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!
The university, which offers world-class instruction in art, architecture and engineering, but no expensive athletic programs, no tricked-out student centers, no plush lawns to sprawl on between classes, is currently losing $12 million a year, about a fifth of its overall budget. So 153 years after the inventor and industrialist Peter Cooper founded a school long rhapsodized as “free as air and water,” it is considering whether to end its most famous tradition, and start making undergraduates pay to attend.
Many students and alumni, shocked at the possible loss of their school’s defining trait, have criticized the decision to erect the $177 million building, which was designed by Thom Mayne of the firm Morphosis. But Cooper Union’s president, Jamshed Bharucha, who arrived after construction was completed, said that the discussion about the building was a red herring, and that the real problems date to at least the 1970s.
That is because, he said, its costs started rising faster than revenues — most notably those from the school’s biggest asset, the land under the Chrysler Building, which now generates $27 million a year.
The article goes on to say
And because the school spends so much to subsidize everyone’s classroom instruction, regardless of income level, it has almost nothing left over to subsidize the high cost of living in New York, which hits needy students hardest.
The school’s financial crisis is expected to be most acute over the next five years; in 2018, the revenues on the land under the Chrysler Building go up by $25 million a year, enough to cover the deficit, although only for a while.
So the rent for the land will soon be $52 million per year. Capitalized at 5% (also known as "20 years' purchase"), that $52 million represents a purchase value of $1.04 billion.
(It appears that a 75% interest in the building was sold in 2008 for $800 million, by Prudential to the Abu Dhabi Investment Council; Tishman Speyer Properties owns the remaining 25%.)
Urban land is valuable. Who deserves the rent money? The community? Its colleges? Or whatever private entity happens to have title to it? The "conventional" "traditional" answer is not necessarily the best answer, when one stops to think about it.
Here are the opening paragraphs of a recent article about the complexities of Ground Lease contracts. I commend the entire article to your attention. It helps flesh out why and how the entire FIRE sector -- Finance, Insurance and Real Estate (as well as their attorneys) -- is receiving such a large share of the profits produced by the productive sectors of the economy. The owner of land, and the entities which lend on land, and insure the buildings and the revenue flow, all reap significant shares of what the tenants labor to create. Modern sharecropping. And the recipients of the ground rent get to parade as self-made men, people of awesome foresight and wisdom -- and even philanthropists (think Brooke Astor, the Fishers, and others in your own community) when they donate a small share back to a charity! As you read this, think both of Manhattan land and of land in your community's central business district, and along its major roads. (Location, location, location!)
If one wonders why (true) small business struggles, one might consider the complexity and expense of their ground leases, and contrast that with the Georgist alternative: that one's taxes would be simply the current rental value of the land, while the value of the building remains one's private property, not subject to taxation or going pouf! at the end of a ground lease.
The land lord is "supplying" something he didn't create. We ought to ease him out. Land value taxation is the obvious tool for reducing, and -- slowly or not -- eliminating, his "take" on those who do create. Think what it would mean if working people had that spending power, instead of the lords of the land.
All that land rent could be used to fund our community's needs, instead of lining the pockets of a few very "lucky" -- privileged -- duckies. (The analogies to chattel slavery are not a long stretch, once one starts to think about it. We should all own ourselves, and reap the fruits of our own labors.)
A lease is a lease is a lease – or so you may think. Yes, real property leases grant an estate in land to a tenant for a period of time. And yes, the tenant pays for that right of possession. But the action in a lease isn’t in the conveyance provisions; it’s in the contract provisions. Multiply out the rent and other annual monetary obligations by the length of the lease term (in years), and you’ll see that it might be (and often is) a big dollar contract. Even more important, unlike the vast majority of contracts whose obligations are satisfied in days or weeks, a lease contract goes unfulfilled for 50, 75, “99,” and even 500 years. That takes it beyond the life of the parties involved in its creation, and the future brings surprises. Neither Nostradamus nor Jules Verne got everything right.
Why a Ground Lease?
If a tenant has to build its own building (as is often the case), and has all of the burdens of ownership, why would it lease a property knowing that at the end of the lease term it has nothing left to show for its money and efforts? There are a number of common reasons, principal among them is that the owner won’t sell the land and the tenant has no alternative.
Real property often carries a long term unrealized gain, waiting to be taxed upon its sale.
Not every landowner is interested in making further active real property investments. This makes a like kind exchange unappealing.
Ground leasing the same land keeps ownership in the family. At the owner’s death, because of the current estate tax “stepped up basis” arrangement, the built in gain may never be taxed.
When there is even one billionaire, there will be several
half-billionaires and many hundred-millionaires. The fact will
be an indication of a tremendous concentration of wealth, and of the
dwindling proportion of wealth held by the farmers and wage-earners
of this country. The billionaire will bring an army of paupers
in his train. Possibly the actual average wealth of farmers
and mechanics then may be a little greater than it is now.
Optimists of that day may assure them that they are richer, by ten
dollars each, than their ancestors were; and therefore that all is
for the best in this best of all possible worlds. But the
discontent of the masses, under a system which gives to one man a
larger amount of wealth than can ever be attained by a million of
his fellow citizens who are fully his equals in skill and merit and
far his superiors in industry, is certain to be great and ever
increasing. Indeed, universal experience demonstrates that
discontent among the masses is far greater than when the weight of
oppression is somewhat diminished than it was before.
The vast majority of any community must
always have incomes so small that they cannot help spending three
fourths of what they receive. But the small minority of large
property-owners do not need to spend one eighth of their incomes,
and as a rule they do not spend one half. Looking at the
subject with reference to accumulated wealth, the man who is worth
$1,000 usually spends at least $500 a year on the support of his
family, while the man who is worth $1,000,000 rarely spends
$50,000. Indirect taxation, therefore, obviously bears at
least ten times as heavily upon the former as upon the latter.
Under absolutely direct taxation, no poor man would ever pay a
larger share than a rich man, and, indeed, most of the working
classes would pay no taxes at all; because the collection of direct
taxes from them would be too laborious and expensive to be
Direct taxation, on a large scale, is near at hand. The men
who bought and paid for the present Congress can now choose what its
form shall be. They can have a general income tax, or they can
have something less open to fraud, less inquisitorial in its nature,
less oppressive upon honest men, and offering no premium to
perjury. But they know nothing about the science of taxation,
and they do not care to learn; so that the whole matter will be left
over to the new Congress, and a general income tax, objectionable as
it is, seems most likely to be adopted.
The Coming Billionaire
The Forum, January, 1891, page 546-557
In the FORUM for November, 1889, the question was asked, "Who owns
the United States?" and reasons were given for the belief that one
half of all the national wealth is owned by 40,000 families and that
three fourths of it is in the possession of fewer than 250,000
families. These estimates were based in part upon official tax
returns, but in part, also upon private information as to the wealth
of 70 estates, specifically named, each estimated to be worth
more than $20,000,000 and averaging $37,500,000. The
correctness of these statistics, as well as that of the inferences
drawn from them, has been somewhat bitterly denied. Hostile
critics have assumed that the estimates of individual wealth were
based entirely upon newspaper reports; and many newspaper editors,
acting presumably upon their own experience, have unhesitatingly
declared that such statistics are necessarily worthless.
But not one tenth of these names were given upon the authority of
newspaper estimates, while a large majority were given upon very
trustworthy private information. It has been said that no one
can tell what a man's wealth amounts to without access to his books,
which, it has been assumed, is impossible. In several
instances, however, the information came from persons who had access
to the necessary books or had been permitted to inspect the
securities; in some cases it was obtained from tax returns; and in
other cases it was taken from the oral or written statements of the
owners themselves. For example, one gentleman, whose wealth
was set down at $100,000,000 had actually exhibited $75,000,000 in
securities, and had testified in a court of law to the possession of
$10,000,000 more of one kind, all encumbered. During the year
which has now elapsed, not one tenth of these names have been
specified by any one as erroneously entered upon the list or as
seriously overrated, and in only three instances has any probable
error been established. These names might be omitted, and
their places might be supplied by others of the twenty million
grade. Errors of understatement have been discovered which
largely counterbalance all overstatements. The least that can
be said is that there are 70 American estates that average
$35,000,000 each, not including Trinity Church, which perhaps should
not be classed with strictly individual owners. During the
year, by the consolidation of two estates, one individual has become
worth at least $200,000,000. Two brothers, whose property is
held as a unit, together own even a larger amount than this.
Some great estates have been divided up by inheritance, but others
have been divided up by inheritance, but others have been still more
concentrated by that means.
As you read this, recall that a single acre of urban land can be worth $250,000,000 or more -- over 23,000 times what the recently-doubled farmland described in this article sold for!! Also, it seems worthwhile to point out that 160 acres (one quarter of a square mile), at $10,700 each, works out to $1.7 million -- currently well below the threshold for the federal estate tax!
Consider, too, what it is that the land speculator brings to the process of production, and what he is rightly entitled to in a fair and just society, and what society is entitled to, and what the workers -- the farmer and his employees -- are entitled to, and what the capitalist -- the fellow who pays for the buildings and equipment -- is entitled to. Seems like the land speculator is making out awfully -- awefully! -- well but isn't producing or creating anything!! Why do we do things this way? Did the absentee landlord deserve a share of the crop the farmer created? If the farmer has to pay rent to someone, shouldn't it be the community? Wouldn't it be better if America's investors were motivated to put their funds into better equipment (capital) or employing people (labor)?
November 8, 2012
Howard Audsley has been driving through Missouri for the past 30 years to assess the value of farmland. Barreling down the flat roads of Saline County on a recent day, he stopped his truck at a 160-acre tract of newly tilled black land. The land sold in February for $10,700 per acre, double what it would have gone for five years ago.
Heading out into the field, Audsley picked up a clod of the dirt that makes this pocket of land some of the priciest in the state.
"This is a very loamy, very productive, but loamy soil," Audsley said. "A high-clay soil will just be like a rock and that's the difference between the ... soils. And the farmers know this and the investors know this. That's why they pay for it what they do."
A Steep Surge In Prices
not just the value of Missouri cropland that's rising. Corn Belt
farmland prices from Iowa to Illinois and Nebraska to Kansas have been
sky-high lately, boosted by $8-a-bushel corn.
paid about $3.3 million for [about 650 acres] in Southeast Illinois in
2009," said Diggle, who is the CEO of Singapore-based Vulpes Investment
Management. The company handles $250 million of investor money, about 15
percent of which is in farmland.The
high commodity prices have helped encourage investors like Steve
Diggle, who have no connection to farming, to compete for their very own
acreage in the Heartland.
year we sold it at auction and we got $5.1 million," he said, referring
to the Illinois farmland. "That's 55 percent higher than we paid. Plus
we got two yields — one of 3.5 percent and one of 5 percent. So, you
know, as an investment, that's 63 percent over three years. [It] is
great and we're extremely happy with it."
says his firm also purchased a 1,400-acre tract in Illinois two years
ago. The company plans to hold on to it to make money through cash rents
and land appreciation.
value of your land may go up or down. But as long as bond prices remain
where they are, it's very hard to see how we'll have a sustained bear
market for agriculture," Diggle said. By comparison, he said, the
extremely low returns in the bond market are "just so inferior."
A Safer Investment
You don't have to be a billionaire to invest in farmland.
professor Andy Trupin, who lives in Delray Beach, Fla., bought a
155-acre tract of farmland in Lebo, Kan., two years ago because it
looked like it would make him more money than gold or the stock market.
He also owns another tract that's primarily pastureland.
seemed like a much safer vehicle to get an income stream even though
... it's not a high-income stream. At least it's more than you would get
on Treasuries at any duration," Trupin said. "And at the same time,
[farmland offers] price appreciation or to at least [holds] its value in
the event of an inflation period."
investment has paid off so far, Trupin said. He rented out the land to a
local farmer who grows corn, soybeans and wheat. Even the brutal
drought failed to knock down the investment.
we managed to get 20 bushels to the acre of corn even though the place
was as dry as Las Vegas last year," Trupin said. "I'm willing to let the
income from this thing fluctuate. In bad years, it's a slight loss —
maybe a couple of thousand on the year — and in good years, you gain up
to $10,000 on it."
found the land online and got help purchasing it by Realty Executives
of Kansas City. The company says 90 percent of its new customers are
investors like Trupin, and it holds seminars for investors that walk
them through the process of evaluating and buying farmland and how to
find local farmers to rent the land.
probably a higher percentage now of people who are strictly investors,
stock market people, money-market-type investors, and ... they're buying
all types of land," said Dale Hermreck, a broker for Realty Executives
who says he sold $21 million worth of farmland in Kansas last year.
have a lot of outside interest from Texas, Chicago, New York," Hermreck
said. "I get calls and inquiries all over the United States."
The Specter Of A Bubble
to University of Missouri agriculture economist Ron Plain all of this
sounds a bit like the housing bubble burst of 2006. He is concerned a
similar bubble could be happening in farmland.
get several years going up faster than that long-term trend of 6
percent [annual increases] and you're then in a situation where you're
sort of due for a correction," Plain said. "And the way you correct is
pull those land values down — or 'pop the bubble' ... and so there's
concern about that and it's kind of reasonable to worry."
said that with mortgage rates at their lowest in 60 years, it's
reasonable to expect the cost of borrowing to go up eventually. And if
crop prices retreat from record highs, he said, that means "less income
per acre and therefore less ability to pay for farmland."
a bubble burst, farmland might be harder to sell, especially compared
with other more liquid investments. But investors argue that any bubble
is still far off, and they believe that farm acreage will remain a solid
long-term investment so long as the demand for food continues to grow.
remains to be seen whether investors will be able to compete with
farmers for the small supply of high-quality cropland available in the
Midwest, says broker Hermreck.
have people call me all the time and I just don't have what they're
looking for," Hermreck said. "Simply supply and demand. It's just not
there. I could sell an awful lot more of this land if it was available.
