EBCOR

Excess burdens from taxation on the production and consumption of wealth cause a reduction in expected rental yields, compared to if there were no such taxes in place. EBCOR, on its own, does not involve the assumption that these economic rents would be taxed themselves. Instead, EBCOR implies that such sources of rent (i.e., land value) can be taxed at a rate that does not discourage investments into the production or consumption of wealth. EBCOR is a complementary function to All Taxes Come Out of Rent (ATCOR)—also developed by Gaffney, and the Henry George theorem (HGT) popularized by Joseph Stiglitz.

History of theory

John Locke

In the third part of his 1691 letter, Some Considerations of the Consequences of the Lowering of Interest and the Raising the Value of Money, John Locke (1632–1704) originates a simple proof of the concept, which Georgists in the 21st century would later label EBCOR:

A Tax laid upon Land seems hard to the Landholder, because it is so much Money going visibly out of his Pocket: And therefore as an ease to himself, the Landholder is always forward to lay it upon Commodities. But if he will throughly consider it, and examine the Effects, he will find he Buys this seeming Ease at a very dear rate: And though he pays not this Tax immediately out ofhis own Purse, yet his Purse will find it by a greater want of Money there at the end of the year, than that comes to, with the lessening of his Rents to boot; which is a settled and lasting evil, that will stick upon him beyond the present Payment.

The physiocrats

The 18th century French physiocrats not only believed that all taxes were ultimately defrayed out of rent, but that taxes on production and trade ultimately diminish rental earnings. The main argument of the physiocrats was that all taxes on production must ultimately be shifted onto the source of surplus value, which they believed to be agricultural rent, since all labor and capital costs are costs of production. François Quesnay (1694–1774) and Anne Robert Jacques Turgot (1727–1781), both leading members of the physiocratic school, believed that because taxes on production diminished returns towards the latter's management, it also therefore ultimately diminished the agricultural surplus from land.

Adam Smith

Adam Smith (1723–1790) in his 1776 magnum opus The Wealth of Nations, further developed Locke and the physiocrats' theories of tax incidence:

A tax upon the rent of land which varies with every variation of the rent, or which rises and falls according to the improvement or neglect of cultivation, is recommended by that sect of men of letters in France, who call themselves the œconomists, as the most equitable of all taxes. All taxes, they pretend, fall ultimately upon the rent of land, and ought therefore to be imposed equally upon the fund which must finally pay them. That all taxes ought to fall as equally as possible upon the fund which must finally pay them is certainly true. But without entering into the disagreeable discussion of the metaphysical arguments by which they support their very ingenious theory, it will sufficiently appear from the following review, what are the taxes which fall finally upon the rent of the land, and what are those which fall finally upon some other fund.

Mason Gaffney

Mason Gaffney (1923–2020) writes in The Hidden Taxable Capacity of Land (2009), where he originated the name for the concept as EBCOR, that:

We can raise output and jobs and investment opportunities and tax revenues above their present levels, by removing tax bias. [...] Net revenue of land IS the Taxable Surplus: we cannot tax more than that without aborting the land use.

Terence Dwyer

Terence Dwyer notes his 2014 journal article, Taxation: The Lost History, published in AJES:

However, [...] the marginal productivity of the fixed factor (land) must fall so that we are back with the result that taxes on capital and labor must cause rents to fall.