Land tax

Levy tax on land, not on labor

Bottom-up initiatives are beautiful and inspiring, but anyone who wants to change society would do well to also look at the tax system. Boring? No way! It is very political and effective. A tax on land can be used to combat inequality and make housing affordable again.

All his life, my grandfather opposed private ownership of land. Unfortunately, I never really got to talk to him about it. When he died in 1995, I was just 18. I studied political science in Amsterdam and participated in all kinds of actions against housing shortage, racism, sexism and inequality. I found squatting a building or painting banners much more exciting than my grandfather’s theoretical explanations of land ownership.

Only now, almost thirty years later, have I realized that our fight was actually the same: the struggle for a more just society. And that my grandfather had seen very well that we can never achieve that just society without a fair distribution of land.

I only found this out when I wrote an article about my grandfather’s activism. He had championed a tax on owning land, and for De Correspondent I looked into what that actually meant. To my surprise this land tax, made famous by the American economist and journalist Henry George (1839-1897), turned out to be very topical. It could be a solution to the current housing crisis and rising inequality, according to several economists I interviewed for the article.

Land as a basic resource
The idea in a nutshell: according to Henry George, land ownership was the main cause of inequality. Land ownership makes the rich richer and the poor poorer. And that makes private ownership of land a big mistake, he thought. George argued that the earth is there for everyone: every person has a right to the use of a piece of land to live on and make a living. In other words, land is a basic resource, just like water and air.

According to George, the land value tax, as this tax is called, would bring so much to the government that all other taxes would become unnecessary.

He therefore proposed a tax on owning land. A kind of rent actually, which the owner pays annually to the government for the right to use the land. This was to be so high that owning land no longer had any financial value for the owners. Only by using the land – living on it, working on it or renting it out – could they still profit from it.
According to George, the land value tax, as this tax is called, would bring so much to the government that all other taxes would become unnecessary. There could even be money left over for a kind of basic income for every citizen. This would eliminate the inequality that comes from private ownership of land.

Homeowners earn a lot of money without doing anything
According to economists, a land tax is not only efficient but also equitable. This is because it prevents landowners from earning a lot of money without doing anything. Anyone who owns their own home knows how quickly its value can rise. Or rather the value of the land on which the house stands, because that determines most of the increase. In part, this is due to scarcity – land can’t be added to, so as long as the population grows, the scarcity increases.
But the value of the land under a home is primarily determined by its location. The more amenities and economic opportunities in the area, the more expensive the land. That is what explains the big price difference between a comparable home in Appingedam or Amsterdam.
The key question is: Who creates that value? That is not the landowner, but society. In Maastricht, for example, part of the A2 motorway was tunnelled. That cost the government some 725 million euros. The tunneling increased the livability and attractiveness of the immediate area, with the result that house prices rose by a total of some 220 million euros, according to a conservative estimate by the Central Planning Bureau.
However, that profit did not return to the government, which had paid for the under-tunneling. It went directly to the homeowners – a nice little gift, paid for with our tax money.
Unearned income, economists call this. Or in English: economic rent. The British conservative politician Winston Churchill pointed out the injustice of this back in 1909. While streets and railroads are being built, the landowner sits idle, he told the House of Commons. ‘To none of these improvements does the land monopolist contribute anything, and yet with each improvement the value of his land is appreciably increased.’

Insanely unjust tax system
According to Professor Bas Jacobs, an increasing proportion of all income is unearned. As a result, inequality is rising. When I interviewed him for De Correspondent, he told me that over the past ten years he has ‘earned’ more from the increase in the value of his house than from his work as a professor. He has not had to put in any labor or effort for that. And the craziest thing is: unlike on his college income, he doesn’t have to pay any taxes on it either.
I remember reading a text from my grandfather at the beginning of my research, in which he wrote that he wanted to abolish ‘the insanely unjust tax system.’ Well now, I thought at the time, it’s not that bad, is it? Surely taxes serve all sorts of important purposes, such as education, health care and social security? But now I know: as long as we primarily tax labor and not property, our tax system is indeed insanely unjust.
Yet my grandfather never succeeded in getting a broad political movement behind this idea. Taxes just aren’t very popular. What also doesn’t help is that more than half of the Dutch live in owner-occupied houses – which would immediately decrease in value with the introduction of a land tax. Great for first-time buyers, not so great for existing homeowners.

Collective wealth
Can we imagine a society in which the rising value of land and homes no longer accrues to homeowners, but flows back to society as a whole? In which we no longer have to see our home as an investment and as part of our retirement savings? But simply, as a roof over our heads?
Yes, it can be done, as many collective housing projects show. I myself live already for fifteen years in a housing association that has this as its premise. It’s funny, but I never realized before that the principle is actually the same as with the land tax, to which my grandfather dedicated his life.

Along with seventeen other households, I live with my family in the Betuwe, on an old estate of over 7 acres of land. The ownership of the land and buildings is placed in a foundation, which we manage together as residents.
On our personal bank accounts, therefore, you don’t see the value of the estate. And yet, when I look around me, at our vegetable gardens and fruit orchard, the sauna and swimming dock by the river, the large park, the soccer field and playground, I find it hard to feel myself poor.
All these collective amenities we could never have paid for on our own. It is the accumulated wealth to which everyone who has lived here for the past 30 years has contributed.
And it also remains affordable for future generations: if we ever leave here, the next residents can enjoy this collective wealth. Thus, on a small scale, our housing association demonstrates how a land tax could work at the municipal or national level.
Unnoticed, then, I have been putting my grandfather’s ideas into practice for many years. And by now I know that all these ways of taking action are equally important: both bottom-up initiatives, and thinking and writing about structural changes at the system level. I do that now by writing about land ownership for De Correspondent. But it remains a shame that I can no longer share that with my grandfather.