Land Value Taxation will solve many of the 21st century's most serious social, economic and environmental problems, and promote justice, fairness and sustainability. We CAN have a world in which all can prosper.
Progress and Poverty, by Henry George Here are links to online editions of George's landmark book, Progress & Poverty, including audio and a number of abridgments -- the shortest is 30 words! I commend this book to your attention, if you are concerned about economic justice, poverty, sprawl, energy use, pollution, wages, housing affordability. Its observations will change how you approach all these problems. A mind-opening experience!
Henry George: Progress and Poverty: An inquiry into the cause of industrial depressions and of increase of want with increase of wealth ... The Remedy This is perhaps the most important book ever written on the subjects of poverty, political economy, how we might live together in a society dedicated to the ideals Americans claim to believe are self-evident. It will provide you new lenses through which to view many of our most serious problems and how we might go about solving them: poverty, sprawl, long commutes, despoilation of the environment, housing affordability, wealth concentration, income concentration, concentration of power, low wages, etc. Read it online, or in hardcopy.
Bob Drake's abridgement of Henry George's original: Progress and Poverty: Why There Are Recessions and Poverty Amid Plenty -- And What To Do About It! This is a very readable thought-by-thought updating of Henry George's longer book, written in the language of a newsweekly. A fine way to get to know Henry George's ideas. Available online at progressandpoverty.org and http://www.henrygeorge.org/pcontents.htm
Where Else Might You Look?
Wealth and Want The URL comes from the subtitle to Progress & Poverty -- and the goal is widely shared prosperity in the 21st century. How do we get there from here? A roadmap and a reference source.
Reforming the Property Tax for the Common Good I'm a tax reform activist who seeks to promote fairness and reduce poverty. Let's start with the enabling legislation and state requirements for the property tax. There are opportunities for great good!
What is there in our economic life more significant than the fact that a majority must pay the relatively few for the privilege of living and of working on those parts of the surface of the Earth which geological forces and community development have made desirable?
And the great owners, who must lose their land in an upheaval, the great owners with access to history, with eyes to read history and to know the great fact: when property accumulates in too few hands it is taken away. And that companion fact: when a majority of the people are hungry and cold they will take by force what they need.
Rent is not a tax. It is payment for the use of a location, determined by the higgling and haggling of the market, and it makes no difference to the land user whether he pays rent to the city fathers or to a private owner.
The men of olden times believed that above all moderation should be observed in landholding, for indeed it was their judgment that it was better to sow less and plow more intensively. To confess the truth, the latifundia [large landed estates] have ruined Italy, and soon will ruin the provinces as well.
I know of a woman — I have never had the pleasure of making her acquaintance, because she lives in a lunatic asylum, which does not happen to be on my visiting list. This woman has been mentally incompetent from birth. She is well taken care of, because her father left her when he died the income of a large farm on the outskirts of a city. The city has since grown and the land is now worth, at conservative estimate, about twenty million dollars. It is covered with office buildings, and the greater part of the income, which cannot be spent by the woman, is piling up at compound interest. The woman enjoys good health, so she may be worth a hundred million dollars before she dies.
I choose this case because it is one about which there can be no disputing; this woman has never been able to do anything to earn that twenty million dollars. And if a visitor from Mars should come down to study the situation, which would he think was most insane, the unfortunate woman, or the society which compels thousands of people to wear themselves to death in order to pay her the income of twenty million dollars?
The fact that this woman is insane makes it easy to see that she is not entitled to the "unearned increment" of the land she owns. But how about all the other people who have bought up and are holding for speculation the most desirable land? The value of this land increases, not because of anything these owners do — not because of any useful service they render to the community — but purely because the community as a whole is crowding into that neighborhood and must have use of the land.
The speculator who bought this land thinks that he deserves the increase, because he guessed the fact that the city was going to grow that way. But it seems clear enough that his skill in guessing which way the community was going to grow, however useful that skill may be to himself, is not in any way useful to the community. The man may have planted trees, or built roads, and put in sidewalks and sewers; all that is useful work, and for that he should be paid. But should he be paid for guessing what the rest of us were going to need?
Before you answer, consider the consequences of this guessing game. The consequences of land speculation are tenantry and debt on the farms, and slums and luxury in the cities. A great part of the necessary land is held out of use, and so the value of all land continually increases, until the poor man can no longer own a home. The value of farm land also increases; so year by year more independent farmers are dispossessed, because they cannot pay interest on their mortgages. So the land becomes a place of serfdom, that land described by the poet, "where wealth accumulates and men decay." The great cities fill up with festering slums, and a small class of idle parasites are provided with enormous fortunes, which they do not have to earn, and which they cannot intelligently spend.
This condition wrecked every empire in the history of mankind, and it is wrecking modern civilization. One of the first to perceive this was Henry George, and he worked out the program known as the Single Tax. Let society as a whole take the full rental value of land, so that no one would any longer be able to hold land out of use. So the value of land would decrease, and everyone could have land, and the community would have a great income to be spent for social ends.
I like his summation, in the first paragraph: "Practical Idealism."
John Dewey's Foreword to The Philosophy of Henry George by George Raymond Geiger
THE life history of Henry George is typically American even though it has few parallels in this country. There are many instances of rise from poverty and obscurity to wealth or fame or both in the realms of business and politics, and there have been many self-made thinkers in various fields. But Henry George stands almost alone in our history as an example of a man who, without a scholastic background, succeeded by sheer force of observation and thinking that were dictated by human sympathy, and who left an indelible impress on not only his own generation and country but on the world and the future. He is an outstanding example of something of which we hear a good deal, but mainly in the way of unjustified boasting, since the quality in question is more marked in talk than evident in conduct: Practical Idealism. He is an example of what may be accomplished by unswerving devotion and self-sacrifice to a dominating idea. He was, we might say, a man of a single idea, but the statement would be misleading unless we also said that he broadened this one idea until it included a vast range of social phenomena and became a comprehensive social philosophy.
Henry George is typically American not only in his career but in the practical bent of his mind, in his desire to do something about the phenomena he studied and not to be content with a theoretic study. Of course he was not unique in this respect. The same desire has been shared by many British economists. John Stuart Mill's theoretical writings were ultimately inspired by interest in social reform. But there is something distinctive in the ardent crusade which George carried on. His ideas were always of the nature of a challenge to action and a call to action. The "science" of political economy was to him a body of principles to provide the basis of policies to be executed, measures to be carried out, not just ideas to be intellectually entertained, plus a faint hope that they might sometime affect action. His ideas were intrinsically "plans of action."
Unfortunately, in some respects, the American public was practical-minded in a much narrower sense and shorter range than was Henry George himself. It is perfectly true that the culmination and indeed the meaning of his social philosophy is to be found in his proposals regarding taxation. It is also true that many persons accept and are justified in accepting his taxation scheme without having knowledge of or interest in the background of principles and aims with which this scheme was organically associated in the mind of Henry George himself. But nevertheless the connection between the theoretical part and the practical part was vital in the thought of George himself. Something vital in acquaintance with his thought is lost when the connection is broken. One may understand the plan of tax reform by itself but one comes far short in that case of understanding the idea which inspired Henry George.
In spite, therefore, of the immense circulation of George's writings, especially of Progress and Poverty (which I suppose has had a wider distribution than almost all other books on political economy put together), the full sweep of George's ideas is not at all adequately grasped by the American public, not even by that part which has experienced what we call a higher education. Henry George is one of a small number of definitely original social philosophers that the world has produced. Hence this lack of knowledge of the wider and deeper aspects of his thinking marks a great intellectual loss. In saying this, I am not speaking of acceptance of his ideas but of acquaintance with them, the kind of acquaintance that is expected as a matter of course of cultivated persons with other great social thinkers, irrespective of adoption or nonadoption of their policies.
I should hesitate to write in this way, lest I might be thought to depreciate the practical importance of his plan of social action were it not for two things. One of these things is the fact which I have already stated. His theoretical conceptions and his program of social action are so closely united that knowledge of the first will inevitably lead on to a better understanding of the second. The other reason is more immediately applicable. Actual social conditions (like those for example of the present) are bound to raise the problem of reform and revision of methods of taxation land public finance. The practical side of George's program is bound in any case to come forward for increased attention. It is impossible to conceive any scheme of permanent tax reform which does not include at least some part of George's appropriation by society for social purposes of rental value of land. For instance, we are just beginning to understand how large a part unregulated speculation has played in bringing about the present crisis. And I cannot imagine any informed student of social economy denying that land speculation is basic in the general wild orgy, or that this speculation would have been averted by social appropriation, through taxation, of rent. To a large extent, then, some knowledge of the directly practical side of George's thought is bound, in the long run, to result from the movement of social forces. A corresponding knowledge of George's theory of the importance of land -- in the broad sense in which he uses the word -- in social development, of the causes of moral progress and deterioration, cannot be secured, however, without an understanding of his underlying philosophy.
The importance of a knowledge of this underlying philosophy is urged in spite of the fact that the present writer does not believe in the conceptions of nature and natural rights which at first sight seem to be fundamental in the social philosophy of Henry George. For, as I see the matter, these conceptions are symbols, expressed in the temporary vocabulary of a certain stage of human history of a truth which can be stated in other language without any serious injury to the general philosophy implied. It has repeatedly been pointed out that the real issue in the "natural rights" conception is the relation of moral aims and criteria to legal and political phenomena. Personally, I have little difficulty in translating a considerable part of what George says on nature over into an assertion that economic phenomena, as well as legal and political, cannot be understood nor regulated apart from consideration of consequences upon human values, upon human good: that is, apart from moral considerations. The question whether a "science" of industry and finance, of wealth, or of law and the State, can exist in abstraction from ethical aims and principles is a much more fundamental one than is the adequacy of certain historical concepts of "nature" which George adopted as a means of expressing the supremacy of ethical concepts, and on this fundamental question I think George was in the right.
This statement brings me to the connection which exists between the foregoing remarks and the work of Dr. Geiger to which the remarks are introductory. In connection with every topic he discusses, Dr. Geiger makes it clear that a vital connection between ends, human values, and economic means is at the basis of George's distinctive treatment. This fact alone gives a distinctive and timely color to this book. Moreover, the significance of Dr. Geiger's treatment does not stop at this point. There is no phase of the work and the influence of Henry George which is not considered. The account of his life and development forms a personal thread which binds all the parts together. Dr. Geiger has given us a book which meets the contemporary demand for an adequate interpretation of the thought and activity of Henry George regarded as a vital whole and not as an aggregate of isolated parts. It will enable the reader to obtain a clear and comprehensive view of one of the world's great social philosophers, certainly the greatest which this country has produced.
"OUR present taxing system,” the late Judge Jaggard of the Supreme Court of Minnesota, once exclaimed, “is the most asinine imaginable.” A strong statement that! And yet any student of taxation will tell you that it might be applied not only to the system in Minnesota to which the judge was referring, but to the fiscal policy of every state in the Union.
Benjamin Harrison, President of the United States as well as eminent constitutional lawyer, jokingly suggested as the only reform possible, an invitation to the rich men of the country to come forward and generously hand over all their property to the government. Every remedy seems to have been suggested from that of President Harrison to that recently made by a self styled “economist,” who urged that all property should be taxed, as the true principle, and to carry it out, that any property wilfully omitted from the taxpayers’ sworn statement should be unceremoniously confiscated by the state.
Wonderful, is it not? Pick out almost any of us, and ask him how he would manage it, if it were his own private business, and I would wager dollars to doughnuts, that he could in a jiffy have a system answering every canon of taxation and every dictate of justice. And yet there we stand, 90,000,000 of the most progressive people on earth (by our own admission), and what does Shakspere say -- “in apprehension so like gods?” — and heirs to all the wisdom of the gods that went before us, able to avail ourselves of their mistakes and experiences from hoary old Egypt’s time up to our very own, tinkering with the problem in over forty independent experimental stations, and yet, unable to evolve a better system of raising our public revenues than one characterized and generally admitted to be asinine.
Now what are the canons of taxation? The economists tell us—but let us not rely on what others tell us. What, shall another tell us how to run our own business? We, all the people, want to do the right thing, don’t we? So let us ourselves evolve a system which will do the right thing by all of us. What requisites, then, must a system of taxation have in order that it may deal justly with all of us and with each of us.
Well, first, it must be a just tax. But what is a just tax?
Qualification 1. A just tax must not have the effect of taking property from one of us and transferring it to another’s pockets; and conversely, it must not take something belonging to all of us and transfer it to one of us, nor take from one of us more than his share.
Qualification 2. A just tax should be certain, so that it shall not offer any incentive to graft and corruption, to injustice, and so that each one of us should be able to see that it works justly.
Qualification 3. A just tax should take from the citizen in proportion to the benefits he receives, value for value given, and no more.
Qualification 4. A just tax should not be oppressive, nor kill nor drive away the goose that lays the golden eggs.
Qualification 5. A just tax should be easily ascertainable and collectible, or inexpensive, as the expense also falls on the citizens.
Qualification 6. A just tax should stay put,-—one that cannot be shifted; for if the one paying it can shift it by adding the tax to the price of the article taxed, it will finally occur that some will be enabled to shift the whole burden to the shoulders of others.
Here I pause, when some “economist” cries out, “Oh, but you have left out the most important canon; to wit, that in order to be just, the tax should fall as equally as possible on all the members of the community, and that this merely means that each ought to pay according to his ability."
That sounds well, but let us see. Just imagine an office building, one of your 45-story modern sky scrapers, owned by its tenants in common. Now you have each tenant occupying a certain space. Its heating, gas, and water plants are its public utilities. Its elevator service is its traction system. It has its police and health department in its janitors. It perhaps has its private fire department, and possibly its own private hospital in its sick and resting rooms. A complete little government or city in itself. Now suppose you go to those tenants and ask them to raise the revenues for the support of that building by a tax, what would they call assessing each other equally? Say it costs $20,000 per annum to run that building, would they divide the expense among its two hundred tenants, assessing each $100? Or can you imagine them assessing each other according to their ability to pay, or the amount of business they did? Not if they were sane. What then? Manifestly they would assess each tenant according to the value of the space he occupied in that building. That, each would instinctively recognize as the just tax, as the one that treated all with equal favor, — equally, equitably, and justly. That tax or assessment would be easily ascertainable and collectible, would stay put, and could not be shifted from one tenant to another. It would take from each a value that belonged to all, and from no one, a value belonging to him alone. It would entail no corruption; for each would know how much space he occupies and the value of that space. It would be inexpensive, as one official could assess and collect all of it. It would not be oppressive, for you could not collect more than the value of the space each occupied; and if a tenant paid less than that value, other tenants would object to his taking part of a value that belonged to all for his own private pocket. If the amount collected was more than was needed, the surplus would be put in the public treasury for the benefit of all the tenants; and if they desired, they might with it add a library or any other improvement in the building that would add to their common use or enjoyment; or they might, if they desired, grant a pension out of the surplus to such tenants as were disabled in that building.
Suppose the tenants should, however, adopt your system of making each pay according to his financial ability. What would happen? Why the same thing that is happening wherever it is tried. How would you gauge the tenant’s ability to pay? Well, as we do now, by his sworn returns, of all his property, money in bank, etc. Second, by the kind of clothes and furniture he had. Third, by a system of spies prying into the private affairs of each tenant. Fourth, perhaps, by making each tenant pay a tax on everything he bought outside of the building. (This would, of course, serve the double purpose of raising revenue, and “protecting" the tenants.) Fifth, by an income and inheritance tax; and lastly, by assessing each tenant, in front of whose door you had repaired the hallway, so that tenants walking in and out of his office should not break their necks.
The result would be as follows: Most of the tenants would become perjurers, and swear they were paupers. The system of spies, euphemistically termed deputy assessors, would be rather expensive. The temptation to use bribery and show favoritism would prevail, as each tenant would try to get as low an assessment as possible. The more cunning and able who could control the election of assessor would pay less, and the weaker and honest, more. Soon you would have a “Boss,” who would by promises and favors control the election. The tenants, who like the farmers, must keep their property in full view, would get the worst end of the bargain, while the bankers and brokers who could conceal their assets, the best end of it. The tenants selling goods would add their assessment to their expense, and so shift the tax to the purchasing tenants, and so no one could tell who was actually paying the assessment. Some of the tenants would soon engage in smuggling in goods to evade the "protective” tax. Incomes and inheritances would be concealed as much as possible, the honest and the guileless alone paying their share. You would have a premium on crookedness and a fine on honesty. The tenants would be discouraged from buying good clothes and furniture, besides their purchasing power being diminished by the tax; and they would fight like steers, to keep the defective walk in front of their door from being repaired. Some of the more farsighted tenants would pre-empt as much space as they could get, and sublet to others as they came in, holding some of the space for a rise in value. Soon some of the tenants would discover that they did not need to work, that it paid better to sit back and let the other tenants work, and just pay them rent. This rent would of course go up with every increase in the prosperity of the working tenants, so that no matter what the working tenants produced, the increased rent would absorb it all. With every new tenant increasing the value of space in the building, and the space lords getting more rent than they could use, they would then loan it back to the other tenants as capital, and in the form of interest still further deplete the wealth of the working tenants. And why any sensible tenants should go to all that expense, trouble, and complication, when by assessing each according to the space each occupied it could all be avoided, is beyond the comprehension of a sane mind.
