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!
I AM convinced that we make a great mistake in
depriving one sex of voice in public matters, and that we
could in no way so increase the attention, the intelligence
and the devotion which may be brought to the solution of
social problems as by enfranchising our women. Even if in a
ruder state of society the intelligence of one sex suffices
for the management of common interests, the vastly more
intricate, more delicate and more important questions which
the progress of civilization makes of public moment, require
the intelligence of women as of men, and that we never can
obtain until we interest them in public affairs. And I have
come to believe that very much of the inattention, the
flippancy, the want of conscience, which we see manifested
in regard to public matters of the greatest moment, arises
from the fact that we debar our women from taking their
proper part in these matters. Nothing will fully interest
men unless it also interests women. There are those who say
that women are less intelligent than men; but who will say
that they are less influential?
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.
I want to live in a just society - a society where we, the people, are recognised as the rightful owners of natural resources; where we all feel a shared ownership of the earth.
Such a simple proposition has profound implications. As co-owners, we would be entitled to a dividend from those natural resources.
That would provide a basic income for every person, allowing us the freedom to choose a fulfilling career, rather than be forced to accept wage-slave jobs to meet our debt-ridden commitments. True freedom implies the right to choose our work, our interests and where we live.
If we, as owners, had a say in the management of our natural resources, most likely we would not consent to the world as it is.
In a democratic society, where the people own the natural resources, in common, we would recognise commons property rights in our accounting. We would not allow loss of biodiversity, pollution of our streams and rivers, high rates of mineral depletion (including fossil fuels), loss of our starscape every night of the year to light pollution – or, at least, we would not allow these things beyond what is acceptable to the people.
"Yes, ah yes, there is frightful misery in the world," answered
Gabriel tenderly and sadly. "Yes, many of the poor, cut off
from all joy, all hope, are cold and hungry and in want of shelter
and raiment, in the midst of the immense riches which the Creator
has provided, not for the happiness of a few, but for the happiness
of all, for his wish was that they should be equitably divided — but
a few have acquired the common inheritance by fraud and violence."
— EUGENE SUE, The Wandering Jew,
Part XVI., Chap. 34.
God has ordered all things to be produced, so that there should be
food in common to all, and that the earth should be a common
possession to all. Nature therefore has produced a common right for
all, but greed has made it a right for a few.
— ST. AMBROSE, On the Duties of
the Clergy (A. D. 391), Chap. XXVIII., Sec. 132. Nicene and
Post-Nicene Fathers, Vol. X., p. 23.
The Creator has made ample provision for all men in the storehouse
of nature and in the faculties and powers of man. To do God's will,
we must make room at the Father's table for all His children.
— FATHER EDWARD McGLYNN, Lecture
on the Fatherhood of God and Brotherhood of Man.
A sig-file on a listserv brought to my attention a quote from St. Ambrose, which, to my surprise, Ernest Crosbydidn't include in his Earth-for-All Calendar:
"You are not making a gift of what is yours to the poor man, but you are giving him back what is his. You have been appropriating things that are meant to be for the common use of everyone. The earth belongs to everyone, not to the rich."
In the very first pages of Scripture we read these words: "Fill the
earth and subdue it."(19) This teaches us that the whole of creation is
for man, that he has been charged to give it meaning by his intelligent
activity, to complete and perfect it by his own efforts and to his own
Now if the earth truly was created to provide man with
the necessities of life and the tools for his own progress, it follows
that every man has the right to glean what he needs from the earth. The
recent Council reiterated this truth: "God intended the earth and
everything in it for the use of all human beings and peoples. Thus,
under the leadership of justice and in the company of charity, created
goods should flow fairly to all." (20)
All other rights, whatever
they may be, including the rights of property and free trade, are to be
subordinated to this principle. They should in no way hinder it; in
fact, they should actively facilitate its implementation. Redirecting
these rights back to their original purpose must be regarded as an
important and urgent social duty.
The Use of Private Property
"He who has the goods of this world and sees his brother in need and
closes his heart to him, how does the love of God abide in him?" (21)
Everyone knows that the Fathers of the Church laid down the duty of the
rich toward the poor in no uncertain terms. As St. Ambrose put it: "You
are not making a gift of what is yours to the poor man, but you are
giving him back what is his. You have been appropriating things that are
meant to be for the common use of everyone. The earth belongs to
everyone, not to the rich." (22) These words indicate that the right to
private property is not absolute and unconditional.
No one may
appropriate surplus goods solely for his own private use when others
lack the bare necessities of life. In short, "as the Fathers of the
Church and other eminent theologians tell us, the right of private
property may never be exercised to the detriment of the common good."
When "private gain and basic community needs conflict with one another,"
it is for the public authorities "to seek a solution to these
questions, with the active involvement of individual citizens and social
The Common Good
certain landed estates impede the general prosperity because they are
extensive, unused or poorly used, or because they bring hardship to
peoples or are detrimental to the interests of the country, the common
good sometimes demands their expropriation.
Vatican II affirms
this emphatically. (24) At the same time it clearly teaches that income
thus derived is not for man's capricious use, and that the exclusive
pursuit of personal gain is prohibited. Consequently, it is not
permissible for citizens who have garnered sizeable income from the
resources and activities of their own nation to deposit a large portion
of their income in foreign countries for the sake of their own private
gain alone, taking no account of their country's interests; in doing
this, they clearly wrong their country. (25)
Those interested in Catholic Social Thought should look for a new book which came out of a 2007 conference held at the University of Scranton, and edited by Professor Kenneth R. Lord of UScranton, entitled "Two Views of Social Justice: A Catholic/Georgist Dialogue." The version I've seen is the October, 2012, issue of The American Journal of Economics and Sociology, and I understand that it will be made available in other forms as well.
The abstract for the book:
Sixteen scholars have come together in this issue to examine eight social-justice themses from the perspectives of Catholic Social Thought and the philosophy of Henry George. The themes they address are natural law, human nature, the nature of work, the nineteenth-century papal encyclical Rerum Novarum, causes of war, immigration, development, and wealth, and neighborhood revitalization. While they sometimes wrangle with each other, their common aspiration is the same as their nineteenth-century predecessors,: to find solutions to the human suffering caused by injustice.
StarWatch investigation: State paid twice what some I-69 land was worth
To secure path for I-69, INDOT offered $7M for property appraised at $3.34M Written by Ryan Sabalow and Tim Evans | 7:47 PM, Nov 10, 2012
BLOOMINGTON, Ind. -- In 2006, Barry Elkins paid $850,000 for about 200
acres in Monroe County owned by former Indiana University basketball
coach Bob Knight.
$4,250 per acre
Elkins told a local newspaper he had no plans to develop the land. He
said he also was quite aware state officials planned to acquire at least
some of the property for the new I-69 freeway project.
Nonetheless, Elkins told a reporter: "It's a heck of a piece of ground."
Turns out, it produced a heck of a profit, too.
In July, state highway officials paid Elkins $2.41 million for an
easement covering 140 of the 200 acres. That's almost four times the
$658,800 that state appraisers said the easement was worth.
$17,214 per acre for the 140 acres.
$658,800 is $4,705 per acre.
The $2.41 million represents a profit of $1.56 million since 2006, still
leaves the owner with 60 acres with no easement and 140 acres with an
easement. The $1.56 million profit in 6 years on an $850,000 investment
is 84%! Quite a return! For what effort?
What did society get in return?
According to I-69 cost estimates INDOT provided this summer, $162.6
million in state and federal funds were spent on right-of-way purchases
along the new stretch of freeway.
He said the property payments also haven't caused the project to go over
budget. He said the I-69 project is 25 percent under budget estimates.
Officials this summer pegged the cost of the Evansville-to-Bloomington
project at $1.5 billion.
The land Elkins bought from Knight wasn't the only Monroe County
property along I-69's path that he sold to the state for far more than
its fair market value. He and two co-owners also got $348,600 for a
27-acre property appraised at $194,625; and $795,956 for 58 acres
appraised at $278,295.
As for the former Knight property, the state purchased the easement to
create an "environmental mitigation site" to make up for damage to
forests, wetlands, wildlife habitat and other natural resources caused
by the new freeway.
After the $2.41 million payday -- which was nearly three times the
amount Elkins paid Knight for the entire 200 acres -- Elkins still owns
the picturesque expanse of undeveloped pasture and woods about eight
miles southwest of Bloomington.
The easement forbids any development on 140 acres of the land but allows
Elkins to use it for "low-impact" recreational activities such as
hiking, photography and hunting.
And he doesn't have to pay property taxes.
One might reasonably ask what valuation Elkins was paying property taxes on before the transactions.
One might reasonably ask how much the labor costs on this project were -- what men and women got paid for their hours of labor put into building the highway, and then compare that to Mr. Elkins' and others' receipts as passive landholders!! Quite amazing that we treat the "rights" of landholders as more sacred than we make the rights of the community or of those who work.
One might reasonably wonder how soon the communities along the route of this new highway will revalue their land, and whether the communities will collect more from those whose land benefited from the presence of this highway (and less from those whose properties were in reality negatively impacted, should that be the case). In general, the aggregate benefits will far exceed the aggregate negative impacts, and would likely be enough to pay all the costs of the construction.
Mr. Elkins' free lunch did not come out of thin air. And likely, his heirs will continue to enjoy the benefit of it.
THIS is how wealth concentrates. This is why we are forced into taxing wages, and sales, and other things we have no business taxing!
U-z-r.-z-z.-7. went the bell every five minutes through- out the lower rents exhibit of the New York Congestion Committee. "Every time this bell rings." explained a pla- card, "land values increase $1,000 in New York. Who gets it? Land speculators. Who makes it? You. when you pay your rent." Oral Hygiene journal, January, 1914
The exhibit must have run for over a year, because I found a reference to a speech Mayor Gaynor gave on "The Single Tax" there on February 17, 1913.
... many Americans are facing the likelihood of not having sufficient income in retirement unless they increase their savings, work longer, or significantly decrease their expenditures in retirement if they hope to make ends meet.
The Employee Benefits Research Institute recently published an analysis of 2010 Survey of Consumer Finances data. It demonstrates how few people have the traditional defined-benefit retirement plans, and the account balances people of various demographics have in their individually-directed retirement accounts.
Here are some statistics worth considering as we think about the effects of a system which permits a few of us to capture a large share of the nation's net worth and a large share of its income, and to unduly influence our elections with advertising which works to conceal and reinforce the structures of that system:
38% of all families -- of all ages -- had a family member with a retirement plan. [Figure 2]
of those 38%, 18% had only a defined benefit plan; 61% had only a defined contribution plan; 21% had both. 82% had a 401(k) type plan, and of that 82%, 22% also had a defined benefit plan
Among those families whose head was 55-64, 43% had a member with a retirement plan; among those 45-54, 53% did.
Interestingly, the top 75% of the net worth spectrum all had rates in the 41% to 46% range; in the bottom 25%, only 21%.
Among families whose head was under 65 and working, 52% had a member participating in a retirement plan [Figure 3].
Among households with income abov e $100,000, 76% had retirement plans; in the $50,000 to $100,000 income range, 64%; in the lower income groups, the rate ranged from 44% down to 9%
In the 55-64 age group, 59% had a retirement plan; in the 45-54 group, 61%.
Within this working-age universe, similar trends held: the top 50% had roughly 61-67% availability of employment-related retirement plans; for the next 25%, only 53%; for the bottom 25% of working families, only 29%.
IRAs and Keogh plans: 28% had one or both; median value, $40,000 (up from $34,574 in 2007). Among those 55-64, 41% had one or both; median value $60,000 (down from $68,101); among those 45-54, 29% had one or both; median value $40,000, up from $37,717. [Figure 5]
Even among those in the top 10% of the net worth spectrum, only 77% had IRA or Keogh accounts, median value $200,,000, up from $142,487 in 2007; in the next 15% of the net worth spectrum, median value was $60,000.
Of all families, 64% had some sort of retirement account from a current or previous employer (down from 66% in 2007)
Retirement assets in Defined Contribution plans and IRAs typically [that is, at the median] represent 61% to 66% of total financial assets, which is to say that most have less in mutual funds, stocks, checking and other accounts than they do in their retirement accounts. [Figure 8]
Only in the top 10% do retirement assets represent less than half of financial assets.
As is typical of median/average ratios, average holdings are considerably higher -- that is, the holdings of the top few are huge, and most of us are below average. The average balance is $173,232; in the top 10% of the net worth spectrum, average balances are $519,034. For the next 15% of us, the average balance is 147,061 -- well below the average of all of us! [Figure 9] Recall from Figure 6 that 64% of us have such a plan; the other 36% have no balance at all (and likely a significant percentage have very small account balances).
For those in the 65-74 age group, the average balance is $324,199; for those in the 55-64 group, the average balance is $297,903.
For those in the top 10%, average account balance is $519,034. One might reasonably guess that the top 5% have the lion's share of this.
It might be worth noting that a 70 year old must withdraw at least 1/27 of his IRA per year. Based on that 65-74 age group average balance, that's $12,000 per year. (Another rule of thumb says that if one only withdraws 3% per year, one's account should last forever. That would be $9,725 per year, for that "average" -- not median -- family in the 65-74 age group.
Enough said. Time to circle back to the study's conclusion:
... many Americans are facing the likelihood of not having sufficient income in retirement unless they increase their savings, work longer, or significantly decrease their expenditures in retirement if they hope to make ends meet.
What public policy reforms might one suggest based on these data points?
Find a way to raise wages for ordinary workers
Find a way to lower the cost of living for ordinary workers and retirees
Find a way to reduce the sum of the taxes we pay and the costs of housing without reducing the public goods which those taxes provide (unless it is by reducing the demand for social safety net
If you have other suggestions, I'd like to hear them.
But the reason for this blog is that I believe I have found the public policy reform which would accomplish these goals, in collecting the lion's share of the annual rental value of our land, and in collecting for the commons certain other kinds of natural public revenue which our current system permits to accrue to individuals and corporations. I didn't invent it. Henry George is the clearest exponent of it, but not the first or last. Is it perfect? No, but it is vastly superior to what we've got now, and I believe it is consistent with the ideals to which Americans pay the most honor.
Well, not quite. The film's a little older than I am.
Watched that film last night ... great quote:
Billie: Because when ya steal from the government, you're stealing from yourself, ya dumb ass.
And when we allow others to steal from the commons what rightly belongs to the community, what are we? Some of that theft we all recognize as theft, and other kinds are perfectly legal, even honored, under our current laws. I find the latter even more troubling than the former.
And when neither our economists nor our leaders even SEE it, it is fair to call that a corruption of what their businesses are supposed to be.
"The wages problem resolves itself into a very simple question, viz.: Which is the better for a community — to have 10,000,000 men earning $2.50 a day, with hours that enable them to read and rest and pass a fair proportion of their time with their families, and at the same time have no millionaires, or to have those 10,000,000 men working fifteen hours a day at $1.50, and have a few score millionaires?"
The Standardwas devoted to issues like this, and makes excellent reading in this decade and century.
It might be worth noting that in those days when one spoke of a millionaire, the reference was to someone whose assets totalled over $1 million. Today, it is commonly used to refer to someone whose annual income is over $1 million. But you'll notice what workmen's wages were in 1887 -- $1.50 a day is $468 per year*, and likely didn't leave much, if anything, for savings. [6 days a week.]
