LVTFan's Blog

People's Budget Day: the Centennial

A friend in the UK gave me permission to share his post here.  You might explore Winston Churchill's writings on the subject, entitled "The People's Land" at wealthandwant.com/docs/Churchill_TPL.html.  I'm on the fly today, and didn't copy in Jock's links.  You might want to go to his original to pursue them!

http://jockcoats.me/peoples_budget_day

People's Budget Day
tagged with:  * Land Value Tax    * 1909    * common birthright   * economic liberalism    * geo-libertarian   * Henry George
* house of lords   * liberalism   * lloyd-george  * Revolutionary Liberalism  * tax   * welfare state

Just a brief post to recall that today, 29th April, is the hundredth anniversary of David Lloyd-George's 1909 "People's Budget". Thanks to the wonders of the interwebs you can now read the whole budget online.

He ended (the main section - in the "Balance Sheet" section) with these words which have stood for a century accusing his successors of all parties for not having solved the problems he set out on the road to do:

"This, Mr. Emmott [in the chair of the Ways and Means Committee to which the budget was addressed], is a War Budget. It is for raising money to wage implacable warfare against poverty and squalidness. I cannot help hoping and believing that before this generation has passed away we shall have advanced a great step towards that good time when poverty and wretchedness and human degradation which always follow in its camp will be as remote to the people of this country as the wolves which once infested its forests."

From the financing of the newly created Old Age Pension and Disability insurance to the funding of the preparations for real war in the form of spending on Dreadnought battleships there was much for Lloyd-George to find in his budget. He didn't miss a trick, and more or less anything that could conceivably be taxed was, in many cases for the first time, taxed.

But for many of us it is for what ended up not being taxed that this budget is most remembered. The debate surrounding this budget, with speeches up and down the country by Lloyd-George himself and more notably perhaps Winston Churchill, must be one of the best documented in history, for it was a first attempt to implement some permanent form of Land Value Taxation. A tax shift that Churchill described as:

"the new attitude of the State towards wealth. Formerly the only question of the tax-gatherer was, "How much have you got?" We ask that question still, and there is a general feeling, recognised as just by all parties, that the rate of taxation should be greater for large incomes than for small. As to how much greater, parties are no doubt in dispute. But now a new question has arisen. We do not only ask today, "How much have you got?" we also ask, "How did you get it?

• Did you earn it by yourself, or has it just been left you by others?
• Was it gained by processes which are in themselves beneficial to the community in general, or was it gained by processes which have done no good to any one, but only harm?
• Was it gained by the enterprise and capacity necessary to found a business, or merely by squeezing and bleeding the owner and founder of the business?
• Was it gained by supplying the capital which industry needs, or by denying, except at an extortionate price, the land which industry requires?
• Was it derived from active reproductive processes, or merely by squatting on some piece of necessary land till enterprise and labour, and national interests and municipal interests, had to buy you out at fifty times the agricultural value?
• Was it gained from opening new minerals to the service of man, or by drawing a mining royalty from the toil and adventure of others? 
• Was it gained by the curious process of using political influence to convert an annual licence into a practical freehold and thereby pocketing a monopoly value which properly belongs to the State — how did you get it?"
  

That is the new question which has been postulated and which is vibrating in penetrating repetition through the land."

Michael Kinsley - The Senate's Estate Tax Debate

Michael Kinsley - The Senate's Estate Tax Debate - washingtonpost.com.

The online article is titled "Democrats for Rich Heirs?":

But why the populist fury over those AIG bonuses of a few million dollars while no one seems to care much about billions being transferred through inherited wealth? The obvious answer -- that there's a difference between what people do with our hard-earned money and what they do with their own hard-earned money -- isn't actually as persuasive as it seems.

Perusing the Forbes 400 list of America's richest people, it's striking how few of them made the list by building the proverbial better mousetrap. The most common route to gargantuan wealth, like the route to smaller piles, remains inheritance. The ability to pass money along to your kids may motivate many a successful executive or investor to work harder, but it can't possibly motivate those kids to inherit harder in order to pass it along once again.

