Taxation of Land Values in American Cities The Next Step in Exterminating Poverty BY BENJAMIN C. MARSH Author of "An Introduction to City Planning" Formerly Special Agent of the Philadelphia Society for Organizing Charity Secretary of the Pennsylvania Society to Protect Children from Cruelty The New York City Commission on Congestion of Population, and The New York State Commission on Distribution of Population Copyright, 1911, by BENJAMIN C. MARSH 920 Broadway, New York City DEDICATION. To the uncounted millions of workers in the only unpaid occu- pation in American cities, those who toil from birth till death at their profitless task of creating land values for landowners, in the sincere confidence that those who have votes will use the ballot and those who have influence will exert it, in terminating the existing land slavery in every American city. The overthrow of the present system of subjecting women and children who have no vote, and the sick and the helpless to the cu- pidity of landowners involves a bitter struggle. The only other struggles in our nation's history comparable with this one to restore to "freemen" the right to values they produce, were the Revolution- ary War, and the War of the Rebellion. Those two wars involved bloodshed and loss of life, this battle for economic freedom involves political, not party, action, bringing to the attention of all legis- lators the rights of all the people, and not only of the propertied classes who have hitherto largely controlled legislation for their own selfish interests. While other measures in the warfare to ex- terminate poverty are necessary, that fight cannot be won, till the unpaid creators of land values secure through taxation of land val- ues that which they create. 342172 INTRODUCTION. The excuse for another book on the taxation of land values is the failure adequately to tax land values, and the increasing budgets of cities, counties, states and the Federal government, while simulta- neously, these political units are piling up millions of bonded indebt- edness. The discussion in the present book, is limited to the taxa- tion of land values in cities for municipal purposes since here the necessity of heavy taxation of land values is of most immediate im- portance v That similar taxation of land values is necessary for rural and agricultural lands, and especially to reach the unearned gains and values of mineral and oil lands the writer thoroughly believes. The increase in value of agricultural land from 1900 to 1910 amounting to $15,000,000,000 or 118 per cent was not wholly earned by the owners. The heavy taxation of land values in cities so as to reduce the ground rent to a minimum is a complex question and has manifold bearings. For this reason, even at the risk of apparent repetitions, the subject is treated from several points of view, the relation to the housing problem, of fundamental importance in every city, fiscal advantages, economic advantages, and social advantages, while the evil results of present exemption of land values from adequate taxa- tion are shown in a separate chapter. A brief statement of sources of municipal revenue in foreign cities is incorporated because land- owners in American cities are trying to discover or invent any kind of tax which can be shifted to those least able to bear it, to enable them to continue their ill-gotten, because unearned, gains through increases of land values. In the chapter on possible methods of taxing land values in American cities the most important methods are considered. The conclusion that a higher annual tax-rate on land values and a small land increment tax are the most feasible methods of reducing ground rents and securing an adequate revenue for municipal purposes^ including the cost of many current and recurring improvements now met by postponed payments with the large tribute of interest incident thereto, will probably be generally accepted. The small number of cities separating land and improvement values has made statistical demonstration of the adequacy of the taxation of land values for municipal purposes impossible for many cities. A few important cities only have been selected, and the data from others not incorporated in the chapter on "Fiscal Reasons for Heavier Taxation of Land Values," and general information, will convince every one that this is an adequate source of revenue, nor is this contention denied by landowners. Their sole contention is that they don't wish to have their own profits reduced. The justice and necessity of reducing their profits is thoroughly demonstrated throughout this book. VI FOREWORD The following editorial by Dr. E. T. Devine on the bills gradually to reduce the tax-rate on buildings and personal property in New York, until it is one-half the tax-rate on land and to restrict the heights of tenements in the city, was printed under EDITORIAL Grist in the SURVEY for the week of June loth, 1911. It is re- produced with Dr. Devine's permission, but does not commit him to endorsement of the thesis of this book. THE CONGESTION BILLS EDWARD T. DEVINE Senator Sullivan has introduced into the New York Legislature the bills recommended by the New York City Congestion Com- mission, the effect of which would be to reduce relatively the rate of taxation on improvements as compared with land. The change is one which would have far reaching beneficent results. It would force unoccupied land into use, increase the supply of new tenements, and so reduce rents. Yet it would do this by favoring builders and owners of tenements rather than by putting new and additional burdens upon them. Of course so far as it encouraged new buildings it would diminish the monopoly advantage of present owners and builders, and from the point of view of the public interest this is exceedingly desirable. With the pressure of population in New York there is no difficulty about filling any tenements or apartments of any class if the rents are reasonable, and by reducing the relative taxation on buildings both old and new we increase the chances of reasonable rents. Another good effect of the change would be to encourage the building of factories on land now unoccupied. While I am not in favor of allowing more factories to be built in the congested quarters of Manhattan Island, there are abundant suitable factory sites within the limits of Greater New York which it would be advantageous to have used in this way. If our population and factories were properly distributed there would be no ground for complaint as to congestion. Increasing the relative taxation on unoccupied land, and diminishing the tax upon buildings and im- provements tend to bring about this distribution. If so great a change as halving the rate of taxation on buildings were made suddenly it would involve an element of injustice, vn but to distribute this change over a period of five years reduces that element to the minimum consistent with making any desirable change whatever. If, again, there were no restrictions on heights of buildings, fireproofing, etc., the proposed change might increase congestion on Manhattan Island by encouraging owners of low buildings to build higher, and the owners of unoccupied lots to invest all the money they can raise in building skyscrapers and six- story tenements; but there are already many restrictions, and it is proposed by another pending bill to introduce still others limiting future tenements north of iSist street to four stories. It is better that any unoccupied lots on Manhattan Island should be built upon than that the large unoccupied tracts in other boroughs should remain unoccupied while the pressure of population is as great as it now is. If we are not satisfied with the conditions under which office-buildings and tenements are now being erected in the built-up portions of the city, let us by all means make them more stringent. These two policies encouraging the use of unoccupied land, and determining in the most drastic way the conditions under which buildings, especially tenement buildings, shall be erected are con- sistent and complementary. These are the particular measures recommended by the congestion commission which bear directly upon the subject of congestion, and they represent a policy which sooner or later we shall have to adopt. It will be better for the present generation and that of the immediate future if it is adopted now. viii TABLE OF CONTENTS CHAPTER I. THE LAND QUESTION AND HOUSING REFORM IN AMERICAN CITIES. Summary of Chapter. Most housing reformers in American cities have failed to see the relation between the land question and housing reform. A sample attitude is that of the Tenement House Committee of the New York Charity Organization Society, which stated recently with regard to bills before the Legislature making the rate of taxation on all build- ings one-half the rate of taxation on all land, they "are not consid- ered as bearing directly on the improvement of housing conditions or the relief of congestion." Cheap land is, however, essential to good housing for wage-earners at reasonable rents. Heavy taxa- tion of land values will mimimize land speculation, make and keep land availably cheap, encourage the substitution of healthy tenements for dark disease breeding ones, reduce rents, and encourage home- ownership by wage-earners. Foreign housing experts agree to the necessity of heavier taxation of land values. This has been em- phasized by speakers at International Housing Congresses. The English Royal Commissioners on Housing recommended in 1885 taxing "land available for building outside of towns at 4% on its selling value." The minority report of the English Royal Commis- sioners on Local Taxation in 1901 recommended that the site bear heavier taxation than the structure, and that there should be also a special site value rate to be charged also on unoccupied property and on uncovered land. CHAPTER II. THE MORAL SANCTIONS FOR HEAVIER TAXATION OF LAND VALUES. Summary of Chapter. Unless any measure is morally just no plea of economic or fiscal expediency will justify its adoption. The heavy taxation of land values in cities is moral because land values are created chiefly by the labor and industry of the entire population, and by the improve- ments made by government at the expense of the community. Land- ix owners in cities do not usually take, but make risks through desire for speculative gains. Land values are essentially different from any other values such as those of agricultural products, manufac- tured goods, etc., because land values are the creation of social ef- fort not paid for by the owner, who taxes others as a condition of their using values they themselves create. It is immoral to secure the fruits of others' toil without giving them something in return, but this the landowner by securing ground rent does, since he taxes the users of land "all that the traffic will bear" on values they col- lectively create. The owner of land has no more moral right to demand permanently as large a net return upon the price he has paid for land or its full value in the market than a man has to demand damages from the Federal government when a protective tariff upon articles which he manufactures is reduced for the pub- lic good. Like the beneficiary of the protective tariff, the land- owner has never been morally entitled to the special privilege he enjoys of taxing others. To undo a wrong is moral and not im- moral. The owners of land adequately improved will usually bene- fit, however, by a lower tax-rate on buildings and a higher tax-rate on land, but this change should be brought about gradually. En- dorsement of halving the tax-rate on buildings by the Federation of Churches in New York City. CHAPTER III. RESULTS OF TAXING BUILDINGS AT THE SAME RATE AS LAND. Summary of Chapter. Taxing buildings at the same rate as land values results in the reverse of good government; it makes it as hard as possible for a man to do right and as easy as possible for him to do wrong. It puts a premium upon sloth and the gambling spirit, discourages in- dustry and fetters enterprise. The present exemption of land values from adequate taxation puts the burden of government upon those least able to bear it, and levies upon widows, consumptives and children for the support and protection government affords to the wealthy. It discourages home ownership and militates against family life in tenements. It encourages extravagance in municipal government, because the landlords can shift a large part of the taxes levied on their property on to their tenants. Taxation on industry and buildings instead of land values has thus stimulated also the policy of "postponed payments" because owners of im- proved property do not want their total taxes raised, as they are under a uniform tax-rate on buildings, personalty and land values. CHAPTER IV. ALLEGED OBJECTIONS TO HEAVIER TAXATION OF LAND VALUES. Summary of Chapter. In addition to the general objection that heavier taxation of land values is "confiscation of property rights and immoral" it is claimed that it "will create a panic in real estate," and "result in the calling in of loans," that "adequate transit lines alone will prevent specu- lation in land without heavier taxation of land values" that "a higher tax-rate on land than on buildings and personalty is unconstitu- tional," that "other sources of wealth are as much 'unearned' as increments of land values," and that "if the city secure part of the increment of land values by a super tax on the increases it should recoup the owners for any decrease." The experience of Vancouver, British Columbia, where all buildings are exempt from taxation, shows that no panic will result from a gradual reduction in the tax-rate on buildings and final exemption thereof, and that money can be secured for construc- tion of buildings although a low tax-rate on land values does not prevent land speculation because it does not secure for municipal purposes enough of the ground rent. The judgment of many finan- ciers, and heads of organizations for constructing houses for wage- earners is that halving the tax-rate on buildings will encourage the construction of buildings and not involve a panic as claimed. Re- liance upon transit lines alone to prevent speculation in land must mean either so many, as to be a great and unnecessary cost to the city or as experience shows, chiefly a means of making fortunes through increased land values for landowners along the routes. The United States Supreme Court has given an opinion that "The Four- teenth Amendment was not intended to cripple the taxing power of the states or to impose upon them any iron rule of taxation." The power of taxation is largely legislative, state courts have held, and "all the incidents are within the control of the legislature," so that the constitutionality of heavier taxation of land than other property seems pretty definitely determined. It is true that many other incomes are as "unearned" as land increments, and it is pro- posed to tax land values including increments f in cities for municipal purposes leaving other "unearned" sources to the state and federal governments, for the present at least. Since the increase in land values is due only in small measure to efforts of the owner while government secures only a small part of the increment by a land increment tax it is perfectly proper that a city should secure a share of bona fide increases in land values, xi CHAPTER VIII. SOURCES OF MUNICIPAL REVENUE IN SOME FOREIGN CITIES. Summary of Chapter. Landowners in their desire to postpone heavier taxation of their land values, will suggest many other sources of municipal revenue. The taxes of some foreign cities show how successful landowners have been there in providing substitutes for taxation of land values. Berlin has industrial taxes, taxes on incomes, res- taurants, dogs, department stores, automobiles, brewing malt, tem- porary vendors, exchange of property and trade taxes. Paris still per- sists in putting a premium on darkness by taxing doors and windows and secures about $21,000,000 a year by the octroi tax on goods entering the city gates. London raises nearly two-thirds of its revenue by public rates on real estate, which is largely paid by the occupiers. Berlin, London and other cities rely upon "munici- pal trading" such as gas works, tramways, etc., and taxes upon the gross or net receipts of private companies conducting such busi- ness for revenues, but these as well as most of the municipal taxes are shifted ultimately to the consumer. Dearer gas, dearer food, and more carfare injure wage-earners and revenue from such sources is a bad substitute for taxing land values. Most of these taxes are also costly to collect. The taxation of land values hitherto has been largely confined in Germany to land increment taxes, the plan adopted in England for national revenue. Vancouver, B. C., has abolished all taxes on buildings, and some cities in the Australian Commonwealth have adopted a higher rate of taxation on land than on buildings, es- pecially on unimproved land. CHAPTER IX. POSSIBLE METHODS OF TAXING LAND VALUES IN AMERICAN CITIES. Summary of Chapter. Several methods and degrees of taxing land values are possible : ist. Lower assessment of buildings than of land, and reduc- tion in assessment for depreciation of buildings through age. 2nd. A lower rate of taxation on all buildings and personalty than on land. 3rd. Exempting all buildings entirely from taxation. xiv 4th. Exempting from taxation certain buildings which con- form to a high standard of excellence, either for a term of years, or permanently. 5th. Assessing all public improvements upon property benefited. 6th. Excess condemnation of land. 7th. Taxation of increment of land value. 