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!
This appeared in the Freeport News, and I thought it worth sharing:
Why is it so hard to understand the justice and benefits of capturing the community created value of land for the community?
Classical economists such as Adam Smith and Henry George, defined land as all free gifts of nature (urban land, harbors, etc.).
These get value because people, both local and foreign, want them for personal or commercial use.
So, no matter who 'owns' the gift of nature (land) there is a location value called economic rent which is exclusive of any production on or from that location.
When economic rent goes into private hands (i.e., beaches are given away to corporations, land values are uncollected) legitimate government revenue is lost and taxes like the proposed VAT are applied to the production process.
Not only is land speculation rewarded but building houses, trading goods and services, etc. are punished by taxes.
Naturally people try to avoid these taxes by smuggling and other forms of corruption.
When economic rent goes to honest government it encourages better use of locations as there is no tax penalty to build or work.
It reduces pollution and pays for infrastructure that helped create the economic rent in the first place.
Why is this so difficult to understand? Why is there so much ignorance of it and opposition to it?
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.
ON Sunday, the best climate policy in the world got even better: British Columbia’s carbon tax — a tax on the carbon content of all fossil fuels burned in the province — increased from $25 to $30 per metric ton of carbon dioxide, making it more expensive to pollute.
This was good news not only for the environment but for nearly everyone who pays taxes in British Columbia, because the carbon tax is used to reduce taxes for individuals and businesses. Thanks to this tax swap, British Columbia has lowered its corporate income tax rate to 10 percent from 12 percent, a rate that is among the lowest in the Group of 8 wealthy nations. Personal income taxes for people earning less than $119,000 per year are now the lowest in Canada, and there are targeted rebates for low-income and rural households.
The only bad news is that this is the last increase scheduled in British Columbia. In our view, the reason is simple: the province is waiting for the rest of North America to catch up so that its tax system will not become unbalanced or put energy-intensive industries at a competitive disadvantage.
Over dinner tonight, Milton Friedman's name came up, and I commented that in about 1978 and again in 2006, a few weeks before his death, Milton Friedman called land value taxation the "least bad" tax, but never lifted a finger in the intervening years to help promote it.
The carbon tax is another good, and wise, and just, tax.
How many economists will put their shoulder to getting it enacted?
How many will simply hang out in their ivory towers?
Let’s start with the economics. Substituting a carbon tax for some of our current taxes — on payroll, on investment, on businesses and on workers — is a no-brainer. Why tax good things when you can tax bad things, like emissions? The idea has support from economists across the political spectrum, from Arthur B. Laffer and N. Gregory Mankiw on the right to Peter Orszag and Joseph E. Stiglitz on the left. That’s because economists know that a carbon tax swap can reduce the economic drag created by our current tax system and increase long-run growth by nudging the economy away from consumption and borrowing and toward saving and investment.
What would a British Columbia-style carbon tax look like in the United States? According to our calculations, a British Columbia-style $30 carbon tax would generate about $145 billion a year in the United States. That could be used to reduce individual and corporate income taxes by 10 percent, and afterward there would still be $35 billion left over.
Why on earth should the privilege to pollute OUR air be be given away for free, or for less than the social costs it imposes on us? Who benefits from such a system?
A carbon tax makes sense whether you are a Republican or a Democrat, a climate change skeptic or a believer, a conservative or a conservationist (or both). We can move past the partisan fireworks over global warming by turning British Columbia’s carbon tax into a made-in-America solution.
"A laborer turns a desert into a garden and then we increase his taxes. The speculator turns a garden into a desert and then we diminish his taxes. Verily we are a great people."
This quote is on a card for "The Landlord's Game" and I stumbled across my reminder to myself to look for its source. I found nothing definitive, but several mentions of the quote in newspapers from New Zealand from about 1894, and one from The Single Tax Review in 1914.
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
5. Water is running short in some parts of the US. How should we effectively share the water?
A. Let those who own it now continue to treat it as their private treasure. After all, they've planned on it, and we can't interfere with their plans, can we?
B. Recognize that every one of us needs water, and charge everyone for the water they use, based on the local supply and demand situation. Where water is scarce, all will pay high prices for the water they use; where the supply is generous, the price will be lower.
C. Treat water as our common treasure. Charge for it. Let the revenues flow into public coffers, not private or corporate pockets.
The historical fact that land values have been privately appropriated and that this practice has been sanctioned for many generations does not alter its inherent inequity: an ethical wrong is not converted into a right by the benediction of time or of social sufferance.
If the present generation becomes conscious of an old injustice, is it powerless to seek redress? "New time" it has been said, "oft makes ancient good uncouth."
This was in a booklet published in the early 1960s.
The Ethics of Land-Value Taxation
Louis Wasserman, Ph. D., Professor of Philosophy and Government, San Francisco State College
The question, briefly stated, is this: Should the owners of land whose rent and increments would be partially or wholly confiscated by a program of land-value taxation be compensated for their losses?
We are not bound here by what Henry George thought about the matter; nevertheless, there is probably no better position from which to launch our consideration. The answer given by the father of the Single Tax was clear and explicit: No, the landowners should not receive compensation.
Why not? Since George made so much of social justice -- asserting it as the basis of his whole scheme -- upon what grounds could he justify the confiscation of landed wealth? The answer is implicit in the very essence of his social analysis. Let us turn to his argument.
What, George asks, is the moral basis of property -- any kind of property? And he replies that this basis is to be found in the use of a man's powers to produce something of value; once he has done so, the product is henceforth his to use, to dispose of, to exchange into any tangible or intangible form. The right to property, then, is the right to the fruit of one's labor.
