The neglect of the burden repercussively imposed on the occupier is the capital error of the schemes criticised in the former paper; schemes justly described in the Separate Report1 as "crude and violent," neither "equitable nor workable." The writers of the report honourably abstain from the violent interference with contracts, discerning its tendency to check enterprise. "The proposed violation of contracts would greatly aggravate existing evils by destroying confidence and discouraging building enterprise."1

1 Separate Report on Urban Rating and Site Values, pp. 162, 166.

With regard to the incidence of the proposed imposts, unaccompanied by violence, the writers of the Minority Report perceive clearly enough that foreseen rates of the ordinary kind are apt to be in part thrown on the occupier, even though levied from the building owner.2 But they and the promoters of Bills founded on their report, have not equally realised that a foreseen impost levied from the owner does not lose the property of transference to the occupier, because it is called a rate on site value.

The neglect of this incident exposes to some doubt the Minority's fine reasoning as to the local distribution of the new impost; the consequences thus described by the promoter of a Bill on the lines of the Separate Report: - "The inner ring of the town will move out the outer rings, and the outer rings will push out the population still further outwards." 3

So far as the proposed rate on site value acts like a tax on rent proper, doubtless, ceteris paribus, the taxation by which the enterprise of the builder is checked will be reduced; and since there is most building at the periphery, building there will be most encouraged.

But whereas the new rate is, after a short interval, to fall upon the building owner4 - that is, the entrepreneur, or a party from whom he obtains payment - it is to be expected that the proposed rate will act partly as a tax on profits. To that extent building enterprise will be checked. The check may be expected to be greater at the periphery than the centre; not only absolutely or in toto, because there is more building at the periphery, but also per cent. of the outlay, for a reason above indicated, that the foreseen decrement of profits are less capable of being deducted from ground-rents where ground-rents are low, as at the periphery, than where they are large enough to recoup anticipated loss of profits, as at the centre.

1 Separate Report on Urban Rating and Site Values, p. 164.

2 Ibid, p. 156.

3 Hansard, Vol. 103, p. 483.

4 Separate Report, p. 171; and the Bills founded on the Report.

Without insisting on this paradoxical consequence, may we not invoke the general presumption against seeking to compass by taxation ulterior objects other than revenue. Disturbance to industry is in general a much more certain consequence than any beneficial result that is proposed. Thus the promoter of a Land Value Rating Bill, after admitting that in his scheme within "the inner ring of the city" "the tax would increase on each property," goes on: - " But even there there would be no hardship on property owners. For they would only have to build better premises and use their land better, and they would not as now be subjected to a higher tax on their enterprise." 1 If it is meant to suggest here, as in other passages, that the new impost would supply a new motive to the owner to use his land better, the deduction appears to be very questionable. If it did not before pay him to replace an old building, it will not pay him any better to do so, because, under the new system, whether he does so or not, he will be placed under the necessity of paying a site-value rate. This and other points of theory here touched upon are elaborately demonstrated by Professors Luigi

1 Preface to Zimmermann's "Taxation of Land Values" (1905).

Einaudi in his Studi sugli effetti dell' Imposte,1 the most exhaustive and sagacious treatise on the whole subject known to the present writer.

Similar criticisms may be directed against the proposed land value rates in their relation to vacant land. The promoter of such a measure argues,2 "the landlords will come tumbling over one another in their eagerness to sell, and down will come the value of the land to the price at which it ought to be sold - that is, a little above its agricultural value." In this and like passages there seems to be involved a disputable opinion as to the functions of the speculator in land: too low an estimate of his usefulness, too high an estimate of his power to prejudice the consumer. As in other industries - if not quite so much as in other industries3 - the speculator is useful in finding a market for the article. As Mr. Edward Bond, in a debate on one of the Bills now under consideration, urged, "they had to rely principally, if not entirely, on the efforts of speculative builders and commercial men, who went into the business with a view to getting a fair return for their money." 4 The discouragement of this necessary middleman would, he thought, not conduce to the result aimed at, "namely, to bring more land into the market," but to the opposite result. As in other industries, the speculator is not so responsible as he appears to be for high prices. Their fundamental cause - the urgent demand for an article of which the quantity in existence is limited - is not created by speculators. We may therefore apply to the above-cited proposals, what is said in the Report (Lord Hobhouse's) of the Local Government and Taxation Committee of the County Council,1 with respect to certain earlier proposals of similar design. "We doubt first whether it is possible to force the market, as they suggest, by the indirect agency of rates upon land-owners. It is the interest of landowners to bring their land into profitable occupation as quickly as they can. We doubt secondly whether, if the land market could be artificially forced by a system of rating, it would be found of advantage to land-owners." * * * *

