Chapter III The Proposition Tried by the Canons of Taxation

The best tax by which public revenues can be raised is evidently that which will closest conform to the following conditions:

The best tax for raising public revenue is clearly the one that comes closest to meeting the following conditions:

1. That it bear as lightly as possible upon production—so as least to check the increase of the general fund from which taxes must be paid and the community maintained.

1. It should weigh as lightly as possible on production, so that it checks as little as it can the growth of the general fund from which taxes must be paid and the community supported.

2. That it be easily and cheaply collected, and fall as directly as may be upon the ultimate payers—so as to take from the people as little as possible in addition to what it yields the government.

2. It should be easy and cheap to collect, and should fall as directly as possible on those who finally pay it, so that it takes from the people as little as possible beyond what it yields the government.

3. That it be certain—so as to give the least opportunity for tyranny or corruption on the part of officials, and the least temptation to law-breaking and evasion on the part of the taxpayers.

3. It should be certain, so that officials have the least opportunity for tyranny and corruption, and taxpayers the least temptation to break the law and evade it.

4. That it bear equally—so as to give no citizen an advantage or put any at a disadvantage, as compared with others.

4. It should bear equally, so that it gives no citizen an advantage over others and puts none at a disadvantage.

Let us consider what form of taxation best accords with these conditions. Whatever it be, that evidently will be the best mode in which the public revenues can be raised.

Let us ask which form of taxation best meets these conditions. Whatever it is, that will clearly be the best way to raise public revenue.

All taxes must evidently come from the produce of land and labor, since there is no other source of wealth than the union of human exertion with the material and407 forces of nature. But the manner in which equal amounts of taxation may be imposed may very differently affect the production of wealth. Taxation which lessens the reward of the producer necessarily lessens the incentive to production; taxation which is conditioned upon the act of production, or the use of any of the three factors of production, necessarily discourages production. Thus taxation which diminishes the earnings of the laborer or the returns of the capitalist tends to render the one less industrious and intelligent, the other less disposed to save and invest. Taxation which falls upon the processes of production interposes an artificial obstacle to the creation of wealth. Taxation which falls upon labor as it is exerted, wealth as it is used as capital, and as it is cultivated, will manifestly tend to discourage production much more powerfully than taxation to the same amount levied upon laborers, whether they work or play, upon wealth whether used productively or unproductively, or upon land whether cultivated or left waste.

All taxes must come from the produce of land and labor, since the only source of wealth is human exertion joined with the materials and407 forces of nature. But equal amounts of taxation can be imposed in ways that affect the production of wealth very differently. A tax that lessens the producer's reward lessens the incentive to produce. A tax that depends on the act of production, or on the use of any of the three factors of production, discourages production. So a tax that reduces the earnings of the laborer or the returns of the capitalist makes the one less industrious and intelligent, and the other less willing to save and invest. A tax on the processes of production puts an artificial obstacle in the way of creating wealth. Taxing labor as it is exerted, wealth as it is used as capital, and land as it is cultivated will clearly discourage production far more than a tax of the same amount levied on laborers whether they work or play, on wealth whether used productively or unproductively, or on land whether cultivated or left waste.

The mode of taxation is, in fact, quite as important as the amount. As a small burden badly placed may distress a horse that could carry with ease a much larger one properly adjusted, so a people may be impoverished and their power of producing wealth destroyed by taxation, which, if levied in another way, could be borne with ease. A tax on date-trees, imposed by Mohammed Ali, caused the Egyptian fellahs to cut down their trees; but a tax of twice the amount imposed on the land produced no such result. The tax of ten per cent. on all sales, imposed by the Duke of Alva in the Netherlands, would, had it been maintained, have all but stopped exchange while yielding but little revenue.

The way a tax is imposed matters as much as its size. A small load badly placed can distress a horse that could carry a much larger one properly balanced. In the same way, a tax levied one way can impoverish a people and destroy their power to produce wealth, though they could bear it easily if it were levied another way. A tax on date-trees, imposed by Mohammed Ali, led the Egyptian fellahs to cut down their trees, but a tax of twice the amount on the land had no such result. The tax of ten per cent. on all sales that the Duke of Alva imposed in the Netherlands would, had it lasted, have all but stopped exchange while yielding little revenue.