But this, he continues, is precisely not the situation with regard to landed property. The raw land is not produced by any man's labor: it was there before the advent of man, it is the bounty of nature to all men in common, and it is literally the foundation upon which they exert their labors. And just as the raw land is created by nature, so the value it acquires as real property is due to society as a whole -- to the growth of the community with its services, its needs, and its uses. As community-created value, then, the rental and increment derived from the natural land ought to be appropriated by the community at large and used for public purposes.
Just as a man, then, has the full right to the products of his own labor -- say a house he has built or has purchased with his earnings -- so no individual has the right to the land itself, which he has had no hand in creating and whose value is due to the aggregate of community efforts rather than to that of any single person within it. The historical fact that land values have been privately appropriated and that this practice has been sanctioned for many generations does not alter its inherent inequity: an ethical wrong is not converted into a right by the benediction of time or of social sufferance.
This, in brief, is the rationale of Henry George's appeal for the socialization of land values. It is couched in terms of natural rights, and its fundamental premise is the labor theory of property, viz., that the only true source of private property, its ethical justification, rests in the labor by which it was produced, whatever direct or indirect form it takes.
That there are practical weaknesses in this view is, of course, apparent. The labor theory of property has been shelved, since the nineteenth century, in favor of more complex and sophisticated analyses of wealth production, and it can no longer be accepted as a self-evident proposition. Moreover, the theory of natural rights upon which it rests -- although stubbornly recurrent in Western thought -- enjoys at present only a limited vogue among moderns; there is too much disagreement on specifics and, no matter what its form, such a concept is regarded as too rigid for social purposes.
Nevertheless, if we are to seek for an ethical justification for private property it is unlikely that we can find anything better than the labor theory. It is no argument against the ethical rightness of that theory that it has been historically superseded by another, or that it is insufficient to account for the complexity of the productive process, or that the division of labor has made unintelligible the product of any individual worker. No matter how greatly production has become socialized or in what manner its rewards have come to be partitioned, the irreducible element remains that of individual labor, the contribution of the hand or brain of each producer to the material and equipment at hand. It is not enough for a theory of property simply to describe its character and distribution; there must be an explanation to account for the phenomenon and some social ethical criterion to justify it. I am aware of no ethical theory, ancient or modern, religious or secular, which would deny explicit or implicit approval to the labor theory of property.
But perhaps it will be argued against any such ethical contention that private property is simply what a society has caused it to be, and that since a society is the sole source of its own ethics, the matter ends there. What then, it may be asked, is used to justify the institution: force, fraud, custom, tradition? Each of these may have its weighty explanation, but what can be said of its ethical sanction? At worst, that it has been imposed, willy-nilly; and, at best, that it represents a social arrangement sanctified by age, legality, and expectation. But the history of property, as idea, usage, and institution, is so heterogeneous among so many cultures of the past and present that the term itself can be taken to mean only that which current convention decrees it to mean. Perhaps, then, property may be best conceived, to use the phrase of Walton Hamilton, as "a conditional equity in the valuables of the community."
If -- setting aside the natural rights theory -- the ethical test of land-ownership and increment is taken to be a matter of social convention or utility, the whole issue is, of course, thrown open for social evaluation by each generation.
The present condition is that most of the usable raw land in the United States is held privately; it has been obtained by purchase, gift, or inheritance; it enriches its owners by way of direct use, rental income, or profitable sale; the community siphons off part of this income in the form of an annual property tax or, when the land is sold at a profit, by a capital gains tax.
Now, the most extreme land-value tax proposal provides that this levy upon the rental value of the raw land be increased gradually until it approximates the full rental income; at the same time, tax levies on personal property, improvements, and as many other taxes as possible would be abolished.
What ethical considerations are involved in this proposal? If we are to reject any "higher law" criteria, such as that of Henry George, we must revert to the test of "social utility" or some restatement thereof. How are the ethics of social utility to be tested in our society? The answer is quite simple: Social approval of any established practice is expressed by sheer inertia or by the rejection of proposed change; the reform of any established practice is engineered by the majority through democratic procedures. To put it starkly, the ethical judgment with respect to any social change is transformed into a political decision.
We are all, of course, familiar with the democratic political process, but it is worth recapitulation to see how a social consensus may be reached on such an issue as land-value taxation. We start with the theoretical foundations of popular sovereignty and government by consent of the governed. The working machinery includes representative bodies, public-interest groups, freedom of expression, and the media of communication employed to shape public opinion. Since every tax proposal is a matter of public policy, it must necessarily be discussed and legislated by the appropriate public body -- i.e., the state legislature, county board of supervisors, city council, or the like. Sober attention must be paid in all such cases to the variety of interests, needs, motives, preferences, and other relevant factors in the affected community in order to shape a policy which attains its purpose and yet does not alienate too seriously any important segment of the population. The final result, as registered in the legislative chamber or at the polls, is what we come to accept as public policy.
It would be too harsh a judgment to infer from the foregoing description of the democratic process that the sheer weight of numbers over-rides all consideration of private preferences. What happens instead is that personal convictions, individual ethics, and material interests are mingled and measured and tested against each other in the give-and-take of public controversy; the result is a kind of rough-hewn, but acceptable, consensus which alone can make a community viable. It is this broad consensus -- the specified or implicit assumption that the policy to be enacted is a contribution to the common welfare -- which defines the realm of social ethics in public policy making.
Nor is this political approach to be regarded cynically or derided as unworthy of decent folk. The social ethic of American society is tightly bound to the prescriptions of our prevailing Judeo-Christian and democratic-humanistic traditions, and we may draw from that source as much in the form of ideal moral principles as we are humanly able to practice. If we cannot agree upon common aims, we are at least the inheritors of a tradition of fair play as to means; and if the nature of justice is a matter of great dispute among us, we are still guided by what Edmond Cahn describes as the "sense of injustice" -- that is, a consciousness of wrongdoing and the commitment to abstain therefrom.