Yet is not that exactly what we, all of us, tenants in common of mother earth, — of city, county, state, and nation, — are doing? Here are a thousand and one proposals, a very babble of tongues, — tariff for revenue and tariff for protection, income, inheritance taxes, direct and indirect tax, — and there is the one plain thing to do, so evident to the single taxer, and yet all others seemingly unable to grasp the thought. For the single tax is nothing more nor less than this, — abolish all other taxes, tariffs, and assessments. Instead assess yourselves according to the value of the space you occupy.
Here some one objects, “Would you put all taxes on that little farm, or that little home, and exempt the stocks and bonds of the rich and the stock of the department store?” My answer can only be, that if that were the effect of the single tax, all the “interests” in the country would be clamoring for it, instead of fighting it tooth and nail, as they are doing in Oregon, Washington, Missouri, and Ohio. In the last state, at its recent constitutional convention, the large business interests there represented had a prohibition put in the new Constitution against the initiative and referendum, then adopted, ever being used to bring in the single tax. Now the initiative and referendum are always desired by the common people. The rich do not need it. They can usually get what they want more easily by lobbying through the legislature. And yet these rich interests put in a constitutional inhibition against the “mob” ever using the initiative to lift the burden of taxation from stocks and bonds and putting it on the small farm and home. Queer, is it not?
No, Mr. Objector, the only thing about the farm that would be taxed under the single tax, would be the site value of the land. His improvements, cultivation value, stock, buildings, and machinery would all be exempt, and so he would pay less than he does now. One lot in a city 40 by 100 feet, that is valued at $10,000 would pay more taxes than three farms of 160 acres each. And that lot in New York that recently sold for $800,000 would pay as much taxes as a whole county of farmers.
Under the single tax, most of the value of that lot in yearly instalments would go into the public treasury to meet the expenses of government, and so would take off the taxes now resting on the small home and farm. Now its value goes into private pockets, and is paid by the farmer and small home owner, when they buy the goods manufactured or sold on that lot. Having paid this, Mr. Farmer and Mr. “Small-home-owner” are taxed again on their piano, sewing machines, sugar, and what not, by a complicated system of taxes, tariffs, and licenses, all designed to “protect” him, yet it is estimated, strange to say, by taking away from $15 to $20 a month of his small earnings.
A lot on which a small home stands is probably worth $1,000. It is on that valuation that the single tax would be levied, the building, usually worth twice that sum, being exempt. Here Mr. Objector again demurs, "Here is a man that owns a lot on which stands a skyscraper worth $100,000, and next to it is a lot of the same size on which stands a “humble home.” Would you tax them both the same?” My answer is, that humble homes are not erected next to skyscrapers, as the land next to such a building is usually worth say $10,000, and humble home owners are usually not fortunate enough to possess anything more valuable than a thousand dollar lot under their homes. But why should the owner of that skyscraper be fined for building it? By doing so he has benefited the community. We want more buildings. More buildings mean more work and cheaper rent. The man who owns that vacant lot next door is conferring no benefit on the community. He is merely lying in wait, his land absorbing the benefit of every improvement in the community, of every person coming to or born in that community; and at the right moment he will get up, title deed in hand, and hold up the user of that land for a certain amount, which amount the community must pay in the last analysis, in the added price of the things sold or produced on that land. Thus, the members of the community will pay him a value that they have themselves produced. If anyone ought to be taxed more, it is the man who holds land idle, and not the one who puts it to use. But who pays that increased tax on the skyscraper? Not the owner, but the tenant. And who pays the tenant? The man who does business with him. So that it gets down again to Mr. Common-man. It is absolutely beyond the ingenuity of man to devise any tax on personal property that will not be shifted.
Can a tax on land be shifted? No. A tax on land, exclusive of improvements, puts a penalty on holding land out of use, and a premium on using, improving, it. It therefore forces more land into use.
The owners of land being obliged to either use it or sell, its price falls. And so, instead of the tax being added to its price, the tax cheapens its price.
“But why,” says Mr. Landowner, “should land alone be singled out of all property for taxation?” Well, Mr. Landlord, for one reason, because our canons of taxation point your way. If those canons are correct, there is but one conclusion possible. If they are not, it is for you to point out the error. For another reason, because the value of land is peculiarly the result, not of your labor, but the result of the working of the community. It is a community-produced value. Anything else that you own is the product of your own labor or some other person's labor. Did you make that land? You might have been in China without affecting its value. You might have never done a stroke of work, and still the value of that land would go up with every increase of population, and every improvement, public or private, in the community. There it is, as it was since the six days of creation. Fifty years ago, it was worth $10. Twenty years ago its value had increased to $200. Ten years ago its value had risen to $1,000, and to-day it is worth $10,000. Yet it is vacant now and always was so. That is the constant phenomenon of land values. Buildings —everything else deteriorates, decays, disappears, becomes cheaper as time goes on. “There is only one crop of land,” and that is ever growing dearer, absorbing the surplus value produced in the community. There in New York it increased $200,000,000 a year from 1896 to 1900. Who made that increase? The labor of its owners? No. Every man, woman, and child coming to the city, every new street laid, library, building, or home put up has made that value. Now if the value was produced by the community, why is not the community entitled to it? What I produce is mine. What you produce is yours. What we all produce is ours. And just as it would be robbery for me to appropriate what you produced, so is it equally robbery for any one of us to privately appropriate what we produce.
Notice further. Just as in that office building, we saw that as the tenants increased, and the building’s needs increased, its space value became dearer, and so the revenues increased; so in the community the same phenomenon appears. In your small village, its needs and expenses are small. So are its land values. As that village grows to the size of the metropolitan city, its land values rise in direct proportion to its needs. And when its expenses require millions, one little lot is worth a hundred thousand dollars or more. Now morally, the owner of that lot is not entitled to its value. Its value was produced bythe community, and it is therefore robbery for him to appropriate it. The single taxer points out that there is the natural source of the government’s revenues. There is the fund which belongs to the community, and to which it alone is entitled. And it is not entitled to one cent of money or property which I individually produced by my labor.
The owner of the land, you object, may have bought it, and gave the product of his labor for it. Suppose, however, he had bought a slave. By law, I admit, he might be entitled to the product of that slave’s toil. But morally, though he had paid a lifetime’s honest earnings for the slave, he would not be entitled to anything that slave produced. You cannot make something rightful property by purchase which is not so in fact. The title, defective at its source, remains defective, no matter how many times transferred.
Consider what is meant by the assertion of ownership to land. The assertion of ownership to this pen or suit of clothes implies the extension of that right to morally own any number of pens or suits, even to the extent of owning all the clothing now in existence. If I acquired all that clothing rightfully, that is, by giving the products of my labor in exchange therefor, no one could object to what use I put that clothing, so long as I did not create a nuisance. That is true from the nature of things. The amount of clothing that can be made is unlimited; and if I choose to refuse the use of my clothing, either by purchase or exchange, that is my business; and mankind must get busy and make other clothing, and until then, if necessary, use fig leafs to cover its nakedness. Presumably, when I acquired that clothing, I had given equal value therefor, — my labor or its product, for your labor or its product. But suppose I should purchase all the earth, its surface, space, or sites. I might have given the product of my labor, but would I be getting in return the product of anybody’s labor? No. All the sellers could give me or would be giving me would be the right (?) not to let anybody work on that land, until they either gave me or agreed to give me part of their labor. Just think what is implied, when I sell land to you and your heirs forever. I give you a perpetual mortgage on all the labor that shall ever be employed on that land from now until all eternity. Generations will have come and gone, I will have been long dead and forgotten, and yet your descendants and their assigns will be collecting a toll from everything produced on that land, — perhaps a half or a third or two thirds interest, — because you a thousand generations back gave me $10 worth of potatoes, and I gave you a piece of paper describing that land.
Now when I owned that clothing I could morally exclude all people from the use of that clothing. Could I, by owning all the earth, morally exclude all people from living on my earth? “Ah,” you say, you are merely pushing a qualified right to an extreme.” My reply is, that for the same reason that you qualify the right, you must also deny it. For why do you qualify the right? “Because,” you answer, “to give me the right to own all the surface of the earth were to give me the power of life and death over my fellow beings; and that right you cannot admit in anyone, because it is inconsistent with the equal right of all persons to be on this earth.” But, say I, the other persons could work for me and so by their labor purchase part of the earth’s surface from me. You then object that the right to sell implies the right to refuse to sell; and if I refused, I could make all people either quit the earth, or give me almost all their produce as rent. The right, you say, must then be restricted so that each person can own a limited portion of the earth’s surface. Well then, say I, let us divide the earth’s surface among all its inhabitants; surely that is reasonable. Now tomorrow a baby is born. He, in course of time, becomes a man. Say his father has sold or squandered his estate, or willed it away to another child. He also has a right to live on this earth, has he not? Must he quit the planet, unless he finds someone willing to sell him a portion of the earth’s surface? If so, then his life is dependent on somebody’s willingness to sell or not to sell. That is, they have the power of life and death over him. And I thought you said that all persons had an equal right to live. So that it seems that your qualified right when'examined becomes no right at all.
The single tax obviates the difficulty by taking the value of every piece of land, the rental value, for the benefit of all the people. Such land as had no value would of course pay no tax, being free to any user.
Government, society, is a benefit that all of us confer on each of us. The price of a benefit should not be graduated according to the ability of the person to pay, no more than when you sell clothing or office space, do you charge a rich man more than a poor man. Get any tax that does not satisfy our canons or qualifications, and it won’t work, that is all. Tax incomes and inheritances, and only the honest will pay it. It violates qualification 2, and so breeds corruption and perjury. It is beyond the ingenuity of man to devise an unjust tax that will work out justly. Tax goods, and you kill the goose that lays the golden egg. Your tax is added to the value, and so decreases the purchasing power of the masses. When you tax dogs you want less dogs. Do you want less goods or buildings? Besides the purchaser pays it, and so it does not stay put. Stocks and bonds are in the nature of mortgages, and no tax has yet been devised which the mortgagee could not shift to the mortgagor.
The tax on land values satisfies all the canons of taxation. It cannot decrease land, but will decrease its price. It can’t be shifted, because it cheapens land. It is easy of assessment. All of it is in view, and its value easily ascertainable. It takes from no one what he produced, and assesses each according to the value of the space he occupies. It is inexpensive to collect, and needs no espionage system. It is just, and free from incentive to graft and corruption. It stimulates the use of land. More land used means more demand for labor, and that means higher wages. More labor employed means more commodities produced, and that means cheaper commodities. High wages and cheap commodities spell, among other things, the solution to the high cost of living. But that is without the domain of my article. I was merely to discuss the single tax as a fiscal system, not as a social and economic philosophy.
"In a study of 2010 nationwide property tax rates, the average homeowner paid a median of 1.14 percent of home value that year, according to the Tax Foundation, a research group. In Manhattan, that figure was 0.78 percent. For the $88 million apartment at 15 Central Park West, 0.78 percent would be $686,000. But this year, the property taxes due on that penthouse were $59,000."
Just think how much productive activity we could untax were we-the-people to collect some portion of that annual land rent for public purposes. And consider how unproductive the Lords of Land are. What have they done to earn that land rent? Is our "tradition" -- to let them keep it -- a wise or just one, or is it part of our wealth concentration structure?
Here are the two articles, with a couple of calculations added: (Notice that acreage is not even mentioned!)
NYC Trump Co-Op Dwellers Face Million-Dollar Bills By Oshrat Carmiel Nov 6, 2014 4:16 PM ET
The ground beneath Trump Plaza, at 167 E. 61st St., is up for sale as land prices break records. Manhattan’s surging land costs are leaving the shareholders of an East Side luxury co-operative with a tough choice: pay a hefty price to buy the land under the building, or face increasing bills to keep renting it.
The ground beneath Trump Plaza, at 167 E. 61st St., is up for sale as land prices break records. The co-op board has offered to buy the property for $185 million, a cost that would saddle residents with assessments that, for some, would top $1 million, said Adam Leitman Bailey, a New York real estate attorney who has been contacted by owners concerned about the deal before it goes into contract.
“People are calling me to stop this from happening,” said Bailey, who has reviewed board documents but hasn’t been officially retained. “People want to stop the assessment.”
The 31-year-old co-op, which makes annual rent payments to the family that owns the ground, is weighing its financial future at a time when rising prices for land make it attractive for investors to buy such property for a reliable stream of rental income. The board opted to put in a bid as it otherwise faces the prospect of a steep rent increase when the lease resets in 2024, Bailey said.
“The fact that the family put it up for sale should terrify the co-op,” said Joshua Stein, a Manhattan real estate attorney who isn’t involved in the transaction.
“Whatever opportunistic investor buys the land will probably be way more aggressive about the rent reset than either an estate or a group of heirs,” he said. “Someone who is buying it, is buying it specifically to squeeze out every last dollar of rent.”
Marc Cooper, president of the co-op board and vice chairman of investment-banking firm Peter J. Solomon Co., didn’t return a phone call left at his office yesterday seeking comment on the plan to purchase the ground.
Co-op residents buy shares in a corporation that owns the building, rather than getting a deed to the apartment itself, as they would in a condominium. Shareholders make monthly maintenance payments that collectively cover building costs such as mortgage payments, ground rent and operating expenses.
A Trump Plaza shareholder with a 1,000-square-foot (93-square-meter) one-bedroom apartment whose monthly maintenance fee is now about $2,100 would pay about $9,800 after the rent is recalculated in 10 years, Bailey said, citing a projection by the building’s co-op board. The rent increase would be about 8 percent of what the land value is in 2024, he said.
Buildable lots in Manhattan sold for an average of $657 a square foot in the third quarter, up 29 percent from a year earlier and an all-time high for the period, according to Massey Knakal Realty Services. Three purchases completed in the quarter were for more than $1,000 a square foot, the firm’s data show.
LVTfan here: That $657 per square foot is NOT per square foot of land (at 43,560 sq ft per acre, that would be just $28.6 million per acre, laughably low in Manhattan). Rather, it is per buildable square foot. Quick and dirty, if a, say, 20 story building can be built on a 10,000 sf footprint, constituting 200,000 sf, the calculation would be 200,000 times $657, or $131.4 million, for that 1/4 acre, which works out to over $500 million per acre. $500 million per acre -- compared to an acre of good agricultural land, at $5,000 per acre, that's 100,000:1. (And for those 3 purchases over $1,000 psf, add 50% to that ratio.)
Possibly difficult for those of us who see land which sells for $5,000 or $50,000 or even $500,000 per acre to fathom $500 million per acre. But that's reality!
Trump Plaza’s situation is different from most other co-operatives in Manhattan, which do own the land on which the building sits and make no rent payments. Co-op units with ground leases tend to sell at a discount because they have higher maintenance costs and buyers sometimes face challenges getting mortgage financing. Other ground-lease co-ops in New York include 995 Fifth Ave., the Excelsior at 303 E. 57th St. and Carnegie House at 100 W. 57th St.
The ground beneath the 324-unit Carnegie House was purchased for $285 million to a group that includes Rubin Schron’s Cammeby’s International and real estate investor David Werner, Christa Segalini, a spokeswoman for Cammeby’s, said today. The 21-story building, with an entrance on Sixth Avenue, occupies an entire block front from 56th Street to 57th Street, according to real estate website Streeteasy.com.
For shareholders at Trump Plaza, buying the land beneath them means coming up with large sums of cash up front. Each owner was assessed a fee of about $2,329.40 a share, according to Bailey.
A resident of a two-bedroom unit who holds 440 shares in the corporation, for example, would be charged $1.02 million, Bailey said. A 1,600-square-foot three-bedroom apartment, worth 671 shares, would get a $1.56 million assessment. Residents get more shares the higher up their apartments are in the 39-story building.
The 154-unit Trump Plaza, at 61st Street and Third Avenue, was completed in 1983, according to StreetEasy. A 2,800-square-foot unit on the 32nd floor with views of Central Park is listed for sale at $3.95 million. The monthly maintenance charge for the three-bedroom, four-bathroom apartment is $7,228, according to the website.
LVTfan here: One might reasonably wonder how much (a) the sellers of the land were paying NYC in property taxes; (b) how much of the monthly "maintenance charge" for the condo is paid by the condo complex to the city in property taxes (which pay for the schools and lots of other public services) and how much is for the building and its services to the condo owners; and (c) how much the land share of that 32nd floor unit is. If a 1600sf apartment gets a $1.56 million assessment, the 32nd floor apartment, at 2800sf should be roughly twice that, or about $3 million. Thus, the $3.95 million asking price on the 32nd floor is about 4/7 of the total value, or 56%; the other 44% is land value.
The sale of the ground beneath the tower hasn’t gone into contract yet. Douglas Harmon and Adam Spies, brokers at Eastdil Secured LLC, are representing the owners, who are listed in public records as the estate of Donald S. Ruth and members of the Ruth family. Spies declined to comment on plans for the sale.