Dozens of Forbes 400 fortunes derive from the rising value of land or other natural resources. These businesses are fundamentally different from mousetrap building. Land does not need to become "better" to increase in value, and that value increase doesn't produce more land. Yet other fortunes depend directly on the government. The large fortunes based on health care and pharmaceuticals would not exist if not for Medicare and Medicaid. The government hands out large fortunes even more directly in forms as varied as

• cable-TV franchises;
• cellphone licenses;
• drilling, mining and mineral rights;
• minority small-business loans; and
• other special treatment.

LVTfan here: The privilege of calling OUR natural resources MINE is a major one, and we're so used to it that we don't even notice it.

The oil revenue  (and other like revenue -- see Mason Gaffney's article, The Hidden Taxable Capacity of Land for a listing of some of the things which the classical economists would recognize as land), that currently flows to individuals -- be they Jed Clampetts, or large property owners rural or just choice-land owners urban -- or corporations (ditto!) should be treated as OURS.  Then we wouldn't need to tax wages so much -- and maybe not at all.

And we'd all have an equal opportunity under such a scenario.

Marketing the Goodness of God

This single-paragraph blurb comes from the October 13, 1906, issue of The Public, a weekly newspaper published by Louis F. Post.   The dollar figures may be out of date, but the observation is quite current:

James J. Hill has bargained to sell a large collection of ore deposits for $400,000,000 — the equivalent of the labor of 80 million men for a day, of a quarter of a million for a year, of 10 regiments for 20 years, and of one man for seven times the historical period of the world, at the liberal average wages of $5 a day. When did God give to James J. Hill those ore deposits and consequently the control over all that labor of mankind?

Post script, from the same issue:

OUR NATIVE LAND.

Chicago Daily News, (Ind.).-Oct. 6.— An extraordinary transaction was completed in New York yesterday when James J. Hill sold to the United States Steel corporation many millions of tons of iron ore for many millions of dollars. It was Hill's ore because he had come into control of the land containing it. Now the ore passes to the great steel company at a price that is satisfactory to Hill. In the next hundred years or so the ore will be transformed into iron and steel and will be purchased by consumers all over the world at prices fixed by its manufacturers. Since the one huge corporation has now obtained control of practically all the great ore beds within its field of operations it is in fair condition to fix extortionate prices for its products. Such mineral lands as still are a part of the public domain should be retained by the government as affording the public some protection against private monopoly.

and from a later (11/10/06) issue:

WHERE'D JIM HILL GET IT?

From the St. Louis Mirror of October 25, 1906.

What is believed to be the largest transaction in the history of this country was the sale of approximately 760,000,000 tons of iron ore on October 6 to the United States Steel Corporation by President Hill of the Great Northern Railroad Company. It was said that the deal was accomplished by five men in two hours' time at the New York office of the Steel Trust. This is interesting. Who gave Jim Hill his title to that iron ore? What right had he to that wealth of the earth?

Does it actually belong to anyone—this wealth— until some one by labor has dug it out for the use of mankind? Does it not actually belong to all the people? Should not all the people have the benefit of that natural wealth in the land? Should not the value of it be taxed into the public treasury as the value of a natural resource, leaving to whomsoever might develop the field all the profit that might hereafter accrue from the working? Who made this wealth? Not Jim Hill. Did he buy it? No: he bought only the right to keep it out of the possession of others until such time as increased demand for such wealth might enhance the value of the product. And now he turns it over to the United States Steel Corporation in order that that corporation may keep the field out of occupancy and productivity lest its output under the working of others should prevent that corporation from keeping up the profits on the restricted output of the other iron fields under their control.

If this vast field were taxed to its full value, not only as mere land but as land covering and containing iron ore, think you that it could be held out of use at any profit? Not at all. Either the field would be worked by others or the occupants of other fields would reduce their prices on the product of those other fields. If a tax on the value of the iron lands were levied heavy enough to make it necessary either to work the fields or quit holding them, wouldn't there be 750,000,000 tons of free iron ore threatening the profits of the existing and now worked fields? There would. Would not that materially weaken the Steel Trust? You bet it would. That ore value belongs to the people so far as it is ore land. All values coming to those who might bring it into the service of the public would rightly belong to such servitors of the public. But as it is, the value goes to enhance the value of other iron fields, simply by keeping this field out of use. This iron is used by non-use to put up the price of other iron and steel. The public's property is used as an engine to plunder the public by means of high prices.

