Henry George and the Single Tax

A Model for Reviving Our Cities

The Ardens clearly demonstrate the successful application of Henry George's single tax theory on the local level. How can this theory be applied to rescue America's cities from decline and decay? The following is a simplified model illustrating a partial application of Georgist economics.

Consider a city block that contains only six lots, numbered 1 through 6. Assume it's now 1972, and this city block is very viable. Let's suppose that each lot contains a well-maintained, single-family, two-story dwelling, which is owned by residents, who live on the property. Each property is assessed by the city for $40,000. The city collects 2.5% of the assessed value as property tax, resulting in a $1,000 tax on each, for a total of $6,000 in revenue for the city from this block. (See Table 5.)

Let's jump ahead 30 years to 2002, and assume that all conditions remain the same, except that the assessed value of each property is now $150,000. At the same tax rate, each tax bill is now $3,750, with a total of $22,500 for the city. (See Table 6.)

But is this a realistic scenario? Often urban property values are decreasing, while white flight to the suburbs occurs. Absentee landlords abound, as do land speculators. So let's consider a new, more realistic situation for 2002. Lot 1 still contains a well-maintained, single-family, two-story dwelling, owned by residents. The assessed value is $150,000. Lots 2 and 3 each contain a run-down, single-family, two-story dwelling, owned by an absentee landlord, and rented out to tenants. The assessed value of each is $70,000. Lots 4 and 5 are vacant, each having a previously condemned building now torn down. Each is owned by an absentee landlord, and is valued by the city at $7,000. Lot 6 is a run-down, single-family, two-story dwelling, once owned by an absentee landlord, but now abandoned and taken over by the city in lieu of unpaid taxes. It has no assessed value, as the city owns it. At the same 2.5%, the city now collects only $7,600 from this block. (See Table 7.) Clearly, as the block decays, the neighborhood, as well as the city, suffers.

Now let's consider a single tax on land only, as advocated by Henry George. In most cities, when a building lot is fully developed, approximately 80% of value is due to the dwelling and 20% is due to the land. (This can vary widely from city to city.) On Lot 1, whose assessed value is $150,000, the land value is $30,000, according to this formula. If a land-valued tax is to be implemented in the city, then a higher tax rate is needed to generate the same or greater revenue. If the city levies a 10% tax on land values only, the tax on Lot 1 is now $3,000. This is a savings of $750 over the property tax method.

If the land value on Lot 1 is $30,000, how much is the land for Lot 2 worth? Or Lot 3? Or the other lots? Common sense should say they are all equally valuable, or worth $30,000 each. At this assessed value, with the same 10% tax rate, the city now collects $18,000 from this city block. Lots 2 through 6 have an increase in their overall taxes. (See Table 8.)

What are the advantages to the land-valued single tax? The first obvious advantage is that the city can collect more revenue. This results in the revitalization of the city, with fewer people moving away to the suburbs, or more moving back into the city. On each lot, individual property improvements are encouraged, since these improvements are not taxed - raising the overall value of the neighborhood. There is a cumulative renewal effect - growth in one neighborhood stimulates growth in others. The flow of credit improves - when money is laid out for improvements, taxes do not increase, leaving the investor in a better financial condition.

Owners of city dwellings tend to become occupiers - there are fewer absentee landlords or land speculators, which helps develop a sense of community in the neighborhoods. To be economically viable, undeveloped or run-down properties must be improved, or be sold to someone who will improve them. This will lead to more units being available, causing absentee landlords to offer better rentals at more affordable prices. Since work on substandard housing must be completed to offset the higher taxes, job opportunities will increase, and welfare spending will be reduced. As mentioned, the overall amount of revenue available to the city rises, so there will be no more fiscal crises. More money will be available for better schools, police, fire, and other services. And in the long run, land values will only tend to increase, because of the increased economic activity and increased benefits, thus creating a higher base for the increase of revenues needed for the future. Consequently the future for cities can be greatly improved by implementation of the land-valued single tax.

But will this system of land-valued tax really work in an urban setting? It already does. The single tax is used in many parts of the world. Denmark collects 50% of its revenue by land-valued tax. In Australia, all six states and a majority of municipalities tax land values to a certain degree, and some exempt improvements in whole or in part. Both New Zealand and South Africa use a single tax in local communities. In Canada, many western cities tax land value at a higher rate than improvements. And in the United States, Delaware, Alabama, Alaska, California, and Pennsylvania all have some type of land-based tax within their boundaries. Delaware, of course, has the three Ardens. Alabama has Fairhope, the first single tax community in the U. S. (1895). Alaska taxes oil land around Prudhoe Bay. California has over 100 districts of farmland taxed by land value. And in Pennsylvania, 15 cities apply what is termed the "graded tax plan." Pittsburgh and Scranton both have a higher land tax than improvement tax, while the statistics on Harrisburg are most impressive.

Harrisburg adopted the "graded tax plan" in 1982, emphasizing the higher land tax. At that time, there were 4,200 vacant, abandoned dwellings within the city limits. Today there are only 500. Since then, crime has been reduced by 22.5%. The number of fires has been reduced by 51%. In 1982, Harrisburg was listed as the second most distressed city in the country, by federal distressed criterion. Since that time, it has been named an All-American City three times. The city has added over 4,700 jobs since 1982, and estimates that $1.2 billion has been invested during this period. The total value of real estate in the city in 1982 was calculated at $212,000,000, while today it is valued at $884,000,000. Harrisburg is clearly an excellent example of the success of a land-valued tax. How would one work in the town or city in which you live? Or the state? Or the country?