The social ethic of a democratic society is continually being created and revised through public dialogue, political action, and law. It is necessary only to mention such illustrations as our attitudes regarding crime and punishment, treatment of our Negro population, the status of labor unions, sex information and birth control, the training of children, the prerogatives of women, and indeed the ameliorative role of taxation, to have us realize its progressively changing character. Through the use of the democratic process the social ethic emerges as a sort of mean between the extremes of private ideals and private irresponsibility. And it is worthy of mention that not infrequently the law itself nudges us into forms of behavior more ethical than we would exercise if left to our own dispositions.
Now, taxation policy inherently affects the general welfare of a community; and the social ethics of our society have for a long time recognized a distinction (despite certain weaknesses in definition) between earned and unearned incomes. Taxing policies in the form of differential rates and other incentives have been used here and in many other countries deliberately to foster, or to discourage, certain social-economic developments. A strong case can be made, in general, for taxation as a social instrument.
There was a time when the income tax did not exist at all in this country; then it was voted in, first as law, later as a constitutional amendment. At its present steeply progressive rates, the income tax may "confiscate" up to 91 percent of excessively high earnings. But, whatever the rate applicable, it is levied predominantly upon wages, salaries, and other forms of productive enterprise. Would an increased tax upon the socially created value of the natural land be less equitable or less lacking in ethical propriety?
I am, accordingly, unable to find any ethical barrier -- either of higher law principles or of social utility -- raised against the proposal to recapture more fully the rental income and increased increment of the land. There is, indeed, a strong rationale in its favor, especially since it would lead to the reduction of more burdensome taxes. The problem is one of social engineering; it is a decision to be reached solely upon its merits in the political realm.
That there is now, and will be, strenuous opposition to such a program is of course only too clearly evident. Without assuming the mantle of righteousness in prejudging the conduct of others, I would nevertheless venture to say that the main difficulties in enacting land-value taxation will stem principally from the following groups. First, and most importantly, opposition will come from those who derive their incomes wholly or primarily from landholdings and from speculative profits thereon. No argument concerning indirect, long-range benefits to them and others would suffice to soften their antagonism unless they stood to gain equally from a lightening of other taxes. Then there is the large group whose simple inertia would inhibit any such contentious reform in taxation policy. It is difficult to enlighten and energize this inert portion of any community unless the immediate benefits are made clearly, directly, and concretely self-evident to them. For this group there is no sharp sensitivity to the ethics of land-value taxation, pro or con. Finally, there are those in every community who have no vested interest in the change one way or the other but whose notions of propriety, of ethics, of the right to profit-making, or of general antipathy to government and reform would lead them to reject such a proposal on what are essentially ideological grounds.
If the result at the ballot box is to approve a measure to increase the tax rate on land values, it could not be denied that the social ethics had thus been expressed in a democratic manner. Similarly, if the tax increase is defeated (as has been true most often in the past), it would properly imply that the social ethics of the community did not then sanction such a proposal.
But we have so far left untouched the critical issue with which we began this discussion: that is, whether compensation should be paid to landowners whose rental incomes or increments are seriously impaired or expropriated as a consequence of the increased tax. Even if it be granted that land values ought, ab initio, to have been recaptured in full by the community for public revenue, the fact remains that they were not. And upon this practice of private ownership and appropriation there has been reared an institutional complex long approved and sanctioned by law. The present owners of land, it may be assumed, received or purchased their land in good faith and contractual expectations, often with capital acquired through alternative income channels. Are they, then, to be penalized for an ancient wrong -- if wrong it was -- which has been sanctified by the common usage of earlier generations?
But the counterquestion to this is even more cogent: If the present generation becomes conscious of an old injustice, is it powerless to seek redress? "New time" it has been said, "oft makes ancient good uncouth."
The answer, in practical terms, is to be found in the equity which can be extended to those who suffer most from social-political innovations. This is a matter to be determined by a commission of inquiry into the effects of the legislation; it should be in the minds of the legislators who draft the reform proposal; the nature of the equity to be granted will depend upon the provisions of the tax measure; and it will be affected by the give-and-take of the political process in which opposing groups make themselves heard.
Every public policy confers differential advantages and disadvantages upon those who are touched by its provisions. A decent respect for equity in the present matter, then, requires that the proponents of land-value taxation exercise their utmost ingenuity and technical skill -- not to provide direct compensation as such, but rather to devise fiscal and administrative measures to cushion the shock and to ameliorate the condition of those who stand to lose most severely by the action contemplated.
I do not make this suggestion in a spirit of vague and wishful penance for what is not certain, in practice, to be realized. Rather, I would recall to us all the wide range of creative and imaginative variations already proposed or practiced in fiscal policies and their administration, through which provision might be made without penalty to the community, for economic equivalents, direct or indirect, to landowners adversely affected by proposed land-value taxation.
The adoption of such provisions, I believe, would not only satisfy our social conscience but would do much to make land-value taxation politically possible.
How might smarter taxation be able to help Baltimore? Here's a great answer from Bill Peirce:
Steve H. Hanke and Stephen J.K. Walters explain in "How Sunday's NFL Cities Became Champs" (op-ed, Jan. 21) the recent economic success of New York, San Francisco and Boston (relative to Baltimore) by property tax limitation. Their point could have been strengthened by carrying the tax capitalization analysis one step further.
The authors point out that a decrease in the tax levied on a building results in a larger stream of net income from that building, which justifies a higher value for the building. When the existing building is worth more than the cost of building a new one, buildings will be renewed and replaced and the city thrives. That is a good argument for eliminating the tax on buildings, but cities still need revenue and they can tax the value of the land without hindering development because the quantity of land is fixed. The problem with limiting property taxes as a whole is that cities or states have resorted to more damaging taxes, including income and sales taxes. Shifting from a conventional property tax to a land-value tax would allow cities to support themselves without damaging the incentives for growth.
