TAXATION on landlords' claims is commonly assessed in two ways: on the amount each landlord receives, as in the case of income tax; or upon a notional sum being an assessment of the amount a willing tenant would pay a landlord for each unit of land, as in the case of local rates and landlord's property tax (Schedule "A") in England.
However assessed, a tax upon a landlord's claim cannot be passed on to his tenant. So long as an agreement or the law limits it he cannot increase it. Beyond that time, however, there is still a limit upon it, for he cannot obtain more than a tenant is willing to pay. Normally, a tenant using land productively will not pay so much that, after deducting all secondary claims including his landlord's from the rent produced on his land, what remains for him is less than the least he is willing to accept. At the same time, landlords' claims tend generally to press towards this maximum, irrespective of the amount of taxation upon them. The imposition of taxes does not enable landlords to charge their tenants more than they could otherwise obtain.
On the other hand, just because landlords' claims tend towards the most tenants are willing to pay, landlords are able to absorb any relief in taxation on tenants. Other things being equal, any measure which transfers the burden of taxation from tenants to landlords, but which does not affect the primary division of wealth in rent and wages, will enable landlords to recover from their tenants the amount of the relief enjoyed by each tenant. In this indirect way, landlords may recover from their tenants the amount of taxation transferred from their tenants to them.
Upon such a shift of taxation the relief enjoyed by any particular tenant does not necessarily equal the additional impost upon his landlord. In some cases the relief in taxation upon a tenant may be greater than the increase upon his landlord, in others less. This means that some landlords may end by making a profit on the transfer while others may lose.
When landlords' claims are assessed, not upon the amount which landlords receive, but upon the notional sum which it is estimated a landlord could obtain from a willing tenant from each land unit, then it is not practical to levy the tax exclusively upon landlords. In some cases, there may be no landlord, in which event there would be no one to tax. As between two landlords, the amount received by one may be very much less than he could obtain upon a new letting to a willing tenant, while another may enjoy his full claim. Plainly it would not be equitable to levy the same tax on both. The common practice is to levy such a tax upon the tenant and either leave him to make his own arrangements with his landlord (as is done with the local rates in England) or to provide by law for the division of the tax between the tenant and his landlord and his landlord's landlord (as is done with Schedule "A" Income Tax in England, known, ironically enough, as landlords' property tax).
Where the tax is levied upon tenants, it reduces the amount they are willing to pay to their landlords. Where it is levied on landlords, it comes out of what is paid to them. In the end, when people have adjusted themselves to it, the result is the same which ever way it is done.
Under the present method of assessing landlords' claims both for local rates and landlords' property tax in England, land which is not used is not taxed; and the assessment is made as though the best claim a landlord could obtain from each land unit were limited to what could be obtained from a tenant using the land as it is being used. Thus, if in the City of London a plot of land in a main thoroughfare carries cottages, the assessment is limited to what a landlord could obtain from tenants using the cottages. This principle of assessment has far-reaching consequences.
Where a tenant in ocupation of land has no landlord to pay, he may leave the land idle without cost to himself. Similarly, where the landlord's claim is relatively low in comparison with what might be obtained, the tenant may with relative ease produce sufficient rent upon the land to meet his landlord's claim. Where, however, the landlord exacts the most the tenant can pay, the tenant must exert himself and use the land efficiently if it is to yield sufficient to meet the landlord's demand.
The current method of assessment of land for taxation has a similar effect. A tenant who has no landlord to pay may keep the land idle in the knowledge that he will have no taxation to pay either. A tenant with a relatively low landlord's claim can produce sufficient to meet it with a relatively poor use of the land in the knowledge that taxation will be based on that user. The tenant with a full landlord's claim to meet has not only to stretch himself to meet that claim but has to meet the full weight of taxation upon the use he makes of the land.
Though it is true that the vicious edge which land enclosure gives to landlords' claims ends by checking the full development of land, yet in so far as these claims compel tenants to use land to advantage, they tend to the general good. Use of land is vital. Withhold good land and some people are compelled to work on inferior land, if such is available; if none is available, they are condemned to unemployment. Withholding land from use depresses wages; the depression of wages impoverishes the whole community; and the resultant struggle for access to land gives landlords' claims the vicious edge which further checks the full use of land. Now, tenants who have full landlords' claims to pay are normally unable to keep their land idle. Paradoxically enough, the trouble is not that people have landlords' claims to pay, but rather that some people have not.