So which IS better for the community? The families making $1.50 or $2.50 a day are spending nearly every penny of that, just in order to get by. The millionaires can only spend so much on the necessities of daily life, plus some generous amount on luxuries. The rest they will invest, one way or another, and the wise ones, in our current structure, will "invest" in land -- particularly choice urban sites -- and natural resources, since we as a society are so generous about letting the owners of these assets keep most of what those assets earn, despite them having nothing to do with having created those assets, and being in no position to create more in response to demand, which will naturally increase with population!!
THAT is the problem with our current "generosity."
The spending of the 10 million on the necessities of daily life creates jobs for a lot of other people. (The portion that goes to their landlords in payment for the right to occupy bits of urban -- or other -- land, DOESN'T create any jobs; it simply enriches the landlord. I don't begrudge the landlord the portion that relates to the building, or to services he provides, such as, say, a doorman in the city.)
"But how is it that you allow these chiefs — landlords, don't you call them? — to taboo the
soil, and prevent you all from even walking on it? Don't you see
that if you choose to combine in a body, and insist upon the
recognition of your natural rights — if you determined to make the landlords give up
their taboo, and cease from injustice, they'd have to yield to you?
And then you could exercise your natural right of going where you
pleased, and cultivate the land in common for the public benefit,
instead of leaving it as now, to be cultivated anyhow, or turned
into waste, for the benefit of the tabooers?"
— GRANT ALLEN, The British
Barbarians (Words spoken by Bertram).
The post below this one, "Mitt Romney's 'Fair Share' " refers to his fair share of the costs of providing public goods.
But perhaps an equally important question is the nature of one's fair share of the output of our economy and the output of the earth. Some of the former output is the result of individual efforts, and one ought to be able to keep that portion. But at the same time we must recognize how much comes from the division of labor, from drawing down on the non-infinite supply of non-renewable natural resources on which all of us today must depend and on which future generations of human beings must rely. Those who draw down more than their legitimate share owe something to the rest of the community. Our wealthiest tend, we suspect, to use many, many times their legitimate share, and the median American likely draws far more than their share, when one considers the planet as a whole.
Perhaps "legitimate" is not the right word here. It refers to what is permissible under current law. (The word gets misused a lot -- see the discussion on "legitimate rape," which seemed to be about the circumstances under which a woman has a right to make a specific very personal, decision, and when it is considered by some to not be left to her and is the province of government, legislators or others.)
What is one's "fair share" of natural resources? America is using a hugely disproportionate share of the world's resources. Are we entitled to it because we're somehow "exceptional"? Because "our" God is somehow better than other nation's Gods? Or do we genuinely believe that all people are created equal, and intend to live our lives accordingly?
Our output of greenhouse gases exceeds our share of the world's population. This is not without consequences for the world, and for peace on earth.
We ought to be re-examining our incentives so that they move us in the direction we ought to be going, which is, to my mind, using less. We can build transportation infrastructure which will permit many more of us to move around with less impact on the environment. We can fund that through collecting the increases in land value that infrastructure creates. We can correct the incentives which cause us to use today's inferior technologies to extract natural resources from the earth in ways which damage the environment, as if ours was the final generation, or the only one worth serious consideration.
Better incentives could reduce, eliminate, even reverse urban sprawl. I refer specifically to land value taxation as a replacement for the existing property tax, particularly in places where assessments are for one reason or another not consistent with current property values -- e.g., California and Florida, parts of Delaware and Pennsylvania which currently use assessments from the 1970s, and many other places where assessments are simply out of whack with current reality!) We should be replacing sales taxes, wage taxes, building taxes with taxes on land value and on natural resources. Most of that value is flowing generously into private or corporate pockets, to our detriment. It concentrates wealth, income, and, of course, political power.
Collecting the rent, instead of leaving the lion's share of it to be pocketed by the rent-seekers, would go a long way to making our society and our economy healthier. Eliminating the privilege of privatizing that which in a wisely designed society would be our common treasure would make our society a better place in which to live, a place in which all could thrive and prosper without victimizing their fellow human beings.
A major theme of the underlying political debate in the United States is the role of the state and the need for collective action. The private sector, while central in a modern economy, cannot ensure its success alone. For example, the financial crisis that began in 2008 demonstrated the need for adequate regulation.
Moreover, beyond effective regulation (including ensuring a level playing field for competition), modern economies are founded on technological innovation, which in turn presupposes basic research funded by government. This is an example of a public good – things from which we all benefit, but that would be undersupplied (or not supplied at all) were we to rely on the private sector.
Conservative politicians in the US underestimate the importance of publicly provided education, technology, and infrastructure. Economies in which government provides these public goods perform far better than those in which it does not.
But public goods must be paid for, and it is imperative that everyone pays their fair share. While there may be disagreement about what that entails, those at the top of the income distribution who pay 15% of their reported income (money accruing in tax shelters in the Cayman Islands and other tax havens may not be reported to US authorities) clearly are not paying their fair share. ...
I have to disagree with the second sentence of this next paragraph. And I think Stiglitz knows better, if he stops to think about it:
Democracies rely on a spirit of trust and cooperation in paying taxes. If every individual devoted as much energy and resources as the rich do to avoiding their fair share of taxes, the tax system either would collapse, or would have to be replaced by a far more intrusive and coercive scheme. Both alternatives are unacceptable.
We don't need intrusive or coercive; we just need to start collecting the lion's share of the rent! Well, I suppose some rent-seekers would find this extremely intrusive -- it intrudes on their habit of self-enrichment by privatizing of what is rightly and logically our PUBLIC treasure, the logical way of financing PUBLIC goods. And Professor Stiglitz is quite aware of the value of natural resources; he may not be quite as conscious of the value of urban and other well-situated land.
Our national recordkeeping doesn't even collect the valuations of land and natural resources on any consistent basis! (One could reasonably argue that this failure-to-measure is a form of corruption!) What we don't measure we can't do anything about. And the powers that be are quite content with how we do things; the benefits accrue to them! And several generations of college-educated people know nothing about the issue, which was well known and widely discussed 100 years ago. (Look into the extensive Single Tax literature and the ideas of Henry George.)
Some more excerpts:
The billionaire investor Warren Buffett argues that he should pay only the taxes that he must, but that there is something fundamentally wrong with a system that taxes his income at a lower rate than his secretary is required to pay. He is right. Romney might be forgiven were he to take a similar position. Indeed, it might be a Nixon-in-China moment: a wealthy politician at the pinnacle of power advocating higher taxes for the rich could change the course of history.
But Romney has not chosen to do so. He evidently does not recognize that a system that taxes speculation at a lower rate than hard work distorts the economy. Indeed, much of the money that accrues to those at the top is what economists call rents, which arise not from increasing the size of the economic pie, but from grabbing a larger slice of the existing pie.
Those at the top include a disproportionate number of monopolists who increase their income by restricting production and engaging in anti-competitive practices; CEOs who exploit deficiencies in corporate-governance laws to grab a larger share of corporate revenues for themselves (leaving less for workers); and bankers who have engaged in predatory lending and abusive credit-card practices (often targeting poor and middle-class households). It is perhaps no accident that rent-seeking and inequality have increased as top tax rates have fallen, regulations have been eviscerated, and enforcement of existing rules has been weakened: the opportunity and returns from rent-seeking have increased.
Today, a deficiency of aggregate demand afflicts almost all advanced countries, leading to high unemployment, lower wages, greater inequality, and – coming full, vicious circle – constrained consumption. There is now a growing recognition of the link between inequality and economic instability and weakness.
There is another vicious circle: Economic inequality translates into political inequality, which in turn reinforces the former, including through a tax system that allows people like Romney – who insists that he has been subject to an income-tax rate of “at least 13%” for the last ten years – not to pay their fair share. The resulting economic inequality – a result of politics as much as market forces – contributes to today’s overall economic weakness.
If you know how to defend your rights, if you accomplish your duty,
this frightful disorder will cease, the human race, lifted up after
its long downfall, will no longer be the property of a few tyrants,
neither will the earth be their exclusive heritage. All will
share in the good things destined by Providence for all.
— ABBE LAMENNAIS, The Book of the
People, Chap. XVI.
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.
Thou, O Lord, providest enough for all men with Thy most liberal and bountiful hand, but whereas Thy gifts are, in respect of Thy goodness and free favour, made common to all men, we (through our naughtiness, niggardship and distrust), do make them private and peculiar. Correct Thou the thing which our inequity hath put out of order, and let Thy goodness supply that which our niggardliness hath plucked away.
— A Prayer for Them That Be in Poverty, from Queen Elizabeth's Private Prayer Book (1578).
Land, which nature has destined to man's sustenance, is the only source from which everything comes, and to which everything flows back, and the existence of which constantly remains in spite of all changes. From this unmistakable truth it results that land alone can furnish the wants of the state, and that in natural fairness no distinctions can be made in this.
— EMPEROR JOSEPH II., in Oestreichische Geschichte fur das Volk, Vol. XIV. (Vienna, 1867).
Every proprietor, therefore, of cultivated land owes to the community a ground rent (for I know of no better term to express the idea) for the land which he holds.
— THOMAS PAINE, Agrarian Justice, Paine's Writings, Vol. III., p. 329 (1795-6).
If all men were so far tenants to the public that the superfluities of gain and expense were applied to the exigencies thereof, it would put an end to taxes, leave never a beggar and make the greatest bank for national trade in Europe.
— WILLIAM PENN, Reflections and Maxims, Sec. 222, Works V., pp. 190-1.
38. Mining companies which mine on public lands pay far less to the Federal government than they pay on privately held lands.
A. That's fair, because the private landholders are better negotiators
B. That's fair, because the 1872 Mining Act set the price, and it wouldn't be fair to change the business environment after setting the rules.
C. That's fair. Corporations need subsidies to create jobs.
D. That's unfair, and the federal government should be getting just as much from the miners as the private landholders are getting
E. That's unfair, and not only should the federal government be getting more from the mining companies, but the federal government should be collecting a significant portion of the royalties now privatized by private and corporate landholders, since we're all equally entitled to nature's bounty. This would permit us to reduce other taxes on wages and production, and perhaps lead to a citizen's dividend, similar to the Alaska Permanent Fund
F. That's unfair, because the 1872 Mining Act was based on old prices and old mining technology.
"I find this vast net-work, which you call property, extending over the whole planet. I cannot occupy the bleakest crag of the White Hills or the Allegheny Range, but some man or corporation steps up to me to show me that it is his."
— EMERSON, The Conservative.
Extended excerpts from The Conservative (an 1841 speech) follow ...
37. Our ancestors bought or stole the land which the ancestors of some of those now identified as "Native Americans" relied on. How should we and our children pay back them and their children?
A. By giving them the privilege of selling cigarettes without taxes, forgoing revenue that could help meet the health costs associated with smoking, both for smokers and for those who live with them.
B. By giving them the privilege of running casinos, even if a percentage of that revenue must be contributed to the state, and even if gambling is creates tremendous problems for some individuals in society, beyond those who actually gamble.
C. By collecting from everyone who owns land and natural resources the annual economic value, and giving everyone a per-capita share of those resources, every year, forever. (Similar to the Alaska Permanent Fund)
D. By collecting from everyone who owns land and natural resources the annual economic value, and giving everyone a per-capita share of those resources, every year, forever, and providing a double share to those who are starting from a disadvantaged position for some fixed number of years
E. By collecting from everyone who owns land and natural resources the annual economic value, paying the costs of government and common spending from that source, producing equal opportunity for all.
29. The states need money. Should they sell their toll roads to private companies?
A. Sure! That would provide a nice pot of money that would help with this year's budget and next year's, and after that, we can leave the problem to a future group of legislators and a new governor!
B. Sure! The private sector will take better care of them and turn a profit to boot!
C. No. The taxpayers paid for those roads to be built, and have a right to more control over them than would exist after privatization.
D. No. The taxpayers own that land, a unique right of way, and selling it off forever is irresponsible and wrong!
E. No. Our society -- any society -- is highly dependent on our infrastructure, and control over it must remain in the public sector.
F. No. Those highways are built on land that was bought or taken from individual property owners for the public good. To turn them over to the private sector, for profit, would be wrong.
G. No. Those highways will increase in value over the coming decades and centuries, and should not become anyone's private property, at any price. Both their economic value and the control over them belongs in the common sector.
H. No. Even if it looks as if it might make sense for our generation, what of future generations? Should we permit the privatization of a common asset they will likely be dependent on?
I. No. Future taxpayers will build more highways intersecting with these current tollroads, and increase their value; were these to be privatized, it would be the private corporation who would reap the benefit of that future public investment.
20. What is the best way to insure that affordable housing -- for people of all ages and stages, all income levels -- is available, both for ownership and for rental, both near the center of activities and, if needed after the desire for housing near the center of activities is satisfied, on the fringes?
B. Community Land Trusts
C. Affordable Housing Regulations that require that for every 10 new condos built, 1 must be affordable to people earning less than the local median household income
D. Rent control
G. Habitat for Humanity
H. Relaxed mortgage lending rules and more private mortgage insurance
I. Land value taxation, to encourage the redevelopment of underused sites near the center of things
13. Electric utilities have long been regarded as "widows' and orphans'" stocks. Safe, if not high income. A few years ago, they were deregulated. A recent study has shown that retail electricity prices have increased faster in states that adopted competitive pricing than in those where rates continue to be set by government agencies. We all need reliable electricity. Should we permit the licenses to generate and distribute electricity to be an opportunity to make a windfall profit? (Or should we encourage municipal ownership of vital utilities?)
A. Sure! People and businesses are quite free to move from states without regulation to states with regulation if they choose. They may not mind paying 20% more for their electricity, if other conditions are good. And didn't the utilities earn it?
B. Sure. If local regulatory agencies decide that local best interests conflict with the interests of the corporate shareholders, they can re-regulate. After all, the corporations don't vote.
C. No. Electricity is important and we ought to do what we can to keep the price down so that poor people can afford electricity and still have funds for other costs of living.
D. No. Electricity is vital to the economy, and we ought to do what we can to keep it affordable to ordinary people, and not a source of corporate windfalls.
E. No. Natural monopolies ought to be publicly owned, the prices kept low, and any excess revenue accrue to the public treasury, not to the benefit of private investors.
This quote came across my inbox today, and I thought it worth sharing:
“We operate from the concept of ‘shalom,’” Forrister said when he reported on that meeting to The Huntsville Times. “’Shalom’ means more than the absence of war, it means the well-being of all. Ezekiel said to seek the ‘shalom’ of the city you’re in – and he was writing to people in exile in Babylon. We’re to seek the good of the whole community, of all of society.”
I came very slowly to the point of view that the nature of the ways we fund our common spending is at least as important as the spending side of the budget. That taxation can be destructive or constructive. That it can be used to create vital healthy communities or ones in which wealth and power concentrate into a few hands.
I grew up with the benefit of grandparents who understood this, and I still didn't "get it" until well after they were gone. Certainly my college education didn't provide me any glimpses of it, despite being concentrated in fields in and around it. I hope that others who are seekers after peace -- after Shalom -- will investigate what Henry George's "Remedy" -- land value taxation -- has to offer for their community and their country.
And here's the final paragraph from the email that the first quote came from:
Taking care of each other is simple kindness, not something sinister, said Forrister, who was trained as a Church of Christ minister.
“Thinking about looking out for the common good is not socialism,” Forrister said. “Capitalism has to be tempered by social policy that responds to human needs that capitalism won’t respond to.”