8th. Municipal ownership of land. The most immediate, practical, economic, and just method of taxing land values in American cities in which land and improve- ments are separately assessed is a heavier rate of taxation on land values through a lower rate of taxation on all buildings and per- sonalty. Halving the tax-rate on buildings and personalty within the next few years is the next step towards securing freedom from existing land slavery. The total exemption of buildings and per- sonalty from taxation will properly and naturally follow gradually. The land increment tax despite its great administrative difficulties is a practical and universal method of recovering for the community its fair share of the community created and earned, land values. The other methods enumerated are limited in their application, or cumbersome at best, and do not conform to the American standard and ideal of equality and justice, although temporarily feasible. Just taxation of land values and a land increment tax will furnish ade- quate revenue for every American city and be the most effective step that cities as governmental entities, can take to exterminate poverty and to regain their cities for the people. XV CHAPTER I. The Land Question and Housing Reform in American Cities A series of articles which has been running in The Survey on "The Housing Awakening in America" records the strivings of several American cities to secure, not only the abolition of the slums, but as well the provision of good homes for their workers. The recent organization of the National Housing Association with a Board of Directors who have been prominent in housing reform in cities throughout the country is another indication of the recog- nition of the prevalence of the housing problem. A careful study of the series of articles on "The Housing Awakening" referred to and of the publications of the National Housing Association shows adequate emphasis upon the necessity for more restrictive housing Housing legislation, such as limits upon the heights of tenements, the pro- Reform Legis- portion of the lot area that may be occupied, provisions as to cubic lation in air space to prevent room overcrowding,, and the determination to Amer * c c efly j- j r r , r restrictive to eradicate slums and vaults. Ihe movers for housing retorm have ^ . appreciated the necessity for cheapening the cost of housing material, and of thereby reducing the cost of constructing tenements, so encouraging home ownership and helping to lower rents. Not only the omission, however, of any reference to the rela- tion between the taxation of land values and the housing question, but as well, the actual denial by many housing experts on the directorate of this Association of any vital relation between the taxation of land values and the housing problem indicates the failure to appreciate a fundamental feature of their program. The New York City Commission on Congestion of Population after nearly a year's study of causes of congestion of population and room overcrowding and methods of preventing these twin evils, prepared bills providing for making the rate of taxation on all buildings in New York City one-half the rate of taxation on all Some housing land. experts deny In a printed memorandum on these two bills, the Tenement direct relation House Committee of the New York Charity Organization Society, ~ f lan of which Mr. Lawrence Veiller is Secretary, actually reported that values and they "are not considered as bearing directly on the improvement of good housing. housing conditions or the relief of congestion."* The fact that Mr. Veiller is an alleged expert on housing and also Secretary of the National Housing Association necessitates an analysis of his concep- tion of the housing reform which presumptively he would inculcate in cities throughout the country. Unfortunately his point of view is altogether too currently accepted. In an article in The Survey of November iQth, 1910, Mr. Veiller states, "New York distinguished for having the worst housing conditions in the world, but long the leader of housing reform in America, continues that leadership. Her 7,000 privies are now a thing of the past, and her 100,000 windowless bedrooms are fast disappearing." In his book, "Housing Reform," published in the same year, Mr. Veiller states, "The con- New York City, ditions in New York are without parallel in the civilized world. In with worst no c j ty Q f E uro p e ^ not in Naples nor in Rome, neither in London tiws^ln th * nor m P ar * s > ne ither in Berlin, Vienna, nor Buda-Pesth, not in world, has Constantinople nor in St. Petersburg, not in ancient Edinburgh taxed buildings nor modern Glasgow, not in heathen Canton nor Bombay are to be heavily, lands found such conditions as prevail in modern, enlightened, twentieth- century, Christian New York. In no other city are there the same appalling conditions with regard to lack of light and air in the homes of the poor. In no other city is there so great congestion and overcrowding. In no other city do the poor so suffer from excessive rents; in no city are the conditions of city life so com- plex. Nowhere are the evils of modern life so varied, nowhere are the problems so difficult of solution." The pride of participation in the leadership of housing reform under which such uncivilized and unchristian conditions exist and continue, evidenced in the above statements, is a matter of passing interest. The important point for those interested in securing good hous- Intelllgent ing conditions in the cities, and towns as well, of this country, is housing re- the inevitable result admitted, and due in large measure to the f ail- formers must ure to get j nto O p era ^ion or rather to release for natural operation reason from , ... . , cause to effect t" 056 economic forces which would tend to abolish many of the housing conditions, noted by Mr. Veiller, in New York City, and which exist to lesser or greater degree in nearly every large city in the country. The New York Tenement House Law, enacted in 1901, and adopted unfortunately as the precise model by many other cities in the country, is a wonderful example of restrictive legisla- * In justice to some members of this committee, it should be stated that they disclaimed knowledge that this statement was included and do not agree with it. tion, in most respects carefully drawn. The size of bolts to a frac- tion of an inch is laid down. Certain provisions are made as to fireproofing, although four story , tenements t are not so safe as higher ones, tending to excuse if not actually to encourage the construction of higher ones. Most of the restrictive legislation of this New Tenement House Law is valuable, and in certain respects further restriction should be enacted. The height of tenements in outlying districts should be restricted to four and three stories, or even less ; and the proportion of the lot area they may occupy should be decreased. The cubic air space to be provided for each occupant of an apartment should be increased and some provision made for the prevention of the overcrowding which on grounds of health such a regulation attempts to prevent. But the existing restrictive provisions, admirable though they Restrictive may be, have not served to reduce room overcrowding nor conges- housing legis- tion per acre. Most of them have actually increased rents and l ^\ on esse " tial > J ' but must be hence room and apartment overcrowding and congestion per acre. sa f e g uar d e d by When a family has to choose between having enough rooms to com- lower tax rate ply with the impulses of decency and privacy or even with the inade- on buildings. quate requirements of the New Tenement House Law, and having food, they default on the housing, health, and moral safeguards, and take in lodgers so they may buy food. Doubtless their logic seems vicious to the owner of land, but it is general and they cannot be too seriously blamed, at least as long as in New York City public relief in their homes is not permitted to the victims of restrictive legislation, on the one hand, and a policy of laisses faire on eco- nomic causes of poverty on the other hand. An apparent dilemma faces every housing reformer of the result upon the wage-earners of the community of additional restrictive measures. Is it really worth while to secure stricter housing regulations, if the inevitable result will be higher rents, and a lower standard of living for the wage-earner, including the taking in of lodgers with the conse- quent disruption of family life? The dilemma is only apparent, however, since while restrictive legislation alone will increase rents, its influence can be largely counteracted by such heavier taxation of land values as will terminate the ability of the landlord to shift on to the tenant, in higher rents, the loss entailed upon the landlord by legitimate restrictive measures. This will be seen by taking up separate objects of the housing reformer to see what he wants to accomplish. It is admitted by want to practically every economist, as shown later, that the proportion of accomplish. Abolition of unsanitary conditions. Automatic ef- fect of heavier taxation of land values in encouraging sanitary con- ditions. the tax which is levied on the land is paid by the landowner or land- lord, and that that part which is levied on the building is shifted on to the tenant. In other words, if all taxes were taken off buildings and put on land, the landowner would pay the taxes, and the tenant would escape any payment of taxes whatsoever, thereby practically reducing his rent to this extent. The heavier tax-rate on land will also compel the adequate improvement of land in order to meet the carrying charges. Mr. William E. Harmon, a well-known real estate operator, with realty interests in many cities throughout the country, testified on this matter before the New York City Commis- sion on Congestion of Population : "Probably the best way to solve the problem of congestion would be to double the tax on vacant land, thus reducing the tax on improvements. If you increase the tax on land you force construction to offset the carrying charges." The housing reformer is naturally first concerned, since in no large American city can the factory population be immediately shifted from the unsanitary tenements they are occupying to better ones in the suburbs, with improving the conditions of old tene- ments. Among the evils existing in old tenements are vaults, dark rooms, and general unsanitary conditions. Admittedly, taxing land values alone will not abolish vaults nor dark rooms. These twin pests should be remedied by sumptuary legislation, vacating houses in which the former, and rooms or apartments in which the latter are found. Nothing can excuse the cowardice with which American cities have permitted the continuance of such conditions, because landlords have had almost complete control of legislative bodies, and in many cities have been able even to thwart the administration of remedial laws. Two American cities, Washington and Chicago, have secured legislation empowering the demolition of unsanitary buildings unfit for human occupancy. New York and several other cities have authority to vacate tenements that are not adequately ventilated or are defective in sanitary arrangements. Such demolition or vacating, however, is always difficult to secure, because courts are unalterably opposed to interfering with property rights if they can avoid it. On the other hand, the heavy taxation of land values would be an auto- matic incentive to the demolition of unsanitary tenements for two reasons. First, old buildings are if the assessment is even fair assessed for a relatively small amount, while the land is assessed in the built-up sections of every city, rather high. A heavier rate of taxation on land than on buildings would mean that the property as a whole would pay more taxes than under a uniform tax-rate on both land and buildings, and by far the larger part, in many cases practically all of the tax, would be upon land values, which the owner must, in large measure, pay himself, since he cannot shift it upon the tenants. Second, the higher tax-rate on land values will, as testi- fied by Mr. Harmon, force construction to meet carrying charges. This is true, not only of vacant land, but of land which is underimproved, that is, whose improvements are not adequate to the district. In most cities, a normal improvement is assessed for at least twice as much as the site. There are, how- ever, in nearly every city, conditions similar to those in the lower part of Manhattan, generally known as the East Side. Although the majority of the buildings in the district bounded by Grand Street, the East River, Manhattan Bridge and Fourth Avenue are five and six stories high, there are, in 1911, fifty-seven parcels of land entirely vacant, seventy-two with only a one-story build- ing, one hundred and eighty with only a two or two and a half-story building, and four hundred and ninety with only a three-story or a three and a half-story building. A heavy tax on land would compel better improvements than a three-story building in this section of the city, not necessarily implying that more people should live in these sections, but a larger supply of tenements, and incomplete as is the New Tenement House Law as to lighting of rooms, its sanitary requirements are far superior to those preceding it. The tendency of a surplus of good tenements is just the reverse of the tendency enun- ciated in Gresham's law of currency ; good tenements tend to drive out bad tenements by reducing the demand for them. An alternative to demolishing houses unfit for human occupancy at the owner's cost, or keeping them permanently vacated, is the English method of de- Payment for molishing unsanitary tenements and paying the landowner richly for his property while the city proceeds to construct healthy tenements for those displaced. This method of clearing unsanitary areas, as it bu * a those who propose to put upon it the burdens which it alone can just mark f r best bear without any injustice. Land is different in its nature from any other object of taxation, since its value is due to the work and expenditure of others. The fundamental morality of the taxation 19 No one is entitled to values he has not created, nor to reap benefits of others' toil. Is it right to diminish anticipated returns from investment in land? It is fallacious to expect government to guarantee any unearned profits. of land values is the fact that no one is entitled to benefit by the exertion and efforts of others, as the owners of land do, without giving a quid pro quo that is returning something adequate for value received. The reason that the owner of land is not entitled to the same net return upon his investment in land as upon his investment in buildings, manufacturing plant, stock of goods, etc., is that land values are a social product, while the others are not in the same sense because land in a city has a unique value since the supply is limited and it cannot be increased, and one can manufacture or open a store in almost any city of the country while a man must live within a certain distance of his work. The very presence of a fac- tory and store creates land values. "While it may be proper, however," the opponents of taxing land values claim, "to tax cheap land at a higher rate of taxation, or land in a new community, a person who has invested money in land whether improved or not expecting a certain net return upon his investment is entitled to such net return, and any legislation which would reduce this anticipated return is contrary to the Four- teenth Amendment in upsetting the basis upon which the contract was made, and deprives the owner of his property without com- pensation or due process of law and is to this extent unmoral, not to say immoral." The fallacy underlying this argument is that government should guarantee or undertake to guarantee any fixed return, or to re- frain from any legislation or action which might impair or alter conditions existing at the time of purchase of land. The same argument can be advanced against any tariff reduction, because a manufacturer of a highly protected article has invested money in his plant, which with the continuance of this tariff would yield large returns, but which might either yield a small return or entail a loss if the tariff were abolished. So too, an unnecessary improvement is often promised by an administration to a certain section of a city, and the owners of land discount its achievement and sell their land in this section at a large advance. This, however, does not constitute any valid reason why the city should make such a gift to the owners of land in any section of a city. "Whatsoever a man soweth, that shall he also reap" enunciates sound economic doctrine, frequently overlooked by get-rich-quick land schemers, whose pro- moters neglect the converse of this statement that no man is entitled to reap where he has not sown, nor to secure the values which others have created. 20 Naturally, however, a heavier taxation of land values permits the lower taxation of buildings, machinery and all property which represents industry. The owner of a factory which is an adequate Heamer ta * a ~ . , * . J . , * tion of land or suitable improvement, will be required to pay less taxes with the va i ues ^ \^ e proper taxation of land values, and this will properly encourage virtue, its own the construction of such buildings. reward in In his speech on the People's Budget, Mr. Lloyd-George quotes a Permitting conservative member's statement about the increases of land values, ?W f r -fj** J and rentals and states his justification of taxing the urban landlord as follows: "In the parish of Plumstead land used to be let for agricultural Mr. Lloyd- purposes for 3 an acre. The income of an estate of 250 acres in 1845 George was 750 per annum, and the capital value at twenty years' purchase instances was 15,000. The Arsenal came to Woolwich; with the Arsenal the increases in necessity for 5,000 houses. And then came the harvest for the land- land values in lord. The land, the capital value of which had been 15,000, now England. brought an income of 4,250 per annum. The ground landlord has received 1,000,000 in ground rents already, and after twenty years hence the Woolwich estates, with all the houses upon them, will revert to the landowner's family, bringing another million, meaning altogether a swap of 15,000 for a sum of 2,000,000. "There are many cases of a similar character which will readily occur to the memory of every hon. member who is at all acquainted with the subject. Take well-known properties in Lancashire and Cheshire in regard to which evidence was given. "And yet, although the landlord, without any exertion of his own, Mr. Lloyd- is now in these cases in receipt of an income which is ten or even a George hundred-fold of what he was in the habit of receiving when these prop- shows how the erties were purely agricultural in their character, and although he is "slumbering in addition to that released from the heavy financial obligations which landlord" are attached to the ownership of this land as agricultural property, he described by does not contribute a penny out of his income towards the local expen- Mill gets land diture of the community which has thus made his wealth, in the words values. of John Stuart Mill, 'whilst he was slumbering.' Is it too much, is it unfair, is it inequitable, that Parliament should demand a special con- tribution from these fortunate owner's towards the defence of the country and the social needs of the unfortunate in the community, whose efforts have so materially contributed to the opulence which they are enjoying?" Mr. Fillebrown gives some typical instances of increases in assessed land values in Boston. The assessed land value of one and eight-tenths acres on Winter street, Boston, between Tremont j nstances O f and Washington streets was in 1898, $5,142,600. In 1907, it was increases in $8,272,000 or an increase in nine years of $3,129,400, or 57 per cent, land values The assessed valuation of this property of $275 per square foot was, in Boston. he states, the highest in Boston : 21 Instances of increases in land values in Chicago. Some increases in land values in Pittsburgh. Increases in land values and profits in land in New York. Large increases in land values common in American cities. "The assessed valuation of Washington Street, from Adams Square to Eliot Street, 3,495 feet, or two-thirds of a mile in length, with an area of 745,003 square feet, 171/10 acres, comprising 179 estates, was in 1907: Land $61,135,900 $77.00 per square foot Buildings 10,793,200 13.50 per square foot "This is an increase in valuation, over the year 1898, of land, $20,438,400, or 50 per cent; of buildings, $1,955,100, or 20 per cent. In 1899 the valuation of the buildings was 21 */ 2 per cent that of the land; in 1907, only 17% per cent." The following cases of increases in land values in Chicago show typical increments in crowded sections of that city: Assessed Land Increase from Values. 