But we need not go abroad for illustrations. The production of wealth in the United States is largely lessened by taxation which bears upon its processes. Ship-building, in which we excelled, has been all but408 destroyed, so far as the foreign trade is concerned, and many branches of production and exchange seriously crippled, by taxes which divert industry from more to less productive forms.

But we need not look abroad for examples. Taxes that bear on the processes of production greatly reduce the production of wealth in the United States. Ship-building, in which we excelled, has been all but408 destroyed so far as foreign trade is concerned, and many branches of production and exchange have been seriously crippled, by taxes that push industry from more productive forms into less productive ones.

This checking of production is in greater or less degree characteristic of most of the taxes by which the revenues of modern governments are raised. All taxes upon manufactures, all taxes upon commerce, all taxes upon capital, all taxes upon improvements, are of this kind. Their tendency is the same as that of Mohammed Ali’s tax on date-trees, though their effect may not be so clearly seen.

Most of the taxes that modern governments rely on check production to some degree. So do all taxes on manufactures, all taxes on commerce, all taxes on capital and all taxes on improvements. They work the same way as Mohammed Ali's tax on date-trees, though the effect may be less obvious.

All such taxes have a tendency to reduce the production of wealth, and should, therefore, never be resorted to when it is possible to raise money by taxes which do not check production. This becomes possible as society develops and wealth accumulates. Taxes which fall upon ostentation would simply turn into the public treasury what otherwise would be wasted in vain show for the sake of show; and taxes upon wills and devises of the rich would probably have little effect in checking the desire for accumulation, which, after it has fairly got hold of a man, becomes a blind passion. But the great class of taxes from which revenue may be derived without interference with production are taxes upon monopolies—for the profit of monopoly is in itself a tax levied upon production, and to tax it is simply to divert into the public coffers what production must in any event pay.

All such taxes tend to reduce the production of wealth. They should never be used when revenue can be raised by taxes that do not check production. As society develops and wealth accumulates, that becomes possible. Taxes on ostentation would simply turn into the public treasury what would otherwise be wasted on vain show for show's sake. Taxes on the wills and bequests of the rich would probably do little to check the desire to accumulate, which becomes a blind passion once it has fairly taken hold of a man. But the great class of taxes that can raise revenue without interfering with production is taxes on monopolies. The profit of a monopoly is already a tax on production, so taxing it only diverts into the public treasury what production must pay in any case.

There are among us various sorts of monopolies. For instance, there are the temporary monopolies created by the patent and copyright laws. These it would be extremely unjust and unwise to tax, inasmuch as they are but recognitions of the right of labor to its intangible productions, and constitute a reward held out to inven409tion and authorship.55 There are also the onerous monopolies alluded to in Chapter IV of Book III, which result from the aggregation of capital in businesses which are of the nature of monopolies. But while it would be extremely difficult, if not altogether impossible, to levy taxes by general law so that they would fall exclusively on the returns of such monopoly and not become taxes on production or exchange, it is much better that these monopolies should be abolished. In large part they spring from legislative commission or omission, as, for instance, the ultimate reason that San Francisco merchants are compelled to pay more for goods sent direct from New York to San Francisco by the Isthmus route than it costs to ship them from New York to Liverpool or Southampton and thence to San Francisco, is to be found in the “protective” laws which make it so costly410 to build American steamers and which forbid foreign steamers to carry goods between American ports. The reason that residents of Nevada are compelled to pay as much freight from the East as though their goods were carried to San Francisco and back again, is that the authority which prevents extortion on the part of a hack driver is not exercised in respect to a railroad company. And it may be said generally that businesses which are in their nature monopolies are properly part of the functions of the State, and should be assumed by the State. There is the same reason why Government should carry telegraphic messages as that it should carry letters; that railroads should belong to the public as that common roads should.