Our current form of capitalism is, among other things, land monopoly capitalism. Were we to remove the land monopoly aspect, through land value taxation, we would have a purer capitalism, one which I think would better serve the ideals we claim to hold dear.
In the files I've been digging through, from the late 50s to the early 80s, I found an early draft of a fine paper by Mason Gaffney about California's Proposition 13, for presentation at an August, 1978 conference. I dug around and found a published copy of that paper, and think it worth sharing here. Original title, "Tax Limitation: Proposition 13 and Its Alternatives"
First, a few of my favorite paragraphs, which I hope will whet your appetite for the whole paper. I won't attempt to provide the context (you can pick that up when you continue to the paper, below).
"There is a deferment option for the elderly, bearing only 7% interest (which is about the annual rate of inflation). In California, as also in Oregon and British Columbia, hardly anyone takes advantage of this deferment option. This fact, it seems to me, rather calls the bluff of those who so freely allege that the woods are full of widows with insoluble cash-flow problems, widows who are losing their houses to the sheriff and whose heirs presumptive, will not help keep the property, which they will eventually inherit."
We hear a lot these days about cutting the fat out of the public sector; but there is fat in the private sector too. I interpret "fat" to mean paying someone for doing nothing, or for doing nothing useful. Most economists agree that payments to people. for holding title to land is nonfunctional income, since the land was created by nature, secured by the nation's armed forces, improved by public spending, and enhanced by the progress of society. "Economic rent" is the economist's term, but in Jarvis-talk we may call it the fat of the land or "land-fat." It has also been called unearned increment, unjust enrichment, and other unflattering names. Howard Jarvis has said that the policeman or fireman who risks his life protecting the property of others has his "nose in the public trough." But it has seemed to generations of economists that the owner whose land rises in value because public spending builds an 8-lane freeway from, let us say, Anaheim to Riverside, and carries water from the Feather River to San Diego, is the first to have his nose in the trough. Nineteenth-century English economists who worked this out were more decorous. They said things like "landlords grow rich in their sleep" (John Stuart Mill), or the value of land is a "public value" (Alfred Marshall) because the public, not the owner, gives it value.
Some 43% of the value of taxable real estate in California is land value. When we lower the property tax we are untaxing not only buildings, but also land-fat.
The ownership of property is highly concentrated, much more so than the receipt of income. Economists in recent years are increasingly saying that the property tax is, after all, progressive because the base is so concentrated, and because so little of it can be shifted. But this message has not yet reached many traditional political action groups who continue to repeat the old refrains. Two remedies are in order.
One is to collect and publish data on the concentration of ownership of real estate. The facts are simply overwhelming and need only to be disseminated.
The second remedy is to note how strikingly little of the Proposition 13 dividend is being passed on to renters. This corroborates the belief of economists that the property tax rests mainly on the property owner where it originally falls, and not on the renter.
A high percentage of real property is owned from out of state and even out of the country. The percentage is much higher than we may think. It is not just Japanese banks and the Arabs in Beverly Hills. It is corporate-held property which comprises almost half the real estate tax base. If we assume that California's share of the stockholders equals California's share of the national population, then 90% of this property is absentee-owned; the percentage may be higher because many of these, after all, are multinational corporations with multinational ownership.
No one seems to have seized on the fact that half the taxable property in California is owned by people not voting in the state. Senator Russell Long has suggested the following principle of taxation: "Don't tax you, don't tax me, tax that man behind the tree." Property tax advocates have done well in the past and should do well again in the future when they make their slogan: "Don't tax you, don't tax me, tax that unregistered absentee. Don't tax your voters, they'll retaliate; tax those stiffs from out of state." Chauvinism and localism can be ugly and counterproductive, as we know; but here is one instance where they may be harnessed to help create a more healthy society. The purpose of democracy is to represent the electorate, not the absentee who stands between the resident and the resources of his homeland.
California's legislative analyst, William Hamm, estimates that over 50% of the value of taxable property in California is absentee-owned. This is such a bold, bare, and enormous fact it is hard to believe that Californians will long resist the urge to levy taxes on all this foreign wealth. They may be put off by the argument that they need to attract outside capital, but that carries no weight when considering the large percentage of this property which is land value.
Property income is generally more beneficial to the receiver than is the same income from wages or salaries, because the property owner does not have to work for it.
Property, particularly land, has been bought and sold for years on the understanding that it was encumbered with peculiar social obligations. These are, in effect, part of our social contract. They compensate those who have been left out. Black activists have laid great stress in recent years on the importance of getting a few people into medical and other professional schools. Does it not make more sense that the landless black people should have, through the property tax, the benefit of some equity in the nation's land from which their ancestors were excluded while others were cornering the supply?
A popular theme these last few years is that property owners should pay only for services to property, narrowly construed. Who, then, is to pay for welfare — the cripples? Who is to pay for schooling — the children? Who should sacrifice for the blacks — Allan Bakke? Who should finance our national defense — unpaid conscripts? The concept that one privileged group of takers can exempt itself from the giving obligations of life denies that we are a society at all.
Here is, perhaps, my favorite:
We can ask that a single standard be applied to owners troubled by higher taxes and to tenants troubled by higher rents. When widow A is in tax trouble, it is time to turn to hearts and flowers, forebode darkly, curse oppressive government, and demand tax relief. When widow B has trouble with escalating rents, that touches a different button. You have to be realistic about welfare bums who play on your sympathy so they can tie up valuable property. You have to pay the bank, after all. A man will grit his teeth and do what he must: garnishee her welfare check. If that is too little, give notice. Finally, you can call the sheriff and go to the beach until it's over. That's what we pay taxes for. Welfare is their problem.
Anyway, widow B is not being forced out of her own house, like widow A and so many like her. Jarvis said that taxes are forcing three million Californians from their homes this year. But in truth, while evictions of tenants are frequent, sheriff's sales of homes are rare. Those who do sell ("because of taxes," they say, as well as all their other circumstances) usually cash out handsomely, which is, after all, why their taxes had gone up.
Then there is the fruit tree anomaly. Under Proposition 13, a tree can only be assessed at its value when planted, with a 2% annual increment. The value of a seed thrown in the ground or even a sapling planted from nursery stock is so small compared with the mature tree that this is virtual exemption. This anomaly rather graphically illustrates how Proposition 13 automatically favors any appreciating property over depreciating property. The greatest gain here goes, of course, to appreciating land.
Finally, build no surpluses. Surpluses attract raiders and raiders are often organized landowners. "Property never sleeps," said the jurist Sir William Blackstone. "One eye is always open." Even though the surplus was built up by taxing income, Howard Jarvis made it seem the most righteous thing in the world that it should be distributed to property owners. He was geared up for this because his landlord patrons kept him constantly in the field.
Economists of many generations even before Adam Smith and continuing to the present — have preached on the advantages of land as a tax base. Let me enumerate a few of those.
A tax on land value is the only tax known to man which is both progressive and favorable to incentives. One can wax lyrical only about a tax that combines these two properties, because the conflict between progressivity and incentives has baffled tax practitioners for centuries, and still baffles them today.
A land tax is progressive because the ownership of the base is highly concentrated, much more so than income and even more so than the ownership of machines and improvements.
Also, the tax on land values cannot be shifted to the consumer. The tax stimulates effort and investment because it is a fixed charge based merely on the passage of time.
It does not rise when people work harder or invest money in improvements. Think about this. It is remarkable. With the land tax, there is no conflict but only harmony between progressivity in taxation and incentives to work and invest. In one stroke it solves one of the central divisive conflicts of all time.
The land tax does that because it cuts only the fat, not the muscle. It takes from the taxpayer only "economic rent," only the income he gets for doing nothing. If people could grasp this one overriding idea, then the whole sterile, counterproductive, endless impasse between conservatives who favor incentives and liberals who favor welfare would be resolved in a trice, and we could get on to higher things.
The final paragraphs speak directly to us in 2012. 34 years have passed since this was written.
Summing up, Walter Rybeck, an administrative assistant for Congressman Henry Reuss of Wisconsin, and head of the League for Urban Land Conservation, has sagely suggested that we distinguish two functions of business: wealth-creating and resource-holding. A good tax system will not make people pay for creating wealth but simply for holding resources. Most taxes wait on a "taxable event" — they shoot anything that moves, while sparing those who just sit still on their resources.
If we really want to revive the work ethic and put the United States back on its feet, we had better take steps to change the effect of taxes on incentives. Legislatures have got in the habit of acting as though persons with energy and talent, and with character for self-denial, should be punished, as if guilty of some crime against humanity. We cannot study the tax laws without inferring that Congress regards giving and receiving employment to be some kind of social evil, like liquor and tobacco, to be taxed and discouraged by all means not inconsistent with the rights of property. Little wonder the natives are getting restless. If we tax people for holding resources rather than creating wealth and serving each others' needs, we will be taking a giant step toward a good and healthy society.
If your appetite is whetted by these excerpts, you can read the entire article below:
It is frequently pointed out by Georgists that there are no really good rebuttals to land value taxation.
This excerpt from a 1971 letter to my grandfather from a colleague describes where the opposition comes from:
There may be be no "arguments that actually oppose LVT" as Bill says, but there are plenty of people who not only actually but actively oppose it. These are the people who are making hundreds of millions of dollars a year on the unearned increments land speculation gets as a result of land being so undertaxed that the landowner puts up only a trifling share of the enormous community investment needed to make his land reachable, livable and readily saleable. Of 7 million-odd New Yorkers I would guess that perhaps 70,000 people profit by today's misapplication of the property tax while 7 million lose by it, but the problem is that the 7 million have no idea of what they are losing while the 70,000 jolly well know that they have a good thing going for them and fight to keep it.
I've been trying for a year to get my friend, J___ C___, past president of the Realtors and Chairman of the Realtors Economic Research Committee to stop fighting LVT, but he keeps coming back to how his father bought some land near San Diego for $20 an acre before 1900 and sold it for $4,000 an acre around 1950 and his father could not have held it all that time if he had had to pay more than a nominal tax.
I don't think anyone should take the equity argument seriously. Just because the ownership of underused land has been subsidized for years does not entitle its owners to expect the subsidy to be continued forever, and likewise, for those who bought land in the expectation that the subsidy would be permanent. The equity objection to increasing the tax on land would apply almost equally to any other tax increase.
A week later, another letter includes this:
Just because landowners have had a wonderful subsidy racket going for them in the past should not give them any claim on having that subsidy continue ad infinitum. I do agree with Lowell that the transition to LVT would raise problems, and in any area with a high tax rat on property I can see that the transition would have to be staggered over a period of years, probably not less than five or more than ten, dpending on how big a tax rate was to be shifted off improvement values onto location values.
In the same file, a copy of a 1969 letter from the same person to Lowell (Harriss):
I don't see how tripling the tax on land could fail to force almost all owners of underused land to get busy and put it to better use. Conversely, I don't see how taking the equivalent of a 51% sales tax off improvements could fail to be a tremendous stimulant to improvements. If a 7% Federal tax credit on improvements was so effective, what would wiping out a 50% tax do!
Continuing through some old files, I came across this eloquent statement in the minutes of an executive committee meeting for the Robert Schalkenbach Foundation:
"Middle income homebuyers, especially, are having to pay a lot more for their homes because of the inflation in land prices. They are having to pay more for their financing, too, because financing also reflects land prices.
What land speculators can get for their land, they can get because of the enormous expenditures of tax money to make that land usable.
I do not think the American conscience is sufficiently sensitive to be aroused because land speculators get rich at the expense of the government, because the public has come to regard the government as a cow to be milked. It would, therefore, be unwise to place the emphasis on how speculators get rich at the government's expense. Rather ... we should emphasize that the homebuyers are the ones who have to pay, have to dig deep into their savings to pay speculators more for the land, not because the speculators did anything to earn a higher price, but because taxpayers spent millions to make it better."
-- Perry Prentice, 3/5/1965
California, with Prop 13, should take note. Anyone who wants a more stable economy should take note. Anyone who would like to see the cost of living for ordinary people be stabilized and reduced should take note.
THE progressive reformer and eminent jurist Louis D. Brandeis once said, “We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.”
What we call the Brandeis Ratio — the ratio of the average income of the nation’s richest 1 percent to the median household income — has skyrocketed since Ronald Reagan took office. In 1980 the average 1-percenter made 12.5 times the median income, but in 2006 (the latest year for which data is available) the average income of our richest 1 percent was a whopping 36 times greater than that of the median household.
Brandeis understood that at some point the concentration of economic power could undermine the democratic requisite of dispersed political power. This concern looms large in today’s America, where billionaires are allowed to spend unlimited amounts of money on their own campaigns or expressly advocating the election of others.
We believe that we have reached the Brandeis tipping point. It would be bad for our democracy if 1-percenters started making 40 or 50 times as much as the median American.
Enough is enough. Congress should reform our tax law to put the brakes on further inequality. Specifically, we propose an automatic extra tax on the income of the top 1 percent of earners — a tax that would limit the after-tax incomes of this club to 36 times the median household income.
Importantly, our Brandeis tax does not target excessive income per se; it only caps inequality. Billionaires could double their current income without the tax kicking in — as long as the median income also doubles. The sky is the limit for the rich as long as the “rising tide lifts all boats.” Indeed, the tax gives job creators an extra reason to make sure that corporate wealth does in fact trickle down.
The authors go on to mention that they're both 1%-ers (presumably 1%-ers by income, not by wealth, though they use terms interchangeably in a way that seems very odd for people with any training in economics. Further, I am surprised they are as innumerate as their "solution" would suggest.
Their proposal is that each year the IRS would do some calculations based on "the average 1%er:"
Here’s how the tax would work. Once a year, the Internal Revenue Service would calculate the Brandeis ratio of the previous year. If the average 1-percenter made more than 36 times the income of the median American household, then the I.R.S. would create a new tax bracket for the highest 1 percent of income and calculate a marginal income tax rate for that bracket sufficient to reduce the after-tax Brandeis ratio to 36.
This new tax, if triggered, would apply only to income in excess of the poorest 1-percenter — currently about $330,000 per year. Our Brandeis tax is conservative in that it doesn’t attempt to reverse the gains of the wealthy in the last 30 years. It is not a “claw back” tax. It merely assures that things don’t get worse.
What this doesn't account for is the wide range of incomes within the top 1%. Should the folks in the bottom half of the top 1% be penalized indiscriminately for what the folks in the top half are "earning?" Why? Whose activity are we attempting to penalize? When a Bill Gates, or big deal football player,* or a so-called "small businessman" selling his company to a roll-up receives a huge windfall, should the $250,000 per year doctor be taxed? Why should the latter be in the same bracket with the windfall folks? And the fellow selling his company gets taxed at the 15% "capital" gains rate, well below what working people get hit with.
*Why is the football player on this list? Well, in part because I see that I am paying $100 per year to the NFL via my cable TV bill. I am thus taxed to provide him his windfall. My tax doesn't go through any government entity, but is in my cable bill.
I don't think Justice Brandeis would think Ayres and Edlin have proposed a good solution to the problem. They're nibbling at the leaves, not hacking at the root.
The article sent me off to read some of Brandeis's work, including "Other People's Money, and How the Bankers Use It," (published as a series of 10 articles in Harpers Weekly in 1913 and as a book in 1914). Here is the table of contents for the book:
I Our Financial Oligarchy 1 II How the Combiners Combine 28 III Interlocking Directorates 51 IV Serve One Master Only! 69 V What Publicity Can Do 92 VI Where the Banker is Superfluous 109 VII Big Men and Little Business 135 VIII A Curse of Bigness 162 IX The Failure of Banker-management 189 X The Inefficiency of the Oligarchs 201
Ian Ayres and Aaron S. Edlin write, “It would be bad for our democracy if 1 percenters started making 40 or 50 times as much as the median American.”