And people seem to hang on to something that's making some money and
real popular. It's just real popular now to own land."
Fentress Swanson reports from Missouri for Harvest Public Media, an
agriculture-reporting project involving six NPR member stations in the
Midwest. For more stories about farm and food, check out harvestpublicmedia.org
The accompanying map says, "Around Grand Central Terminal, towers could be up to twice the size now permitted. Development could also take place along the Park Avenue corridor, where towers could be more than 40% larger. Elsewhere in the district, towers could be 20% larger."
New York’s premier district, the 70-block area around Grand Central
Terminal, has lagged, Bloomberg officials say, hampered by zoning rules,
decades old, that have limited the height of buildings.
Mayor Michael R. Bloomberg wants
to overhaul these rules so that buildings in Midtown Manhattan can soar
as high as those elsewhere. New towers could eventually cast shadows
over landmarks across the area, including St. Patrick’s Cathedral and
the Waldorf-Astoria Hotel. They could rise above the 59-story MetLife
Building and even the 77-story Chrysler Building.
Mr. Bloomberg’s proposal reflects
his effort to put his stamp on the city well after his tenure ends in
December 2013. Moving swiftly, he wants the City Council to adopt the
new zoning, for what is being called Midtown East, by October 2013, with
the first permits for new buildings granted four years later.
administration says that without the changes, the neighborhood around
Grand Central will not retain its reputation as “the best business
address in the world” because 300 of its roughly 400 buildings are more
than 50 years old. These structures also lack the large column-free
spaces, tall ceilings and environmental features now sought by corporate
rezoning — from 39th Street to 57th Street on the East Side — would
make it easier to demolish aging buildings in order to make way for
state of-the-art towers.
it, “the top Class A tenants who have been attracted to the area in the
past would begin to look elsewhere for space,” the administration says
in its proposal.
plan has stirred criticism from some urban planners, community boards
and City Council members, who have contended that the mayor has acted
hastily. They said they were concerned about the impact of taller towers
in an already dense district where buildings, public spaces, streets,
sidewalks and subways have long remained unchanged.
Mr. Bloomberg has encouraged high-rise development in industrial neighborhoods, including the Far West Side of Manhattan,
the waterfront in Williamsburg, Brooklyn, and in Long Island City,
Queens. But with the proposal for Midtown, which is working its way
through environmental and public reviews, he is tackling the city’s
the development potential in this area will generate historic
opportunities for investment in New York City,” Deputy Mayor Robert K.
The initiative would, in some cases, allow developers to build towers twice the size now permitted in the Grand Central area. The
owner of the 19-story Roosevelt Hotel at Madison and 45th Street could
replace it with a 58-story tower under the proposed rules. Current
regulations permit no more than 30 floors.
When zoning changes increase the value of land, who should reap the benefit? The current landholder, or the community? What did the landholder do to earn that windfall? Do you think it comes out of thin air? Do you think it is paid him by other rich people?
Or do you recognize that it is part of the structure which enriches a few and impoverishes the many?
It is easy to fix this one. One just has to recognize the structure, and value the land correctly, and start collecting the lion's share of the land rent for the community. If it is more than NYC can put to use -- and it will be -- then apply the excess to reducing our federal taxes on productive effort. Use it to fund Social Security, or Medicare, or universal health insurance, or something else that will benefit the vast majority of us instead of an undeserving tiny privileged minority. Don't throw it in the ocean, and don't leave it in private pockets, be they American or not.
Collect the land rent. Repeat next year, and the next, and the next. Natural Public Revenue.
Let us suppose that a people is excluded from the ownership of the
land. I say that this exclusion, even if followed by no other
injustice (which I think impossible), by making a man a stranger to
the commonwealth, makes him indifferent to the existence of the
— MARMONTEL, Address in Favor of
the Peasants of the North (1757), Oeuvres, Vol X., p. 72.
I'm reading through the first issues of Henry George's newspaper, "The Standard," a weekly which was published in NYC beginning in January, 1887. It was started shortly after the mayoral race of 1886 (chronicled in Post & Leubuscher's December, 1886 book), and in the 4th issue there is a very explicit article about the role that Rome was attempting to play in NYC politics by removing from the priesthood an activist priest, the much-loved Dr. Edward McGlynn, of St. Stephen's Church, on 28th Street in Manhattan, the largest parish in the city. (This was before the creation of New York City by combining the five boroughs.)
For over 20 years, McGlynn had been living among New York's poor, hearing the confessions of the poor, and knew how hard their lives were. He knew the situation in Ireland which had brought many of them to the U. S., and when he read Henry George's 1879 book, "Progress and Poverty," he found the cause of their suffering, and saw how to correct the underlying cause of poverty.
The article to which I refer is entitled, "From a Brooklyn Priest"
The Body of the
Catholic Clergy Sympathize With Dr. McGlynn
The Brooklyn Times prints an interesting
interview with “a well known parish priest” of that city. His
name is not given "for obvious reasons,” but those acquainted
with the Catholic clerics of Brooklyn have little difficulty in
attributing it to the most popular and influential of the
Catholic clergy of that city. We make the following extracts:
“The sympathy of the body of the Catholic clergy in New
York and Brooklyn is undoubtedly with Dr. McGlynn. I have talked
with a great many of my brother priests of both cities on the
matter, and almost without exception, they have taken Dr.
McGlynn's side in the controversy, though they would be loth to
do so publicly for manifest reasons. The sentiment of the body
of the Catholic clergy of the two cities is that whatever has
been done in Dr. McGlynn's case has been done by inspiration from this side. Of course the question at issue does
not at all touch matters of faith. It is purely a question of
discipline. The authorities at Rome know little or nothing of
the real state of affairs at this side of the Atlantic except as
they are inspired by the archbishop of the different provinces.
Archbishop Corrigan is in daily communication with Rome by
cable, and the views of the controversy between Dr. McGlynn and
his superior that are entertained at Rome pending the personal
appearance of Dr. McGlynn in the Eternal City, are the views of
the archbishop of New York that are telegraphed and written
“I do not mean to imply that Archbishop Corrigan would
willfully misrepresent the situation here, but I do say that Dr.
McGlynn, with all his experience as a priest in the American
metropolis, with all his practical knowledge of the condition of
the poor and of the working classes in that city, is a better
judge of the political needs of the masses in New York than
Archbishop Corrigan is, who has spent the greater part of his
career as an ecclesiastic in the state of New Jersey; and I hold
that Dr. McGlynn and every other Catholic priest has the right
to take an active part in the politics of the country. To say
that a man of the acknowledged piety and the blameless life of
Dr. McGlynn sympathizes with anything that smacks of communism
or anarchy is the veriest nonsense to anyone who knows him — and
who does not know everything about him today? Dr. McGlynn, as a
priest, knows the awful burdens which the laboring classes of
New York city have to bear through political misrule and the
corrupt combination of capital to oppress them. He knows how
anomalous that condition of things is which allows one man to
accumulate a hundred millions of dollars within 25 years and compels another to work for a dollar a day, nay, while
thousands, anxious for work, are starving for the lack of it.
Hence his support of the candidate of the labor party for mayor.
Dr. McGlynn did not believe that anarchy or communism would
follow in the wake of the election of Henry George to the
mayoralty of New York any more than he believed that Mr. George,
as the chief executive of the municipal government across the
East river could put his land theories into practical operation
in the metropolis. Any possible change in the government of New
York city must be a change for the better, so far as the poor
“If the bishops of the dioceses in the United States
were taken by Rome from among the clergy of these dioceses who
thoroughly understand the social and political conditions of
their people, there would be none of these disciplinary
troubles. What sense is there in sending an Italian priest to
Canada or an Irish priest to Guatemala as bishop? Or why should
a bishop be transferred from a city in the state of New Jersey
to preside over the archdiocese of New York when there are many
able and holy priests in the metropolis worthy of election to
the prelacy who have spent their lives among the masses of the
people? In countries where the canonical law of the church is in
practical application the parish priests of a diocese in which
the bishopric becomes vacant send three names to Rome by majority
vote. One is set down as dignus, or worthy, another as dignior,
or more worthy, and a third as dignissimus, or most worthy. Any
one of the three may be selected, and it sometimes happens that
it is the lowest on the list who is chosen. The pope has the
absolute power to go outside the list sent to him from the
diocese in which a vacancy occurs, but it is a power rarely
exercised and only for the most exigent reasons. If the canon
law applied in America, which is only yet a missionary country
and subject to the propaganda at Rome, Dr. McGlynn could not
have been turned out of St. Stephen's church as he has been and
his salary would have run on despite his suspension until his
case was finally decided at Rome.
“It is most unfortunate that the canon law does not
apply in the United States, and that the political, social and
educational situation in this country is not better understood
at Rome. Wealthy Catholic politicians have too much to say on
church policy in this country; and unfortunately that is today
the trouble in New York city. The masses of the Catholic clergy
say, 'Hands off.' As long as bishops, with whom wealthy
politicians are most powerful, practically say who shall be
elected to the prelacy in the United States there will be a
chance for trouble among the laity.
“I am satisfied that if a majority of the Catholic
clergy of the dioceses of New York and Long Island could do it
Dr. McGlynn would have been elected archbishop and Archbishop
Corrigan would have been allowed to remain in New Jersey. I
unhesitatingly say that if the votes of the Catholic clergy in
these two dioceses could do it Dr. McGlynn would be restored to
St. Stephen's parish tomorrow. No old priest of New York city
wanted to succeed Dr. McGlynn in that parish, for they all knew
how his congregation idolized him. I am also free to say that if
Archbishop Corrigan had not been brought from the state of New
Jersey to New York city this trouble would never have occurred.
“Mgr. Preston is the bitterest foe that Dr. McGlynn has
in the diocese of New York. I do not mean to imply that the
monsignor entertains personal animosity toward the ex-rector of
St. Stephen's church, but he is utterly opposed to what Dr.
McGlynn stands for as an American citizen. Mgr. Preston is an
aristocrat and the associate of aristocrats. Even converts to
the Catholic church who know Father Preston well have admitted
that the monsignor dearly loves the privileges which attach to
church dignitaries in Catholic countries, and is inclined to ape
the civil ceremonial of such communities in his intercourse with
his flock. Dr. McGlynn is poor, is of the poor and loves to
associate with the poor. He is in this respect the antithesis
of Mgr. Preston, and the latter is a confidential adviser of
This article, more than anything else I've read, brings home to me the extent to which the rich manage even the Church for the benefit of the rich, to the detriment of the poor. When a priest who seeks to correct the unjust structures is deprived of his priesthood because he might upset the privileges of the rich, the country and the church are both in trouble.
When churches benefit from contributions from wealthy contributors, they will tend to act to enforce the structures which enrich those wealthy contributors, rather than rocking the boat in any way. When economic structures funnel the community's wealth into a relative few pockets, the Church will tend to embrace those pockets, not challenge the structures. Money in elections is not the only corrupting force.
I can easily imagine a great proprietor of ground rents in the metropolis calling attention to the habitations of the poor, to the evils of overcrowding, and to the scandals which the inquiry reveals, while his own income is greatly increased by the causes which make house-rent dear in London, and decent lodging hardly obtainable by thousands of laborers.
This quote is attributed to the Irish landlords, in an 1835 piece by Thomas Ainge Devyr entitled "Natural Rights: A Pamphlet for the People."
The statement bears thinking about: when private landlords collect high rents, they force their tenants to work quite hard -- keep in mind that they still have to pay taxes on various things in order to support local spending -- while the landlord has provided them NOTHING that he has made (and nothing he has bought from the fellow who made it, either).
But at the same time, it is worth considering what happens when the community collects reasonably high rents on the land, particularly urban land. When the community collects high rent, there are no vacant lots. There are relatively few underused lots. There is housing for all who want it. All this economic activity creates jobs -- for those who would design, those who would build, those who would maintain, those who would improve, those who would expand, those who would protect. All those workers' needs and spending create more jobs. Wages rise, as jobs chase workers.
So the phrase is not simply an 18th century rural one, but highly relevant in 21st century U.S. cities, towns and rural areas. When the community collects the land rent and recycles it to serve local needs -- schools, parks, well-maintained roads, public transportation systems, police, ambulance, fire protection, courts -- communities become good places to live. When we permit private landlords (be they individual or corporate, universities or trusts) to pocket those funds -- and perhaps "invest" the excess in acquiring more land on which to pocket the rent, those good things, if they happen at all, must be financed by high taxes on productive activity.
One is a virtuous circle; the other a vicious one. Which one is consistent with our ideals? If Life, Liberty and the Pursuit of Happiness are for ALL of us, then I think we have to opt for the virtuous circle.
Thousands Sign Petition at a Mass Meeting Held in Union Square
Pastor Flays Legislature
Dr. John Haynes Holmes Says Bosses Have No Right to Stop the Expression of the People's Will
Petitions asking for a referendum vote upon the question of reducing gradually the tax rate upon buildings in New York to one-half the tax rate upon land, through five consecutive reductions in as many years, were signed yesterday by several thousand persons at a mass-meeting held in Union Square under the auspices of the New York Congestion Committee. The meeting was announced as a public protest for lower rents.
Benjamin Clark Marsh, Executive Secretary of the Committee on Congestion of Population in New York, was Chairman. Dr. John Haynes Holmes of the Church of the Messiah said that the Legislature "in the wisdom of the Big Sachem at Fourteenth Street has decreed that the people are not fit to register their judgment as to this bill. I, for one, desire to protest against the boss or set of bosses who presume to forbid the people to express their will on any question."
Frederick Leubuscher, representing the New York State League of Savings and Loan Association, said:
"It was admitted by some of the land speculators at the hearing of the Lower Rents bill at Albany that they were unable to answer our arguments. Nevertheless, a Democratic majority stifled the bill. As a savings and loan association man, I am interested particularly in the enactment of this proposed law. The stimulation of the erection of buildings and the making of improvements generally will be more market in the suburbs, where modest homes, costing from $2,000 to $5,000 to erect, are most in demand."
