Distributive Justice: The Right and Wrong of Our Present Distribution of Wealth

by John A. Ryan

To use the taxing power for a social purpose is neither unusual nor unreasonable. "All governments," says Professor Seligman, "have allowed social considerations in the wider sense to influence their revenue policy. The whole system of productive duties has been framed not merely with reference to revenue considerations, but in order to produce results which should directly affect social and national prosperity. Taxes on luxuries have often been mere sumptuary laws designed as much to check consumption as to yield revenue. Excise taxes have as frequently been levied from a wide social, as from a narrow fiscal, standpoint. From the very beginning of all tax systems these social reasons have often been present."[92] Our Federal taxes on imports, on intoxicating liquors, on oleo-margarine, and on white phosphorus matches, and many of the license taxes in our municipalities, as on pedlars, saloon keepers, and dog owners, are in large part intended to meet social as well as fiscal ends. They are in the interest of domestic production, public health, and public safety. The reasonableness of effecting social reforms through taxation cannot be seriously questioned. While the maintenance of government is the primary object of taxation, its ultimate end, the ultimate end of government itself, is the welfare of the people. Now if the public welfare can be promoted by certain social changes, and if these in turn can be effected through taxation, this use of the taxing power will be quite as normal and legitimate as though it were employed for the upkeep of government. Hence the morality of taxing land for purposes of social reform will depend entirely upon the nature of the particular tax that is imposed.

Some Objections to the Increment Tax

The tax that we are now considering can be condemned as unjust on only two possible grounds: first, that it would be injurious to society; and, second, that it would wrong the private landowner. If it were fairly adjusted and efficiently administered it could not prove harmful to the community. In the first place, landowners could not shift the tax to the consumer. All the authorities on the subject admit that taxes on land stay where they are put, and are paid by those upon whom they are levied in the first instance.[93] The only way in which the owners of a commodity can shift a tax to the users or consumers of it, is by limiting the supply until the price rises sufficiently to cover the tax. By the simple device of refusing to erect more buildings until those in existence have become scarce enough to command an increase in rent equivalent to the new tax, the actual and prospective owners of buildings can pass the tax on to the tenants thereof. By refusing to put their money into, say, shoe factories, investors can limit the supply of shoes until any new tax on this commodity is shifted upon the wearers of shoes in the form of higher prices. Until these rises take place in the rent of buildings and the price of shoes, investors will put their money into enterprises which are not burdened with equivalent taxes. But nothing of this sort can follow the imposition of a new tax upon land. The supply of land is fixed, and cannot be affected by any action of landowners or would-be landowners. The users of land and the consumers of its products are at present paying all that competition can compel them to pay. They would not pay more merely because they were requested to do so by landowners who were labouring under the burden of a new tax. If all landowners were to carry out an agreement to refrain from producing, and to withhold their land from others until rents and prices had gone up sufficiently to offset the tax, they could, indeed, shift the latter to the renters of land and the consumers of its products. Such a monopoly, however, is not within the range of practical achievement. In its absence, individual landowners are not likely to withhold land nor to discontinue production in sufficient numbers to raise rents or prices. Indeed, the tendency will be all the other way; for all landowners, including the proprietors of land now vacant, will be anxious to put their land to the best use in order to have the means of paying the tax. Owing to this increased production, and the increased willingness to sell and let land, rents and prices must fall. It is axiomatic that new taxes upon land always make it cheaper than it would have been otherwise, and are beneficial to the community as against the present owners.

In the second place, the tax in question could not injure the community on account of discouraging investment in land. Once men could no longer hope to sell land at an advance in price, they would not seek it to the extent that they now do as a field of investment. For the same reason many of the present owners would sell their holdings sooner than they would have sold them if the tax had not been levied. From the viewpoint of the public the outcome of this situation would be wholly good. Land would be cheaper and more easy of access to all who desired to buy or use it for the sake of production, rather than for the sake of speculation. Investments in land which have as their main object a rise in value are an injury rather than a benefit to the community; for they do not increase the products of land, while they do advance its price, thereby keeping it out of use. Hence the State should discourage instead of encouraging mere speculators in land. Whether it is or is not bought and sold, the supply of land remains the same. The supreme interest of the community is that it should be put to use, and made to supply the wants of the people. Consequently the only land investments that help the community are those that tend to make the land productive. Under a tax on future increases in value, such investments would increase for the simple reason that land would be cheaper than it would have been without the tax. Men who desired land for the sake of its rent or its product would continue as now to pay such prices for it as would enable them to obtain the prevailing rate of interest on their investment after all charges, including taxes, had been paid. Men who wanted to rent land would continue as now to get it at a rental that would give them the usual return for their capital and labour.