Are Bill and Melinda Gates a great threat to democracy? Jeff Bezos? Oprah Winfrey? Mayor Michael R. Bloomberg? I fail to see how those who have amassed great fortunes in America threaten American democracy.
They do not plot coups or finance fascist militias. They do, however, give lots of money to wonderful charitable and educational organizations.
He's chosen some people who have built up monopolies, and have helped to drive other businesses into the ground, and in at least one case, used a great fortune to influence elections; and it might be worth mentioning what people like the Koch Brothers have done, and others will do, now that "corporations are people" and have free speech rights. Bloomberg managed to derail the term limits laws in his city.
Wouldn't we be better off examining privilege, and eliminating it, than indiscriminately taxing productive activity? Forcing the internalization of externalities. Playing around with income tax brackets doesn't fix the problem, and it deflects us from going to the source of the problem.
Shouldn't our incentives be set up to encourage our best and brightest to devote themselves to serving others instead of enriching themselves at the expense of others?
When the structures that our laws and traditions create provide opportunities for someone to capture a windfall, should we blame the fellow who "takes advantage" of those structures, or should we respond by studying and correcting those structures and laws?
Winston Churchill, in his speeches under the baanner "The People's Rights," in 1909, said this:
I hope you will understand that when I speak of the land monopolist I am dealing more with the process than with the individual landowner. I have no wish to hold any class up to public disapprobation. I do not think that the man who makes money by unearned increment in land is morally a worse man than anyone else who gathers his profit where he finds it in this hard world under the law and according to common usage. It is not the individual I attack, it is the system. It is not the man who is bad, it is the law which is bad. It is not the man who is blameworthy for doing what the law allows and what other men do; it is the State which would be blameworthy were it not to endeavour to reform the law and correct the practice. We do not want to punish the landlord. We want to alter the law.
The 99% need to start identifying the laws and structures that must be adjusted. This is not easy work.
What individuals produce, and corporations produce, should not be "there for the taking" -- be it by corporate management in the form of hugely generous compensation packages and golden parachutes, or by simply saying "these resources are OURS, not everyone's" or by establishing monopolies or duopolies or other such structures. We-the-people need to educate ourselves about how things are done now, who benefits from that, and what alternatives exist. It won't be easy. We'll be challenging special interests who somehow think they're entitled to their advantaged positions, and the rest of us exist to keep them comfortable.
Labor should get its share, and capital should get its share, and we-the-people should get land's share. That last could fund a large portion of our common spending, on infrastructure and services, and permit us to reduce or eliminate the dumb taxes which take which individuals and corporations legitimately create. That "keeping what we create" extends, also, to "externalities," to being responsible for the pollution we create, and setting up incentives so that it is minimized, for the good of all of us now here and the good of future generations.
I think it is quite possible, even likely, that a few years after we've made this shift in who gets what, we'll find that we don't need nearly so robust a social safety net, and that we-the-people may get some of "land's share" back in the form of a Citizen's Dividend, just as all permanent residents of Alaska receive an annual dividend from the Alaska Permanent Fund.
In any case, letting some corporations and some individuals grab that which we all create together is just plain wrong. Letting it be "there for the taking" is insanity and injustice. And don't we pledge "liberty and justice for all?"
Our ancestors may have granted some privileges to some lucky folks for one reason or another. That doesn't mean that we can't, politely and firmly, revoke those privileges. A couple of centuries is plenty. Experience has shown us that those privileges don't serve the greater good, and it is time to revoke them. Will the privileged give up those privileges graciously? Quite possibly not. But the first step is to identify them, and then to seek to change the system so that those rightly-common assets aren't "there for the taking."
A civilization which tends to concentrate wealth and power in the hands of a fortunate few, and to make of others mere human machines, must inevitably evolve anarchy and bring destruction. But a civilization is possible in which the poorest could have all the comforts and conveniences now enjoyed by the rich; in which prisons and almshouses would be needless, and charitable societies unthought of. Such a civilization waits only for the social intelligence that will adapt means to ends. Powers that might give plenty to all are already in our hands. Though there is poverty and want, there is, yet, seeming embarrassment from the very excess of wealth-producing forces. "Give us but a market," say manufacturers, "and we will supply goods without end!" "Give us but work!" cry idle men.
The evils that begin to appear spring from the fact that the application of intelligence to social affairs has not kept pace with the application of intelligence to individual needs and material ends. Natural science strides forward, but political science lags. With all our progress in the arts which produce wealth, we have made no progress in securing its equitable distribution. Knowledge has vastly increased; industry and commerce have been revolutionized; but whether free trade or protection is best for a nation we are not yet agreed. We have brought machinery to a pitch of perfection that, 50 years ago, could not have been imagined; but, in the presence of political corruption, we seem as helpless as idiots. The East River bridge is a crowning triumph of mechanical skill; but to get it built a leading citizen of Brooklyn had to carry to New York $60,000 in a carpet bag to bribe New York aldermen. The human soul that thought out the great bridge is prisoned in a crazed and broken body that lies bedfast, and could watch it grow only by peering through a telescope. Nevertheless, the weight of the immense mass is estimated and adjusted for every inch. But the skill of the engineer could not prevent condemned wire being smuggled into the cable.
The progress of civilization requires that more and more intelligence be devoted to social affairs, and this not the intelligence of the few, but that of the many. We cannot safely leave politics to politicians, or political economy to college professors. The people themselves must think, because the people alone can act.
"A civilization which tends to concentrate wealth and power in the hands of a fortunate few, and to make of others mere human machines, must inevitably evolve anarchy and bring destruction."
"a civilization is possible in which the poorest could have all the comforts and conveniences now enjoyed by the rich; in which prisons and almshouses would be needless, and charitable societies unthought of. Such a civilization waits only for the social intelligence that will adapt means to ends. Powers that might give plenty to all are already in our hands."
Think about that one not just with regard to America, but with regard to the entire world.
"Though there is poverty and want, there is, yet, seeming embarrassment from the very excess of wealth-producing forces. 'Give us but a market,' say manufacturers, 'and we will supply goods without end!' 'Give us but work!' cry idle men."
"The evils that begin to appear spring from the fact that the application of intelligence to social affairs has not kept pace with the application of intelligence to individual needs and material ends. Natural science strides forward, but political science lags."
"With all our progress in the arts which produce wealth, we have made no progress in securing its equitable distribution."
"The progress of civilization requires that more and more intelligence be devoted to social affairs, and this not the intelligence of the few, but that of the many."
"We cannot safely leave politics to politicians, or political economy to college professors. The people themselves must think, because the people alone can act."
"Social intelligence." Nearly 130 years have passed since Henry George wrote these words. Nearly every college has a Social Sciences division. Most have a political science department and an economics department. Almost all have history departments. Many have American Studies programs. I'd venture to say that not one in 1000 has a professor who knows these ideas well. Many know the name of Henry George, as they know some other names from his era, but few have had the quality of education that would include exposure in depth to George's ideas.
Some would say that these social questions have no solutions, and move on to discuss some other topic they think more important, or solvable. Some might murmur that any attempt to solve these questions would by definition be somehow socialistic, and therefore is not worth a further thought. (Much depends on what you mean by "socialistic;" the word seems to be a conversation closer in many circles, which is a shame -- though I do not regard George's ideas as remotely socialistic as the term is commonly used.)
Those who have sat with Henry George's ideas know differently. These problems can be solved. Might you join that group? What would it feel like to know these problems do have solutions?
And as we enter a presidential election season, this one bears repeating:
"We cannot safely leave politics to politicians, or political economy to college professors. The people themselves must think, because the people alone can act."
Pointing to the recent declines at the top, Mr. Kaplan argues the Occupy protesters have accused the wrong villain by focusing on inequality, which he called an inevitable byproduct of growth. “If you want to reduce inequality, all you need to do is put the economy in a recession,” he said. “If you want the economy to do well, as all of us do, then you’ll get more inequality.”
Well, maybe at the University of Chicago, that is what is taught, but is it true?
It may be inevitable under our current structures, but if one gets outside that box, and looks deeper, one finds other answers.
I would suggest that Mr. Kaplan, who teaches economics at the Graduate School of Business at the U of C, look beyond the interests of the university's and b-school's founders and big donors and alumni and current students, and consider that we're all in this together, and that when we permit a few to monopolize and privatize things which rightly are our common treasure, inequality is the inevitable byproduct.
Mr. Kaplan might start by exploring the ideas of Henry George. They were in his freshman economics texts, but most likely his instructor didn't lecture on them, or include them in exams (most likely because his own instructors hadn't!)
Read what those textbooks have to say, and then think about whether it is in Mr. Kaplan's personal career interests to speak of an idea that could rock the yachts of alumni and donors and others who like our current structures just fine, thank you! The privileged like their privileges, and would prefer that we not notice that they are privileges, or, if we do notice, think that THEIR privileges are somehow in OUR best interests.
How does this strike you? If this is the first thing you've read here, it may seem very odd to you. I invite you to explore the ideas involved, through the tags (below this post) and in the cloud, at left. Comments welcome, of course!
Single Tax Platform
The single taxers of Delaware are conducting a red hot campaign. The single tax will be the issue in that state this fall, and Justice, the state single tax organ, published the following as their Single Tax Platform:
We assert as our fundamental principle, that all men are equally entitled to the use of the earth;
Therefore, No one should be permitted to hold land without paying to the community the value of the privilege thus accorded; and from the fund so raised all expenses of government should be paid. We would therefore abolish all taxation, except a tax upon the value of land exclusive of improvements. This tax should be collected by the local government and a certain proportion be paid to the state government.
This system of taxation would dispense with a horde of tax-gatherers, simplify government and greatly reduce its cost.
It would do away with the corruption and gross inequality inseparable from our present methods.
It would relieve the farmer, the workman and the manufacturer of those taxes by which they are unjustly burdened, and take for public uses those values due to the presence of population.
It would make it impossible for speculators to hold land idle, and would open unlimited opportunities for the employment of labor and capital, which is essential to the solution of the labor problem.
Temple Artisan. 17:119-21. January, 1917. Rent and the Cost of War. Sydney L. Milliard.
The question has been asked, "Where, before war breaks out, is the money which is later spent on the war?"
It has been shown that it is not in the laborers' pockets, because the laborers are better off when the war has broken out, and that they have more and not less during the war. It is not being distributed in legitimate profits because legitimate profits are greater after the war has broken out. It is not being distributed in interest because interest is higher after war has broken out. It must be somewhere, in some location that is hurt by the outbreak of war. Money comes from somewhere for war purposes. Therefore the people who had that money before the war must be poorer. Who are they?
They are owners of rents and of spurious capital. By spurious capital is meant various bonds and stocks that represent merely the power to tax industry and which do not represent real bonafide industrial machinery at all. And principally they are the owners of economic rent.
It has been asked why France made such a quick recovery after 1870. Before 1870 one third of the wealth of France went in rents. The owners of these rents had to be kept by France in idle luxury. The war broke land values into nothing. France had not this money to pay away to useless aristocracies so she was able to pay for the war with it, and later to pay the indemnity, too. And in addition to this the demand for produce so increased that every worker had plenty to do at good wages, and was therefore able to buy the produce of other workers, and this condition caused the war to be not only not a disability to France, but a positive benefit.
In England before the great war one third of the national income went direct to the pockets of the ducal landowners. These men constituted a vastly greater charge upon English production in the long run than any war, big or little, has ever done. This charge of one third of the national income has been going on for ages, and always increasing in volume. It is a total national loss. There is absolutely no come-back from these ducal families. One third of the nation has to work for them, and they do nothing in return. Nothing reaches this condition but the Single Tax and war. The single tax we cannot get — not yet; war we have. What does war do?
The war has sent thousands of the British aristocracy to the front where they fight for their living; it has sent the country estates to the bargain counter at such figures as never were heard of before — they are almost giving them away. Even in the big cities land sales at former figures have abruptly stopped, and in Paris, with the German army in sight, land values ceased to exist. Should the kaiser really set foot in force on British soil the value of London real estate would vanish.
To revert to our original proposition, — "Where, before war breaks out, is the money which is later spent on war?"
It is inherent in the price of land; it inheres in rent; it goes into the pockets of a few owners of economic rent who are just as direct a charge on the community as is war. Wipe these people and their charge out and you can easily pay for your war. Take away this national charge of one-third of the national income to the owners of the soil and you can keep your war going in perpetuity and never miss the money. You are simply spending money that is already lost. You are not spending money on the war that you already had; you are spending money on the war that some one else already had to the infinite detriment; are throwing away bad money, money that could otherwise be put to a worse use than war, namely, luxury and degeneracy.
As it is in Europe, so will it be in America if a real war ever breaks out here. If the combined European fleets were bombarding New York, and you owned New York real estate you would not expect to realize very much on your property. Still less could you realize if the combined European armies were encamped around New York. Since the wars have been going on in Mexico, rents have almost disappeared and much land value has entirely so. But in Mexico the destruction has gone beyond the wiping out of land value and has destroyed actual necessary commodities.
Henry George said that "All taxation ultimately falls on rent." War is taxation. It falls on rent. Then comes an added advantage. It breaks loose the foundations of industry which so-called over-production has bound up. It enables the workers to get to the machinery of production and the idle land and produce goods which they by this time have money enough to buy. The state, which before the war was simply a negative observer of a cancer eating its own vitals, now becomes a positive agent in spreading employment, wealth, and general business. The state demands everything that can be produced, and at good prices. Now everyone is in demand, and at good wages. Before the war the aristocracy could not buy the products of mill and mine and field; the aristocracy couldn't consume these products, therefore the mills shut down. War can consume them, so the mills open up at full speed and wages! "Where, before war breaks out, is the money which is later spent on war?" Answer: In the pockets of the owners of economic rent. War breaks this down and distributes it amongst the workers in payment for value received. How can we produce this condition in time of peace? Answer: By doing away with economic rent through the imposition of the single tax, and then using that wealth to buy up the product of the national toil to be used for the benefit of the whole people.
"ARE WE SOCIALISTS?" Thomas B. Preston, in the Arena, December, 1899
It is socialistic to make the revenues of the government a burden on industry. Revenues there must be, but they should not bear upon industry. In fact, the taxation of any product of labor is simply taking from the laborer part of his earnings. To such an extent we are socialists. Any other form of taxation than that on the value of land is essentially socialistic because any other tax is passed on from the seller to the consumer, and takes part of the latter's earnings without compensation, for use by the community. Any tax on earnings is socialistic, although it may not go so far as to take all a man earns. The substitution for our present system of a single tax amounting to the full rental value of land would sound the death-knell of socialism.
