30 EIGHTEENTH REPORT. 



A CONTIiir.UTIOX TO THE THICORY OF TAX SHIFTING. 



li. S. TUCKER. 



One of the points in the theory of incidence of taxation on which 

 a large majority of economists are agreed, is the doctrine that 

 taxes on real estates are divisible into two parts — the tax on the 

 land and the tax on the building, and that the first of these can- 

 not be shifted away from the land-owner but the second results 

 in an increased rent to the tenant and is thus shifted to the con- 

 sumer of building utilities. This theory is stated by Smith, Ri- 

 cardo, Mill, and more recently hj Professor Taylor. I quote: "It 

 is almost certain that, of the total tax collected from the owner 

 of a house and lot, one portion is really paid by him, while another 

 portion is in the end taken from the tenant in the shape of higher 

 rent; and, what is more significant, for our purpose, it is also quite 

 certain that the dividing line between these two parts corresponds 

 pretty closely to the line which separates that portion of the total 

 value of the place which constitutes the value of the lot, from 

 that other portion Avhicli constitutes the value of the house."* 



Bastable qualifies? the simple theory by declaring first, that a 

 tax on ground used for building may to a very slight degree be 

 shifted by the withdrawal of certain sites nearly as well adapted 

 for agriculture, and secondly, that an attempt to increase rent in 

 order to pay a tax based on building value will check the demand 

 for houses, thereby throwing some of the tax on the owners of ex- 

 isting houses and some of it on owners of vacant sites for which 

 the demand is lessened. 



What I desire to show in this paper is that the division of the 

 tax on real estate into two parts is only formal and without much 

 real significance; that in the case of a tax based on cai)ital value, 

 or selling price, the forces which bring about sliifting are the 

 same in nature whether the tax be levied on the land alone, or on 

 the combined value of the land and the building. I think we will 

 all agree that a tax on the sole use of a commodity will have as 

 injurious an effect on tlio demand for tlint commodity as a tax on 

 the commodity itself wonld liave. If for exami)le shoe-polish were 

 a fixed supply good, a license fee charged on boot-blacks, a 

 duty on the act of having your shoes shined, an excise on polishing 



*F. M. Taylor, Readings in Economic^!, P. 182. 