This tremendous transaction is a beautiful example of the evil that is wrought by our failure to get, by taxation of land values, the benefit for the public of the values of the public's own possessions. The forestallers of the land and the engrossers thereby of the land products are the vampires draining the body politic of its public wealth. Why not drive these vampires away by a trial of the Single Tax?

Should Landlords Share in their Tenants' Profits? Should our Urban Landlords be Society's Big Winners?

NYT 2/1/09: Recession Has Landlords of Retail Tenants Extending Discounts of Their Own

As you read this, think about what contributions each landlord mentioned -- or any other you know -- has made to society, in his role as landlord, during his ownership of his building and land, be it 3 years, or 30, or even 300 years.  Think about how we have our incentives set up.

a few lifts to provide the flavor:

That area is now one of the city’s liveliest late-night strips, which made it particularly painful for Ms. Gillis to receive an eviction notice last month because she owed $13,556.26 in back real estate taxes. But in a sudden change of heart, her landlord recently offered to let Ms. Gillis stay for two more years, and even proposed paying part of her future real estate taxes — which retail tenants normally pay. ...

Just a year ago, the owners of New York’s most coveted retail and restaurant spaces held almost unassailable power to dictate the terms of their leases. But the recession is changing that equation, as rapidly rising vacancy rates and bankruptcies are making it hard to find new tenants.

And so some small businesses are finding a silver lining in the recessionary clouds: they suddenly have leverage with their landlords.

Six months ago, for instance, the landlord of the Holland Bar in Hell’s Kitchen terminated the lease because he was confident of finding a higher-paying tenant or developing luxury condos. But when he found no takers, he offered the space back to the bar, at a 20 percent increase in rent. The Holland reopened last week.  ...

That does not mean that all of the city’s landlords, whether in upscale Manhattan districts or shopping strips in Brooklyn and Queens, are cutting their tenants a break; many shops are still facing sharply rising rents as leases come due.

Indeed, many landlords find themselves in a bind because they paid stiff prices for property in recent years and need to cover hefty mortgage payments. On average, Manhattan landlords paid $3,348 per square foot for retail properties in 2008, compared with $538 per square foot in 2004, according to the brokerage Cushman & Wakefield.

The Landlord's OTHER Prayer

In June, I posted a Landlord's Prayer, published in Henry George's weekly newspaper, The Standard, on January 22, 1887.  That one was for landlords to be prayed by others, and appeared in Anglican prayerbooks.  Now, another prayer, this one for the use of landlords, which apparently appeared in the London Democrat, and was picked up in the very first issue of The Standard, on January 8, 1887, recently posted at http://savingcommunities.org/docs/george.henry/standard0101.html:

Lord, keep us rich and free from toil,
For we
Are honored holders of Thy soil,
Which democrats would now despoil
With glee.
O! Lord, our fathers got the land
For serving those whom Thy right hand
Had chosen to be great and grand
As kings.
Tho' ta'en by force, we're not to blame,
Thou know'st, O! Lord, it is a shame
To say to us - of titled name,
Such things.

Lord, let us live in wealth's content,
And peace!
Lord, we are by Thy mercy meant
To rule mankind, and make our rent
Increase.
The birds that haunt the moors and hills,
The fish that swim in streams and rills,
The beasts that roam as Nature wills,
We own;
E'en Lord, the minerals that lie
Beneath the earth's periphery
Belong to us! Thou knowest why
Alone.

- London Democrat

Tom Friedman, NYT 11/26/08 - All Fall Down

Tom Friedman, NYT 11/26/08 - All Fall Down

I spent Sunday afternoon brooding over a great piece of Times reporting by Eric Dash and Julie Creswell about Citigroup. Maybe brooding isn’t the right word. The front-page article, entitled “Citigroup Pays for a Rush to Risk,” actually left me totally disgusted.