While we sin so deeply in our present bungling, socialistic way by forcing individuals to give up part of the proceeds of their labor, by fining a man who builds a house more than if he were maintaining a public nuisance, by tariffs which hinder trade with foreign countries, and add millions to private fortunes at the expense of the people, and by a thousand indirect taxes which make life harder for men without their being able easily to see the reason, on the other hand we foolishly leave to individuals those great agencies which are the outcome of social growth — the product of the inventive genius of a few men, if you like, but which after a time grow so powerful as to become the very arbiters of life and death. Prominent among such agencies are the railroad and the telegraph. They can crush communities out of existence and enrich the owners at the expense of their fellow men. They have already become the chief source of corruption in government. The ownership of these agencies by the community becomes a necessity for the continuance of social progress. Otherwise these monopolies can go on increasing and concentrating until a few persons are enabled, through them, to appropriate the wealth of a community. In so far as socialism demands the state ownership of agencies of this nature, it is proceeding in the right direction. There are many other agencies besides the railroad and the telegraph, such as the supply of water, gas, light, heat, telephones and means of transit and communication, in which the American idea of free competition is a fallacy. Here we are too individualistic. The right to make war and peace was long ago taken from individuals and vested in the community. So at a later stage was the carriage of letters. National quarantines, boards of health, public schools, are all examples of applied socialism in its legitimate sense. But why should we stop here? The existence of such great monopolies as the railroad and the telegraph is a standing menace to the life of the Republic. Let us munificently reward the inventors or appliances which shall add to the comfort and convenience of the community, but allow these agencies to be owned perpetually by individuals never!
We are socialistic where we should respect the rights of the individual, and we are individualistic when individualism is a crime against the Commonwealth. And so we go blundering on. When our stupid and oppressive system leads men to cry out against it, and riot and murder follow, we hang a few anarchists. When monopolists, grown bold through long years of immunity, attempt to rob a little more openly, by pools and combinations or by direct bribery, we create interstate commissions to watch them, or we send a few to prison, allowing others to escape to Canada; repressing a little here those who complain too loudly, where we should rather rectify their grievances, and lopping off a little there the enormous unearned profits, which we should abolish altogether. Meanwhile our two classes of tramps are increasing — those who travel around the world in flowing palaces, living upon the toil of others, without using their capital in any legitimate enterprise and those who go afoot, pilfering from cornfields and hen roosts — both classes an unjust burden on a hard working, long suffering community. We have arrived at a critical period of our history, where we must meet the demands of social progress, or our civilization will perish as surely as did the fallen empires of former ages. Already the mutterings of revolt are growing louder and louder, while upstart monopoly was never so insolent and imperious as it is today. Let us be warned in time, and, discarding all half measures, face the issue like men, and not go on trusting to luck, foolishly dreaming that somehow, at some time, existing wrongs will right themselves.
Re “Poverty Rate Soars to Highest Level Since 1993” (front page, Sept. 14): I know this is heresy, but why don’t we increase taxes on the wealthy and spend this money on infrastructure projects to put unemployed people to work?
ROBIN LEVIN San Francisco, Sept. 14, 2011
And consider what would happen: the infrastructure projects would increase the value of the land served by them, and make things work better in those communities, as reliable streets and bridges and other worthwhile projects do.
Who owns that land? Is it local folks, who one might hope would spend their infrastructure-created windfall locally (but who might simply use it to buy additional land, benefiting the seller, be he absentee, local, corporate, whatever)? Is it REITs? Sovereign wealth funds?
Now suppose that instead of leaving all that infrastructure-created wealth in the pockets of the landowners, local communities wised up and collected some significant fraction of it (without raising taxes on buildings in the process: the really wise communities would take this opportunity to reduce or eliminate the taxes on the buildings!) for public purposes. What do you think would happen?
I suspect that the vacant lots in town would soon start to disappear. They wouldn't leave town. They'd get built on, when their carrying costs as vacant lots rose and the disincentive to build was decreased or eliminated. That would create jobs.
Depending on what the market wanted, it would also create housing, and creating housing also leads to creating jobs to service those homes -- plumbers, electricians, painters, home improvement of various kinds.
But it might not be the high-end housing we're used to seeing; not McMansions, but more modest homes. Not luxury condos but housing for people of all ages and stages, and not just for the highest-income people but for people of more modest means.
Sounds like a virtuous circle to me. Natural Public Revenue.
But if you like the current approach, by all means tell us why we should stick with it. (California's Prop 13 is an extreme case of suppressing this wise form of taxation. Look where it has gotten them!)
Are public sector jobs by definition a drain on the economy?
Some would say that they are. But I think there might be a false assumption in there -- one which comes from an unexamined assumption.
When a public sector job is funded via a tax on wages, or a tax on sales, or a tax on buildings -- things which are produced by human effort -- there is a burden to the economy.
Employers must pay far more than their employees receive in wages and benefits;
purchasers must pay more for goods than the producers (including those in the distribution chain -- distribution is part of production) receive;
owners of buildings and other improvements must pay an annual penalty in proportion to the value of those improvements.
All these taxes reduce the demand for what is taxed: work, goods (and, in some places, services), buildings. Fewer jobs are created, fewer goods produced, fewer buildings built and maintained well, less expensive technologies are favored over more expensive ones.
And these are the taxes most of us think about when we think about how to finance public goods.
But suppose we got ourselves outside the smallish box of taxes we're used to thinking about -- those advocated by the neo-classical economists -- and looked more closely at the wisdom of the classical economists -- Adam Smith, David Ricardo, John Stuart Mill, Henry George.
Suppose we thought about the effect of our public spending: effective public spending on goods and services that people value increases land value.
Good schools. Paved streets. Well-maintained streets. Lit streets. Plowed and cleaned streets. City water. Sanitary sewers. Stormwater runoff. Police, with well-equipped cars. Fire departments, with trained professionals and the best of equipment. Ambulances (ditto). Hospitals with life-saving equipment and professionals. Other public-health services. Courts and jails. Libraries. Public health services. Social services. Parks. Playgrounds. Highways (ideally with maintenance taking place at night or at least not during rush hour). Bridges, well-maintained. Buses, subways, railroads (passenger and freight). Airports. Beaches. Utilities (more commonly owned by shareholders, but quite realistically municipally provided). Preschools. Community colleges. Colleges and universities. Perhaps after-school activities for children. A social safety net. This list is incomplete, but each item on it is a fair example of what makes communities good places to live and worth paying to live in and conduct business in.
The presence of each of these things increases land values within the area served. It increases what landlords can charge tenants; it increases what houses and commercial buildings will sell for, without the building owner improving the building or providing additional services.
So does it make any sense to finance these things via taxes on wages? On sales? On buildings? On imports? On personal possessions? On cars? On trucks and business equipment? On business inventory? None of these things are increased in value by the provision of public services and goods.
What increases in value is land -- as everyone can chant, the three most important things in real estate are location, location and location! Much of that is the availability of publicly-funded services. (The rest can be attributed to the presence of the community -- drawn in large part by those services, but also by the beauties of nature, the harbors and rivers, the climate, other favorable conditions; to opportunities seen by entrepreneurs and nonprofits to provide commercial ventures and cultural amenities; to advances in technology and science such as air conditioning, mosquito control, fiberglass pleasure boats, etc.)
How can raising taxes put more money in your pocket? By increasing efficiency.
This year we paid $210 in higher property taxes to finance trash collection and sidewalk snowplowing. Purchased retail, those services would cost about $600. So we spent $210 to save $390. That translates into a savings of $1.86 for every dollar of increased tax. As an added bonus we have just one garbage truck a week down our street, not a different company’s truck everyday, and garbage cans on the street only on Thursday mornings.
What matters in public finance is not how much government spends, so much as what it buys with our tax dollars. But don’t count on the new “Super Congress 12″ committee to undertake serious cost-benefit analysis because cutting spending has become dogma and reality-based policies would be economic heresy.
I don't think DCJ has yet seen the cat, but he's certainly recognizing whiskers.
Would you be willing to pay $210 more in property taxes each year to have these services delivered to you by your community? I'd guess that you might be very willing to pay $210 more in property taxes AND be willing to pay the seller -- and for 30 or 15 years, a mortgage lender -- more for the privilege of living in a place where these things are provided by the community, rather than just outside of town. (If we paid for this via a tax on land value, the selling price wouldn't rise; and the cost of living would be held down. If we pay for it by taxing wages, or sales, or buildings, we do burden the economy, just as the "small government" people tell us. But they don't seem to consider the possibility of taxes which don't burden the economy.)
There are some who would complain that private trash collectors and the people who specialize in shoveling the sidewalks ought not to have competition from the public sector. They should all live in communities which feel this way. And they might concede that others might choose to live in communities which provide these amenities efficiently, with people paid from the public treasury.
I went to see the wise one our town was such a mess the longest lines to get in were at the DSS
He said, I cannot cure your town But here’s something you can do write a list and flesh it out Of why your town is in a stew
Well, we build roads; we run the bus, We try to control crooks. We build the parks and sidewalks We give our streets good looks
To do these things, we need some wealth And so we tax the things we see We tax the buildings and what you earn We tax merchants and sellers with a fee.
(refrain) I guess I realized, shoulda come as no surprise that Taxes on work don’t create a good environment. What we tax, that we reduce let’s not kill our jobs, Taxes on work do not create a good environment.
We tax the land, that helps ensure that land is not a wager It lowers the cost to those who use it to create more jobs per acre
Collecting land rents means That the things we as community do are benefiting everyone and go to all, not to the few.
And if a person wants to work she reaps the results of her labor The benefits of what she does, Not the out-of-town land speculator
(refrain) I guess I realized, shoulda come as no surprise that Taxes on work don’t create a good environment. What we tax, that we reduce let’s not kill our jobs, Taxes on work do not create a good environment.
So maybe we’ll shift the taxes off The labor you and I do, you see And put it on the land so none can squeeze the blood from you and me.
That way they’ll be more jobs for those who put their backs and brains to work We wouldn’t have to work so long, To put a roof and walls on God’s good dirt.
We wouldn’t need two jobs to feed The mouths that we beget, To house and clothe them and ourselves And where we need to go, we’d get.
(refrain) I guess I realized, shoulda come as no surprise that Taxes on work don’t create a good environment. What we tax, that we reduce let’s not kill our jobs, Taxes on work do not create a good environment.
A compact town means we could walk around to get, to shops, to meet, to work for gain And even walk to parks nearby where quiet, joy, and beauty reign.
We wouldn’t need a big back yard, or front ones with their lawns to mow. We’d have a share in common land, Where our souls, spirits, and bodies grow.
I think we’ve solved the problem of unemployment lines of barely earning what we need. We may not have the harvest yet, But we have sown the seed.
(refrain) I guess I realized, shoulda come as no surprise that Taxes on work don’t create a good environment. What we tax, that we reduce let’s not kill our jobs, Taxes on work do not create a good environment.
Amid all the talk of rebalancing the economy, there is little mention of the most powerful lever the government could pull to generate growth, which involves a switch from taxing income to taxing wealth.
It is a subject that tends to get little coverage, mainly because its supporters are considered on the fringes of the political spectrum. Ultra-lefties support wealth taxes for obvious reasons. Ultra-capitalists support them because they understand that allowing the rich to ring-fence much of the nation's assets and protect the mechanisms that allow values to increase without any serious government interference robs their children, and everyone else's, of any incentive to work harder.
What they are all talking about is the adoption of a land value tax. Purists would abolish all current taxes and replace them with an LVT that asked for a payment in line with the value of land under ownership.
Someone earning £40,000 a year would stop paying around £7,000 in income tax, £1,000 to £2,000 in VAT, £1,600 council tax and any of the transaction charges that fill the exchequer's coffers. No more capital gains tax or stamp duty on property sales or the sale of shares. Instead they would pay a fixed annual sum, to be paid monthly, on the value of their land, which could have a wide range, depending on how much the land is worth.
Move out of town and work locally, and your overall tax bill could be a fraction of its current total. Buy an expensive piece of real estate in the city centre and you would probably pay more.
Under the proper working of the council tax, increases in property values, as opposed to land values, lead to higher taxes, which is a disincentive to carry out those improvements in the first place.
Mark Wadsworth is an economist, blogger, sometime Tory Bow Group adviser and campaigner for land value taxes. He recently told Economic Voice website: "I'm an economist not a politician, and I can only repeat what all the great economists have said down the centuries: taxes on land values are the least bad taxes because they do not depress or distort economic activity, ie wealth creation. Land value tax is easy to assess, cheap to collect and impossible to evade.
"Not only that, LVT is an entirely voluntary tax: you decide how much you are willing to pay and you choose a house or a flat within that price range. Only, instead of handing over all the rent or purchase price to the current owner, the location value would go to the government."
What he means by this last sentence is that property prices would necessarily settle at a lower level because a buyer will deduct the location value, knowing they must send it to the exchequer in the form of a tax.
Yes! Think about the ramifications of this: as a buyer, you'd be paying the seller only for the value of the house itself, not the site on which it sits, which he did not create. A, say, 10% downpayment would be affordable to many more people, and, because one would not need to borrow from a mortgage lender to pay off the seller, that credit would be available for other purposes --- entrepreneurs could invest in the goods that would make their business work better.
The article goes on to report that the OECD wants to keep the VAT too, apparently in an attempt to influence consumer behavior -- I assume by discouraging it.
What we tax, we get less of. What do we want less of? Land speculation, or jobs?
Who chooses? Whose interests do they have at heart?
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."
Where I live, an Australian bank owns the city water system, a stockowner electric company has the power franchise, Cablevision has the cable franchise -- and a lot of money that could profitably be recycled locally gets sent out of town. (We do still own the sanitary sewer system.)
There was a time when these franchises were given to local entities, or held by the community. Then we permitted them to be privatized, and revenue that was once recycled locally now leaves. (Google "The City for the People" for more about this. It showed, among other things, that residents of cities where the utilities were publicly owned paid less for their utilities and workers in those utilities were better paid.)
The short article quoted below makes an interesting point. I'll preface it by quoting California Georgist Harry Pollard, who says that it would be better to collect land rent and throw it into the sea than not to collect it at all. This shows why. It comes from Tax Facts, 1926:
LAND SPECULATOR'S PARADISE
Arthur Brisbane has discovered that Ponca City, Oklahoma, a town of 15,000 population, is free from taxes. Through ownership of the power, light and water departments the city derives sufficient revenue to dispense with all taxes.
But is that an unmixed blessing? Police and fire protection, schools, etc., are so desirable that people will move to places where they may be had. Since no one can enjoy these government services without occupying land, the people will bid against each other till they force the price up to a point where it equals the value of the service. If the people know they will not have to pay taxes they can and will pay that much more for the land.
What a bonanza for the land speculator! He can add to his price what buyers save in taxes.
Economic rent, or land value, attaches to land whether or not the land is taxed. The amount of this land value depends upon the number and kind of people in the community, and must be paid in any event. Should the government take sufficient taxes out of this land value to pay expenses, two results will follow:
The user of land will pay more than he would if the owner kept it all, as in Ponca City.
The taking of this tax from the land owner will add to the cost of holding the land idle, and since it falls on all valuable idle land, it will make speculators more willing to make terms with land users.
When the city must pay a stockholder utility for the lights on the streets, who benefits? The taxpayers spend more than they would otherwise need to, and instead of getting electricity at the lowest price, pay a price that benefits the shareholders, few of whom live locally -- and if you've read the "stock ownership" pages linked at left, you know how concentrated stock ownership is, based on the Federal Reserve Board's Survey of Consumer Finances data. (A fine example of trickle-up economics.)
Local communities which own their own utilities would be more likely to care about using clean energy. They'd be creating secure local jobs, and good management would benefit the local community. Accountability.
