During their recent episode, Taylor, Carlisle, and Asif Suria discussed Georgism vs. The IRS: How Land Value Tax Could Replace Federal Taxes, here’s an excerpt from the episode:
Tobias: JT is going to do his vegetables. But when we come back, for the podcast there, lots of people asking about Glass House. There are lots of people in the chat asking about Glass House. So, we’ll do a deep dive in Glass House, starting with what is Glass House, once JT’s done his vegetables.
Jake: So, this is about not throwing stones in Glass Houses. I’m just kidding. [Tobias laughs] All right. So today, if you will indulge me as I deliver today’s veggies from a little bit of a soapbox. So, it’s a surprise to no one when I say that the current tax system in the US could probably stand for a little reexamination. US tax code is currently 6,871 pages long. If it took you five minutes to read each page, which is a very standard speed for technical material, it would take you 572 hours to read the entire thing, which is about 14 weeks of full-time work. But if you add the tax regulations and the official IRS guidelines, it balloons to around 75,000 pages. That’s more like three years’ worth of full-time work, if your job is to read the most mind-numbing writing that’s ever been devised. The IRS employs 80,000 workers. And on average, Americans spend roughly 13 hours per year on tax prep and compliance.
Now, obviously, there’s a lot of economic inefficiencies, lots of time lost in this tangled web of thousands of pages. Is there a better way? Now, there might be. I’m going to put forth this old concept called Georgism, which is known in modern times also as Geoism. It’s named after this guy named Henry George. He was a journalist and economist. He’s likely the most influential economist and thinker that you might not have heard of. And in fact, he was a hero to many luminaries of the 20th century.
George was born in Philadelphia in 1839 to a lower middle-class family. He found his way to San Francisco, and he got work as a typesetter and a printer. He eventually started submitting articles, and he landed a job as a journalist and rose to managing editor of the San Francisco Times. In later life, he ran for various political positions, never winning very much, although he did beat Teddy Roosevelt in a New York election.
One day in 1871, George went for a horseback ride, and he stopped to rest while overlooking the San Francisco Bay. He later wrote in his journal, “Like a flash it came over me that there was the reason of advancing poverty with advancing wealth. With the growth of population, land grows in value, and the men who work it must pay more for the privilege.”
After a visit to New York City then, George was struck by the fact that the poor in New York City were much poorer than in his less developed California in San Francisco at the time. How could that be? Like, where did this inequality come from despite seemingly more wealth being created? Well, his observation led to a groundbreaking book called Progress and Poverty. It hit the shelves in 1879. It was the first popular economics text. It sold more than six million copies. It was like this like, he caught lightning in a bottle. In fact, only the Bible was a bigger seller in the 1890s than this book. George Bernard Shaw, Friedrich Hayek, Albert Einstein, Leo Tolstoy, all marked their first encounter with Progress and Poverty as a literally life changing experience.
So, this book tackles the issue of land ownership. It argued that the value of land should be shared among all members of society. It’s like a shared good. If this sounds communist like, you’re right, George’s writing somehow was able to inspire both thinkers on both ends of the spectrum, like Libertarians claimed some of his ideas, Communists do as well. He considered a great injustice that private property was being earned from restricting access to natural resources. So, while the productive activity that was taking place was burdened with these heavy income taxes. So, he wanted to prevent private industry basically from profiting by the mere possession of land, but it did allow for the value of all the improvements that were made to the land to remain with the investors.
So, picture this. Some rich kid inherits a building in, let’s say, New York City, maybe even he has small hands and runs for president one day. I’m just throwing it out there. The building itself is very valuable, but it’s really the land underneath that’s the primary factor. But what makes that land valuable? It’s what’s around it. It’s the schools, and roads, and parks and jobs, all these things that make the land worth more. Georgism basically says like, “Hey, shouldn’t the community get a piece of that action?” The idea is that you should keep the money that you earn through your hard work and the value of the land that you’re sitting on should be shared by everyone.
