This section is from the "Elementary Principles of Economics" book, by Richard T. Ely and George Ray Wicker. Also available from Amazon: Elementary Principles Of Economics: Together With A Short Sketch Of Economic History
A very large number of intelligent citizens of England, Australia, and the United States are adherents and devoted advocates of a scheme for entirely abolishing taxation, as that word is ordinarily understood. Mr. Henry George, author of Progress and Poverty, a man of wonderfully earnest human sympathies, and of very strong and sincere convictions, gave the latter part of his life to the advocacy of the plan, which he himself did most to formulate and popularize in modern times. We can do no better, therefore, than to explain the proposed system in Mr. George's own words, as printed in his paper, the Standard:
The Standard advocates the abolition of all taxes upon industry and the products of industry, and the taking, by taxation upon land values, irrespective of improvements, of the annual rental value of all those various forms of natural opportunities embraced under the general term, Land.
We hold that to tax labor or its products is to discourage industry. We hold that to tax land values to their full amount will render it impossible for any man to exact from others a price for the privilege of using those bounties of nature in which all living men have an equal right of use; that it will compel every individual controlling natural opportunities to utilize them by employment of labor or abandon them to others; that it will thus provide opportunities of work for all men, and secure to each the full reward of his labor; and that as a result involuntary poverty will be abolished, and the greed, intemperance, and vice that spring from poverty and the dread of poverty will be swept away.
The proposition is here definitely made that the State shall take all of the pure or economic rent of land, and the claim is made in explanation and justification of the policy that it will abolish poverty. Such a policy might, indeed, prevent landowners who do not care to use their land from keeping it out of the hands of those who would use it; but how it would effect all the other predicted blessings is difficult for most people to comprehend. In the first place, it is difficult to imagine how pure economic rent of agricultural land can be separated in practice from the annual value of the separable improvements on the land. But apart from this difficulty, the appropriation of economic rent by the public without compensation to the owners will probably never appeal to the conscience of the American public as a just thing to do. No abstract reasoning, based on "natural rights," will persuade a modern nation to so radical a step. This honestly and earnestly advocated policy is only one more illustration of the danger of basing social reasoning on any theory of "natural rights."
Some advocates of the " single tax " recognize the unwisdom or injustice of appropriating all rents now existing, and therefore propose to compensate present holders of the land. The State in that case would gain only the future increments in value which increasing population may be expected to produce.
In cities it is easy to separate the pure economic rent from the earnings of improvements, such as buildings. In fact, as has been stated elsewhere in these pages, such a separation is frequently made. Moreover, it is in cities that the principal evils attendant on private land-holding are discoverable. Therefore the objections to land nationalization do not in the same degree apply to land municipalization. Many who will reject the one will favor the other. Even here, however, it is well to proceed very cautiously. Confiscation, at any rate, should not be tolerated. If great and expensive changes along this line should approve themselves to the people, the burden of the changes should be widely diffused throughout the community by means of inheritance and other taxes.
Direct and Indirect Taxes.In concluding our discussion there remains to be noted a distinction, frequently seen in economic writings, between direct and indirect taxation. The meaning attributed to these terms at different times and by different writers has varied widely, but a common definition is that direct taxes are taxes laid by the State upon those who are expected to bear the burden of them, while indirect taxes are expected to be shifted to other persons. Poll taxes, property taxes, and inheritance taxes are usually called direct, while customs taxes and excise taxes are called indirect. The importer of goods subject to duty pays the tax, but recoups himself from the enhanced price which he is able to charge the consumer of the goods. Close analysis of the problem has led many writers to doubt whether the distinction is, after all, a real one, since in many cases taxes which at first sight seem to be direct, prove to be regularly shifted to others. We cannot enter into a discussion of this subject in a work like the present; but inasmuch as the terms are frequently employed, and as the distinction has played an important part in American financial history on account of the use of the terms in the Federal constitution, it is well to know how the words are commonly used.
As taxation is the most important single subject in the domain of public finance, we shall present a more detailed treatment in the following chapter, in connection with the topic Revenues in the United States.
1.Public finance treats of the revenues and expenditures of government.
2.Government business is everywhere the largest single business, and profoundly influences all private business.
3.The importance of government business, and hence of public finance, depends upon the dominant idea of the proper economic function of government.
4.Public expenditure in civilized States has been rapidly increasing, owing both to the rapid increase in population and to the widened scope of government activity.
5.Public expenditures are for fulfilling the protective, the commercial, the developmental, and the self-sustaining functions of government.
6.Public revenues are derived from public domains and industries, from fees, special assessments, and taxes, from fines, gifts, etc., and from public loans.
7.Taxes, the chief source of revenue, are compulsory payments for government expenses.
8.A just tax is one which conforms to the ability of the taxpayer to bear the burden.
9.Land nationalization, a proposed plan of taking all the economic rent of agricultural land for the support of the State, is impracticable, and, unless compensation is provided for, it is morally indefensible; land municipalization, the proposal to take the economic rent of city property, stands on a somewhat different footing. 10. The distinction between direct and indirect taxes is neither valid nor valuable.
1.What is public finance? From what is it to be distinguished?
2.What is the problem presented by the method of storing revenue in the United States ?
3.What is the bearing of public finance upon the labor problem?
4.What view of the economic functions of government is held by the anarchist? By the extreme individualist? The socialist?
5.Why have public expenditures so uniformly increased during the last century ?
6.Classify public expenditures, and name particular expenditures falling under each group.
7.What classes of expenditure have shown the most rapid increase in the last century ?
8.What are fees? Special assessments? Taxes? What are the differences among them?
9.How do revenues from loans differ from other revenues?
10.What is the justification of taxation ? What are the theories regarding just taxation ?
11.What is land nationalization ? Land municipalization ? What is the difference between them ? Discuss the justice and practicability of these proposals.
Adams, H. C.: The Science of Finance, §§ 10, 18, and 49, and Public
Debts. Bastable, C. F.: The Public Finance. Daniels, W. M.: The Elements of Public Finance, pp. 30-33 and pp.
36-38. Ely, R. T., and Finley, J. H.: Taxation in American States and Cities. George, H.: Progress and Poverty. Plehn, C. C.: Introduction to Public Finance. Seligman, E. R. A.: Essays in Taxation.