In a recent column in the NYT entitled "Description is Prescription", David Brooks made references to Tolstoy, and it sent me looking to see whether a book I remembered was available via Google Books. The book was written in 1905 by Bolton Hall, and it is entitled "What Tolstoy Taught." Its final chapter, "Human Rights," follows:
(Tolstoy proclaimed the law of love as enunciated by Christ; the political rights as enunciated by Thomas Jefferson; the economic rights as announced by Henry George: the two latter as amplifications of the first; all being essential to man's earthly welfare. Tolstoy's philosophy was progressive. At first he saw that the law of love was necessary; then he recognized the necessity of equal political rights; next he recognized that without economic justice these remedies were futile, and he accordingly embraced the philosophy of Henry George, as evidenced by the following article addressed to the Russian people.— Ed.)
A number of suggestions have been made as to how to divide, in the most just manner, all land among the workers, but of all these only the one made by the late Henry George appears to me to be practicable.
The property right, Henry George wrote in his book about the single tax, is founded not on human laws, but on the laws of God. It is undeniable and absolute, and everyone who violates It, be it an individual or a nation, commits a theft.
A man who catches a fish, who plants a tree, builds a house, constructs a machine, sews a dress or paints a picture, thereby becomes the owner of the results of his own efforts — he has the right to give them away, to sell them or to leave them to his heirs. As the land has not been created by us, and only serves as the temporary residence of changing generations of human beings, it is clear that nobody can own the exclusive right to possess land, and that the rights of all men to it are equal and inalienable.
The right to own land is limited by the equal rights of all others, and this imposes upon the temporary possessor of land the duty to remunerate society for the valuable privilege given him to use the land in his possession.
When we impose a tax upon houses, crops, or money in any form, we take from members of society something which by right belongs to them, we violate the property right and commit a theft in the name of the law; while when we impose a tax upon land we take from members of society something which does not belong to them, but to society, and which cannot be given to them except at a detriment to others. We thus violate the laws of justice when we place a tax on labor or the results of labor, and we also violate them if we do not levy a tax on land.
Let us, therefore, decide to stop levying all taxes except the tax on the value of land, regardless of the buildings erected or the improvements made on it, but only on the value which natural or social conditions give to it.
If we place this single tax on land the results will be these:
1. The tax will relieve us of the whole army of officials necessary to collect the present taxes, which will diminish the cost of government, at the same time making it more honest. It will rid us of all the taxes which lead to lying, to perjury, to frauds of all kinds. All land is visible, and cannot be hidden, and its value is fixed easier than that of any other property, and the single tax can be determined at less expense and less danger to public morals.
2. It will to a great extent increase the production of wealth, doing away with the discouraging tax upon labor and thrift, and it will make the land more accessible to those who want to work or improve, as the proprietors, who do not work themselves, but speculate in its increasing value, will find it difficult to keep up such expensive property. The tax on labor, on the other hand, leads to the accumulation of immense fortunes in a few hands, and the increasing poverty of the masses. This unjust division of wealth on one side leads to the creation of one class of people who are idle and corrupt, because they are too rich, and the creation of another class of people who are too poor, and thus doubly delays the production of wealth. This unjust division of wealth creates on one side terrible millionaires, and on the other side vagrants, beggars, thieves, gamblers and social parasites of various kinds, and necessitates an enormous expense for officials to watch these — policemen, judges, prisons and other means which society uses in self-defense.
The single tax is a remedy for all these evils.
I do not mean to say that this tax will transform human nature, for that is not within the power of man, but it will create conditions under which human nature will grow better instead of worse, as under the present conditions. It will make possible an increase of wealth, of which it is hardly possible to form an idea. It will make undeserved poverty impossible. It will do away with the demoralizing struggle for a living. It will make it possible for men to be honest, just, reasonable and noble, if they desire to be so. It will prepare the soil for the coming of the epoch of justice, abundance, peace and happiness, which Christ told His disciples of.
Let us suppose that in a certain place all land belongs to two owners — one very rich, who lives far away, and another, not rich, living and working at home — and to a hundred of small peasants owning a few acres each. Besides these, there live on that place some scores of people who own no land — mechanics, merchants, and officials.
Now let us suppose that the people of that community, having arrived at the conclusion that the land is common property, decide to dispose of the land according to their new conviction.
What would they do? Take all the land away from those who own it, and give everybody the right to take the land he desires? That could not be done, because there would be several people who would want the same ground, and this would lead to endless quarrels. To form one society and work all things in common would be difficult, because some have carts, wagons, horses and cattle, while others have none, and, besides, some people do not know how to till the soil, or are not strong enough.
To divide all the land in equal parts, according to its value, and allow one part to each is very difficult, and this would, besides, be impracticable, because the lazy and poor would lease their property to the rich for money, and these would soon again be in possession of it all.
The inhabitants of the community, therefore, decide to leave the land in the possession of those who own it, and to order each owner to pay into the common treasury money representing the revenue which had been decided on after appraising the value of the land, not according to the work or the improvements made on it, but to its quality and situation, and this money was to be divided equally among all.
But as it was difficult first to take this money from all those who held the land, and then divide it equally among all the members of the community, and as these members, besides, paid money toward the public needs — schools, fire departments, roads, etc.— and as this money was always needed, they decided to use all the money derived from those who had the use of the land, for public needs.
Having made this arrangement, the members of the community levied the tax for the use of land on the two large owners, and also on the small peasants, but no tax at all was imposed on those who held no land.
This caused the one landowner who lived far away, and who derived little income from his property, to realize that it did not pay to hold on to land thus taxed, and he gave it up. The other large owner gave up part of his land, and kept only that part which produced more than the amount of his tax. Those of the peasants who held small properties, and who had plenty of men, and not enough land, as well as some of those who held no land at all, but who desired to make a living by working the land, took up the land surrendered by its former owners.
After that all the members of the community could live on the land and make a living from it, and all land passed into the hands of or remained with those who loved to work it, and who made it produce the most. The public institutions flourished and the wealth of the community increased, for there was more money than before for public needs; and the most important fact was that this change in the ownership of land took place without any discussions, quarrels, or discord, by the voluntary surrender of the land by those who did not derive any profit from it.
This is the project of Henry George, which, if tried here, would make Russia wealthy and happy, and which is practicable all over the world.
I commend the whole article to your attention (it runs 3 pages). But I'll focus on a few paragraphs which particularly intrigue me. DCJ begins,
Will President Obama cave on yet another of his campaign promises, this time by giving in to Republican demands to extend all of the temporary Bush tax cuts? The president signaled this on his Asia trip when he said his principal concern was retaining the middle-income tax rates.
Republican congressional leaders have said they will let all of the Bush tax cuts expire unless the president bows to their demand that the top 3 percent of Americans be included in any tax cut extension.
Obama should call their bluff.
I don’t think the Republicans are so stupid that they would let all the Bush tax cuts expire if they cannot continue tax cuts for billionaires and the affluent on all of their income. But let’s assume that the Republican leaders on Capitol Hill are that dumb, or so beholden to the antitax billionaires funding their campaigns, that they would force universal tax increases.
The Republicans cannot pass any legislation the Democrats choose to block. Further, the Republicans have no chance of overriding a veto, which requires a two-thirds vote of those present in both houses. The Republicans control the House, but they have only as much power to enact laws as Obama and Senate Democrats give them.
More important than any political gain, however, is what calling the GOP bluff could do to get our nation back on the path to prosperity and to stop policies that are pushing us into economic disaster, thanks in huge part to the Bush administration’s combination of revenue-losing tax cuts, wars, and wild spending.
By calling the Republicans’ bluff, Obama can get us talking about taxes and the future of America, instead of protecting what the richest among us already have.
The president could speak about Wall Street handing out record bonuses this year — an estimated $144 billion to a relative handful of people, many of whom get richer by destroying wealth, including assets of state and local government pension funds whose losses we have to make up for with more taxes.
Those bonuses, by the way, are about 2.4 times expected Wall Street profits.
How about a presidential lecture on entitlements focused on Lloyd Blankfein, whose firm’s bad bets taxpayers paid off at 100 cents on the dollar? The Goldman Sachs boss whines about making only $9 million last year because of his ‘‘sacrifice’’ and plans an extra-big payday this December to make up for last year.
The president could change the terms of our economic debate by talking about how much the vast majority props up many of those at the very top, starting with Blankfein. He could tell people about the trillion dollars a year of tax favors for corporations and the rich, as documented by the Shelf Project. (For the article, see Tax Notes, July 5, 2010, p. 101, Doc 2010-13081, or 2010 TNT 129-4.) Obama should explain how soak-the-middle-class and sink-the-poor policies damage economic growth.
Obama could also talk about how America has stopped being number one in many other categories because of tax policies that are hollowing out our nation’s economy and destroying the commonwealth on which private wealth building relies.
I am an admirer of DCJ, appreciate his two books, and look forward to his third -- but I don't think he yet sees the half of it! (And need I say that none of our current parties do either?)
Skipping ahead again:
Calling the GOP’s bluff would let the president raise the issue of whether we want to cut Social Security and Medicare benefits so Peterson and his peers can have even more. Is Peterson’s use of a multimillion-dollar helicopter just to avoid the summer traffic between Manhattan and his Hamptons mansion enough? Or should we all pay more so he can buy a new helicopter?
The president could explain that the tax system helps Peterson’s billions float on a sea of tax credits, tax breaks, and tax deferrals. Obama could read to people from 1950s newspaper stories about old ladies eating cat food. The president could stop in at food banks where families who worked hard and played by the rules were crushed by the machinations of Wall Streeters.
He could talk about how a single working person making the median wage of just over $26,000 paid nearly a third larger share of her income in federal taxes than the top 400 taxpayers, who each made almost $1 million a day in 2007.
And Obama could tell taxpayers about all those people with billion-dollar annual incomes who legally pay no current income taxes, while the rest of us get dinged before we get paid. Let me play speechwriter for Obama on this one:
The Republicans took away your tax savings, every penny of it, but first they made sure that hedge fund managers will not have to pay any taxes this year unless they choose to.
Hedge fund managers make billions of dollars each year, but they get to delay paying their taxes for years or even decades — and then pay taxes at less than half the rate that other highly paid people must pay.
Do these hedge fund managers build factories?
Do they create software or new technologies?
Do they create the jobs America needs?
No! They are speculators, speculating with borrowed money.
The Republicans want to cut your Medicare and cut your Social Security.
Now if that’s what you want, then I urge you to support the Republicans. But if you think the highest-paid workers in the history of the world — people who can and often do make a billion dollars in a year — should pay taxes, pay their taxes in full, and pay them now, then you need to show your support for my policies.
If you want your tax cuts back, you need to stand with me. You need to petition, to demonstrate, to call and write to your representative and senators, telling them this kind of favoritism has got to stop and stop right now.
I'm glad to see that DCJ is calling attention to this particular form of speculation -- skimming the cream off the economy without producing anything.
... moneylenders have been skimming 40 percent of the profits from companies that actually make and produce things. His big point was that this is not really the role of the financial sector. The financial sector's job is to support economic growth, not cripple it.
"Finance is a means to an end," he said. "The lack of balance between the financial sector and the economic sector was actually the real problem in this economic crisis (NOT the real estate bubble)."
I've not heard of Stiglitz saying this where the American media might catch on, but appreciate his willingness to state it elsewhere.
How do we encourage the sorts of business activity which create jobs, create housing which is welcoming and affordable for people at all points on the income and wealth spectra? By getting our incentives right, and by straightening out what we tax, what we don't, and the rates at which we tax each.
A 2007 OECD study compared some of the commonly-used tax bases for their effects on economic growth, and concludes that the personal income tax is an inferior tax. What does it endorse? Interestingly, the conventional property tax! Those who read this blog regularly know that the conventional property tax is an unfortunate marriage of two taxes with very different effects -- one quite desirable, and the other largely negative in its effects.
Elsewhere, I came across this table:
Distributional Effects of Allowing All Expiring Tax Provisions to Expire, 2011
Increase in Federal Taxes
Millions of Dollars
Less than $10,000
$10,000 - $20,000
$20,000 - $30,000
$30,000 - $40,000
$40,000 - $50,000
$50,000 - $75,000
$75,000 - $100,000
$100,000 - $200,000
$200,000 - $500,000
$500,000 - $1 million
$1 million and over
Total, all taxpayers
Source: Joint Committee on Taxation (July 30, 2010
If I am reading the table correctly, it says that while the folks in the $1 million plus income category would experience an 11.0% increase in their federal taxes, those in the $10,000 to $20,000 range would see a 19.9% increase, and those in the $20,000 to $30,000 range would have a 20.8% increase in their federal taxes. Admittedly, these are small numbers -- I assume that they exclude social security and medicare payroll taxes, which are much higher than federal income taxes for perhaps 75% of us. But does it make sense to increase income taxes on those whose incomes are sufficiently low that they likely spend virtually 100% of what comes in by twice as much as the income taxes on those who have plenty of discretionary income?
We need better taxes. Search this page for the OECD study, or search for "canons of taxation" on the wealthandwant.com website. Smart taxes are smart. Dumb taxes are dumb.
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 sang this hymn this morning, and the fourth and fifth verses made me wonder whether it might have been inspired by the ideas of Henry George.
1 "Thy kingdom come!" on bended knee the passing ages pray; and faithful souls have yearned to see on earth that kingdom's day.
2 But the slow watches of the night not less to God belong; and for the everlasting right the silent stars are strong.
3 And lo, already on the hills the flags of dawn appear; gird up your loins, ye prophet souls, proclaim the day is near:
4 The day to whose clear shining light all wrong shall stand revealed, when justice shall be throned in might, and every heart be healed;
5 When knowledge, hand in hand with peace, shall walk the earth abroad; the day of perfect righteousness, the promised day of God.
Words: Frederick Lucian Hosmer, 1891 Music: Irish, St. Flavian
I also found a second related hymn Hosmer wrote in 1905, here:
1 Thy Kingdom come, O Lord, Wide circling as the sun; Fulfill of old Thy Word And make the nations one.
2 One in the bond of peace, The service glad and free Of truth and righteousness, Of love and equity.
3 Speed, speed the longed for time Foretold by raptured seers— The prophecy sublime, The hope of all the years.
4 Till rise at last, to span Its firm foundations broad, The commonwealth of man, The city of our God.
Henry George delivered a sermon entitled "Thy Kingdom Come," in 1889 in Glasgow, Scotland. Most likely he gave that speech many more times in other places. It includes these paragraphs:
Nothing is clearer than that if we are all children of the universal Father, we are all entitled to the use of His bounty. No one dare deny that proposition. But the people who set their faces against its carrying out say, virtually: “Oh, yes! that is true; but it is impracticable to carry it into effect!” Just think of what this means. This is God’s world, and yet such people say that it is a world in which God’s justice, God’s will, cannot be carried into effect. What a monstrous absurdity, what a monstrous blasphemy!
If the loving God does reign, if His laws are the laws not merely of the physical, but of the moral universe, there must be a way of carrying His will into effect, there must be a way of doing equal justice to all of His creatures.
There is. The people who deny that there is any practical way of carrying into effect the perception that all human beings are equally children of the Creator shut their eyes to the plain and obvious way. It is, of course, impossible in a civilization like this of ours to divide land up into equal pieces. Such a system might have done in a primitive state of society. We have progressed in civilization beyond such rude devices, but we have not, nor can we, progress beyond God’s providence.
There is a way of securing the equal rights of all, not by dividing land up into equal pieces, but by taking for the use of all that value which attaches to land, not as the result of individual labor upon it, but as the result of the increase in population, and the improvement of society. In that way everyone would be equally interested in the land of one’s native country. Here is the simple way. It is a way that impresses the person who really sees its beauty with a more vivid idea of the beneficence of the providence of the All-Father than, it seems to me, does anything else.
