Question

Discuss Henry George reasons for favoring the single tax. What are a few drawbacks to implementing his single tax?

Answer 1

Henry George favored the single tax because according to him, it would boost the economy. And a sound economic system encourages both work and capital investment, due to which government should avoid taxing labor income or returns on capital. With a high property tax, he believed, land will tend to end up in the hands of those who can make it most productive. According to George, land is the common inheritance of all and hence no person or firm shall hold land. Furthermore, that rent should be paid to the public, as the rightful collective owner of all land.

What if you buy a large expanse of land and raise the value of one portion of it by improving the surrounding land. Then you are taxed based on your improvements. This is not far-fetched.

The critics on the other hand stated that land values are not intrinsic, they are created. That is the reason, a same amount of land, costs different at different places. Consider, if you buy a large expanse of land and raise the value of one portion of the land, by increasing the facilities in the surrounding lands. In this case, if the George's single tax law is in force, then you will have to pay more tax due to those improvements. This is not right. Disney bought up large amounts of land around the area where it planned to build Disney World, and then made this surrounding land more valuable by building Disney World. Had George’s single tax on land been in existence, Disney might never have made the investment. So, contrary to George’s reasoning, even a tax on unimproved land reduces incentives.

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