1903 to 1907. 1903. 1907. Amount. Per Cent. Marshall Field, Retail De- partment Store $4,715,200 $6,006,025 $1,290,825 27.37 Siegel, Cooper & Co. De- partment Store 2,040,000 3,145,660 1,105,660 54.21 Congress Hotel 1,297,800 2,313,780 1,015,987 78.28 Republic Office Building 1,155,600 1,799,000 643,400 55.67 Stratford Hotel (c) 642,575 1,656,500 1,013,925 15/78 (c) Sale 1899, $640,000. The property at No. 311 Fourth Aveuue, Pittsburgh, was sold in 1884 for $30,000, and was worth in 1908 $400,000 an increase in about a quarter of a century of 1,333 per cent. Similarly the site of the Schmidt Hamilton Building in Pitts- burgh was worth per front foot in 1884 $3,500, in 1908 $15,000 an increase of 429 per cent. The following statements have appeared recently in New York papers : "A Lot on the east side of Tenth Avenue, between 2o6th and 2O7th streets sold in 1904 for $1,100, and last year (1910) the same property brought $12,600." "Six years ago the lots sold for $1,600 each. The present selling price is $9,000 apiece. This is an increase of nearly 600 per cent since 1905." "In active markets I have made for myself and my friends 500 per cent per year." "Our profits for four years were fully 250 per cent per annum." Similar percentages of increase in value of land and profits therefrom can be duplicated in nearly every American city, and while allowance should be made for inflation of land values, and "land booms," the salient fact remains that the natural increase of 22 population creates increased land values, and that in addition to these increases the land could if properly utilized or improved have yielded a good net return. The bona fide land values of New York City for example, ex- General elusive of expenditures by the owners or assessments by the city tncr f ase f f ,Hr> . t t mm * land values in increase about $800 a year for every person who has been added New York to the population. The mere fact that New York City like many American cities has relied upon immigration to increase its popula- tion and hence its land values does not mean that restriction on im- migration would mean a cessation of the increase in land values. A lower death rate and a higher birth rate are just as potent means of increasing population, and hence land values, as immigration, and one can claim without being regarded as a sentimentalist that it is a much more humane method. Each day's labor of New York City's population including the Sunday of rest for the next week's work increases the city's land values by about $300,000. Certainly on no moral grounds can the right of creators of land There is no values to participate in the values they create be denied. Hitherto moral basis they have been denied fair participation, because selfish interests f r objecting have controlled legislation, and the people have not been able to ^ a ^'L enact their own convictions and wishes into law. j and va ] ues Mr. Allan Robinson has frankly admitted that if the pro- posal to make the rate of taxation on all buildings and personal The sober, property in New York City, one-half the rate of taxation on all land conservative were submitted by referendum to the people of the city, it would be I" d 9 en * f rr,, . . t e ,, A . the American adopted at once. The sober conservative judgment of the Amen- p eo p^ e ^ can people is opposed to the continuation of special privilege, how- O pp ose d / ever granted. This judgment believes that men, women and chil- special privi- dren are entitled to the values which they produce, and that no one le se such as is entitled to anything wrested even with legal sanction at pres- underta * ed - J ownership ent ,-f rom them. of Jand The progressive rate of taxation on inheritances for state pur- poses adopted by many states and the progressive income tax now under consideration for securing revenue for the Federal govern- ment are based upon the same fundamental principles of justice which underlie the demand for the taxation of land values for the relief of industry, and the termination of other special privileges. Neither the taxation of incomes derived from mines in which immi- grants have lost their lives from accidents and low wages, the taking by an inheritance tax of the entire wealth derived from unsanitary tenements and underpaid workers, nor levying upon land the cost of government to protect the lives and to educate the people who 23 Taxation is one of democ- racy's surest methods of restoring and securing social justice. The Federa- tion of Churches in New York City endorses halving the tax-rate on buildings. give to land its value will, however, restore to life or health those who have died or lost their health through government's failure to establish and enforce safe and healthy conditions of living in the past. Nevertheless, in American cities just and economically sound taxation still is one of democracy's surest methods of restoring and securing social justice. Because the heavy taxation of land values is the soundest and most just method of taxation it is the most moral method of taxation for municipal purposes. The Federation of Churches and Christian Organizations in New York City in advocating the halving of the tax-rate on build- ings states : "In the minds of many this bill is an application of the 'Gospel according to George.' This is only partially true, inasmuch as Henry George advocated the abolition of all taxes except taxes on land, and this bill does not do that. The Federation regards the bill as the most important piece of social legislation introduced at Albany in the last twenty-five years, not even excepting the race-track gambling measures. "It is a bill in the interest of the proper housing of the people of New York. The Federation has proved by its publications that New York, in 1940, will have less than 10,000,000 people. That is to say, the people of New York a generation from now could be housed on its area at an average of less than 60 people per acre, whereas Manhattan Island has 166 people per acre, with districts running as high as 731 per acre, and individual blocks as high as 1,674 P er acre, while Bfook- lyn has wards running over 300 per acre, and 31.9 per cent of the Bronx's population is housed at an average density above the average density of Manhattan. From July, 1902, to December 31, 1908, 62 per cent of the dwellings erected in the Bronx were five stories or over. "Tenement House Reform' as a rallying cry for housing move- ments in New York should give place to 'Tenement House Prevention,' and speculative landowners, who are opposing this bill, which penalizes the non-use of land, by placing a larger measure of the carrying charges of the city budget upon it, and rewards the building of homes for the people by exempting them, in 1912, 10 per cent of their value, and adding 10 per cent exemption per annum till, in 1907, 50 per cent exemption is granted, should be routed by the combined force of the churches and laboring people of New York. If the tenement many stories high is to house the people of New York of the future, every church will, in time, be compelled to become an 'institutional church.' The churches should be willing to assume this form of social service if they are compelled to, but it would be better if they should become Vestitutional churches,' and so compel the use of the livable area of New York as to restore the single, the two- family and three- family dwelling as the normal type of housing. Rapid transit should not be allowed to enrich a few land speculators, but should be so developed as to distribute the population of New York throughout its whole livable area." CHAPTER III. Results of Taxing Buildings at the Same Rate as Land John Stuart Mill's dictum, "That is the best kind of government Good govern- which makes it as hard as possible for a man to do wrong, and as ment easy as possible for him to do right," may be applied to systems of ^ofit taxation and read, "That is the best system of taxation which en- wrong action courages enterprise and effort, and discourages sloth, which stimu- unprofitable. lates the construction of healthy dwellings and the demolition of , r . Taxes should unsanitary ones, and which not only compels payment of taxes in be j udged by proportion to ability to pay, but as well in proportion to services their moral rendered." re lts - The incidence of taxation is quite as important as the rate of taxation, and is worthy of the careful consideration of those inter- ested in the administration of cities. The social activities of Amer- ican cities are as yet in their inception. In nearly every large Amer- Collective ican city the expenditures for educational purposes, the extermina- mu cl P al 1 social activi- tiori of tuberculosis, inspection of milk and other food, medical ties st ^ j n treatment of school children whose parents are too poor to provide their such treatment for them, parks and playgrounds, etc., are constantly beginnings. increasing, as we as a nation are conceiving and carrying out the duty and economy of collective municipal action. In 1908, the one hundred and fifty-eight cities in the country having a population of 30,000 or over, out of total payments for general expenses and special service expenses amounting to $402,- 633,976, expended over one-fourth, $102,723,553 for protection of life and property, and $40,055,559, or about one-tenth, for health conservation and sanitation ; $28,006,783 for charities, hospitals and corrections, and $119,004,725, nearly one-third, for education. De- Many spite these facts we have in our cities abnormal fire losses, and muma t >a expenditures inadequate police protection, death rates are cruelly and criminally mere i y "i oc k high, jails and reformatory institutions are disgracefully crowded, the door after and school buildings are unsanitary, classes are too large, and teach- the mule is ers are grievously underpaid. The sweeping claims made as to stolen." waste which can be eliminated gave promise of material reduction in municipal expenditures, but the promise has not been achieved. 25 Dominance of real estate owners in budget-voting bodies is now challenged. Not the tax rate, but who pays the taxes, the most important question. Robbing the sick and poor by taxation a more serious evil than a small waste of funds. Legalised rob- bery through taxation must stop. The dominant influence of real estate owners over budget-voting bodies is at least challenged, however. Ability to "keep down the tax-rate" is no longer the criterion of efficiency. The thinking public of American cities realizes that im- portant as are economy and efficiency in administration, adequate appropriations for social needs are equally important. Of course, the two are not incompatible, but the people of American cities while desiring strictest economy do not wish adequate provision for the city's social needs to await perfection in the organization and administration of all the city's departments. Efficiency in admin- istration has outstripped efficiency in scope of municipal activities. The questions who pays the taxes, and whether those who do pay, are able to pay, are demanding as much attention as whether 5% or even 10% of public funds is wasted and this charge is more easily made than proven. A waste of 5% even of the city's expen- ditures, which should be stopped, is, nevertheless, not so serious an evil as taking $10 to $50 in taxes, a year, from scores of thousands of farniles in the city who are not able to pay even a dollar toward the expenses of the city. A certain sum of money is required in every city to enable a family, even making allowance for the per- sonal equation, to maintain a standard of living essential to national efficiency. The lower a family's income is below this minimum of national efficiency, the more heinous the city's offense in extorting from them by unjust systems of taxation even a dollar for ex- penses, and the more costly the later atonement the city must make for such a policy. In times of war, deprivation of the necessities of life may be condoned, but the legalized robbery through taxation sanctioned in American cities to-day by inert or unthinking public opinion is unparalleled since the days of the Duke of Alva in the Netherlands. We rob widows, consumptives, and children because we do not tax land values adequately. We fetter industry and condone low wages because the owner of ground rent the landowner is permitted to tax the industrious users of land. Before examining in detail the economic, fiscal and social aspects of taxing land values, we may profitably study the incidence of present methods of taxation in American cities. Of the total receipts in 1908 of $479,834,806 from general rev- enues in the one hundred and fifty-eight cities in the country having a population of over 30,000, $393,940,142 was derived from taxes. Of this amount $377,340,940 was the original levy upon general property, and $2,643,309 penalties upon such property, while 26 $12,686,929 was derived from special property and business taxes, About three- and $1,268,904 from poll taxes, $50,435,297 was derived from licen- Quarters of ses and permits, $3,893,719 from fines and forfeits and $31,545.785 ^eT^ith from subventions, grants and gifts from other civil divisions such over 30floo as school funds from the state and from private individuals. population In other words nearly three-quarters of the total revenue of derived from these one hundred and fifty-eight cities was derived from a gen- 9 eneral P r P~ eral property tax. The tax on land values was the only tax that la * ge p r *p or . usually cannot be shifted. Over $63,000,000, about one-eighth, was tion of this secured from taxes on special property and business licenses and levied on permits including $40,716,637 from liquor licenses and taxes. buildings. Unfortunately a few cities only of the total one hundred and fifty-eight separate land and improvement values in their assess- ?