A purchase of the land by the co-op ultimately would add resale value to the building’s apartments, Stein said. Extinguishing the ground lease permanently removes the threat that rents will reset to unaffordable levels. With that uncertainty gone, future buyers would be willing to pay more for a unit in the tower, he said.
“If you’re the co-op, getting rid of that threat is a really good thing,” Stein said. “There’s a lot of value being created.”
To contact the reporter on this story: Oshrat Carmiel in New York at email@example.com
To contact the editors responsible for this story: Kara Wetzel at firstname.lastname@example.org Christine Maurus
Carnegie House at 100 West 57th Street (Photo credit: Google)
David Werner, a Borough Park investor who has wowed New York City with a series of big buys this year, partnered with Rubin Schron and the Cohen family to pay $285 million for the land under 100 West 57th Street, sources told The Real Deal. The 324-unit Carnegie House cooperative building is the ground tenant on the property.
A person close to the deal said the investment group closed yesterday on the purchase of the property, which is located at the corner of Sixth Avenue and 57th Street.
Insiders expect to see more pricey sales of land under co-op buildings with resets looming.
In fact, the sale is being mirrored nearby with the marketing of the ground under the Trump Plaza at 167 East 61st Street, which has a rent reset in 2024. Eastdil Secured brokers Doug Harmon and Adam Spies have that listing.
The co-op building has a ground lease that runs for another 51 years with the property owner, currently paying about $4.4 million per year. In approximately 10 years, the rent for the ground lease payments will reset. That reset will be based on market values.
an average of $13,600 per year per family -- ignoring the commercial tenants
Ground resets typically price the new rent at about 6 percent of the current market value.
Investment sales broker Robert Knakal, chairman of Massey Knakal Realty Services, estimated the value of the land to be at least $1,200 per square foot and up to $1,500 per foot, if the value of the retail is taken into consideration. Knakal is not involved in this property.
At that value, the land with 377,000 square feet of development rights, would be worth $452 million. That could work out to an annual rent payment of $27 million per year, if reset today, according to an analysis by TRD.
An average of $83,300 per family -- ignoring the commercial tenants
To help fund the purchase, the group obtained a $180 million loan from Natixis Capital Markets in a deal arranged by Drew Anderman, a senior managing director at the mortgage brokerage firm Meridian Capital Group, insiders familiar with the deal said.
At a conference Friday at Yale University in honor of newly minted Nobel laureate Robert Shiller, economist Karl Case of Wellesley College paid tribute to his long-time research partner with an original poem on the lessons of the real-estate bubble and its aftermath. In the 1980s, after many years of research, Case and Shiller together created what are now known as the S&P/Case-Shiller residential real-estate price indexes—the measures that led Shiller, in 2005 through 2007, to predict that home prices would collapse.
While economics professors are not known for their appreciation of rhyme and meter, Case’s poetic tribute received a warm round of applause from the academic audience. We reprint the full text of the poem here, with Case’s permission, a few tiny tweaks and without further commentary.
Reflection on the Housing Market: Seven Years After the Fall By Karl E. Case
For the last dozen years we have shed many tears
Living through a recession
The world was broke and it was not a joke
When we talked of another depression
Fifteen million without a job
Foreclosures and banks that fail
401k’s became 201k’s
And everything’s up for sale
How could it be? What didn’t we see
That led to all of this trouble?
There is little doubt that the proximal cause
Was a bursting housing bubble
But other than that who can we blame?
And what do they lament?
Millions of people contributed to
This hundred year event
For me it began in ’76
With a house on Cleveland Road
At 54 thousand, I thought it a lot,
For a small three-bedroom abode
But 10 years later that very same house
Would sell for five times the price
I was glad that I bought … I remember the thought
“This may not be fair but it’s nice”
In Boston alone, that boom created
100 billion in wealth
We spent more, saved less, and I have to confess
It was good for our mental health
We had to know that it couldn’t go on
Someday prices would fall
We knew there were risks – to ourselves and our fiscs
If those prices were ever to stall
It all began in 2001
911 … the dot.com bubble
The Fed had to act because of the fact
A recession would mean big trouble
So the Fed Funds Rate, sitting just below eight
Was cut to under two
And you had to know with rates so low
That a refi boom would ensue
The volume of mortgages written back then
In a single quarter in 2003
A trillion in originations!
But something happened late that year
That caused long rates to rise
And that was the end of the refi boom
It came as quite a surprise
With refi’s gone so were big fees
But banks still had money to lend
And the search for buyers to fill the gap
Seemingly had no end
The Fed kept pumping through 2005
To keep short rates very low
With no sight of inflation across the nation
The target was simply to grow
Of course the key for all to see
Was a robust housing market
Buyers could borrow lots of cash
And a house was a good place to park it
A summer home … a new big house
No one seemed to care
Homes were made of bricks and land
The value would always be there
It didn’t matter what rate you paid
Or what you made in a year
For a while liquidity led to stupidity
“Just sign and see the cashier”
High LTV’s and Option ARMs
Negative Am’s and more
2-28’s with teaser rates
And ridiculous Fico scores
Competition was the force
That made the music play
As long as prices didn’t fall
Everything was OK
People could always sell their homes
For more than they had paid
That kept foreclosures and defaults low
And lots of money was made
Fannie and Fred were always ahead
Then Countrywide got in the fray
Then Lehman and Merrill and Goldman Sachs
Couldn’t be kept away
You can guess that MBS
Helped make the trading brisk
Investors, thought that the paper they bought
Was traunched with well measured risk
To that add leverage and default swaps
And then house prices fell
The intercept shift was very swift
And that was the closing bell
The very first city to see the drop
Was Boston in 2006
Then one by one they began to slip
Leaving us in a fix
We tried the tax credit which seemed to work
For a few months the markets came back
But when it expired the markets got mired
Resuming their downward track
The inventory of unsold homes
Still continued to grow
And we’re hardly building any new homes
With starts at a 50-year low
A number of problems remained as risks
As we wait for markets to turn:
The number of loans that still need to be marked
Is making stomachs churn
Twelve million who want to work
Don’t have jobs today
And slow is the pipeline of loans in default
Since no one wants to pay
In the longer run a lot depends
On the rate of household formation
That depends in part of course
On the rate of immigration
It also matters what kids do
Like living with Mom and Dad
Or doubling up till they get a job
To pay for their very own pad
For a while there was talk of a double dip
The recovery was in a stall
Consumers were down and beginning to frown
Jobs hadn’t come back at all
The Euro was falling, the banks were appalling
As we wallowed in bad sovereign debt
Europeans were asking aloud
Really … how bad can it get?
The guys at the Fed have repeatedly said
That their mandate includes employment
But with rates at zero no one’s a hero
No weapons are left for deployment
QE1 was lots of fun
Then along came QE2
We did the “twist” and we took on more risk
Not knowing just what they would do
So now we come to the end of this ode
Without much to say for certain
I hate to say, that’s where we are
Not beginning nor final curtain
The truth of the matter at the end of the day
Is that markets will make you humble
Just when you think that it’s time for a drink
They will turn and fortunes will crumble
That free markets work to provide what we want
Is a notion that’s not in dispute
The problem is that once in a while
And when they do in a market so large
A lot of people feel pain
In the blink of an eye many gave back
What it took 10 years to gain
Among those who are getting the blame
A few deserve to be flayed
But a forecast can only be judged against
What we knew at the time it was made
Sometimes the future is like the past
And sometimes it is not
But when it comes to what we know
The past is all we’ve got
Of course there is greed and there is a need
For moral hazard and rules
And for figuring out the effectiveness
Of the new financial tools
Politicians, of course, are starting to shout
That they want more retribution
It’s better, I think, if they used their time
Helping to find a solution.
LVTfan here -- all the questions, but where are the answers? Seems very agnostic, not particularly concerned about what changes in public policy could leave a better situation for the next generation. We can't leave it to the politicians. By our design, they are available to the highest bidders.
It appears that someone in Congress -- probably multiple someones -- feels that we're not giving away the Commons fast enough, and that the federal government ought to rely on other kinds of income rather than collecting the fair market rent on the land on which individually owned cottages sit within Forest Service lands, those rents ought to be reduced! They've asked the CBO to estimate the costs of this gifting.
A bit of calculating reveals that the owners of the 14,000 cottages are paying, on average, $2,142 in land rent annually, at 5% on older valuations of the land, suggesting that the average lot is currently valued at about $43,000 for land rent purposes. Interestingly, these are apparently longtime owners; average turnover is 400 per year, or 2.9%.
When we-the-people lower the rent below market value, what happens to the selling price of the homes? The selling prices go up. In other words, the leaseholders who want to sell can charge buyers more for the house. Aren't we nice to provide those homesellers such a gift?
Not only that, our gift is to be retroactive to the beginning of 2014, it appears!
They propose to cap the fees at $5,600, no matter what the updated valuation of the land might be. That is, no matter what the real value of the cabin's site might be, for land rent purposes, the impolite fiction would be that it is worth no more than $112,000. No matter what the view is, what the location is, how good the infrastructure is, what services the federal employees provide to keep the lot accessible. This sounds a bit like California's Proposition 13, which detaches property taxes from current valuations.
More typically, if a tenant gives up a lease, they are expected to remove their cottage from the lot and leave it clean for the next tenant. The landlord -- we the people -- shouldn't have to deal with abandoned cottages.
Why on earth would we-the-people sellassets such as this instead of leasingthem, producing an income that would benefit future generations??? That would be Natural Public Revenue.
The value of that acreage will rise over time. Why will that be private, or corporate, gain, rather than public gain??
U.S. Government Sells 400,000 Acres in Gulf
By THE ASSOCIATED PRESS AUG. 20, 2014
The federal government has sold more than 400,000 acres in the Gulf of Mexico off the Texas coast for oil and gas exploration and development, an official with the Bureau of Ocean Energy Management said Wednesday. The acreage represents a small fraction of the 21.6 million acres the agency had offered as part of a five-year program to develop resources on the outer continental shelf. Offerings since 2012 in the western Gulf attracted buyers for about 60 million offshore acres, adding about $2.3 billion to the Treasury. Wednesday’s sales, if approved, will bring in about $110 million. BP submitted the largest number of high bids, winning 27 of the 81 tracts that sold. It was the first sale in the western Gulf for BP since it was barred from such auctions after the 2010 oil spill. Conoco Philips spent the most of the 93 bidders in the sale, paying about $61 million for a tract in the ultra-deep-water Alaminos Canyon area.
I posted this comment elsewhere, and thought it worth sharing here:
I've not read far into the book yet -- and it is available online as a PDF file -- but by the time I was into the first chapter, it was clear that Dr. Piketty's economic education, extensive as it might be, entirely omitted the ideas of the classical economists who described a 3-factor economy: land, labor and capital. Piketty, like nearly everyone educated in economics in the past 40 to 80 years, writes as if there were only two factors -- labor and capital -- treating land as if it were a mere subset of capital, with no reason to recognize it as differentiated.
Land -- not only urban sites, but also the other things the classical economists would recognize as Land, such as water rights, oil, electromagnetic spectrum (our airwaves which we all say belong to the American people, but which are in reality owned by corporations), landing rights at busy landlocked airports, geosynchronous orbits, urban street parking, the value of dozens of other non-renewable natural resources -- is completely different in character from that which is created by labor. To fail to recognize that difference lies at the bottom of our inequality problem.
That which individuals and corporations produce is rightly individual property. That which the community and nature produce is rightly common property, belonging to all of us. Conflating Capital and Land leads us to permit the privatization of that which is rightly our common treasure.
You might be interested to know that the Landlord Game, invented by 1902, was intended to teach this concept. You have probably played Monopoly, which was based on this game, played with very different rules.
Explore the ideas of Henry George. Between 1885 and 1900 or so, everyone knew the name and many well understood his ideas. You might start with "Social Problems" or the more analytical "Progress and Poverty," or his speeches, "The Crime of Poverty," "Thou Shalt Not Steal," among others, online at http://www.wealthandwant.com. See also http://lvtfan.typepad.com.
Dr. Piketty and others whose education in economics has omitted George's ideas should not be treated as experts; they've mixed apples and oranges and not noticed that what they've created impoverishes the vast majority of us -- and enriches a few. (Parenthetically, consider who donates heavily to our universities.)
I was listening to Bob Edwards interview Ralph Nader, on the occasion of the latter's publication of a new book, and Nader was talking about things the left and the right might be able to agree on. I was in traffic, and only half listening, but when Nader spoke of corporate subsidies, it hit me that one of the biggest corporate subsidies, and one which the average person isn't at all conscious of, is the unearned increment, the possession of unearned wealth.
It isn't that some individuals don't get to collect some, too -- particularly those who own land (with or without a building on it) in or near the major coastal cities, but the lion's share goes to corporations, and their shareholders, who tend to be the 1%.
For more about the unearned increment, start here.
"Our plan involves the imposition of no new tax, since we already tax land values in taxing real estate. To carry it out we have only to abolish all taxes save the tax on real estate, and abolish all of that which now falls on buildings or improvements, leaving only that part of it which now falls on the value of the bare land, increasing that so as to take as nearly as may be the whole of economic rent, or what is sometimes styled the "unearned increment of land values."
Can we get the leaders of the left and right to look at this, or are they owned by the corporations?
Paying taxes is rarely pleasant, but as April 15 approaches it’s worth remembering that our tax system is a progressive one and serves a little-noticed but crucial purpose: It mitigates some of the worst consequences of income inequality.
If any of us, as individuals, are unfortunate enough to have income drop significantly, the tax on that income will plummet as well — and a direct payment, or negative tax, might even be received from the government, thanks to the earned-income tax credit. In this way, the tax system can be viewed as a colossal insurance system, guarding against extreme income inequality. There are similar provisions in other countries.
But it’s also clear that while income inequality would be much worse without our current tax system, what we have isn’t nearly enough. It’s time — past time, actually — to tweak the system so that it can respond effectively if income inequality becomes more extreme.
"Respond effectively if"???
How about policies that would prevent a large portion of our currentincome inequality by either pre-collecting, for public purposes, the economic rent which rent-seekers love to capture as long as we let it hang out there, or putting a market price on privileges of various kinds -- the right to collect tolls, the right to use the airwaves, the right to string wires of various kinds along public rights-of-way, to occupy other parts of the commons and charge others to use what one puts on it. One could call it "natural public revenue."
Bob Schiller knows some of the ways people grow wealthy in their sleep, without lifting a finger. He knows about boom-bust cycles, and the economic agony they cause to ordinary human beings in our society. He chronicles, he measures, he profits from the selling of those measurements.
Probably once or twice it has passed through his mind that by some simple alterations to public policy, we could make our economy more stable, our society more just.
Perhaps he has played the game Monopoly, and maybe he knows that it was not created in the 1930s, but has its roots in The Landlord's Game, created by late 1902, to teach the ideas of Henry George, who, it is likely, was at least mentioned in his Eco 101 textbooks, though perhaps glossed over by a busy and unaware instructor.
Does he seek to reduce the income inequality by preventing it, or only collecting some piece of the privilege-payments after the fact without tweaking the system that permits them even a tiny bit?
Milton Friedman, another economic eminence, maintained that land value tax was the "least bad" tax, but never lifted his voice to promote it further than that acknowledgment (in 1968 and 2006 and perhaps in between). He likely had other kinds of interests top of mind.
Let's not just "mitigate the worst effects." Let's acquaint ourselves with the structures that create those worst effects, and destroy them! Go to the root! Be radical! Eradicate those structures!
It was Henry David Thoreau who said,
"There are a thousand hacking at the branches of evil to one who is striking at the root."
Dare Professor Schiller strike at the root? Dare he point to the root? Has he sought the root? Or is he content with hacking -- nibbling -- at branches, which doesn't help the victims a tenth as much as striking at the root?
Ironically, Professor Schiller is the "Sterling Professor of Economics" at Yale. That seat was endowed by Jack Sterling (1844-1915), co-founder of the law firm Shearman & Sterling with Thomas G. Shearman (1834-1900)*, upon his death in 1918. Shearman knew where the root was, and devoted himself to seeking its eradication. (Explore the NYT archives for references.) It is ironic that nearly 100 years later, the occupant of that seat (and many other things at Yale) is content with nibbling. But maybe it isn't surprising. Lots of alumni would not be happy to have those roots identified, and even a tenured professor could be uncomfortable being the one to call attention. They might be the ones who endow the next set of professorships, from the gains they've made based on the unjust and unwise structures their respected -- and aspiring -- professors have failed to publicly question.
Let's not "insure against inequality." (Who gets to collect that insurance, and how does it compare to theirlosses?) Let's find ways to create a level playing field on which all can prosper. Sustainable and just to all.
And let's see about making it okay for tenured professors to share those ideas with their readers and students. And more profitable than promoting structures that need to be "insured against."
David Cay Johnston wrote an interesting column recently, laying out some excellent reasons why the mortgage interest deduction should be phased out.
He points out that fewer than half of homeowners benefit from the deduction; 70% do not itemize deductions, and 30% own their homes outright.
