Modern Neo-Georgists (my term for them) have a principle called "All Taxes Come from Rent (ATCOR). It is an assertion derived from interpreting what Henry George had to say in his book "Wealth And Want." It's my contention that this principle is an invention of Mason Gaffney not Henry George and reflects a drift in ideation from what Henry George actually said. Even so the principle is true, but not necessarily the way that its proponents try to claim it is.
Mason Gaffney and somewhat related Quotes
Mason Gaffney quotes [see: ATCOR page]:
"It may seem like a truism to assert that the only fund upon which taxation can draw is that made up by the produce of the community, and that to multiply the places at which it is tapped is not to increase its capacity to yield. Yet the manner in which taxation, under our system, is spread over a multitude of subjects, and new subjects are still sought for, suggests the belief of that chief of the eunuchs who thought the weight of an obnoxious poll-tax might be lessened, and his master's revenues at the same time increased, by substituting for the tax on heads a tax upon fingers and toes."
Mason Gaffney claims the principle of ATCOR comes from there. But the actual principle Henry is elucidating is:
All Taxes AND Rents come from wealth, and wealth comes from production + the bounty of the earth; not ATCOR.
So on it's face this is a truism.
What George Did Say
What George did say:
"That wages, instead of being drawn from capital, are in reality drawn from the product of the labor for which they are paid." [Henry George]
And indeed if he were being more true to George he would say "All Rents and Taxes come from Wealth" because the Georgist Definitions of Wealth relate to how production is allocated. It is a true that taxes and rents compete for the same pot of money. And since production is the product of labor + Capital it follows that both compete for production. But he's trying to create a mechanical principle to modernize a moral principle. The result is confusion for many Georgists.
So I guess discounting labor is a truism more easily expressed in the age old expression "getting blood from a turnip". This is some of what Henry George himself said:
"But it is probable that the disposition to tax everything susceptible of taxation does not spring so much from the notion that more may thus be obtained, as from the notion that as a matter of justice everything should be taxed. That all species of property shall be equally taxed, is enjoined by many of our State constitutions, and that it should be so, at least so far as direct taxation is concerned, is regarded by most of our people as a self-evident truth — the idea being that every one should contribute to public expenses in proportion to his means, or, as it is sometimes phrased, that all property, being equally protected by the State, should equally contribute to the expenses of the State."
Henry wasn't endorsing that idea. But it is a social truism, and it's the reason that workers themselves pay for Social Security and other payroll taxes even though their gross wages are a compensation for efforts and production and really can't be easily spared. It seems self evident but it isn't. But it makes a great excuse for regressive taxation.
One reason "The Single Tax" concept is usually attacked is this notion that people should contribute towards those things that benefit them. So what is Gaffney driving at?
Is ATCOR Henry George?
From this Mason Gaffney draws his notion that all taxes come at the expense of rents. You would think that Mike would have found a quote that actually illustrated what is obviously Gaffney's principle. Not that ATCOR is not true, nor that it's principles are not congruent with Georgism. If it came directly from Henry George he'd quote a different chapter and verse, but I can't find and the two passages he quotes to claim it as George's idea don't say any such thing. So it's not really something Henry George Said. I really don't like the redesign of the "Wealth and Want" website. [See Further Reading section] These folks should let Henry George speak for himself. Now we have a collection of disciples, some on point, others "unsound supporters." Some seeking to help the working man, others looking for a development tool for developers to acquire unused land. Not that there is anything wrong with increasing the efficiency of land use, but it's not George's focus. George's focus is on equity, not efficiency.
Answer is NO
What is All Taxes Come from Rent (ATCOR), really?