1 Reviewed in the Economic Journal, Vol. XIII., p. 237.

2 Preface to Zimmermann's "Taxation of Land Values."

3 Can it be maintained that pure speculation in land unaccompanied with any other productive activity - to "buy to hold and sell at a profit," as the advertisements put it - is attended with all the advantages ascribed by economists (J. S. Mill, for instance, "Pol. Econ.," Book IV., Ch. II., sect. 4) to speculation (without monopoly) in a commodity like wheat ?

4 Hansard, Vol. 103, p. 522.

So far, indeed, as the current schemes involve Mill's principle of taxing unearned increments they are defended by the present writer. But the defence on this ground is not so strong as might prima facie appear. The schemes do indeed include taxation of unearned increment as well as other kinds of taxation. But in fiscal science the greater does not always comprehend the less. Compare the working of Mill's principle with the modern form of site-value tax. In the case of premises in the centre of a town when a new lease is created - or the land is otherwise disposed of by the ground-landlord, Mill's plan is - with due regard to the interest initially existing - to dock the future receipts of landlords by a substantial percentage, such a percentage as Professor Wagner, in the passage above quoted, has proposed to take from unearned increment. If this plan had been adopted in Mill's time some two millions sterling might now be flowing into the Municipal treasury.2 But nothing like this could be obtained from the same ground-rents according to the methods now in vogue. Dealing with wheat and tares - earned and unearned increments - promiscuously, as above argued, they could not, under the name of site-tax, impose so drastic an impost, or rather an appropriation. It would be particularly impossible to do so in the case where the value of the cleared site is much greater than that of the site plus an existing tenement. Some advocates of new schemes may claim indeed that their schemes will put a stop to that anomaly. But it has been argued above, that this claim is not admissible. If, as appears to be the general design of these schemes, a site-value rate is to be imposed on the land before it changes hands, to follow it into new hands without breach of continuity, and to be fixed at a constant percentage for a whole country, or at least district, then an operation on anything like the scale contemplated by Mill with respect to newly created ground-rent would be impracticable.

1 "Minute of the Proceedings of the London County Council for 1891."

2 As argued in the former paper, p. 499 (where there is an obvious misprint of 20,000 for 200,000), and p. 516.

Like remarks apply to the proposed taxation of vacant land. Mill's plan would be to wait till the egg is laid, and then if you like, scoop out all the yoke. The plan of taxing the value of the goose derived from the prospect of future eggs cannot well be so drastic. It will be observed that this objection is distinct from and additional to the more familiar objection already in effect urged, that tampering with the process of capitalistic incubation will diminish the number of eggs available for consumption.

If there is no other general principle but Mill's conducting to a "peculiar " taxation of site-value, the only question is how far is it in practice safe to follow that principle. May we apply to English tenures the regulations which are now proposed in Berlin. "An increment tax shall be levied whenever the present purchase price or the market value [gemeine wert] of the real estate exceeds by more than 10 per cent. the price paid at the former change of hands," to which price is to be added expenses for improvements and repairs.1

Or are such inquisitory methods to be depreciated because, in the words of the Majority Report on Local Taxation, they "would bring into existence new inequalities of liability," and, we may add, check supply by harassing enterprise" unless measures were taken to differentiate not only between district and district, but between property and property - an obligation which in our opinion could not be satisfied by any possible modification of the existing rating machinery." 2

On this important question the present writer has nothing to add to the considerations summarised in a former article.3 Possibly, as in the case of agricultural land in Great Britain, the application of Mill's principle may seem, under existing conditions, impracticable. Possibly, as in the case of agricultural land in Ireland, after much boggled legislation, long banishment of political economy to Saturn, the treatment ultimately adopted will embody the ideas of Mill.4

1 "Berlin's Tax Problem," by Robt. C. Brooks, Political Science Quarterly, December, 1905.

2 Report of Royal Commission on Local Taxation, p. 44.

3 Economic Journal, Vol. X., p. 516.

4 See "England and Ireland," by J. S. Mill, 1868.