The Simplified Wealth of Nations of Adam Smith, Book 5, Chap. 2, Part 2, Article 1: Land Tax
Chapter 2d, Part 2: Article 1: Land Tax
Article 1: Taxes on Land Rent
30 A tax on land rent may be based on a valuation which:
does not change or
vary with changes in the real land rent
It can fluctuate with its cultivation's improvement or decline.
31 A land-tax assessed on each district according to an invariable rule becomes unequal after some time according to the lands' unequal degrees of improvement or cultivation.
The tax becomes unequal even if it were equal at the start.
An example is Great Britain's land tax.
In England, the valuation of each district to the land-tax in 1692 was very unequal at the start.
This tax offends my first taxation maxim.
It is perfectly agreeable to the other three maxims.
It is perfectly certain.
The time of tax payment is the same as the time for rent payment.
It is convenient to the contributor.
Though the landlord is the real contributor, the tax is commonly advanced by the tenant.
The landlord allows the tenant to pay the rent tax.
This tax is levied by fewer officers than any other revenue.
Since the tax on each district does not rise with the rent, the sovereign does not share in the profits of the landlord's improvements.
Those improvements sometimes contribute to the discharge of the other landlords of the district.
The possible aggravation of the tax is always so small.
It can never:
discourage those improvements.
keep down the land's produce below natural.
raise the price of the land's produce because it cannot reduce the produce amount.
It does not obstruct the people's industry.
Its only inconvenience to the landlord is the paying of the tax.
32 The landlord derived an advantage from the constancy of the valuation of all British lands rated to the land-tax.
These advantages were due to circumstances extraneous to the tax's nature.
33 The rents of British estates have continually risen since this valuation was first established.
It was partly because of Britain's great prosperity.
Almost none of those rents have fallen.
The landlords gained the difference between:
the tax based on the present rent value of their estates
the tax they actually pay based on the ancient valuation
They would have lost this difference if the present rent values declined.
This could be caused by the lack of cultivation.
Since the revolution, the constancy of the valuation has been advantageous to the landlord and hurtful to the sovereign.
It could have been advantageous to the sovereign and hurtful to the landlord if the situation were different.
34 Since the tax is paid in money, land valuation is also in money.
Since the establishment of this valuation, the value of silver has been pretty uniform.
There was no change in the coin's standard weight or fineness.
Had silver risen much in its value, the constancy of the valuation might have been very oppressive to the landlord.
The landlord would be hurt if an ounce of silver was coined into 31 pence instead of 62 pence.
Had silver fallen much in its value, the constancy of valuation would have reduced this revenue for the sovereign.
The sovereign would have been hurt if an ounce of silver was coined into 124 pence instead of 62 pence.
35 This constancy of valuation would have been a very great inconvenience either to the taxpayers or to the government because circumstances always change.
Empires are man-made and are mortal but every empire aims at immortality.
Every constitution should be as permanent as the empire itself.
It should be convenient in all circumstances.
It should be suited to necessary and constant circumstances, not to transitory, occasional, or accidental ones.
36A tax on land rent which varies with the value of the rent is recommended by the French Economists as the most equitable of all taxes.
They pretend that all taxes fall ultimately on land rent.
Taxes should therefore be imposed equally on rent.
It is true that all taxes should fall as equally as possible on the fund which must finally pay them.
The French Economists supported their theory with disagreeable metaphysical arguments.
Such arguments are not needed to find out which of the taxes finally fall on land rent and which taxes finally fall finally on some other revenue.
37 In Venice, all the arable lands leased to farmers are taxed at 10% of the rent.
The leases are recorded in a public register which is kept by each district's revenue officers.
When the proprietor cultivates his own lands, they are valued according to an equitable estimation.
He is allowed a deduction of 1/5 of the tax, so that he pays only 8% of the supposed rent instead of 10%. [10% - (10%/5)]
38 This land-tax is certainly more equal than England's land-tax.
It might not be so certain.
The tax assessment might bring more trouble to the landlord.
The tax levying might be more expensive.
39 This system of tax administration might be adjusted to:
prevent this uncertainty and
moderate this expence.
40For example, the landlord and tenant might jointly be obliged to record their lease in a public register.