The Georgists argued that we only need a single tax. They argued that if you tax Rents you don't need other forms of taxation. If all taxes ultimately come out of the rent pool, if you tax the rents you no longer need worrying about taxing labor, or income taxes, etc... Moreover since taxes and rents on labor and capital reduce the welfare of laborers and taxes on capital reduce the availability of capital. The goal of a single tax is to increase the effectiveness of labor and capital at generating public welfare. So taxing rents will presumably reduce the total burden on labor and production. Gaffney claims:
"Raising taxable rents by untaxing capital and labor, production and exchange: the concept of ATCOR (All Taxes Come Out of Rents) The meaning and relevance of ATCOR is that when we lower other taxes, the revenue base is not lost, but shifted to land rents and values, which can then yield more taxes. This is most obvious with taxes on buildings. When we exempt buildings, and raise tax rates on the land under them, we are still taxing the same real estate; we are just taxing it in a different way. This “different way” actually raises the revenue capacity of real estate by a large factor, by relieving it of the excess burden of taxing production and capital. This is that “free lunch” that Chicago economists wrongly preach “There ain’t no such thing as.” [a free lunch]" [http://www.wealthandwant.com/themes/ATCOR.html]
But ATCOR is Gaffney's idea.
Logic and Premises of ATCOR
Gaffney's argument would make more sense if land rents were the only kind of rents. Or if he were channeling the Georgist definition of land. According to George Himself what he refers to as "land" is all of "Nature's Bounty" -- not just the land itself. And he admits that there are other forms of rent besides land rent. So yes relieving production and capital may allow some shifting of taxes to land rents. But will it really work as promised?
Ah, the answer depends on the validity of his assumptions! Gaffney lays out his logic and premises about ATCOR in his article:
"The thesis that all taxes are shifted to landowners follows logically from two premises. One, after-tax interest rates are determined by world markets. The local supply of capital is perfectly elastic at a fixed, after-tax rate. Two, the wages of labor has been reduced to so low a level that it cannot bear any more tax burden." [Gaffney]
So his first premise assumes that interest rates are fixed and not variable. And his second premise discounts the value of labor compensation completely and reduces workers to a minimally paid corvee. He assumes all the "blood has already been squeezed out of the Turnip" of labor compensation. So ATCOR pretty much assumes and rests on two uncertain premises.
"Anyone may test the premises by observation. If there are unemployed workers, then the supply of "work" (as opposed to "labor," defined as so many warm bodies) is highly elastic. When we find work for the unemployed and underemployed, labor gains without costing land or capital anything at all. Even better, in fact, labor gains while benefiting other taxpayers, because of lower dole costs, lower crime costs, etc. The enhanced psychic benefit of universal job security is also worth a lot (although not in direct money). In the era when Keynesianism was in flower, many alleged that the social cost of putting the unemployed to work is zero." Gaffney: [http://www.henrygeorge.org/taxable_capacity.htm]
All Rents Are Private Taxes
Etymologically and historically there was an identity between rents and taxes. The default for a lawless nation is family (Tribal) associations. And the next stage in restoring law and order is for some of those families to form a pecking order and claim territory. Rents are what they charge their followers and tenants for protection. In Feudal (warlord) societies, rents = taxes. In our system the rents are the property of the allodial owner who has legal power to rule his property as if he were a feudal warlord. This is an identity, so it's only natural that private taxes + public taxes would add up to the maximum marginal product of tenants on land. You can't tax more than the land produces plus that has been saved by those living on it. Once people have savings gone, then taxation on labor reaches a point of enslaving of that labor, if it is backed by conscienceless monopoly power. We find that Henry George's principle criticism of American Society was a criticism of monopoly power of all kinds, including land rents.
The idea that employment rises with lower wages to a full equilibrium and the notion that unemployment is not a feature of capitalism -- are both pretty much proven to be fallacies.
All Rents are private taxes. ARAPT is the corollary. Rents involve some effort to earn them. It takes effort to hold someone upside down and bend over to pick up what comes out of his pockets. But mostly rents act as a brake on private enterprise because they come out of production and labor. They also are a brake because they come back into he economy mostly as investment either in the form of loans or equity. In both cases they increase inequity and they increase inequality. The rentier loans back money they taxed out of citizens, thus managing to come to own the labor of laborers whether they are technically free or not. Thus labor is discounted because of the power of land ownership and other privileges to monopolize properties and deny access.
