A Georgist Perspective of Petroleum Taxation

What is this you call property? It cannot be the earth, for the land is our mother, nourishing all her children, beasts, birds, fish and all men. The woods, the streams, everything on it belongs to everybody and is for the use of all. How can one man say it belongs only to him?

~ Massasoit

Over a century ago, the town of Arden, Delaware, was founded on a unique single-tax-community system that radically altered the popular concept of land ownership.¹ This system was premised on concepts developed by a man few know today but who was a major figure in economics during the 1800s, Henry George.² George's public finance theory has been described as having received "intermittent attention over the years, with many eminent names in economics making at least a passing comment, but it has seen comparably little action in the policy debate arena and has been largely ignored by the modern era of academic economics."³ Although George's original plans for a single-tax system have failed to gain momentum in economic and tax policy circles, his single-tax-system philosophy is exemplified in twenty-first century natural resource taxation (most prominently in the taxation of oil). An application of the economic and procedural rationales that underpin George's single-tax system indicates that petroleum taxation should be based on a severance tax system that promotes the efficient distribution of common property benefits to the public. The outcome of such a system is the creation of a property rights institution that combines interests shared by libertarians (greater emphasis on individual rights through private ownership and less distortionary impacts on economic transactions), greens (greater incentives to preserve natural resources), and socialists (redistributing benefits attributable to property rights).

General Overview

The concept of property ownership has been contemplated and discussed over time between many of the most prominent philosophers. Plato originally supported collective ownership as a necessary method to promote the pursuit of common interest and to avoid social divisiveness.⁴ Plato later retreated from this idealism in favor of Aristotle's more practical concept of private ownership, which emphasizes prudence and accountability. In support of this theory, Aristotle argued that "when everyone has a distinct interest, men will not complain of one another, and they will make more progress, because everyone will be attending to his own business. …"⁵ John Locke's labor theory of property expanded on Aristotle's private property theories by premising property rights on the exertion of labor upon natural resources.⁶

Locke's labor theory of property does not extend to land ownership because historically it has been decided by first discovery or conquest,⁷ which originally did not conflict with Locke's philosophical musings because an unlimited supply can justify the taking of common land as private property, as historically land has been considered an overly abundant resource.⁸ In recent years, this concept has been criticized for being draconian on indigenous cultures and infringing on human rights.⁹ On the other hand, natural resources, particularly oil, create a unique problem in the property rights realm because of their limited supply, natural origins, and the labor required to implement their usage.¹⁰

A number of seventeenth-century philosophers, such as Hobbes, Locke, and Grotius, reasoned that a property rights system that vests complete ownership with private entities infringes on the community's freedoms because common property derived from the earth was created for the enjoyment of humankind, not for the enjoyment of any particular person.¹¹ When an unowned natural resource is appropriated, an enforceable right to exclude is created, and a freedom that others previously had is denied.¹² Without unrestricted access to other resources of equivalent value or a redistribution of benefits to compensate for the loss of freedom, this appropriation of property rights creates an unequal distribution of freedom.¹³ The dilemma created by this equal freedom issue is the need for private property ownership as an incentive to stimulate economic activity while trying to balance the need to prevent the exclusivity of natural property benefits that theoretically...