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:
Another goody from my grandparents' files. I searched for a version of this online, and, finding none, have transcribed it because I thought it good.
that the problems of poverty, hunger, illness and illiteracy have reached such proportions that they can no longer be neglected, and that they demand immediate, vigorous and adequate solutions;
that the rising levels of joblessness and homelessness can only be reduced through systematic adjustments that foster reversal of the widening economic gap between rich and poor;
that an adequate level of economic and social well-being must become more widespread if the political freedoms essential for a peaceful world are to be achieved and maintained;
that this requires that access to the wealth of the land, the oceans and other natural resources be made available to all on a basis of fairness and equity;
that the essential pre-requisite to solving these problems with justice for all is to relieve labor, industry and consumers of the onerous taxes they now bear;
and that this can best be done by raising revenue for public purposes from those values that are created by the public itself, namely, the economic values of land and other natural resources, which now flow as unearned income to those corporations and individuals who happen to hold title to them.
PURPOSES OF THE MOVEMENT
To fund public services from publicly-created land-value revenues, instead of from privately-created wealth, such as homes and other man-made structures;
To stimulate the general economy by lessening the need for income, sales and other kinds of taxes;
To encourage private construction of low-cost housing, industrial plants and other needed facilities by reducing taxes usually levied against buildings of all kinds;
To encourage proper maintenance of all structures by reducing the tax "penalty" usually incurred whenever major repairs or improvements are made;
To discourage land speculation, which drives up both land prices and rents, resulting in increased levels of tenancy and homelessness;
To reduce urban sprawl and the mounting pressures to convert nearby agricultural land to residential, commercial and industrial uses;
To strengthen political freedom by enabling more people to share in the economic and social benefits of owning one's own home and/or workplace; and
To reduce the risk of global war by promoting a widely-recognized remedy for a primary cause of conflict within and between nations.
I'm reading through some of my grandparents' files of correspondence; they were great correspondents, and kept carbons of their outgoing letters and originals of what they received. This is an excerpt from a 1957 letter from the executive secretary of a foundation which sponsored my grandfather's work, Vie Peterson (also a wonderful correspondent!) and was written in response to a draft of a document he was assembling as an introduction to Henry George. (A much later version of that paper is available here.)
"Should we elaborate why George insisted on one tax? He felt that the economic rent of land was the true national income. He felt any tax on production was a form of penalty on man's industry and thrift. He felt that every step forward that man makes in raising himself and in improving civilization as a whole would be reflected in land values and provide an increasing source of revenue which he believed would be sufficient for the national needs. As a family lives on a set income, George believed that a nation should do likewise. It would be necessary, it seems to me, to indicate that at the present time with the national debt so high and with other complications a tax on land values alone might not be sufficient, but the purpose of this statement is to show what George had in mind in his day which was not burdened with debt as is our own?
In another, slightly earlier, letter, Vie writes,
"... George believed that easy access to land would overcome unemployent, would eliminate reliance on government aid, and therefore simplify government structure, etc. "
This sermon identifies a/the source of something I posted a few days ago. It also fits in well with the "Earth for All" Calendar.
Man and Mother Earth Albert H. Jenkins [A sermon delivered at the Davies Memorial Unitarian Church, Washington, D.C., 7 October, 1962. Published by the Robert Schalkenbach Foundation]
When Khrushchev was here several years ago, he repeatedly said that in the United States "capitalism has replaced feudalism." Our newspapers and most of us accepted that statement as a self-evident fact, but I believe Khrushchev was mistaken.
I believe feudalism persists here in the midst of capitalism, and from this, I believe there flows a moral and economic wrong so enormous and fundamental that it is poisoning our human relations and destroying our civilization as it has destroyed other great civilizations in the past.
Of course, we do not have the outward and visible signs of ancient feudalism -- publicly recognized categories of kings, nobles and serfs. But though feudalism was a social system, it was basically an economic system also. It was the power of some men to command the labor of others through the ownership of land -- the Mother Earth of us all.
Does that power still exist today, right here in our own country as well as in others? If so, to what extent and with what results? Before we attempt to answer these questions, let us be good scientists and get our definitions straight. Let us get our mental feet on the ground and start from there.
For that purpose, we have the simple visual aids you see before you. The first is a global map of the earth. It represents what the economists call LAND.
That term includes not only the earth's surface, which is what most people think of as land, but also all of Mother Earth's other natural resources -- oil, natural gas, ores and minerals, water, and even the air we breathe. Everything on which and from which man lives and without which he cannot live, is LAND.
You will recognize the second visual aid as Rodin's "Thinker." However, I had our cartoonist put a suit of blue overalls on him. That is because he represents man as a worker of hand or of brain, or both. In short, he is what economists call LABOR.
LABOR, working on land - the surface of the earth and its natural resources - produces what is called CAPITAL. This term is represented by the railroad locomotive in the third visual aid.
CAPITAL, in the economic and real sense, is not money, nor stocks, nor bonds. It is factories, machines, railroads, trucks, ships -- anything which, after it has been produced from land, is used for further production, transportation or distribution of either capital goods or consumer goods.
Of this economic triumvirate -- land, labor and capital -- the most fundamental is LAND, because it is the source of everything else. Yet, nowadays, the land factor is almost forgotten in our economic controversies. That is understandable for several reasons.
First, in our complicated civilization, most of us are out of touch with land. It is buried under buildings and pavements in our cities. And everything we buy from outside our cities comes to us so many steps removed from the land that we seldom think of the source -- our Mother Earth.
Second, the most continuous and conspicuous economic controversies today are between labor and what labor thinks of as "capital" --the owners and managers of industry and business. Workers are in direct contact with employers in their daily lives, and winning wage raises and fringe benefits is the "bread and butter" of labor leaders.
