Spencer Heath Archive

Item 1088

 

 

 

 

Dear Mr. B

 

I have kept your letter of last February in mind and am at last writing you my comment on your memorandum of what might happen if the abolishment of all taxation save that on land value should not destroy the selling price of land.

Under your memo, in no case does the user of land (“developer”) appear to derive any value from it. In the three situations cited the “developer” is subjected to annual charges of $2400, $1700 and $2450 without appearing to get anything in return. It must be seen that the advantage or disadvantage of his situation depends vitally upon what are the annual advantages he enjoys to offset his annual charges.

While it is true that under restricted production (restricted wages and profits) persons will purchase land (with and without improvements) that yields them no annual income to offset annual charges, hoping upon a resale of the property to more than recoup themselves for the carrying

But we should never forget that after abolition of restriction (taxes) on production all capital would be too gainfully employed to risk the hazards of speculation for it is only capital that has been disemployed out of its productive activity that is tempted into speculation upon the rising prices that follow the cutting down of production.

So, under existing conditions your man puts out $30,000, and it costs him $2400 annually to carry it. We do not know what return he receives from his enter­prise but we know that he has a $10,000 ownership in the public capital (public service facilities) and $20,000 in private capital and his total capital should produce an income to him (interest) above all wages paid including his own. To bring him out even, under existing conditions as stated, his capital must yield him eight per cent (8% of $30,000 = $2400). But we all know that, by and large, capital is yielding only about two per cent and much capital is being destroyed and consumed. Since he cannot receive more than his capital can yield under present conditions so adverse to production, he can only realize, say, two per cent, which is $600 annually upon his capital. This leaves him an eighteen hundred dollar annual loss which, I believe, is a fairly typical situation today. He is, of course, trying to liquidate his holding and this keeps the values of both land and improvements at their present low levels.

Referring now to (a):

Here the carrying charge on his private capital (improvements) is $1,000 and on the public services and advantages appertaining to his land he pays $700. This seven hundred dollars is (by definition) the annual value of the land. But this includes both the wages of public servants and their supervisors and the interest on the capital invested in the public services. If we take the wages at $400 and the interest at $300 then the public capital value of the land is $6,000. This $6,000 has been invested in the facilities of public service either for or by the present owner or his predecessors in title and he will retain the $300 interest on this after buying the wages of public servants and supervisors. Thus out of the gross rent of $700 paid for the use of land, $300 is retained by the land owner (the same person as the land user in this case) as interest on capital invested in the public services and the capital value of this or market price of the land will be $6,000. By having this selling price, and only in this way, it is possible for persons having special interest in public enterprises to become the owners of the capital invested in such enterprises. So our man really must have an investment of $26,000 the carrying cost of which is $1300.

 

/The following is part of the memo referred to; additions in handwriting represent notations made by Heath. Paragraphs following the schematic are also by Heath./

/Check original for columnar arrangement of figures which have become mis-aligned/

 

 

 

WHAT MIGHT HAPPEN IN A TYPICAL COMMUNITY UNDER THE SINGLE TAX

Present condition:

Land values         $1,000,000 Improvement values   1,000,000

Taxation at 2% on  2,000,000             $40,000

State and national taxes                  30,000

                                                  _________

 Total taxes  $70,000

Under existing conditions a

real estate developer might pay:

For land            $10,000

For improvements      20,000

                                _________

Total investment     30,000       @ 5% interest    $ 1,500
Local tax at 2%                                                  600

State and national taxes                                           300                                                                                                                             .                                                                   ______ Total Interest and taxes                                           2,400 Income from investment at 3.5%                                       1,050

             Business in the red                                                     $1,350

 

              Capital withdrawn and put in savings

bank or government bonds at 2-3% net

 

Two Possibilities

Under the single tax there would be no taxes on improvements or personal property, and no state or national taxes except on land values.

(a)  If land prices disappeared, this developer would pay:

For land            $00,000

For improvements     20,000

Total investment         20,000

    % 5%  interest       $1,000
All taxes annual value      700

 Total interest and taxes   $1,700

(b) Under Mr. Heath’s theory, the developer would pay:

For land, say        $15,000 Improvements          20,000

Total investment   $35,000

@ 5% interest       $1,750

All taxes (assuming that increases
in governmental costs would be off­
set by wise economies)                       700

  $2,450

/The following are pencilings

by Heath/

Under (b) the “developer” is given two functions or fields of action:

1. He is a land owner whose business (under my “theory”) is to create land value by financing and administering public services (Government).
2. He is a land user whose business it is to produce private value (wealth) without any burden of taxes or other restraints but with the aid of the public services for which he pays rent so far as it profits (aids) him to do so, and no more.

If he finds it profitable to pay $1,000 per year for his part of the public services, the rent will be $1,000.

The landowner spending $200 in cash (taxes) for current operation and maintenance of the public services and $100 for his administrative services would have $700 left to cover return on his original investment of $14,000.