*"**Jf upon individuals of ments, so that it is impossible to state accurately the levy on each. tax ^ ng & tt ,7 but not at an y regular rate. The local bodies (and the Senate) must take this probability of fluctuation into account, and must make use only of an average ascertainable over a longer period or accumulate the funds for some specific purpose. Finally, we have to consider the effects upon land reform. All taxation of sites, especially of site gains, works toward such reform. I have already indicated why the increment tax will serve to check speculation and to lessen the price of land. Every tax upon ground rents tends to lessen the price of land ; the increment tax is further beneficial in its effect on the ways of buying and selling land. Ac- cording as the earlier or later stages of ownership are more heavily affected ' this tax ma y serve to stimulate or to deaden the market heavy and pro- for land * Mr ' Brunnuber states: "I believe that the tax should gressive land begin with 10 per cent, should rise rapidly to 35 per cent (say increment tax. for an increase of value of 50 per cent), while a tax of 50 per cent 48 is entirely reasonable where the increase in value is 100 per cent or more." Mr. A. C. Pleydell comments on a land increment tax : "I was rather surprised to hear the advocates of single tax speak Mr. Pleydell in the same breath of taxing the unearned increment by taxing a cer- shows the tain amount out of the value of land at the time of sale. All attempts difficulty of to deal with the selling values of land in this way are dealing with estimating real what in one sense is legal fiction. The only reason land has value at land increment all is that you can get a certain rental out of it. If you keep people if i an d values from collecting rents you destroy values. Now, how are you going to are heavily tax the unearned increment which disappears wherever you increase a taxed. tax on the rental value, is a problem I have not yet been able to under- stand. It is interesting to see how that would work out. A man pays a certain amount of money for his land based upon the estimated net return, but if he is deprived of a certain amount of his net return by an increase in the annual tax, the land will have its selling value reduced. The intricacies would amuse one. And if you add a 50 per cent tax on the unearned increment to the total tax upon the annual value of the land, based on the selling value of the land in a lump sum, it certainly would be a grinding between millstones." CHAPTER V. Economic Reasons for Taxing Land Values Heavily The brief survey of some results of the present system of taxing buildings at the same rate as land has shown the complexity. The bill introduced in the New York legislature providing for making the rate of taxation on all buildings one-half the rate of taxation on all land was endorsed by many prominent business men, bankers, manufacturers and professional men. In a statement supporting this bill, entitled "To Free Industry and Encourage Enterprise and Effort," they assign the following reasons for the enactment of the bill : "The proposition to make the tax-rate on all buildings half the tax- Business Men's rate on all land in New York City offers an important measure of free- statement of dom and incentive to the business men, manufacturers and constructors economic of buildings in the city. They have long felt and expressed the desire advantages of for relief from the growing burdens of taxes on business premises, halving the factories and tenements for the heavy taxes on tenements reflects itself tax-rate on in the necessity for higher wages. Such stimulation of business enter- buildings. prises will be immediate and vital as soon as the proposed adjustment of taxation is in force. To secure the total levy upon ordinary real estate in 1910, in New York by taxing land double the rate on improve- ments, including buildings of all sorts, the rate on land would have been $2.193 per $100 of assessed value; on buildings, $1.096 per $100 of assessed values. "In addition to the saving in taxes amounting on different classes of buildings to from one-sixth to one-quarter of the usual taxes, the proposed halving of the tax-rate on buildings will have three distinct beneficial effects on business and manufacturing. "ist. It will bring more and cheaper land into the market for business purposes. "2nd. It will make the landowner improve his land with buildings and cause competition for tenants, thereby decreasing rents. "3rd. It will make the landowner and not the lessee pay the taxes, because the tax on land can't be shifted to the tenant, and the tax on buildings usually can. "We therefore recommend to business men this halving of the tax on buildings in the hope that they will consider it in relation to their business interests, and support the demand that energy and business be encouraged by the proposal to reduce by half the tax burden on all improvements." SI Why business shouldn't be taxed at the same rate as land values. A tax on indus- try is always shifted. Industry doesn't yet bear its own burdens. Industry must pay the cost of its accidents. Industry must pay fair wages. Industry taxed will be industry gone. Industry must provide safer working conditions. It will of course, be asked, "Why should industry not be made to bear its fair share of the cost of municipal government by being taxed at the same rate as land ?" The reasons are: 1st. A tax on industry is shifted to the consumer or laborer whenever possible. It is impossible to determine exactly who pays a tax upon business but the tendency is inevitable to turn it over on to whomever it can most readily be shifted, and this is frequently, if not usually, those least able to bear it. 2nd. Industry has not yet begun to bear its own burdens. There is a country-wide determination that business shall bear its proper burden of the cost of industrial accidents and industrial diseases. While temporary setbacks to this popular mandate have occurred in a few states through crude, or worse, court decisions, neverthe- less it is the settled determination of the people to exempt the work- ers of the country from hardships and suffering in their employ- ment due to conditions over which they have no control. Industry, too, has not paid fair wages to its workers. Labor has been the last fixed charge on production, while an enlightened public opinion is now demanding that it shall be, if not the first fixed charge on industry, at least equal in its claim to that of the capital invested. To pay a living wage under present conditions, industry must increase its payment to laborers in this country by hundreds of millions, and so long as the landowner, as well as the government, is permitted to tax the manufacturer, this will con- tinue and this tax will be shifted in large measure to the consumer. 3rd. Industry taxed will remove from the jurisdiction of the taxing power, because industry takes risks and landowning does not in the same sense or to a similar extent. To secure factories is the highest ambition of most growing cities, evidenced by the attractions offered new factories to locate, such as exemption from taxes, reduced taxes, free sites, free water, water power, etc. 4th. Industry must provide safer conditions for workers than it has hitherto. Brutal and unhealthy overcrowding and dangerous fire-hazards exist in most large manufacturing cities of the country, the remedying of which will involve large expenditures by manu- facturers. With a uniform rate of taxation on land and buildings this will put a heavy and unjust burden upon industry which can be prevented only by a lower tax-rate on buildings. In most states 250 cubic feet of air space only is required for every employee in a factory during the day, but there is practically no means of en- forcing this law and often workers are so crowded that only 150 to 200 cubic feet of air space is afforded. In point of fact as much air space should be required for factories as for tenements, and the requirement for tenements in this country varies from 400 to 700 cubic feet per occupant. On a conservative estimate many manu- facturers in large cities should be compelled to provide at least Taxing double the amount of cubic air space now provided as well as to ^ 1 ^ 9S f' furnish fire towers connecting or party walls and adequate exits, construct { on while many buildings now used for manufacturing purposes cannot O f such safe by any structural changes, be made safe, but should be demolished, factories 5th. Government already exercises through State Departments an( * **** of Labor, the Interstate Commerce Commission, Public Utilities r Commissions, etc. much closer supervision and control even now Comparative over the business interests of the country than over the landed su P ert * be fiscal point of view. Starting with Adam Smith nearly all economists are agreed that a tax on land cannot be shifted as the following quotations show : "Though the landlord is in all cases the real contributor, the tax Adam Smith. is commonly advanced by the tenant, to whom the landlord is obliged to allow it in payment of the rent." Adam Smith, "Wealth of Nations," Book V., Chapter II., Part 2, Art. I. "A tax on rent would affect rent only; as it would fall wholly on Ricardo. landlords, and could not be shifted. The landlord could not raise his rent, because he would have unaltered the difference between the produce obtained from the least productive land in cultivation, and that obtained from land of every other quality." Ricardo, "Principles of Political Economy and Taxation," Chapter X., Section 62. "A tax on rents falls wholly on the landlord. There are no means by which he can shift the burden upon any one else. ... A tax on 59 Mill. Thorold Rogers. Seligman. Fillebrown. Wall Street fears the taxa- tion of land values. Land can't be hidden. A land tax is cheaply collected. rent, therefore, has no effect other than its obvious one. It merely takes so much from the landlord and transfers it to the State." John Stuart Mill, "Principles of Political Economy," Book V., Chapter III., Section 2. "The power of transferring a tax from the person who actually pays it to some other person varies with the object taxed. A tax on rents cannot be transferred. A tax on commodities is always trans- ferred to the consumer." Thorold Rogers, "Political Economy, 2nd edition, Chapter XXL, p. 285. "The incidence of the ground tax, in other words, is on the land- lord. He has no means of shifting it; for, if the tax were to be sud- denly abolished, he would nevertheless be able to extort the same rent, since the ground rent is fixed solely by the demand of the occupiers. The tax simply diminishes his profits." E. R. A. Seligman, "Incidence of Taxation," pp. 244, 245. As Mr. C. B. Fillebrown states, "Ground rent is as a rule, 'all the traffic will bear/ that is, the owner gets all he can for the use of his land, whether the tax be light or heavy. Putting more tax upon land will not make it worth any more for use, will not increase the desire for it by competitors for its tenancy, will not increase its market value." Wall Street voices its realization of this fact and of the basis of large fortunes in land values in the following statement in "Mar- ket Letter" issued, August 2ist, 1911, by Mr. Byron W. Holt: "While the land-tax value may be an excellent device for raising city revenue, it will, if carried far enough, work havoc not only with investors in real estate mortgages, but with investors in many railroad and industrial stocks, the value of which comes largely from real estate." 3. Land cannot be hidden as can other sources of revenue, and as its value is always increasing automatically, it is a certain and definite source of income which can be most readily and cheaply collected. The assessed value of land in a city can be more definitely ascer- tained than can any other conceivable form of city revenue. Even making allowance in valuing buildings for age and de- preciation, it is difficult to arrive at their fair valuation. Attempts to assess personal property result in raising a race of liars instead of raising revenue. The sum that will be yielded from licenses for business, trad- ing, bootblack stands, lodging houses, etc., is always an estimate. Most cities in the United States recognize this fact and estimate the amount to be raised from all other sources except the tax on real estate and personalty and then upon the ascertained assessed 60 value thereof determine the tax-rate to raise the revenue needed to meet the city's expenditures. The cost of collecting any other tax than the tax on land is very much more expensive, since it involves not only a large amount of bookkeeping but as well detective work in ascertaining or guessing at wealth. 4. Taxation of land values is an adequate source of revenue for every city in America. If a fair rate of taxation on land were not sufficient to meet all legitimate municipal expenditures there would be less point in arguing for the adequate taxation of land values. As has been stated earlier relatively few cities separate land and improvement values, but the conditions in those which do sufficiently prove the potentiality of this source of municipal rev- enue. NEW YORK CITY. The total assessed value of land in New York City in 1910, exclusive of "Real Estate of Corporations" and "Special Fran- chises" was $4,001,129,651 while the total levy upon land and buildings for all municipal and county purposes was $115,080,- 377-79- The total ordinary budget of the city, that is the sum appropriated by the city for current expenses, was $157,773,145-53 The "Corporate Stock" warrants paid amounted to 71,747,316.46 The Special Revenue Bond warrants amounted to 7,396,455-75 That is, these total municipal expenditures were $236,916,917.74 Other levies were, however, On Special Franchises and Real Estate of Corporations $9,804,795.50 On Personal Property 6,589,809.77 All other sources (estimated), including revenues of Bank Tax, Mortgage Tax, Excess of Excise Tax, State School Fund and Previous Appropriations 32,030,989.45 _ , The rate to Total 48,425,594.72 meetallo f Amount to be raised by taxation on land alone $188,491,323.02 d't r It will thus be seen that to raise the total expenditures of the f pl ould . . , have been $5.90 city m 1910, including corporate stock and special revenue bond p er $ IOQ O j warrants paid, by taxing land values alone the rate would have assessed land been only $5.90 per $100.00 of assessed value which would not be values. 61 entire confiscation of ground rent since i per cent to 2 per cent would still probably have been made by the owners of the ground rent, the landowners. This is "single tax" and paying all the city's expenses by a tax upon land values alone. It -should be noted, however, that land in New York was not assessed at selling price in 1910 and its assessed valuation in 1911 was nearly $555,000,000 greater, so the tax-rate on full value would have been much less. "Real Estate of Corporations" and "Special Franchises" also are excluded from heavier taxation since reduction in charges to the consumer by any corporation whose charges and profits are determined and limited by a Public Serv- ice Commission is more important than securing taxes to be shifted to the ultimate consumer. Robbing Peter to pay Paul is an out- grown game when governmental control and regulation is estab- lished. To raise the total expenditures in 1910 of New York City, exclusive of the revenue from personal property and taxes on "Real Estate of Corporations" and "Special Franchises" by tax- ing land values, would have required a tax-rate of only $4.78 per $100.00 of assessed value, while to have raised the so-called "bud- get" exclusive of the Corporate Stock budget and the issues of special revenue bonds, by a tax on land without taxing buildings but taxing personal property, banks, mortgages, etc., as was done would have required a tax-rate of only $2.87 per $100.00 of as- sessed value. The important point which has been fully established is that a much higher tax-rate can be safely imposed on land than at present and all taxes on buildings can be abolished without in any way "confiscating" ground rents, and it should be noted that this is not the "single tax." BOSTON. The figures prepared by Mr. C. B. Fillebrown for Boston in 1907 are so graphic and convincing that we reproduce them. He found that 125 pieces of real estate in various sections of the city were sold at prices averaging one-fifth higher than their assessed valuation, indicating that they were assessed at five-sixths of their true value, and concludes. "Based upon the foregoing ratio, the following conservative estimate of the gross land value of Boston is submitted for scrutiny and criticism : 62 A CONSERVATIVE CALCULATION OF BOSTON'S GROUND RENT. If the assessed valuation* of Boston's land for 1907, which is in round numbers $653,000,000 Is five-sixths of its selling value, then the addition of one-fifth 130,600,000 Would give us as the net selling value $783,600,000 Adding to this the capitalized value of the amount of tax now on the land, $15.90 per thousand on $653,000,000, or $10,382,000 at twenty years' purchase 207,600,000 Would give as the true capitalized ground-rental value $991,200,000 Add moderate estimate for franchises, say 108,800,000 And we should have as a basis of assessment under the single tax a total capitalized ground-rental value of at least $1,100,000,000 At 5 per cent this would indicate for Boston a ground rent of 55,000,000 Or considerably more than double the total taxes of Boston.t" Putting this in another way: To secure the total levy of $20,- Boston's city 886,335 on lan d, buildings and personalty by taxing land values on and state iax in the basis of the assessment at five-sixths of the actual value, would ^^ ^"uired have required a tax-rate on land of $3.19 per $100.00 of assessed a tax-rate on values, while on the real value of land, the tax-rate would have full land values been $2.66. of only $2.66 per $100. * The official figures are : Valuation. Rate. Tax. Land $652,995,300 $15.90 $10,382,700 Buildings 417,869,400 15.90 6,646,200 Personalty 242,606,857 15.90 3,857,435 $1,313,471,557 $20,886,335 t Boston's income from taxation in 1907 was : Land values $10,382,628 Buildings and other improvements 6,644,212 Personal estate 3,857,449 Polls 369,066 Corporation taxes 1,087,793 Liquor licenses 1,079,585 Boston's total city tax (including state tax) $23,421,542 63 Chicago could in 1911 have raised its budget by a $4.88 tax-rate on full land values. CHICAGO. The assessed land value of Chicago in 1911 is $395,911,111, but Assessments are only about one-third of true value, so that the full value is $1,187,733,334. The total municipal budget in Chicago in 1911 is $58,054,000, To have raised this total budget by a tax on land alone would have required a rate of only $4.88 per $100.00 of full assessed value, though the rate on the valuation used would have been $14.66. Chicago's net bonded indebtedness in 1910 was $30,897,000. Naturally the " full value " of land is a relative matter, depending upon many factors, and the estimate that the full land values of Chicago were three times the assessed valuation may be a little high; but the important point is that even on the basis of the assessed value of $395,911,111, the total tax-rate to raise Chicago's budget for 1911 by taxing land alone would have been $14.66. BUFFALO. The assessed value (full) of land in 1910 was $169,340,615 The assessed value (full) of improvements in 1910 was 165,462,150 Total $334,802,765 The city budget in 1910 was $7,704,137.03. To have raised the total municipal budget by a tax upon land values alone would have required a tax-rate of only $4.55 per $100.00 of full assessed value, while to raise the actual levy upon land and buildings for all purposes, amounting to $7,332,180.55, would have required a tax-rate of $4.33 upon land. The net bonded debt of Buffalo in 1910 was $22,168,128.58, while the total principal received from sale of bonds during the year amounted to $3,635,241.89. OMAHA, NEBRASKA. The assessed value of land in Omaha in 1910 was $12,218,095 The assessed value of buildings 12,723,471 Total $24,941,566 Both land and buildings are assessed, however, at anly one- fifth of their full value, and the tax-rate on both for city pur- poses in 1910 was $6.29 per $100.00 of assessed value, the tax yield 64 being $1,568,824.50. To raise the levy by taxing land only the rate would have been per $100.00 of full assessed value only $2.57. WORCESTER, MASSACHUSETTS. The full fair value of land in Worcester in 1910 was $47,032,750 The full fair value of buildings 63,414,450 Total '. $i 10,447,200 The levy on land and personalty was $1,971,838.06, and to raise this by taxing land values alone, the tax-rate would have been $4.19. WASHINGTON, D. C, (City and County.) The assessed value of land in 1910 was $151,711,966 ; real value, $227,567,949 The assessed value of improve- ments was 133,441,805 ; real value, 200,162,707 