What Did the Property Tax Originally Do?
Why do we have a property tax, and why does it seem to have
become unjust? We began collecting a property tax because our local governments
needed money to fund projects of local benefit, but what were we taxing in
those days? We were not taxing houses in the suburbs. That is certain. In the
eighteenth century, there were no suburbs, and only a few people lived in
towns. So, what were we taxing? The answer is that we were taxing wealth.
Land Used to be the Main Form of Wealth
In the eighteenth century, land was the most important form
of wealth, and it was the most important productive resource. Capital as we
know it today barely existed. There were no large industrial companies, and the
modern corporation had not yet been invented. Most wealthy people were wealthy because
they owned land, and most wealth was produced by working the land. In the
British colonies, wealth came from products like tobacco, rice, indigo and
sugar cane. A little later, wealth came from cotton. Most of the signers of the
Declaration of Independence were wealthy landowners.
Land was not the only form of wealth . International trade produced wealth in forms like the tea that was dumped in Boston Harbor, and infamously, there were slaves. However, in the eighteenth century, these forms of wealth were significant in only a few places. In most communities, they were insignificant. In most places, property in land was the main form of wealth.
Governments Protect Property Rights
For centuries, one
of the primary responsibilities of government has been to protect property rights.
Laws specify the rights of property owners and those of inheritance. Courts
enforce the terms of contracts. Police and fire departments protect physical
property. Local governments build roads, bridges and canals that promote trade
that benefits primarily the owners of property. In past centuries, “property”
meant primarily land, and so, it made sense that land should be taxed to pay
for the costs of local government.
There Are Many Kinds of Property Today
Today, the protection of property is still a primary
responsibility of government, but today property takes many forms. People own
bonds and shares of stock. They own copyrights. Some people own
companies the value of which does not come primarily from land. For
example, a doctor may own the building where his/her office
resides, but that building is not a large part of the value of the doctor's practice. An
automobile repair business may own the building where the shop resides, but the
value of the business comes also from the expensive tools that the business
owns as well as the reputation of its owner. Stock traders may work from their homes, but their wealth consists primarily of stocks. Property today takes many forms.
We Should Tax All Types of Property
In addition, today we have millions of landowners who are
not wealthy. They own only the small plots on which their homes sit, and today,
they bear an unfair share of the cost of local government because the
“property” tax is levied only on land and buildings and not on the many other
forms of wealth that also benefit from the work of local governments. Today, it
still makes sense for the wealthy to pay a large share of the cost of local
government, but today “landowner” is not a synonym for “wealthy,” and “land” is
not a synonym for “wealth.” We should update our tax structure to reflect the
reality of today’s society. We should replace the property tax with a wealth tax.