If every tenant were assessed for taxation irrespective of the use he makes of his land, if he were assessed on the best claim a landlord could make for the land, he would be obliged to use it fully in order to meet the tax. As this levy approached more nearly towards 100% its pressure would oblige those who withheld land whether from neglect, or for speculative purposes, or to sustain monopoly, to loosen their hold. The conditions which now inflate rent and reduce wages and press landlords' claims to exaggerated heights would be reversed provided that free land were made readily available to anyone who required it. Wages could then rise to what a man could earn working for himself on the best land open to use in a fully equipped industry, and no tenant could afford to hold more land than he could usefully occupy.
The full use of land depends in some measure upon the wealth of the tenants, for they need to have appropriate buildings, stock and equipment. Where land is all enclosed and wages are reduced to the least labourers will accept, the majority of people cannot command the wealth necessary to equip their own work. If this equipment is to be supplied to people at all, it must be supplied by someone else. In many cases this is achieved by borrowing funds at interest, which will normally have to come out of the rent produced on the tenant's holding. This system can only operate fully on better sites. Beyond a certain point, rents do not provide sufficient to cover interest on the whole sum required to equip labour fully and beyond this point tenants find it increasingly difficult fully to equip their undertakings. Many work in conditions and with equipment which make their work more arduous and less productive than it should be, and the amount of wealth available in the community is by this reduced. Moreover, improvements in the productivity of industry directly and immediately increase rent, not wages. For many the benefit of such improvements renders them liable for increased secondary claims, particularly for taxation and landlords' claims. Men do not gladly improve their industry for the benefit of someone else, and tenants neglect to develop their land and equip their labour because it would only benefit others, as well as from lack of funds.
In any measures taken to oblige people to use their land fully and not to hold more than they can profitably employ, it is desirable to relieve the pressure of rent upon wages so that tenants may be assured that improvements in their industry will directly and immediately benefit them, and to ensure that they may be left with funds sufficient to stock and equip their own industry.
Of its own action, taxation levied upon production and the processes of production inflates rent by reducing what a tenant may keep for himself on the marginal land. Indeed it may and does put land out of production altogether and, in this way, has the same effect as the enclosure of land itself. Conversely taking taxation off production and the processes of production eases rent, relieves wages, and brings land back into production.
To illustrate this, the diagram already used to demonstrate the distribution of wealth between primary and secondary claims may be considered. This diagram, showing the pressure of secondary claims, is below (Fig. 3).
In this diagram it is observed how taxation levied upon production makes the use and developtment of land capable of producing 80 unprofitable. The relief of this land from this burden would make production profitable again.
Now let it be supposed that taxation is levied on landlords' claims so as to absorb the whole of them. The amount so collected on sites on the diagram would be 147. Suppose this is applied to the relief of taxation and rates, which total 154. Ignoring for the time being the difference between the two totals and treating them as equal, the result on the diagram would be as in Fig. 4 below.
The adjustment of taxation would create a vacuum on each site - 33 on the first, 29 on the second, and so on. This vacuum could be taken up either by an increase in wages which would reduce the rent or an increase in landlords' claims, absorbing the relief of taxation upon the tenant.
The possible rise in wages is limited and this limit is set by the amount available on the least productive site, which in the illustration is at first 7, for wages are determined by what a man can obtain on the marginal land and are at a common level throughout the community. Let it be assumed that wages do rise by the full amount of the vacuum on this land, that is by 7 from 45 to 52, the result will be as in Fig. 5, below.
This will leave a vacuum still on all the better sites above the margin - 26 on the first, 22 on the second, and so on. This relief will, of course, be first enjoyed by the tenant, but it will enable him to pay his landlord more and landlords' claims will rise to absorb the relief. This increase in landlords' claims would increase the assessment for tax and the increased claim would be absorbed by taxation allowing further relief of other taxes.
This illustration is over-simplified, but it serves to show how, with each succeeding assessment of landlords' claims for taxation, the pressure of rent upon marginal land would ease while taxation rose on the better land to equalise the difference in productivity between different sites.
The full force of this is better seen by considering the matter in a different way. The sites of highest productivity are found at the centres of population and those of lesser productivity radiate outwards over an ever-widening area. The consequent distribution of rent may be illustrated by concentric circles radiating out from a centre of peak productivity. Making these circles correspond with the diagrams used above, the bands of productivity would be as in Fig. 6 below.