DCJ doesn't say it explicitly, but in general, it is mostly people in and near the major coastal cities (mostly the blue congressional districts) which reap the benefits. But he -- rightly -- comes close to pointing out that the benefits flow not to buyers of such homes, but to the sellers.
Imagine you make $50,000 to $75,000. Statistically you would save $75 a month in federal income taxes if you bought a house, the congressional study shows. Now which option would you prefer?
• Pay $300,000 for your house, the median for Sacramento in late 2013, and save $900 annually on your federal income tax by deducting the mortgage interest?
• Pay $200,000 for your house, but without being able to deduct your mortgage interest?
Assuming you borrowed the entire purchase price at 4 percent interest the initial mortgage interest savings would be $4,000 per year. Not only would you have more than $250 more cash in your pocket each month, you would have a much smaller debt to pay off. Of course, if you own that home, this is not such a good deal, which is why Camp proposes to phase in his modest change over several years, a change that would only affect new mortgages of more than $500,000.
Which brings me to a larger point. Suppose that, instead of paying $300,000 for your home, of which $150,000 is for the site, and $150,000 is for the home itself, under the tax design this blog proposes, you would pay the seller the $150,000 for the depreciated home and then pay your community approximately 5% of the $150,000 selling price of the site each year -- and that would be INSTEAD of paying income or sales taxes, and there would be no tax on the value of the building.
You'd borrow (assuming DCJ's assumption of 100% financing) $150,000, and most likely, you would not need or want to keep that mortgage for 30 years. Imagine being mortgage free within, say, 10 years. Aggregate mortgage borrowing would be much lower than it is now, and the average years of one's life spent paying off mortgages would be less.
The downside? None of us would be treating our home as an "investment" or a "savings account" or an ATM machine. Offset that with the many benefits, including the reduction or elimination of the land-based ~17 year boom-bust cycle we are currently stuck with.
(In Bermuda, as I understand it, when young couples buy a home, both work two jobs for a few years to pay off the mortgage, and then live mortgage-free thereafter.)
Beating an Elephant With a Feather
By Steve Hyle | Feb 12, 2014
LEWES, DE — Ever notice how many times we read or hear about the Demopublicans "Slamming " Obama for his latest blatant attack on the Constitution? I guess they're too stupid to realize that "slamming" Obama has about as much effect as beating an elephant with a feather. So they're really not serious in their sanctimonious outrage. They conveniently forget that they too took an oath to protect the Constitution which reads as follows:
The Congressional Oath of Office:I do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter: So help me God.
The key words are "support and defend the Constitution of the United States against all enemies, foreign and domestic." Therefore, I contend that the Demopublicans, on a daily basis, fail to honor their oath and are therefore derelict in their most critical duty…defending our Constitution. This applies to Members on both sides of the aisle. By their inaction, they are all complicit in the destruction of the Constitution of the United States.
It's human nature to want more, and to attempt to receive it in the easiest ways. (Henry George expressed it: "The fundamental principle of human action -- the law that is to political economy what the law of gravitation is to physics -- is that men seek to gratify their desires with the least exertion.")
But we don't have to structure our economy to allow some of us to receive significant shares of the total production of society that they didn't create, to steal from those who do produce, to privatize the value of natural resources or of that which the community as a whole creates.
It is easy to become addicted to taking for oneself that which others create. We imprison some people for it; others we permit to call themselves "self-made" men.
Asking some to share 25% with others, out of the goodness of their hearts, seems to be a very shallow substitute for restructuring the entire system.
Mr. Polk seemed to be on the right track when he raised the question, “ 'But isn’t it better for the system as a whole? I asked. The room went quiet, and my boss shot me a withering look. I remember his saying, 'I don’t have the brain capacity to think about the system as a whole. All I’m concerned with is how this affects our company.' ”
We need the brain capacity to think about the system as a whole.
I've not found any analysis of "the system as a whole" that was more relevant and descriptive than that of Henry George.
“Families born by accident, rather than design, are bad for men, bad for women and really bad for kids,” said Kathryn Edin, a poverty researcher at Harvard.
“Rising inequality and declining prospects for people at the bottom have created a situation where it doesn’t matter that much for these teenagers,” she said of the very low-income teenagers who are more likely to have a child. “It does not seem like their life prospects are going to be significantly harmed by having a child, because they’re so disadvantaged already.”
About 600 cottage owners taking up a tiny fraction of land in two provincial parks — Rondeau and Algonquin — beg to differ with a provincial auditor-general’s report that the rent they pay on land leases is $6.7 million below market value.
In Rondeau, south of Chatham on Lake Erie, they’re accusing the Ontario Ministry of Natural Resources of jacking up their payments as the current 21-year leases expire in 2017.
“There’s no way we’re going to pay Hollywood prices for two-bedroom wood-frame cottages,” says Brian French, president of the Rondeau Cottagers Association.
Members’ annual leases now range from $1,500 away from the lake to about $3,500 along the beach, plus $421 in annual service fees and another bill to pay about $3,000 in lieu of property taxes, plus park admission passes, he adds.
For French, that bill is now approaching $6,500 a year — as much as his parents paid for the cottage in 1966.
“We think they’re trying to price us out of the park. We’re not going to let that happen.”
In Algonquin, as at Rondeau, the cottagers who pay annual leases ranging from $600 to $4,000 depending on the location (some are more remote than others) can’t figure out how the auditor general came up with the $6.7 million figure in her annual report issued in early December. They also pay fees for trash removal and parking lot maintenance and admission to the park.
“There are a lot of variables around that in terms of what the market value might be,” says Algonquin Park Residents Association spokesman John Olsen of Oakville, who wants to iron things out.
“Our expectation is that will involve sitting down with the ministry and appropriate specialists and coming up with a fact-based rent. We have always stressed that we pay our own way . . . I can’t speculate on any possible increase”
Of all this, David Orazietti, a spokesman for Natural Resources Minister, acknowledges “there’s a bit of an issue with the leaseholders.”
“Rondeau’s a bit of a different group than Algonquin. More outspoken,” adds the ministry’s Andrew Donnachie.
“The question about ‘losing money’ is only really applicable to Rondeau as we do not provide the level of services to the Algonquin cottages in part due to their remoteness.”
The Algonquin cottages scattered on about 19 lakes along the Hwy. 60 corridor often do not have electricity, and many are accessible only by boat.
Some of the cottages are owned by people who do not live in Canada but in the United States and further abroad.
Donnachie makes it clear the government feels the cottagers in both parks are getting a big break on land collectively owned by Ontarians, many of whom don’t have or can’t afford cottages.
The cottagers are paying one per cent of the land value instead of the seven per cent rate calculated by the provincial agency Infrastructure Ontario as a “fair annual return to the Crown,” says Donnachie.
“Should the Crown decide to renew the leases in 2017, an updated fee structure will be developed to ensure that cottages pay their fair share,” he adds.
The Wildlands League is opposing any extensions to the Algonquin leases, saying in a statement that the cottages “threaten ecologically sensitive shoreline” areas and “privatize what is a public good. Parks are Crown-land-owned by all Ontarians, not a special few.”
The lobby group wants all cottage leases ended and owners forced to remove the buildings and return the land to a natural state.
Concerns about the amounts paid are not new to the cottagers but were flagged in the auditor’s last report, which noted the Ministry of Natural Resources hired a private consultant to assess the net economic value of the leases 15 months ago.
“If the decision is made to renew these leases in 2017, the ministry should ensure that the lease payments are increased to at least fair market value and that the fees charged for services to the cottagers recover the ministry’s cost of providing the services,” auditor general Bonnie Lysyk recommended.
She and Orazietti — who recently met with French of the Rondeau association — might not be getting any cottage invitations to either park anytime soon.
“We just feel we’re being constantly punished for having a cottage in the park,” says French, citing the new payments-in-lieu of taxes assessed this year, almost doubling his annual payouts — a cost the cottagers are fighting in court.
“We’re not wealthy people. This is very much a have-not part of Ontario,” French adds, noting factory closures in southwestern Ontario, including the pending shutdown at Heinz in Leamington.
“This is not Muskoka . . . we want a solution that’s fair for us and fair for the people of Ontario. We don’t want this park to become a rich person’s retreat.”
Olsen says the Algonquin Park cottages are not like Muskoka either, in terms of the cottage mansions seen on Lake Rosseau and similar lakes.
“We are mostly off-the-grid. There are a lot of restrictions . . . we have a light footprint on the environment.”
At Rondeau, French says cottagers are told they cannot leave their boats on the beach in front of their properties without risk of having them removed by park staff.
“When your landlord hates you and when your landlord is the provincial government they can make life pretty miserable.”
Land Value Tax
Land value taxes of one form or another already exist in this country as well. Pennsylvania seems especially fond of them. Most recently, the city of Altoona, Pa., switched over to a pure land value tax, replacing the more conventional property tax it used to levy. The proposal to levy a land value tax should be the most non-controversial on the list. Municipalities already tax land value to some degree because property taxes are levied against land value as well as the buildings that sit on top of the land. Obviously it is not absurdly impossible to change from assessing taxes on land plus buildings to assessing taxes on just land.
Implementing this tax has some normative appeal insofar as nobody makes land and so taxing its value does not run afoul of any notion that people should not be deprived of the product of their labor. But more than that, most arguments for the land tax center around its ability to encourage economic production and growth. Taxing land allows you to reduce taxes on things like the construction of buildings (subjected to property taxes), work (subjected to income taxes) and investment (subjected to capital gains taxes). If conservatives believe their own arguments about how devastating to growth such taxes are, switching to a land value tax should be a huge priority for them.
As with the UBI, this proposal has also scored substantial support from those on the right side of the political perspective. The person credited with coming up with and popularizing it, Henry George, was a libertarian.
Sometime in the 19th Century, somewhere in Europe, a busy town was separated from a poorer residential quarter by a river crossed by a footbridge built by the town authorities. Any person crossing the footbridge had to pay some money, say ten shillings, to cross one way or the other. Then a benevolent town council decided to ease the situation of the poor labourers by abolishing the bridge levy.
After several months, it was noticed that the rents in the poorer quarter had generally increased by about five hundred shillings, thus absorbing the labourers’ monthly savings gained from the abolition of the bridge levy. In 1879, American writer Henry George wrote his groundbreaking work, “Progress and Poverty” to explain this phenomenon. His main economic idea was that growing population as well as infrastructure investment raises the value of adjacent land regardless of the economic activity carried out on the land itself. Henry George was a brilliant writer and an incisive thinker, and he inspired fervent disciples, though mainstream economics treated him largely with contempt. He was derisively called ‘a single-taxer’ due to his proposal to abolish all forms of taxation save for land value taxation.
What George really supported was an intelligent approach to capturing the resulting value from public investments for the whole society. For example, in the European town above, the footbridge had been a form of economic value creation. Once the levy was abolished, the value was captured, not by the labourers as planned, but by their thriving landlords. This was a perverse form of value capture. A century later, the impressive economist and Nobel Prize laureate Joseph Stiglitz supported George’s insight, now called the Henry George Theorem. Stiglitz demonstrated that spending by government on infrastructure often increases aggregate land values by a proportionate amount. So for example, land values along Thika Road increased substantially due to the construction of the modern super-highway. These increases in value were captured mainly by the adjacent land owners and by transporters.
Likewise, a substantial injection of value from the Mombasa-Nairobi-Malaba standard gauge railway project, as well as from the proposed Lamu-Garissa-Isiolo-Moyale/Lodwar LAPSSET Corridor Project, will be captured by landowners within a certain radius of the service points or railway stations to be established along the line. Of course, the improved efficiency in transportation will create value in other areas, including job creation, and relative reduction in the cost of both industrial and consumer goods.
If government was clever, it would include a value-capture approach in project financing. The economic speculation in the land adjacent to the proposed Lamu port, to the planned Isiolo Resort city and to the Mlolongo railway exchange is a pointer of the anticipated value creation from these public investments. Value capture uses multiple approaches to allow government to recoup a portion, say half, of the returns from its investments.
One acceptable approach is land value taxation, or alternatively government land-purchase-and-resale schemes. The former is more legally apt, but under Kenya’s Constitution can only be levied by county government (art.209(2,3)). Another acceptable approach, which is now overdue considering the state of our economic development, is the reintroduction of capital gains tax. This tax was suspended in 1985, the idea at the time being that Kenyans should be encouraged to save and invest, including in the securities market.
However, from the perspective of tax equity today, it is scandalous that capital gains tax, which mainly affects the wealthy, still remains suspended. Of course Kenya must avoid going down the path of European socialist nations like France, which has recently introduced a top-bracket 75 percent income tax for the ultra wealthy. We cannot afford ‘to sock the rich’, as it will discourage investment and trigger capital flight, as well as entrench greater tax evasion. This does not mean that a well-designed capital gains tax cannot work for both property and equity investments.
Still, there is a need to avoid an obsession with traditional but costly approaches for funding Kenya’s mega infrastructure projects. Importantly, the electromagnetic spectrum that is now the focus of government-media disputes over digital migration is a potentially large source of public funds. Also the issuance of oil and other mineral exploration and extraction licences, which should be backed by a credible mining royalties and taxation regime that allows government to recover a substantial portion of mineral value. My New Year wish is that both national and county governments can progress useful infrastructure projects through creative financing that does not unduly stretch our debt leverage ratio but which directly contributes to our economic and social welfare.
"Your great city church stands yonder — your grand cathedral. It is named after a tent-maker — after the man who said "If a man will not work, neither shall he eat." Let us suppose the Apostle Paul coming amongst us and seeing how people lived. We will not suppose his going to the West-end and seeing how those got on who never did a stroke of work in their lives, but we will imagine him paying a visit to certain of our societies, and finding them engaged in devising means to help the poor. "Why do they not work?" would be the Apostle's first and natural question. If he were told that there was no work for them to do, what would he say? 'No work? Why do they not go out and catch some fish?' 'Oh the fish are PRESERVED -- and the game is PRESERVED.' The Apostle might go on to ask, 'Then why do they not cultivate the land?' 'Oh, the land is OWNED,' would have to be the answer. I thought of this, could not help thinking of it, as I traveled over miles and miles of land in coming here. 'The land is owned,' would be the answer given to the Apostle, and what would he say to such a state of society?"
The ground lessor’s position at 625 Madison Avenue, in Manhattan’s Plaza District, has been purchased by Ashkenazy Acquisition Corp., of New York, for $400 million from 625 Ground Lessor L.L.C., Cushman & Wakefield, which represented the seller, announced last week.
The site is occupied by a 17-story, 563,000-square-foot Class A office building, with retail, that spans the entire block on the east side of Madison Avenue between 58th and 59th streets. Polo Ralph Lauren occupies 70 percent of the building.
The price represents a going-in yield of 1.15 percent based on contractual ground lease payments through June 2022, according to Cushman, “reflecting historically low interest rates, escalating land values due to the strength of the residential and retail market, and the scarcity of ground lease offerings.”
The leasehold at 625 Madison is owned and operated by SL Green Realty Corp., of New York. The ground lease expires in June 2054.
The building’s website indicates that the office space is fully leased.
The Cushman & Wakefield team consisted of Brian Corcoran, Helen Hwang, Steve Kohn, Frank Liantonio, Marc Nakleh, Nat Rockett, Karen Wiedenmann and Sujohn Sarkar.
“The investment benefits from strong sponsorship, long-term upside and a truly irreplaceable location at the core of one of the most luxurious commercial, residential and retail corridors in the world,” Hwang, an executive vice president, said in a release.
“Leased fee/ground lessor positions are rarely offered in Manhattan, so the opportunity was of great interest to investors around the world,” said Steve Kohn, president of Cushman & Wakefield Equity, Debt and Structured Finance.
The contract that culminated in the deal was signed in late September, The New York Post reported on Oct. 1.
One key to the sale, according to the Post, is that SL Green’s current $4.6 million rent will reset in 2022 and 2041, with the rent reportedly expected to soar to about $50 million a year at the next reset.
Formerly known at the Revlon Building and the Plaza Building, 625 Madison Ave. was completed to its current height in 1956 and extensively renovated in 1988.
Dividing the reported 563,000 square feet by 17 stories, we find 33,100 square feet as the likely footprint. That's about 3/4 of an acre. When the ground rent increases from its present $5 million to $50 million in about 9 years, do you think that the community will receive more in annual taxes, or will the entire $45 million annual increase go to the owners?
What did the buyers of the land do to increase its value?
For that matter, what did the sellers do to increase its value since they acquired it in 2004?
Why do we leave land rent mostly in landlords' pockets, rather than treating it as Natural Public Revenue?
And then we wonder why it is that we have such wealth and income concentration ....
John Rawls, the brilliant 20th-century philosopher, argued for a society that seems fair if we consider it from behind a “veil of ignorance” — meaning we don’t know whether we’ll be born to an investment banker or a teenage mom, in a leafy suburb or a gang-ridden inner city, healthy or disabled, smart or struggling, privileged or disadvantaged. That’s a shrewd analytical tool — and who among us would argue for food stamp cuts if we thought we might be among the hungry children?
