How long until the government's profit from ground rent is equal to, say, the value of all the land in the nation?
What would you earn now, if your ancestors had chosen ground rent?
Ground rent system:
Improve the estimates
I entered rough estimates just to get us started. (Click here for the underlying theory.) Enter your own preferred numbers for a better estimate. To reset, refresh the page. If the page freezes, try changing the history number to something small (that's where the computer sometimes struggles).
GDP growth due to unlimited additional tax free work (%)
Imagine that ground rent was set as exactly the same rate as you now pay in tax. You could do the same work, charge the same prices, and pay the same to the government. But once paid you could then do additional work tax free. The result is more employment and cheaper goods and services.
Details: In most advanced nations, all taxes (both local and national) add up to 35-40% of GDP. In the USA it is 26%, mainly due to an absence of a national sales tax. So if extra products can be made tax free, anything costing $100 would be closer to $60-70. So more products will be sold, and more workers employed. An unintended experiment took place in Denmark in 1969: taxes were frozen for one year due to administrative changes. People saw the chance to do additional untaxed work. That year saw full employment, and production doubled (from 4% to 8%). Production would not double every year of course, so I suggest more modest growth due to permanently cheaper goods.
GDP growth due to more efficient use of resources (%)
If land must be paid for then people will only use what they need and sell the rest. (Landowners will be fully compensated.) So all the vacant city lots or under-used land will be better used. This creates a short term jump in growth, due to better resource use. It also creates long term opportunities due to cheaper resources and more investment in industry rather than land.
Details: In America in 2013, over 10 percent of homes were empty, and over 50 percent of those were being deliberately kept off the market hoping for prices to rise (source). If these were all sold (to pay ground rents) it would end all housing shortages, If this was repeated across all types of land the whole economy would run more efficiently. In addition, if the supply exceeds the demand, the price of land and housing will go down. This makes everyone feel richer (including the land owners who get a generous lump sum of compensation), and provides a financial safety net for more economic activity, and more money to spend on improving one's prospects. Result: permanently higher economic growth.
GDP growth due to better decisions (%)
With ground rent, a government's income depends entirely on land values and nothing else. So, land values will be studied more carefully than today. Land values measure everything that makes land attractive: its appearance, the friendliness of the local community, everything. So this provides a guide to the exact cash value of everything people desire. Obviously this would help businesses and governments make better decisions forever.
GDP growth due to measuring total growth, not spending (%)
At present, it is possible to "make money" through market failure: by restricting choice, by hiding information, or by passing on the costs to someone else ("externalities"). Some of these are very profitable to government because they bring in high taxes. But ground rent does not measure how much money is transferred, only the overall value of society. So governments will no longer have a reason to support damaging industries, and instead focus on real long term value.
GDP growth due to sharing intellectual property (%)
At present the easiest way to make money from intellectual property is to restrict its use: make people pay as much as possible to sue it. The result is that fewer people use it. But ground rent measures value at the level of society, and better information lets us trace that value to its cause. The value of sharing ideas is so great that, even if we can only return a fraction of that value to the inventors, it is still becomes more profitable to share ideas than to restrict them.
GDP growth due to no tax avoidance (%)
Land cannot be hidden. So everyone will have to pay. This reduces the bills for those who previously had to pay extra taxes to cover the non-payers. This also means an overall increase in efficiency: tax paying companies have to be more efficient to make the surplus. By removing the less efficient non-paying competitors, more efficient businesses fill the gap.
GDP growth due to better roads, networks, etc. (%)
Ground rent allows every major investment to pay for itself. So all needed investment will happen.
GDP growth due to new businesses moving here, and new non-land businesses. (%)
If taxes are ended we can expect, in the short term, an influx of businesses from other nations. In the long term more people will find ways to start businesses that don't use much land (or other natural resources). Needing fewer resources they can expand more rapidly.
Secondary causes of growth
These are effects that can be expected after a few years of primary growth, or after businesses anticipate those effects and act pro-actively.
GDP growth due to smoothing the boom and bust cycle (%)
Without ground rent, people speculate for unearned profit on land. This leads to investment bubbles and crashes. Ground rent removes any profit from land speculation, so it reduces the risk of crashes, so businesses can plan further ahead, enjoy lower interest rates, etc.
GDP growth due to political stability (%)
Without ground rent, governments routinely change their tax and spend policies, and make "reforms" with no agreed way of measuring results. But ground rent reduces a government's role to improving land values. This will tend to make governments more predictable, especially after a few years of data. The role of government changes from "try something, anything" to cautious, reliable long term investment.
GDP growth due to lower rent and mortgages (%)
Ground rent leads to cheaper mortgages, so investment is cheaper.
GDP growth due to free movement of workers (%)
A stronger, more stable economy with cheaper mortgages and better infrastructure makes it easier to move house. So employers get the best workers available rather then being stuck with whoever is local.
GDP growth due to freeing accountants and entrepreneurs (%)
For a typical business of 60 employees, collecting taxes wastes (one man month per year (details). Ground rent is much simpler: no need to track everything, just pay for land the same way you pay for any other input. So all these brilliant minds and business leaders are free to do useful work instead.
GDP growth due to confidence (due to employment and growth) (%)
The other sources of growth should increase employment as well as wealth, creating greater consumer confidence. I have given this a low number because in the short term the rapid changes might make people nervous (too good to be true?) and in the long term confidence might turn to satisfaction with less. On the other hand, people have never before shown themselves satisfied with less: ambitions merely increase. So feel free to increase this number.