The actual picture of the territory occupied by any community is not so simple as this. The falling productivity of labour on land as the land becomes more remote from one centre of population is effected by the rising productivity of labour as it approaches neighbouring centres. Lines of communication such as road, rail, canals, waterways and airways confer greater benefit on tenants of land with easy access to them than on those more remotely placed. Natural qualities of the soil, fertility, mineral deposits, humidity, altitude and the like, also affect the pattern. For the immediate purpose of the argument here however these variants may be ignored. Keeping to the figures used throughout these diagrams, there are more sites capable of producing 140 than 150, more still could produce 130 and so on. Plainly, therefore, the sites producing 90 and 100 on the earlier diagrams represent, not single sites, but great areas of land.
A relatively slight rise or fall in productivity of labour upon land may have far-reaching results in an economy based on land enclosure. Sites may stay in production so long as the rents produced upon them are sufficient to meet the secondary claims upon those rents. The first of the diagrams used in this essay shows how taxation levied on production and the processes of production may impose a burden greater than the rent of less productive land can carry. Equally a sudden rise in taxation or a fall in productivity may spread this difficulty; and a fall in taxation or a rise in productivity may relieve it. A slight fall in productivity would reduce the site producing 90 to the situation of that producing 80, while a small increase would put the site producing 80 back into production. The seasonal fluctuations in trade are sufficient to bring about these changes. To put the site producing 90 out of production is to stop production on a large area of land; and to bring the land capable of producing 80 back into production is to spread production over a yet larger area. This is how, when depression strikes, unemployment figures leap by millions; and when boom follows men are re-employed by the million. In intervening periods of less than thriving trade land kept out of production results in a permanent body of unemployed.
Just as the pressure of secondary claims upon rent puts land out of use, so the relief of that pressure brings it back again. The transfer of taxation under discussion will effect this relief, and the ensuing absorption of people into industry will give wages that upward lift which was assumed earlier in this essay. Throughout industry wages will rise by the amount of the relief on marginal land.
This relief will produce the conditions similar to those which now accompany times of booming trade. A large number of new undertakings will come into existence. As the weight of the tax on landlords' claims rises, land will become readily available, and any man who so wishes may easily acquire a piece for himself. People will no longer pass out of industry into the care of the Ministry of National Insurance, but will pass out of industry to set up in competition with their former masters. The astonishing conditions under which the majority of the people have now no right or title to the land on which they work will steadily change. Forms of industrial structure developed to suit a condition where all land is enclosed, wages are reduced to the least a man is willing to accept, and capital equipment is provided by loans, will give way to forms of organisation suited to the new conditions. The relationship of master and servant will become much less common and some new form of joint enterprise or partnership will take its place
Men engaged in business on their own account will not as a rule be prepared to work for someone else for less than they could obtain as their own masters, and their wages will rise to the full product of their labour on the best land open to use. On the other hand, they will be willing to pay for access to better land according to the advantage which they obtain from working there. This will enable landlords on the better land to claim the whole of the rent leaving nothing for secondary claims for money-lenders and the rest. Their claims will rise to absorb that part of rent now taken by these secondary claims and upon the next assessment taxation will follow suit. Secondary claims upon the marginal land would disappear and taxation would equalise the reward of labour on different lands by taking the rent.
Certain assumptions have been made in all the illustrations used so far and, in particular, it has been assumed that every site was worked with equal skill and that one man moving from one site to another would use it equally well. This is not the case. The land which suits one man best will not suit another.
People who would make a distinguished success of a shop in Bond Street could be a disastrous failure in Tooting Broadway. They would be unable to pay the landlord of Tooting Broadway so much as others who could not hope to make premises in Bond Street pay. Just as the enclosure of land has herded people into great towns and driven industry from once productive areas, so these changes would reverse the process, and people would go in search of those places, those partners, and those neighbours which suit them best. The man who could produce most from any given position would be willing to pay most for access to it, and would make the best use of the land. Landlords' claims would rise to this new level encouraging the movement under discussion. Taxation would follow suit.
How long this process would take would depend on the adaptability and enterprise of the people. With every step the landlord's claim would adjust itself to the changing situation and provide an accurate measure for the assessment of taxation.
By these stages the money-lender and the entrepreneur who have thriven on the maldistribution of wealth would be eliminated and the men who have sought their fortunes by these means would turn to earn their living in the expanding economy by their contribution to the wealth of society. If they have been good at one they would be good at the other. The final situation may be illustrated as in Fig. 7.
Thus in the end taxation and wages would reflect the natural distribution of wealth in society.