As we celebrate Thanksgiving, let’s remember that the difference between being surrounded by a loving family or being homeless on the street is determined not just by our own level of virtue or self-discipline, but also by an inextricable mix of luck, biography, brain chemistry and genetics.
For those who are well-off, it may be easier to castigate the irresponsibility of the poor than to recognize that success in life is a reflection not only of enterprise and willpower, but also of random chance and early upbringing.
And perhaps Mr. Kristof might consider also that the same forces and structures which make some people poor make others rich, very rich. Henry George described a wedge being driven through society. Random chance may help determine whether one falls into one group of the other. I take the liberty of lifting a long list of quotes from Henry George's book "Progress and Poverty:"
Yes, in certain ways, the poorest now enjoy what the richest could not a century ago. But this does not demonstrate an improvement – not so long as the ability to obtain the necessities of life has not increased.
What we call progress does not improve the conditions of the lowest class in the essentials of healthy, happy human life. In fact it tends to depress their conditions even more.
These new forces do not act on society from underneath. Rather, it is as though an immense wedge is being driven through the middle. Those above are elevated, but those below are crushed.
So long as the increased wealth that progress brings goes to building great fortunes and increased luxury, progress is not real. When the contrast between the haves and the have-nots grows ever sharper, progress cannot be permanent.
To base a state with glaring social inequalities on political institutions where people are supposed to be equal is to stand a pyramid on its head. Eventually it will fall.
The old theory of wages had the support of the highest authorities, and was firmly rooted in common prejudices. Until proven groundless, it prevented any other theory from even being considered. Similarly the theory that the earth was the centre of the universe prevented any consideration that the earth circled the sun. There is in fact a striking resemblance between the science of political economy, as currently taught, and astronomy prior to Copernicus.
We are able to explain social phenomena that have appalled philanthropists and perplexed statesmen all over the civilised world. We have found the reason why wages constantly tend to a minimum, giving but a bare living, despite increase in productive power.
As productive power increases, rent (the price of monopoly rising from individual ownership of the natural elements which human exertion can neither produce or increase) tends to increase even more – constantly forcing down wages.
Rent (as understood above) does not in any way, represent any aid or advantage to production. Rent is simply the power to take part of the results of production.
Land is required for the exertion of labour in the production of wealth. Therefore, to control the land is to command all the fruits of labour, except only enough to enable labour to exist.
The simple truth, and its application to social and political problems, is hidden from the masses – hidden partly by its very simplicity and in greater part by widespread fallacies and erroneous habits of thought. These lead us to look in every direction but the right one for an explanation of the evils that oppose and threaten the civilised world.
In the back of these elaborate fallacies in misleading theories is an active, energetic power. This is the power that writes the laws and moulds thought. It operates in every country, no matter what its political forms may be. It is the power of a vast and dominant financial interest.
The great cause of inequality in the distribution of wealth is inequality in the ownership of land.
Unequal ownership of land causes unequal distribution of wealth and because unequal ownership of land is inseparable from the recondition of individual property in land, it necessarily follows that there is only one remedy for the unjust distribution of wealth:
We must make land common property.
But this is a truth that will arouse the most bitter antagonism, given the present state of society.
Vice and misery, poverty and pauperism, are not the legitimate results of growing populations and industrial development. They follow them only because land is treated as private property. They are the direct and necessary result of violating the supreme law of justice – giving to the excusive possession of a few, what nature has provided for all.
The unjust distribution of wealth stemming from this fundamental wrong is separating modern society into the very rich and the very poor. The continuous increase of rent is the price labour is forced to pay for the use of land. It strips the many of wealth they justly earn and heaps it in the hands of the few who do nothing to earn it. The few receive without producing while others produce without receiving. One is unjustly enriched – the other is robbed.
Ownership of land is the basis of aristocracy. It was not nobility that gave land, but the possession of land that gave nobility. All the enormous privileges of the nobility of medieval Europe flowed from their position as owners of the soil. This simple principal of ownership produced the lord on one side and the vassal on the other. One having all the rights, the other having none.
Of all kinds of slavery, this is probably the most cruel and relentless. Labours are robbed of their production and forced to toil for mere subsistence. But their taskmasters assume the form of inescapable demands. It does not seem to be one human who drives another but ‘the inevitable laws of supply and demand.’ And for this, no one in particular is responsible. Even the selfish interest that prompted the master to look after the well-being of his slaves is lost.
It seems to be the inexorable laws of supply and demand that forces the lower classes into the slavery of poverty. And an individual can no more dispute this power than the winds and the tides.
But in reality it is the same cause that always has and always must result in slavery:
The monopolisation by some of what nature meant for all.
We are so used to treating land as individual property that the vast majority of people never thing about questioning it. It is thoroughly recognised in our laws, manners and customs.
The dangerous classes politically are the very rich and the very poor.
A tax on land values is the only tax that cannot be passed on to others. It falls only on the landowners. There is no way they can shift the burden to anyone else. Hence, a large and powerful interest is opposed to taxing land values.
Businesses do not oppose taxes they can easily shift from their own shoulders. In fact, they frequently try to maintain them. So do other powerful interests that might profit from the higher prices such taxes bring about. A multitude of taxes had been imposed with a view toward private advantage, rather than raising revenue.
The ingenuity of politicians has been applied to devising taxes that drain the wages of labour and the earnings of capital. Nearly all these taxes are ultimately paid by that indefinable being, ‘the consumer’.
All civilised countries have unequal distribution of wealth that grows steadily worse. The cause… is that ownership of land provides greater and greater power to appropriate the wealth produced by labour and capital as the material progress goes on. We can counteract this tendency by removing all taxes on labour and capital – and putting them on rent. If we went so far as to take all the rent in taxes, the cause of inequality would be totally destroyed.
If it were possible to calculate the full cost of poverty, it would be appalling…Yet spending by government, private charities and individuals combined is merely the smallest item on the agenda. Consider the following items: the lost earnings of wasted labour; the social costs of reckless and idle habits; the appalling statistics on mortality, especially infant mortality, among the poor; the proliferation of liquor stores and bars as poverty deepens; the thieves, prostitutes, beggars and tramps bred by poverty; and the cost of guarding society against them.
These are just part of the full burden that unjust distribution of wealth places on the aggregate society. The ignorance and vice produced by inequality show themselves in the stupidity and corruption of government and the waste of public funds.
(Tax on land value would mean that) Wealth would no longer concentrate in those who do not produce, taken from those who do. The idle rich would no longer lounge in luxury while those who actually produce settle for the barest necessities…The great cause of inequality - monopoly of land - would be gone.
We could eliminate an immense and complicated network of government machinery needed to collect taxes, prevent and punish evasion and check revenue from many different sources.
A similar saving would occur in the administration of justice. Much or the business of civil courts arises from disputes over the ownership of land. If all occupants were essentially rent-paying tenants of the state, such cases would cease.
Wages would rise and everyone would be able to make an easy and comfortable living. This would immediately reduce…thieves, swindlers and other criminals who arise from the unequal distribution of wealth. This would lighten the administration of criminal law, with all its paraphernalia of police, prisons and penitentiaries. We should eliminate not only many judges, bailiffs, clerks and jailers, but also the great host of lawyers now maintained at the expense of those who actually produce wealth.
Governments would change its character and become the administrator of a great cooperative society. It would merely be the agency by which common property was administered for the benefit of all.
We are apt to assume that greed is the strongest human motive and that fear of punishment is required to keep people honest. It seems selfish interests are always stronger than common interests. Nothing could be further from the truth.
The changes I have proposed would destroy the conditions that distort these impulses. It would transmute forces that now disintegrate society into forces that unite it. Take, for the benefit of the whole community that which growth of community creates. The poverty would vanish.
One thing alone prevents harmonious social development: the wrong that produces inequality.
Association in equality is the law of human progress.
But the greatest inequality is the natural monopoly given by possession of land.
When population is sparse, ownership of land merely ensures that the just reward of labour goes to the one who uses and improves it. As population becomes dense, rent appears. This institution ultimately operates to strip the producer of wages earned.
Once inequality is established, ownership of land tends to concentrate as development goes on. This finally counteracts the force by which improvements are made and society advances.
Inequality dried up the strength and destroyed the vigour of the Roman world. Long before Vandal of Goth broke through the legions, Rome was dead at heart. Great estates – latifundia – ruined Italy. The barbarism that overwhelmed Rome came not from without, but from within. It was the inevitable product of a system that carved provinces into estates for senatorial families. Serfs and slaves replaced independent farmers. Governance became dictatorship, patriotism became subservience… Everywhere inequality produced decay: political, mental, moral and material.
Civilisations advance as their social arrangements promote justice. They advance as they acknowledge equality of human rights. The advance as they insure equal liberty of every other person. As they fail in these, advancing civilisations come to a halt and recede.
Every pervious civilisation has been destroyed by the unequal distribution of wealth and power. When the first emperor was changing Rome from brick to marble and extending the frontier, who would have said Rome was entering its decline. Yet such was the case.
Yet anyone who looks will see that the same cause that doomed Rome is operating today – with increasing force. The more advanced the community, the greater the intensity. Wages and interest fall, while rents rise. The rich get richer, the poor get poorer and the middle class is swept away.
A representative government may become a dictatorship without formally changing its constitution or abandoning popular elections. Forms are nothing when substance had gone. From there despotism advances in the name of the people. Once that single source of power is secured, everything is secured. An aristocracy of wealth will never struggle while it can bribe a tyrant.
When the disparity of condition increases, democratic elections make it easy to seize power. Many feel no connection with the conduct of the government. Embittered by poverty, they are ready to sell their vote to the highest bidder or to follow the most blatant demagogue. One class has become too rich to be stripped of its luxuries, no matter how public affairs are administrated. Another class is so poor that promises of a few dollars will outweigh abstract considerations on election day. A few roll in wealth while the many seethe with discontent at things they don’t know how to remedy.
Honest and patriotism are handicapped, while dishonesty brings success. The best sink to the bottom, the worse float to the top. The vile are ousted only by the viler. Unequal distribution of wealth inevitably transforms popular government into despotism. Political parties are passing into the control of what might be considered oligarchies and dictatorships
Many believe that there is no honest person in public office; or worse, that if there were one, he or she would be a fool not to seize opportunities. Democratic government is running the course that must inevitably follow under conditions producing unequal distribution of wealth.
Civilisations do not decline along the same paths they came up. Governments will not take us back from democracy to monarchy and to feudalism. It will take us to dictatorship and anarchy
Invention marches on, our cities expand. Yet civilisation had began to wane when, in proportion to population, we have more prisons, more welfare, more mental illness. Society does not die from top to bottom; it dies from bottom to top.
The evils arising from the unequal and unjust distribution of wealth become more apparent as modern civilisation goes on.
Poverty, with all the evils that flow from it, springs from the denial of justice. By allowing the few to monopolise opportunities nature freely offers to all, we have ignored the fundamental law of justice.
Equal political rights will not compensate for denying equal rights to the gifts of nature. Without equal rights to land, political liberty is merely the right to compete for employment at starvation wages.
Allowing one person to own the land – on which and from which others must live – makes them slaves. The degree, or proportion, of slavery increases as material progress goes on.
This is what turns the blessing of material progress into a curse, what crowds human beings into squalid tenement houses, and what fills prisons and brothels. This is what plagues people with want and consumes them with greed.
It is a universal fact – seen everywhere – that the contrast between wealth and want grows as the value of land increases. The greatest luxury and the most pathetic poverty exist side by side where land values are highest.
In short, the value of land depends entirely on the power that ownership of land gives to appropriate the wealth created by labour. Land values always increase at the expense of labour. The reason greater productive power does not increase wages is because it increases the value of land. Rent swallows up the whole gain.
Poverty is a diabolical predicament that not only makes scarce one’s physical comforts, but drains away one’s spiritual strength. It damages hopes and dreams, and having deficits among those things is when the soul begins to die.
This is a single paragraph from an excellent piece by Charles Blow.
Many people seem to think that poverty is -- must be! -- the result of personal failings. It is worth considering that poverty is the output of a certain structure designed to produce wealth for the few.
I hope he will explore what Georgists believe is the only way to end poverty: removing the economic structures whose effect is to impoverish many in order to enrich a relative few.
That analysis and solution can be found in "Progress and Poverty" and "Social Problems," by Henry George, and underlies several of his speeches, including "The Crime of Poverty," "Thou Shalt Not Steal" and "Thy Kingdom Come," all available online.
One might also explore Walt Rybeck's "Re-Solving the Economic Puzzle," and the newly published "Mason Gaffney Reader" (about which more, soon), both available from the Henry George Institute and Amazon.
Is a land value tax the solution to our housing affordability problem?
By Catherine Cashmore | Monday, 25 November 2013
There’s been a lot of debate around property taxation in Australia - significantly negative gearing, which allows an investor to use the short fall between interest repayments and other relevant expenditure, to lower their income tax.
The policy promotes speculative gain meaning the strategy is only profitable if the acquisition rise in value rather than holding or falling - therefore, in Australia, investor preference is slanted toward the established sector – the sector that attracts robust demand from all demographics and as such, in premium locations, has historically gained the greatest windfall from capital gains.
Aside from the impact this creates in terms of affordability (pushing up the price of second-hand stock, burdening new buyers with the need to raise a higher and higher deposit just to enter ownership), it also negatively affects the the new home market, which traditionally struggles to attract consistent activity outside of targeted first home buyer incentive; albeit, the headwinds resulting from planning constraints and supply side policy should also not be dismissed.
Additionally, capital gains tax and stamp duty have also received much debate. Both are transaction taxes, and therefore have a tendency to stagnate activity, acting as a deterrent to either buying and selling.
Stamp duty, as modelled by economist Andrew Leigh, is shown to produce a meaningful impact on housing turnover, leading to a potential mismatch between property size and household type – a deterrent to downsizing and therefore selling.
Additionally, it burdens first time buyers by increasing the amount they need to save in order to enter the market and frequent changes of employment concurrent with a modern day lifestyle, are hampered as owners, unwilling to move any meaningful distance outside their local neighbourhood, search for work in local areas alone.
But, outside of academia and intermittent articles, there is scant debate in Australian mainstream media regarding land value tax and it’s practical impact.
The theory is taken to its extreme and best advocated by American political economist and author, Henry George, who wrote his publication Progress and Poverty - an enlightened and impassioned read - and subsequently inspired the economic philosophy that came to be known as ‘Georgism.’
The ideals of Henry George reside in the concept that land is in fixed supply, therefore we can’t all benefit from economic advantage gained from ‘ownership’ of the ‘best’ sites available without effective taxation of the resource.
George advocated a single tax on the unimproved value of land to replace all other taxes – something that would be unlikely to hold water in current political circles. However, his ideals won favour amongst many, including the great economist and author of Capitalism and Freedom, Milton Friedman, and other influential capitalists such as Winston Churchill, who gave a powerful speech on land monopoly stressing:
“Unearned increments in land are not the only form of unearned or undeserved profit, but they are the principal form of unearned increment, and they are derived from processes which are not merely not beneficial, but positively detrimental to the general public.”
In essence, raising the percentage of tax that falls on the unimproved value of land has few distortionary or adverse affects. It creates a steady source of revenue whilst the landowner can make their own assessment regarding the timing and type of property they wish to construct in order to make profit without being penalised for doing so.
However, when the larger percentage of tax payable is assessed against the value of buildings and their improvements – through renovation, extension or higher density development for example – not only can those costs be transferred to a tenant, there is less motivation to make effective use of the site. This has a flow on effect which can not only exacerbate urban ‘sprawl’, but also increase the propensity to ‘land bank.’
The Henry tax review commissioned by the government under Kevin Rudd in 2008 concluded that “economic growth would be higher if governments raised more revenue from land and less revenue from other tax bases,” proposing that stamp duty (which is an inconsistent and unequitable source of revenue) be replaced by a broad based land tax, levied on a per square metre and per land holding basis, rather than retaining present land tax arrangements.
And whilst it’s difficult to qualify how purchasers may factor an abolition of stamp duty into their price analysis, perhaps adding the additional saving into their borrowing capacity, and therefore not lowering prices enough to initially assist first homebuyers. It does demonstrate how over the longer-term falls in house prices have the potential to exceed the value of land tax payments, assisting both owner-occupier and rental tenant as the effects flow through.
Additionally, increasing the tax base would provide developers with an incentive to speed up the process and utilise their holding for more effective purposes.
And importantly for Australia, it can provide a reliable provision of revenue to channel into the development of much-needed infrastructure.
The rational for this is coined in the old real estate term ‘location, location, location.’ Everyone understands that in areas where amenities are plentiful – containing good schools, roads, public transport, bustling shopping strips, parks, theatres, bars, street cafes and so forth – increases demand and therefore land values, invoking a vibrant sense of community which attracts business and benefits the economy.
The idea behind spruiking a ‘hotspot’, such a common industry obsession, is based on purchasing in an area of limited supply, on the cusp of an infrastructure boom such as the provision of a new road or train line for example, enabling existing landowners to reap a windfall from capital gains and rental demand for little more effort than the advantage of getting in early and holding tight whilst tax payer dollars across the spectrum fund the work.