We have various kinds of monopoly. There are the temporary monopolies created by patent and copyright laws. It would be extremely unjust and unwise to tax these. They merely recognize the right of labor to its intangible products and offer a reward to invention409 and authorship.55 There are also the onerous monopolies mentioned in Chapter IV of Book III. They arise when capital gathers in businesses that are monopolies by nature. It would be very difficult, if not impossible, to write a general law that taxed only the returns of such monopolies and did not become a tax on production or exchange. It is much better to abolish them. In large part they spring from what legislatures have done or failed to do. San Francisco merchants, for instance, pay more to ship goods direct from New York to San Francisco by the Isthmus route than it costs to ship them from New York to Liverpool or Southampton and then on to San Francisco. The ultimate reason is the “protective” laws that make it so costly410 to build American steamers and forbid foreign steamers to carry goods between American ports. Residents of Nevada pay as much freight from the East as if their goods went to San Francisco and back again. The reason is that the authority that stops a hack driver from extorting his passengers is not exercised over a railroad company. In general, businesses that are monopolies by nature properly belong among the functions of the State, and the State should take them over. There is the same reason for the government to carry telegraph messages as to carry letters, and for railroads to belong to the public as for common roads to.

But all other monopolies are trivial in extent as compared with the monopoly of land. And the value of land expressing a monopoly, pure and simple, is in every respect fitted for taxation. That is to say, while the value of a railroad or telegraph line, the price of gas or of a patent medicine, may express the price of monopoly, it also expresses the exertion of labor and capital; but the value of land, or economic rent, as we have seen, is in no part made up from these factors, and expresses nothing but the advantage of appropriation. Taxes levied upon the value of land cannot check production in the slightest degree, until they exceed rent, or the value of land411 taken annually, for unlike taxes upon commodities, or exchange, or capital, or any of the tools or processes of production, they do not bear upon production. The value of land does not express the reward of production, as does the value of crops, of cattle, of buildings, or any of the things which are styled personal property and improvements. It expresses the exchange value of monopoly. It is not in any case the creation of the individual who owns the land; it is created by the growth of the community. Hence the community can take it all without in any way lessening the incentive to improvement or in the slightest degree lessening the production of wealth. Taxes may be imposed upon the value of land until all rent is taken by the State, without reducing the wages of labor or the reward of capital one iota; without increasing the price of a single commodity, or making production in any way more difficult.

But every other monopoly is trivial in extent beside the monopoly of land. And the value of land, which expresses pure monopoly, is in every way suited to taxation. The value of a railroad or telegraph line, or the price of gas or a patent medicine, may express the price of monopoly, but it also expresses the exertion of labor and capital. The value of land, or economic rent, as we have seen, is made up in no part of those factors. It expresses nothing but the advantage of appropriation. A tax on the value of land cannot check production in the slightest, until it exceeds rent, or the value of land411 taken annually. Unlike taxes on commodities, on exchange, on capital, or on any of the tools or processes of production, it does not bear on production. The value of land is not the reward of production, as the value of crops, cattle, buildings and the other things called personal property and improvements is. It expresses the exchange value of monopoly. It is never the creation of the individual who owns the land. It is created by the growth of the community. So the community can take all of it without lessening the incentive to improve or reducing the production of wealth in the slightest. Taxes may be imposed on the value of land until the State takes all rent. Wages of labor and the reward of capital would not fall one iota, no commodity would rise in price, and production would be no harder in any way.

But more than this. Taxes on the value of land not only do not check production as do most other taxes, but they tend to increase production, by destroying speculative rent. How speculative rent checks production may be seen not only in the valuable land withheld from use, but in the paroxysms of industrial depression which, originating in the speculative advance in land values, propagate themselves over the whole civilized world, everywhere paralyzing industry, and causing more waste and probably more suffering than would a general war. Taxation which would take rent for public uses would prevent all this; while if land were taxed to anything near its rental value, no one could afford to hold land that he was not using, and, consequently, land not in use would be thrown open to those who would use it. Settlement would be closer, and, consequently, labor and capital would be enabled to produce much more with the same exertion. The dog in the manger who, in this country especially, so wastes productive power, would be choked off.