Likewise, employers are constantly pressed by "labor problems," which concern them obviously and directly.
So it is natural that workers and employers seldom stop to think that the economic share they are quarreling about is what is left after landowners and land speculators have taken their portion, which comes first because they control the source of all things, and labor and capital can produce only by buying their permission to use the land.
That brings us to our fourth and last visual aid, this sketch. The water pouring into the bucket represents the hard-earned fruits of labor and capital working together in all stages of production. The water going out through the hole in the side of the bucket represents the unearned tribute taken by the modern feudal landlords. They get their share first. What is left in the bottom of the bucket is what labor and capital must divide between them. They quarrel over it, not realizing that both are being robbed by a third party who contributes nothing to production. Obviously, when someone gets something for nothing, someone else gets nothing for something.
Now, as our next step toward answering the question whether feudalism persists in the midst of capitalism, note this well, for it is the first of two key points:
No man created the land -- the earth. It was here millions of years before any man lived. Therefore, no man has a moral or an economic right to say to others: "Pay me for the privilege of living on the earth and using its natural resources."
The second key point is this: No man creates the money value of the land he owns. That value is created by the needs and deeds of all the people in the community and the nation, in both their private and their public capacities.
As more people are born in or move into a community, the price of the land in and around that community goes up because more people need it to live on, to buy for houses, factories, shops and other purposes. The community itself must establish streets, schools, parks, etc.
Federal and local tax money spent to put up a school, a post office, a government defense plant, or to establish or maintain a police or fire department, boosts the value of all nearby land. The man who spends his money to build a house raises the price of the vacant lot next to it. Landowners and speculators reap an unearned and increasing harvest from these activities.
In effect, they command the labor of other men through their ownership of land, and that is the essence of economic feudalism. The same is true of men who charge other men ever-increasing prices for using the oil, gas, minerals and other natural resources which, by moral and economic right, over and above the cost of extraction, should be the free gifts of Mother Earth.
Now let us bring this down to your own experience. Many of you own a house. You remember its price. Suppose it was $15,000. Little more than a decade ago, in 1950, the price of the lot averaged about 10% of the total cost of the new home. Now the lot cost has doubled to 20%, and is still rising.
At the 20% figure, the buyer of a $15,000 house pays $3,000 for the bare land on which it was built. How long does it take you to earn $3,000, or to save it out of your earnings? For that length of time, if you were that home buyer, you were the feudal serf of the man who sold you the land on which your house was built. In return for your $3,000, he gave you nothing but his permission to use land which he did not create, and the money value of which he did not create. He commanded, and if you have not yet paid off the mortgage, is still commanding, your labor for the time it takes your hard-earned savings to add up to $3,000.
And that's not all. That $3,000 was added to your mortgage. If it's a long-term mortgage, the interest you will have to pay will about double the final land cost to you. Therefore, as a result of the persistence of economic feudalism in this country, the former landowner and the mortgage moneylender are commanding your labor for as many months as it takes you to earn and save $6,000, If you live in a house as a renter, you pay the land cost, too.
Here's another example, from my own experience. In 1926 the railroad labor newspaper I work for bought a piece of land on Capitol Hill, right across Independence Avenue from the House end of the Congress building. That was an absolutely unique location having many advantages, but this land cost us only $24,000.
About 30 years later, Congress ousted us in order to put up the third House Office Building. We looked around for a site for our new building, and were offered a piece of land below Capita! Hill, across from the Capitol Plaza, and comparatively distant from the center of things and from the Senate and House office buildings.
That location is not unique in the way that our original one was and is far inferior in all respects. But the price asked was $1.5 million. That was too much for us, but later this same land was bought by the Carpenters' Union and we may suppose that they paid at least what was asked of us.
That huge sum will come out of the dues paid by the union's members. Land costs always come out of someone.
For our new building we finally bought a plot at the corner of First and D Streets, Northwest, still more distant from Congress and still more inferior to our original land, and very little larger. Yet the price was nearly $400,000.
The difference between that price and the $24,000 we paid 30 years before has to be made up by raising the price of our paper to its subscribers.
Now let us look at an example which concerns everyone of us in this room this morning. You know how hard we are trying to pay off the mortgage on the site we are buying for our church. A few years ago we would have faced no such obstacle because the price of suitable land would have been only a few hundred dollars. Ye we had to pay $16,000 for it and were lucky to get it at that.
Why? Because the owners and speculators in land for mile around Washington are holding it for unearned profits and in that way are creating an artificial scarcity of available land. They know that the population of this area is growing and that the need for land for useful purpose is increasing. So, the longer they hold out, the higher will be the prices and profits they hope to get.
What can, and what should be done to end this deadly hang-over of economic feudalism? Most liberals and labor spokesmen, unfortunately, offer no real remedy, only temporary palliatives which make the patient worse in the long run.
What they propose, and often get, are public subsidies and government guarantees to give the economic system a "shot in the arm" when it is being slowed down by rising land costs. Such artificial stimulation boosts land prices still higher, requires ever-increasing doses, and merely postpones the day of reckoning.
The government housing programs, particularly those for slum clearance and urban redevelopment, are good examples of how land profiteers are subsidized with public money supplied by the taxpayers who will take the losses if land speculators and mortgage-moneylenders run wild and cause a crash.
As a matter of fact, more and more urban redevelopment projects are being promoted by smart real estate operators. A public body buys the land at a high price, pays the heavy expense of clearing off the old buildings, then sells the land to a private developer at a fraction of the price the public body paid for it.
There just isn't enough public money to go very far in that kind of program, and slums are spreading faster than they are being cleared. Such a system has not worked and will not work.
Right here in Washington, the Washington Post recently reported that "Nathan Bernstein and his wife became the first individuals to get a piece of the vast southwest redevelopment project." They bought about three-fifths of an acre for $139,000. That's at the rate of more than $230,000 an acre, or $5 a square foot. And, since the report describes Bernstein as a small businessman, it seems obvious he got some of the least costly land in competition with wealthy real estate corporations.
