Mr. Rybeck is director of the Center for Public Dialogue in Kensington, Maryland; Mr. Pasquariello is senior fellow at the Churches’ Center for Theology and Public Policy in Washington, D.C.
This article appeared in the Christian Century, May 13, 1987, p. 470. Copyright by the Christian Century Foundation and used by permission. Current articles and subscription information can be found at www.christiancentury.org. This material was prepared for Religion Online by Ted & Winnie Brock.
Among the causes of poverty in the U.S. is the concentration of land and resources in fewer and fewer hands. There is growing awareness that neither private nor public charity is sufficient in dealing with poverty, joblessness and homelessness.
Calling for "a modern equivalent of Jubilee," signers of a proposal fundamentally to revise the property tax structure petitioned the endorsement of the 1984 General Conference of the United Methodist Church. The proposal, which the conference did endorse, sought to shift taxes from labor to land values. Combining good biblical theology with public policy insight, the plan offers a simple but critical tax change as a way of dealing with "poverty, joblessness, slums, urban decay, farmland destruction, the erosion of public services and facilities and social justice."
The current property tax combines land and building taxes; recently, it has become a tax mostly on buildings. As a result, owner-made building improvements are overtaxed, while land is under-taxed. And undertaxing land encourages its disuse. The Methodist petitioners’ simple proposal was to tax land, not buildings. The possibilities are great for achieving social justice through this easily implemented change in the property tax.
These Methodists were echoing early Americans who had the Liberty Bell inscribed to read: Proclaim liberty throughout all the land unto all the inhabitants thereof," quoting Leviticus 25:10 which proclaims the Jubilee year. Every 50th year -- the Jubilee year -- the Jewish people were to return the land to the original owners’ heirs.
Biblical justice in this instance, as Walter Brueggemann asserts, "is to sort out what belongs to whom, and return it to them." That is the focus of the Old Testament’s Jubilee proclamation, a policy designed to reduce the excesses of greed and to avoid splitting society into landed and landless factions. The Methodists’ proposal is an example of the type of plan needed to address the inequities that characterize use and ownership of the land.
The generally held belief that ours is a nation of small landholders is a myth. According to Gene Wunderlich, quoted in a 1979 Harper’s article, "about 3 percent of the population owns 55 percent of all American land." And that same 3 per cent holds "95 percent of the private land." Furthermore, while 64 per cent of families own or are in the process of buying their residences, the residential sector occupies only 2 per cent of the 1.3 billion acres of privately held land.
Feudalism, it seems, is still with us; its new face is the landlordism that lets a few benefit from what belongs to society. This lopsided arrangement denies the Bible’s insistence that an equitable share of the Lord’s resources is the birthright of all humans. While the U.S. is infinitely better off than the countries of Latin America, Asia and Africa, our situation is worsening. Consider these facts:
• Poor people pay inordinate rents. While in 1970, 25 per cent of income generally went for rent, today, according to National Low-Income Housing Coalition reports, that percentage for many renters, especially the poor, has doubled.
Early in the century, poor immigrants in New York City could buy or lease a shop with a fair chance of prospering. Now many minorities face site costs that almost doom new businesses from the start. A front foot costs more than the whole lot would have 70 years ago, a startling change even when considering inflation.
•Large firms are deserting the cities for cheaper suburban sites, taking with them employment and badly needed tax revenues.
•Large agribusinesses represent only 13 per cent of U.S. farms but take in 72 per cent of agricultural sales, according to the U.S. Department of Agriculture’s Economic Research Service. At the other end of the scale, 50 per cent of the farms account for only 3 per cent of sales.
• Land-holding is gaining ascendancy over land-using. Land speculation -- holding land for its future worth rather than putting it into current production -- has become standard practice for the affluent.
What gives value to land. Any real estate textbook will explain that the three factors for determining land value are "location, location and location." And any property owner will affirm this truth. But what generates locational value? Three phenomena: God, people and public activities.
God the creator, Genesis tells us, "looked at everything he had made, and he found it very good." We recognize this goodness in the fertility of the soil, natural harbors, scenic beauty, the availability of water, and the subsurface riches of coal, oil, gold, iron and other substances. The land has a God-given goodness and is one of the gifts through which God sustains us.
People create land values simply because they are social beings, consumers and producers. The more people concentrated on a piece of land, the higher its value. The press of population intensifies the demand for homes, jobs and services; this is what makes Manhattan far more valuable than downtown Richmond, Virginia, and Richmond more valuable than Anderson, Indiana, and Anderson more valuable than an uninhabited Utah crossroad.
Finally, the public or government generates land values by providing streets, schools, police protection and other infrastructures. Opening a subway system for the District of Columbia in 1976 gave Washington’s blighted downtown a new lease on life. The subway and its riders are stimulating the economy along all of its corridors. According to a 1981 congressional study, "a minimum of $2 billion in land values has already been added to the existing land value base." However, it concluded that "only a trickle" of these new values finds its way back to local government through the property tax. The biggest share goes to people "lucky enough to own land within easy access of Metro stations."
Private vs. common property. We utterly misunderstand the land issue unless we acknowledge the distinction between the value of the land itself and the value of labor on the land. The institution of private property has a sound foundation -- the proposition that people have a right to the fruits of their labor; that is, to the output of their mental and physical efforts. We are not questioning the legitimacy of earnings that landholders or others derive from buildings or production on the land. People who build homes, factories or offices, or who produce various types of goods and services, have a solid ethical claim to what they have created. However, the land itself, as our biblical forbears realized, does not meet this criterion. "The earth is the Lord’s and the fullness thereof" (Ps. 24:1).