There is more. Taxes on the value of land not only fail to check production as most other taxes do, but tend to increase it, by destroying speculative rent. Speculative rent checks production, and we can see this not only in the valuable land withheld from use. We can see it in the paroxysms of industrial depression that begin in the speculative advance in land values. They spread over the whole civilized world, paralyzing industry everywhere and causing more waste, and probably more suffering, than a general war would. Taxation that took rent for public uses would prevent all this. If land were taxed anywhere near its rental value, no one could afford to hold land he was not using, and land not in use would be thrown open to those who would use it. Settlement would be closer, and labor and capital could then produce much more with the same exertion. The dog in the manger, who wastes so much productive power, especially in this country, would be choked off.

There is yet an even more important way by which, through its effect upon distribution, the taking of rent to public uses by taxation would stimulate the production of wealth. But reference to that may be reserved. It is sufficiently evident that with regard to production, the tax upon the value of land is the best tax that can be imposed. Tax manufactures, and the effect is to check manufacturing; tax improvements, and the effect is to lessen improvement; tax commerce, and the effect is to prevent exchange; tax capital, and the effect is to drive it away. But the whole value of land may be taken in taxation, and the only effect will be to stimulate industry, to open new opportunities to capital, and to increase the production of wealth.

There is another, even more important way in which taking rent for public uses would stimulate the production of wealth, through its effect on distribution. I will leave that for later. For production, it is already clear that the tax on the value of land is the best tax that can be imposed. Tax manufactures, and manufacturing is checked. Tax improvements, and improvement lessens. Tax commerce, and exchange is prevented. Tax capital, and it is driven away. But the whole value of land may be taken in taxation, and the only effect will be to stimulate industry, open new opportunities to capital and increase the production of wealth.

With, perhaps, the exception of certain licenses and stamp duties, which may be made almost to collect themselves, but which can be relied on for only a trivial amount of revenue, a tax upon land values can, of all taxes, be most easily and cheaply collected. For land cannot be hidden or carried off; its value can be readily ascertained, and the assessment once made, nothing but a receiver is required for collection.

Certain licenses and stamp duties can be made almost to collect themselves, but they can be relied on for only a trivial amount of revenue. With that exception, a tax on land values can be collected more easily and cheaply than any other. Land cannot be hidden or carried off, and its value is easy to ascertain. Once the assessment is made, collection needs nothing but a receiver.

And as under all fiscal systems some part of the public revenues is collected from taxes on land, and the machinery for that purpose already exists and could as well be made to collect all as a part, the cost of collecting the revenue now obtained by other taxes might be entirely saved by substituting the tax on land values for all other taxes. What an enormous saving might thus be made can be inferred from the horde of officials now engaged in collecting these taxes.

Every fiscal system already collects part of its revenue from taxes on land, and the machinery for that exists. It could just as well collect all the revenue as part of it. So substituting the tax on land values for all other taxes could save the whole cost of collecting the revenue that other taxes now bring in. We can judge how enormous that saving might be from the horde of officials now engaged in collecting those taxes.

This saving would largely reduce the difference between what taxation now costs the people and what it yields, but the substitution of a tax on land values for413 all other taxes would operate to reduce this difference in an even more important way.

This saving would greatly reduce the gap between what taxation now costs the people and what it yields. But replacing all other taxes with a tax on land values413 would narrow that gap in an even more important way.