Such huge land costs have two results, among others.
First, even with the public subsidies, apartments built by private redevelopers must, and do, rent for far more than can be paid by the low-income families for whom they are supposedly provided. In Washington's southwest redevelopment area, which is in this category, rents are reported to be as high as $300 a month.
Second, the comparatively low rents in publicly-built and publicly-owned housing require not only public subsidies for buying and clearing high-priced land, but also a continuation of these subsidies to keep the rents within reach of low- or even middle-income families.
Something different -- a real, fundamental remedy -- is needed. What can it be? Let us approach an answer in this way:
Slum property yields its owners profits of between 20 and 25% -- far more than any other kind of stable investment. That is largely because the more the buildings deteriorate, the lower their value is assessed, and the lower the taxes will be. Thus, the owner is rewarded for being a "slumlord" more ruthless than ancient feudal landlords.
But suppose this slumowner spends some of his money to convert his wretched old buildings into decent dwellings, or tears them down and puts up new ones? Either way he has not only increased the supply of good housing but he has also provided employment for workers in the building trades and in industries which fabricate and transport materials for construction. He has benefited manufacturers, merchants, architects, engineers and other professional men, as well as the economy in general.
Instead of being rewarded, however, this owner who redeveloped his slum property is penalized. The assessor comes around and boosts his valuation and from then on he must pay an annual fine in the form of increased taxes. In effect, he is treated as though he had committed a crime.
This tax system is upside down, according to a school of economic and moral thought fostered by the teachings of Henry George, an American, who long ago wrote a book entitled Progress and Poverty. It aroused controversy in its time, but has produced practical results in some parts of the world, and its teachings are now having a revival in our own country.
Those who agree with Henry George maintain that the man who should be encouraged and rewarded is not the one who lets his slum property run down, but the one who does a favor for everyone by improving his old buildings or tearing them down and putting up better ones.
How would this be done? By taxing the land under the buildings at its true economic value, which is usually much higher than the assessed value, and taking taxes entirely off the buildings or other improvements.
At first that may seem to be a startling thought, perhaps even an unjust one. But remember this, there is a fundamental difference morally and economically between land and buildings. No owner created his land, and its money value was created by the whole community. Is it unjust then for the creators of that value -- the people of the community -- to get the annual return on it in the form of taxes?
In contrast, buildings and all other improvements are man-made. They would not exist unless individuals had invested money and labor in them. When the community taxes them, it is taking something the community did not create.
The purpose of the tax system which Henry George advocated goes far beyond clearing slums by reversing the impact of local and state taxes. Its purpose is no less than to end persistent economic feudalism and its attendant evils. It proposes to do that by making it unprofitable to hold land out of use, or to use it inadequately while waiting for increasing population and public need to boost its selling price.
If landowners and speculators had to pay more taxes on their land, they would sell much more cheaply to people who need land for use. Thus taxes on land values tend to reduce land prices and the cost of living. In that respect, land values are unique. All other kinds of taxes in whole or in part operate to raise prices and living costs.
There is an old and true saying that "the power to tax is the power to destroy." Every dollar of tax destroys something for better or for worse. The question is what do you want to destroy -- the productive activities of labor and capital, or the feudalistic obstruction of men who command the labor of others through landownership and speculative profits?
Federal taxes as well as local taxes are full of favors for landowners and land speculators. Here is just one example:
Earned income pays federal tax rates ranging from 20 to 91%. Unearned profits from land pay only the capital gains tax, which ranges up to 25% at the most. What is more, Uncle Sam gives back to the landowner much of the local real estate taxes he has paid, because such taxes are deductible from taxable income. Thus a wealthy land speculator in the 50% tax bracket, in effect, deducts half his real estate tax from his federal income tax.
More and more people are awakening to the problem of economic feudalism and are seeking its remedy. I only wish I could say that the liberals and the laborites of our country were leading the search.
House & Home, a monthly magazine covering all phases of the home-building industry, is a Luce publication, and as such would generally be considered conservative. But on the land and tax question, House & Home is "radical" in the old American sense of that word, meaning that it goes to the root of things, seeks out and tries to remedy causes.
The Reader's Digest, scarcely a liberal magazine, recently published an excellent boil-down of the House & Home material under the title "Land Speculation and How to Stop It."
Feudal lords, big and little, are exacting more and more billions of tribute from the rest of the people. This will get worse as the population explosion puts heavier and heavier pressure on the land and other natural resources.
Warnings of this came long ago from the classical economists. One of them, David Ricardo, put it this way:
Advancing wealth and productivity bring more people, but they do not bring more land. As a result, those who own the land can command an ever greater return for an increasingly scarce resource. Meanwhile, capital and labor conflict with each other for the rest of the product, and get smaller and smaller shares while the landowners get more and more.
Therefore, Ricardo said, "the natural price of labor is that price which is necessary to enable the laborers … to subsist and perpetuate their race." This came to be known as his "iron law of wages."
Ricardo and other classical economists correctly foresaw that in times and places of rapid economic growth and relative scarcity of workers, wages could rise temporarily. But now the population explosion is on full blast and the industrial revolution, instead of creating more jobs, as it formerly did. is resulting in millions of workers who cannot find jobs even at Ricardo's "subsistence wage."
This economic insecurity will continue and grow worse until the land and tax question is answered, and answered right, for it is the inevitable result of the economic feudalism which has cursed mankind throughout the ages and lingers on in our own country.
Things move fast nowadays, and the time is growing short. Dare we delay too long in solving the biggest and most fundamental of our economic and moral problems -- the problem of Man and his Mother Earth?