Total assessed value in 1910 was... $282,153,771; real value, $427,730,656 Washington The total real estate tax for the fiscal year ending June 3Oth, could have 1910, was $4,277,306.57 and the personal tax, $1,007,022.41 ; total raised m I9I $5,284,328.98. To have raised this sum the tax-rate upon the full ^ndbttildings value of land would have been $2.33 per $100.00 of full assessed and' personalty land value, while the actual tax-rate upon land, buildings and by a $2.33 tax- personalty was only $1.50 upon a two-thirds valuation: rate on full land values. SPRINGFIELD, MASSACHUSETTS. The assessed full value of land in 1910 was $48,704,680 The assessed full value of improvements in 1910 was 46,279,080 Total $94,984,660 The municipal budget in 1910 was $1,830,420. To raise this budget by taxing land alone would have required a tax-rate of only $3.76 per $100.00 of assessed value, instead of the actual tax-rate of $1.58. The assessed value of land increased from 1910 to 1911 by $3,407,080 or almost exactly 7 per cent. KANSAS CITY, MISSOURI. In 1910 the assessed land value was $60.355.420 The assessed value of buildings was 49,614,480 The total net municipal expenditures were only $3,091,901.11, and to raise this sum the tax-rate on assessed land values alone would have been $5.12 per $100.00. Land in Kansas City is, how- 65 ever, assessed for only 15% to 40% of its real value, and taking even the conservative figure of 50%, the tax-rate on full land values to meet the city's budget would have been only $2.56. The actual tax-rate on all property in the city is $1.25 per $100.00 of assessed value, while a 25c tax-rate is levied on land values alone for park maintenance. Land values While data is given for only a few cities, it is evident that are an adequate a jj ^e revenue now raised by taxing land, buildings and personal source of muni- . . . _* * -111 1 --i .. , property could be raised by taxing land values alone without ap- cipal revenue r r j j r in American proximating confiscation. It is equally patent that in most cities cities. merely to make the rate of taxation on buildings and personal Cities should P ro P ertv one-half the rate of taxation on land without increasing include many municipal expenditures to meet the city's full social obligations, deferred and without paying by current taxation for many public improve- payments in ments now paid for by long term bonds, will not enable the city annual budgets. to secure anv material proportion of the ground rent now taken by the landowners. That this must be taken gradually is no more apparent than that the alternative to such adequate taxation of land values in order to enable the city to secure these ground rents, is municipalization of land. If 6 per cent net is now considered a fair return upon land values, a tax-rate of 2 per cent while the property yields 8 per centy or should yield 8 per cent, to be divided between the city and the landowner, is too low a tax-rate. There is a grim but dire irony in the fact that the constitution of New York state lim- its the tax-rate for municipal purposes to $2 on every $100.00 of Six per cent assessed value exclusive of expenditures for debt service. Even net profit on under such a provision, however, the tax-rate on land values in assessed land 1910 could have been $4.51, which would have yielded the con- values would s iderable sum of $180,488,541.97, instead of the actual levy of New York $7>753> 2 3 I - 2 4- Six per cent net profit on the assessed land value landowners ^ New York in 1910 (a low assessment) would have yielded to An 1910 the owners $240,067,689.06. There are probably very few who $240,067,000,00. would claim that the rights of the nearly 5,000,000 people who contribute to the land values of the city are to the rights of the York City owne rs of ground rents only, as $70,753,231.34 are to $240,067,- 689.06, the potential value'to the ground rent owners. They agree more than one- 1- fourth of the tnat a different division of the profits of land values is in order. potential rev- While in few other cities is the contrast so striking, the principle enue from land holds in all of them. 5. Heavy taxation of land values would reduce the annual muni- cipal expenditures for the acquisition of land for municipal pur- 66 poses. There is not an American city which to-day owns enough Heavy taxa- land for municipal purposes, but every progressive city is con- hon f land stantly acquiring land for dock and harbor improvements, parks Deduce ost of and playgrounds, sites for schools and other municipal buildings \ an ^ f or p u bn c and other public purposes. Such expenditures frequently total purposes. one-tenth to one-fifth of the aggregate corporate stock budgets of most American cities, that is sums of $1,000,000 to $8,000,000. "Excess condemnation" has been suggested as a method of "Excess con- enabling the city to secure land without any cost, that is the con- demnation" of demnation by the city of more' land than is needed for the specific an ls on y a ... " . * partial method purpose for which it is acquired, and the resale or leasing of at ^ est O j such surplus land as a means of recouping the city for its outlay, taxing land Under certain conditions, excess condemnation may be feasible, values. but it is inadequate as a means of securing sufficient land for the city in several respects. Excess condemnation does not reduce but rather increases the price of land since the courts which determine the price to be paid always favor the individual owner of property rather than the city, while the city has to pay also for the land to be resold a price considerably higher than a private owner would. This means that the city would have to resell its property for which it already has paid a super price, so to speak at a heavy advance in order to repay the cost of the same super price which it has paid for the property it reserves for its own use. In developed sections of the city land is already very expensive and even the slight increase in value is unwise since Some limita- as has been pointed out healthy conditions of living and working tions of are as essential as revenues from land. Excess condemnation " Excess in such sections of a city would naturally be used chiefly for c street widening, transit purposes, and a few public buildings. It is equally important that land in outlying residence sections of a city where the city would acquire holdings for schools, public buildings, parks, etc., should be kept cheap. More expensive land means higher rents under the present system of taxing land and buildings at the same rate. In any part of the city therefore the landowner would gain materially under a system of excess con- demnation, while the ultimate user of the excess land purchased would have to pay higher rents. All the city attempts to do by excess condemnation is to prevent the owners of a small amount of land from making as much profit on the land as they would otherwise do, and the city does it in a very costly way. By taxing land values, however, so heavily as to retain most of the economic rent, land will be much cheaper, and the owner 67 Cities run into debt because they don't tax land values. The change from incurring debt to taxing land values should be gradual. of land will have an economic motive to sell it to the city for a very low price, just exactly as he will have a motive to use his land for some productive purpose so as to secure a revenue there- from. With the present system, moreover, of paying for so-called improvements by corporate stock issues to run usually forty to fifty years, and bearing 3^ per cent to 4j^ per cent interest every acquisition of this nature puts a load of unnecessary debt upon fu- ture generations and excess condemnation would tend to increase this debt, the only alternative being that the user of land shall bear it. 6. Heavy taxation of land will facilitate the reduction of city debts. It is largely owing to failure to tax land values that cities have piled up their enormous debts instead of meeting the current and recurring expenses by taxation. In 1908 the funded debt of the one hundred and fifty-eight cities in the United States having in that year a population of 30,000 or over, was $1,937,284,018, which is more than twice the interest bearing debt of the country on June 3Oth, 1910, vie., $913,317,490. The temporary nature of most of the improvements and ex- penditures for which this debt was incurred is surprising. City buildings, exclusive of schools and other departmental buildings $50,788,879 Police and Fire Departments 24,444,256 Sewers and sewage disposal 133,262,790 Street pavements 23,792,014 Bridges and abolition of grade crossings 74,227,876 Other highway purposes 187,788,081 School buildings and sites 220,751,095 Libraries, art galleries and museums 22,220,615 Parks and gardens 132,826,822 Miscellaneous purposes 96,779,353 Funded debt and special assessment loans I5M35>677 Water supply systems 312,216,444 Electric light power and gas supply systems 6,893,500 All other 241,474,805 For f undings and ref undings 252,917,661 It is not, of course, suggested that it is practicable immediately to pay off city debts nor to pay for all city improvements as they are acquired. Most of the corporate stock issued in recent years and bearing 3j^ per cent to 4^2 per cent, has been for a period of forty to fifty years, and a large part of the debt has been incurred within the past decade. There are practically no improvements which should not be paid for within thirty years, and twenty years is usually a long enough term, while pavements and constantly recurring needs 68 and improvements such as schoolhouses, parks and playgrounds The adoption should be paid for within five to ten years, preferably the former JfJJ*o/ period. Of course, no one would suggest either that current obli- meeting current gations and debts incurred by cities should be paid so long as obligations by cities have the present system of taxation which crushes the lives '^^^ out of the poorer classes of their citizens. A small increased tax- ^ ^ J^' rate on land values would have obviated, however, any such debt qmte taxation burden as the existing one. One effect of the unholy alliance be- of land values. tween the land and the loaning interests in American cities which has created such huge debts is the payment in 1908 by the cities referred to of $82,272,249 in interest on debt, that is about one- fifth of the total general city expenses. The increase in net debt during the year was $185,877,856, nearly one-half of the total general city expenses. 7. Higher taxation of land values would encourage the logical Higher taxa- and economic development of cities. * f land As every observer of American cities, especially those with a JJJJJJj^ eco _ large area, knows, their growth has been determined chiefly by the nomic dty landed and other real estate interests. These interests secure the planning and laying out of transit lines to their land in outlying sections of the city development. and immediately urge the needs of the district for schools, sewers, etc. Thousands, and in many cities tens of thousands, of available lots are left unimproved. The development of the city instead of being concentric, that is from the center out in all direc- tions, is sporadic and irregular. This involves a much greater expense to the city in constructing streets, sewers and in providing transit lines as well as policing these new districts. With such taxation of land values as would secure a large proportion of the ground rent of cities, there would Wasted garden not be any occasion for such competition with its costly waste and agricul- to the city, because the net return to the owner of land would tural areas in be more nearly equal. There are in most American cities and this will be increasingly true, as adjacent areas are incorporated under schemes for city planning large areas which for many years should not be used for housing or commercial purposes, but which would yield a large net profit if used for intensive agriculture. The way in which several American cities have attempted to meet this fllogical tneth- situation by different tax-rates is illogical. Thus in 1908, Phil- adelphia had three tax-rates per $1,000 of assessed value, $15.00 on city property, $10.00 on suburban and $7.50 on farm property. ^ y Different Pittsburgh had also three similar types of property with tax-rates tax-rates. 69 Heavy taxa- tion of land values will prevent land booms and premature building. Faulty valuation of agricultural lands. Yields from intensive gardening. Americans laggards in intensive gardening. Land specu- lators prevent logical and profitable use of land. respectively of $9.50, $6.33 and $4.75 with several additional rates for separate political divisions.* There were in all in 1902 forty-two cities having two or more different tax-rates. If land were assessed equitably, that is at full selling price in the open market, and taxed at a uniform and high rate the owners of what is properly still agricultural land in cities would realize that the stimulus to buildings in the centers of the city and dis- tricts near the centers of a higher rate of taxation on land, would be so potent that it wouldn't pay them to construct high tenements. A relatively small investment yields a large return in intensive agriculture when mixed with brains. As Mr. H. B. Fullerton, the Director of Agricultural Develop- ment of the Long Island Railroad has pertinently put it: "For some reason, as far as we can find out, absolutely unknown to any one, farm land is considered worth about $100.00 per acre, and this price is a very common figure, whether the acre be 60 miles from the post-office or neighbor, or whether it be close to a big market and within a mile of a post-office, railroad station and schoolhouse, whether it be a muck soil of unknown depth or a sandy soil 8 inches deep or a clay soil 2 feet deep or an ideal mixture of clay and sand, as upon Long Island, 3 feet in depth. "Few are the potato growers on Long Island who do not get from 150 to 200 bushels annually which are sold, practically always, at 50 cents or more per bushel, and the price as a rule runs from 65 cents to 90 cents, and a yield of 300 bushels is common and 400 bushels per acre is occasional.- "Market gardening in this country is just starting Americans, as a rule, know practically nothing of intensive gardening. The market gardeners about New York are mainly foreigners, the greater part of them Germans, with some French, some Belgians, some Hol- landers, some Slavs, and even Chinese and Japanese. Some of these men make the soil return as great a dividend as do the most expert gardeners who are situated in the environs of Paris and who on three acres have raised $3,000 worth of crops in one year. This yield of $1,000 per acre has been surpassed many times in this country on fruit, on berries, on asparagus and on many other single crops. "Long Island's waste land is, much of it, held now by speculators who, paying no taxes to speak of and undoubtedly in many cases none at all, can afford to wait for the natural rise in land value that must invariably come to every square foot lying as near New York City, and especially rapid will be the increase on Long Island because of its climate, tempered by the great bodies that surround it, and the soil, con- trary to tradition and science, our experimental farms has proven to be 3 feet in depth." Pittsburgh has this year, however, abolished this classification. 70 Many other American cities can duplicate these conditions. It is extremely suggestive that a State Senator .from the agricultural county of Queens with the approval of many citizens of his county, and of the other agricultural district of New York City, Rich- Bureau of mond County, are trying to secure the creation of a Bureau of A 9nculture Agriculture and Horticulture in the city of New York to stimu- ^ practical late and direct the proper and profitable use of acreage holdings i n ^ew York and vacant lots in these two boroughs for intensive gardening. City. They state in their brief for such a bureau that the proposed higher taxation of land values will necessitate such use of land Normal hous- and mention that some of the most successful and profitable gar- ing conditions dening in the world is carried on in these two boroughs which don>t require are a political part of the most congested city in the civilized Me immediate world, while they equally recognize that the adoption of a normal c {t ?