Should a higher LVT be implemented, the cost and maintenance of community facilities could in part, be captured from the wealth effect advantaging current owners, compensating over time for the initial outlay. Imagine the advantage this would offer residents in fringe locations who sit and wait for the failed ‘promises’ offered, when they migrated to the outer suburbs initially.
Take New York for example – between the years 1921 and 1931 under Governor Al Smith, New York financed what is arguably the world’s best mass transit system, colleges, parks, libraries, schools and social services shifting taxes off buildings and onto land values and channelling those dollars effectively.
The policy influenced by Henry George ended soon after Al Smith’s administration, and eventually lead to todays landscape - a city built on a series of islands, with limited room to ‘build out’ facing a chronic affordable housing shortage with the population projected to reach 9.1 million by 2030.
More than a third of New Yorkers spend half their pay cheque on rent alone yet like London, there is little motivation for developers to build housing to accommodate low-wage workers concentrating instead on the luxury end of market, broadening the gap between rich and poor as land values rise and those priced out, find little option but to re-locate.
New York’s Central Park is the highest generator of real estate wealth. The most expensive homes in the world surround the park with apartments selling in excess of $20 million, and newer developments marketed in excess of $100+ million.
Like London it’s a pure speculators paradise – in the 10 year period to 2007, values increased by 73% - owners sit on a pot of growing gold and there’s little to indicate America’s richest are about to bail out of their New York ‘addiction’ with an expansive list of A-list celebrities, high net worth individuals, and foreign magnates, owning apartments in the locality.
New mayor-elect, Bill de Blasio, who won his seat, based on a promise to narrow the widening inequality gap - preserve 200,000 low and middle income units, and ensure 50,000 affordable homes are constructed over the next decade, will struggle to subsidize plans whist facing a deficit reputed to be as much as $2 billion in the next fiscal year.
Yet economist Michael Hudson has recently assessed land values in New York City alone to exceed that of all of the plant and equipment in the entire country, combined.
Currently more than 30 countries around the world have implemented land value taxation - including Australia - with varying degrees of success not only based on the percentage split between land and property, but how those funds are channelled back into the community and the quality of land assessments in regularly updating and estimating value.
Pennsylvania is one such state in the USA to use a system which taxes land at a greater rate than improvements on property – I think I’m correct in saying 19 cities in Pennsylvania use land value tax with Altoona being the first municipality in the country to rely on land value tax alone.
Reportedly, 85% of home owners pay less with the policy than they do with the traditional flat-rate approach. When mayor of Washington county, Anthony Spossey, who also served as treasurer from 2002 to 2006 and under his watch enacted an LVT, was interviewed on the changes in 2007, he commented:
“LVT ..helps reduce taxes for our most vulnerable citizens. We have an aging demographic, like the county, region and the state. Taxpayers everywhere are less able to keep up with taxes, and that hurts revenue. LVT helps us mitigate the impact both to them and the city. It’s a win/win.”
Until fairly recent times, another good example to cite is Pittsburgh. Early in the 1900s the state changed its tax system to fall greater on the unimproved value of land than its construction and improvements.
Pittsburgh’s economic history is a study in itself, and has not been without challenges. For those wanting to research further, I strongly advocate some of the writings of Dan Sullivan - (former chair of the Libertarian Party of Allegheny County, (Pittsburgh) Pennsylvania) - who is an expert on the economic benefits of LVT and has written extensively on the subject.
Sullivan demonstrates that Pittsburgh not only enjoyed a construction boom whilst avoiding a real estate boom under a broad based LVT system, but also effectively weathered the great depression whilst maintaining affordable and steady land values along the way.
In comparing it to other states struggling to recover from the recent sub-prime crisis he points out:
“In 2008, just after the housing bubble broke, Cleveland led the nation in mortgage foreclosures per capita while Pittsburgh's foreclosure rate remained exceptionally low. Since then, the foreclosure rates in Las Vegas and many Californian cities, none of which collect significant real estate taxes, have passed Cleveland's foreclosure rate. However, on September 15, 2010, The Pittsburgh Post-Gazette reported that while at the end of the second quarter of 2010, 21.5% of America's single-family homes had underwater mortgages (the American term for negative equity), only 5.6% did in Pittsburgh. As a result Pittsburgh was top of a list of the 10 marketswith the lowest underwater mortgage figures.”
When land value tax is implemented - with the burden taken of buildings and their improvements, ensuring good quality assessments and sensible zoning laws – it not only assists affordability keeping land values stable, but also benefits local business through infrastructure funding, discourages urban sprawl, incites smart effective development of sites, reduces land banking, and as examples in the USA have demonstrated – assists in weathering the unwanted impacts of real estate booms and busts.
Despite the numerous examples across the world where a broad based land value tax has been deployed successfully, changing policy and bringing about reform is never easy and rarely without complication.
Additionally, the implications of a yearly tax on fixed low-income retirees must be handled with care and understanding, as there are ways to buffer unwanted effects whilst changes are implemented.
Therefore, the process adopted in the ACT which is abolishing stamp duties over a slow transitional 20 year period to phase in higher taxation of land is not altogether unwise.
With any change to the tax system, the headwinds come convincing the public that it’s a good idea. In this respect balanced debate and conversation is necessary, as questions and concerns are brought to the fore.
The increased tax burden also falls on those who have significant influence across the political spectrum; therefore strong leadership to avoid lobbying from wealthy owners with vested interests is essential.
Albeit, as I said last week, we have a new and growing generation of enlightened voters who are well and truly fed up with battling high real estate prices, inflated rents, and care not whether it’s labelled as a ‘bubble’ – but certainly care about their future and that of their children.
Therefore – I do see a time when all the chatter around affordability, will finally evolve into real action – and a broad based LVT should form an important part of that debate.
Catherine Cashmore is a market analyst with extensive experience in all aspects relating to property acquisition.
At present, neither party advocates the tax code so elegant it can reduce inequality, mitigate poverty, stimulate productivity, prevent asset price bubbles, stem community-shredding gentrification and drain the distended Wall Street cabal of its ill-gotten gains – in just one tax.
Land value. If we want a real overhaul/simplification of the tax code, the way to do it is to tax land value. It might be the only tax we need. No sales tax. No income tax. No payroll tax to fill a Social Security trust fund. No corporate income tax that, as we can plainly see, offshores profits. No need to tax labor and industry at all. Just tax the stuff that humans had nothing to do with creating, and therefore have no basis to claim ownership over at all. You’ll find that almost all of it is “owned” by the fabled 1 percent.
How the Single Tax movement boosted equity & prosperity during the Progressive Era
By Mason Gaffney & Rich Nymoen
With Connecticut following Pennsylvania’s century-long lead by enacting legislation this year that applies the work of the Gilded Age economist and reformer Henry George, it is timely to look back at similar efforts in the U.S. of his Progressive Era followers, known then as Single Taxers. Author of the world-wide 1879 best-seller Progress and Poverty, Henry George — following in the line of the classical economists Francois Quesnay, Adam Smith, David Ricardo and John Stuart Mill — argued that land and natural resources should be rented out by the community to those holding title to them and the resulting revenue used in place of taxes on wages and production. Single Taxers took their name from Henry George’s proposal that all taxes on productive activity should be replaced with a “single tax” on the value of land and natural resources, and they often simultaneously worked for public ownership of natural monopolies to keep their prices at or below costs.
The basic principles of the Single Tax program were illustrated in “The Landlord’s Game” a Progressive Era precursor to the board game “Monopoly,” which was developed by a Single Taxer named Elizabeth Phillips (nee Magie). Under this game’s alternative Single Tax rules, individual players were paid rent for any buildings they had on their properties but all land rent for the properties was paid into the kitty and divided among all the players instead of concentrating in the hands of a single winner. Also, once cash in the game’s Public Treasury from land rents reached a sufficient amount, it was paid to the holder of the railroads, trollies and utilities for the purchase (through condemnation) of their operations, which were then publicly owned and operated so they could provide their services free of charge.
New York City Compared to their peers, cities following the Single Tax program in the Progressive Era grew in notable spurts, most impressively in New York City as the era ended. NYC’s growth had been slowing down just before the “Al Smith Act” of 1920 let NY City, County, and Schools exempt new housing construction (but not land values) from the property tax from 1921 until the end of 1931. The law applied to all the five “boroughs,” in New York County, and also to its coterminous school district taxes. The Act authorized ALL units of local government to exempt building values below a modest cap. This thoroughgoing “root and branch” attitude in New York reveals the existence of a strong, long-standing political movement. The New York Act sprang from a political history that links it to the movement Henry George left behind in New York, as well as to other Single Tax strongholds like Cleveland, Detroit, Toledo, Jersey City, Milwaukee, Pittsburgh, and Chicago. Gov. Al Smith took the visible lead, but he, like most political leaders, had to be pushed.
Who was it that pushed? A major force was the group of single-tax clubs of NYC, the enduring legacy of Henry George’s runs for Mayor of NYC in 1886 and 1897. After George’s death, his influence survived him in his adopted home.
Before Smith was governor, Albany had blocked several single-tax bills in the years 1909-16. Earlier, as majority leader of the Assembly and a Tammany wheelhorse, Smith himself had blocked a 1911 Single Tax effort (the Sullivan-Shortt Bill) along similar lines. Smith turned around after 1911, his change triggered by the awful incineration of 150 people trapped in the Triangle Shirtwaist Company workroom—a traumatic, watershed event of the times. When first elected governor in 1918, Smith was a changed man with a new power base. We may surmise, also, that his success in reviving NYC helped boost him to the Democratic nomination for U.S. President in 1928, and that was on his mind.
NYC, in granting this tax holiday for new housing, was not “racing to the bottom” in terms of public spending. NYC financed one of the world’s best mass transit systems, and the nation’s best city college system (the “poor man’s Harvard”) with an impressive roster of graduates in the professions. Its parks and libraries were outstanding; its schools and social services above the national norm. NYC was not lowering taxes, but shifting them off buildings and onto land values. Exempting buildings had the effect of raising land values, thus preserving and even augmenting the overall tax base.
After 1932, the forces of tax limitation rallied, financed by the likes of the Rockefeller Brothers, the Seth Low family, A.A. Berle, and others. And so New York City’s remarkable growth spurt tapered off, leaving it larger, but otherwise much like many other older cities.
Cleveland In Cleveland, the city’s population grew by 109% from 1900 to 1920. For most of this time it was under the administrations of single-taxers Tom L. Johnson, 1901-09, and Newton D. Baker, 1911-16. In 1906, Mayor Johnson inaugurated a low 3-cent trolley fare which entailed possible deficits he intended to meet by taxing real estate. To this day a bronze statue of Johnson stands in downtown Cleveland, holding a book out for all to see, and on it engraved so clear, Progress and Poverty.
Johnson’s City Solicitor and ally, Newton D. Baker, was another remarkable leader, who later nearly edged out FDR for the Democratic Presidential nomination in 1932. Baker won the mayoralty in 1911, after an interregnum of just two years. Baker implemented single tax policies until President Wilson appointed him Secretary of War in 1916. This high-level appointment recognized the political power of the single-tax movement in that era, a power that later historians and economists have wrongly trivialized. After 1916, though, Cleveland slowly fell into old-line Tory hands.
Detroit The soaring growth experienced by Detroit from 1890 to 1930 obviously involved the auto industry, but why did that industry focus on Detroit? There was no St. Lawrence Seaway—that opened in 1959. Growth began under Mayor, then Governor Hazen S. Pingree. Pingree had called Tom Johnson to Detroit in 1899 to help beef up its street car system and lower fares, under public ownership. It is one of the great ironies: The Motor City, whose auto firms did so much to destroy mass transit, originally attracted them by providing cheap mass transit for their workers. The sensational collapse of Detroit came after 1950 when Detroit’s leaders, auto-oriented, forgot the Pingree policies that had launched Detroit earlier.
Milwaukee Milwaukee grew fast for 30 years under its Socialist Party Mayors Emil Seidel (1910-12) and Daniel Hoan (1916-40). Hoan’s tenure was the longest of any Mayor of a large American city; he was nationally recognized as the best mayor in the country, and Milwaukee under Hoan was the best-governed city. Hoan’s brand of what others labeled “sewer socialism” consisted in keeping transit and utility user-rates low, and meeting deficits by raising property taxes. The formula for growing and revitalizing cities seems to be the same, whether under a “socialist” like Hoan or a colorful populist like Johnson: supply infrastructure, keep user-rates low, raise land taxes, attend to the details of assessment, and go easy on taxing buildings.
Chicago From 1890-1900, Chicago grew by 54%, but it did not just spread, it pioneered the skyscraper, and centralized its transit system as few other cities ever did. From 1900-30 it continued to grow at higher percentage rates than most other cities, and much higher absolute rates, confirming its status as America’s second largest city. Who was Chicago’s Tom Johnson? It was not one person, but a large and shifting group. Chicago lawyer John Peter Altgeld, humanitarian and reformer, was Governor of Illinois, 1892-96. His administration contained several single-taxers, including young Brand Whitlock, future Mayor of Toledo, whom Altgeld inspired. Altgeld directly corresponded and worked with Henry George, and, according to Whitlock, “understood” George’s ideas like few others.
Today’s infuential “Chicago School” of economists at the University of Chicago take it on faith that unions obstruct economic growth, but one could not illustrate it from the City of Chicago, a major center of union activity during its period of fastest growth. These unions supported Altgeld, and Single Tax ideas.
Chicago’s low transit fares and utility rates were an integral part of single-tax ideology in those days. At the same time Chicago, like San Francisco and New York, pioneered city parks and public spaces on a grand scale, laid out in the Daniel Burnham Plan, developed while the Single Taxer Edward F. Dunne was Mayor.
San Francisco Born-again San Francisco, 1907-30, makes an edifying case study in regenerative tax policy. Historians have focused on the earthquake and fire of 1906, but blanked out the recovery. We do know, though, that in 1907 San Francisco elected a reform Mayor, Edward Robeson Taylor, with a uniquely relevant background: he had helped Henry George write Progress and Poverty in 1879. It was a jolt to replace the lost part of the tax base by taxing land value more, but small enough to be doable. This firm tax base also sustained S.F.’s credit to finance the great burst of civic works that was to follow. Taylor retired in 1909, but soon laid his hands on James Rolph, who remained Mayor for 19 years, 1911-30, a period of civic unity and public works. “Sunny Jim” Rolph expanded city enterprise into water supply, planning, municipally-owned mass transit, the Panama-Pacific International Exposition, and the matchless Civic Center.
Population growth is not always a goal of civic policy. But it is vital to the interests of labor to have cities vie to attract people by fostering good use of their land. That is, indeed, the main point of Henry Geroge’s thesis in Progress and Poverty. A healthy economy generates surpluses that belie the Chicago School slogan that “There is no free lunch.” Land rents are the free lunch, and perhaps Connecticut’s move this year indicates that this time-proven wisdom is beginning to spread once again.
- See more at: http://onthecommons.org/magazine/forgotten-idea-shaped-great-us-cities#sthash.WKn4gQm7.dpuf
Interesting comments on a number of things, including doctors, slaves, soldiers, income inequality, sobriety, thrift, poverty,
Bad as we are, I believe that if we all understood how we are living,
and what we are doing daily, we should make a revolution before the end
of the week. But as we do not know; and as many of us, forseeing
unpleasant revelations, do not want to know; I can only assure you that I
am in perfect concord with standard economists when I state that
competition is the force that makes our industrial system self-acting.
It produces the effects which I have described without the conscious
contrivance or interference of either master on the one hand, or slave
on the other. It may be described as a seesaw, or lever of the first
order, having the fulcrum between the power and the weight.
The so-called right of private property is a convention that every man
should enjoy the product of his own labour, either to consume it or
exchange it for the equivalent product of his fellow labourer. But the
landlord and capitalist enjoy the product of the labour of others, which
they consume to the value of many millions sterling every year without
even a pretence of producing an equivalent. They daily violate the right to which they appeal when the socialist
attacks them. Nor is their inconsistency so obvious as might be
expected. If you violate a workman's right daily for centuries, and
daily respect the landlord's right, the workman's right will at last be
forgotten, whilst the landlord's right will appear more sacred as
successive years add to its antiquity. In this way the most illogical
distinctions come to be accepted as natural and inevitable. One man
enters a farmhouse secretly, helps himself to a share of the farm
produce, and leaves without giving the farmer an equivalent. We call him
a burglar, and send him to penal servitude. Another man does precisely
the same thing openly, has the impudence even to send a note to say when
he is coming, and repeats his foray twice a year, breaking forcibly
into the premises if his demand is not complied with. We call him a
landlord, respect him, and, if his freebooting extends over a large
district, make him deputy-lieutenant of the country or send him to
Parliament, to make laws to license his predatory habits.
What more generous boost to the pay-day loan industry could Congress offer than a government shutdown, when so many Americans live paycheck to paycheck?
First it will affect the government employees, particularly those in the early years of their careers, who might not have a whole lot in the way of liquid savings, and those who have high fixed costs like mortgages, student debt, or children in college.
And then it will affect all those who depend on their patronage, including a lot of small businesses and their employees.
