The universal basic income, also known as UBI, has become a popular proposal as a radical way to reduce poverty. It is as it says on the tin, a dividend given out to every citizen, providing each person with supplemental income they can spend to their hearts desire, no strings attached.

While it offers a great way to help cover people’s basic needs, especially those in poverty who would see a strong boost to their finances from such a system, the financial costs of such a system can not be understated. A UBI needs a strong tax system that can cover the revenue it needs to operate.

Thankfully, there does exist such a base of taxation that can cover much of a UBI’s needs in a way that’s optimal for its purpose. I would even go so far to say, that if a tax system other than the one which will be proposed in this article is used to fund a UBI, much of the program’s benefits will be lost.

I’m talking about the ideas of Henry George, the American political economist who lived from 1839 to 1897, and who made his biggest impact on the political and economic sphere in the 1880s and 1890s. Despite how old his ideas may seem, they’ve only gotten more relevant as time has passed, as has the applicability of his ideas to funding a form of universal dividend.

In fact, supporters of Henry George, known as Georgists, have often chimed for a universal dividend funded by the surplus revenue of a Georgist tax system; called a Citizens’ Dividend (or CD for short).

To find out why this is, we need to understand what makes a Georgist tax system so efficient and equitable, and how it ensures that those who only extract wealth from the economy don’t benefit from more of it being given to the people, especially if a UBI is enacted.

The Class of Taxes that Don’t Interfere with Production

When something is taxed, society tends to produce less of it than they otherwise could have made. Tax cigarettes, people make fewer cigarettes, tax corn, people grow less corn, tax buildings, and people build less. But this rule gets broken by the following question: what about those things that people can’t produce more of?

The most prominent example of a resource we need but can’t produce more of, in other words a resource that is non-reproducible, is land. Whenever the demand for land goes up, we don’t produce more of it, because the laws of nature ensure we can’t. Instead, the price landowners charge, a subset of what is known as economic rent, rises up to swallow all that new demand. 

It doesn’t matter how demand rises, be it a natural occurrence with the increase in population or more artificial with a subsidy payment, land swallows up much of the new gains. 

Same goes for the owners of any resource we need and desire, but can’t make more of. Owners of these types of resources can reap an unearned income by charging for their special, exclusive right without the fear of competitors coming along and undercutting them. It functions as a form of monopoly, one that sponges up the rewards of production brought by both workers with their labor and investors with their capital, without providing anything in return.

There is no better way to describe it than from Henry George himself in Progress and Poverty:

The great class of taxes that do not interfere with production are taxes on monopolies. The profit of monopoly is in itself a tax on production. Taxing it would simply divert into public coffers what producers must pay anyway.

So, as luck would have it, we do have a class of taxes that can be levied without discouraging production in any way, shape, for form. In fact, it’s better to tax these resources than to leave them free for the taking by their monopolizers. Being able to make bank off a resource others can never have more of, instead of actively producing and providing goods and services to others, throws the economy off its base while incentivizing a system that fails to fix poverty despite economic progress.

Henry George wasn’t alone in this sentiment though, economists across a variety of strains of thought have generally recognized this problem as well. 

Be it Adam Smith:

“The rent of land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give.”

Or Joseph Stiglitz:

“One of the general principles of taxation is that one should tax factors that are inelastic in supply, since there are no adverse supply side effects. Land does not disappear when it is taxed. Henry George, a great progressive of the late nineteenth century, argued, partly on this basis, for a land tax.

…

But it is not just land that faces a low elasticity of supply. It is the case for other depletable natural resources.”

It is here where there lies a fundamental distinction that Georgism uses to propose a unique reform:

Stop taxing people the value of things that we produce, and instead recoup (or reduce) the value of the things that are non-reproducible.

Simple. The reform outlined above can reconcile both efficiency and equality in a way that tremendously improves and magnifies both. To get into the specifics:

Efficiency in this regard not only stems from society not being discouraged from production, but also that individuals will be discouraged from hoarding non-reproducible resources and making it more difficult for workers and investors to access them. From small businesses not being able to afford rent to the landlord, to Big Tech companies using IP to make competing and inter-operating with their platforms tremendously difficult. Take away some of that extracted income and turn it into a holding cost paid to society, and those who currently benefit from these monopolies at the cost of economic functions will be made to act far wiser and less exploitative.

Equality improves heavily too. Land values are strongly concentrated among the wealthiest in society, as are other monopoly-held assets like it. It may even be the case that most of them are more concentrated among the wealthy than the value of the land. Such assets are zero-sum, to take a form of it, like a plot of land, is to deny it to everyone else permanently until that taking is dismantled and made public again. This stands in direct contrast to positive-sum sources of wealth like laboring or capital-investments, which represent no threat to others when they can be reproduced. By taking the primary, most direct tools that allow all monopolistic mega-corporations and wealthy monopolists to thrive today under captive economies, equality of opportunity would be strongly guaranteed, and equality of outcome would become far greater in turn.

With these benefits seeing a great deal of support in the realm of economics, it’s clear that a Georgist tax system would be the prime choice to fund a UBI, or any form of universal dividend. In fact, a great deal of Georgists already support a form of UBI called a Citizens’ Dividend, a universal income born out of the surplus revenue of a Georgist tax system.

Where Do the Dividends Go?

The case for a Georgist-funded dividend looks good already, but the uniqueness of land and other non-reproducible resources gives another good reason to use their value as the basis for any basic income: they absorb much of the higher incomes from tax cuts, subsidies, and dividends.