$ vacant standard of housing will not create a demand for all vacant land \ an ^ f or hous- in the city for many years to come. ing purposes. CHAPTER VII. Some Social Reasons for Taxing Land Values Heavily That the permanent improvement of Social reasons living conditions awaits more fundamental readjustments, and f r heavy changes than our country has hitherto essayed is the dominant ta * atlon f , . - , - , . r~ land values. note of social work of this century. To secure to every producer the fruit and enjoyment of what he produces, to make possible initiative and independence, is the goal of social organization. That many steps and many methods will be needed to reach this goal is self-evident. Since over one-third of the nation's popula- tion is living in cities, over one-fourth in the one hundred and fifty-eight cities concerning which figures have been presented in this discussion, and the indications are unmistakable that the trend to large and small cities will continue, the freeing of the land for use deserves most careful consideration. The endowment of the Russell Sage Foundation for the Improve- Investigations ment of Living Conditions was heralded as the harbinger of better are no times. With a few conspicuous exceptions that body has failed ue j or . . . . * f 1 obvious needed either to recognize or, if recognizing, to deal with the fundamental causes of poverty. One of their latest experiments is an effort to provide model homes for people of moderate means in the agricul- tural borough of Queens some seven miles from Manhattan at For-- est Hills. The operating company known as the Sage Foundation Sage Founda- Homes Co. has skipped over tens of thousands of vacant lots near tion Homes Manhattan held for speculative increases and gone out to upset land C m P an y- values in what should have been farming country for some years to come. They found the land speculator on the agricultural ground ahead of them, and they paid speculative prices and profits. The running time from the Pennsylvania station, the prospectus of the company announces "is from 13 to 15 minutes. The commuta- tion rate is $6.80 a month, 5O-trip tickets cost $9.25, round trip tickets 45 cents." In addition, of course, 10 cents a day or $2.60 a month will be necessary for carfare in Manhattan for most people, making a total of $9.40 a month or $112.80 a year; as much for carfare as many working people can afford to pay for rent. Rents in that charmingly exclusive place will run from about $20.00 to 73 Experience should have reduced rents, if possible. A business concern, not a charity. Perpetuating poverty -for the joy of inves- tigating it. $50.00 per month or $240.00 to $600.00 a year that is carfare and rent will total at least $350.00 a year or nearly half the wages of unskilled workmen. It is understood that the company has given up its intention of supplying the need for good housing at reason- able rents for wage-earners, a crying need not being met by any force or agency in the city at present. It is quite natural that they have done so since a worker can't afford to pay over one-fifth or a maximum of one-fourth of his income for rent including as should be done, carfare, and five times $350.00 is $1,750 a year, while four times $350.00 is $1,400. Unskilled workers in New York earn only $550.00 to $700.00 a year and skilled $800.00 to $1,500.00; while clerks get from $1,200 to $2,000 at the most. It should be impossible to claim any inefficiency or waste in the laying out of this company's tract of land consisting of 142 acres, because it was done by a landscape architect of international fame, Mr. Frederic Law Olmsted. As they state too, ''the fortunate location of the place on the border of Forest Park has, of course, made it wholly needless to provide any large park within the tract itself," but they have nevertheless provided a small one. Economy of construction has also been assured by the fact that Mr. Grosve- nor Atterbury has been the architect. Everything has been favorable to the provision of homes at reasonable rentals for wage-earn- ers, that is $12.00 to $14.00 a month at the maximum, but pri- vate charity here again as in the case of the City and Suburban Homes Co. has shown that it cannot compete with an unjust system. The Sage Foundation Homes Company admits that its proposition is purely a business one, since it states in its prospectus under the heading, "Business Undertaking": "The undertaking is primarily a business enterprise in which certain trust funds have been invested in the definite expectation of securing an adequate business profit, to be applied to the purposes of the trust. The fact that those interested in this development hope, at the same time, to demonstrate that it is possible to develop a more attractive plan and better type of houses than those commonly found in commercial devel- opments makes it, if anything, more important to insure financial success of the venture. Owners of land elsewhere could not be expected to follow the example of this company unless it can show a profit satis- factory to the average investor." It has been pretty clearly demonstrated that "an adequate busi- ness profit" in real estate means all that the traffic will bear, and that to improve permanently the living conditions of wage-earners, the net return upon land must be greatly reduced. It may be quite possible for this company or any others "to carry out its aims in 74 creating a homogeneous and congenial community," but no general social advance can be secured by their methods. Lots can be ob- tained for from $800.00 up to $2,000.00 in Forest Hills and not only has the company been obliged to pay speculative prices for land, but it is asking those who buy land there to pay an advance on real values. The Sage Foundation Homes Co. is not entitled to a 6 Wage-earners per cent business, or even a 4 per cent philanthropic profit upon the prefer the land values which the people of New York create. It should be reduction of said in fairness to some of the developers of land in the borough groun t d nts * & t investigation of Queens, near Manhattan, that they do not charge any such by the Sage exorbitant rents yet, though they are organized upon the same prin- Foundation. ciple of charging every bit that they can. Russell Sage used to advise people to buy land and wait for the Results of increase in value. Whatever may be the motives of the Sage Foun- ^ ussel1 Sage's dation Homes Company they have learned probably by this time and have certainly demonstrated to every informed person who has watched their operations that for a city to permit people to follow Mr. Sage's advice is an insuperable obstacle to the general improve- ment of living conditions. Partly because people have followed the advice quoted this company has provided beautiful homes for peo- ple with incomes of $2,000 to $5,000 a year or more, a negligible percentage of New York's five millions, but when they attempt, if ever they do, the imperative task of providing good homes for the city's millions they will appreciate even more fully the immorality of Mr Sage's advice to reap where one has not sown. It is to be hoped they will not as their prospectus indicates they now plan to tio ^ can ' t do attempt to make money to study causes of poverty by one of a ff or ^ to ^ e the fundamental causes of poverty, charging as much for the use of unjust. land values as for buildings. The social unrest among social workers is the most striking fact Social unrest of social work in which is included the anti-tuberculosis campaign, amon ff social the housing campaign, charitable and relief organizations, settle- ments, church and other institutional work, etc., throughout the country. To be sure some leaders who have salaries of $5,000 to $10,000 a year are still cheerful as to social conditions and able to endure the continuance of suffering on the part of the poor with a most commendable degree of equanimity, on the infrequent occa- sions when they come within sensing appreciation of the existence of poverty, save as a pathological anomaly. Some members of boards of directors of charitable societies who are profiting by the system and conditions which make charity necessary, naturally view with some perturbance the changing of these conditions, while 75 Is the alternative Socialism ? Public, not personal vices, chief causes of poverty. Taxation of land values is not the only method of preventing poverty. others are honest with themselves. For instance, although the sec- retaries of the three largest relief-giving societies in Manhattan, the New York Charity Organization Society, the United Hebrew Chari- ties and the New York Association for Improving the Condition of the Poor endorse the halving of the tax-rate on buildings ; the Boards of these societies officially have not done so, although they may later. The visiting nurses and doctors, however, and the investigators for relief agencies, the settlement and church workers in the midst of the real poverty and deprivation of tenement life in American cities appreciate the existence of poverty. They are becoming in- creasingly socialists in the sense of believing that the government should own and operate all means of production, as the only method of wiping out monopoly and ensuring decent conditions of living for the wage-earners of city and country alike. Most of these humbler workers and in their courageous moments the leaders of social work admit that poverty, that is the inability to secure employment at wages which enable a family to maintain a reasonable standard of living, a minimum standard for national efficiency, is due not to personal defects of character in any appreciable number of cases, but to social conditions over which the poor have no control. Drunk- enness, thriftlessness, laziness and vice are the causes of poverty in some cases, and the results in others, it is generally agreed ; but lack of steady employment, sickness, low wages, industrial accidents, unsanitary dwellings, high rents, high cost of food and clothing, and immigration are the symptoms of causes usually recognized now to be the really important causes of poverty in American cities. With remedying or removing several of these causes the heavy taxa- tion of land values in cities so as to secure most of the ground rent has admittedly little connection. Industrial accidents must be pre- vented and industry made to bear the burden of its own careless- ness and risks, instead of compelling the individual workman to do so. The series of middlemen each of whom takes a profit on farm produce and manufactured goods, and thus increases the cost of food to the consumer and reduces the profits to the producer, must be eliminated, by some other action than the higher taxation of land values, although such taxation will encourage the utilization of vacant land in cities for intensive gardening and tend to reduce the cost of garden truck in cities. The higher prices extorted through protective duties on articles consumed by the working classes must be lowered by other action, too, than adequate taxation of land values, while such taxation alone 76 will not solve the difficulties of assimilating in American cities hordes of immigrants ignorant of our language, and untrained to earn even the minimum wage essential to a living standard. What part then does the recovering by the city through taxation But is the first of most of the ground rent have to do with the problem of poverty? S *?P m l Although it has been discussed somewhat in the chapter on "The Land Question and Housing Reform" further illustrations will show other relations. THE SECURING OF GROUND RENTS BY TAXATION WILL : ist. Reduce rents and make homes cheaper. 2nd. Compel landowners not tenement tenants to pay taxes. yd. Take a heavy burden off industry and permit the payment of higher wages. 4th. Encourage the appropriate use of vacant land. $th. Safely permit the provision of social needs by the city. The student of social conditions realizes that something besides mere geographical position makes the minimum living wage in New York City $700.00 to $800.00 for a family of father, mother and three "Living wage" children under working age, while this minimum is from $50.00 to c t f?\ Delude a $150.00 less in other cities of the country. He appreciates too that to / secure a living wage whatever amount that may be in any city, does owneYm not mean necessarily that the sum now required, should be required. If wastes can be eliminated the cost of living can be reduced. It is just as effective in maintaining the standard of living to reduce the rents $50.00 as to increase wages by this amount. Manufacturers should pay a living wage, but that living wage cannot be made to include permanently 6 per cent net return upon the value of land used by their workers and other producers. If it does include such net return the price of goods will include this charge, and the consumers among whom are the workers on the manufactured ar- ticles will pay higher prices. Schedule "K" comprising the iniquitous tariffs on woolen goods Schedule "K" was advocated by some because it enabled the nearly 5,000,000 peo- and pie directly and indirectly concerned in the manufacture of woolen goods to receive better wages. But schedule "K" was indefensible because based upon privilege, and schedule "K" also compelled those engaged in the manufacture of woolen goods as well as others to pay higher prices for these goods. The same conditions obtain with reference to ground rents, except that relatively few people profit by private confiscation of 'ground rents, while every one has to pay more because of such confiscation. The right to private confiscation 77 Landowners are now the largest ultimate bene- ficiaries of all economies, inventions, etc. Social aspects of lower rents. Competition building stifled by taxing buildings. of ground rent is claimed to be permanent, by the confiscators there- of. Tariffs may be reduced or abolished, economies may be effected in construction of buildings, inventions may reduce the cost of living in a thousand ways, efficiency may eliminate waste in produc- tion, but the right to ground rent if admitted, is to all intents and purposes eternal. No matter what economies or savings may be effected in cost of production of any material the tendency is for the landowner, that is the owner of ground rents, to be the residual legatee or beneficiary of such economy or saving under the present system of permitting the owner of land to secure the ground rent, or a large proportion thereof. Private right to ground rent is now being questioned throughout the civilized world for social reasons because the securing of ground rents by taxation will : IST. REDUCE RENTS AND MAKE HOMES CHEAPER. (Assessments in all these illustrations are taken at full value.) If a tenement assessed for $25,000, on land assessed for $15,000 nets 6 per cent return (above taxes, vacancies, etc.), the total net return is $2,400, $1,500 on the tenement and $900 ground rent. If the owner of the site of the tenement received only 2 per cent profit on the cost of the land his total ground rent would be only $300. That is, the ground rent would be reduced an average for each of twenty families, who might rent the entire tenement, from $45.00 to $15.00. Evidently this saving of $30.00 a year would be worth while to a family whose earnings are only $600.00 to $700.00 a year. Equally evidently the sum required for a living wage irrespective of these differing amounts in different cities would be reduced by this sum, from the amount required to pay the owner of land 6 per cent net ground rent. A further result of taxing land values heavily would be to compel the owner of land in a built-up neighborhood to improve it with buildings that would yield some return, whether they be factories, office buildings or tenements. The general knowledge the owner of land has of the development and needs of the neigh- borhood would determine what improvement he should make, but naturally in a district already supplied with many factories and office buildings, tenements would offer a better investment. This com- petition of tenements for tenants would also tend to reduce rents and save the tenant money. A net return of 4^ per cent on a building and 2 per cent on the site of a building would be better than no return upon the joint investment and the economic motive would impel the owner to secure some return, even if it be only this lower one. The saving in rent represented by the difference between a 6 per cent net return upon the investment in the building and a 4^2 per cent net return amounts to $18.75, to a family renting a tenement apartment, whose average value is $1,250.00. This with a 2 per cent, instead of 6 per cent net return, on a site whose propor- tionate value is $750.00, totals $48.75, and this saving of $48.75 a sufficiently heavy taxation of land values would unquestionably Charity in effect. It must be sorry consolation to appreciate that the total ex- American penditure for charities, public and private, in most American cities c . se om , does not equal the ground rent confiscated by landlords from the rent exiorte ^ beneficiaries of such public and private charity and others living from its below the standard of efficiency. From the social point of view "beneficiaries!' which is concerned more directly than either fiscal or economic con- siderations with the psychology of character, it is worthy of note that any approximate method of justice is better than the most per- fect administration of charity. Five years' work by the writer in the Philadelphia Society for Organizing Charity and the Society to Protect Children from Cruelty, and visits to "case committees" of societies in New York, Chicago, Boston, Philadelphia, and Balti- more, with a large acquaintanceship among workingmen, have con- vinced him that there is no more effective blow to the self-respect of any workingman than recourse to, or intervention in his family by any charitable agency. No matter how frank the admission by the relief agency that they do not blame the applicant to them, or the "needy case" referred to them for relief, for causes over which Taxation of he has no control, regardless of the tact with which the remotest relatives and clumsiest clues of the victim of the twin evils of poverty and charity are hunted down, the knowledge that his name is down on the books of any charitable society for time and eternity or until such time as high rents compel the society to save room by destroying its wealth of records of poverty, is a blow to his independence and a permanent disgrace to the honest laboring man who would be independent. Nor can even the fact that it costs from one-eighth to one-third or over of the relief dispersed by charitable agencies to convince them of honest poverty, assuage the wound to his self-respect, though being human he doesn't envy the investigator Accurate but rather congratulates him upon having a "steady job at some- records of thing that pays him a living." The one hundred and twenty thousand *y are no immaculately accurate records of families and individuals who have , causes O j applied for relief to different charities of the city now filed in the poverty. Registration Bureau of the New York Charity Organization Society, would be less by several scores of thousands had landowners in this city been unable to confiscate ground rents as they have in the 79 Most interim relief for the poor is really payment of ground rent to landowners. Immigration not chief cause of poverty. Home life and taxation of land values. Easier for wage-earners to pay higher tax on land to city than to landowner. past, and for every reduction in the number of these records there would be a larger number of families, and single men and women, with an untarnished record of economic independence. Relatively few families in New York City or any other American city are per- manently dependent, that is pensioners, and only a small per cent apply for relief, while of those applying, the majority seek only what the charities with scientific inaccuracy call "interim relief," but which scientific accuracy would denominate "payment of ground rent to the landowner." To be sure such "interim relief" seldom equals the confiscation of the landowner, for $48.75 is a large sum for "interim relief" it is a month's to six weeks' wages for an unskilled wage-earner depending upon where he lives, but the confiscation of a month's or six weeks' wages in ground rents is an injustice which no civilized community should tolerate. Not even immigration can be assigned as the chief cause of poverty in American cities, for while the value of the product of an untrained immigrant may not justify the payment to him of the cost of living in New York City, it is nevertheless true that with a world market the value of the product of the untrained immigrant in most lines of manufacture is as great in Omaha, Springfield, St. Joseph, Waterloo, Iowa, and New Haven, Conn., as in New York City, while the cost of living is much less in all of these cities than in New York. In all these cities, however, as in New York the con- fiscation of ground rent by the landowner whether it be on a large or small value is a cause of poverty. The desirability of home life in small houses is generally con- ceded by social workers. As has been shown in the discussion of the relation between land values and housing reform, the heavy taxation of land values will benefit substantially the man who wants his own home. A social point of view does not condone congestion per acre as does Mr. Veiller, the Secretary of the National Housing Association, who maintains that it makes little difference how many people are housed per acre providing the dwellings are sanitary. The most extortionate owner of ground rent could hardly advance a more anti-social argument, but the consensus of opinion in this country as abroad is so emphatic in favor of the detached dwelling that the help of heavy taxation of land values in securing the de- sideratum will be generally invoked. The effect of heavier taxation of land values in cheapening land will also inure to the benefit of the prospective home owner since he can buy his land cheaply, for the prices of land represent only the capitalized net return, and it is easier for the workingman to pay 3 per cent, or even 5 per cent 80 on the land values he owns year by year in taxes as he uses the land than to advance this use value capitalized when he acquires the plot of ground, since with this tax-rate on land, buildings could be largely or entirely exempted from taxation. 