Going through some old files, I came across a letter to the editor written by my late grandfather which was published in the WS J. It seems to be from late 1978. Think about California's Proposition 13 in light of its observations:
Weld Carter LTE, responds to a December 1 article entitled "Arthur Laffer's Tax Yield Curve."
Alfred Malabre's perceptive portrayal on the back page of your issue of Dec. 1 of Arthur Laffer's Tax Yield Curve and the theory he derives therefrom unfortunately has the same defect as the theory and its admirers and most of its critics. All these generalize, as though taxes were all alike. But that is just not so.
Laffer's curve tells us that at rates of 0% and 100% the yield of taxes will be zero, the maximum yield falling somewhere between these two extremes.
This may hold in the case of the income tax, although the zero point on the top side would probably be well below 100%. It is certainly not the case with excises, where, for instance, in India in the 1870s, the tax on salt almost reached 1,200%.
Nor, at the other extreme, does it hold for the property tax, where a low annual cap on the building will, over time, capture a sum whose discounted present value will be a high percentage of that present value, and where the same low rate, applied to rental property, may amount to an alarming percentage of its before-tax income.
But the most striking failure of all these theorists is their failure to analyze and describe the workings of the other part of the property tax, the part that falls on land values.
All taxes on labor and its products are harmful because they lessen incentive and, by adding to the costs of production, they lessen supply and raise prices. Likewise they are unjust as they infringe on the rightful earnings of labor and capital.
Conversely, taxes on land values are just, for land values are but the capitalization of the annual benefits from the community, net of the tax, enhanced by the expectation of future gains from the artificial scarcity created by speculation on the possibility of that rise in price of a factor, the supply of which cannot be increased by production. Moreover, the tax on land values is the only tax that encourages, that stimulates, that compels production and does that in direct proportion to the magnitude of its rate. As one of the top two economists selected for special honor by the American Economic Association at its annual meeting, held in Chicago this past August, has said: "We will never have an economically efficient economy until we have recovered in taxation at least 85% of the rent of land." (In a 5% money market, this would be achieved by a tax rate of 28.33%; in a 10% market, by a 56.7% rate on the actual market value of the land.)
It is understandable that political animals like Gov. Brown and Sen. Long should seek counsel of Laffer. The mystery is why competent economists waste their time in such distractions, instead of turning their attention to the exciting and construction potentials inherent in the study of the economics of land value taxation, especially in these times of fiscal and monetary crises.
Somehow I am reminded of the old shell game, practiced at country fairs, where the pea was under one of three shells and the facile operator moved the shells about with such dexterity that the wagering onlooker rarely could tell which shell finally held the pea. Alas! In the ongoing controversy of fiscal vs. monetary policy, there is no third shell for land value taxation. It is not even in the game!
This came by email today, from my friend Mike Curtis, and, with his permission, I'm sharing it here:
Dear friends and acquaintances:
I am daily reminded of the passage: “the only thing that is necessary for evil to prevail is for too many good men to do nothing” I just heard on the radio that science is advancing in the realm medicine, energy, and agricultural. We are now able to multiply productivity in manufacturing due to the use of robotics. Yet in spite of all the gains in material progress poverty is increasing.
“It is as though an immense wedge were being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down.”
“This association of poverty with progress is the great enigma of our times. It is the central fact from which spring industrial, social, and political difficulties that perplex the world, and with which statesmanship and philanthropy and education grapple in vain. From it come the clouds that overhang the future of the most progressive and self-reliant nations. It is the riddle which the Sphinx of Fate puts to our civilization and which not to answer is to be destroyed. So long as all the increased wealth which modern Progress brings goes but to build up great fortunes, to increase luxury and make sharper the contrast between the House of Have and the House of Want, progress is not real and cannot be permanent. The reaction must come. The tower leans from its foundations, and every new story but hastens the final catastrophe. To educate men who must be condemned to poverty, is but to make them restive; to base on a state of most glaring social inequality political institutions under which men are theoretically equal, is to stand a pyramid on its apex.”
Henry George 1879 (Progress and Poverty)
I am not running for political office, but if I can enlighten anyone, I believe my efforts will have been worth it. The following my reaction to the prevailing wisdom from all the presidential candidates, including the one in the White House.
If you think my thoughts are worth consideration, please let me know, and forward them to others. If you think I’m wrong, please let me know where I went wrong.
Taxes kill jobs
"Taxes kill jobs" is the message of political candidates. The American economic system causes unemployment and recessions; that is true, but without revenue and the role of government the U.S. would surely be a third world country.
However, there is one tax system that actually creates jobs. It’s not based on the socialistic principle of “Ability to Pay,” like most of our taxes. It’s based on the value of the “Benefits Received” by the tax payer. It’s doesn’t confiscate a percentage of income, taking more from those who have a greater income, even when the benefits they receive are the same as others. It doesn’t tax wages, which are the earned income of labor; it doesn’t tax buildings, machines, or inventories, which were acquired from the people who made them; It doesn’t tax sales or consumption, which is the only reason anyone produces anything.
It is simply a charge for the value of the opportunities to which the taxpayer has been given exclusive control. It is a tax on the value of land. It can be taxed at 100% without in any way adding to the cost of production. It doesn’t add to the value of land or the value of things produced on the land. It simply collects what would otherwise go to the holders of land as an un-earned income when the land is actually used.
It insures that the government has ample revenue for the legitimate needs of society, while limiting the government to those values which cannot be attributed to the efforts of individuals or corporations, but are socially created by the community as a whole and attach to the land. It cannot be evaded, because the land cannot be hidden.
The reason wages no longer rise as inventions and new technologies increase the results of labor is because people have no independent way to employ themselves.
If you’re among the least skilled workers, no matter how little machines cost or how much those machines increase the results of your labor, you have to bid against other people who want the same job; the result is that wages tend to a bare minimum -- superseded by the legal Minimum Wage.