GDP growth due to no market distortion (%)
At present, some business decisions are taken to avoid tax, rather than to make better products and services. With ground rent the only pressure is to get the best results from resources.
GDP growth due to lower government costs (%)
More jobs and more wealth mean lower welfare costs. So more of the ground rents can be invested into productive employment.
Any other factors? (%)
There is bound to be something I have forgotten. This line simply adds (or takes) a percentage each year. E.g. 2% means the previous total plus 2%, each year.
How much do you expect the economy to grow, without ground rent? (%)
This is the baseline growth in GDP, after adjusting for inflation. In most advanced nations growth averages around 2%. In China it can be as much as 10%. I entered the last available figure for the US (2014, 2.4% according to the World Bank). In boom years it is higher, and in recessions it is negative.
How much will your country's population grow each year? (%)
The nation's GDP has to grow by this much for each person's income to stay the same. So when calculating the effect of growth on your income, this amount is ignored. In recent years European populations have grown by around 0.2%, and the USA by around 0.7%.
How much of your "share" of GDP will you get? (%)
In is argued that the top one percent of wealthy people got a disproportionate amount of any growth. Ground rent should reverse this trend, because:
- A government that is only paid on land values has to keep the ordinary people happy.
- The wealthy can no longer rely on owning land to preserve their wealth.
- The expanding economy creates a demand for workers, so businesses have to make them happy.
If you are in the 99 percent, increase this figure If you are in the 1% reduce it. The final number has to be more than you currently earn, or people simply will not vote for ground rent.
Paying US land owners the full value of their land will cost $21.2 trillion dollars. The national debt is $18 trillion dollars. Plug in the any number to see how quickly it could be paid off. Anything else you want to pay for?
In this short term, beauty can preserved while allowing building, by (for example) regulating that for every field turned into buildings, an equal size must be turned into a forest nature reserve. Note that ground rents mean we need less land for farming:
Adam Smith recommended ground rents in "The Wealth of Nations" in 1776 (239 years ago), but I have chosen an earlier and better known book: the Bible. According to the five books of Moses, Israel was to get its income from a tithe on land (ten percent of agricultural output). There were no taxes on buildings, or on priests or musicians or midwives or any of the other occupations mentioned. This all changed with the arrival of kings, but the prophet Samuel said (in 1 Samuel 8) the kings were a mistake. So we see that the law of Moses taught ground rent, not tax on work. The books of Moses were written by 600 BC at the latest (2615 years ago). The Bible itself dates Moses at around 1400 BC (3515 years ago: 2015 + 1400 BC).
WARNING: LARGE NUMBERS CAN SLOW DOWN THE BROWSER.
I begin with the lowest possible income: a starvation figure of $400 per year. This is the famous "dollar a day", adjusted for recent inflation. Below that you are probably dead. (All numbers of course are in modern values, they are already adjusted for inflation).
Historical growth rates are estimated as lower than today, because of the lack of technology. But not so much lower: technology is also a result of economic opportunity. (When people have money and the possibility to enjoy the fruits of their work, they start to think of ways to make life better.) So for the first 500 years (or half the total years, whichever is shorter) I allow half the modern growth rate, then the full growth rate thereafter.
In a healthy economy, as resources become scarce, the price rises. So people find alternatives. So we gradually move away from the scarce resources and they never actually run out. For example, if land is scarce then we build upwards, or we reduce our population growth. Or after a hundred years of scientific advances we could even think about colonising outer space.
However, a tax based economy breaks the economy. First, it rewards landowners for simply holding onto land without using it, so scarcity is much worse. Second, it reduces economic growth (and hence scientific advances), so people don't have the money or technology to make changes.
So taxation creates the problem and ground rent solves it.
This web site is about the logic behind ground rents, not the historic evidence. Ground rents have always been opposed by land owners, so experiments have been small or short lived. But those small experiments brought dramatic results.
As Adam Smith wrote, "nothing could be more reasonable" than to replace a tax on work with a tax on ground rents. Then governments and land owners can only take what they create in added land value, and everybody else keeps whatever wealth they add.
So we must expect ground rents to generate far more growth than tax. But exactly how much?
For the precise calculation just look at the code: right click and choose "view source".
Growth rates of 10% are normal when a nation is making obvious, clearly understood improvements: e.g. China and India playing catch-up with the west. Perhaps this is a realistic upper limit for how quickly a large society can adapt to change. Ground rents are a new idea for most nations, so mistakes will be made, so my estimated total of all improvements is capped at under two thirds of 10%.
For the number that matters, how when ground rent profit can pay off all land, I allow the government to take the same proportion of GDP in ground rent as they currently take in tax. I then calculate the difference between ground rent and the previously expected tax. That profit is put into a compensation pot until it is enough to pay off the land. That is, the land at the price it would have been at that time under a tax system. So even a small home owner can be given a bond worth millions of dollars.
That way, the bond's selling price will be currently the same as the land, and will grow at the same rate land would have grown at until it becomes due for payment, in the year when the government actually has the money.
I apply expected growth to this figure each year, and then see when the compensation pot has grown large enough to pay for it all. Note that the GDP at 18 trillion is very close to the land value at 21 trillion. The land value does not include the value of buildings built on the land: these come to roughly the same amount but they still have real economic value regardless of the land beneath them, so can still be sold even if land values crash.
The value of all land may seem low, but this does not include buildings or mineral rights. See the original paper calculating land values for a detailed discussion. Also, some data is from 2009, just after a 25% price crash. But adding 33% only increases the ground rent time pay off period by around two years.
So land values are expected to rise at the same rate as GDP over the long term.