Pittsburgh and Scranton were required by a law enacted in 1913 to reduce the local tax rate on buildings at such a pace that in 1925 and thereafter it would be only one-half the highest rate on other forms of property. Everett, Wash., and Pueblo, Col., within recent years adopted by popular vote more sweeping measures of the same character, but the Everett law has never gone into effect, and the Pueblo statute was repealed two years after it had been passed. In many cities of the United States, buildings are undervalued relatively to land by the informal and illegal action of assessors. The most pronounced and best known instance of this kind is Houston, Texas, where in 1914 land was assessed at seventy per cent. of its value and buildings at only twenty-five per cent. In 1915, however, the practice was forbidden by the courts as contrary to the Texas constitution. At more than one recent session of the New York legislature, bills have been introduced providing for the gradual reduction of the tax on buildings in New York City to a basis of fifty per cent. of their value. While none of them has been passed, the sentiment in favour of some such measure is probably increasing. A similar movement of opinion is apparent in many other sections of the country.
On the whole, the special land taxes of Canada and Australasia are not remarkably high. They seem to be as low or lower than the average rates imposed on land, as well as on other forms of general property, in the United States. In the provinces, the special land taxes provide only a small portion of the total revenues; in the cities and towns, there are, as a rule, other sources of revenue as well as land, and the expenses of municipal government are probably not as high as in this country. Hence the land taxes of Canada have not reached an abnormally high level, and are probably lower than most persons who have heard of them would be inclined to expect. The chief exceptions to the foregoing statements are to be found in the "wild lands tax" of British Columbia, and in the land taxes of some of the towns (not the cities) of Alberta. A rate of four per cent. on unimproved and slightly improved rural land is extraordinary in fiscal annals, and is scarcely warranted by any received principle of taxation, although it may possibly be justified by peculiar social and administrative conditions in the province of British Columbia. Some of the smaller towns of Alberta which adopted the land tax during the recent period of depression have been compelled to impose even higher rates, the maximum being reached by Castor in 1912, with a rate of 8½ per cent. As a natural consequence, a large proportion of the land in this town was surrendered by its owners to the municipality. While this amazing tax rate is probably temporary, and is likely to be lowered after the return of the average conditions of prosperity, it inflicts unfair hardship upon those owners whose circumstances are such that they must give up their land, instead of awaiting the hoped for decline in the rate of taxation.
The Morality of the Plan
The losses of various kinds that would result from the transfer of other taxes to land may be thus summarised. Land would depreciate in value by an amount equal to the capitalised tax. For example; if the rate of interest were five per cent., an additional tax of one per cent. would reduce land worth one hundred dollars an acre to eighty dollars. This decline might, indeed, be partly, wholly, or more than offset by a simultaneous rise due to economic forces. In any case, however, the land would be worth twenty dollars less than it would have been worth had the tax not been imposed. For some owners this would mean a positive loss; for others it would signify mere failure to gain. The latter would happen in the case of all those owners who at any time after the imposition of the tax sold their land at as high a price as they had paid for it. Not all of the owners whose land was forced by the tax to a figure below their purchase price would suffer positive loss; for the land might subsequently rise in value sufficiently to wipe out the unfavourable difference. In this respect a special tax on the present value of land has a different effect from a tax that appropriates all the future value increases. Only those owners who actually sold their land below their purchase price could charge the former tax with inflicting upon them positive losses. In the case of the land exemplified above, the owner who sold at ninety dollars per acre could properly attribute to the tax a loss of ten dollars; the owner who sold at eighty dollars would have a grievance amounting to twenty dollars; and a loss would be suffered by any owner who sold for less than eighty dollars. In the second place, all owners of vacant land who sold at a price insufficient to provide for accumulated interest on the purchase price, could justly hold the tax responsible, so long as the deficiency did not exceed the value-depreciation caused by the tax. Thirdly, all persons whose land had an unusually high value relatively to the value of their exempted property, would suffer losses as taxpayers. They would lose more through the heavier land taxes than they would gain through the lighter taxes, or the absence of taxes, on their other property.
To compensate all owners who underwent these three kinds of losses would be practically impossible. The number of persons would be too large, the difficulty of proving many of the claims would be too expensive, and the compensation process would be too long drawn out, since it would have to continue until the death of all persons who had owned land when the last instalment of the increased land taxes went into effect. Therefore, the losses in question must be counterbalanced by other and indirect methods. These will be found mainly in the following considerations: the amount of the new taxes; the gradual method of imposing them; and their socially beneficial results.
Amount of Taxes Practically Transferable
According to Professor King's computations, the total rent of land in the United States in 1910 was $2,673,900,000, while the total expenditures of national, state, county and city governments were $2,591,800,000.[100] In his opinion (p. 162) "the rent would have been barely sufficient to pay off the various governmental budgets as at present constituted, and with the growing concentration of activities in the hands of the government, it appears that rent will soon be a quantity far too small to meet the required changes. With increasing pressure on our natural resources, however, it is probable that the percentage of the total income paid for rent will gradually increase and, since this is true, the lag behind the growing governmental expenses will be considerably less than would otherwise be the case."
A change in our fiscal system providing for the immediate derivation of all revenues from land taxes would, therefore, involve the confiscation of all rent, and the destruction of all private land values. Land would be worth nothing to the owners when its entire annual return was taken by the State in the guise of taxes. Even if the process of imposing the new taxes on land were extended over a long term of years the same result would be reached in the end; for whatever increase had taken place in the economic value of land during the process would in all probability have been neutralised by the increase in governmental expenditures. It is evident, therefore, that the proposal to put all taxes on land must be rejected on grounds of both morals and expediency.
Let us suppose that all national revenues continued, as now, to be raised from other sources than land, and that all state, county, and city revenues remained as they are, except those derived from the general property tax. This would mean that all the following taxes would be unchanged: all federal taxes, the taxes on licenses of all kinds, all taxes on business, incomes, and inheritances, and all special property taxes. If, then, the whole of the general property tax were concentrated on land; that is, if all the taxes on improvements and on all forms of personal property were legally shifted to land,—the entire revenue to be raised from land would in 1912 have amounted to $1,349,841,038.[101] This is slightly more than one-half of Professor King's estimate of the total rent for 1910, which was $2,673,900,000. But this figure equals four per cent. of the land values of the country; hence the concentration of the general property tax on land would mean a tax rate of two per cent. on the full value of the land.
How much would this change increase the present rate of land taxes, and decrease existing land values? While no accurate and definite answer can be given to either of these questions, certain approximations can be attempted which should be of considerable service.