One cannot look, it seems to me, through nature — whether one looks at the stars through a telescope, or have the microscope reveal to one those worlds that we find in drops of water. Whether one considers the human frame, the adjustments of the animal kingdom, or any department of physical nature, one must see that there has been a contriver and adjuster, that there has been an intent. So strong is that feeling, so natural is it to our minds, that even people who deny the Creative Intelligence are forced, in spite of themselves, to talk of intent; the claws on one animal were intended, we say, to climb with, the fins of another to propel it through the water.
Yet, while in looking through the laws of physical nature, we find intelligence we do not so clearly find beneficence. But in the great social fact that as population increases, and improvements are made, and men progress in civilization, the one thing that rises everywhere in value is land, and in this we may see a proof of the beneficence of the Creator.
Why, consider what it means! It means that the social laws are adapted to progressive humanity! In a rude state of society where there is no need for common expenditure, there is no value attaching to land. The only value which attaches there is to things produced by labor. But as civilization goes on, as a division of labor takes place, as people come into centers, so do the common wants increase, and so does the necessity for public revenue arise. And so in that value which attaches to land, not by reason of anything the individual does, but by reason of the growth of the community, is a provision intended — we may safely say intended — to meet that social want.
Just as society grows, so do the common needs grow, and so grows this value attaching to land — the provided fund from which they can be supplied. Here is a value that may be taken, without impairing the right of property, without taking anything from the producer, without lessening the natural rewards of industry and thrift. Nay, here is a value that must be taken if we would prevent the most monstrous of all monopolies. What does all this mean? It means that in the creative plan, the natural advance in civilization is an advance to a greater and greater equality instead of to a more and more monstrous inequality.
“Thy kingdom come!” It may be that we shall never see it. But to those people who realise that it may come, to those who realize that it is given to them to work for the coming of God’s kingdom on earth, there is for them, though they never see that kingdom here, an exceedingly great reward — the reward of feeling that they, little and insignificant though they may be, are doing something to help the coming of that kingdom, doing something on the side of that Good Power that shows all through the universe, doing something to tear this world from the devil’s grasp and make it the kingdom of righteousness.
Aye, and though it should never come, yet those who struggle for it know in the depths of their hearts that it must exist somewhere — they know that, somewhere, sometime, those who strive their best for the coming of the kingdom will be welcomed into the kingdom, and that to them, even to them, sometime, somewhere, the King shall say: “Well done, thou good and faithful servant, enter thou into the joy of thy Lord.”
I wonder if Henry George's words helped inspired Frederick Hosmer's hymn. I commend the entire sermon to your attention; parts of it will make you smile.
Much has been written in various circles about Mike Norton and Dan Ariely's recent paper about American's thoughts about the distribution of wealth in America. This is the paper which showed the actual distribution of wealth, by wealth quintile (Line 1, below), and contrasted it with the estimates (odd-numbered columns) which Americans of various demographics made of the actual distribution of wealth, and then their ideal distribution of wealth (even-numbered columns). Here are the data, read from some unlabeled bar charts:
Underscore represents the highest datum in the column; italics the lowest. Sample size: 5522 respondents. Results read from unlabeled bar graph.
The top 20% of wealth holders have 84% of the wealth (line 1, first column). The demographic making the highest estimate, Kerry voters, estimated their share at 62% (line 6, column 1), and their ideal was 30% (line 6, column 2); the demographic making the lowest estimate, Bush voters, thought the top 20% held 56% (l5, c1), and their ideal was 35% (l5, c2). Those with incomes over $100,000 had the highest average for "ideal share," at 40% (l4, c2) -- less than half the actual 84%!
The second 20% of wealth holders have 11% of the wealth (line 1, second column). Estimates ranged rather narrowly, from 19% to 23% (column 3), and ideals ranged from 21% to 23% (column 4)!
The remaining 60% of us actually have less than 5% of the wealth (line 1, third, fourth and fifth columns). Estimates of the combined wealth of these 3 quintiles ranged from 19% to 22%. And across demographic groups, the ideal for the bottom 60% of us ranged from 38% (among those with $100,000 or more in income) to 50% (among women).
The abstract says it pretty clearly:
Disagreements about the optimal level of wealth inequality underlie policy debates ranging from taxation to welfare. We attempt to insert the desires of “regular” Americans into these debates, by asking a nationally representative online panel to estimate the current distribution of wealth in the United States and to “build a better America” by constructing distributions with their ideal level of inequality.
First, respondents dramatically underestimated the current level of wealth inequality.
Second, respondents constructed ideal wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution.
Most important from a policy perspective, we observed a surprising level of consensus: All demographic groups -– even those not usually associated with wealth redistribution such as Republicans and the wealthy -– desired a more equal distribution of wealth than the status quo.
Here's their final paragraph (omitting references and reformatted a bit for legibility):
Given the consensus among disparate groups on the gap between an ideal distribution of wealth and the actual level of wealth inequality, why don’t more Americans -– especially those with low income -– advocate for greater redistribution of wealth?
First, our results demonstrate that Americans appear to drastically underestimate the current level of wealth inequality, suggesting they may simply be unaware of the gap.
Second, just as people have erroneous beliefs about the actual level of wealth inequality, they may also hold overly optimistic beliefs about opportunities for social mobility in the United States beliefs which in turn may drive support for unequal distributions of wealth.
Third, despite the fact that conservatives and liberals in our sample agree that the current level of inequality far from ideal, public disagreements about the causes of that inequality may drown out this consensus.
Finally, and more broadly, Americans exhibit a general disconnect between their attitudes towards economic inequality and their self-interest and public policy preferences, suggesting that even given increased awareness of the gap between ideal and actual wealth distributions, Americans may remain unlikely to advocate for policies that would narrow this gap.
It cheers me that professors at Harvard Business School and Duke University took on this subject. Clearly some of the largest donors to their institutions have reason to like the current structure just fine, thank you, and this analysis might not endear them to such donors. I hope the conversation they're suggesting will continue.
Those who want data on wealth distribution can explore the 3-part series in the "Pages" section at left.
And those who want to understand the structures that funnel our wealth into a relative few pockets, at the expense of the rest of us, can explore this blog, and particularly the pages on wealth concentration, income concentration, privilege (see links in the category "cloud" at left).
For several years now I've been following the story of a lovely, scenic 30-acre neck (almost-island) of land on a sheltered piece of the Atlantic Ocean about an hour's train ride north of Boston. It currently contains 167 rented-out lots, of which 24 can be occupied year-round and the other 143 only seasonally. Half of the land is unoccupied, available to all tenants; the rest is subdivided into mostly small lots; all have panoramic water views, of varying quality. The tenants own their cottages, most of which are in the 800 to 1000 square foot range, and typically 70 to 100 years old; a few are 2-story, newer or larger. Asking prices run as high as $600,000, and I've seen few transactions below $300,000. I estimate the cottages themselves to be worth about $75,000 anywhere else. Currently annual land rent is in the range of $10,000, up considerably from many years of token rents, and many of the tenants are objecting to paying them, putting them into escrow -- and, remarkably, planning to use the escrowed rent as a down payment to BUY the land! (That brings a new meaning to chutzpah, which, you might recall, was exemplified by the man who killed his parents and then threw himself on the mercy of the court because he was an orphan!)
In 1650, the will of a resident, William Paine (Payne?), apparently gave the land to be managed for the benefit of the school(s) of Ipswich, via the provision that "unto the free scoole of Ipswitch the little neck of land at Ipswitch knowne as Jeferry's neck, the which is to be and remaine to the benefitt of the said scoole ... for ever as I have formerly intended and therefore for the sayd land not to be sould nor wasted". It seems to me that his intent was pretty clear: keep the land forever ("not soulde"), take care of it, and collect market-level rents ("nor wasted") for the benefit of the beneficiary (the local school).
And yet the trustees -- known as Feoffees -- have apparently entertained an offer from the current group of 167 tenants (calling themselves "The Little Neck Legal Action Committee!) to sell the land for a tiny fraction of its value, which I estimate could be as high as $71 million. (My calculations are 3 paragraphs below this one.) The offer was in the range of $30 million, of which $6 million would go for paying off bonds on a wastewater system installed a few years ago.
There has been no effort to market the land to other possible buyers.
Apparently this has become so troublesome that some in Ipswich want to sell the land to the tenants, figuring that a little income from the proceeds is better than no income from recalcitrant tenants! Absolutely amazing. Short sighted. And it represents the privatization of an asset which was designed to provide a public benefit, forever.
Calculations: When a cottage worth $75,000 sells for $300,000 or more, what is being sold is land value -- locational value.But the tenants don't own the land, and I can't imagine a rational lender being willing to lend on an asset which the borrower doesn't own! The current land rent of about $10,000 per year represents roughly $200,000 in land value per lot (5% capitalization or "20 years' purchase"). Add to that the $225,000 in land value in the $300,000 price for a $75,000 cottage, and you're looking at $425,000 in land value per cottage. Multiply that by 167 and that's $70,975,000. (The cottages would be another $13.4 million or so.) Obviously, some locations are better than others, some lots are larger than others, and year-round rights are more valuable than only seasonal occupancy rights. (You'll note that the $225,000 in land value in the $300,000 example is less than what 5 of the 6 current listings suggest.)
A. Current Little Neck listings at realtor.com and zillow.com [the latter added here on 11/15/10]: recall that all the sellers own is the building, not the land. And that the cottage buyers should expect to pay $10,000 or more in land rent -- the current rate)
Table 1: Cottages for Sale on Little Neck, mid November, 2010
--- Assessments ---
Ask as % Bldg*
Ask minus Bldg
50 River Road
$432,300 LY: $383,400
5BR, 1B, 1779 sq ft
33 Bay Road
$303,600 LY: $343,800
3BR, 1B, 1318 sq ft
35 Hilltop Road
$284,200 LY: $268,500
4BR, 1B, 852 sq ft
24 Hilltop Road
$303,000 LY: $287,300
3BR, 1B, 1408 sq ft
6 Plum Sound Rd
$329,400 LY: $323,200
3BR, 1B, 1160 sq ft
23 Bay Road
$287,000 LY: $285,800
2BR, 1B, 800 sq ft
5% of LV **
*Asking price as percent of assessed building value
** Land rent at 5%, a/k/a "20 years' purchase" Note that $11,360 is somewhat higher than the current land rent of $9,700 (seasonal) and $10,800 (year-round), suggesting that those rents are low vis a vis the assessed land value. The $18,518 in the final column suggests that current rents, based on these 6 asking prices, should be 80% more than what is now being charged, assuming that the building valuations are reasonably accurate. Sources: realtor.com (viewed 11/14/2010) supplemented by zillow.com and assessor's database (viewed 11/15/10)
The sellers are asking prices which are well above not just the assessor's valuation of the building itself, but also above the value of the land plus the building! Compare this to the asking prices on other homes in Ipswich with less than 1800 square feet, and with 1 or 2 bathrooms (below). And this is under the condition of annual land rent of about $10,000.
The lowest-priced LN listing, at $259,900, has a building assessment of $64,200 and a land assessment of $222,800. The difference between the asking price and the building assessment is $195,000. ($195,000 times 167 is $32,565,000.) And this is under the condition of annual land rent of about $10,000.
The average difference between the ask and the building assessment is $370,350. Multiple that by 167 tenants, and one gets an aggregate land value of $61,850,000 -- and that's with the $10,000 land rent!!
The building assessments average $95,950. The land assessments average $227,200. Multiply that $227,200 by 167, and the aggregate value of the LN land is $37,942,400. And that's under the condition of a $10,000 annual land rent!
The asking prices average $466,300, 485% of the average building assessment!
It seems odd that the LNLAC is offering so little, and that the hired appraisers are valuing the land at such low figures.
B. Comparable cottages for sale in other parts of Ipswich (where the seller owns the land and is selling both land and house, so there is no land rent payment involved) suggest that most other sellers are asking much closer to the assessor's valuation (some higher, some lower, but typically within 20%, as compared to 385%!):
$479,000: 975 sq ft, 3 BR, 1 bath, on .42 acre lot [35 Plover Hill Rd, built 1940; building assessment $102,900; land assessment $296,800; total assessment $399,700, down from $431,700 in 2009.] --- photos suggest views somewhat comparable to Little Neck's Asking price as % of assessment: 120%
$425,000: 1867 sq ft, 3 BR, 1 bath; on .97 acre lot [299 Linebrook Rd, built 1950; building assessment, $153,700; land assessment $228,800; total assessment $382,500, down from $401,200 in 2009.] Asking price as % of assessment: 111%
$339,900: 1216 sq ft, 3 BR, 1 bath, on .34 acre lot [5 James Rd, built 1962; building assessment $108,500; land assessment $185,500; total assessment $294,000, down from $317,100 in 2009.]
$319,900: 1344 sq ft, 3 BR, 2 bath, on .25 acre lot [13 Poplar St, built 1948; building assessment $113,200; land assessment $245,200; total assessment $358,400, down from $402,000 in 2009.]
$319,900: 1187 sq ft, 3 BR, 1 bath, on .08 acre lot [13 Peatfield Street, built 1900; building assessment $125,500; land assessment $148,500; total assessment $274,000, down from $293,400 in 2009.]
$319,000: 1250 sq ft, 2 BR, 2 bath, on 7840 sq ft lot [3 Brownville Avenue, built 1910; building assessment $130,700; land assessment $174,300; total assessment $305,000, down from $332,300 in 2009.]
$309,000: 1584 sq ft, 3 BR, 1 bath on 9149 sq ft lot [1 Heatherside Ln, built 1958; building assessment $111,900; land assessment $199,300; total assessment $311,200, down from $338,900 in 2009.]
$265,000: 1100 sq ft; 3 BR, 2 bath on 9,583 sq ft lot [12 Washington Street, built 1900; building assessment $110,300; land assessment $177,100; total assessment $287,400, down from $301,100 in 2009.]
$265,000: 1410 sq ft, 3 BR, 2 bath on 0.06 acre lot [4 6th Street, built 1910; building assessment $111,900; land assessment $125,600; total assessment $237,500, down from $253,300 in 2009.]
$259,000: 932 sq ft, 3 BR, 2 bath on 9583 sq ft lot [8 Cleveland Avenue, built 1900; building assessment $105,600; land assessment $176,600; total assessment $282,200, down from $311,200 in 2009.]
$224,999: 1632 sq ft, 3 BR, 1 bath on 0.07 acre [4 Highland Avenue, built 1907; building assessment $157,400; land assessment $195,000; total assessment $352,400, down from $389,700 in 2009.]
$229,000: 668 sq ft, 2 BR, 1 bath on .27 acre lot [6 Cameron Avenue, built 1930; building assessment $42,200; land assessment $204,000, total assessment $246,200, down from $264,900 in 2009.]
$169,900: 1019 sq ft 2BR, 1 bath on .40 acre lot [8 Winter Street, built 1920; building assessment $81,200; land assessment $189,400]
C. Some additional newer/larger homes on sites with good views:
$1,150,000 on .36 acre lot [52 Skytop Rd, built 1992 on .36 acres: building assessment $328,000; land assessment $290,800; total assessment $618,800, down from $681,000 in 2009]
$970,000: 2330 sq ft, 3 BR, 2 baths on .30 acre lot [28 North Ridge Road, built 1990; building assessment $211,800; land assessment $543,400; total assessment $755,200, up from $582,200 in 2009.]