A tax on land values does not add to prices, and is thus paid directly by the persons on whom it falls; whereas, all taxes upon things of unfixed quantity increase prices, and in the course of exchange are shifted from seller to buyer, increasing as they go. If we impose a tax upon money loaned, as has been often attempted, the lender will charge the tax to the borrower, and the borrower must pay it or not obtain the loan. If the borrower uses it in his business, he in his turn must get back the tax from his customers, or his business becomes unprofitable. If we impose a tax upon buildings, the users of buildings must finally pay it, for the erection of buildings will cease until building rents become high enough to pay the regular profit and the tax besides. If we impose a tax upon manufactures or imported goods, the manufacturer or importer will charge it in a higher price to the jobber, the jobber to the retailer, and the retailer to the consumer. Now, the consumer, on whom the tax thus ultimately falls, must not only pay the amount of the tax, but also a profit on this amount to every one who has thus advanced it—for profit on the capital he has advanced in paying taxes is as much required by each dealer as profit on the capital he has advanced in paying for goods. Manila cigars cost, when bought of the importer in San Francisco, $70 a thousand, of which $14 is the cost of the cigars laid down in this port and $56 is the customs duty. But the dealer who purchases these cigars to sell again must charge a profit, not on $14, the real cost of the cigars, but on $70, the cost of the cigars plus the duty. In this way all taxes which add to prices are shifted from hand to hand, increasing as they go, until they ultimately rest upon consumers, who thus pay much more than is received by the government. Now, the way taxes raise prices is by increasing the cost of pro414duction, and checking supply. But land is not a thing of human production, and taxes upon rent cannot check supply. Therefore, though a tax on rent compels the land owners to pay more, it gives them no power to obtain more for the use of their land, as it in no way tends to reduce the supply of land. On the contrary, by compelling those who hold land on speculation to sell or let for what they can get, a tax on land values tends to increase the competition between owners, and thus to reduce the price of land.

A tax on land values does not add to prices, so the persons it falls on pay it directly. All taxes on things whose quantity is not fixed raise prices, and in the course of exchange they are shifted from seller to buyer, growing as they go. Suppose we tax money loaned, as has often been tried. The lender will charge the tax to the borrower, and the borrower must pay it or not get the loan. If the borrower uses the loan in business, he in turn must recover the tax from his customers, or his business becomes unprofitable. Suppose we tax buildings. The users of buildings must finally pay, because no more buildings will be put up until building rents rise enough to pay the regular profit and the tax besides. Suppose we tax manufactures or imported goods. The manufacturer or importer will charge it in a higher price to the jobber, the jobber to the retailer, and the retailer to the consumer. The consumer, on whom the tax finally falls, must pay not only the tax but also a profit on it to everyone who advanced it. Each dealer needs a profit on the capital he advanced in paying taxes just as he does on the capital he advanced in paying for goods. Manila cigars cost $70 a thousand from the importer in San Francisco. Of that, $14 is the cost of the cigars landed in this port and $56 is the customs duty. But the dealer who buys them to resell must charge a profit not on $14, the real cost of the cigars, but on $70, the cost of the cigars plus the duty. In this way all taxes that add to prices are shifted from hand to hand, growing as they go, until they rest on consumers, who pay much more than the government receives. Taxes raise prices by increasing the cost of production414 and checking supply. But land is not a product of human labor, and taxes on rent cannot check its supply. So a tax on rent makes landowners pay more, but gives them no power to get more for the use of their land, because it does nothing to reduce the supply of land. On the contrary, it forces those who hold land for speculation to sell or let it for what they can get. A tax on land values therefore tends to increase competition among owners, and so to lower the price of land.

Thus in all respects a tax upon land values is the cheapest tax by which a large revenue can be raised—giving to the government the largest net revenue in proportion to the amount taken from the people.

In every respect, then, a tax on land values is the cheapest tax for raising a large revenue. It gives the government the largest net revenue in proportion to what it takes from the people.

Certainty is an important element in taxation, for just as the collection of a tax depends upon the diligence and faithfulness of the collectors and the public spirit and honesty of those who are to pay it, will opportunities for tyranny and corruption be opened on the one side, and for evasions and frauds on the other.

Certainty matters in taxation. A tax depends for its collection on the diligence and faithfulness of the collectors and the public spirit and honesty of those who must pay. To the degree it depends on these, it opens opportunities for tyranny and corruption on one side and for evasion and fraud on the other.