2ND. COMPEL LANDOWNERS, NOT TENEMENT TENANTS, TO PAY TAXES. The injustice of robbing by taxation widows, consumptives, and Taxing build- children is less defensible from a social than from even an economic *W robs r . . A f . widows, chil- or fiscal point of view. dmt ^ The Committee on the Prevention of Tuberculosis of the New consumptives. York Charity Organization Society in urging recently the appropria- tion of a small proportion of the sum needed to provide additional beds for consumptives in the city says that in no other way can the And ^ ^ Q death rate from consumption be reduced. Admittedly more hospi- crue i an ^ tal beds for consumptives and better means of segregating them are costly way to necessary to reduce the death rate from consumption, but is that prevent con- all, and does the provision of beds for advanced consumptives by su P tlon > <* nd i . , . .... relieve widows increasing the taxes which other consumptives must pay quite justify and c ^i^ ren itself? That committee in common with similar committees in cities throughout the country have sought by exhibits, street car transfers, lectures and other means to convince the public that sunshine, fresh air, rest, good food and relief from anxiety are essentials to prevent The irony of consumption. The irony of their remedy has appealed to many tuberculosis besides the victims of America's national sin, whom they are trying exhibits while to help, for the obviousness of poor people's inability to secure the build #s are essentials to the prevention of consumption is patent to any fair- minded person. In the striking pamphlet that the New York Committee on the Prevention of Tuberculosis have prepared advocating the provision of hospital beds they present several photographs of tuberculous patients. One is a flashlight of a victim in bed, with drawn features, his projected eyes peering into the unknown future. Under this they ask, "Shall men like this be discharged from hospitals to die in tenements ?" with the indictment "Frederick R. discharged from hos- pital August 25th, died August 3Oth." Another picture of a man and his wife and three small children centers indignation over the explanation, "This helpless consumptive allowed to leave the hospital J** Clty robs to make room for others, thus insuring the infection of his chil- Motives to dren." A third picture is of "Five delicate children in daily contact bury dead with a dangerous consumptive father, an advanced case, unable to consumptives. 81 Taxing build- ings penalizes preventive philanthropy and business alike. Larger municipal social programs. Shall progress be made by increasing deficits of the poor or reduc- ing unearned surpluses of the rich? Strikes show small savings of skilled workers. work, shares bed with one of his children." Further questions the Committee have forgotten or neglected to ask : "Shall the 40,000 known consumptives in New York City with their families be taxed to provide the nearly 4,000 additional beds needed for consumptives, in addition to supporting the present 3,200 beds and the victims cared for therein, or shall we tax land values and let landowners share their community created wealth, and so save the lives of consumptives ? Since sunshine is essential, this com- mittee claims, to the prevention and cure of consumption they might appropriately ask: "Shall we continue a system of taxation which puts a premium upon dark rooms or shall we encourage the con- struction of healthy, well lighted tenements by reducing taxes upon them through taxing land values?" With the hearty endorsement of many large charitable societies, American cities are now facing their responsibility to provide ade- quate relief in their homes to their dependent citizens pending the organization of social insurance and the assumption by industry of its full burdens. The acceptance by cities of their proper responsibility, will in- volve for some years at least, a large increase of municipal expendi- tures. Shall this additional burden be extorted from the families now on the verge of starvation, from those hovering on the verge of dependence or existing far below the standard of national efficiency, are questions of compelling social import. That these classes will pay much of the cost of a larger and proper municipal program under the present system of taxing land and improvements at the same rate is conceded, but social justice cannot concede that long usage transforms injustice into justice but rather demands that the wealth of land values the poor help to create shall be adequately taxed since such taxation is the only method by which the owners can now be made to share equitably with the producers. 3RD. TAKE A HEAVY BURDEN OFF INDUSTRY AND PERMIT THE PAYMENT OF HIGHER WAGES. Should relief agencies give relief to families while the wage- earner is on strike has been debated in most large cities in which one or more strikes have during the past ten years cost the finan- cial independence of families, self-respecting hitherto, and revealed the narrow margin between economic dependence and independence among many skilled wage-earners. It is true that labor union members are usually the last to appeal to organized charity for relief, because they have their own relief 82 funds, and the more serious problem of relief is that of the perma- Permanently nently underpaid, largely because unorganized, laborers who are underpaid chronically below the standard of efficient citizenship. The ground wo ^ kers .. e ... exist on a rent taken from their employers, if manufacturers, will vary from ^ e fi c ^ 2 per cent to 8 per cent of their pay-rolls, and while it is not sug- gested that manufacturers would necessarily pay higher wages they obviously would be better able to do so if released from double taxa- tion by the landowner as well as by the city. That an increase of 2 per cent to 8 per cent in wages would be an important raise for both skilled and unskilled, organized and unorganized workers must be admitted. 4TH. ENCOURAGE THE USE OF VACANT LAND. The disinclination for the country, for gardening and for agricul- Vacant land ture, which migrants from country districts to cities manifest, is not * n Clties shared by many peasant laboring immigrants. They appreciate the afford J \ J t and needed opportunity to raise vegetables, as successful market gardens worked em pi oymen t if and in some cases managed by immigrants testify. Vacant lots as- highly taxed. sociations in several cities have performed an important service in bringing people and land together. Such efforts would be greatly helped by the heavier taxation of land values, since with even the present low taxation land can be secured, but a heavier tax-rate will compel it to seek users. The incentive to economic and effective use will be in very direct ratio to the increase in the tax-rate and the provision of employment thereby created would be of utmost benefit to those classes of the community who need outdoor employ- ment, with the added advantage of training for farm life. In his This employ- evidence before the Committee on Health of the New York City ment would be Commission on Congestion of Population, Dr. Wm. H. Park, Di- f^j^ t rector of the Research Laboratory of the city's Department of Health f ^ f ^red of stated, "It is even dangerous for a tuberculous person who has consumption. recovered after leaving the city to return to it and go back into office work or any of the ordinary city occupations. The fact that a person has had consumption proves that he was susceptible, and he will usually remain susceptible." Since this holds true for all cities as for New York, and yet Death by death by starvation is as deadly as death by consumption, in every starvation as city of the union, the social benefit of forcing vacant land in out- , ea , y ^ s , . . ' death by con- lying sections of a city into use for those citizens handicapped by bad housing conditions and predisposition to consumption is great. The natural encouragement to live under healthier conditions in new sections of a city closer to such work is a marked additional advantage. 83 Conclusion.; Total ground rent of a city is maximum amount that can be extorted from most productive use of land. Present ground rent should be divided between the city, user of land and owner of land. Landowner's share of ground rent should be re- duced to the minimum, which would encourage private owner- ship of land for use. Poverty cannot be exterm- inated while landowners secure the ground rents they now do. 5TH. SAFELY PERMIT THE PROVISION OF SOCIAL NEEDS BY THE CITY. In conclusion the social viewpoint justifies the correlation of the advantages of securing most of ground rents as follows : The total ground rent of a city is the maximum sum that can be secured by the owners thereof for the most intensive and profitable use to which each section is best adapted. This ground rent, actually derived or potential, varies from 6 per cent to 8 per cent, or more. Naturally this cannot be taken entirely by the city through taxation, while at the same time the tenant user of land secures the gain of reduced rents through avoidance of the payment of all taxes. No increase in the city budget paid by taxes on land values alone, how- ever, will be shifted upon the tenant. Hospitals for consumptives, municipal social service departments, exemption from taxation of public utilities whose net profits are kept by governmental regula- tion at a low figure with resultant reduction of charges to the public for products or service rendered, are feasible when land values are adequately taxed. Ground rents should by taxation of land values be so reduced that only so much will be left to the owners of land as to encourage the use of land for productive purposes. This may be i per cent, i l / 2 per cent, or 2 per cent, but it is the token and substance of private ownership in land for use and not for specula- tion or unearned gain. Every increase in the rate of taxation on land values tends to reduce the amount to be charged as rent for any building since the owner of land must use his brains to secure gain therefrom, instead of using without payment the labor of others. In most cities land entirely vacant is equal in value to from one- twentieth to one-tenth of the total assessed value of land. In 1910 for instance, wholly unimproved land in New York City was worth considerably more than one-eighth of the total assessed land value of the city and the increased revenue from a high tax-rate on this vacant land will materially reduce the tax-rate on buildings. The social reasons justify and even compel the full taxation of land val- ues, as the next step in the extermination of poverty, and poverty cannot be abolished while landowners secure the ground rent they now do. CHAPTER VIII. Sources of Municipal Revenue in Some Foreign Cities The sources of Municipal Revenue in many foreign cities should be considered in their relation to the welfare of the community since they may be suggested by landowners in their desire to postpone heavier taxation of their land values, as substitutes for the taxation of land values. Budapest has a 3 per cent tax on the rent paid by tenants, an Budapest. additional tax on the income derived from real estate, and a 4 per cent tax for the removal of garbage, and an octroi tax levied on food products as well as one levied on the weight of vehicles enter- ing the city. All of these taxes, of course, are largely shifted on to the tenant. The writer was informed by the city statistician, three years ago when in Budapest that rents were unendurably high in the city and many rooms had four to six occupants while specu- lation in land was most profitable. Other revenues in Budapest are from industrial licenses, dog licenses, water supply, etc. Vienna illustrates well the fallacy of trying to conduct municipal Vienna. trading for profit, although the city derives considerable revenue therefrom, while failing to secure revenue from normal sources. The principal taxes are taxes on real property and taxes on personal property and trade. Taxes on houses are assessed on the amount of the annual rents, and on land on the estimated cadastral revenue. A trade tax amounting to 10 per cent on the net profits is levied on joint stock companies. An income tax is assessed on the entire receipts of the taxpayer from whatever source derived, although incomes of less than $244.00 per annum are exempt. The octroi tax yields a large revenue. Most of Vienna's taxes, however, can be shifted to the ultimate consumer. In Germany, the main municipal taxes are the income tax, the real estate tax, industrial tax, tax paid by restaurants, drinking sa- loons and hotels where liquor is sold, department store tax, dog tax, brewing malt tax, temporary vendor's tax and exchange of property tax. 85 Berlin. In explanation of the large number of taxes upon industry in Berlin and the relative exemption of land values from taxation, it should be stated that the undemocratic system of votes according to value of property owned still obtains. Prof. Frank J. Goodnow states : "In Berlin, the Prussian city in which the voters constitute the largest proportion of the population, in 1900 only 1,227 qualified voters were in the first class, 20,821 were in the second class, while 310,471 constituted the third class. Or, to put it in another way, 22,048 voters could elect two-thirds of the members of the council, while 310,471 voters could elect the other third. Finally, in actual practice, the two upper classes participate more generally than the third class in the election. Thus 34% of the third class, 50.2% of the first class, .and 39.4% of the second class of voters actually voted in 1898. This may be due in some degree to the fact that the vote Is an open and not a secret vote." On incomes from $214.20 to $249.90 an income tax of $1.43 is levied and so on until on those from $428.40 to $499.80, $7.38 is levied. It will be noted that the rate upon small incomes is much higher proportionately than upon higher ones. For 1906-7 the yield of the municipal income tax was $8,227,148. The United States Consul-General at Berlin, A. M. Thackara explains the real estate and industrial tax in Berlin as follows : "The real estate tax is based upon the value of real estate as appraised by a permanent committee appointed for the purpose in each of the kreise, or counties. The appraised value of real estate is deter- mined by deducting 8 per cent of the gross income from the property, for expenses, such as taxes, sewerage, interest, etc., and multiplying the net income by 16 to 22, according to whether the location of the property is good or bad. When there is no income from the property, the value is estimated by the committee and taxed accordingly. The tax in 1908 was 75 cents per $238 of the appraised value of the property, and in 1909 the rate was about 72.4 cents. The rate is fixed by the tax com- mittee. The amount collected in 1906-7 was $5,523,869. "There are four classes of industrial taxes, depending upon the capital invested or upon the amount of net annual profit, as follows: Fourth class, from $357 to $952 net profit or $714 to $7,140 invested capital; third class, from $952 to $4,760 net profit or $7,140 to $35,700 invested capital; second class, from $4,760 to $11,900 net profit or $35,7oo to $238,000 invested capital; and first class, over $11,900 annual profit or over $238,000 invested capital." The revenue to the city from the industrial tax in 1906-7 was $2,449,119. The revenue from taxing saloons and department stores is small. 