Spencer Heath Archive

Item 1202

Penned notes by Heath on small, lined, 3-hole ring-binder paper for a letter to Harold S. Buttenheim

August 19, 1934

 

Dear Mr. Buttenheim:

     Mr. Bouton has showed me your letter of July 26, and suggested my comment.

     My letter to Mr. Schantz is, as you say, an attempt to show that transfer of taxes from improvements to land must increase the rent and the selling value of land. The benefit to the public is that untaxing improvements makes their use profitable and restores labor and capital to employment in their use and further production. This increases the demand for land as a source of materials and also as a place to work them up and to use them productively. Out of this increased production labor and capital will gladly offer higher prices for the land upon which they can make higher return. The price of rent is paid out of nothing but production and where production is high it supports high prices for land. The price paid is not extortion but voluntary investment for the sake of the pro­duction yield. Labor and capital will choose productive locations and pay for them out of their productiveness. Every rent dollar is a profit dollar, but every tax dollar wrung out of labor and capital is an extortion and demoralization.

     The way to “decrease the cost of buying land” is to decrease its value. This is done by taxing the profits out of improvements and other production. This dis-employs capital and labor and reduces the production out of which rent is paid and thereby reduces the value of land. The reverse of this will increase the value of land, and if the cost of land is high so is its value. Cheap houses, cheap garments, cheap fare, and cheap land are for cheap men — unproductive men, men who can produce but little wealth and therefore can afford to provide or to pay for but few public services — small rents.

     Your second paragraph: Let us not forget that the value of land is maintained only out of the use of land — out of the production from it. The user of land receives public services and similar advantages to his production of wealth. For these he pays only one charge, rent (annual or capitalized). He does not pay taxes in addition. If taxes fall on the land they come out of the rent he pays; if they fall on his improvements (or other wealth) they reduce his production and with it the rent he will pay for his lessened advantages. Taxes now fall on production. That is why there is now so little advantage in using land and its rent is low because its yield is low. High rents, high selling prices, are desirable because they are a reflection of high yield, of unburdened production. Rent and taxes can never be added together. Taxes are either paid out of rent directly or they diminish rent if paid otherwise.

“But if the burden be transferred to the land it cannot exceed the amount of the out-of-pocket tax, for then the demand for land becomes not less but more.” This means (replying to your inquiry) that the portion of rent that goes to pay taxes cannot damage the annual value of the land by any more than the amount of the tax (or its capital value by more than the tax capitalized) whereas a tax on improvements not only subtracts from them and takes away a part of their annual and their capital value, but it takes the profit out of their use and inhibits the demand for them. The transfer of this tax to the land makes the demand for land not less but more because it restores profit to the use of improvements and so causes demand for land upon which to use and extend them.

     The reference to “costly enforcement agencies” etc. was not to their being abolished as a result of taking taxes off of improvements. This reference is used to point out that, besides increasing the demand for land by unburdening improvements, there is further recompense to the value of land through the employment of taxes to extend and maintain useful public services instead of maintaining prohibitions and restrictions upon business activities and production, with the political and administrative corruption usually incident. For example, the present system of licensing trades, occupations and businesses, regimentation and restriction of production and exchange by codes, tariffs etc. and their local equivalents usually purporting to be for the “protection” of particular classes.

     “Taking of the improvements from between the jaws of tax-eaters who mangle even more than they consume.” — This is a bit of rhetoric to enforce the point previously made that the amount actually taken by taxes on improvements is only the beginning of the damage — that this may be only a bagatelle to the loss of value to both land and improvements through lack of demand and the physical decline of improvements when they cannot be profitably used.

     Regarding Pittsburgh land values, I remember that Mayor McNair last winter in New York told us that he thought he would be smart and sell a piece of land before the partial exemption of improvements took effect, thinking to buy it back at a lower price. But some two years later he had to pay, I think nearly twice as much.

     The thing to show real estate dealers is that the Pittsburgh plan so stimulates the profitable use of land that it will be in such demand as to transfer at higher levels. I do not think a shrewd dealer could be persuaded that there can be an active market in land at declining prices.

     I wish to thank you for your studious examination of my letter and suggest to you the importance of the cause of land value taxation if its propositions can be established in the minds of some of the leaders in real estate.

     Sincerely yours,