The purpose of the law was explained in a letter from Assemblyman Michael Schaap, who introduced the Salant-Schaap bill in the lower House of the State Legislature.
"If the tax rate on buildings had been half that on land this year," he wrote, "the rents of the average tenant would have been at least one month's rent less than it was; owners of small houses would have paid $15 to $25 less taxes than they do, and there would be fewer than 9,000 evictions for non-payment of rent.
"The taxes on all adequately improved property would have been reduced and the city would have recovered almost $20,000,000 more of ground rent which now goes to a few people of New York and to absentee landlords. This ground rent at 6% is over $273,000,000. The people of the city have created and maintain these values, but they get less than $84,000,000 of it -- the land owners get the other $189,000,000. Rent and taxes on homes and other buildings would have been reduced by at least $20,000,000."
The Rev. Alexander Irvine said that one family out of every 150 in New York City was evicted for non-payment of rent, because of the unjust taxation of improved property as contrasted with vacant land. Only 3% of the residents of the city own land, the speaker asserted.
John J. Hopper, Chairman of the New York State Independence League, said:
"A tax upon anything tends to lessen the supply of that commodity. By the same principle a tax upon buildings tends to lessen their number. A bill tending to reduce the tax upon buildings will bring about the construction of more buildings, and as a result there will be more competition and a corresponding reduction in rents.
"The Legislature refused to let us decide this question for ourselves, asserting that we did not know enough to vote on the subject of taxation. When we realize that for the expenses of the National Government each one of us pays $7.50 a year; for the state expenses, $5.50 and for the city expenses $38.50, making a total of $51.50 per individual, or $255 for a family of five, then we understand that we must think upon this subject of taxation.
Frederick C. Howe, Director of the People's Institute, said:
"Think of the stupidity of New York citizens. We talk about bankruptcy and lack of city credit and yet we give away each year at least $100,000,000 in the speculative increase of land values which the growth of the community creates. That is, the increase show by the tax valuation of the city. New York could pay a large part of its present budget out of the land speculation profits alone, if it taxed land and exempted buildings."
C. N. Sheehan of the Twenty-eighth Assembly District Board of Trade, Brooklyn, and J. P. Coughlin of the Central Labor Union of Brooklyn also spoke.
The following list comprises the most commonly asked questions about the concept of making land and resource rentals the source of revenue for government. As you continue this study, you will see the value from giving resources the respect they deserve and the benefits resulting from the freeing of labour, production and exchange from taxation. If you have any questions which are not covered here, or observations you would like to put to our panel, please feel free to do so by sending your question as an e-mail query and we will attempt to respond.
The inclusion of land and resources in the economic equation is central to any solution for revenue raising. A taxation solution which does not consider the nature of taxation itself and allows the continuing private monopolisation of community land and resources fails to recognise the essential role land plays in the economic equation and will not work. Land is the only element in the economic equation which is both fixed and finite. It can be monopolised. It is a unique class of asset which must be treated accordingly. If we were to wrest not the land itself, but its unimproved value from private monopolies and return the value to the community — whose very presence creates it — then we would have reduced many problems in one stroke with great benefit to production, to the environment and to the cause of individual freedom and justice.
On the subject of land and resource rents, Henry George said this:
The tax upon land values is the most just and equal of all taxes. It falls upon those who receive from society a peculiar and valuable benefit, and upon them in proportion to the benefit they receive. It is the taking by the community, for the use of the community, of that value which is the creation of the community. It is the application of the common property to common uses. When all rent is taken by taxation for the needs of the community, then will the equality ordained by nature be attained.
Here's a piece from a 90 year old journal. There are acres in Manhattan whose value is far higher today -- and the landlords are still reaping what the working people and visitors to New York are sowing.
APPROPRIATING THE GIFTS OF NATURE By Walter Thomas Mills.
There are portions of New York City in which the land is valued at $40,000,000 an acre. That means $8000 each day from each acre for the landlord, and that entirely unearned by him, before there is a penny for any other purpose. Probably not less than two and one-half million dollars a day, or almost a billion dollars a year, must be earned by the people of New York City and turned over to landlords for permission to use the island, which is a gift of nature, and for the advantages that are protected and maintained by the industry and enterprise of all of the people.
In The Great Adventure, April, 1921
Think what NYC -- and America -- would be like if that "permission to use the island" money was treated as our logical public revenue source, instead of as individuals', corporations' and trusts' private revenue source.
Recall the wisdom of Leona Helmsley: "WE don't pay taxes. The little people pay taxes."
Does the Single Tax discriminate between earned and unearned income?
It is the scientific way of doing what we have been feebly attempting to do in an unscientific way, that is, to distinguish between what Dr. Scott Nearing called "property income" and "services income," or between that form of wealth which is the result of individual effort in production and that which is purely the result of the collective effort of society; or between the two forms of wealth which Dr. Ellwood, of the University of Missouri, in a seemingly unwilling recognition of an unwelcome truth, calls "earnings" and "findings."
In the case of the great majority of us (whether as individuals or as partners in corporations) our incomes are so inextricably compounded of earnings and findings, of privilege income and service income, that it is hard for some of us to know whether we belong to the privileged or unprivileged classes, to the slave owners or the slaves, to the confiscators or the victims; and perhaps only those absolutely property less men at the bottom of the social scale can be said to have no share in the "findings" that spring from privilege. On the other hand it is equally true that all industry up to its highest strata, has to pay toll to privilege and provide those "findings" which distribute themselves with more or less inequality over almost the whole of society. How to distinguish between and separate these entirely different kinds of wealth is what all sincere sociologists and honest taxation commissioners have wanted to do and have hitherto failed in the doing.
If we take a handful of sand and a handful of iron filings and mix them thoroughly, and then set a man with the sharpest eyesight and the nimblest fingers to separate the particles, it will take him long to accomplish his task and he will never do it with more than an approximation to completeness. But apply a strong magnet to the mixture and the separation will be accomplished in ten minutes. Then see how the analogy applies to the economic problem in society. Let us imagine the return that should naturally flow to land in the form of rent to take the shape of blue coins made of steel. Let us fancy that the natural reward that goes to capital as interest takes the form of red coins made of wood. Finally let us figure the natural return to human service of all grades as being represented by white coins also made of wood. On examination it will be discovered that in the case of almost every member of society above the rank of the day laborer, his income is tri-colored or composed of all three coins. There are countless "captains of industry" among us who complacently assume their large incomes to be the rewards freely given by a free world in return for their invaluable services, who will be surprised to find how large a proportion of blue their income coins contain. There are multitudes of livers upon what they have called "interest" who will expect to find their coins red, who will be equally surprised to discover that they are almost entirely blue. To complete the parable, the taxation of land values will be like the application of the magnet which will draw away the blue steel coins in whatever stratum of society they may be found, and lay them aside for social purposes, being socially created wealth; leaving the red and white coins to be competed for in a world of free opportunity, without deduction or diminution by taxation or in any other way.
21. The creation of a new subway line raises the land values near each of the stations. Who should pay for the building of the subway line?
A. Riders of the new subway line
B. Riders of all subways in the system.
C. Riders of all mass transit in the metro area.
D. Drivers of cars and trucks, all over the metro area, via taxes on their fuel purchases (that is, in proportion to miles driven and the fuel efficiency of their vehicles)
E. Drivers of cars and trucks, all over the metro area, via an annual surcharge on their registration
F. Drivers of cars and trucks, all over the metro area, in proportion to the value of their cars, owned or leased
G. Drivers of cars and trucks, via tolls when they use bridges and tunnels, or HOV lanes, or certain highways
G. The taxpayers, via increased sales taxes on their purchases
H. The tourists and business travelers, via hotel occupancy taxes and taxes on rental cars.
I. Passengers in taxis, via a surcharge on their fares.
J. The homeowners, via taxes on their homes
K. Drivers, commercial and individual, via taxes on fuel purchased within the city
L. Employees all over the metro area, via a payroll tax
M. The tenants of commercial buildings in the heart of the central business district
N. All landholders, paying equally (a parcel tax)
O. All landholders, in proportion to the size of their lots
P. Landholders, in proportion to the value of the land they hold, without regard to the buildings or their contents. Those whose land values are raised by their proximity to the new line will see a proportional increase in their share of the tax burden; those far from the new line will not.
I came across this rather good letter to the editor, from 1938. (Trinity Church Corporation, a major landlord in downtown Manhattan, was the subject of a NYT article this past week, as well as the subject of a major series in the NYT in December, 1894):
1938-09-03 Letters to The Times
Collecting Ground Rent Single-Tax System Regarded as No Detriment to Building
TO THE EDITOR OF THE NEW YORK TIMES:
Fabian Franklin, in his letter to THE TIMES discussing the demolition of John D. Rockefeller's Harlem tenements in order to save taxes, writes:
"That objection is simply that virtual abolition of land ownership, which the single-tax plan is designed to effect, would make the building of houses in a city an extra-hazardous business, because, under the single-tax regime, in the great majority of cases the investment would result in a disastrous loss to the owner of the building. I was neither blaming nor praising Mr. Rockefeller for the demolition of Harlem tenements."
What is the so-called single-tax system? It is the collection by the government, through the taxing officials, of the entire economic or ground rent of land and the repeal of all taxes on buildings and other products of labor and capital. That ground rent is estimated to be 9% of the capital value of the land. New York City is now collecting one-third of this ground rent. The market value of the lots is the remaining two-thirds, capitalized. Dr. Franklin's thesis is that if the entire ground rent is collected no one would erect buildings, because "in the great majority of cases the investment would result in a disastrous loss to the owner of the building."
Some of the finest buildings in New York City are erected on leased land and the lessee pays the ground rent 100% besides a tax on the building. There are hundreds of buildings erected by lessees of lots owned by Trinity Church, Astor estate, Rhinelander estate, Sailors Snug Harbor and others. The lessees must pay all the taxes, both on land and building, amounting to 3% of the assessed value of both, and to the landlord 6% of the market value of the land.
Thus the entire ground rent is paid by the lessee, but only one-third to the government representing the people who made that value by their presence and activities, the remaining two-thirds to the landlord. Notwithstanding that they are thus obliged to pay 100% of the economic rent, bankers and business men erect buildings costing millions. Under the Henry George plan they would have to pay less, for the taxes on these costly structures will have been repealed.
Perhaps if Mr. Rockefeller had not been obliged to pay taxes on the buildings he might not have pulled them down; or, if he had, would have erected better buildings in their place in order to get a return on his investment in buildings. The ones who will benefit most from the adoption of the Georgian philosophy are the owners of humble homes. The average small homeowner's house is assessed for at least twice the assessed value of the lot. If the house is relieved from taxation and the lot taxed the entire ground rent, his tax will be less than it is now. The difference will be made up from vacant lots and lots that are worth more than the improvements.
After all, the building of houses is like any other business. The builder takes the risk of lessened demand because of changes in fashion, obsolescence, competition. It is estimated that 95% of new businesses ultimately fail. With the adoption, however, of the philosophy of Henry George, commonly called the single tax, failures in the housing and other businesses will be much fewer. This is because neither houses nor goods nor anything else will be taxed. The collection of the entire ground rent will not lessen the area of the surface of the earth one inch. On the contrary, it will open to occupation and use land that is now held for speculation purposes.
The taxation of any product of labor and capital will add the amount of the tax to the price, lessen demand and thus curtail production. The result is unemployment and misery.
Frederic Cyrus Leubuscher Essex Fells, N. J., Aug. 31, 1938
I am including this because I find it timely and timeless; because it provides a good simple mathematical look at the perversity of our current tax system, and because it illustrates my notion that when Leona Helmsley said "WE don't pay taxes; the little people pay taxes," she was not describing tax evasion but actual tax structures.
Henry George, Jr., was a U. S. Congressman. His most famous writing is "The Menace of Privilege."
WHO ARE THE CRIMINALS?
BY HENRY GEORGE , JR. Copyright, 1901, by The Abbey Press, 114 Fifth Avenue, New York
I. Who are the Criminals? 5 II. French Aristocracy of Privilege 6 III. New York Aristocracy of Privilege 10 IV. Robbery of Masses by Classes 12 V. Nature and Extent of Robberies 13 VI. How to Stop the Robberies 18 VII. The Criminals 23
I. WHO ARE THE CRIMINALS?
In considering the problem of how to check or control vice and crime in New York the question at once raised is: Who are the criminals? Who are they who cause these dreadful evils in the community? For unless we know exactly where the disease lies how can we attempt a remedy?
II. FRENCH ARISTOCRACY OF PRIVILEGE.
When the French Revolution broke loose the people followed the lead of men who seemed no better than a pack of devils, for they maimed, they brutally tortured and they slew. Women, whose only offense was that they were members of an arrogant and grinding aristocracy, were stripped naked, treated with every indignity and killed with every mark of ferocity. Old men and young children belonging to the upper classes were butchered, and persons of blameless life and humane intention were trampled under foot when they attempted to stay the carnival of blood.
Who will dare say that these revolutionary leaders, these butchers, were not criminals — criminals whose bloody hands must shine down through history? They were men turned to monsters; brutes with human intelligence, striving for new ways to torture and kill.
But whence came they? Not from without. They sprang up within. They represented the spirit of retaliation — of fiendish retaliation for the centuries of wrong done them and theirs. They were the progeny of poverty made by robbery. Their deeds were the deeds of monstrous criminals, but they themselves were the spawn of hideous injustice — an injustice that gave to the few riotous feasting and gorgeous raiment and to the many rags and black bread filled with maggots.