Why? Because in searing detail it exposed — using Citigroup as Exhibit A — how some of our country’s best-paid bankers were overrated dopes who had no idea what they were selling, or greedy cynics who did know and turned a blind eye. But it wasn’t only the bankers. This financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial ethics. So many people were in on it:

• People who had no business buying a home, with nothing down and nothing to pay for two years;
• people who had no business pushing such mortgages, but made fortunes doing so;
• people who had no business bundling those loans into securities and selling them to third parties, as if they were AAA bonds, but made fortunes doing so;
• people who had no business rating those loans as AAA, but made fortunes doing so; and
• people who had no business buying those bonds and putting them on their balance sheets so they could earn a little better yield, but made fortunes doing so.

Citigroup was involved in, and made money from, almost every link in that chain. And the bank’s executives, including, sad to see, the former Treasury Secretary Robert Rubin, were clueless about the reckless financial instruments they were creating, or were so ensnared by the cronyism between the bank’s risk managers and risk takers (and so bought off by their bonuses) that they had no interest in stopping it.

These are the people whom taxpayers bailed out on Monday to the tune of what could be more than $300 billion.

While I don't disagree with anything Friedman has said here, he -- and most others --- have omitted a major group of beneficiaries who made individual fortunes, enabled not just by these lending practices but also by our tax practices.

The beneficiaries to whom I refer are those who reaped a much higher price on the homes and land they sold during this period of relaxed lending rules. 

• They are the people who were enabled, by the relaxed lending practices, to move up from a starter home to a larger, newer, or -- more likely -- better located home. 
• They are the heirs of seniors whose estates sold homes for far more than they would have been worth had there not been lax rules elsewhere in the system. 
• They are the people who borrowed against home equity to finance their children's tuition bills, or to customize their homes, or to travel.
• They are the large builders of housing who were able to sell even distantly located subdivisions at high profits because buyers could put nothing down and borrow large sums relative to their incomes, particularly when commuting costs were taken into account.

Our tax system leaves the windfall in the pockets of those beneficiaries, and even treats them as if they were brilliant tacticians, deserving of their windfalls, which often represent more than one's annual gross earnings from work!

And I doubt that Mr. Friedman would call attention to the fact that houses and other buildings do not appreciate.  They're never worth more than what it would cost to build them today, and they depreciate at 1.5% per year.

What rises in value is land, and it rises in value for reasons which have nothing at all to do with the current holder of the land.  His neighbor and his tenant contribute no more and no less than he does.

Who benefited?  Landholders, large and small -- and most especially large -- and the mortgage lenders.  The FIRE -- finance, insurance and real estate -- crowd made out like bandits, and those most hurt were those who tried to jump on the bandwagon.

The answer, though, is not to increase homeownership so that more of us get to participate on the fringe, but to share all land value among all of us, just as if we held it to be self-evident that we all -- as well as the next child born -- are created equal.  The most valuable land is usually commercial land in our major cities, and its ownership is quite concentrated.  We treat its holders as if their property rights actually rightly included the economic value of the land, and many great fortunes have been made on the assumption that we will never, as a society, recognize the wrongness and widespread effects of this system, or realize how simple it would be to make the necessary correction.      

How do people who are created equal share resources equitably?

7 people, all paying the same price, are sharing a 7-bedroom apartment.  Not all the bedrooms are of equal size.  How should the scarce resource -- the larger bedrooms -- be allocated?

One approach is to say that whoever arrives first gets to claim the room he wants, and call it his own.  The last to arrive takes whatever is left.

Another approach is to say that the oldest person gets to claim the room he wants, and then the next oldest, and so on.

A third approach is to draw straws, so that the privilege is randomized.

A fourth approach is for the extra value attached to the choicer rooms to be valued, and for those who want the better rooms to bid for them, and to pay into the common treasury the excess value, to fund something that benefits the entire apartment.  Alternatively, the payment could go to the person who gets stuck with the least desirable room.

A fifth approach is to rotate rooms part way through the year in some way that gives everyone equal access to the prime resources.

A sixth approach is to add up the total square footage -- if that is the only difference among the rooms -- and then have each person pay their share based on their share of the total.  Those with larger than average spaces would pay those with smaller than average spaces.

How do we run our society? We permit those who arrive first to choose their spaces, and keep them forever.   Their heirs, if they don't want to live in them, can rent them out to others, or sell them to the highest bidder, and the next child who doesn't stand to inherit a place to live and a place to work needs to enter that bidding, and mortgage the next 30 years of his wages.

