The Fixed Land Taxby Adam Smith
30 A tax on land rent may be based on a valuation which is fixed and does not change with the actual rent which can fluctuate with the land’s improvement or decline.
31 A land-tax assessed according to an invariable rule becomes unequal after some time according to the lands’ improvement. The tax becomes unequal even if it were equal at the start.
An example is Great Britain’s land tax where the valuation of each district to the land-tax in 1692 was very unequal at the start. This tax offends my first taxation maxim, but is 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.
- The landlord is the real contributor, but 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, and none of those rents have fallen.
- It was partly because of Britain’s great prosperity.
The landlords gained the difference between:
- the tax based on the present rent value
- the tax they actually pay based on the ancient valuation
They would have lost if the present rent values declined from 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 the reverse if if the situation also reversed.
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.
- He 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 Circumstances always change. This makes the constancy of the valuation a very great inconvenience either to:
- the taxpayers or
- the government
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.
36 The French Economists say that a tax on land rent which keeps up with the value of the rent is the most equitable of all taxes.
- They pretend that all taxes fall ultimately on land rent, and so taxes should 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 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.
But it might not be so certain.
- The tax assessment might bring more trouble to the landlord.
- The levying of the tax might be more expensive.
39 This system of tax administration might be adjusted to:
- prevent this uncertainty and
- moderate this expence.
40 For example, the landlord and tenant might jointly be obliged to record their lease in a public register.
Penalties might be enacted against misrepresentation.
- The landlord and tenant might be deterred from combining to commit tax fraud if part of the penalties would be paid to the informer who convicted the other for misrepresentation.
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 method of cultivation, and
- 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.