$639,900: 1923 sq ft, 3 BR, 2 baths, on 7841 sq ft lot [114 North Ridge Road, built 2010, building assessment $160,800; land assessment $377,400, total assessment $538,200. photos suggest views somewhat comparable to Little Neck's. Asking price as % of assessment: 119%
D. Some recent sales, also from Realtor.com; notice that the transaction prices are generally pretty close to the assessor's valuations, which validates the assessments:
$612,500 (May, 2010): 2309 sq ft, 2 BR, 2 baths, on .26 acre lot [24 Northridge Road, built 1940; building assessment $163,700; land assessment $534,200; total assessment $697,900, down from $753,800 in 2009.]
$530,000 (Oct, 2010): 1410 sq ft, 2 BR, 2 baths, on .34 acre lot [59 Skytop Rd, built 1986; building assessment $204,600; land assessment, $288,000; total assessment $492,600, down from $533,700 in 2009.]
$400,000 (Oct, 2010): 1500 sq ft, 2 BR, 2 baths, on 3.90 acre lot [76 Town Farm Road, built 1930; building assessment $96,400; land assessment, $300,600; total assessment $397,000, down from $471,500 in 2009.]
$379,900 (Sept, 2010): 1610 sq ft, 2 BR, 2 baths, on 2.32 acre lot [156 Topsfield Rd, built 1968; building assessment $154,600; land assessment $240,800; total assessment $395,400, down from $418,100 in 2009.]
$360,000 (Sept, 2010) 1600 sq ft, 3 BR, 1 bath, on 1.00 acre lot [316 Linebrook Rd, built N/A; building assessment, $133,300; land assessment 230,900; total assessment $364,200, down from $391,500 in 2009.]
$309,000 (Sept, 2010): 1894 sq ft, 3 BR, 1 bath, on .22 acre lot [12 Hodges Way, built 1964, building assessment, $143,500; land assessment, $168,000; total assessment $311,500, down from $332,300 in 2009.]
$300,000 (June, 2010): 1626 sq ft, 3 BR, 1 bath, on .08 acre lot [2 Hovey Street, built 1880, building assessment $136,200; land assessment, $157,900; total assessment $294,100, down from $319,100 in 2009.]
$290,000 (July 2010): 480 sq ft, 1 BR, 1 bath on .24 acre lot [16 Chattanooga Rd, built 1952; building assessment $49,700; land assessment $249,900; total assessment $299,600, down from $352,100 in 2009.]
$279,000 (Oct 2010): 1092 sq ft, 3 BR, 1 bath, on .20 acre lot [2 Hodges Way, built 1959; building assessment $110,900; land assessment $166,500; total assessment $277,400, down from $300,400 in 2009.]
$250,000 (July 2010): 1010 sq ft, 2 BR, 1 bath, on .14 acre lot [8 Currier Park, built 1935; building assessment $107,800; land assessment $161,400; total assessment $269,200, down from $281,100 in 2009.]
$235,000 (June 2010): 912 sq ft, 3 BR, 1 bath, on .28 acre lot [27 Paradise Road, built 1970; building assessment $106,200; land assessment $180,700, total assessment $286,900, down from $315,200 in 2009.]
$229,700 (Aug 2010): 720 sq ft, 1 BR, 2 baths, on .15 acre lot [3 Sawyer Street, built 1920; building assessment $75,400; land assessment $171,800; total assessment $247,200, down from $271,500 in 2009.]
$209,000 (May, 2010): 1034 sq ft, 2 BR, 1 bath, on .09 acre lot [84 High Street, built 1860; building assessment $109,300; land assessment $167,600; total assessment $276,900, down from $290,000 in 2009.]
$185,000 (Oct 2010): 1620 sq ft, 2 BR, 1 bath, on .29 acre lot [138 Linebrook Rd, built 1956; building assessment $145,400; land assessment $182,000; total assessment $327,400, down from $352,300 in 2009; note that Realtor.com values it at $286,997 as of 11/14/10]
$170,000 (Aug 2010): 1182 sq ft, 3 BR, 1 bath, on .19 acre lot [3 Turkey Shore Road, built N/A; building assessment $104,000; land assessment $239,100; total assessment $343,100, down from $387,200 in 2009; note that Realtor.com values it at $302,124 as of 11/2/2010.]
$160,000 (Aug, 2010): 1640 sq ft, 3 BR, 1 bath, on 1.04 acre lot [20 Lakeman's Lane, built 1948; building assessment $126,100; land assessment $283,500; total assessment $409,600, down from $449,900. Realtor.com vales it at $420,520, as of 11/14/10]
$160,000 (Oct 2010): 1386 sq ft, 5 BR, 1 bath, on .21 acre lot [8 5th Street, built 1910; building assessment, $118,000; land assessment $216,100; total assessment $334,100, down from $374,100 in 2009; realtor.com values it at $296,672 as of 11/4/10
$120,000 (June 2010): 1386 sq ft, 3 BR, 2 baths, on .05 acre lot [2 5th Street, built 1910; building assessment $123,000; land assessment $97,700; total assessment $220,700, down from $237,900 in 2009; realtor.com values it at $223,234 as of 11/2/10.]
$80,000 (Aug 2010): 760 sq ft, 2 BR, 1 bath, on .18 acre lto [53 Jeffreys Neck Road, built 1943; building assessment $76,600; land assessment $174,000; total assessment $250,600, down from $276,900 in 2009; realtor.com values it at $227,594 as of 11/2/10.]
(I suspect the last six of these might be situations where a co-heir to an estate bought out another heir, with the transaction price representing half of the value, but I can't be sure of that.) Have any of the assessments been adjusted downwards in 2010 on the basis of the transaction price? That might have been the case in a few situations(?)
If the landlords were collecting the full market rent on the Little Neck land, then the asking prices for the cottages on Little Neck would be in the range of 90% to 120% of the assessor's valuation of the buildings.
The tenants did not create -- could not possibly have created! -- any of the land value, despite what the "Little Neck Legal Action" committee asserts below. The letter makes interesting, even humorous, reading, particularly in light of the fact that were there to be a sale, it would be the seller who would be paying off the debt on the wastewater system, not the buyers. That wastewater system created some value, particularly if it ends up making it possible for more than 24 cottages to be used year-round.
Here are the various prices, divided by 167 current tenants and by 32 acres:
$42,325,000 works out to $253,443 per average lot, or $1.3 million per acre (see letter, below). Capitalized at 5%, an average land rent of $12,672, and aggregate annual gross rent to LN trustees of $2.116 million
$31,500,000 works out to $188,623 per average lot, or $984,000 per acre (see letter, below). Capitalized at 5%, an average land rent of $9,431, and aggregate annual gross rent to LN trustees of $1.575 million.
$10,000,000 works out to $59,880 per average lot, or $305,000 per acre (see letter, below). Capitalized at 5%, an average land rent of $2,994, and aggregate annual gross rent to LN trustees of $500,000. Compare $305,000/acre to the assessments on nearby land, particularly land with fine views and breezes; an acre is 43,560 square feet.
$70,975,000 works out to $425,000 per average lot, or $2.2 million per acre (see my analysis, above). Capitalized at 5%, an average land rent of $21,250, and aggregate annual gross rent to LN trustees of $3.549 million.
(Compare those amounts per lot to the assessed values of the land, and then to the asking prices, above. Did the assessor get it that wrong? I suspect his LN land valuations are low.)
Here's the letter from the "Legal Action" committee to the local paper:
To the editor:
The School Committee’s recently released appraisal performed by Lincoln Property Company (“Lincoln”) establishes four things:
It further discredits the Finance Committee’s continued assertion that the market value of Little Neck is $42.325 million. Lincoln states that Colliers Meredith & Grew’s (“CMG”) $42.325 Million estimate “is completely one-sided, ignoring that any value over … $10,000,000 is the result of a long term partnership between the Feoffee and the Tenants.” The Finance Committee’s claim was previously revealed to be without merit when the portion of the appraisal that the Finance Committee tried to hide from the public was released as a result of the Probate Court lifting a Protective Order. In their “supplemental letter”, CMG set the market value of Little Neck to a third party at $ 26.4 Million.
In Lincoln’s view, the “fair value” of Little Neck may be as low as $20.5 Million. However, in summarizing the appraiser’s analysis of all relevant considerations, the appraiser specifically states the “market value of $31,500,000 … represents my opinion of the fair value of the property” to the homeowners in the specific “closed market transaction” contemplated here.
The School Committee’s appraisal, completed in a more deliberate and professional manner than what the Finance Committee put forward, recognizes the significant value created by the tenant homeowners who have bought, built and/or improved their own homes. The Lincoln appraiser wrote, “Without the tenants’ improvements, the property would not contain the 167 grandfathered cottages and its value, according to CMG, would only be $10,000,000.” The appraiser clearly states that the tenant homeowners should not be compelled to pay twice for their part in creating the current value of Little Neck.
The Lincoln appraisal offers further indisputable support for the $29,150,000 purchase price set forth in the settlement agreement between the Feoffees and the homeowners.
While the Little Neck Legal Action Committee (“LNLAC”) appreciates the good faith effort of the Lincoln appraisal, we believe that it does not appropriately take into account the potential adverse consequences to the School Committee of not affirmatively supporting the settlement agreement. The cost of not doing so includes:
The direct cost of litigating the controversy in the Probate Court. At the Town Meeting in October, an additional $300,000 was authorized. If the Probate Court litigation is not resolved, the total cost to the School Committee will be dramatically higher.
The Feoffees have already spent nearly $1 Million in legal fees on the presently stayed Superior Court class action litigation. If the settlement is not implemented and that litigation is reactivated, the four year history of no contributions by the Feoffees to the Schools will continue while the litigation drags on for many years to come.
If the Homeowners prevail, the Feoffees may be ordered to pay many millions of dollars in damages, plus interest and attorney’s fees.
Even if the Feoffees ultimately succeed in the Superior Court litigation, which LNLAC believes to be highly unlikely, they may still be compelled to pay the fair market value of each of the 167 homes on Little Neck of the tenants, which could easily exceed $16 Million.
Under either scenario, the Feoffees would be unable to provide any funds to the Ipswich Public Schools for perhaps decades to come.
We believe that the settlement agreement is fair to all parties and that a rational review will bring all reasonable and clear minded parties to that conclusion. Should that not be the case, LNLAC is willing to allow the Probate Court to make the judgment as to whether the settlement agreement is, in light of all relevant circumstances, fair and reasonable. The School Committee is aware that the Feoffees have engaged LandVest and LNLAC has engaged Petersen/LaChance Realty Advisors to update their prior appraisals. At the end of the day, we anticipate that the Probate Court will conclude that the agreed upon figure of $29,150,000 is more than justified and supported by a careful review of the four appraisals at issue. We appreciate the deliberate approach taken by the School Committee and believe that responsible and professional analysis will be demonstrated by its members. We await the conclusion and closing of the settlement that will allow the School Committee and the school children for which it is responsible, to benefit from what we are advised will be the largest investment trust for any public school system in the commonwealth.
Mark DiSalvo and William Gottlieb
Little Neck Legal Action Committee
So what do you think? Should the 2010 Ipswich citizens be in favor of selling this piece of land to the LNLAC at $29 million? $40 million? $70 million? Or is this a priceless asset that ought to be kept, to serve its intended purpose for future generations of Ipswich students? Should the Feoffees sell it, or simply collect, month in and month out, the market-value rent of the land?
Is there a statute of limitations on how long a public-spirited gift with growth potential should remain an asset for the benefit of the schools, or is the LNLAC arguing that the value of this gorgeous piece of land has peaked, to stagnate forever, and they're willing to accept the downside and the upside for a mere $30 million?
I just can't imagine how the discussion has ever gotten this far. This asset was never to be sold. And were the trustees to stop wasting it -- permitting tenants to remain without paying roughly market rent -- the schools would, as the donor intended, have a fine -- and growing -- income, forever. "The largest investment trust for any school in the commonwealth" will provide a fine income to a lot of investment brokers and firms, but an inferior and declining income for the schools. (Think about what the schools would have in 2010 if the trustees of, say, 1933, had sold Little Neck and invested the proceeds. What do you think that fund would be worth now? Remember the question: where are the customers' yachts?) Keep the asset. Collect the rent. Repeat annually.
The alternative? Sell it to the tenants now, and then watch some private equity or hedge fund swoop in and double the tenants' purchase price -- on a down payment made with escrowed rent! -- and then watch the investor hold the asset until the market improves and they can develop it. A win for the tenants, but what about the rest of Ipswich, and the intended beneficiaries?
The Social Security Administration released some interesting information a few weeks ago (and corrected it after David Cay Johnston called attention to some anomalies in the data, which turned out to have resulted from false W-2's from two individuals; what's reported below is the corrected data) on 2009 wages.
First, here is a summarized table of the 150.9 million individual wage earners in 2009.
75% of wage earners earned $50,000 or under; 25% earned less than $10,000
Nearly 94% of wage earners earned less than $100,000. (Is this how you pictured it?)
The 6.3% of us who earned over $100,000 received over 30% of the wages.
In total, 32% of wage earners deferred any wages; the deferrals equaled just 3.56% of aggregate wages.
Net Compensation Interval
Number of Wage Earners
Percent of Total Wage Earners
Cumulative Percent Wage Earners
Percent of Aggregate Wages
Cumulative Percent Aggregate Wages
$0 to $10,000
$10,000 to $30,000
$30,000 to $50,000
$50,000 to $100,000
$100,000 to $500,000
memo: contributions to deferred compensation plans
These data do not include funds received by hedge fund managers which most of us would consider wages, but which get treated as capital gains, and taxed at a much lower rate than do all but the lowest wages. It would be interesting and useful to see those data arranged next to these.
One might use these data to consider whether there should be a separate bracket for higher incomes. Keep in mind that these are individual wages, net only of 401(k) type deferrals of income, not adjusted gross income at the taxpayer/household level.
The next table examines the amount of wage income which is represented by the portion of wages over $100,000, just below the current level at which one stops paying social security withholding.
Net Compensation Interval
Number of Wage Earners
Percent of Total Wage Earners
Cumulative Percent Wage Earners
Aggregate Wages over $100,000
Percent of Aggregate Wages
Cumulative Percent Aggregate Wages
$100,000 to $500,000
14.10/85.90 = 16.4%
So how does all this relate to this blog's focus on Land Value Taxation?
The focus is on smart, just, efficient taxation -- and on ending the privileges which enrich some people and impoverish the vast majority of us.
Many of the ways that people "earn" large salaries are in large part the result of our permitting privileges: the privatization of the value of natural resources; the privatization of the value of urban land; and structures which permit some sectors of the economy to skim off value created by all of us. (Did anyone yell FIRE?)
We have to hold the feet of our elected representatives to the fire: make it worth their while NOT TO obey the requests of their huge campaign contributors and TO listen to the rest of us and reconfigure the structures which funnel wealth and income into the pockets of the currently-and-traditionally-privileged folks.
Are you ready?
I think there were some signs in this recent midterm election that voters in several states were not bowled over by the well-constructed advertising and heavy media buys of some very rich candidates for office, and I find that encouraging. Connecticut's Foley and McMahon, California's Fiorino and Whitman, and a number of entities enabled by the Citizens United ruling by the Supreme Court spent large amounts of money, with very uneven results.