We hold these truths to be self-evident, that all of us are created equal.

Fannie & Freddie: Privatization of Gain, Socialization of Loss: Who Benefits?

Who benefits from the ways we protect Fannie and Freddie's shareholders?  The Wealth Concentration Tables on wealthandwant.com wil give you a pretty good notion.  Unless, of course, you think for some reason that Fannie and Freddie's shares are held strictly by poor widows and orphans in the bottom 90% of the wealth spectrum, different from other equity holdings. [Cut to the chase: the bottom 50% of us hold 2% of the value.  The next 40% of us hold 26% of the value.  The top 10% hold the remaining 72%]

Consider also the advice that a prudent investor should not be concentrated in a single stock or sector, particularly if one is employed in that sector, as the employees of Enron learned very publicly not all that many years ago.

So whose portfolios are we protecting when we give gifts from the commons to the shareholders of Fannie and Freddie?  The poor widow whose advisor suggested she invest in those two stocks?   Right.

Leona Helmsley’s Fortune May Go to Benefit Dogs

Link: Leona Helmsley’s Fortune May Go to Benefit Dogs

The living and the dead, the human and the canine.

Leona Helmsley and her husband Harry individually and together accumulated billions of dollars worth of New York City real estate.  Who is entitled to that fortune?

The Landed Gentry

We hear the phrase "the landed gentry" from time to time, often in the context of first-time homeowners, lyparticularly those who have bought  in a neighborhood undergoing "gentrification."

But what does it mean to be the landed gentry?  What is it that matters about being landed?  And what is "gentry"?

Why Smart People should shun the "FairTax" concept

I came across a piece entitled "Why Democrats should love the FairTax," written by Laurence J. Kotlikoff, a professor of economics at Boston University, an economic adviser to Mike Gravel and a consultant to FairTax.org.

I continue to be amazed how even economists, who should know better -- far better -- than to even think about a sales tax as a solution to anything, can be in favor of such an alternative.

How much is your home worth?

I'm talking about its dollar valuations; "priceless" is not one of the options here  (And think about the trouble that the MasterCard ad series has gotten us into: that using credit to afford a "priceless" family experience is a wise thing to do.)

We get a lot of different valuations on the same piece of property, and it is worth looking at all of them, and understanding the differences among them and the significance of the various figures.  I'll list all the valuations I can think of, and hope you'll add others in the comments.

Fixing Wages, and Fixing Housing Affordability -- for All of Us

By this, I mean fixing the problem of low wages -- wages insufficient to support an individual or a family in conditions we consider acceptable on a reasonable number of hours of labor per week.  I don't mean minimum wage legislation, or living wage legislation, both of which I regard as well-intentioned but ultimately destructive for the community they intend to help.  I don't mean measures like the Earned Income Tax Credit, either.  It appears that people must jump through high hoops to get those dollars (which often seems to require professional advice, at a price), and then a significant portion of the money goes not to the wage earner but to his tax preparer/advisor, in the form of fees and interest.

Working harder, making others richer

Bob Herbert wrote, in his 3/11/08 column entitled "Sharing the Pain", in part,

The American dream is on life support because men and women by the millions who want very much to work — who still have in their heads the ideal of a thriving family in a nice home with maybe a picket fence — are unable to find a decent job.

For years, families have been fighting weakness on the employment front with every other option imaginable.

• Wives and mothers have gone to work.   
  
• People have been putting in more hours and working additional jobs.
• And Americans have plunged like Olympic diving champions into every form of debt they could find.

Who has gotten the benefits of women spending many more years and many more hours per year in the workplace?  Who has benefited from Americans carrying more and more debt?  How does this relate to the run-up in the price of housing?  I said I'd write about these issues in another post.   This is it.

Fortunes Made in Real Estate

Americans have a tendency to respect those who are "self-made men."  This seems to include people whose fortunes have been made in real estate.  The latest example in the news is the outgoing governor of New York, whose father, Bernard Spitzer, reportedly has a $500 million portfolio of properties, most or all in NYC.