The aristocrats during centuries of power had appropriated the soil of France, and all other Frenchmen had to purchase the privilege of living in their native country. Not content with this, the upper classes had thrown upon the masses all those heavy taxes which it was the plain intent only the landowners should bear. They shifted upon the common people all the expenses of an extravagant, aristocratic government, and through ground rents sucked away all the people's remaining substance, save just enough to keep them alive and at work. Who were making the masses so poor and wretched was as plain as day. The masses themselves could see, and when they raised the sword against the aristocracy all hell seemed to break loose.
Who were the criminals? Why, of course they were criminals — horrible, revolting criminals — who did this guillotining, who committed these butcheries.
But who made these criminals? Clearly those who bore so heavily upon the people — the aristocrats, who kept the people in fearful poverty and ignorance which bred the spirit of bloodthirsty tigers.
The aristocracy, therefore, were the primary, the real criminals.
III. NEW YORK ARISTOCRACY OF PRIVILEGE.
I wish to proceed with greatest caution, with utmost conservatism. Yet candor compels me to ask: Have we not in our community an aristocracy of privilege — an aristocracy far more rich, far more powerful than was the aristocracy of old France? And have we not a corresponding poor class? Is it not true that half the population of Manhattan Island is living in what Ex-Mayor Hewitt rightly calls "those terrible tenements?"
That Prince of the Church, Bishop Potter, has proposed in the emergency that we have noonday prayer meetings. By all means, we all say. Let us bow ourselves before Almighty God and ask for relief from this social scourge. Yet what if, while we pray, we abate not the power of our aristocracy of privilege; what if we do nothing to mitigate the poverty of the million tenement dwellers?
The distinguished divine has also proposed a military police. If that were good, would not a local standing army be better? It would keep order, at least for a time. But would it cure the general poverty among the masses? Would it not rather act like a lid fastened down on a volcano — work well, until fire and molten stone and destruction belched forth? What then?
IV. ROBBERY OF MASSES BY CLASSES.
Assuming that we are sincerely trying to make civic conditions better, that we are seeking a cure (if there be a cure) for the general vice and crime in the community, should we not ask ourselves some plain questions? Is it not the truth that we have an aristocracy? Is it not the truth that we have a poor class? Is it not certain that the rich are growing richer and the poor poorer and more numerous?
I believe that there can be but one answer — yes.
Yet I can see no reason for this state of things unless it be that the classes are robbing the masses.
V. NATURE AND EXTENT OF ROBBERIES.
LET us consider how the classes may be robbing the masses into poverty.
It is said that when the first Dutchmen came sailing into New York Bay they bought Manhattan Island for $24. That was for the land alone, no houses or other improvements being here. Today the selling value of the bare land of this same Manhattan Island is at least $3,000,000,000. Those who possess the land of this island, now get what is equivalent to a ground rental of $150,000,000 a year, with this sum steadily swelling. The ground rental of Greater New York cannot be less than $225,000,000 yearly.
This vast sum is paid over to the landlord aristocracy — for what? For doing nothing. The people multiplied from a ship's crew to several millions in and about the island and behold! the vast value of land which in the beginning sold for but $24. The increment of value obviously has not been produced by individuals; it is entirely aside from and in addition to the value of improvements, which spring from human labor, which are produced by individuals. This increase in land value is a publicly-made value. It of right belongs to all the people. Do all the people get it? No, the few whom we recognize as the owners of this land claim that value and get it. The people at large in the community get nothing. Do not these landed aristocrats — of which the old French nobility were in many respects prototypes — rob the community? Do they not go far toward robbing a large part of the people into poverty?
Take another instance of robbery of the many by the few. Observe what we are doing about public franchises. A public franchise is a public right of way, a public highway. Modern civilization, with its intense centralization, its condensed population, and its interdependence of individuals, makes these highways of vital importance to the community. They are the arteries of the body-social, the channels of intercommunication and transportation, of heat, and water, and light, and power, and sewage. Were they suddenly destroyed, a large part of the population would die as quickly as a member of the human organism withers up and dies when the flow of blood is cut off from it.
Then if these public franchises, these public rights of way, these public highways, are so vital to the body-social, so necessary to the well-being of the people, what should be our policy toward them? What is our policy toward them? Why, in the case of water and sewage we treat them as public property, operating them publicly through public officials. But what do we do in respect to the other franchises? What do we do regarding street railroads, telephones and telegraphs, electric lighting and heating and gas, and steam supply? All these public franchises are treated as if they were private franchises. Upon all these public highways we allow private individuals to set the claim of ownership; to make charge upon the people; make charge upon the body-social for its blood, as it were. And a conservative estimate of the annual value of these public franchises in Greater New York at this time is $30,000,000.
Here, then, we have two forms of grand, constant, continuous robbery of the people — an aristocracy of privilege appropriating public ground rents and public franchise values, so that a few of the population are enabled to live in palaces while a million crowd into tenements.
VI. HOW TO STOP THE ROBBERIES.
Now the masses of the people of Greater New York lose annually by the appropriations of the landed and franchise aristocracy —
In ground rents
In franchise values
While they are compelled to pay in various taxes for the support of local government
Which makes in all
What shorter way is there to relieve poverty and to do social justice than to abolish the $98,000,000 of general taxes, which fall mainly upon industry or the fruits of industry and terribly hamper the masses of the people; and then what more simple than to appropriate for local governmental expenses that sum out of the $225,000,000 of publicly-made land values? Why not further lighten the load of the masses by taking over into public ownership and management all public municipal franchises, just as are water and sewage now; and then why not cut down their cost of service to the public that $30,000,000 which now represents purely franchise value in the charges of the private corporations that possess and manage them?
For a third step, why not make these municipal utilities free to the public, meeting the expense of their operation by another appropriation of the publicly-made land values?
And for a fourth step, why not appropriate for an old-age pension to every citizen, rich and poor alike, for public parks, for public lectures and concerts, or for any other or for all such purposes — all that still remains of the publicly-made land values?
What would be the result of such a policy? It would be that all the people in Greater New York would be relieved of the burden of $98,000,000 of various taxes; that the great charge of the many branches of the public franchise service on the people would be entirely wiped out and abolished; and that the whole of land values, that is, of ground rents, would be enjoyed by all the people equally, being appropriated for public uses.
Would this make any difference in the community? The welkin is made to ring by the most influential of the tax-payers when, under present conditions, the taxation authorities raise or lower the tax rate even 1%. What, then, would happen if all taxation were lifted from the fruits of toil, if public utilities were made free, and if land values were to benefit, not a class, but the whole people?
Such a tax would be just, because it would fall on this publicly-made value; it would be certain, because land cannot be hidden or lessened in amount; it would force all unused or inadequately used valuable land into its highest use, for no one could afford to hold such land vacant for a speculation, as very many do now.
Land in Greater New York would therefore be cheaper — how much cheaper may be judged by the fact that two-thirds of the land within the city limits, though extremely valuable, is not now used. This unused land would compete with the used land for users, so that land values in the community generally would fall. At the same time all building materials, being relieved of present taxation, would be far cheaper, making two of the chief elements for house building would be greatly less in cost, and consequently, larger, lighter, better dwelling accommodations in every way could and would be supplied to the masses of the people, and especially to the million now living in tenements.
What would help the poorest would be of direct and indirect benefit to all others in the community; and this would be but one of a large harvest of good results that the people would reap from such a policy.
The privileged classes, the aristocrats, would lose their privileges, but they would have no less rights than any and all other citizens of Greater New York.
VII. THE CRIMINALS.
That able and public-spirited citizen, Mr. President Baldwin, of the Long Island Railroad, and Chairman of the Chamber of Commerce Anti-Vice Committee of Fifteen, has said that this is not the time for "idealist scheme of reform." But we are trying to put down vice and crime in the community; and the question is: Who are the criminals?
Let us be frank with ourselves: Who are the criminals? Are they the housebreakers, the unfortunate women who walk the streets and the police officials who take blood-money? Or are they those who rob the masses of the people into poverty — deep, biting, degrading poverty?
Are not the aristocrats of privilege, knowingly or unknowingly, the criminals we should first consider in an examination of civic disease in New York?
I have a family member who, when Herman Cain says "9-9-9," plays a sound bite of another voice shouting "nein! nein! nein!"
Georgists have a better proposal for how we ought to fund our common spending.
0% tax on wages
0% tax on sales
0% tax on corporate profits
0% tax on buildings and equipment
100% recovery of our commonwealth
This probably raises several questions in your mind:
what is "recovery of our commonwealth"?
how will it affect me?
Our commonwealth includes the value of land -- not the improvements made by the present or previous owner, but the value of the site itself, which is created by the gifts of nature; by the investment of the local, state and national communities in public goods and services (including most "pork"); by the presence of the community and its economic activity. While good farmland may be worth $5,000 or $10,000 per acre, depending on climate and proximity to markets, suburban residential lots might be $35,000 to $1,000,000 -- or far more! -- per acre, and an acre in midtown Manhattan can be worth $250,000,000 or more. The landholder doesn't create that locational value.
Our commonwealth includes the value of ecosystem services. It includes the value of electromagnetic spectrum (the airwaves which most people would agree rightly belong to the American people, not to corporations). It includes the value of water, particularly fresh water for drinking and water for irrigating crops and for corporate use. It includes the value of government-granted privileges. It includes the value of geosynchronous orbits -- those parking spots in space for satellites whose owners and customers would not want to see crashing into each other. It includes the value of landing rights at busy congested constrained airports, such as LaGuardia or JFK, particularly at their rush hours. It includes the value of scarce on-street parking in congested cities. It includes the value of nonrenewable natural resources extracted from below the earth and the oceans, for 200 miles beyond our land borders. It includes a whole range of other similar things.
As you look at that paragraph, compare it to the 0-0-0-0 list above, and notice that it collects upfront certain values, and leaves the rest to those who produce. It is direct taxation rather than indirect, and one could reasonably argue that it isn't even really taxation; rather it is more in the nature of a user-fee.
It is Natural Public Revenue.
Once one has sat with this idea for a while, it seems quite unnatural to permit the value to continue to accrue to private individuals, or to corporations publicly or privately owned, or to entities other than the community as a whole!
Recall how concentrated wealth is in the US: The 2007 SCF [the Federal Reserve Board's Survey of Consumer Finances] reported that aggregate net worth is "distributed" as follows:
Top 1% of us have 33.8%
Next 4% of us 26.6% [cumulative: 60.4%]
Next 5% of us 11.1% [cumulative: 71.5%]
Next 40% of us 26.0% [cumulative 97.5%]
Bottom 50% of us 2.5%
Recall also that the Forbes 400 families are specifically and intentionally omitted from the SCF, and that Forbes estimates that they represent 2.5% of aggregate net worth. So add that 2.5% to the numerator and denominator. And note, as Michael Moore did, that it is very similar to the value of the Net Worth of the bottom 50% of us.
And it seems quite unnatural to tax wages, and sales, and corporate profits, and buildings at all before we've fully collected Natural Public Revenue.
Will Natural Public Revenue be sufficient to meet all the needs of all levels of government?
Quite possibly not, at least today when we are so reliant on a social safety net because current conditions have kept a significant share of our people from providing well for themselves. But I regard it as altogether possible that within a generation or two, it could be quite sufficient, in part because it would have the effect of redistributing some of the wealth which today is pouring into the pockets of a relative few of us.
How much of corporate profits are coming from (quite legal) privatization of the value of natural resources, the value of being able to get away with polluting air, water and soil, and the value of other privileges which corporations -- public and private -- are used to enjoying? One of the interesting findings in the SCF is that the value of privately held businesses [BUS] actually exceeds the value of publicly held ones [EQUITY] in household wealth -- and the value of both is highly concentrated:
Consider, too, how much more of this value the Forbes 400 have! These two categories represent 21.2% and 23.1% of aggregate net worth held by the rest of us -- a total of 44.3%. Most of the 2.5% is likely in these two categories. I'll leave the math to you.
.... this time because perhaps his targets are the well-situated, those in a position to contribute the funds which political campaigns need. Keep in mind that NYS's former governor, though previously an attorney general, is also the scion of a real estate fortune.
Urban real estate investors live off the fruit of the land, the fruits of the community's sowing, and we praise them as philanthropists when they toss us a few tulips in the median strips or parks.
And notice that the refusal continued even Harry Markopolis testified before a congressional committee about his repeated and data-filled attempts to bring Bernard Madoff's obvious Ponzi scheme to the attention of the SEC (January, 2009). Talk about tone-deafness on the part of those we pay to monitor things for us. As someone else recently wrote, small government or weak government? And government of, for and by WHICH people??
I hope some upstate legislators will push at this issue. Their constituents ought to expect it of them.
The writer is a Reuters columnist. The opinions expressed are his own.
By David Cay Johnston
(Reuters) - Each year New York State lets real estate investors evade at least $200 million of taxes. In peak years the figure likely rises to $700 million, if known tax cheating in another state is any indication. Some of the investors who cheat New York State also cheat New York City out of at least $40 million annually.
Back in the 1990s Jerry Curnutt figured out how to finger such cheats when he was the top partnership specialist at the Internal Revenue Service. Curnutt's computer sifted through tax returns until he learned how to separate thieves from honest taxpayers. The tax-evasion estimates of $200 million and $40 million are his.
Six New York state tax auditors took classes Curnutt taught in June 2000 and gave stellar evaluations. California's top tax auditor praised Curnutt's course as "effective, relevant and most importantly, appreciated and understood by our auditors."
Why has nothing been done for more than 11 years to make the cheats in New York pay what the law requires?
New York state and city are strapped for cash, slashing services for the poor, disabled and elderly. With penalties of up to 50 percent plus interest at penalty rates, the state is easily due more than $5 billion from years still open to collection, I calculate.
Every state has similar issues, but New York matters most as the epicenter of highly leveraged real estate investment pools.
Curnutt found that real estate investment partnerships with depreciated properties often misreport gains when they sell. That such cheating is widespread screams about tax law enforcement looking the other way when those at the top steal. In contrast, New York State has a well-deserved reputation for going after people whose mistakes cost the state as little as three dollars.