So right away we can deduce the real corollary of "All Taxes Come Out of Rents" ATCOR is that because rents are a kind of private taxation as people who control (own) a property who can charge folks for the privilege of using it at monopoly rates. [The maximum that their victims can bear]. If they no longer have the Sheriff working for them, they have the courts to enforce them. Allodial land ownership is privatized government of land. Landlords are land privateers. So of course ATCOR reigns! It's amazing anybody can afford anything when land is monopolized.
All Rents Come From Production (ARCFP)
The next real principle and implication of what Mason Gaffney is saying is the already alluded to reality that "All Rents come from Production (ARCFP). Rentiers and government alike depend on production for their livelihood, power and money. But of course this is an accounting definition. The other side of the ledger is that all rents come from Ownership. Government is a form of ownership. Ownership is a form of Government. Assets=Liabilities + Owners equity. So I produce assets from inputs and since the person I worked for owns the inputs he owns the resulting assets too. Unless I have owners equity. Assets = Capital Goods + Labor + energy. Except of course for the base value of land, which doesn't depreciate. Though the soil on it, the buildings on it, and the people on it - do. So Rents come from capital
Indeed in "Progress and Poverty" Henry George States:
"That wages, instead of being drawn from capital, are in reality drawn from the product of the labor for which they are paid." [Progress and Poverty]
But Gaffney says:
"Nowadays, of course, Keynes is out of style with the dominant anti-labor schools. Unemployment is considered simply as leisure — a voluntary choice, a matter of personal taste. And yet, Chicagoans like Gary Becker freely postulate elastic labor supplies when they blame unemployment, as Becker routinely does, on minimum wage laws. It's not clear whether Becker sees the parallel, but that is a Keynesian assumption.[Gaffney]
The Chicagoans and other Austrian Schools are not an integral economics school. Their assumptions are cons, their arguments usually sophism and their policies are a disaster. But that never has dissuaded anyone from pursuing such policies. And it's not just Austrians who are guilty of rose colored glasses:
It is likely that real wage rates would rise, as more-efficient land use increased demand for labor and lowered product prices. Compact settlement would create new rents via the synergies that are not aborted by scatter. This was the theme of Progress and Poverty, and the primary goal of Henry George's reforms. True, that was before we had heavy payroll and income taxes on labor. In real terms, though, the outcome is the same: it is likely that the abolition of such taxes would let after-tax wage rates rise, even while before-tax wage rates remain the same, or fall. To the extent that this process diminished, if it did, the overall public-revenue potential of land, few would call it a calamity." [Gaffney]
But that too is a rose colored assumption. The cause of unemployment is not just land rents. It is also found in other privileges:
- The Three Privileges:
- The Corporate privilege
- The Land Privilege
- The Banking/Money Printing Privilege
What drives unemployment is that the supply of money to buy labor and services is never in balance with the labor available. And that is a function of inequality. Would LVT help balance that? Maybe. Gaffney acknowledges the role of Mortgages and Banking -- but then he connects mortgages to land rents! The Chicken and Egg argument is necessary to deflect from the reality that the land privilege isn't the only monopoly that we need to fight with tax policy and legal changes. The three privileges interlock. Fight the land privilege and that might reduce the corporate privilege and the banking privilege. But more likely the folks using the three privileges will simply shift their assets to the other privileges. Sea Dogs can find other Islands to own. Bankers can open branches in new lands. And somehow the power of hierarchy prevails.
