In ancient Sumer, it was customary for a new monarch, upon ascending his throne, to cancel the debts of farmers to their landlords. (The debts of merchants to one another, however, were not canceled.) The Hebrew Bible establishes a similar economic and social institution, the Year of the Jubilee, once every fifty years, when all debts related to land were terminated and the land reverted in full ownership to the family that owned it at the previous Jubilee. These practices limited inequality and ensured that debt was not allowed to stifle these economies.
The idea of canceling debts seems counter to economic interests, because of the perceived likelihood that it would make people unwilling to lend who would otherwise be willing to do so. But another view is that a social system should not allow people to contract themselves into impossible penury, and a practice of recurring debt cancellation is a way of precluding impossible penury.
The idea that debt cancellation can ensure that an economy will thrive can be applied today, as we look forward to a time in the not-too-distant future, when we will need to cope with the economic consequences of all the government spending that we have been using to ensure that people will survive the economic shutdown which was mandated to help slow the spread of COVID-19.
If we do nothing, we are likely to face great inflation. To stop the inflation, we will need to levy taxes in order to take money out of circulation. Taxes are never popular, and they also cause economic harm and discourage economic activity, with the magnitude of the harm roughly proportional to the square of the tax rate, unless the tax is one that compensates for a harm (like a tax on pollution or congestion) or the tax is a “lump sum” tax, that is, a tax that does not vary with the taxpayer’s economic decisions. The lump-sum tax with the greatest potential is a tax proportional to the sale value or the rental value of land. A properly administered tax on land does not depend on the income which the owner obtains from the land, but rather on the maximum bid that someone else would make for the land; therefore, it is a lump-sum tax.
A tax on land lowers the sale value of land, but it does not lower the rental value of land. Therefore, it is somewhat easier to consider possibilities in terms of taxes relating to the rental value of land. Suppose, then, that we decided to make the greatest possible use of a tax on land for raising the revenue needed to prevent inflation in the aftermath of the COVID-19 related spending: we decided to levy a tax that collected 100% of the rental value of land. What would happen? First, the selling price of unimproved land would go to approximately zero because having title to land would mean that one would be obliged to pay in tax as much as it was worth to use the land. Next, anyone with a mortgage on land could be expected to say: “If I have to pay all of the rent to the government and pay my mortgage too, I will be paying more than the land is worth. How can that be right?”
The solution to this puzzle is that if the government wants to collect the rental value of land for public purposes, it should expect to collect the rent from those who are now collecting it, which means (in the case of mortgaged land) the mortgage holders themselves. When a mortgage holder goes to a courthouse and records a mortgage, specifying that the land cannot be transferred unless the debt is paid, that person is declaring himself to be the person to whom rent must be paid, and therefore the person to whom a tax bill should be sent if a government wishes to collect the rent for public purposes.
The moral justification for concentration of taxation on the rental value that land would have in an unimproved condition is that this value is not at all the product of the efforts of those who have title to land or those who hold mortgages on land. It arises rather from a combination of what nature provides, what is contributed by public infrastructure, and what is contributed by surrounding development. Since the holders of title to land have no moral basis for claiming responsibility for causing this value, it is a natural, appropriate source of public revenue.
While it would be possible to send a bill to every mortgage holder, an administratively simpler means of accomplishing an economically equivalent result would be to cancel the debts secured by land and send the full bills to those who have title to land. The economic consequences would be the same as if the tax bills were sent to the mortgage holders for the full amounts of the debt payments secured by land.
If land value taxation were only partially implemented, it would be discriminatory to specify that all the payments owed to mortgage holders would be collected in tax before any tax was collected from the title holder. It would be fairer to stipulate that the portion of the tax owed by the mortgage holder would equal the percentage of the rent collected by the mortgage holder. This could be administratively accomplished either by allowing the debtor to “pay” that portion of his debt with tax receipts or by specifying a cancellation of a corresponding portion of the debt. When a debt also covered improvements to land, it would be appropriate to regard the debt as covering first the improvements, but only covering the land to the extent that the debt exceeded the value of the improvements.
To summarize: holders of title to land cannot reasonably be expected to pay the rent of land to governments if they are already obliged to pay the rent to their creditors. This difficulty can be resolved by specifying that public collection of rent means collecting it from those who now collect, which means mortgage holders in the case of mortgaged land. Administratively, this can be accomplished either by sending bills to the mortgage holders, by allowing creditors to “pay” their mortgage bills with tax receipts, or by canceling debts in amounts equal to the creditors’ shares of taxes.
 Michael Hudson, “Land Monopolization, Fiscal Crises and Clean Slate ‘Jubilee’ Proclamations,” in Michael Hudson, G. J. Miller, and Kris Feder (eds.), A Philosophy for a Fair Society, Shepheard-Walwyn, 1994, pp. 33-79.