GO AWAY, THEY SAY
Yet in letter after letter since 2001, New York state tax officials told Curnutt to go away, smugly insisting there were no untaxed millions.
As head of audits for New York State, Thomas Heinz wrote Curnutt in 2003 that the state was "not interested in pursuing you or any other consultant on the matter" of systematic cheating by real estate partnership investors. Months later Heinz wrote a second letter that made it clear he had not understood what Curnutt was proposing, while reiterating that there were no untaxed millions to be found.
A year ago Curnutt again was told to go away because there was no money going untaxed.
And yet in Pennsylvania, Curnutt's research "resulted in the taxation of over $700 million in unreported income," the Pennsylvania Revenue Department wrote in a letter to tax administrators across the country in reference to a single instance.
"Without his assistance, our staff would have spent numerous hours getting to the crux of the issues, in that especially complex case," Pennsylvania tax authorities said.
Pennsylvania has relied on Curnutt since 2002, calculating that every dollar spent on his research and subsequent audits was worth $10 of tax.
So why are sightless sheriffs ignoring massive cheating by the most affluent among us?
The likely reason became clear nearly a decade ago when one Kentucky tax official told Curnutt that the governor's office did not want his services because it would uncover tax cheating by influential citizens, meaning campaign donors.
It is time for New York's three top state officials, all Democrats with higher ambitions, to do their duty, especially since the thieves are virtually certain to include some of their campaign contributors.
LAWMEN AND THEIR DUTY
Governor Andrew Cuomo, who harbors ambitions to be president, made his name as a state attorney general who appeared to get tough with Wall Street. Lieutenant Governor Bob Duffy rose from Rochester street cop to chief and would love to be governor. So would Attorney General Eric T. Schneiderman, elected in 2010 on a promise to be tough on white-collar crime.
Mayor Michael Bloomberg, an independent, has a similar duty to go after tax cheats even if these should turn out to include some of his friends.
New York law gives authorities leverage aplenty. The mere threat of public exposure through civil lawsuits would prompt many to write checks. For repeat offenders, the threat of indictment for tax evasion would produce checks even faster. Faced with the prospect of civil or criminal charges, many in positions of public trust would be ruined if their names got out.
The general partners -- those in charge in the partnerships Curnutt investigated -- took calculated steps to cheat and the most serious offenders should face indictment and, upon conviction, years of prison time. But many limited partners may have assumed their K-1 tax statements were reliable. Innocent victims owe taxes and interest, but not penalties. Those with multiple untaxed gains are not innocents.
As lawmen Cuomo, Duffy and Schneiderman all understand leverage. They have enough to lift billions into the state treasury where it belongs just by indicating in letters that failure to pay will result in disclosure of names. Will they?
Until Cuomo, Duffy, Schneiderman and Bloomberg enforce the law, their official inaction lends credence to billionaire Leona Helmsley's remark, quoted by her housekeeper, that "we don't pay taxes; only the little people pay taxes."
This column will keep you posted on whether these officials act or not. (Editing by Howard Goller)
I'm glad to see DCJ quoting Leona Helmsley -- but I don't think he yet fully "sees the cat" or realizes that Leona Helmsley's reference could just as accurately have been to tax STRUCTURES, not to tax evasion.
Buildings do not appreciate. Even with the best of care and occasional renovations, they depreciate, as technologies advance, efficiencies improve. What rises in value is land -- the location -- and it rises for reasons which have nothing to do with the individual or corporate landholder (resident or absentee), and everything to do with the community and with public investment in infrastructure and services. These owners are evading taxes which support that spending. In multiple ways, they are reaping what they do not -- cannot! -- sow. These companies are in it for the so-called "capital" gains, which aren't "capital" at all, but land gains.
Another example of the FIRE sector gobbling up the profits of the productive portions of our economy. Their "free lunch" is at the expense of the rest of us. And the phrase "rich people's useful idiots" comes to mind.
The goal is a fair field and no favor. But I don't think that's what this crowd is looking for.
I thought this presentation -- made nearly 100 years ago, in December, 1911, to County Assessors in California -- worth sharing. (Merriam-Webster defines plunderbund as "a league of commercial, political, or financial interests that exploits the public.") That such a paper would be delivered to such a body gives one a hint of how widely understood and appreciated Georgist ideas were 100 years ago. The notes say:
"Mr. Edmund Norton presented a paper entitled "What is Single Tax?" Upon conclusion of the reading, which was interspersed with many extemporaneous remarks by the speaker, a very free discussion of the subject was held, and many interrogatories propounded to the author of the paper."
I'll give you the final paragraphs first, and then the whole talk.
Never, while the world lasts, will mankind become "Masters, lords and rulers" of themselves till these public values are publicly absorbed in taxation. The Single Tax is the most feasible, practical, expedient, simple, natural and just way of making the necessary, rational change without the violence of revolution. It stands "four square to all the winds that blow" — in economics, and politics; in ethics, morals and religion; in principle, science and philosophy; it is the practical application of Christianity to social affairs. "Equal Rights to All and Special Privileges to None," is the translation of the Golden Rule of the Nazarene to an economic and political formula. Therefore, fulfilled democracy is applied Christianity to governmental affairs.
"Do unto others as ye would that they should do to you," "Equal Rights to all and special privileges to none"; the Single Tax: these are synonymous.
Here we have the great Eleventh Commandment of the Master of Nazareth — the sum total of all "the Law and all the prophets" — we have its Jeffersonian formulation into a politico-social maxim of "Equal rights to all," and its scientific practical application in the Single Tax of Henry George. This is applied Christianity; this is democracy; this is Georgean philosophy; this is the Single Tax; different expressions of the one Unity.
and here's the whole thing:
WHAT IS THE SINGLE TAX?
The Georgean Philosophy and the Jeffersonian Formula. By Edmund Norton.
Never in the history of the world have there been so many inquiring minds asking: "What is the Single Tax and the Georgean Philosophy?" In England, Germany, Australia and Canada, as elsewhere, the constructive work of the leading statesmen is all being developed along the lines laid down by Henry George. To my mind, "The Prophet of San Francisco," as he was derisively dubbed by the Duke of Argyle, is, measured by his influence on the world of statesmanship, present and future, and as a sociological thinker, the greatest personality in the Western world between the North Pole and Patagonia since Columbus found the land. Henry George has found more continents than did Columbus by uncovering monopoly-submerged lands in the presence of which we hungered and died.
This paper is meant to merely outline the principles and philosophy of the great school of thought that has grown up in the last thirty years around its teachings that now has a literature of its own that will fill a library.
The Single Tax is the popular name of the great fiscal reform and social philosophy most powerfully promulgated by our great American, Henry George, sometimes called "the Prophet of San Francisco."
WHAT IT PROPOSES TO DO.
Its purpose is to increase wages to the full returns or earnings of labor; to shorten the hours necessary to earn a living; to leave to capital, which is secondary labor, its full returns, which are secondary wages; to abolish monopoly, which is the thief that is robbing both labor and capital, and thereby prove the unity and remove the apparent antagonisms which have no place in a natural order where monopoly does not exist. It will free production, including all trade, barter and exchange, which are but processes of production, and will equalize the distribution of wealth into the possession only of those who can earn it. It will destroy privilege by substituting equal natural rights, remove the dead hand from the control of living men; throw open the limitless natural resources of the planet to willing labor, and, by taking all social creations of value into the social treasury, will conserve all natural resources forever to the people and make private appropriation of public values impossible. This condition will start a boom that will never stop till every human want is satisfied.
It will make internecine and international wars impossible by destroying all trade and monopoly privileges which are the chief causes tempting the crafty, cunning and unscrupulous to create or encourage these sum totals of all vices, crimes and horrors against humanity for personal power and profit.
THE METHOD OF ATTAINMENT.
The Single Tax does not intend to add to or multiply the already almost infinite statutory enactments now confusing and befuddling the social state, but rather means to abolish, one after the other, every law on the statute books granting a special privilege to any one man or body of men that is at the expense of the unprivileged mass of society. This will destroy the petty and grand larceny now preying upon the social body.
Aside from the million of petty privileges granted by municipalities, states and the nation to individuals, the great and glorious pillage shows itself in privileges and monopoly in labor-saving inventions, trade restrictions and the private ownership of natural resources, the major part of which is a matter of taxation; therefore, the Single Tax would abolish all taxes on barter, trade, exchange, personal property and improvements, commensurately raising all taxes from the value of land alone, till there was in existence but one single tax upon the value of bare land exclusive of improvements. This would be a single tax on land value — not on land, for some land would pay no tax while other land would pay much tax.
For instance, one acre of land worth a million dollars would pay as much tax as a million acres worth only one dollar per acre.
SQUARES WITH THE MORAL LAW.
The Single Tax is ethically sound in application for the simple reason that all labor-created wealth is the result of individual effort and leaving that wealth untaxed would be leaving to the individual only that which belonged to him by his right to himself and to that which he himself creates; while taking into the public treasury only those values which society creates in its collective capacity would be leaving to society only that which belongs to it, for no individual on earth, by himself, can create land values.
At present we compound injustice by permitting private individuals to appropriate what society creates and then society turns about and deprives the individual of his private creation to support the governments whose existence makes possible the public values privately appropriated.
This basic injustice results in a fundamental disturbance of the equilibrium of society, showing itself in numberless evils — economic, social, political, physical, mental and moral.
Mistaken symptoms for disease, effects for causes, we have numerous social quacks pressing forward with innumerable nostrums — palliative, alleviative, suppressive or curative of the particular symptoms they have noted — each claiming he has found a remedy and each ready to cure the world with a salve, bandage, pill or liniment.
The diseased social body can be cured only by removing the cause and restoring it to a normal condition. Monopoly and Special Privilege is all that the social body suffers from today, and destruction of Monopoly and Special Privilege will cure it. Equal rights to All and Special Privilege to None is the only magic remedy. Apply this, make man free and equal before the law and the Divine Mind operating through nature will do the rest.
Thomas Jefferson's was probably the greatest democratic mind of his age and the equal of any age. If we examine the Jeffersonian formula we will find it the square, level and compass, without which no nation can ever be permanently founded., The natural rights of man, "life, liberty and the pursuit of happiness," we must take for granted, and the right of revolution — also put forth in the immortal document — "the Right of the People to alter or to abolish and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness" we must also take for granted.
The constitution — itself a reactionary document, taking away from the people perhaps 75% of the liberties gained in the war of 1776 — still leaves us the power to apply the golden rule of democratic thought to our government without violence — for which we may be thankful.
EQUAL RIGHTS; NO SPECIAL PRIVILEGE.
If we view the recent, present and past history of Los Angeles, San Francisco, Colorado, Springfield, New York, Albany, Pittsburg, and the nation at large, we will have to confess that now and for fifty years past, at least, municipality, state and nation have been passing through a Saturnalia of public pillage by Special Privileges working through varying forms of oligarchic, partisan and political control. The government has been wrested from the hand of Democracy by Plutocratic privileges.
Applying the rule of Equal Rights to All, we clearly see that while these rights exist, the power to exercise them has been nullified; therefore, all of these reforms such as the Initiative, Referendum, Recall, Commission Government for cities, Direct Primaries and Popular Senatorial elections, are democratic efforts for the restoration of the Mechanics of Government into the hands of Equal Citizens.
I say the Mechanics of Government, for in no sense will the people be at all benefited permanently, even by the perfection of these reforms, which are but tools of government to develop efficiency of popular expression, unless they grasp these economic truths and change or readjust economic conditions. Indeed they might be worse off, for having captured these means completely, they might mistake them for ends, and believing their victory full, might slumber while being worse pillaged, which has been the case in the past.
I wish to inject here one pertinent suggestion — cities, within themselves, should have absolute right to exert self-government in all things within their borders that do not infringe upon the equal freedom of other cities, the state or nation, especially in matters of taxation.
SOME FISCAL FACTS OF LOS ANGELES (1910).
Having eliminated, then, the mechanics of government, suppose we apply our rule to the fiscal and economic conditions existing in our city of Los Angeles, and nearly every other city.
During the last fiscal year we raised about $5,000,000 in taxes imposed on land values, improvements, personal property and license — fines, which amounted to some $650,000. Now, there is no civic, fiscal or economic excuse for license, business and occupation fines other than police regulation or revenue raising.
Police regulations have no reason for existence except to protect the citizens from infringement on his equal rights, and to grant a special privilege under any name whatever for some persons to possess to the exclusion of other persons, is a wrong that breaks our golden rule of Democracy and should be abolished on that ground alone.
For Government to grant these powers of wrong doing on receipt of a stipulated share of the profits of the wrong, is to participate in, sanction and legalize the wrong and thereby corrupt society at its fountain head by official and statutory enactments.
Again, varying the cost of these granted privileges from $1.00 to $200.00 or more per month is absurdly unjust, unequal and discriminative, for or against certain businesses, making another breach of the rule calling for their abolition.
The effect of these fines is to act as trade restrictions, as interference with production, and to centralize business in the hands of a dominant privileged class. They are national protective tariff superstitions localized for the benefit of civic plunder.
Here I wish to call your attention to a vital, absolute, commercial and economic law: ''All taxes on things produced by human exertion enter into the cost of production and are paid for by the ultimate consumer."
If we grasp this fact in its fullness we will see that these fines and taxes effect not so much the middlemen who are compelled by this inexorable law to add them to the price, as it does the ultimate consumer, who is the whole body of society. Thus we do not hit the one we imagine, but simply strike ourselves.
To abolish them would be to free trade, diffuse business, accelerate its activity and lower prices to the ultimate consumer, permitting him to retain a greater amount of his earned wealth.
If we could so emphasize this one law as to make all see it, the ideals of democracy would be here.