Economic Rent is not just land Rent
Rentiers collect other forms of economic rent than just land rents. Rentiers typically try to write the definitions. So if you do a quick check of the definition of economic rent at "investopedia" you'll find this definition of economic rents:
"Economic rent is the positive difference between the actual payment made for a factor of production (such as land, labor or capital) to its owner and the payment level expected by the owner, due to its exclusivity or scarcity." [Investopedia]
So economic rents also directly include mortgages, credit accounts, lines of credit, and even the money printed and distributed in the form of loans at interest. And indeed this is related to the French definition of rents:
"a payment made on a regular basis to the owner of land or other property, for the right to live in or use the property" [definition-rent]
You'll find even funnier (if you've actually read on the subject) definitions on other websites. But Henry George read his David Ricardo (and Adam Smith) [see Econ Rent] and so yes Ricardo was thinking of land when he first made the definition. Just as Henry George was. But Ricardo's definition is only the beginning:
"the extra amount earned by a resource (e.g., land, capital, or labor) by virtue of its present use."
Yes, when you lower taxes the wealthy step in and raise their economic rents. If land rents were the only form of economic rent (as was mostly the case in 1875 but has not been the case since) then this truism would be an axiom. But it's not. Lower taxes on labor and employers simply pocket the difference. Lower Taxes on capital and the same happens with corporations. Capital is invested based on demand given supply. If there is a shortage of capital then lowering taxes or rents on capital will indeed free up more capital. But the notion that the taxes will be shifted to land rents is a non-sequitur. It's trying to justify Henry George's "Single Tax" by making it's premises an axiom. But his tax isn't based solely on whether it is the most efficient method of getting revenue or reducing rents.
ATCOR is true but not as Mason Means it
That being said Economic Rents and Taxes are related terms.
Modern Georgists use the ATCOR identity to argue for cutting other taxes and shifting to Land Value Taxation. This might work to a certain extent in the long run because the Land Privilege is a real pillar of inequity in our world. Rents are private taxes charged by land lords asserting feudal powers without feudal responsibilities to their tenants. Mortgages are also unearned rent. And so are property taxes and other taxes. All these come out of the same productive pool. It amounts to an identity. Thus as my friend Warren put it, Rentiers want to reduce taxes because:
"Because all taxes collected by the government cut into the potential rent the rent seekers could collect if there were no taxes."
Or as I put it in the same facebook thread:
"That All Taxes Come Out of Rents principle means that the rentiers begrudge every penny that they can't collect themselves from charging rents. It's a matter of turf not logic."
Taxes either Serve the commonwealth or wealth
What Henry George says about taxation is that it's purpose and uses influence whether the burden is bearable or not:
"As to amount of taxation, there is no principle which imposes any arbitrary limit. Heavy taxation is better for any community than light taxation, if the increased revenue be used in doing by public agencies things which could not be done, or could not be as well and economically done, by private agencies. Taxes could be lightened in the city of New York by dispensing with street-lamps and disbanding the police force. But would a reduction in taxation gained in this way be for the benefit of the people of New York and make New York a more desirable place to live in?" [http://www.wealthandwant.com/HG/George_TCSoT_1881.htm]
This is why all but the selfish wannabe oligarchs of countries like Sweden or Denmark are happy with relatively large tax loads -- because they get public services for their taxes. It's also why we, with relatively skimpy tax loads, begrudge them. We pay for the wars of our world Oligarchs. Our DoD budget serves the oligarchs of the whole world. When we pay for public services or our own public safety we don't mind. Health care? Retirement? Educating our Citizens! I don't mind being taxed to pay for those things -- and that was Henry George's point in "The Common Sense of Taxation"
His Single tax was intended to NOT be passed on to consumers. As he puts it, it was intended to "stay put" [read Target of Progressive Taxation]. As he writes in
"the single tax is NOT a tax on land. It is a tax on what in the terminology of political economy is styled rent---that value, which . . . attaches to SOME land with the growth of population and social development; that premium which the user must pay to the owner as owner in one payment (purchase money) or in annual payments (rent), for permission to use land of superior excellence." Single Tax[http://www.facebook.com/l.php?u=http%3A%2F%2Fwww.cooperativeindividualism.org%2Fgeorge-henry_a-single-tax-on-land-values-1890.html&h=MAQEX8Jxa]
The fact that the product of labor is mostly stolen by capitalists is not proof of ATCOR. The purpose of LVT, even in it's Real Estate Formulation, was to redistribute production back to workers, not to steal from rentiers what they after all are stealing from renters. Henry George's point was that due to the oppressive power of monopoly labor was burdened by rentier power. ATCOR turns that notion on it's head.