So, George was actually continuing more in line with the father of modern free market capitalism, Adam Smith. Smith broke the world down, if you go back to wealth of nations, into labor, capital and land. And for some reason, modern economics has fudged together capital and land into a single amorphous blob. Maybe it makes their elegant math work better, but here was Smith in the wealth of nations. As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed and demand a rent even for its natural produce. So, just as a thought experiment, what would it look like to reconstitute the IRS to perhaps implement Georgism, which would be a land value tax. Instead of taxing your income, your sales or even your property as a whole, a land value tax focuses solely on the land itself, the bare earth. It doesn’t count the buildings, the improvements. The idea is that since the community makes your land valuable, the community should benefit from that.
Perhaps, it’s not totally ironic that George had his insight while staring down at the San Francisco Bay. The Bay Area is notorious for its sky-high property values and massive income inequality. And so, imagine that you live in San Francisco, and you write code for Google or Facebook and billions of people use your code to search for local coffee shops or share cat pictures with your grandma, but a ton of economic value is created. And yet, how much of that do you actually get to keep? Not that much, because your rent is so damn high. Like, the landlords are sucking out all of your excess income from what you’re creating.
The median household income in San Francisco is about $147,000 per year. Meanwhile, the medium rent for a one-bedroom apartment is around $3,500 per month. The national equivalents of both of those numbers are about half. It’s not like your one-bedroom apartment in San Francisco. I’m sure, Toby, when you lived there. It’s not going to be all that nice. [chuckles] You’re really paying to occupy that space, which is very valuable beneath you in the land.
Now, I’m not naive enough to believe that transitioning from our current regulation would be easy at all. There’s so many vested interests that would torpedo this. But just for fun, what the numbers might look like. 2023, the US federal government collected about $5 trillion in revenue. When we look at the total market value of all the privately owned land in the US, it’s somewhere around $30 trillion to $35 trillion. So, if we wanted to implement a land value tax to replace all federal taxes, keep it revenue neutral, it’d be about a tax rate of 14%. We wouldn’t pay any other taxes anywhere else. That would cover it.
Critics point out that implementing Georgism on a large scale would be incredibly complex, especially if you had to make accurate assessments of land and manage the taxes across the country. But I would say, is it that much more complex than the 75,000 pages that we have to deal with now and 80,000 IRS agents? I don’t know. Imagine not having to save goddamn actual paper receipts from dinner for seven years when you go to a business lunch. That alone is reason, I think, to consider it. But one last fun fact about Henry George before I shut it down. In 1904, a board game came out called The Landlord’s Game. It was created to demonstrate George’s theories. Now, would you care to guess what it was later renamed to?
Tobias: I think we’re both going to get–
Aaron: Monopoly.
Tobias: [laughs]
Jake: That’s right. [Aaron laughs] You do pass go, do collect $200. It was Monopoly.
Aaron: That’s great. That was really great. It’s funny about that is, in cannabis, because its federally illegal, there’s a punitive tax called 280E, where the cannabis companies have to pay excessive taxation. They can’t deduct all these standard deductions. So, when you look at some of the really profitable companies, some of them are paying 50%, 70% tax rates right now.
Jake: Jeez.
Aaron: And the IRS is happily for a federally illegal business.
Jake: Picking– [crosstalk]
Aaron: And so, that’s part of the Schedule III and everything else is that there’s this crazy excessive taxation going on in the industry. It’s a very timely.
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One Comment on “Georgism vs. The IRS: How Land Value Tax Could Replace Federal Taxes”
Henry George offered the only practical means by which societies could experience sustained full employment without inflation. He was, in effect, a macroeconomist. Some economists have always found reason to agree with him (at least up to the point where he argued for the elimination of all taxation except for the public capture of the economic rent of land and all natural assets. One economist who in recent times offered an update on George’s macroeconomics was University of California professor Mason Gaffney. Many of his writings are available online. I have compiled many (including his 100 page “paper” on macroeconomcs) on my School of Cooperative Individualism website.