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All Taxes Come Out of Rent (ATCOR) is a central theory to the heterodox Georgist school of political economy. Predecessor theories to ATCOR were developed by John Locke, the physiocrats, Adam Smith, and H. Bronson Cowan. In 1998, Mason Gaffney formalized the acronym and theory, describing ATCOR as follows:
The meaning and relevance of ATCOR is that when we lower other taxes, the revenue base is not lost, but shifted to land rents and values, which can then yield more taxes.Gaffney argued that ATCOR is an implication of the inelastic supply of land, the elastic supply of labor and capital, and observations of other forms of taxation. ATCOR has been proven to work in a few US cities, including Cleveland, San Francisco, and New York City.
ATCOR is complementary to the Henry George theorem popularized by Joseph Stiglitz. The function that is a corollary of ATCOR is .
It is in vain in a Country whose great Fund is Land, to hope to lay the publick charge of the Government on any thing else; there at last it will terminate. The Merchant (do what you can) will not bear it, the Labourer cannot, and therefore the Landholder must: And whether he were best do it, by laying it directly, where it will at last settle, or by letting it come to him by the sinking of his Rents, which when they are once fallen every one knows are not easily raised again, let him consider.
They did not view this tax shift as a real shift that would raise the tax burden on landowners, because they believed other kinds of taxes are shifted to landowners anyway. You can't squeeze blood out of a stone, they reasoned, so there is only one true taxable surplus, and that is rent, the Net Product of land. For an acronym, we will use ATCOR (All Taxes Come Out of Rent) for this Physiocratic doctrine of tax incidence. Mirabeau's Theory of Taxation, 1760, spelled it out.
Adam Smith, a student of Turgot and Quesnay, deplored the 'indolence of landowners' that keeps them from seeing the principle, for then they would see that they hurt themselves the most by shunting taxes off land and onto labor, capital, trade, and production. Taxes on useful activity are shifted to rents, he observed, and more: such taxes impose excess burdens that are also shifted to rents...
In Gaffney's 1998 excerpt, The Physiocratic Concept of ATCOR, based on his previous lecture notes, he outlines the basic logic behind the economic concept:
A. Land supply fixed, capital and labor elastic, demand elastic. The thesis that all taxes are shifted to landowners follows logically from two premises. One, after-tax interest rates are determined by world markets, so the local supply of capital is perfectly elastic at a fixed, after-tax rate. Two, labor has been reduced to so low a level that it cannot bear any more tax burden. Anyone may test the premises by observation.Gaffney then highlights the history of economic thought behind the concept:
B. Venerable tradition of ATCOR in the history of economic thought:To-morrow: A Peaceful Path to Real Reform (1898), an early illustration of the concept later labelled as ATCOR.]]Thirdly, Gaffney highlights later academic hostility to the concept:
- Physiocrats, preceded by John Locke and Jacob Vanderlint
- Adam Smith on “indolence of landowners”
- Paul Douglas; Bronson Cowan; Ebenezer Howard; David Bradford, et al., 1992 NTJ; Richard Netzer (with caveats);
- Others?
C. Muddying the waters of theory.Lastly, Gaffney ends his notes with a finalized summary on ATCOR:Forward shifting of property tax, a la Musgrave. This shift requires our assuming the tax is imposed on just one land use, usually housing, in one small jurisdiction. It is what Howard Jarvis seized on and used to promise tenants that lowering property taxes would automatically lower their rents, since property owners, as he put it, do “not pay one cent” in property taxes, but shift them all to tenants. As soon as Prop. 13 passed, rents shot upwards, and have never looked back except in particular micro-markets like cyclical Silicon Valley.
This is one result of displacing production theory by price theory in economic doctrines. In production theory you would assume elastic demand, and focus on the effect on factor proportions (changing productive processes and products, a la Kneese and Bowers).
- Fixed capital supply. Arnold Harberger; Seligman; Harriss
- Twisting the Ramsey problem by most economists. McLure and Zodrow; Lindsey, and most texts on public finance as examples. Notable exceptions are Ramsey himself, Pigou who inspired him, and Joseph Stiglitz.
The revenue capacity of land, when it is substituted for other tax bases, is comparable to current revenues. Owing to efficiency effects, and renewal effects, it may well be higher.
Similarly, the supply of capital can also be regarded as perfectly elastic due to the real interest rate in the long run, especially in comparison to land.
As a consequence, the revenue base does not disappear when taxes on labor, capital, and consumption are reduced. Instead, most tax cuts cause land rental values and land capital values to increase, which can yield more taxes from landowners.
Lowering the Corporate tax rate raises stock prices. Lowering interest rates raises real estate prices. Commercial rents are multipartite, and a lower share of gross revenues means a higher fixed rent. Oil leases are multipartite, and a higher fixed Royalty payment means lower bonus bids. Wartime taxes depress land prices, while let them rise again. There is a long world history of peace dividends followed by land booms. The Resource curse: an influx of mineral revenues, obviating other taxes, leads to land booms. The remarkable productivity of the U.S. income tax when wages were exempt, 1916-30, and we paid for World War I with less deficit finance than any other belligerent. The utility-rate effect: lower rates mean higher rents and land prices, as observed in practice and explained in theory by Hotelling, William Vickrey, Stiglitz, Martin Feldstein, and others.
In 1909 with the help of William Somers as Chief Clerk—who had previously provided Johnson with a standard unit of land assessment back in 1901—they both managed to raise assessments from $180m to $500m with their new data set. As Gaffney puts it in 2006:
Johnson and Somers analyzed property assessments, and found that assessors had been undervaluing holdings in rich neighborhoods, and overvaluing those in poor.Back in 1901, Johnson set up a tax school sponsored by his city administration in order to educate and persuade the public of Cleveland to shift property taxes from capital to only land. The tax school eventually ceased its operations when the city's largest landowners disapproved of its existence.
After an intermediate two-year period with no single taxer as mayor, Newton Baker was elected in 1911. Both mayors presided over large and immediate population growth in Cleveland, doubling within the first two decades of the 1900s. A massive construction boom and subsequent high land-values followed, which was enough to cover the treasury losses from exempting improvements at the time.
Although the NYC-amended property tax exempted new improvements, total tax-income received by the city actually increased, thus illustrating proof of ATCOR. As a committee lead by Clarence Stein put it in 1924:
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.
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