When I wrote this, it was my contention that Henry George hadn't seen the full power of banks and corporations, and thought that they could be fought with public policy, laws and anti-trust. It turns out he was fighting them as part of a general movement of populists and the story is more complicated than his modern day disciples make it. His 1890 platform included this passage:
"With respect to monopolies other than the monopoly on land, we hold that where free competition becomes impossible, as in telegraphs, railroads, water and gas supplies, etc., such business becomes a proper social function, which should be controlled and managed by and for the whole people concerned, through their proper governmental, local, state or national, as may be." [Georgist Constitution]
And in "Progress and Poverty" Henry George addresses this point when he talks about "spurious capital" [Book III, Chapter 4]. He understood full well the distinction between the kinds of profits and interest generated by "real capital" and the sorts of financial shenanigans being perpetrated by the banks and monopolies using this spurious capital he defines.
I've made corrections to this post since I first posted it, but the original central thesis has only developed since then.
I believe Gaffney is fighting an anachronistic battle in upholding the single tax as any kind of real estate tax or in trying to harmonize the very liberal and progressive principles of George with the very regressive "stuff" coming from the Austrian School. According to many modern day "Georgists", the 3 privileges all fold into land rents. That is simply not true. As George notes, even in his day the wealthy called themselves "capitalists" and lumped land rents into their forms of capital - even though the land portion is what George would call "spurious capital." Land rents, rents on money, and monopoly rents are all means to collect unearned incomes. And George would have wanted them either taxed or nationalized. Maybe all Sea Dogs eventually buy estates but there are many ways that they loot labor and seek to call their financial shenanigans "capital" so they can protect their rents. Land Value Tax is actually about Rents and unearned income from unearned privilege, monopoly and power. George wanted to tax those unearned incomes. He made a distinction between actual capital and "spurious" capital, but moderns ignore that distinction at their own peril. Both the other two privileges are connected to folks who don't depend on being landed for their power an privilege. Modern Pirates like the ones of old simply need a comfortable base of operation to spend their loot at. We need 3 sets of reforms or we are sunk.
Finally, since I wrote this I saw ATCOR formulated as based on Adam Smith. So obviously someone is trying to backdate a theory. If we are talking about Henry George, ATCOR gets it backwards. All Taxes and Rents come from production, which is the combination of labor and some form of actual capital. [see Disambiguating Capital from Simple Wealth]
- The Corporate privilege
- The Land Privilege
- The Banking/Money Printing Privilege
- Further readings and Sources:
- Used in this post:
- Georgist Definitions of Labor, Capital and Land: [http://holtesthoughts.blogspot.com/2015/09/georgist-definitions-of-labor-capital.html]
- Henry George:
- Progres and Poverty Book I, Chapter 1 The Current Doctrine of Wages—Its Insufficiency I.I.15 [http://www.econlib.org/library/YPDBooks/George/grgPP2.html#Book I, Chapter 1]
- Progress and Poverty
- http://www.econlib.org/library/YPDBooks/George/grgPP2.html#Book I, Chapter 1
- Other Sources:
- Mason Gaffney: The Unplumbed Revenue Potential of Land [http://www.henrygeorge.org/taxable_capacity.htm]
- The Common Sense of Taxation:
- Unsound Supporters:
Originally published 7/18/2015 at 8:18 PM. Republished after some editing 8/14/2015. Updated some more 1/20/2016