I have laid particular stress on this all-important law because it applies not only to license fines but to all personal property and improvement taxes — on everything made by man. Therefore, in all forms of wealth in course of production there are no real taxpayers but the ultimate consumers — the intermediary is only a tax shifter. This is vital.
The Single Tax would abolish all these taxes; so would the Jeffersonian formula. In the two we have a principle and a method for its practical application.
To extend this practical application of the Democratic Principle to all things — including the international tariff — would immediately destroy the nightmare of high prices and flood the world with limitless possibilities of trade. This trade is now stifled and vast amounts of wealth are wrongly diverted to the possession of those who do not create or earn it.
The question arises: Where would you get the money to run the government if the Single Tax theory were put into operation? Of course! Why, there would be no place to get it except from land values. Here is something fastened to the world — possibly by the "Big Nail" of the North Pole — anyway it is where it can be seen; it can't run away, hide in a hole nor be loaned to a convenient friend in an adjoining county when the assessor comes around.
The millions of varieties and values of other forms of property being eliminated, scientific simplicity would be possible in taxation. Taking into the public treasury publicly created values in the form of a tax and leaving in the possession of private individuals their private creations, by tax exemptions, would square with the moral law. Incidentally, "Conservation of natural resources" would become an accomplished fact in city, state and nation; for the taxing power involved in the private possession of the "Unearned Increment," "Land Values," "Economic Kent," or "Ground Rent," is a governmental power now privately possessed, obtained by grant, theft or tax evasion. It is a special privilege held only by land owners — the abolition of which is necessary to the restoration of equal rights to all.
The private possession of a governmental privilege is, moreover, the prime motive — the chief incentive — to all the speculative holdings of idle city lots, agricultural, mining, timber, coal and oil lands, and all other natural resources. It is responsible for 90% of the speculative gambling that is prostituting city councils, state legislatures, the national government and even threatening the judiciary itself.
In fact, this basic injustice is at the bottom of 90% of all the vice, crime and graft — public and private — from which society is now suffering. The removal of the cause by the socialization of land values through the application of the Single Tax, would destroy the incentive, divert the evil tendencies to the best instead of the worst in society, displace an abnormal condition by a normal one, and cut out, eventually, the 90% of evil which we now deplore. The victories opening to us under these possible conditions are only picturable by the poet or the seer.
The Single Tax will remove unjust conditions by a rational, expedient process of readjustment. It will restore to the individual his freedom and to the state its own values.
The right to "Life, Liberty and the Pursuit of Happiness," "Equality of Opportunity," "Equality of Rights," and destruction of Special Privilege, all demand its enactment as the only natural and perfectly sane method of squaring these demands.
The equal right to life can never be guaranteed until equal right to the natural opportunities upon which that life depends is also guaranteed. A denial of one is the denial of the other.
The opening up of the limitless storehouse of nature on this continent alone, by the destruction of its monopoly, would be equivalent to discovering several new continents.
Labor and capital, unrestricted, would flow to these opportunities as the sparks fly upward. Relieved of the pressure at the bottom and congestion of trade restriction removed from the top, who can tell the wonderful possibilities of America?
Here, toward the last, we come in contact with another vital related problem: that of the functions and ownership of highways — national, state, county and municipal.
These highways are, in organ and function, to the social body, what veins, arteries and nerves are to the human body. They are the channels of communication and transportation for persons, property and intelligence. Interference, restriction, congestion — all tend to varying disorders in the social body. Perfect freedom to normal action is the solvent. Private control of a public function is privileged ownership of a governmental power which should never be tolerated in a state of equal freedom. In fact, equal freedom is impossible where special privileges of government are farmed out to private individuals.
It will be noted that practically all private possessions of land on the continent, except those facing free waterways, are criss-crossed, intersected and separated by these highways. Theoretically we can easily see that, should we grant absolute ownership of highways to one individual — even were every other adjustment on earth perfected — that one individual would be master of the continent, for no possible intercommunication of persons, property, or intelligence could take place on, by, through or across these arteries and nerves without his consent, which condition, if submitted to, would make him sole arbiter of the world.
What is true of the whole is fractionally true of any part. We can never establish Equality of Right till absolute freedom of highway is guaranteed. Private possession of highways is no more necessary to private possession of property than is private possession of the ocean necessary to private ownership of ships.
In fact, the rights of private property are abrogated when governmental power to exact tribute from private property is granted to a privileged few; therefore, "Equal Rights to All and Special Privilege to None,'' demand the application of the Georgean philosophy to highway functions as a democratic and not a socialistic measure.
When we remember that these privileges now controlled (facts of 1900 since accentuated) by the national steam railways alone are capitalized at $8,000,000,000 in excess of the $5,000,000,000 of actual cost, we can see the enormity of one form of special privilege and the corresponding abrogation of natural property rights.
In passing, I will say that there are three practical methods by which these rights may be restored.
(1) Government control, ownership and operation of entire systems;
(2) Government control, ownership and operation of roadbeds only through official control of despatching service — leaving free operation of untaxed capital in all else, or:
(3) Public taxation of all incomes and values in excess of current rate of interest on actual capital — said capital otherwise untaxed.
The practical applications of these principles are mere matters of detail, expediency and policy. The brains that organize and manipulate these gigantic social plunders in all their minutia, can just as well work out the details of public restitution when deprived of activity in private depredations — and would be glad of the job.
Applied, this would mean the destruction of special privilege in national railways, telegraph, telephone, street railways, water, light, heat, power and all other monopolies of highway function.
This, with absolute free trade and the taxation of land-values through all other things being exempt, would mean the complete abolition of "Special Privilege" in all things; the institution of "Equal Rights" the "Conservation of Natural Resources,'' and the restoration of "Equal Opportunity to All." When all this is done — and never until it is done — there will be left nothing but the individual problem for man to solve.
Again let me interject a vital suggestion: Had we absolute free trade — international, state and local — including absolute freedom of highways, which is but an extension of freedom of trade — in truth, had we reached perfection in production — for this all means freedom in production — had we all these things while still leaving the "Unearned Increment, or Economic Rent,'' in the hands of the land-owner — there would be no permanent benefit to society except that incident to the transitional period of readjustment. Eventually all these wonderful benefits would clearly raise nothing but land-values and make the plunderbund richer and mightier than ever. The rise and fall of land values measure all the advances of civilization and their private appropriators are the "Masters, lords and rulers in all lands'' of whom the poet spoke.
Never, while the world lasts, will mankind become "Masters, lords and rulers" of themselves till these public values are publicly absorbed in taxation. The Single Tax is the most feasible, practical, expedient, simple, natural and just way of making the necessary, rational change without the violence of revolution. It stands "four square to all the winds that blow" — in economics, and politics; in ethics, morals and religion; in principle, science and philosophy; it is the practical application of Christianity to social affairs. "Equal Rights to All and Special Privileges to None," is the translation of the Golden Rule of the Nazarene to an economic and political formula. Therefore, fulfilled democracy is applied Christianity to governmental affairs.
"Do unto others as ye would that they should do to you," "Equal Rights to all and special privileges to none"; the Single Tax: these are synonymous.
Here we have the great Eleventh Commandment of the Master of Nazareth — the sum total of all "the Law and all the prophets" — we have its Jeffersonian formulation into a politico-social maxim of "Equal rights to all," and its scientific practical application in the Single Tax of Henry George. This is applied Christianity; this is democracy; this is Georgean philosophy; this is the Single Tax; different expressions of the one Unity.
This article describes how difficult it is for condo owners to sell, since most buyers need mortgages with high loan-to-value (LTV) ratios, and FHA, Fannie and Freddie aren't lending because of rule-making on building approvals. And many buildings prohibit renting one's condo, a particular problem in a city where people rotate from one assignment to another, often in other countries.
It suggests that people with cash offers can get good deals.
Let's consider a different approach to housing. Suppose that, instead of paying taxes on one's wages, sales and building, taxes were shifted over to the value of the land one occupies. Were we to collect the full rental value of the land, in the form of a tax, reducing the selling price of the site to $0 or a token amount, a home, be it a high-rise condo unit or a single-family house, would sell for the depreciated value of the structure. A 2-bedroom, 2 bath condo of 1200 square feet would sell for pretty much the same amount wherever it is, with the buyer taking over the land value tax just as buyers now pick up the responsibility for the conventional property tax.
Buyers would need to borrow a great deal less. A 1200 square foot condo, at a generous $100 per square foot, would sell for $120,000. A 10% down payment on that would be a manageable $12,000. And the $108,000 mortgage could probably be paid off in far less than 30 years, incurring much less interest.
Relieved of taxation on wages and other income, one could afford to pay for the location one chooses, in the form of a monthly or quarterly payment to one's community. One wouldn't expect appreciation of one's housing -- after all, it is a depreciating asset. But assuming one's local government is providing services which others consider worth the price of the rental value of the land, one could expect to sell an attractive house or condo unit fairly quickly, and be able to relocated locally or cross-country in fairly short order.
Housing would no longer be regarded as an investment expected to appreciate. Buyers would enter clear-eyed and realistic, and seek to find the housing that best fits their needs without trying to make an investment.
Perhaps best of all, it would free up capital. We'd no longer be borrowing anything to buy land, so those funds would be available for investment in buildings, equipment and other things that create jobs. And many more of us, I think, would become investors, and would be accumulating resources to see ourselves through our retirement years.
Post Script: It occurs to me that among the first people to benefit from this measure, were it to be enacted in Washington, DC, would be our incoming congressmen, senators and their aides, who could afford housing, whether they were coming from a rich district or a poor one, whether they had tremendous fortune, or barely enough for a down payment. They could afford their own home, without living with roommates on C Street, or sleeping on their congressional couch and showering down the hall, as some impecunious or loudly frugal members of Congress choose to. And they would become conscious of how much of the cost of living in a city is payment for the location itself -- which should benefit all of their constituents, be they in blue counties or red ones. (And it might be interesting to look at how many blue cities there are.)
Man cannot profit from owning capital without using it, which means to employ labor. Man can profit from owning land without using it, which means unemployed labor. A low tax on land will not add one foot to the State; a high tax will not drive one acre away. A low tax or no tax on capital will bring to the State the means of developing its resources and employing its labor; a high tax will drive capital away and leave unemployment.
Which is your town/city/county/state/nation going to do? Will she listen to the land speculators, and lower the taxes on vacant land? Or will she give heed to the business men and farmers, and lighten the taxes on industry? Much depends upon her decision.
adapted from Tax Facts, January, 1928.
Think about the unused and underused land within the borders of your town or city. It is not neutral. It is a drag on your economy and contributes nothing, whil the owner sits and waits for someone to meet his price. It is held out of use to create an unearned windfall for its owner.
We ought to examine our tax policies for the incentives which make it possible for some owners to put the land in their portfolio to little or no use. I'm not concerned with land of genuinely little value, but with land served by infrastructure that we-the-people have taxed ourselves to provide and maintain. We accord landholders a privilege in taxing them but lightly, month in and month out, on the value of their holdings. (At the same time, we make a big mistake by taxing the improvements and "personal" property, including vehicles and business equipment, of those who have improved their land to make it useful and productive. I am reminded of Enoch Ensley's important statement:
NEVER TAX ANY THING THAT WOULD BE OF VALUE TO YOUR STATE, THAT COULD AND WOULD RUN AWAY, OR THAT COULD AND WOULD COME TO YOU.
Our elected representatives ought to be reminded of that, and then asked to ponder how to implement it. I commend to their attention Fred Foldvary's article "The Ultimate Tax Reform."
I had the pleasure of stumbling across a piece of writing from about 100 years ago. It is in one of quite a large number of books written by enthusiastic admirers of the ideas of Henry George, put online by Google Books. This is from a book by one James Love (written under a pseudonym). I've reformatted it a bit to make it easier to read here. It is a good summary of "Progress and Poverty," still the best book I know on political economy and economic justice -- why we suffer from wealth concentration, income concentration, poverty, sprawl, and a number of our other most serious social and environmental problems. Here's the excerpt; read it slowly and consider its implications!
This man, who I believe to be the completest in thought and language that the world has seen, and his book the most precious ever given by man to men, concludes
that the world (even more necessary to our existence than our own bodies are) is intended for all men of all generations, and not for some men alone.
That every human being born into the world has a natural right in it equal to that of every other human being born into it.
That as man by his nature seeks to gain his ends in the easiest way, some parts of the earth on which he can accomplish much become more desirable than other parts on which he can accomplish less.
That this varying desirability, causing competition for the use of certain lands, shows itself in "rent," which is thus a communal product, and as clearly belongs to communities as the remainder of the produced wealth belongs to the individual producers.
That it is as impolitic and unjust to take from the individual for the use of the community what has been produced by the individual as it is impolitic and unjust not to take for the use of all, or of the community, that which is produced in common by the community.
That, in short, "rent" is the natural, God-intended fund for general public use. And
that in denying this moral law of equal rights to land there is brought about a pitiful inequality of true wealth, and a sordid struggle for existence, destructive of human freedom and eventually bringing progress to a halt.
And that we are at last learning that in setting up "vested rights" — based whether on ancient force or ancient law — developed into modern custom — and denying this equality, we rob men and deny the truly sacred right of every man to the product of his labor; deny the sacred right of property in "wealth."
And that in treating private property in land as sacred (worse than treating property in man as sacred) "there never was a more degrading abasement of the human mind before a fetich."
But that, on the contrary, "by conforming our institutions to this divine law of justice we will bring about conditions in which human nature can develop its best;
will permit such enormous production of wealth as we can now hardly conceive;
will secure an equitable distribution;
will solve the labor problem and dispel the darkening clouds now gathering over the horizon of European civilization.
We will make undeserved poverty an unknown thing;
will check the soul-destroying greed of gain, and
will enable men to be at least as honest, as true, as considerate and highminded as they would like to be.