Penalties might be enacted against concealing or misrepresenting any of the conditions.
If part of those penalties were paid to either of the two parties who informed against and convicted the other of such concealment or misrepresentation, it would deter them from combining to defraud the public revenue.
All the conditions of the lease might be sufficiently known from such a record.
41 Some landlords charge a fee for renewing the lease instead of raising the rent.
This practice is done by a spendthrift.
He sells a future revenue of much greater value for a sum of ready money.
Therefore, it is hurtful to the landlords, tenant, and the community.
The fee takes a great part of the tenant's capital.
It very much reduces his ability to cultivate the land.
Whatever reduces his ability to cultivate unnaturally keeps down the most important part of the community's revenue.
This hurtful practice can be discouraged by rendering the tax on such fees much heavier than the tax on ordinary rent.
42 Some leases prescribe to the tenant:
a certain mode of cultivation
a certain crop succession during the lease.
These prescriptions are generally caused by the landlord's ill-founded conceit of his own superior knowledge.
It should always be considered as an additional rent in service instead of a rent in money.
To discourage this practice, this rent might be:
valued high and
taxed higher than common money rents.
43 Some landlords, instead of a rent in money, require a rent in kind, in corn, cattle, poultry, wine, oil, etc.
Others require a rent in service.
Such rents are always more hurtful to the tenant than beneficial to the landlord.
They take more or keep more money out of the tenant than they put into the landlord.
In countries where such rents take place, the tenants are poor according to the degree such rents are enforced.
This hurtful practice can be discouraged by:
valuing such rents higher and
taxing such rents higher than common money rents.
44 When the landlord chose to occupy his own lands, the rent might be valued according to an equitable arbitration of the farmers and landlords in the neighbourhood
A moderate abatement of the tax might be granted to him, in the same way as in Venice, provided the rent of the lands he occupied did not exceed a certain sum.
The landlord should be encouraged to cultivate a part of his own land.
He has more capital than the tenant.
With less skill, he can raise more produce.
He can afford to try experiments.
His unsuccessful experiments create only a moderate loss to himself.
His successful experiments contribute to land improvement.
Abating the tax might encourage him to cultivate to a certain extent only.
If most landlords were tempted to farm all their own lands, the countryside would be filled with idle and wasteful bailiffs instead of sober and industrious tenants.
Those tenants are bound by their own interest to cultivate as best as they can.
The landlords' abusive management would soon degrade the cultivation and reduce the land's produce.
45 Such a system of administration might free this kind of tax from any uncertainty which could oppress or inconvenience the taxpayer.
It might introduce into the common management of land such a policy which could greatly improve and cultivate the countryside.
46 The cost of levying a variable land-tax would be greater than levying a fixed land-tax.
Some additional costs would be incurred by:
the register offices which would be established in the different districts of the countryside
the different valuations of the lands which the proprietor chose to occupy himself
All this cost might be below the cost incurred by many other taxes which bring a smaller revenue.
47 The most important objection to a variable land-tax is the discouragement of land improvement.
The landlord would certainly be less disposed to improve when the sovereign, who contributed nothing to the expence, was to share in the improvement's profits.
This objection might be removed by allowing the landlord to ascertain the actual value of his lands with the revenue officers before he began his improvement.
This valuation would be based on the equitable arbitration of landlords and farmers in the neighbourhood, equally chosen by both parties.
The landlord would be rated according to this valuation for a number of years sufficient for his indemnification.
This variable land-tax aims to draw the sovereign's attention towards land improvement because it will increase his own revenue.
The term allowed for the landlord's indemnification should not be much longer than necessary for improvement.
The remoteness of the interest would discourage this attention too much.
It is better to be too long than too short.
No incitement to the sovereign's attention can ever counterbalance the smallest discouragement to the landlord's attention.
At best, the sovereign's attention has a very general and vague consideration of what is likely to contribute to the better cultivation of his dominions.
The landlord's attention is a small consideration of what will likely be the most advantageous use of his estate.
The sovereign's principal attention should be to encourage the landlord's and the farmer's attention.
allow both to pursue their own interest in their own way and according to their own judgement
give both the most perfect security that they shall enjoy the full recompense of their own industry
procure to both the most extensive market for their produce
establish the easiest and safest communications by land and water
establish the most unbounded freedom of exportation
48 If this kind of tax successfully encourages land improvement through this system, it will unlikely create other inconveniences for the landlord.