The methods by which the bulk of our revenues are collected are condemned on this ground, if on no other. The gross corruptions and fraud occasioned in the United States by the whisky and tobacco taxes are well known; the constant undervaluations of the Custom House, the ridiculous untruthfulness of income tax returns, and the absolute impossibility of getting anything like a just valuation of personal property, are matters of notoriety. The material loss which such taxes inflict—the item of cost which this uncertainty adds to the amount paid by the people but not received by the government—is very great. When, in the days of the protective system of England, her coasts were lined with an army of men endeavoring to prevent smuggling, and an415other army of men were engaged in evading them, it is evident that the maintenance of both armies had to come from the produce of labor and capital; that the expenses and profits of the smugglers, as well as the pay and bribes of the Custom House officers, constituted a tax upon the industry of the nation, in addition to what was received by the government. And so, all douceurs to assessors; all bribes to customs officials; all moneys expended in electing pliable officers or in procuring acts or decisions which avoid taxation; all the costly modes of bringing in goods so as to evade duties, and of manufacturing so as to evade imposts; all moieties, and expenses of detectives and spies; all expenses of legal proceedings and punishments, not only to the government, but to those prosecuted, are so much which these taxes take from the general fund of wealth, without adding to the revenue.

The methods that raise most of our revenue stand condemned on this ground alone, if on no other. The gross corruption and fraud caused in the United States by the whisky and tobacco taxes are well known. The constant undervaluations at the Custom House, the ridiculous untruthfulness of income tax returns, and the absolute impossibility of getting anything like a just valuation of personal property are notorious. Such taxes inflict a very great material loss, the added cost that this uncertainty puts on what the people pay but the government does not receive. Under England's protective system, her coasts were lined with an army of men trying to prevent smuggling, while415 another army was busy evading them. Plainly both armies had to be supported from the produce of labor and capital. The expenses and profits of the smugglers, and the pay and bribes of the Custom House officers, were a tax on the nation's industry, on top of what the government received. So are all the gifts to assessors and bribes to customs officials. So is all the money spent on electing pliable officers or procuring laws or decisions that avoid taxation, and all the costly ways of bringing in goods to evade duties and of manufacturing to evade imposts. So are the informers' shares and the expenses of detectives and spies, and all the costs of legal proceedings and punishments, to the government and to those prosecuted alike. All of it is taken by these taxes from the general fund of wealth without adding to the revenue.

Yet this is the least part of the cost. Taxes which lack the element of certainty tell most fearfully upon morals. Our revenue laws as a body might well be entitled, “Acts to promote the corruption of public officials, to suppress honesty and encourage fraud, to set a premium upon perjury and the subornation of perjury, and to divorce the idea of law from the idea of justice.” This is their true character, and they succeed admirably. A Custom House oath is a by-word; our assessors regularly swear to assess all property at its full, true, cash value, and habitually do nothing of the kind; men who pride themselves on their personal and commercial honor bribe officials and make false returns; and the demoralizing spectacle is constantly presented of the same court trying a murderer one day and a vendor of unstamped matches the next!

Yet this is the least part of the cost. Taxes that lack certainty do their worst damage to morals. Our revenue laws as a body might well be titled “Acts to promote the corruption of public officials, to suppress honesty and encourage fraud, to set a premium upon perjury and the subornation of perjury, and to divorce the idea of law from the idea of justice.” That is their true character, and they succeed admirably. A Custom House oath is a byword. Our assessors regularly swear to assess all property at its full, true, cash value, and habitually do nothing of the kind. Men who pride themselves on their personal and business honor bribe officials and make false returns. And we constantly see the demoralizing spectacle of the same court trying a murderer one day and a vendor of unstamped matches the next.

So uncertain and so demoralizing are these modes of taxation that the New York Commission, composed of David A. Wells, Edwin Dodge and George W. Cuyler,416 who investigated the subject of taxation in that State, proposed to substitute for most of the taxes now levied, other than that on real estate, an arbitrary tax on each individual, estimated on the rental value of the premises he occupied.

These modes of taxation are so uncertain and so demoralizing that the New York Commission, made up of David A. Wells, Edwin Dodge and George W. Cuyler,416 investigated taxation in that State and proposed replacing most of the present taxes, other than that on real estate, with an arbitrary tax on each individual, estimated on the rental value of the premises he occupied.

