Column: How Georgism and a land value tax could spur prosperity in Bloomington

I previously wrote columns about policies that could improve housing supply in Bloomington, and mentioned land value tax as a replacement for traditional property taxes.

This idea was popularized by Henry George, an American economist in the late 1800s. In his book, "Progress and Poverty," he developed an economic theory for why economies boom and bust, and proposed an elegant solution that would stabilize economic growth and opportunity while reducing poverty, which became known as Georgism.

The Cause of Economic Rise and Fall: George built his theory up from first principles. He realized that as time goes on, technology makes workers more efficient, resulting in businesses needing fewer workers to produce the same amount of value, pushing wages down. At the same time, landlords can start charging businesses and tenants higher rents, because businesses can survive with fewer workers, and workers still need to live close to their jobs. This leads to a steady increase in rents and land values.

Eventually, land is bought up speculatively, but not developed, in the hope that someone else will buy it for more later. This grinds local economies to a halt, because land, housing, and business space become scarce, rents skyrocket due to lack of competition, and everyone is forced to look elsewhere for a better life.

The Philosophy: After establishing underdeveloped land and decreasing need for workers as the factors that lead to economic collapse, George looked for an imbalance that could be corrected, so neither of these problems would arise. He established that people have a natural right to the things they produce. However, landowners never produced the land they own, they only bought it from the previous owner. At some point, all land had been common property, and someone claimed it as their own.

This imbalance could be corrected by treating land as common property again. However, society depends on the stability of private property ownership that allows people to develop their land.

The Practical Solutions: Land is already treated as public property through property taxes. However, traditional property taxes are proportional to the value of the land and buildings on the land, treating those buildings as public property, which discourages development. If property is taxed purely based on land value, people will be free to build more and improve their homes without tax increases, while owners of undeveloped land will be pushed to develop it or sell it to avoid the tax costs.

This should lead to abundant housing, lower rents, a growing city, a stable city budget, lower taxes for homeowners, and higher taxes for land speculators. Ideally, land value tax would also replace income tax.

The other aspect of treating land as common property is everyone in the community benefiting from land value taxes, in the form of universal basic income. It would be paid for by land value taxes, so workers and renters would not be taxed to pay for it, and it could help prevent larger economic and social expenses related to poverty. UBI’s greatest advantage is that it eliminates the incentive cliffs that income-based programs create, where people who depend on social programs can’t find jobs that pay more than what they would lose in benefits. UBI also allows people to work lower income jobs that society needs, while maintaining a good standard of living.

Georgism In Practice: Denmark, Singapore, and Taiwan implemented aspects of Georgism, specifically land value tax, with great results. All were challenged by land scarcity, and needed to incentivize housing abundance in order to survive. Now, they are thriving economic centers. A few cities in Pennsylvania implemented a split rate property tax system and saw significant improvements in their economies.

Bloomington is struggling with poverty and rising rents due to high demand for housing near downtown and IU, and Georgist policies could help alleviate housing scarcity while lifting residents out of poverty.

Matt Gleason is a resident of Bloomington.