49 This variable rent tax would readily suit itself to actual situations, by its own accord and without any government attention.
It would be equally just and equitable in:
the society's advancing, stagnating, and declining state
the improvement and decline of agriculture
all the variations in the value of silver and the silver in the coin
It should be established as a fundamental law of the commonwealth.
It should be a perpetual and unalterable regulation.
It should be more fundamental than any fixed-value tax.
Historical Land Surveys50 Some states do an actual survey and valuation of all the lands in the country, instead of simply registering leases.
Such method is laborious and expensive.
They suspected that the lessor and lessee might combine to conceal the real terms of the lease to defraud the public revenue.
Domesday-Book was a very accurate survey of this kind.
A page of the Domesday Book
51 In ancient Prussia, the land-tax was assessed according to an actual survey and valuation.
It was reviewed and altered from time to time.
According to that valuation, the lay proprietors paid 20-25% of their revenue.
Ecclesiastics paid from 40 to 45%.
The very accurate survey and valuation of Silesia was ordered by Frederick the Great.
According to that valuation, the lands of the Bishop of Breslaw are taxed at 25% of their rent.
The other revenues of the ecclesiastics of both religions, at 50%.
The commanderies of the Teutonic order and Malta, at 40%.
Lands held by a noble tenure, at 38.3%.
Lands held by a base tenure, at 35.3%.
52 The survey and valuation of Bohemia took more than 100 years.
It was perfected after the peace of 1748, by the orders of Empress Maria Theresa.
The survey of the duchy of Milan was begun in Charles VI's time.
It was not perfected until after 1760.
It is one of the most accurate surveys ever made.
The survey of Savoy and Piedmont was ordered by Victor Amadeus II.
53 In Prussia, the church's revenue is taxed much higher than those of lay proprietors.
Most of the church's revenue is a burden on land rent.
It is seldom used to improve the land or increase the people's revenue.
The King of Prussia probably thought it reasonable that the church should contribute more to government.
In some countries, church lands are exempt from all taxes.
In others, they are taxed more lightly than other lands.
In Milan, the church lands before 1575 were rated to the tax at only 1/3 of their value.
54 In Silesia, lands held by a noble tenure are taxed 3% higher than those held by a base tenure.
Frederick the Great probably imagined that the privileges of noble tenure would compensate this higher tax.
The humiliating inferiority of those of base tenure would be alleviated by a lighter tax.
In other countries, the tax system aggravates this inequality.
In Sardinia and French provinces subject to the real or predial taille, the tax falls on the lands held by a base tenure.
Those held by a noble tenure are exempted.
55A land-tax assessed according to a general survey and valuation, however equal it may be at first, must become unequal after some time.
Government's continual and painful attention would be required to prevent it from becoming unequal.
It must watch all the variations in the state and produce of every farm.
The governments of Prussia, Bohemia, Sardinia, and Milan actually exert this attention.
This attention is so unsuitable to short-lived governments.
If those governments lasted long, this attention would probably create more trouble and vexation than relief to the taxpayers in the long run.
56 In 1666, the Montauban was assessed to the real or predial taille according to a very exact survey and valuation.
By 1727, all this assessment became unequal.
To remedy this, their government imposed an additional tax of 120,000 livres on Montauban.
This tax was rated according to the old assessment.
But it is levied only on those which are undertaxed by that assessment.
It is applied to the relief of those which are overtaxed by the same assessment.
For example, if District A should be actually taxed at 900 livres and District B taxed at 1,100 livres, they are taxed by the old assessment at 1,000 livres.
The additional tax rates both districts at 1,100 livres each.
But this tax is levied only on the undercharged district [District B].
It relieves the overcharged district [District A] which consequently pays only 900 livres.
The government neither gains nor loses by the additional tax which is supposed to remedy the inequalities from the old assessment.
[Old scheme: 1,000 + 1,000 = 2,000]
[New scheme: 900 + 1,100 = 2,000]
The tax is regulated by the discretion of the intendant of Montauban.