We will open to all, even the poorest, the comforts and refinements and opportunities of an advanced civilization; and
we will thus, so we reverently believe, clear the way for the coming of that kingdom of right and justice, and consequently of abundance and peace and happiness, for which the Master told his disciples to pray and work."*
* "The strength of ' Progress and Poverty' is not that it restated fundamental truths which others had before stated. It is that it related these truths to all other truths. That it shattered the elaborate structure that under the name of 'Political Economy' had been built up to hide them, and restoring what had, indeed, been a dismal science to its own proper symmetry, made it the science of hope and of faith." —Reply to charge of plagiarism.—Henry George.
I was happy to read this comment to Peter Orzag's recent column, which ends, "Senate Democrats and Republicans almost never come together anymore. This month, they should fight the dual deficits rather than each other. Let’s continue the tax cuts for two years but end them for good in 2013."
The comment comes from Frederick Singer, of Huntington Beach, CA, September 7th, 2010:
Extend the tax cuts for two more years, then introduce a new tax formula that is simple to define and easy to enforce and is both progressive and pro-growth.
Eighteenth century economist Henry George had an idea he called the Single Tax, also known as the Land Value Tax. Essentially, there would be no income or sales tax, only a tax on the value of land. Not to be confused with a "property" tax, the Single Tax would apply only to the land, not to any buildings or equipment.
Simple to define and enforce: The tax would be "x" percent of assessed land value, no exceptions. You can try to hide income but you can't hide land.
Progressive and pro-growth: Wealthy people are disproportionate owners of high priced real estate and would pay most of the taxes, but the marginal tax on both income and consumption would be ZERO. A win-win for liberals and conservatives.
The philosophy: Henry George believed that money you earn from own efforts, from your skills, profession or business belongs to you 100%. But the part of your wealth that comes from your ownership of land derives from the economic activity of the surrounding community ("location, location, location") and is therefore fair game for taxation to support that community. In other words, your own business may be doing lousy, but the land under your business may still be very valuable due to regional economic conditions - and you could close the business and profitably sell or rent the land to someone else. Money earned or wealth accumulated from land ownership is the true definition of "unearned" income.
Could the Single Tax raise sufficient revenue? If my math is right, taxing all the privately held land in America at an average of just ten cents per square foot (obviously, higher in some places, lower in others) would yield about six trillion dollars - which I believe is in the neighborhood of current total federal, state and local government spending.
Most importantly, the Single Tax would send the message that you make money by creating useful products and services, not wheeling and dealing in real estate.
10 cents per square foot per year would be an average of about $500 for a standard 50x100' lot. But some land is worth considerably less in annual rent, and some is worth significantly more. There are lots that size in major cities which sell for many, many millions of dollars, and farmland is worth considerably less than that average (except, perhaps, in a few wine-grape counties). Quick-and-dirty, the annual value of a $1 million lot is $50,000. The annual value of a $100,000 lot is $5,000.
Most of us own land worth considerably less than $100,000 (the major exceptions being homeowners in certain parts of California and near a few coastal cities), and ownership of those $1,000,000 and $5,000,000 sites is pretty well concentrated in high-income -- and, almost by definition, high net-worth folks. Such land is also owned by corporations and so-called "small businesses." The owners of such land would much prefer that your labor and mine, your buildings and mine -- and theirs, too -- your purchases and mine -- and theirs -- be taxed, rather than collecting the rental value of the land they call their own. They like the way the current set of privileges bring them returns they don't have to work to earn, and which their heirs will enjoy, too.
Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.
It’s no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.
The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.
What’s more, the rich don’t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they’ll summon the highest returns — sometimes that’s here, but often it’s the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.
Meanwhile, as the economy grows, the vast majority in the middle naturally want to live better. Their consequent spending fuels continued growth and creates enough jobs for almost everyone, at least for a time. But because this situation can’t be sustained, at some point — 1929 and 2008 offer ready examples — the bill comes due.
This time around, policymakers had knowledge their counterparts didn’t have in 1929; they knew they could avoid immediate financial calamity by flooding the economy with money. But, paradoxically, averting another Great Depression-like calamity removed political pressure for more fundamental reform. We’re left instead with a long and seemingly endless Great Jobs Recession.
THE Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity.
I think Robert Reich sees part of the problem, but he doesn't see the solution. How do we achieve more widely shared prosperity? By a variation on Alaska's theme. In Alaska, a significant share of the value of the state's natural resources is used to fund state government, and another significant share is placed each year into the Alaska Permanent Fund, which is invested in a broadly diversified portfolio and pays an annual dividend of $1000 to $2000 to every permanent resident of Alaska, of all ages. [See http://www.nytimes.com/2010/09/04/us/politics/04alaska.html for an article mentioning this, and the Alaska Permanent Fund link, at the left of this page.] Alaska has it half right: they collect a decent share of the value of the natural resources, but they don't tax their land value much.
How do we share the prosperity beyond the top 10%? By shifting our incentives so that those who currently grow wealthy in their sleep by collecting economic rent find themselves sharing that rent with the rest of us. Untax wages, starting with incomes under the median. Untax sales. Untax buildings. Tax land value. Tax the value of those things which the classical economists would have recognized as land -- water rights, "rights" to pollute, airport landing rights at congested airports, geosynchronous orbits (which prevent satellites from bumping into each other), electromagnetic spectrum (those airwaves which most people would say "belong to the American people" but which we have permitted corporations -- public and private -- to privatize), natural resources such as oil, natural gas, copper, coal, lithium, etc.. All these things are going into corporate portfolios (here and abroad -- and some of those corporations are families in power, despite attempts at nation-building), week in and week out, and their value accrues to the shareholders of the corporations. Stock ownership is quite concentrated, and these benefits flow into the pockets of a relative few, who, as Reich rightly points out, may or may not spend or invest in America's products. When they do invest, they often acquire our best land and resources, buying thereby the labor of thousands of Americans. When an acre in Manhattan can be worth $400 million, the seller of that land didn't make it valuable. WE did! So why should an individual, or a corporation, or a trust, or a university, or a pension fund -- or any private entity -- get to pocket that value as if they did? (The kindest thing I can say is that we have a bad habit! Something like chattel slavery -- and look at how long it took us to end that.)
Pocketing that value has two sorts of effects: when they sell, they pocket that so-called "capital" gain. It isn't capital! It is land value! Capital depreciates; what rises in value is land, and it rises for reasons which have nothing at all to do with the "fellow" who owns it.
But even when they buy and hold, there are important effects of permitting that privatization. The rich don't need to put the land to its highest and best use, because they can get by with something less while they wait for the community to cause it to grow. (See The Taxpayer at 72nd and Madison. Notice all the surface parking lots in Manhattan, Philadelphia, Hartford and many other cities. See the 4.3 acre "hole in the ground" in Stamford, CT, right near the city's 100% location, vacant since the early 1980s.) They're patient! They can afford to be. The top 10% of us hold 71.5% of the chips, according to the 2007 Survey of Consumer Finances.) Not using the land well reduces the supply of housing close to the center of things (adding to sprawl) and/or of jobs (which we say we want) and contributes to a wide range of our most serious social, economic, environmental and justice problems.
If we collected more of the annual rental value of our urban land, the holders of that land would turn into active users or sell it to someone who would put it to good use. Good use creates jobs, and homes and other things that the market wants. But when the market can't afford them, it does without. People are priced out of housing in the places they'd prefer to live. They lack jobs or are underemployed, and the rich keep getting richer.
Reich advocates extending the EITC, exempting the first $20,000 of wages from payroll taxes, improving and extending early childhood education, making public universities free in return for 10% of the first 10 years of full-time earnings, creating "earnings insurance." He concludes,
Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth — and that’s good for everyone. The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that’s barely moving. That’s the Labor Day lesson we learned decades ago; until we remember it again, we’ll be stuck in the Great Recession.
OUR CONCLUSIONS point to a solution. It is so radical that it will not be considered if we believe less drastic measures might work. Yet it is so simple that its effectiveness will be discounted until more elaborate measures are evaluated. Let us review current proposals to relieve social distress. For convenience, we may group them into six categories:
1. More efficient government 2. Better education and work habits 3. Unions or associations 4. Cooperation 5. Government regulation 6. Redistribution of land
That 10% of us who hold 71.5% of the net worth also received 41.3% of the current income. [Note that these percentages are understated, since the SCF purposely omits the Fortune 400 families. They hold about 1% of the nation's net worth.]
Picketty & Saez provide annual updates on income concentration. For 2008, they report that the top 10% of us (sorted by income, not net worth) received 45.60% of the income when capital gains are excluded and 48.23% of income including capital gains. (For 1988, the corresponding figures are 38.63% and 40.63%; in 1958, 32.11% and 33.56%. Do we notice a trend here? Do we like it or think it a healthy trend?)
We have permitted and supported a structure which funnels wealth and income into relatively few pockets. We have to reform this structure, and we have to recognize that the current beneficiaries are not likely to be keen on reform -- conservatives have a lot to conserve for themselves -- and those who are dependent for their salaries on being popular with those beneficiaries are not likely to be particularly interested in looking at the underpinnings of the structure with an eye to removing some of the ladders (escalators!!) or gentling the chutes.
Those who get to privatize the value of what ought to be common assets grow wealthy in their sleep. Until enough of us understand the mechanism to constitute a majority, we aren't likely to correct it.
It is a bit disheartening to think how many well-regarded economists live in California, the land of Proposition 13, and haven't lifted a finger or opened their mouths to suggest that it is not in the best interests of California's people. Milton Friedman acknowledged many times that the tax on land values was the "least bad" tax -- and didn't have anything to say about Proposition 13, which was the antithesis of what a wise person or society would do with that information. So I guess I shouldn't be surprised that today's California economists, with very few exceptions, aren't all that concerned with the economic wellbeing of ordinary people any more than economists elsewhere are. Or maybe, as my late mother would have expressed it, their educations have simply been neglected. (At which point she would proceed to fill in my newly-identified knowledge gap.) Economists can start with the links in this post, and then explore from there.
This is a good article, by James Surowieki, on the prevalence of financial ignorance in America. I'm going to take the liberty of including the entire article here, but want to preface it with the thought that the problem is deeper and broader than he suggests. Remember that Case and Shiller (2003, if I recall correctly) found that people buying homes expected them to appreciate significantly; this expectation likely caused them to take on amounts of debt that in the absence of such an expectation would have made absolutely no sense.
How many people realize that houses depreciate? Houses depreciate. (A May, 2006, Federal Reserve Board study cited 1.5% as an annual depreciation for single-family housing stock.) What rises in value is land. It rises in value for reasons which have nothing at all to do with the activity or inactivity, presence or absence of any individual landholder. It rises because of increased in population (general and local); because of public investment in infrastructure and services which appeal to buyers and tenants (residential and commercial); because of advances in technology (e.g., elevators, air conditioning, even fiberglass boats!). It is also influenced by interest rates and by loan underwriting rules, and by pent-up demand for a place to live, and a willingness to commit a huge portion of one's savings (if any) and present and future income to paying a seller for value he didn't create, on the basis that this is a better choice than paying a landlord for value he didn't create.
(The alternative, of course, is to reform our taxes, and place more of the burden onto the value of land, not a square foot of which will disappear or be hidden, and less on buildings, wages, purchases and other standardly-used tax bases which behave badly when taxed. But our financial ignorance goes far beyond ignorance of personal finance. Very few of us have a realistic understanding of political economy, the science which deals with the natural laws
governing the production and distribution of wealth and services. Very hard to make sense of the micro if you have an unrealistic or limited understanding of the macro!)
Individuals buying their first homes hoped to supplement their meager wages with significant unearned increases in land value. But they failed to note what Leona Helmsley laid out: it is the little people who pay the taxes, and the little people who support the public spending which enriches those who hold our best-located land (be they individuals or corporations, domestic or otherwise). Details, details.
Halfway through his Presidency,
George W. Bush called on the country to build “an ownership society.”
He trumpeted the soaring rate of U.S. homeownership, and extolled the
virtues of giving individuals more control over their own financial
lives. It was a comforting vision, but, as we now know, behind it was a
bleak reality—bad subprime loans, mountains of credit-card debt, and
shrinking pensions—reflecting a simple fact: when it comes to financial
matters, many Americans have been left without a clue.
of our financial ignorance is startling. In recent years, Annamaria
Lusardi, an economist at Dartmouth and the head of the Financial
Literacy Center, has conducted extensive studies of what Americans know
about finance. It’s depressing work. Almost half of those surveyed
couldn’t answer two questions about inflation and interest rates
correctly, and slightly more sophisticated topics baffle a majority of
people. Many people don’t know the terms of their mortgage or the
interest rate they’re paying. And, at a time when we’re borrowing more
than ever, most Americans can’t explain what compound interest is.
illiteracy isn’t new, but the consequences have become more severe,
because people now have to take so much responsibility for their
financial lives. Pensions have been replaced with 401(k)s; many workers
have to buy their own health insurance; and so on. The financial
marketplace, meanwhile, has become a dizzying emporium of choice and
easy credit. The decisions are more numerous and complex than ever
before. As Lusardi puts it, “It’s like we’ve opened a faucet, and told
people they can draw as much water as they want, and it’s up to them to
decide when they’ve had enough. But we haven’t given people the tools to
decide how much is too much.”
Unsurprisingly, the less people
know, the more they run into trouble. Gary Rivlin’s blistering new
examination of the subprime economy, “Broke, U.S.A.,” is full of stories
of financially ignorant people bamboozled into making bad
decisions — refinancing out of low-interest mortgages, say, or buying
overpriced credit insurance — by a consumer finance industry adept at
creating confusing products. Such stories are backed up by the numbers. A
study by economists at the Atlanta Fed found that thirty per cent of
people in the lowest quartile of financial literacy thought they had a
fixed-rate mortgage when in fact they had an adjustable-rate one. A
study of subprime borrowers in the Northeast found that, of the people
who scored in the bottom quartile on a very basic test of calculation
skills, a full twenty per cent had been foreclosed on, compared with
just five per cent of those in the top quartile.