So much for the effect of the tax upon the community. Would it not, however, be unjust to the landowners? Does not private ownership of its very nature demand that increases in the value of the property should go to the owners thereof? "Res fructificat domino:" a thing fructifies to its owner; and value-increases may be classed as a kind of fruit.

In the first place, this formula was originally a dictum of the civil law merely, the law of the Roman Empire. It was a legal rather than an ethical maxim. Whatever validity it has in morals must be established on moral grounds, by moral arguments. It cannot forthwith be assumed to be morally sound on the mere authority of legal usage. In the second place, it was for a long time applied only to natural products, to the grain grown in a field, to the offspring of domestic animals. It simply enunciated the policy of the law to defend the owner of the land in his claim to such fruits, as against any outsider who should attempt to set up an adverse title through mere appropriation or possession. Thus far, the formula was evidently in conformity with reason and justice. Later on it was extended, both by lawyers and moralists, to cover commercial "fruits," such as, rent from lands and houses, and interest from loans and investments. Its validity in this field will be examined in connection with the justification of interest. More recently the maxim has received the still wider application which we are now considering. Obviously increases in value are quite a different thing from the concrete fruit of the land, its natural product. A right to the latter does not necessarily and forthwith imply a right to the former. In the third place, the formula in question is not a self evident, fundamental principle. It is merely a summary conclusion drawn from the consideration of the facts and principles of social and industrial life. Consequently its validity as applied to any particular situation will depend on the correctness of these premises, and on the soundness of the process by which it has been deduced.

The increment tax is sometimes opposed on the ground that it is new, in fact, revolutionary. In some degree the charge is true, but the conditions which the proposal is intended to meet are likewise of recent origin. The case for this legislation rests mainly on the fact that, for the first time in the world's history, land values everywhere show an unmistakable tendency to advance indefinitely. This means that the landowning minority will be in a position to reap unbought and continuous benefits at the expense of the landless majority. This new fact, with its very important significance for human welfare, may well require a new limitation on the right of property in land.

It is also objected that to deprive men of the opportunity of profiting by changes in the value of their land would be an unfair discrimination against one class of proprietors. But there are good reasons for making the distinction. Except in the case of monopoly, increases in the value of goods other than land are almost always due to expenditures of labour or money upon the goods themselves. The value increases that can be specifically traced to external and social influences are intermittent, uncertain, and temporary. Houses, furniture, machinery, and every other important category of artificial goods are perishable, and decline steadily in value. Land, however, is substantially imperishable, becomes steadily scarcer relatively to the demand, and its value-increases are on the whole constant, certain, and permanent. Moreover, it is the settled policy of most enlightened governments to appropriate or to prevent all notable increases in the value of monopolistic goods, either through special taxation or through regulation of prices and charges. Taking the increment values of land is, therefore, not so discriminative as it appears at first glance.[94]

Another objection is that the proposal would violate the canons of just taxation, since it would impose a specially heavy burden upon one form of property. The general doctrine of justice in taxation which is held by substantially all economists to-day, and which has been taught by Catholic moralists for centuries, is that known as the "faculty" theory.[95] Men should be taxed in proportion to their ability to pay, not in accordance with the benefits that they may be assumed to receive from the State. And it is universally recognised that the proper measure of "ability" is not a man's total possessions, productive and unproductive, but his income, his annual revenue. Now, the increment tax does seem to violate the rule of taxation according to ability, inasmuch as it would take all of one species of revenue, while all other incomes and properties pay only a certain percentage.