What a brilliant plan for forcing so many Americans into the hands of the pay-day loan industry!
And most of us are aware how difficult it will be for the latter group to dig themselves out. The government employees may eventually get paid -- they'll still owe the pay-day lenders exhorbitant interest, for the month or two. But it will be the second group that falls into the clutches of the legal loan sharks.
Brilliant. Simply brilliant. I wonder what the campaign contribution picture looks like.
How far is the saying true that "Every one lives either by working, or
by begging, or by stealing."' Observe: This is primarily a question
merely of fact, and not of right or wrong. There may be (1) Right
Work and Wrong Work; (2) Begging that is justifiable, and Begging that
is unjustifiable; (3) Stealing which is pardonable, and stealing which
is unpardonable. In simply placing, therefore, any class of persons
under one or another of these three heads, I am not necessarily either
praising or blaming the individual members of that class. Again, of two
paid workers one may be greatly underpaid, and the other as greatly
overpaid. But neither is this consideration embraced in the question
before us. We have not to do, tonight, with the merits of any
individual, nor with the value or valuelessness of any kind of work, nor
yet with the equitable assignment in any particular case of the reward
of work. Let us, in the first place, classify the members of English
society by dividing them simply into — I. Workers, and II. NonWorkers.
I. Workers, e.g.: — Manual labourers, skilled and unskilled; domestic
servants; soldiers; sailors; farmers; clerks and overseers; professional
men; retail and wholesale dealers; merchants and manufacturers; bankers
(sleeping partners are excepted); teachers and preachers; artists,
authors, and editors; high officers and Ministers of State; the
Sovereign; housewives. All these are doing work, and are receiving pay
in coin or kind in return for their work. Some of them may be doing
unpaid (honorary) work as well as paid work; and others may be getting
interest (on a capital for which they never worked) in addition to those
wages of superintendence which are strictly the reward of a merchant's
or manufacturer's work. Again, some of them may be working in appointed
places for definite salaries, while others may be working, so to speak,
"on their own hook," or, in more elegant language, "paddling their own
canoe." By what mark, then, shall we distinguish the type of man who
lives by his work? What is his definition? He is the man who lives upon
pay, in coin or kind, which is given him in return for his personal
services. And only in proportion as his means of living are derived from
such pay, or from his personal labour on the soil, can he properly be
said to "live by working.'' We have next to consider who are the (II.)
Non-Workers of Society, and whether they may all, without exception, be
properly included in the two classes, "Beggars," and "Stealers" —
whether, in fact, this two-fold division of them is an exhaustive one.
Now, Beggars and Thieves are alike in these respects, that they, both of
them, consume without producing, enjoy without labouring, are served
but render no service to others, receive but give not in return, are
clever in subtraction, but failures in addition. Wherein, then, do they
differ from each other? They differ, for the purposes of the present
argument, only in the different dispositions of their respective victims
towards them. The victim of the Beggar is a willing victim; he is influenced by custom, or by compassion for weakness, pain, or privation. On the other hand, the victim of the Thief is an unwilling victim.
It may be that he is unconscious of the spoliation that is perpetrated
National Debt. — "A national debt, like any other, may be honestly
incurred in case of need, and honestly paid in due time. But if a man
should be ashamed to borrow, much more should a people; and if a father
holds it his honour to provide for his children, and would be ashamed to
borrow from them, and leave, with his blessing, his note of hand, for
his grandchildren to pay, much more should a nation be ashamed to
borrow, in any case, or in any manner; and if it borrow at all, it is at
least in honour bound to borrow from living men, and not indebt itself
to its own unborn brats. If it can't provide for them, at least let it
not send their cradles to the pawnbroker, and pick the pockets of their
first breeches. A national debt, then, is a foul disgrace at the best.
But it is, as now constituted, also a foul crime. National debts paying
interest are simply the purchase, by the rich, of power to tax the
poor." — John Ruskin, quoted in The Christian Socialist (London), December, 1883.
One might be led to ask, how many is enough, and how we might go about encouraging our best and brightest into careers that serve others instead of rent-seeking. Two generations ago, many became doctors, engineers and teachers.
What changes in public policy will reduce the returns now funneled so generously to the rent-seekers, leaving more for the folks who labor in the productive sectors of the economy?
Why do we pay so little attention to rent-seeking?
Why is rent-seeking taught to our MBAs, but the impacts of rent-seeking not taught to our liberal arts, social sciences, political science, public policy students?
D'ya think that the rent-seekers might really really like it this way??
Shiller: Too Many Graduating Seniors Go Into Finance
Too many of the our brightest people may be choosing careers in finance,
undertaking economically and socially useless — and even harmful —
activities, Robert Shiller, a Yale University economics professor,
writes in an article for Project Syndicate.
survey of elite U.S. universities showed that 25 percent of Harvard
graduating seniors, 24 percent of Yale graduating seniors and 46 percent
of Princeton graduating seniors were going into financial services in
2006, notes Shiller, co-creator of the Case-Shiller home price index.
While those proportions have fallen more recently, he explains that might only be a temporary effect of the financial crisis.
more are going into speculative fields like investment banking rather
than traditional finance such as lending, he says, citing a study by
Thomas Philippon of the Stern School of Business, New York University
and Ariell Reshef of the University of Virginia.
need some traders and speculators, Shiller concedes, as they provide
some useful service — sorting through information about businesses and
trying to judge their real worth.
"But these people's activities
also impose costs on the rest of us," he explains. Much of their
speculation and deal making is "pure rent-seeking."
other words, it is wasteful activity that achieves nothing more than
enabling the collection of rents on items that might otherwise be free."
working in speculative finance fields are like a feudal lord installing
a chain across a river to charge fees on passing boats, he argues.
Making no improvements to the river, the lord does nothing productive
and helps no one but himself. Few people will use the river if enough
lords put chains across it to collect fees.
working in speculative fields, he says, "skim the best business deals,
creating a 'negative externality' on those who are not party to them."
For example, they can reject bad assets, such as subprime mortgage securities, offloading them to less knowledgeable investors.
repeal of the Glass-Steagall Act, which blocked commercial banks from
investment banking, allowed bankers to act more and more like those
feudal lords collecting fees.
"In fact, the main advantages of
the original Glass-Steagall Act," he says, "may have been more
sociological than technical, changing the business culture and
environment in subtle ways. By keeping the deal-making business
separate, banks may have focused more on their traditional core
A paper by economists at Columbia University and Princeton published on the Social Science Research Network website
showed that over-the-counter (OTC) traders allowed informed dealers to
extract excessive rents and to undermine organized exchanges by
"cream-skimming" the best deals.
informational rents in OTC markets in turn attract too much talent to
the financial industry, which would be more efficiently deployed as
real-sector entrepreneurs," the paper asserts.
Plus, OTC dealers'
rents tend to increase "as there are more informed dealers, because the
greater cream-skimming by dealers worsens the terms entrepreneurs can
get for their assets on the organized exchange, and therefore their
bargaining power on OTC markets."
This appears in the current issue of the University of Chicago Magazine:
Recently at a coffee shop near my home, a scruffy young barista
looked at the University of Chicago T-shirt I was wearing. His face
soured and he disdainfully said, “I don’t know about the University,
just their economics department.” It’s a reaction the shirt has been
getting more frequently the last few years. He was more or less
implicating me by association with creating the economic crisis many
of us are still slowly clawing our way out of. I felt stung. I’m a
social worker, and not only do my politics not agree with that of
the Chicago school’s libertarian bent, but in the wake of the
crisis, with the state and federal budgets that pay for my work
being slashed, I certainly haven’t reaped any financial rewards from
my association with the University or its economics department.
Now, sure, maybe Surly Barista Guy is a die-hard radical leftist and
feels the Original Sin of Chicago’s having propagated free market
neoliberalism across the globe is so great that all the good done by
other alums in the many fields of study and practice the University
produces is rendered irrelevant. Maybe, like a lot of millennials,
he just feels salty because he’s been stuck doing barista jobs since
the recession hit and can barely cover his student debt, let alone
save for retirement or buy a home. Maybe he’s upset that the Chicago
school he’s read about advanced theories and policies that would
ultimately make a very small number of people extraordinarily rich
through financial business practices of at least questionable ethics
if not legality while everyone else was left struggling to keep
their homes. Perhaps he’s also aware that former Treasury secretary
Hank Paulson was hired by—the University of Chicago. Paulson’s
migration to Chicago remains a direct link in many minds between the
free market economic policies that emanate from the University and
the global financial meltdown that nearly resulted from them.
When I applied to Chicago, the school’s reputation was for its Great
Books curriculum and producing top-notch teachers, not global
finance Masters of the Universe. Over the 16 years since I
graduated, I’ve been able to watch how reactions have shifted when I
tell people where I went to school. Whereas the U of C used to be
considered closer in character to schools like Reed or Saint John’s
Colleges, it’s now more associated with places like the University
of Pennsylvania’s Wharton School. People are surprised to find that
I work directly with poor communities and have used my Chicago
education to serve the public good.
The University has never addressed its role in forming and advancing
the economic policies that destroyed trillions of dollars in wealth
during the financial crisis and created epic human misery across
multiple continents. It has heavily publicized and promoted its many
Nobel Prize for Economics winners, driving the public’s perception
of Chicago as a one-dimensional institution. I doubt I’m the only
alum who would appreciate the University making a statement
addressing the economics department’s role in creating the crisis
and articulating a plan for how its policies can benefit the greater
good by expanding opportunity and prosperity for all. I also doubt
that I’m the only alum who would support the University shifting its
focus back to producing graduates who want to live the “life of the
mind” rather than to conquer the global marketplace. We would
appreciate it, frankly, because we’re getting tired of the guilt by
Jeff Deeney, AB’97
In the same issue, in the classifieds, appeared this:
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Sussex County recently passed their 2014 budget which began July 1st, 2013. Part of the budget includes keeping the property taxes in Sussex County some of the lowest in the country. While other regional governments are trying to look for every dollar, Sussex County will be keeping the tax rate the same as it was in 1990.
Officials pointed to the strength of the local housing market as a contributing factor to an uptick in revenue. 2014 will be the 24th year where the county has kept the tax rate to 44.5 cents on $100 dollars of assessed value. The average tax bill for Sussex County residents in a single family home will remain approximately $100 annually.
Beyond the good news for home owners, the 117.7 million dollar budget also includes rate reductions for some 57,000 public waste-water customers. County Administrator, Todd Lawson explains:
“This budget continues Sussex County’s long tradition of prudent, measured spending while ensuring essential public services remain the best value around. “Sussex County is tremendously proud of the fact that, unlike many others, we can continue to run efficiently and effectively with a tax rate set a generation ago. It’s a tremendous feat.”
For the full Sussex County 2014 Budget press release, Click Here.
To which I reply:
Low tax rates and efficient government are very good thing, but it is time to update the assessments, which, as this article points out, are more than 24 years old. Relative land values have changed, particularly with the huge investment in widening the Coastal Highway, and our valuations are way out of date.
Assessing land value well is not difficult or expensive to do. In some states, revaluations are mandated every 4 years.
Sussex County needs to bring its valuations into the 21st century.
MUTUAL TOWN-BUILDING IN ENGLAND "GARDEN CITIES" OF INDIVIDUAL, DETACHED HOMES BUILT WITHOUT THE AID OF PHILANTHROPY — A BETTER PLAN THAN REBUILDING THE SLUMS
BY WILHELM MILLER
(who visited these cities to make a first hand study of them)
LETCHWORTH, "the perfect city," less than five years old but with 6,000
inhabitants, is thirty-four miles north of London and is reached by the
best trains in fifty minutes. It has 3,818 acres and its population is
limited to 35,000 inhabitants, so that there will never be any crowding.
The factory quarter can never be enlarged; it is situated as far as
possible from the residence quarter and the prevailing wind carries the
smoke away from the homes. Nearly one-sixth of the town site, or two
hundred acres, is perpetually reserved for open spaces, including parks,
jjlaygrounds, and a golf course.
And even if the surrounding country should build up as solidly as
London, the people of Letchworth are always sure of enjoying a beautiful
rural scene because a large belt is perpetually reserved for
agriculture. This belt comprises 2,500 acres, or 65 percent of the
whole estate. It will undoubtedly be occupied by market gardeners and
dairymen, for gardens yield about eleven times as much profit per acre
A man can buy a house at Letchworth or he can rent one, but he cannot
buy the land. He cannot even lease it for 999 years, because that would
enable him to sell or lease his property in such a way as to make a
profit from the unearned increment. He can lease the land for
ninety-nine years without revaluation and the improvements will not
revert to the landowner. In any case, he has every advantage enjoyed by
the man who owns the land outright — save one. He cannot get rich from what Henry George called the "unearned increment" but which in Letchworth is called the "collectively earned increment."
Even if he rents his house and land from week to week he cannot be
dispossessed by some one who offers more money. In the agricultural
belt, the tenant is allowed to continue in occupation as long as he is
willing to pay as much as anyone else, less 10 percent, in favor of the
Letchworth has been built upon a plan whereby people in any part of the
world can make a city that is practically perfect without asking any
rich man to give money, and without facilities for borrowing any large
amount. The essence of the scheme is to preserve to the people the
"collectively earned increment." The Letchworth people take some pride
in the use of this phrase, and justly. For, merely by moving to
Letchworth and living there they created in four and a half years a net
increase of half a million dollars. They do not get that half million
now, but some day they will get 95 percent of it in the form of
abolition of taxes. And that day, in my opinion will come in about
twenty years, for by that time the city should be able to pay back all
that its public works have cost.
THE TWO OTHER "GARDEN CITIES "
There are two other successful "garden cities," Bourneville, a suburb of
Liverpool built by the Cadbury Cocoa Works, and Port Sunlight near
Birmingham created by the Lever Brothers, soap manufacturers, solely for
Port Sunlight is the most beautiful because the Messrs. Lever have gone
to the unnecessary extreme of making no two houses alike. Also, they
have spent more upon ornamentation of
houses than is necessary and they plant and care for all the front yard gardens.
The tenants at Port Sunlight get more for their money than elsewhere for
two reasons. First, the rents are too low, because they are calculated
only to pay expenses. Second, the social institutions, though more
elaborate than elsewhere, cost the people nothing originally and they
can and do manage them so as to keep expenses down to the mininum.
THE "taint" of philanthropy
The one great drawback to the Port Sunlight idea is that it involves too
great an expenditure on the part of one man or one firm, and it is hard
to prove to a factory owner that the investment is worth while. In this
case, the factory owners disclaim all idea of philanthropy and are
positive that it pays, because their employees are healthier, happier,
more prosperous and therefore more efficient.
The Lever Brothers rejected all direct profit-sharing schemes because
they thought this the only plan that would benefit the wives and
children of the men. There is the keenest competition for a chance to
work in that factory and live in one of those houses. But all the
profits to the firm are indirect. Rarely, if ever, can they be expressed
in dollars and cents and indirect profits can never be expected to
weigh in the mind of the average employer against the appalling fact
that Lever Brothers have put about $1,700,000 into their paradise at
Port Sunlight and have never directly gotten back one cent.
In other words, if this is not philanthropy, it is too much like it to
be generally copied. Humanity cannot look to great employers for the
solution of the housing problem. And employees do not want philanthropy.
And at Bourneville there is less of the philanthropic spirit. The
employees of the Cadbury Cocoa Works get a normal social life, which the
people of Port Sunlight do not have. The cocoa workers are not obliged
to live in Bourneville and only 42 percent of the tenants at Bourneville
are employed at the Cadbury factory. Thus Bourneville is a mixed
community and the ideal community must be mixed — not merely industrial,
or suburban, or composed exclusively of any one class. It is sad to see
the magnificent clubs, lecture halls, baths, and other social features
at Port Sunlight languish for attendance, but it is only human nature.
On getting home after a day's work, a man wants to forget thoughts of
his work. And if he lives in a city where every house and every person
he sees on the street suggests the workroom, he is bound to escape to
the next town where he can get a drink or otherwise forget his daily
routine. The only serious complaint which the tenants at Port Sunlight
have any right to make is that they live in the atmosphere of a single
Mr. Cadbury gave Bourneville to the people. How then does it escape the "taint" of philanthropy?"
A GREAT FUND FOR PROPAGANDA
It is true that Mr. Cadbury gave the property to a trust which
administers it for the benefit of the people, but eventually this trust
will be able to finance hundreds of other garden cities that will be
purely cooperative. For instance, people wishing to live in a "garden
city," where all the "collectively earned increment" benefits all alike
instead of going to the building up of individual fortunes, can form a
stock company with shares as low as $25. If the Bourneville trust
approves of their plan, it will lend them enough money to start a town.
But the company must pay it back, so that the Bourneville trust can use
it again and again.
How does the Bourneville trust hope to get this fund? Its income, which
is almost wholly rent, doubles every five years. At this rate, in fifty
years it will have an annual income of five million dollars. Long before
that, Bourneville will have reached its limit of population. And since
the trust never has to pay back the cost of the houses, roads, or other
public works, it will be able to roll up a vast sum for the propagation
of the "garden city" idea.