What can be
done? One solution is regulation: the financial-reform bill now before
Congress will create a consumer financial-protection agency that should
help curb the finance industry’s most predatory excesses. Another
solution is to tinker with “choice architecture” — doing things like
enrolling people in 401(k)s automatically — in order to “nudge” them
toward better decisions. Both of these strategies are necessary, but
they’re not enough on their own, because financially illiterate
consumers are always going to be easy victims. We also urgently need
proper financial education.
This seems obvious, but it’s surprisingly
controversial. Some suggest that financial illiteracy is an example of
what economists call “rational ignorance” — inattention that is justified
because the costs of paying attention outweigh the benefits. But few
decisions affect us more directly than the ones we make about our money.
Critics also argue that financial education may make people
overconfident, and therefore more likely to make bad decisions. In fact,
the reverse is true: the less people know, the more overconfident in
their abilities they tend to be. In a German study, eighty per cent of
those surveyed described themselves as confident in their answers on a
questionnaire, yet only forty-two per cent got even half the questions
right. This is known as the Dunning-Kruger effect: people who don’t know
much tend not to recognize their ignorance, and so fail to seek better
information. No wonder, then, that the least knowledgeable people in the
Atlanta Fed study were also the least likely to do research before
getting a mortgage. By contrast, well-informed people are more likely to
ask others for help. If financial education taught people only how
little they actually know, it would accomplish quite a lot.
government’s new consumer-protection agency has the authority to “review
and streamline” financial literacy programs, but that’s not enough. We
really need something more like a financial equivalent of drivers’ ed.
There’s evidence that just improving basic calculation skills and
inculcating a few key concepts could make a significant difference. One
study of the few states that have mandated financial education in
schools found that it had a surprisingly large impact on savings rates.
And the Center for American Progress has found that, across the country,
education and counselling by nonprofit organizations, like the
Massachusetts Affordable Housing Alliance, have helped low-income
families buy and hold onto homes, even during the housing bubble. The
point isn’t to turn the average American into Warren Buffett but to help
people avoid disasters and day-to-day choices that eat away at their
bank accounts. The difference between knowing a little about your
finances and knowing nothing can amount to hundreds of thousands of
dollars over a lifetime. And, as the past ten years have shown us, the
cost to society can be far greater than that. ♦
A standing google alert on the "Roosevelt Hotel" in NYC brought me this article on another way for the foreign owner of this excellent acre in Manhattan to make money without selling the site. It suggests that this method might be quite profitable for a number of individuals in that country's government.
The back story, as I've gleaned it, is contained in some earlier posts to this blog.
The article slightly mis-states the situation. It is not the Roosevelt Hotel which is worth $300 to $400 million; rather, it is the ground under the hotel, which is a well-located full-block, roughly an acre, in midtown Manhattan. Estimates of its value a few years ago, as a tear-down, ranged from $400 million to $1.2 billion. When the real estate market went soft, it was clear that waiting a few years for it to revive would be quite profitable.
This article, though, suggests that a lot of individual politicians stand to make individual profits through a different strategy.
Remember what Leona Helmsley told us: "WE don't pay taxes. The little people pay taxes." The little people's taxes provide the services which make this acre worth $400 million.
About the possibility of selling PIA-owned Roosevelt Hotel in New York to pay for past losses, he said it is not the appropriate time to sell a billion-dollar property when real estate market is still recovering in US.
“Besides, what is the point in selling a business which earns PIA $7-8 million annually?”
So the Roosevelt Hotel, which occupies an acre near Grand Central Terminal in NYC, has a net income of $7 million or $8 million per year.
This suggests some questions one might ponder:
1. Should an acre in NYC worth a billion dollars be earning a mere $8 million? Seems to me that this is a rather low return -- at $1 billion valuation, that's 0.8% per year.
2. If this property is worth $1 billion, the land rent, at 5% -- "20 years' purchase" -- is $50 million per year. How much does the Roosevelt Hotel pay the City of New York in property taxes each year?
3. How much do the guests at the Roosevelt Hotel pay NYC and NYS in hotel occupancy taxes per year?
4. How much do the employees at the Roosevelt Hotel pay NYC in wage taxes per year? Wouldn't it be better to collect this amount via taxes on land value?
5. How much do the employees at the Roosevelt Hotel pay NYC in sales taxes and property taxes per year? Wouldn't it be better to collect this amount via taxes on land value?
6. When Pakistan International Airlines decides to sell this "taxpayer," for $1 billion, and that $1 billion, created not by PIA or the people of Pakistan, or the hotel management or the hotel employees, leaves this country, will that be a good thing, or something which should have been avoided?
7. Shouldn't the beneficiaries of NYC's land value be NYC, NYS and the American people, instead of a private entity of any kind -- be it PIA, an American REIT, an NYC-based corporation, a family-owned real estate dynasty, one or more American pension funds (corporate or public), a British church, a middle eastern sovereign fund, a mutual fund, or any other private entity?
That site is valuable not because of anything its current owner is doing or is not doing. It is valuable because of the presence of millions of residents in the surrounding area, and of millions more who visit NYC on business and as tourists in the course of a year. It is valuable because we-the-people have invested and will continue to invest in infrastructure and services which protect and serve these sites. Why on earth does a private entity get to pocket what we create?
It doesn't come out of thin air.
For more background on this story, see some previous posts here:
A couple of articles caught my eye today. First, a university which owns choice land on the Upper West Side of Manhattan:
Fordham Seeks to Build on Manhattan Campus For more than a decade, Fordham
University officials have been trying to figure out how to address
overcrowding at their Manhattan campus and fill the coffers of their
relatively small endowment. They thought the answers to both could be
found in one of their most valuable assets: their Manhattan real estate.
So for four years, Fordham officials have been trying to win support from community groups and city officials for plans to turn
their four-building site into a far denser 12-building campus in the
same space between Amsterdam and Columbus Avenues and 60th and 62nd
Streets. Fordham uses the site for various graduate programs and has a larger campus in the Bronx.
The completed campus next to Lincoln Center would have three million square feet of classrooms, libraries and dormitories.
It would also include two lots that Fordham would sell to luxury
apartment developers, using the profits to bolster the endowment. ...
Neighbors, zoning experts and community board members who spoke at the
hearing expressed concerns that the buildings would be too tall and
dense for the neighborhood. Howard Goldman, a land-use lawyer
representing a residents’ group, Fordham Neighbors United, said that at three million square feet,
the campus would be larger than the Time Warner Center nearby (2.2
million square feet) or the Empire State Building (2.8 million square
Deirdre A. Carson, a lawyer representing Fordham, said the towers would not be as overbearing as critics contend. Some of the towers would be would be 650 feet high, she acknowledged, but they would be spread out over a larger area. She added that the Time Warner site was half the size of the proposed Fordham campus and that the Empire State site was one-third as large. ...
Mr. Goldfischer said that more than
1,100 residents were removed from the neighborhood to build Fordham,
which he said complemented Moses’ original plan, as did Lincoln Center,
nearby. (Lincoln Center has not commented on the proposal.)
“That land was for public trust,” he
said over applause from the crowd. “It’s immoral, illegal and unethical
to do something like that.”
Ms. Carson acknowledged that terms of
the 1958 purchase included a requirement that the property be used for
educational purposes but said the obligation expired in 2006.
and a foreign airline which owns a VERY choice block in midtown Manhattan is realizing that they have a major cash cow which can bear them an awesome amount of milk, forever:
The President advised the government
to also consider developing the Roosevelt hotel property in New York
owned by the PIA as a source of permanent income without actually
selling the property and retaining PIA’s ownership of it.
He said that the government may
revisit the earlier decision to place the Roosevelt hotel under the
Privatization Commission so as to examine the possibility of developing
the property for regular income.
How choice? The NY Post estimated the selling value of this one-acre whole-block property at $400 million to $1.2 billion as a teardown last summer. That's $20 million to $60 million per year in land rent. See these previous LVTfan entries to this blog.
And then there was a 3rd article, whose mechanics I don't begin to understand, but which I suspect are similar ... and a bit hedge-fundish: The New York Times, which in 2007 built a new building between 40th and 41st Street on the west side, is now negotiating a transaction which, by definition, must benefit both sides... I'm led to wonder how much it will cost taxpayers if both sides benefit:
Times Co. Is in Talks to Sell Part of Building
The New York Times Company is in advanced negotiations to sell a
substantial portion of its 52-story headquarters building on Eighth
Avenue in Midtown Manhattan to W. P. Carey & Company, an investment
and management firm that specializes in so-called sale-leaseback
transactions, the newspaper company confirmed on Thursday.
Under the deal, the Times
Company would sell the 19 floors it currently uses in the building but
not the 6 floors it leases to other tenants. The Times Company would
continue to occupy and manage its floors and would have the right to
buy back the space at a predetermined price when a 10-year lease
expires. Designed by the architect Renzo Piano, the building stretches from 40th to 41st Street. It was completed in 2007.
A spokeswoman for the Times Company, Catherine J. Mathis, declined to
say how much W. P. Carey would pay for the space, what it would cost to
repurchase it or what the rent would be. The Times Company previously
said that it was pursuing a sale-leaseback arrangement for up to $225
million and would use the proceeds to repay some of the company’s
“Because we are in continuing discussions, we cannot comment on the
status of the sale-leaseback,” Ms. Mathis said Thursday. Guy B.
Lawrence, a spokesman for W. P. Carey, declined comment on the
The Times Company owns 58 percent of the 1.5-million-square-foot tower. The developer Forest City Ratner owns the rest of the building. Forest City’s portion will not be included in the sale.
In a sale-leaseback
transaction, the seller maintains control over its space and the
responsibility for paying taxes, maintenance and utility costs. W. P. Carey’s investors would be guaranteed a specific return for the life of the lease.
The question, of course, for all three stories, is WHO IS ENTITLED TO THE LAND RENT? Land rent is the annual value of an undeveloped piece of land. It is created by the community, by public spending, by our presence .... and we permit -- even honor* -- its privatization by whoever owns the land. We take it for granted. They take it for granted.
* We call those who acquire choice land and collect land rent from us "self-made men." We tax labor heavily, and sales, but we tax landlords but lightly, through local taxes, through federal income taxes, or through estate taxes with loopholes. We are so nice, so generous! ... and we wonder why things are SNAFUed. (The good news, though, is that we aren't dealing with FUBAR. This CAN be remedied simply, elegantly and justly. LAND VALUE TAXATION) Leona Helmsley described the situation this way: "We don't pay taxes, only the little people pay taxes." And Fred Harrison lays it out on YouTube.
This is stupid on our part. (How's that for understatement?)
There was an interesting blog post on the NYT website yesterday, entitled "Gotham Book Mart Holdings are Given to Penn." I found it interesting because it deals with a specialized business which existed in NYC for decades: a bookstore specializing in antiquarian books.
It was most recently housed in a building at 16 East 46th Street, between Fifth Avenue and the top of Grand Central Terminal. The article says that two "benefactors" had bought the building in ~2004 for $5.2 million and leased it to the owner of the bookstore for $51,000 per month. The implication is that the $51,000 monthly rent was a bargain.
I don't know how reliable the estimates involved are, but this article from a Pakistan website came across a google alert today. The property is a 1-acre teardown within a short walk of Manhattan's Grand Central Terminal:
The government has finally decided to sell the famous PIA-owned
Roosevelt Hotel in a bid to add some foreign exchange to the national
exchequer and has asked the Privatization Commission to arrange open
bidding to this end.
The commission hopes to get a minimum offer
of eight hundred million US dollars as compared to two hindered million
dollars the Shaukat Aziz-led government had expected for the hotel
located in the busiest commercial area of Manhattan in New York.
previous government was in haste to sell off the hotel apparently to
oblige some of its blue-eyed officials but shelved its plan following
the Supreme Court's ruling in the Pakistan Steel privatisation case.
the wake of the current economic crunch, the government has decided to
sell the hotel in the hope of getting handsome foreign exchange.
If you are one who thinks that land rent -- the value which the land itself would rent for each year -- is not a large enough tax base to provide much in the way of revenue, consider that this single acre, taxed annually at 5% of its proposed selling price, could provide $40 million each year in income to support the spending needs of NYC, NYS and the federal government. I don't know what NYC is collecting in property taxes on land and buildings, but it isn't much -- which is part of why the asking price can be so high.
Think what it would mean to shift $40 million worth of taxation off wages, off sales, off buildings!
A google alert today says that the owner of a choice block --roughly one acre -- in midtown Manhattan might be ready to sell it. My browser seems to crash every time I try to read either of the two articles referring to it, but the property involved is a single block, a short walk from Grand Central Terminal, which, according to my research earlier in the year, was said last summer to be worth $400 million to $1.2 billion as a teardown. But the owners seemed to be satisfied with $15 to $20 million per year in operating profits from its current use. The property is about an acre.
$15 million annual on a $400 million property is not much of a return -- 3.75%. But it isn't bad while one waits for the taxpayers of NYS and NYC and the federal government, as well as the private sector's activities, to cause the land to appreciate. Covers the carrying costs, and employs a number of people! The city doesn't impose much of a tax on the land value. And so a year's appreciation could be significantly more than a year's operating profits! What a sweetheart deal we give to the owners of our choice urban land.
Link: ROOSEVELT'S UP FOR SALE AT COOL $1B - New York Post. This article is actually 8 months old, but popped up on a standing google alert in my mailbox, and it contained some factoids I'd not previously seen. I'm not going to get into the background story (which some might find quite interesting, based on my bit of research). Rather, I'm going to focus on the land values involved, because they might surprise the ordinary mortal, and provide some food for thought.
The property is just under 1 acre, and currently has a 1,013 room 20-story luxury hotel, built in 1924, on it. The $1 billion valuation is as a teardown, as a site for a higher and better use, given current markets.