I have nothing against real estate developers in their role as developers.  They bring large amounts of money and multiple talents to bear to create new modern buildings on sites previously occupied by more modest buildings suitable to another decade or century. And when they build they generally create the venues in which dozens, even hundreds, of entrepreneurial visions can be made into reality, and where thousands, sometimes tens of thousands, of people can be employed in a single building.  Appropriate development of choice sites, served by existing infrastructure such as NYC's elaborate transportation system and things as prosaic as city water, sanitary sewers, stormwater runoff, and all the other systems that are paid for by we-the-people: schools, public safety, public health, libraries, courts, hospitals, etc., means that specialized work can take in the center of the central business district, conducted by people who come from a 360 degree radius.  It minimizes sprawl on the fringe, and makes the economy work more smoothly.

But there are other facets of the real estate business that I think are "opportunities for plunder" that should be restructured to serve the common good instead of the private good.  This involves a revision of our notions of what is right, what is just, what is rightly private property and what legitimately belongs to the commons.

Financing Municipal Spending through Sales Taxes: an Inferior "Solution"

Chicago will soon have the highest sales tax of any major city in the US.  Not the highest sales tax in the US -- there is a town in northeastern Alabama, Arab, which imposes sales taxes as high as 12% -- but the highest of any major city.  (Alabama's sales taxes -- designed to place the maximum burden on poor people, while making life easier for upper-income residents, particularly the property-owners -- typically tax even groceries!)   An AP article reports:

Among the things Chicago wants to be known for, having the highest total sales taxes of any major U.S. city is probably not one of them.

But that's what it's getting after the Cook County Board voted Saturday to double the county sales tax to 1.75 percent. When added to the city's sales tax, the county' increase has the cumulative effect of setting a 10.25 percent sales tax on goods bought in Chicago.

When the county rate increase takes effect in November, someone buying $100 worth of merchandise in Chicago would pay $110.25.

The rates in New York and Los Angeles are below 8.5 percent. The next highest rate in the country is in Memphis, Tenn., at 9.25 percent.

The tax increase is expected to add about $426 million annually to county coffers, and the money is meant to close a projected $234 million deficit. The budget is also designed to create more than 1,000 new county jobs.

Ricardo's Law: The Great Tax Clawback Scam

A friend alerted me to a new video on YouTube.  It features Fred Harrison, who has written a book of the same title. It describes the mechanism by which those who own choice sites frequently receive more as beneficiaries of government spending than they pay in taxes, while those who own no land, or own land in places less served by government spending, pay out of pocket.

Who Benefits From This Mortgage Mess -- and From the Proposed Solutions? Is there an alternative?

No one seems to be talking about "cui bono?" in this situation.    But there were some big beneficiaries, and I think we need to acknowledge that; and the awareness of the dynamics might just lead us in some productive directions.

The College, the Beach, and the Cottagers

Another recent news story, this one from the west coast, caught my eye.  It seems that Amherst College, in central Massachusetts, was the remainderman for an estate left by Roger Holden, a member of the class of 1919.  He died in 1968, and his widow was the income beneficiary of a trust which consisted of some beach property in Orange County, California.  Capistrano Shores is about 60 miles south of Los Angeles, in San Clemente.  The articles I've read never mention the total acreage involved, but some describe it as a 0.7 mile stretch of beach, with 90 cottages on it.   At the time of his death, the land was valued at $1.5 million.  Upon the death of his widow, Sylvia Holden Robb, title passed to Amherst, which recently sold the land for $58 million.

We can estimate the acreage.  0.7 miles works out to 3,696 feet.  An article in the San Clemente Times says that "Capistrano Shores was founded in the late 1950s as a mobile home park. The lots — which run about 1,000 to 1,500 square feet — line the northern shore of San Clemente."  Today, the homes are all manufactured homes which bear little visual resemblance to mobile homes.  Square lots of 1500 square feet would be 39' deep; square lots of 1000 square feet 32' deep.  90 lots times 39 feet works out to 3510 feet, not too far off the 0.7 mile figure.  If we figure an average of 1250 square feet (0.0287 acre) each, we find that the land is about 2.58 acres.  That means a land value, for single family housing, of about $20.7 million per acre.