Nonrenewable Exhaustible Resources and Property Taxation: Selected Observations

The use of natural resources--gifts of nature--to serve the general public must have persuasive appeal. Some things Nature created. No one can plausibly claim the benefits, the fruits, on the basis of having created the asset. The community, defined somehow, can take the fruits without endangering the source. Although much explanation and defining are called for, the principle seems clear. This paper concerns nonrenewable, exhaustible resources. When used, they are used up--natural gas, for example. Problems of definition do arise, such as metal that becomes usable scrap. These have relevance to points made later. The reality before us at the moment is that people are consuming resources that are irreplaceable. Nothing users now pay goes to renew the source. Should the interests of future generations get more recognition than they do today? This brief note links that question with some involving the financing of government and with challenges articulated persuasively in the late 19m century by Henry George. His followers, "Georgists," have continued the discussion. There are no clear lines defining "Georgism" and "Georgist." Yet whatever their origin, there are elements that not merely deserve respect but that, even more, can be a guide to improving public policy in the years ahead. I Rents THE TERM RENT has a variety of accepted usages. The concern here is "economic rent." It differs from the kind of payment made when one rents a car. Think of economic rent as payment for the use of a resource whose existence does not depend upon the payment. Land. The original surface of the Earth, with a very few exceptions, is Nature's creation. One pays, perhaps heavily, to get a parcel in one location, one use, rather than another; but the payment does not create the area. Houses or trucks or autos exist because someone paid to get them produced. But not the products of Nature. Lines are not always clear. Some portion of other payments may be for a scarcity element and properly termed "rent-like"--outstanding athletes, for example. We do make payments, whatever the designation, that do not, over the long run, go to create, or renew, the source--some portion of human skill that is the creation of Nature. Economic rents that are directed to paying for government services will not reduce the source as other taxes can do. This principle can be utilized where conditions permit. Property taxation in the United States represents use of the principle. Americans could be better off by financing more of (local) government by reducing the taxes on structures and other manmade capital and relying more fully on taxes on land, on the economic rent of land. Part of what may be attributed to land represents underground nonreproducible resources. Some of what the owners of land get corresponds to economic rent, in the pure sense. And some of what the landowner obtains is the result of capital and effort required to extract the mineral. This return may be treated in business accounts as profit, interest, and labor expense, or something else--probably some combination. Accounting systems do not identify nor measure pure economic rent. The amounts are certainly far different from what the available measurements suggest. Prof. Mason Gaffney in an unpublished manuscript identifies more than a dozen sources of economic rent related to land that are ignored in customary accounts, for instance, owner-occupied business property. In economic rent there is a potential source of government revenue of unique nature--unique in that taking it in taxes would not induce the distorting and depressing effects of equivalent taxes on labor and capital, effects known as "excess burden" in that they reduce real income by amounts greater than the government receives in taxes. Substituting economic rents for some of the taxes on capital and labor would thus reduce the excess burden, the deadweight loss produced by revenue raising. …