But there is no necessity of resorting to any arbitrary assessment. The tax on land values, which is the least arbitrary of taxes, possesses in the highest degree the element of certainty. It may be assessed and collected with a definiteness that partakes of the immovable and unconcealable character of the land itself. Taxes levied on land may be collected to the last cent, and though the assessment of land is now often unequal, yet the assessment of personal property is far more unequal, and these inequalities in the assessment of land largely arise from the taxation of improvements with land, and from the demoralization that, springing from the causes to which I have referred, affects the whole scheme of taxation. Were all taxes placed upon land values, irrespective of improvements, the scheme of taxation would be so simple and clear, and public attention would be so directed to it, that the valuation of taxation could and would be made with the same certainty that a real estate agent can determine the price a seller can get for a lot.

But we have no need to resort to arbitrary assessment. The tax on land values is the least arbitrary of taxes and has the element of certainty in the highest degree. It can be assessed and collected with a definiteness that shares the immovable, unconcealable character of the land itself. Taxes on land can be collected to the last cent. The assessment of land is often unequal now, but the assessment of personal property is far more unequal. The inequalities in land assessment arise largely from taxing improvements together with land, and from the demoralization, springing from the causes I have described, that affects the whole scheme of taxation. If all taxes were placed on land values, regardless of improvements, the scheme would be so simple and clear that public attention would be fixed on it. Valuations for taxation could then be made, and would be made, as certainly as a real estate agent can tell the price a seller can get for a lot.

Adam Smith’s canon is, that “The subjects of every state ought to contribute toward the support of the government as nearly as possible in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.” Every tax, he goes on to say, which falls only upon rent, or only upon wages, or only upon interest, is necessarily unequal. In accordance with this is the common idea which our systems of taxing everything vainly attempt to carry out—that every one should417 pay taxes in proportion to his means, or in proportion to his income.

Adam Smith's canon is that “The subjects of every state ought to contribute toward the support of the government as nearly as possible in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.” He goes on to say that every tax falling only on rent, or only on wages, or only on interest is necessarily unequal. This agrees with the common idea that our systems of taxing everything vainly try to carry out, that everyone should417 pay taxes in proportion to his means, or his income.

But, waiving all the insuperable practical difficulties in the way of taxing every one according to his means, it is evident that justice cannot be thus attained.

But set aside the insuperable practical difficulties of taxing everyone according to his means. Justice, clearly, cannot be reached that way.

Here, for instance, are two men of equal means, or equal incomes, one having a large family, the other having no one to support but himself. Upon these two men indirect taxes fall very unequally, as the one cannot avoid the taxes on the food, clothing, etc., consumed by his family, while the other need pay only upon the necessaries consumed by himself. But, supposing taxes levied directly, so that each pays the same amount. Still there is injustice. The income of the one is charged with the support of six, eight, or ten persons; the income of the other with that of but a single person. And unless the Malthusian doctrine be carried to the extent of regarding the rearing of a new citizen as an injury to the state, here is a gross injustice.

Take two men of equal means, or equal incomes, one with a large family and the other with no one to support but himself. Indirect taxes fall very unequally on them. The first cannot avoid the taxes on the food, clothing and so on that his family consumes, while the other pays only on the necessaries he consumes himself. Suppose instead that taxes are levied directly, so that each pays the same amount. There is still injustice. The income of the one is charged with the support of six, eight or ten persons, and the income of the other with the support of one. Unless the Malthusian doctrine is carried so far as to treat rearing a new citizen as an injury to the state, this is a gross injustice.

But it may be said that this is a difficulty which cannot be got over; that it is Nature herself that brings human beings helpless into the world and devolves their support upon the parents, providing in compensation therefor her own sweet and great rewards. Very well, then, let us turn to Nature, and read the mandates of justice in her law.

It may be said that this difficulty cannot be got over. It is Nature herself that brings human beings helpless into the world and puts their support on the parents, giving in return her own sweet and great rewards. Very well. Then let us turn to Nature and read the mandates of justice in her law.