Take, for example, farmland. Whenever subsidies are granted for growing particular crops, often absorbed (also known as capitalized) into higher prices paid by prospective farmers to landowners. Either that, or already established landowning mega-farms get the means to purchase more farmland while crowding out small farms.

Tax cuts count too. When society gets more purchasing power from cuts in taxes on work and investment, it can often show back up in the value of the land. This exact situation occurred in New York City in the 1920s. When New York Governor Al Smith exempted newly constructed buildings from property taxes, land prices rose to new heights. From the writings of Georgist economist and professor Mason Gaffney:

“Exempting buildings had the effect of raising land prices, thus preserving and even augmenting the overall tax base. The taxable assessed value of land in NYC rose steeply under this stimulus. In the 3-14-24 report of the (Clarence) Stein Committee we read,

‘There has been a tremendous increase in land assessments since 1920 in all the boroughs. … The resumption of building has greatly increased the taxable value of the land, which is not included in the exemption. … Tax exemption is creating aggregate taxable values to an extent heretofore unknown in the history of any municipality.’ (Pleydell, Appendix p.23, emphasis mine).”

Thankfully, because Al Smith opted to keep the taxation of land intact (with much backing from local Georgist clubs), New York City was able to recuperate a good portion of its ground value and take it as public revenue. New York City subsequently escaped its housing crisis and entered its greatest period of housing construction in the past century (which we covered here).

Another example comes from an unexpected source, none other than Winston Churchill himself and his experience with a toll bridge along the River Thames. As he puts it:

“Some years ago in London there was a toll-bar on a bridge across the Thames, and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted of so large a proportion of their earnings appealed to the public conscience; an agitation was set on foot, municipal authorities were roused, and at the cost of the ratepayers the bridge was freed and the toll removed. All those people who used the bridge were saved 6d. a week. Within a very short period from that time the rents on the south side of the river were found to have advanced by about 6d. a week, or the amount of the toll which had been remitted.”

This all points to a major problem. If we as a society do decide to enact some other form of universal dividend, many of the gains will be eaten away by landowners and owners of other forms of monopoly. This doesn’t mean we shouldn’t push for a UBI at all, but if we were to source the revenue of a universal dividend on taxes on production and trade instead of Georgist taxes of what we can’t produce more of, then much of the benefit of said dividend will be lost; leaving society not as well-off as it could be due to heavier taxes and burdens on work and investment alongside much of the UBI pie being eaten by owners of land and other monopoly rights.

It goes without saying then that it’s not just better for a UBI or a policy of its class to be funded by a Georgist tax system, it might almost be necessary in order for the policy to work its effects on behalf of those it seeks to help most.

How Much can Georgism Fund?

The theory behind why Georgism is optimal to fund a basic income has been established and looks steady already, but this then gets to practical realities. Is economic rent, the special income of non-reproducible resources that a Georgist system wants to recuperate in lieu of taxing work, investment, and trade enough to provide a service as large as a universal dividend?

The answer is, it’s very likely. Economic rent is underrated and underestimated as a portion of national income, and though we don’t have pinpoint estimates for its size currently, we do have rough ideas. For example, in 2013, Georgist organization Prosper Australia released a study determining that economic rent could cover around 88% of Australia’s annual budget. The organization ran into issues surrounding the true value of many rent-generating assets, particularly patents and patent thickets, potentially under-reporting the true amount of Australia’s economic rent.

But the potential for revenue doesn’t stop there. As discussed in the previous section, owners of non-reproducible resources can absorb the increases in incomes from subsidies and, very importantly, tax cuts. Seeing as how one of the two halves of Georgist through is to untax the work and investment of society, which would boost incomes in turn, much, if not all of the revenue of such taxes would show back up in economic rent. It’s an idea called All Taxes Come Out of Rents, and even if it’s not completely true, it even being partially true provides an enormous boost to a Georgist economy’s potential revenue.

A Georgist economy can likely fund a revenue system just as big, if not bigger than what our current tax system supports, all while enhancing efficiency and equality. In turn, it seems very possible that a Georgist economy could fund a universal income, especially out of any surplus revenue a Georgist tax system happens upon.

Recapture the Lost Benefit

In our current system, our economic freedom is stifled by taxes on production and free profits from the non-reproducible. The former stifles those who add and the latter invites those who hoard and extract. If a UBI follows this same path, many of its benefits will be lost to those who do no more for the public than monopolize resources we can never make more of and hold markets in their grasp.

To reclaim the lost benefits of dividends meant to benefit the public, we must follow those principles laid out by Henry George and all other economists who’ve come to agreement on one thing: the necessity of taxing what we can never make more of, and using the proceeds to lift off the artificial weights placed on labor and investment.

To finish, I’d like to directly cite famous Georgist Ed Dodson in an e-mail he sent to UBI advocate and politician Andrew Yang:

“A UBI that significantly increases household incomes of those who have low to moderate incomes will be capitalized into higher apartment rents and housing prices for the limited housing still affordable for those at the lower end of the market.

There is a policy solution to this problem, a solution understood by most economists (and a handful of elected officials) for over a century. This solution is found in the writings of political economists going back to Adam Smith. What did Adam Smith understand that for the most part is not part of the public dialogue? Namely, that the most appropriate source of public revenue is the potential annual rental value of land and all other natural assets with an inelastic supply. Collect this value and land prices will come down to levels that make the construction of housing possible that is broadly affordable.”

We should always push to aid the poor, but alongside it we should push for a healthier system that said aid can thrive within. Without a Georgist system to back a UBI, much of it that was once designated to the impoverished victims of our backwards system only becomes more fuel to the fire of the system itself.