Taxes that reduce the rewards of producers lessen the incentive to produce. Taxes based on the use of any of the three factors of production — land, labor, or capital — inevitably discourage production. Such taxes introduce artificial obstacles to the creation of wealth.

Suppose I work hard to build a good house, while you are content to live in a hovel. The taxman makes me pay a penalty every year for my effort by taxing me more. If I save while you squander, I am taxed while you are exempt. If I build something useful, I must pay for my industry as if I had done an injury to the state. If I offer a service to the public, I am taxed as though it were a public nuisance. We say we want capital, but if I accumulate it I am charged as though it were a privilege.

The state currently tells producers: "The more you add to the general wealth, the more you will be taxed." Instead, the state should say: "Be as industrious, thrifty, and enterprising as you choose. Keep your full reward. You won't be fined for adding to the community's wealth."

The method of taxation is, in fact, just as important as the amount.

A tax on land (unless it exceeds actual rent) cannot check production in the slightest degree — unlike taxes on commodities, or exchange, or capital, or any of the tools or processes of production. The value of land does not express the reward of production. It is not like the value of cattle, crops, buildings, or any of the things called personal property and improvements.

Land value expresses the exchange value of monopoly. It is not in any way the creation of the individual who owns the land. It is created by the growth of the community.

Hence, the community can take it all without reducing the incentive to improvement, and without decreasing the production of wealth.

Consider the effect of such a change on the labor market. Competition would no longer be one-sided. Workers now compete with each other, cutting wages down to bare subsistence. Instead, employers would have to compete for labor. Wages would rise to the fair earnings of labor.

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