The all-important point is that the Bourneville trust will never give
anyone something for nothing. It will merely lend money to people who
are building "garden cities."
THE HEALTH AND BEAUTY OF THESE CITIES
These are far healthier and more beautiful than cities that have grown
up normally; healthier because crowding is prevented by a limit to the
population and because more and better provision is made for outdoor
sports — to say nothing of architecture in which health is the first
thought. The average town death-rate in England is 15 per 1,000.
Letchworth has cut this down to 2.75. The birthrate at Port Sunlight is
twice the average for the rest of England.
The greater beauty of these garden cities lies chiefly in the
architecture and gardening. The houses and stores all conform to one
general style of architecture, but are never monotonous. Every building
must be approved by the city's architect. The houses are all of brick
and built to last. There are no long rows of houses just alike. The
first idea was to have no two houses alike but that is a needless waste
of money. For poor people it is impossible to get good houses cheap
enough without building three or four in a row and this row can be
duplicated in another part of town without harming the total effect.
Moreover, Bourneville has shown how much can be saved on ornamentation.
The plainest houses are transformed in three years by the use of
climbers. Bourneville's head gardener sees that every house has a
different set of vines. Not merely is the plainness soon hidden thereby,
but also the individuality of each home is notably increased.
Gardening is compulsory at Bourneville and Letchworth. If a tenant
neglects his garden at Bourneville and will not hire some one to weed
it, the estate notifies him that he will forfeit his lease unless he
makes his place look decent. But there have been only two cases of
The estate plants a hawthorn hedge all round each man's place, digs and
manures his vegetable garden, lays down the lawn, sets out dwarf fruit
trees, plants the climbers on his house, and digs his flower-beds. These
expenses are considered part of the cost of building and the rent is
based thereon. The tenant must keep it in good condition but he can buy
plants from the estate cheaper than from a nurseryman and he gets
instruction for nothing. There is no chance for a beginner to get
A FIVE-ROOM HOUSE FOR $7.80 A MONTH
I am almost afraid to tell how much a tenant gets for his money at one
of these garden cities. The cheapest houses at Bourneville rent for only
$7.80 a month, which includes taxes and water rates. Such a house
contains five rooms and a wonderful "folding bath" which stands up like a
cabinet when not in use. Clerks and artisans, however, generally pay
about $12.30 a month for seven rooms and an eighth of an acre.
The ideal amount of land at Bourneville is one-eighth of an acre, and
the average value of the fruits and vegetables produced on such a plot
is about $32.24 a year, or sixty-two cents a week the year round. The
smallest lots at Letchworth are a twelfth of an acre, which is the same
as 25 x 145 feet, and is 45 percent larger than the typical New York
lot, on which many families are allowed to live. In addition to these
direct benefits the tenant gets a chance to play cricket, tennis, bowls,
quoits, and hockey near by at no expense or at less cost than in an
All rents at Bourneville are figured at 8 percent of the cost. Taxes,
insurance and repairs cost 3 percent, leaving a profit to the
Bourneville estate of 5 percent. With this 5 percent, it employs a
permanent staff of about one hundred builders and has about fifty houses
under construction all the time.
OBSTACLES OVERCOME AT LETCHWORTH
The Letchworth company had its hands full with public works, for it had
to construct eight miles of road, eleven miles of sewers, and seventeen
miles of water main. Also it had to build a reservoir for water, a gas
making plant, and an electric power station to supply the factories, of
which it now has twenty-four. Another difficulty overcome was
transportation. The company has cooperated with the railroad so well
that its "commuters" can make their thirty-four miles to and from London
daily in less than an hour, though most trains require an hour and a
The income of the land company is partly from the sale of water, gas,
and electricity, but chiefly from ground rent. It never sells any land
or houses. Ground rent may seem a very small source of revenue, but
every man, woman and child in England contributes for ground rent an
average of $10.50 a year. The Letchworth company can, and doubtless
will, raise the ground rent as its limit of population approaches, but
even if it should raise it as high as the average for England, the
tenant will pay less than elsewhere, for taxes will eventually be
What we have is a crisis of imagination. Albert Einstein said that you cannot solve a problem with the same mind-set that created it. Foundation dollars should be the best “risk capital” out there.
There are people working hard at showing examples of other ways to live in a functioning society that truly creates greater prosperity for all (and I don’t mean more people getting to have more stuff).
Money should be spent trying out concepts that shatter current structures and systems that have turned much of the world into one vast market. Is progress really Wi-Fi on every street corner? No. It’s when no 13-year-old girl on the planet gets sold for sex. But as long as most folks are patting themselves on the back for charitable acts, we’ve got a perpetual poverty machine.
It’s an old story; we really need a new one.
But perhaps Buffett's most important observation is this one:
"Inside any important philanthropy meeting, you witness heads of state meeting with investment managers and corporate leaders. All are searching for answers with their right hand to problems that others in the room have created with their left."
To which I can only insert ... "and are benefiting from."
He also points out,
As more lives and communities are destroyed by the system that creates vast amounts of wealth for the few, the more heroic it sounds to “give back.” It’s what I would call “conscience laundering” — feeling better about accumulating more than any one person could possibly need to live on by sprinkling a little around as an act of charity.
But this just keeps the existing structure of inequality in place. The rich sleep better at night, while others get just enough to keep the pot from boiling over. Nearly every time someone feels better by doing good, on the other side of the world (or street), someone else is further locked into a system that will not allow the true flourishing of his or her nature or the opportunity to live a joyful and fulfilled life.
I hope Mr. Buffett will take the time to read Henry George's "Progress and Poverty." He might be better able to identify the particular structures that create and maintain poverty and the concentrations of wealth, income and power. And, based on that last sentence, I think Buffett would appreciate the final section of P&P. (Bob Drake's 2006 abridgment is a fine starting place, but the unabridged is a pleasure of its own.)
"If you wish to test the merits in point of certainty of land value taxation as compared with other taxes, go to a real estate agent in your community and, showing him a building lot upon the map, ask him its value. If he inquires about the improvements, instruct him to ignore them. He will be able at once to tell you what the lot is worth. And if you go to twenty other agents their estimates will not materially vary from his. Yet none of the agents will have left his office. Each will have inferred the value from the size and location of the lot.
But suppose when you show the map to the first agent you ask him the value of the land and its improvements. He will tell you that he cannot give an estimate until he examines the improvements. And if it is the highly improved property of a rich man he will engage building experts to assist him. Should you ask him to include the value of the contents of the buildings he would need a corps of selected experts, including artists and liverymen, dealers in furniture and bric-a-brac, librarians and jewelers.
Should you propose that he also include the value of the occupant's income, the agent would throw up his hands in despair. If without the aid of an army of experts the agent should make an estimate of these miscellaneous values, and twenty others should do the same, their several estimates would be as wide apart as ignorant guesses usually are. And the richer the owner of the property the lower as a proportion would the guesses probably be.
Now turn the real estate agent into an assessor, and is it not plain that he could appraise land values with much greater certainty and cheapness than he could appraise the values of all kinds of property? With a plot map before him he might fairly make almost all the appraisements without leaving his desk at the town hall.
And there would be no material difference if the property in question were a farm instead of a building lot. A competent farmer or business man in a farming community can, without leaving his own dooryard, appraise the value of the land of any farm there; whereas it would be impossible for him to value the improvements, stock, produce, etc., without at least inspecting them."
-- "The Taxation of Land Values," (pp. 107, 108) Bobbs-Merrill, Indianapolis.
Rent is not earned by individuals ... but is unearned. This is obvious for two simple reasons:
First, rent cannot be earned by individuals because land is not man-made but nature-made. It is not a product of capital and labor, but is a free gift of the Creator.
Second, rent cannot be earned by individuals because land values can only arise through the growth of population and the progress of society as a whole. No one man can make land values any more than he can make the land itself. Land values spring from the demand for land and to cause this demand a community of people is necessary. If the community is small or unprogressive, land values will be very low; if it is large or progressive, land values will be very high.
-- Emil Jorgensen: False Education in our Colleges and Universities (1925), available at HathiTrust.org
And American economists — but, be it noted, economists without the gates of institutionalism — proposed thoroughgoing remedies. Chief
among these was Henry George, whose idealism was as high as his
testimony was eloquent. It was sought to cry him down as a fanatic with a
cure-all, but history will not permit his critics to reach to his
That article begins,
"The business depression points
an accusing finger at professional economists. This paper is not an
apology for the economists—quite the contrary. At the same time it is
proper to point out that when an epidemic disease attacks the community,
(a fair analogy in the physiological world) we do not upbraid the
doctors. We welcome them into our houses, place our individual sick in
their hands, and listen anxiously to their guesses at the source of
infection. We recognize that physicians are paid by individuals, and are
not conservers of the public health in the strict sense, and so we do
not hold them, even collectively, responsible for the spread of typhoid
or influenza. They are to lock the individual stable door after the
steed is stolen, and so long as they do this with reasonable quickness
and accuracy, we do not complain.
economists have been somewhat less occupied with the ills of the
individual than have doctors as a class, and yet the share of their
attention demanded by the enterpriser, the lender, the borrower, the
speculator as such, absolves them in part from the indictment of
neglecting the public interest. Until recently the forces in American
economic life have been centrifugal, and students have been invited to
become specialists. This direction of their effort was not always the
case. The profession of "Political Economy" clearly implies a concern
for public, collective problems, and it is only within the last two
generations that American economists have departed from the historical
tradition. The term "economics" in the narrow sense, and, more
explicitly, the term "business economics," indicates the drift toward
preoccupation with private economy.
Elsewhere* I found this:
Broadus Mitchell, in his book, The
World's Wealth — Its Use and Abuse, pays a high compliment to
Henry George, the Economist who first proposed the taxation of
rental value, saying that "If America were invited to contribute one
name to an international economic hall of fame, the rest of the
world would scarcely understand it if we did not nominate Henry
*Arthur Otis: Added Revenue Without Burden; I could not find the Mitchell book online.
A third tribute to Henry George from Broadus Mitchell is online at the School of Cooperative Individualism. It describes Mitchell as Associate Professor of Political Economy, Johns Hopkins University.
There are at least four Little Neck homes up for sale: 4 Little Neck Road, $649,999; 30 Plum Sound Road, $489,000; 29 Middle Road, $565,0000 and 18 Baycrest Road, $650,000.
The average price per lot the town received in the August sale was approximately $186,747.
The cottages themselves are quite modest. Most are at least 80 years old, many less than 1000 square feet, many not winterized. Anywhere else, no one would say they were worth more than $75,000.
When the Feoffees -- trustees of this fine piece of land, whose charge was to steward this 1650 gift to the schools of the town of Ipswich, Massachusetts to produce maximum income -- sold the land at a small fraction of its real value, to its tenants, they did something that reasonable people would call criminal.
The students of Ipswich -- this generation, the next generation, and dozens of generations after them -- should have had the windfall. Instead, the tenants got it. Let's say those 3 cottages sell for a mere $500,000 on average. $187,000 paid for the land and $75,000 worth of cottage add up to $262,000. The other $238,000 each was a very generous gift from the students' trustees to 166 cottage owners. Calculate it. That's $39,508,000 -- over and above the $31 million -- that should have gone to the students' benefit, and instead was gifted to the tenants. And their well-compensated attorneys and consultants and public relations folks.
Look for an article next week detailing all the wonderful things that this year's installment of the interest on the $31 million -- well, not that much, net net net.
“Buy land,” the adage goes, “they’re not making any more of it.” True enough: Land is an economic factor like no other, what economists call an “inelastic commodity.”
Demand for land goes up, yet there can be no increase in supply. According to the law of supply and demand, rising demand produces rising prices, which is offset by manufacturing more supply, which lowers prices.
In the case of land, the iron law of supply and demand is tossed out the window.
One can of course develop more land, but this does not produce more of the basic resource upon which development depends.
Control of the resource, then, is where opportunity lies, an opportunity which involves nothing more than the willingness to gamble that the value of land will continually rise. In Moab all landowners – which is to say all homeowners along with owners of undeveloped plots – know this. In places where population is increasing, where the demand for land is rising, the trick to getting rich is to buy a plot of soil, sit on it, and watch the value grow as demand for the commodity grows.
Ketcham ends with,
And therein lies the problem.
Like the speculator with his bare lot, when I sell my property I get to keep for myself, barring a few taxes, the entire increase in value, an increase that resulted in part, yes, from my own labor and upkeep, but also, to a far larger degree, from communal labor and social investment (along with the simple fact of inelastic supply in the face of rising demand).
The homeowner who manages to make a killing upon selling his house minces in the mirror and says, “I earned it, I and I alone!”
Such self-delusion, needless to say, is one of the keystones of the real estate market on which so much of our economy is predicated.
I encourage you to go read the original to see the middle section. Ketcham, if memory serves, was the author of a very good article in Harper's about Monopoly.
In 1871, a Tennessee businessman, Enoch Ensley, wrote to his governor in much the same vein:
In showing or proving what I have above promised to show, I will
THE GOLDEN RULE OF
First, I will present you with a rule or motto
which I think it would be well for the state to adopt and have cut into
the stone at the capitol (in large letters and have them gilded), in
the senate chamber, the hall of the house of representatives and in the
governor's office, for I think it entirely harmonizes with the correct
principles of taxation in every particular, to wit:
That Would Be of Value to Your State,
That Could and Would Run Away, or
That Could and Would Come to You.
In 1978, Milton Friedman stated, "the least bad tax is the
property tax on the unimproved value of land, the Henry George argument
of many, many years ago" ("An Interview with Milton Friedman,” Human
Events 38 , November 18, 1978, p. 14.)
In 2004, interviewed by Joe Matthews about California's Proposition 13,
When the subject turned to Prop 13, which he
had strongly supported in 1978, Friedman said he thought the measure
had proven to be "a mixed bag." He did not regret his vote for Prop 13
because it had sent a tax-cutting message that was important for that
* * *
But as a matter of current policy, he said, Prop 13 was problematic.
"It's a bad tax measure because the property tax is the least bad tax
there is," he said. "Think of the original and indestructible
properties of the soil. The least dangerous and harmful tax is a tax on
something of which there is an inelastic supply." He argued that
protecting Prop 13 was far less important than cutting other taxes,
particularly on the income and sales we need more of.
Friedman in an interview published in the San Jose Mercury a few weeks before his death in 2006:
"Yes, there are taxes I like. For example, the gasoline tax, which pays for highways. You have a user tax. The property tax is one of the least bad taxes, because it's levied on something that cannot be produced — that part that is levied on the land. So some taxes are worse than others, but all taxes are bad." — interview, San Jose Mercury News, Nov 5, 2006
So Friedman could see at least two very good reasons for relying on taxes on land value. One wonders why he never devoted himself to promoting LVT.
One of the reasons for our poor economic performance is the large distortion in our economy caused by the tax system. The one thing economists agree on is that incentives matter — if you lower taxes on speculation, say, you will get more speculation. We’ve drawn our most talented young people into financial shenanigans, rather than into creating real businesses, making real discoveries, providing real services to others. More efforts go into “rent-seeking” — getting a larger slice of the country’s economic pie — than into enlarging the size of the pie.
It doesn’t have to be this way. We could have a much simpler tax system without all the distortions — a society where those who clip coupons for a living pay the same taxes as someone with the same income who works in a factory; where someone who earns his income from saving companies pays the same tax as a doctor who makes the income by saving lives; where someone who earns his income from financial innovations pays the same taxes as a someone who does research to create real innovations that transform our economy and society. We could have a tax system that encourages good things like hard work and thrift and discourages bad things, like rent-seeking, gambling, financial speculation and pollution. Such a tax system could raise far more money than the current one — we wouldn’t have to go through all the wrangling we’ve been going through with sequestration, fiscal cliffs and threats to end Medicare and Social Security as we know it. We would be in sound fiscal position, for at least the next quarter-century.
to which I posted a response. The last time I looked, it was the only one, out of about 430, which discussed the issue of rent seeking. Here's what I wrote:
How do we unstack it? Collect the rent. Treat it as our COMMON treasure, not something subject to privatization by individuals, corporations, foundations, universities, etc.
Will it fund everything? We don't know. We can't know. We don't even collect the data that would permit us to calculate its magnitude. (Funny thing about that. Wonder who benefits from that. Could it be the rent-seekers?) Start collecting it, and using it to fund public goods.
At the same time, start reducing, even eliminating the dumb taxes which burden the economy: taxes on sales, buildings, wages, starting with the lowest wages earned. Watch the 99% recover. Watch the economy recover. The 1% will do all right under such a set up, but the rest of us will begin to thrive. Most likely, we'd be able to reduce the amount we need to spend on the social safety net, so that collected rent might cover a large share of our internal revenue needs.
What else might we collect revenue from? How about the privileges we've given out -- the privilege of using the airwaves (think how much a strong radio signal sells for in a large city) and the entire electromagnetic spectrum; franchises of various kinds, landing rights at LaGuardia, particularly at rush hour;
Then there are our nonrenewable and scarce natural resources: water, oil, natural gas, various metals. Royalties on many of these things are trivial, or they are going into private pockets, instead of being treated as our common treasure.