, including Sydney, tax only land, as do California irrigation districts. But Galbraith says, along with land we should tax “other publicly created property rights, such as mineral rights, parts of the electromagnetic spectrum, corporate charters, licenses, patents, copyrights and rights of way.” The One Percent own the bulk of all these valuable rights, either directly or through corporate shares.
Galbraith says, “Unlike financial wealth, land value can be measured, appraised and taxed each year on its market value. The result is efficient use of land and other rights, and abundant funds for urban reconstruction, development and maintenance—a virtuous cycle of public investment, land value and public purpose. Exceptions can be made for historic preservation and for elderly homeowners, with the taxes deferred until properties change hands.”
If land taxation is so good, why does it get so little support and attention? As Galbraith understates, “landowners, anciently the most reactionary of all social classes, do not like it.” That means you, Charles Koch.
Galbraith told me that in circulating this, I should acknowledge his debt to “the late, great Mase” Gaffney. I deserve some credit too, for introducing them to each other some twenty years ago.
Originally posted to the Dollars&Sense Blog March 17, 2021