86 A unique tax is that on the change of ownership of real estate by sale or otherwise, amounting to i per cent of the value of improved and 2 per cent of the value of unimproved property, which yielded in 1906-7, $1,612,974. The revenue from the city's gas works in 1906-7 amounted to $1,967,788, from the waterworks to $785,240; from stockyards and abattoirs to $189,968, while the 8 per cent on gross earnings of street car lines for the use of the streets amounted to $819,416 in 1906-7. The Berliner Electrisitats Werke, a private company which fur- nishes electric light and power to the people, pays the municipality for the use of the streets 10 per cent of its gross net earnings amounting in 1906-7 to $899,957. For the fiscal year 1906-7 Berlin had a surplus of $3,486,595, a little more than the total receipts from the city gas and water works and the revenue from the 8 per cent tax on the gross earn- ings of street car lines for the use of streets. It is self-evident that these three necessities of life are used by practically all of the work- ing people of Berlin and that they paid higher prices to yield these net profits. Berlin is the paradise of land speculators in Germany as New York is in this country, while the zone system of fares on lines of transit gives them an exceptional opportunity to confiscate land values. The income tax both for state and municipal purposes is based upon income from personal property, that is business as well as upon real estate, land and buildings. Even in the case of the real estate tax when there is no income from property, the estima- ted value by a committee representing a legislative body dominated by realty owners is usually quite low. The 2 per cent on transfer of unimproved property is of course in the nature of a land incre- ment tax although a very low one, but is paid by the purchaser. The basis of the present fiscal system of Paris was enacted im- Paris. mediately following the revolution of 1789. The taxes are of two classes, direct and indirect. The impot fonder, a direct tax on land and buildings, averages about 3.20 per cent and it is paid by the owner of the property, but is subject to a complicated system of temporary exemptions for certain improvements. The impot personnel mobilier or tax on unoccupied houses is di- vided into two parts, the personal tax due from the occupant of the premises and assessed upon all residents of France, and the "con- tribution mobiliere" or furniture tax, assessed upon the rentable value of the personal domicile. 87 Consumer the Paris has also a tax on doors and windows, and a license to transact business assessed upon the practitioners of all professions, trades and avocations except the liberal arts. As part of this tax a percentage is assessed upon the rentable value of the domicile, store, warehouse, shop, factory, etc., occupied by the person taxed as a place of business. The direct taxes are those based upon the sale, transfer and introduction of articles of commerce which as Mr. Frank H. Mason, United States Consul-General at Paris states, "although primarily paid by the manufacturer, the importer, or the dealer are ultimately ultimate payer, paid by the consumer." As Mr. Mason states further : "The octroi is considered an annoying and troublesome form of taxation, and is unpopular with the public and costly to administer, as it entails delays at the city gates and employs an army of inspectors and collectors, but it yields in an average year about 109,000,000 francs, or $21,037,000, a sum which, it appears, this expensive municipality cannot spare or derive from any other source without reorganizing the present system of municipal taxation." London. Tenant pays the rents. The following comment on the system of taxation in London is made by Consul-General John L. Griffiths: "The annual rates levied in the different parishes in London vary from $1.50 to $2.57 in every $4.87 of the assessed rental value of the property. There have been fluctuations in the rates from year to year in the different parishes, but they are not as great as might be antici- pated. This is owing to a disposition to increase the valuation of the rentals of all property to meet growing expenditures necessitated by the development of new needs and functions rather than to augment the rates. The rates are levied on real property, or rather upon a proportion of its rental value. "The tenant usually pays the rates, or the greater portion of them, so that if the rental of an office, or a dwelling or a business house is $1,200 a year, he must pay in rates ordinarily about one- third or $400 more. "An equalization fund was established for London in 1894. This fund is raised by a rate of about 2.^/2 cents on the dollar of the ratable value levied annually on the whole county of London. The fund so raised is redistributed on the basis of population. A poor district with a congested population and a low ratable value may receive several times as much out of this fund as would go to a more advantageously located district, from a sanitary point of view, in another part of the city with a similar population and a heavier ratable value. "The greater portion of the revenue required for the carrying for- ward of the government of London is raised out of rates, but there are also further sources of revenue in the way of market tolls, rentals of corporation property, building fees, contributions by the fire insurance companies to the corps of the first brigade, penalties, costs recovered, 88 etc., and a certain amount which is received from the imperial exchequer. About 65 per cent of the revenue is derived from the rates, g l / 2 per cent from imperial taxation, and the balance from other sources. "The total receipts of greater London, exclusive of loans, of all the local authorities for 1906-07, amounted to $126,449,949, divided as follows : Public rate $74,918,652 Imperial funds 14,195,250 Tramways 6,921,088 Markets 1,336,988 Electric-lighting undertakings 2,703,132 From other local authorities 15,531,022 Other sources 10,843,808 "The expenditures, exclusive of loans, during the fiscal year 1906-7 amounted to $119,022,146, distributed as follows: EXPENDITURES. AMOUNT. Administration of justice $801,172 Education Elementary $16,894,303 Higher 3,328,900 Electric lighting (other than public) 1,275,315 Fever and small-pox hospitals 2,064,403 Fire engines and brigades 1,146,996 Highways, bridges, etc 8,663,757 House refuse, removal of 1,821,044 Housing of the working classes 504,340 Lighting (public) 1,895,351 Lunatics and lunatic asylums 3,193,879 Markets 643,327 Parks, etc 961,052 Police and police stations 9,11 7,554 Poor relief 13,077,639 Sewerage and sewage disposal works 2,018,673 Tramways 5,168,661 Loan charges 19,149,230 Other works and purposes 1 1,968,281 Total $103,693,877 Payments to other local authorities, etc 15,328,269 Grand total $i 19,022,146" It will be noted that the expenditures for poor relief total nearly one-ninth of the city's total expenditures, and this expense with the cost of lunatics and lunatic asylums and loan charges (what we designate "debt service") was $35,420,748 or nearly one-third of the total municipal expenditure and one-half of the total receipts from the public rate, of which as Mr. Griffiths remarks: "The 89 The land incre- ment tax in Germany. Methods and rates of land increment tax in German cities. tenant usually pays the rates or the greater portion of them." To the $8,258,076 receipts from tramways and markets a large propor- tion of the wage-earning population of London contribute, and the direct result of lowering the standard of living by running these public necessities for a profit, is obvious. It is not strange that Mr. Lloyd-George advocated a land tax as a means of securing some revenue since the landlord "does not contribute a penny out of his income toward the local expenditure of the community which has thus made him wealthy." TAXATION OF LAND VALUES. The most important and general method of taxing land values abroad is the land increment tax. The following summary of the extent and progress of taxing land increment in Germany is taken from the Report to the Special Tax Commission of Illinois by Prof. John H. Fairlie: "The taxation of the increment of land values was first attempted in a practical way in Germany. A tentative step was taken in 1898 in the German Colony of Kiautschou in China; but this attracted little attention. More general interest was aroused when, in 1904 and 1905, the two important cities of Frankfort and Cologne enacted ordinances for the taxation of the increase in land values. These have been fol- lowed by a considerable number of municipalities, including both large and smaller cities. Dortmund and Essen adopted the new tax in 1906; Breslau and Kiel in 1907; and Hamburg in 1908. ... In Berlin itself, the Board of Magistrates in 1907 proposed the introduction of the tax; but the project was defeated through the influence of the House and Land Owners Association in the Municipal Council. "In July, 1909, the increment tax was in force in fifteen of the forty-one German cities of more than 100,000 population, and in at least forty smaller places. In all the more important states of the Empire, the higher administrative officials have given attention to improving the details of the tax. "The several local tax ordinances vary not a little in details; but certain main features appear in all of them. The object upon which the tax is levied is the unearned increase of value of real estate. From the total increase in value, as measured by the differences between the price at a transfer and the price or value at a previous change of ownership, reductions are allowed for the expense of permanent im- provements, street building and sewer connections, transfer charges, and sometimes for other expenses. There are certain exemptions, both for some kinds of transfer (as inheritances or judiciary sales) and for small increases in value. The tendency is to tax increases in value of vacant land more highly than those of land which is built upon. Special pro- visions are often made for a lower tax or for exemption, where the preceding transfer occurred a good many years ago. The incre- The accompanying table shows the proceeds of the increment tax in a few German cities from 1906 to 1908. H S U S s" s W "* si s 3 M Ij O OH ^ 1 Is HOn g| o o rt J p-l sa s fl REAL ESTATE WITH BUILDINGS o -. 0*0* t^ IO CO *^ if) CO O-\> co ^o- vo t^ ** > < OO 2222 O O 2 22\^2 cs rt rt N\ oJ P . ^^w ^ en ^* ?^ IM K" o -g P S? o fter fou ver 5 ver 10 10 yea ver 1 A O O 5 O 5,0 i o I I i *! 1 * JT fe .S- S ^-'p 1 -I 1 ^S S "o ffi CQ U 11 II "S . anc * IO P er cent thereafter. The exemption of $3,000 of the assessed value of all improve- ments from taxation is a favorite proposal to secure a higher taxa- tion on land values, and bills to this effect have been introduced in many state legislatures. * Exemption, moreover, reduces the taxable base of the city, Sm e ^ may be fairly claimed that although a lower rate of taxa- t * on on buildings than on land would not reduce the assessed valua- tion of the buildings, exemption from taxation would do so, and thereby reduce the borrowing capacity of the city which is limited 100 usually to a certain per cent of the assessed valuation of real estate. While the desire to run into debt to avoid taxation of land values obsesses owners of land in American cities as at present, it will be difficult to secure any general endorsement from business men of a proposal to limit such extravagant high finance, although they appreciate the justice and advantages of taxing land values higher. 2ND. A LOWER RATE OF TAXATION ON ALL BUILDINGS AND PERSONALTY THAN ON LAND. P Land values in It will have been evident by this time that the present rate of American taxation of land in most American cities can hardly be called taxa- c ^ es are tion of land values since practically none of the economic rent of undertaxed, land is secured by taxation. Probably the most feasible way for not taxed. American cities to encourage the construction of buildings and to R a t e O f t axa . secure a larger proportion of the cost of city government by taxing tion on land land values is to tax land at a higher rate than buildings, although values will be this is not incompatible with reducing the assessment on buildings determ orth s-^rr- T-. < 1- 111 rtvo 1 i on e two-hun- Office Building, covering a block, was $845,200, that is, about one- dred , cif , s two-hundredth of the total assessed land value. i an( j values. CONCLUSION. The most immediate, practical, economic, and just, method of taxing land values in American cities in which land and improve- ments are separately assessed is a heavier rate of taxation on land values through a lower rate of taxation on all buildings and personalty. Halving the tax-rate on buildings and personalty within the next How to secure few years is the next step towards securing freedom from existing freedom from land slavery. The total exemption of buildings and personalty from e ^^ in ff land taxation will properly and naturally follow gradually. The land increment tax, despite its great administrative difficulties, is a prac- tical and universal method of recovering for the community its fair share of the community created and earned land values. The other methods enumerated are limited in their application, or cumbersome Heavier direct at best, and do not conform to the American standard and ideal taxation of of equality and justice, although temporarily feasible. Heavier di- l and values rect taxation of land values and a land increment tax will furnish and a land j f ,. . . 1 . , . increment tax adequate revenues for every American city and be the most effective ^^ ^ step that cities, as governmental entities, can take, to exterminate adequate poverty and to regain their cities for the people. revenue. TIT w -o (0 S if* ci, o 3 | 2 1 &s ^ W PH * *S o 2 * o > 5 C ' t> M Is? (0 I 5.S j? Table Showing Budgets TAX- RATE TO MEET BUDGET ASSESSED AND VALU ft :S8 S : I'SS'ft^^ 31 rtOvO TJ-VOOO (N \tosO\O t^OO M ^ W 2 s II si Jr 11! J "^ O pi tpi 1 8 S i-s 3 s men of rt rt g B S B c I i *1 ^ * i l^l <>^ 112 INDEX PAGE ALLIED REAL ESTATE INTERESTS of New York 38 Adequacy of taxation of land values for municipal revenues 61-66 Agriculture, intensive in cities 7~7 I Australian Commonwealth, proposed land tax in 94-95 Australasian Provinces, taxation of land in 95 Assessment of land and buildings separately 99 Assessing all public improvements upon property benefited . . 104 BERLIN, sources of municipal revenue in 86 Budapest, sources of municipal revenue in 85 Business interests, governmental control over 53 Business men's endorsement of halving the tax-rate on buildings in New York 51 Brunhuber, Carl 47-49 Buildings, incidence of taxes on 18, 25, 27, 30, 57, 58 Buildings, result of taxing at the same rate as land 12, 18, 27, 30, 32, 54 Boston 21, 22, 62-63, 1 10 Buffalo 64, iio-in "CORNERS" in Land 12 "Confiscation" involved in heavy taxation of land values 15, 20, 40 Constitutionality of heavier tax-rate on land than on buildings 42-44 Congestion, and taxation of land values 2, 12, 18, 58 Chicago 4, 22, 64, 109 City Planning 69 Consumption and taxation of land values 81-83 Campbell-Bannerman, Sir Henry 13 Concentration of land values in American cities 108-111 DEVINE, Dr. E. T 9, 10 Dangers of too low tax-rate on land 36, 37 Durack, Walter L 38 Decentralization of industry and taxation of land values 42 Dickey, Mr. Luther S 33 ECONOMIC laws and taxation of land values 55 Excess Condemnation of Land 67, 105 England, Land Increment Tax in 93-94 Exemption of buildings from taxation 103-104 FEDERATION OF CHURCHES on moral aspects of taxing land values 24 Fire protection and taxation of land values 30-32 Fillebrown, C. B 17, 60, 62 Franchises, Taxation of 58 Fairlie, Prof. John H 90, 93 PAGE GERMAN Land Increment Tax 90-93 Goodnow, Prof. Frank J 86, 106 George, Henry 17 HOME ownership and taxation of land values 6, 8, 9, 35, 80 Housing, English Royal Commission on 13 Housing Reformers and Taxation of land values I Housing standard for American workmen 6 Hennessy, Charles O'C 38-39 Habitations, graduated tax on 58 Hart, Dr. Albert Bushnell 94 Halving the tax-rate on buildings i, 51, 101-103 INDUSTRY, result of taxes on 42 JOINT interest of wage-earners and employers in taxing land values... 32 KANSAS CITY 65-66 LAND values, causes of 15, 17, 21, 24, 46 Land speculation and how to prevent it 6, 10, 13, 47-48 London, sources of Municipal Revenue in 88-90 Landowners' Risks 16 Land Increment Tax 48, 90-94, 105 Landowners' Profits 16, 20-23 Land Monopoly in American cities 108-1 1 1 Lloyd-George 21, 93 Land values, taxation of, no substitute for restrictive and safety regulations 3 1 , 4, 23-24 Landowners' "rights" to improvements at public expense 47 Land values, incidence of taxation on 6, 7, 8, 24, 30, 34, 48, 56 Lower assessment of buildings than of land 100-101 Lower tax-rate on buildings than on land 101-103 MANUFACTURERS, regulation of 12, 53 Mill, John Stuart 25, 50 Municipal social activities 25 Moody, John, on halving the tax-rate on buildings 39~40 Municipal debts and taxation of land values 36, 54, 68 Money market and taxation of land values 54 Mewes, Dr. Wilhelm, on land speculation 10 Municipal landownership 96-97, 107 NATIONAL HOUSING ASSOCIATION i Nettlefold, Councillor John S n New York City 2, 18, 19, 22, 24, 28, 51-52, 61, 66, 108-109 OMAHA, Nebraska 64 PARIS, Sources of Municipal Revenue in 87 Panics, and taxation of land values 33~39 Private Property and Taxation of land values 17 Pleydell, A. C 46, 49 Poverty 76, 77, 79, 80 Pittsburgh 22, 78, 80 PAGE ROBINSON, ALLAN 19 Rents and taxation of land values 7, 8, 10, 12, 27 Room-overcrowding and taxation of land values 13 Referendum, need of popular on taxation of land values 23 Ricardo 59 Rogers, Thorold 60 SELIGMAN, Prof. E. R. A. On the single tax 44 On the land increment tax and lower tax- rate on buildings 45 On the incidence of taxation 18, 60 Savings and Loan Associations' Officers endorse half tax-rate on buildings 37, 38 Sage Foundation Homes Co 73-75 Salisbury, Marquis of 95 Standard of living and taxation of land values 26, 28, 29 Socialistic alternative for taxing land values 54-55 Springfield, Mass 65 Skyscrapers, graduated tax on 59 Smith, Adam 57, 59 Sulzberger, Cyrus L 41 Social unrest 75 Scottish Select Committee on Taxation of Land Values 96 TENEMENT HOUSE, Prevention vs. Reform of 24 Transit vs. taxation of land values 40-42 Tenement house restrictive legislation, results of 3 Tenancy in American cities 27 Taylor, Mayor L. D 33-37 UNSANITARY Tenements and taxation of land values 45 "Unearned increments" from other sources than land values 44 VANCOUVER, Single Tax in 33-37 Veiller, Lawrence 2-3 Vienna, Sources of Municipal Revenue in 85 WAGES and taxation of land values 26, 30, 82 Wall Street and taxation of land values 39, 60 Washington, D. C 4, 65 Worcester, Mass 65 THIS BOOK IS DUE ON THE LAST BATE STAMPED BELOW AN INITIAL FJNE~OF 25 CFWTQ /r Jfa ^..Mii'^-^-nyW K ' : YC 26836 UNIVERSITY OF CALIFORNIA LIBRARY