Nature gives to labor; and to labor alone. In a very Garden of Eden a man would starve but for human exertion. Now, here are two men of equal incomes—that of the one derived from the exertion of his labor, that of the other from the rent of land. Is it just that they should equally contribute to the expenses of the state? Evidently not. The income of the one represents wealth he creates and adds to the general wealth of the state; the income of the other represents merely wealth that he takes from the general stock, returning nothing.418 The right of the one to the enjoyment of his income rests on the warrant of nature, which returns wealth to labor; the right of the other to the enjoyment of his income is a mere fictitious right, the creation of municipal regulation, which is unknown and unrecognized by nature. The father who is told that from his labor he must support his children must acquiesce, for such is the natural decree; but he may justly demand that from the income gained by his labor not one penny shall be taken, so long as a penny remains of incomes which are gained by a monopoly of the natural opportunities which Nature offers impartially to all, and in which his children have as their birthright an equal share.

Nature gives to labor, and to labor alone. In a very Garden of Eden a man would starve without human exertion. Now take two men of equal incomes, one earned by the exertion of his labor and the other drawn from the rent of land. Is it just that they contribute equally to the expenses of the state? Clearly not. The income of the one represents wealth he creates and adds to the general wealth of the state. The income of the other represents only wealth he takes from the general stock, returning nothing.418 The first man's right to enjoy his income rests on the warrant of nature, which returns wealth to labor. The second man's right to enjoy his income is a fictitious right, the creation of man-made law, which nature neither knows nor recognizes. The father who is told that he must support his children from his labor must accept it, for that is the natural decree. But he may justly demand that not one penny be taken from the income his labor earns, so long as a penny remains of incomes gained by monopolizing the natural opportunities that Nature offers impartially to all. His children have an equal share in those by birthright.

Adam Smith speaks of incomes as “enjoyed under the protection of the state;” and this is the ground upon which the equal taxation of all species of property is commonly insisted upon—that it is equally protected by the state. The basis of this idea is evidently that the enjoyment of property is made possible by the state—that there is a value created and maintained by the community, which is justly called upon to meet community expenses. Now, of what values is this true? Only of the value of land. This is a value that does not arise until a community is formed, and that, unlike other values, grows with the growth of the community. It exists only as the community exists. Scatter again the largest community, and land, now so valuable, would have no value at all. With every increase of population the value of land rises; with every decrease it falls. This is true of nothing else save of things which, like the ownership of land, are in their nature monopolies.

Adam Smith speaks of incomes “enjoyed under the protection of the state.” On this ground people commonly insist that every kind of property be taxed equally, since the state protects them equally. The idea behind this is clearly that the state makes the enjoyment of property possible, that the community creates and maintains a value, and that it is justly called on to meet community expenses from it. Of what values is this true? Only of the value of land. This value does not arise until a community forms, and unlike other values it grows with the community's growth. It exists only as the community exists. Scatter the largest community again, and land, now so valuable, would have no value at all. With every increase of population the value of land rises, and with every decrease it falls. This is true of nothing else except things that, like the ownership of land, are monopolies by nature.

The tax upon land values is, therefore, the most just and equal of all taxes. It falls only upon those who receive from society a peculiar and valuable benefit, and upon them in proportion to the benefit they receive. It419 is the taking by the community, for the use of the community, of that value which is the creation of the community. It is the application of the common property to common uses. When all rent is taken by taxation for the needs of the community, then will the equality ordained by nature be attained. No citizen will have an advantage over any other citizen save as is given by his industry, skill, and intelligence; and each will obtain what he fairly earns. Then, but not till then, will labor get its full reward, and capital its natural return.

The tax on land values is therefore the most just and equal of all taxes. It falls only on those who receive a peculiar and valuable benefit from society, and on them in proportion to the benefit they receive. It419 is the community taking, for the community's use, the value that the community creates. It is the application of common property to common uses. When taxation takes all rent for the needs of the community, the equality ordained by nature will be reached. No citizen will have any advantage over another except what his industry, skill and intelligence give him, and each will get what he fairly earns. Then, and not until then, will labor get its full reward and capital its natural return.