God’s gift of the land does not confer absolute ownership. We are free to use it, enjoy it and benefit from it, but God retains ownership. We serve as God’s caretakers, or tenants, on the land. Jefferson recognized this gift, saying that land belonged in usufruct -- in trust -- to the living. Sir William Blackstone, the preeminent authority on English law, wrote in his Commentaries: "The earth and all things therein are the general property of all mankind, from the gift of the creator."
This idea of the land belonging to all humanity, to the community as a whole, is not entirely inoperative today. National parks, school grounds, public building sites, many wilderness areas, lakes and ocean fronts are recognized as the common property of all.
The immorality of landlordism. An increasingly small elite is taking possession of the nation’s land, enabling them to squeeze more and more from the landless. This is runaway landlordism, and current public policy fuels its progress.
On the federal level, while the wages of ordinary workers find no shelter from the Internal Revenue Service, exemptions and special preferences for landowners whittle down their taxes or turn real estate losses into profits. The 1986 Tax Reform Act aims to reduce these privileges, but landowners’ past ingenuity in avoiding taxation warrants continued vigilance over tax structures. At the local level, the property tax rises for owners who build or improve their homes, rental apartments or commercial buildings, while it is reduced for those who let their land go fallow. Compare the following situation of the Joneses, the Smiths and the Greens.
The Joneses have a well-maintained home. The local tax office, seeing that they have has added air conditioning, a recreation room and a new roof, raises their assessment. Never mind that the Joneses improved their neighborhood and generated jobs and business. The result will be higher taxes not only this year, but as long as they keep the house in good condition.
The Smiths’ home of the same size and age is an eyesore. The yard is full of junk, gutters are rusted, screens are torn, paint is peeling. The tax office says it is worth less than last year. The Smiths’ taxes are reduced, a "reward" for blighting the community.
The Greens do not use their lot at all. They offer no production or housing on it. For wasting the site’s potential, they enjoy the lowest tax bill of the three.
Overtaxing good land use while under-taxing blight and empty lots invites slumlords and encourages land speculators. This type of landlordism -- or modern feudalism -- is an injustice. It allows individual landowners to siphon off the lion’s share of land values.
The ethical foundations of land value taxation. The biblical Jubilee prescription -- redividing the land every half century -- may have been feasible for a people practicing crude agriculture. However, a modern civilization cannot reshuffle the land without confiscating unmovable property or discouraging economic progress. The land value plan suggested here -- increasing land taxes, while decreasing taxes on labor, production and buildings -- achieves the same Jubilee goal without negative effects. It lets everyone share the economic value of the land rather than the land itself, just as a corporation, instead of carving up physical portions of itself each year, lets shareholders enjoy portions of the profit.
The proposed change in the property tax would enable the community to recapture community-created land values. Those who hold land retain undisturbed possession of it so long as they pay back their fair share of land tax to the community each year. Those with prized sites pay most; holders of poor locations pay least.
Society suffers a loss when speculators hold highly productive sites out of use. A land value tax usually persuades owners to use land or to sell it to others who wish to do so. If not, the higher tax compensates society for the land privileges it grants. This approach permits the elimination or major reduction of other taxes that weigh too heavily on wages, while it contributes to increases in local productivity.
Seven Pennsylvania cities have independently increased tax rates on land while imposing much lower tax rates on buildings. Scranton, with a population of 87,000, has had a modest two-rate tax for 70 years. When federal funding was cut in 1980, it raised the tax rate on land to four times that on buildings. In the next two years, the value of private construction in Scranton rose 22 per cent. In contrast, Wilkes-Barre, 18 miles away, kept its old tax system, and construction dropped 44 per cent during the same period.
Strapped for funds in 1974, Harrisburg twice dropped tax rates on buildings and twice increased rates on land. Almost every homeowner got a tax break. McKeesport adopted the two-rate tax in 1980, raising revenues 50 per cent and getting the town out of debt. More remarkably, building investment rose 36 per cent, while falling 14 per cent in neighboring Duquesne and more than twice that in nearby Clairton. Since then, Duquesne, along with New Castle and Washington, has adopted a two-rate tax.
The largest American city using the two-rate tax is Pittsburgh. After the city raised its land-tax rate to four times its building-tax rate in 1979, new construction rose a healthy 14 per cent. In 1980, the land-tax rate rose to five times the building rate, and the value of construction shot up 212 per cent. When in 1982 the city widened the gap to six times the building rate, the value of new building permits rose 600 per cent.
In all these cities, despite a national recession and a severe steel crisis in their region, changes in the property tax structure produced results that were nothing short of startling. As detailed in a Fortune article ("Higher Taxes That Promote Development," August 8, 1983) , housing and downtown buildings increased in numbers and dollar value. Homeowners enjoyed tax reductions, and housing costs were kept low. New construction jobs eased losses in the industrial sector.
Poverty, joblessness and homelessness have been central concerns of religious social-action groups. There is a growing awareness that neither private nor public charity is sufficient in dealing with these problems. Shifting property taxes offers an effective way to encourage public policy to be responsive to blighted cities, farm dislocation, declining industries, chronic unemployment and growing poverty. The need to infuse biblical principles into solutions for these problems seems imperative. Acknowledgment of this necessity is already evident in the Catholic bishops’ pastoral letter on the economy and parallel works by the Presbyterians, United Methodists and the United Church of Christ. The need to address poverty’s basic causes, including the unhealthy concentration of America’s land and resources in the hands of so few owners -- who have tended to misappropriate land values -- ought to be high on our religious and public policy agendas.