Georgism

What Is Georgism?

Georgism is an economic philosophy and social movement proposing that individuals should own the value they create, while the economic value derived from land, including natural resources and urban locations, should belong equally to all members of society. This core principle positions Georgism within the broader field of taxation theory and public finance. The central tenet of Georgism is the collection of economic rent from land through a single tax, known as a land value tax, to fund public services and alleviate poverty, rather than through taxes on labor or capital.

History and Origin

Georgism emerged in the late 19th century, primarily from the work of American economist and social reformer Henry George. His seminal 1879 book, Progress and Poverty, explored the paradox of increasing poverty amidst advancing economic and technological progress.¹⁵, George argued that the private appropriation of unearned income from land—specifically, the rising value of land due to societal growth and public investment, rather than individual effort—was the root cause of inequality and economic crises.,

G¹⁴e¹³orge's observations led him to advocate for a "single tax" on land values, proposing that this tax could replace most, if not all, other forms of taxation. His work sparked a global social reform movement, significantly influencing the Progressive Era and discussions around wealth distribution. The philosophy of Georgism posits that because land is a finite resource whose value is largely created by community growth and public investment, its economic rent should be recaptured for the benefit of all.

Key Takeaways

• Georgism is an economic philosophy advocating for a sole tax on the unimproved value of land, known as a land value tax.
• It argues that the economic rent from land, being a product of community activity and natural scarcity, should be collected for public benefit.
• The philosophy aims to reduce economic inequality, discourage land speculation, and promote efficient land use.
• Georgism proposes that taxing labor and capital is inefficient and unjust, as these are products of individual effort and investment.

Interpreting Georgism

Interpreting Georgism revolves around understanding its central policy proposal: the land value tax (LVT). This tax is levied on the unimproved market value of land, meaning it disregards any buildings or improvements constructed on the property. The underlying principle is that while improvements are the result of private effort and investment, the value of the land itself is largely determined by external factors such as population growth, access to public services, and overall economic activity.

Proponents of Georgism argue that by taxing only land value, the tax burden shifts from productive activities (like labor and capital investment) to unearned income derived from land ownership. This approach, they contend, incentivizes efficient land use and discourages holding vacant or underutilized land for speculative purposes. In ¹²essence, Georgism suggests that a robust fiscal policy should be designed to capture this community-generated value for collective good, rather than allowing it to be privately appropriated.

Hypothetical Example

Consider a growing city where a new subway line (a form of infrastructure investment) is planned. Before the announcement, a parcel of undeveloped real estate on the outskirts of the city has an unimproved land value of $100,000. After the subway line is announced and construction begins, the accessibility of this parcel significantly increases, and its unimproved land value rises to $300,000, even though no physical improvements have been made to the land itself.

Under a Georgist system, the increase of $200,000 in the land's value (its economic rent) would be subject to a land value tax. The property owner would pay tax based on the new, higher land value. This incentivizes the owner to develop the land efficiently, perhaps by building housing or commercial spaces, to generate income that can cover the increased tax liability. If the owner merely held the land vacant, they would still face a significant tax bill based on the community-enhanced value, making passive speculation less profitable compared to productive use.

Practical Applications

While a pure "single tax" on land as envisioned by Henry George is rare today, elements of Georgism, particularly the concept of land value tax (LVT), find practical application in various forms of modern economic development and urban planning. Many municipalities globally utilize or consider split-rate property taxes, where the tax rate on land is higher than the tax rate on improvements. Thi¹¹s encourages development and reduces the incentive to hold undeveloped land in prime locations.

The Lincoln Institute of Land Policy, a non-profit organization, extensively researches and promotes the understanding of land value taxation as a tool for public finance and sustainable development. Their work demonstrates how LVT can be implemented to support public services and promote efficient land use, by examining practices in various countries and U.S. municipalities. Adv¹⁰ocates suggest that land value taxes can help address issues like urban sprawl and contribute to funding public services, including affordable housing initiatives, by capturing the value created by communal investments.,

#⁹#⁸ Limitations and Criticisms

Despite its theoretical appeal to some economists as an efficient tax, Georgism and the land value tax face several practical limitations and criticisms. A primary challenge lies in accurately assessing the unimproved market value of land, especially in areas with limited sales of vacant land. Dis⁷tinguishing between the value of the land itself and the value added by improvements can be complex.

Another significant criticism centers on the political and social feasibility of implementing a pure land value tax. Shifting the tax burden significantly from improvements to land value can create substantial changes in tax liabilities, particularly for owners of highly valuable, unimproved or under-improved land, potentially leading to strong political opposition. Som⁶e critics argue that an LVT might discourage the search for new uses of land or disproportionately affect landowners who are "asset-rich but income-poor.", Fu⁵r⁴thermore, the narrow tax base of a pure land value tax, if it were to replace all other taxes, is questioned regarding its ability to generate sufficient revenue for modern government expenditures. His³torically, attempts at full implementation, such as in early 20th century Britain, have faced significant political and practical hurdles.

##² Georgism vs. Property Tax

The primary distinction between Georgism and the conventional property tax lies in what is being taxed.

Confusion often arises because both involve taxation on real estate. However, Georgism's core departure is its focus solely on the land's inherent value, arguing that this value is social in origin and thus should be social in appropriation. A conventional property tax, in contrast, applies a uniform or varying rate to the total value of the parcel, including the value of any structures built upon it. This means that if a property owner improves their building, their property tax typically increases, which Georgists argue discourages beneficial development.

FAQs

What is the "single tax" in Georgism?

The "single tax" refers to Henry George's proposal to replace all existing taxes with one comprehensive tax on the unimproved value of land. The idea was that this single tax would be sufficient to fund all public services and eliminate the need for taxes on labor, income, or goods.

Does Georgism advocate for communal land ownership?

No, Georgism generally supports private ownership of land. However, it distinguishes between private ownership of the physical land and the private appropriation of the land's economic rent. Georgism proposes that while individuals can own and develop land, the economic value generated by the land's location and societal growth should be collected through taxation for the common good.

Have any countries or cities fully implemented Georgism?

Full implementation of a pure Georgist "single tax" is rare. However, many jurisdictions worldwide have adopted elements of the land value tax or split-rate property taxes, where land is taxed at a higher rate than improvements. Examples include various cities in Pennsylvania and some countries like Denmark, though none fully adhere to George's original "single tax" model.

How might Georgism impact affordable housing?

Proponents argue that a land value tax could improve housing affordability by discouraging land speculation and incentivizing developers to build on vacant or underutilized land in desirable areas. This could increase the supply of housing and potentially reduce land prices, which are a significant component of housing costs.¹