For workers with superior skills and knowledge, those with whom employers can increase their profits, it is simply a matter of supply and demand. The higher the pay, the greater the incentive to learn the skill and acquire the knowledge. The wages of any qualified worker will be determined by two opposing factors. First, the demand for the goods or services they produce will encourage employers to offer wages that tend to equal the greater value of their contribution to the product or service. But, as the higher pay stimulates others to acquire similar skills and knowledge the increased supply of superior workers competing against each other, brings wages down until the wages that reward the special skill are no longer high enough to stimulate others to acquire the same skill and knowledge required for the job. Remember when computer programers earned twice what they do now? The supply increased and their wages went down. They still make more than the average worker, because it’s not so easy to learn computer programing. The supply has not exceeded the demand.
Although the vast majority of workers have no way to employ themselves, and the general level of wages haven’t increased in 40 years, it is not a natural law that wages will always tend to remain static. The United States has 700,000 square miles of arable land. That is less than 450 people per square mile. France has more than 850. The U.K. has more than 2,500 and Japan has more than 7,500 people per square mile.
All production takes place on land. The reason why more workers are looking for employment than landowners are looking for workers is that an enormous portion of the arable land in America is unused or grossly under used; simply held as an asset.
Suppose that cities were developed to their full potential. The slums with empty houses and abandoned factories were redeveloped to their full potential; the surface parking lots were replaced with multi-story parking garages; the grossly underdeveloped sites in the high-rise business districts were put to their highest and best use. Suppose the suburbs were carefully planed and developed with wooded and open parkland instead of relying on land speculators posing as farmers to provide open space; suppose we eliminated sprawl with its leapfrogging patterns that increase the cost of the infrastructure, waste land, and separate people from work and social relations; suppose we created a disincentive to hold idle, mineral land that increases in value. That is to say: What would happen if the majority of now privately held idle land was put to good use? It would generate an increase in the demand for labor and create job opportunities for everyone who was willing and able to work.
What is required is a shift from confiscatory taxation, which we now have, to a revenue system that is based on the value of land, which measures the value of the benefits received by landholders from society. Land values include the surface rights, mineral rights, and all other natural opportunities like the electromagnetic spectrum used for communications.
Under this proposal, the rental value has to be paid whether the land is used or not. While the payment of rent is a payment for a benefit received, for those who leave their land idle, it becomes a penalty, and that insures an ample supply of land for all who need or want to use it.
It also insures that all workers and the owners of productive capital get to keep everything they produce by taking advantage of the natural opportunities that are equally available to everyone else.
While I'm glad to see our troops coming home from Iraq, I think we ought to be very conscious that our spending large amounts of money there is continuing. I think it is fair to assume that the private contractors have large amounts of corporate or "small business" profits built into their invoices to we-the-people.
We're paying for their pensions, their life insurance, their health care, and their not-trivial "wages." The lowest-paid contractors are probably receiving wages approaching those of mid-level military, and benefits far superior. Their management is likely taking home compensation many times what we pay our President.
I realize that some will think this is a fine thing, but I submit that its costs to our society are non-trivial.
Sometimes public employees are the best people for the job. There is a lot less fat in our military than there is in private-sector substitutes.
Let's not fool ourselves about Iraq.
"Out of sight, out of mind" sometimes gets translated by the naive as "blind and crazy."
Daddy Warbucks. Daddy "peace"bucks?
We ought to be getting a monthly accounting of the dollars flowing, and to whom they are flowing.
THE SINGLE TAX. Bolton Hall, Secretary of the New York Tax Reform League, in Tax Reform.
The cautious man turns upon the proposals of the reformer the same cold light of commercial interest which he uses in buying and selling. If the plan, however plausible, seems revolutionary, impracticable, experimental, or in other ways fails to stand this test, he promptly rejects it. It is to this intuitive sense that the advocate of the straight tax on land values appeals. From this point of view the taxation of personal property is universally condemned as applied to anyone's own case. Like a boil or an income tax it is considered wholesome only when borne by someone else. Conservative economists have exhausted the dictionary in denouncing the "injustice," "futility," "injury," "demoralization" and "oppression" of the general property tax. It is enough to say here that to attempt to collect such a tax is commercial suicide and economic idiocy.
The progressive income tax is a beautiful theory, and might do nicely if it could be fairly collected and did not require particulars of a man's private affairs which only his wife should ask, and which only the Lord could answer. However attractive or possible such a tax may seem to those who would themselves be exempt, the American people will have none of it.
Taxes being merely the expense of running the Government concern, a tariff as a tax will hardly commend itself to business common sense. Suppose your manager were to state in his report that the part of the gross receipts used up for expense was estimated at from 5 to 40%; that it was uncertain when, how, or in what proportion this expense was borne, or how much went for collecting it, or whether it might not be doubled or halved by a change of political power; that it was a disputed point even whether this concern or the one over the river paid it at all, as outsiders might have to pay it all, while we paid a part of their expense. Would not a business man say: "That is too complicated; I suspect that you are a thief; I must know just what, when, and how much I pay and what I pay it for." As charities, or as punishments, or as subsidies, tariff and excises may do, but as taxes they are a dead failure.
Well, if you are so precise, says our manager, we can fix it this way; everyone who puts up a building, or a fence, or a machine; who furnishes work, improves the town, or makes food and clothing cheaper; or works hard or saves, shall pay a fine, and if any county does not give up enough, we will have a Board of Equalization to add to its share. If anyone has a fine house or a fine horse, or smokes nice tobacco or wears pretty dresses, tax him or her. If people have luxuries or comforts make them pay for them — pay for them twice. I mean — then they won't have so many luxuries or pleasures, and we will all be much richer and meaner and idler than we are now, and — Does that look like sound business? You say you would kick him out.
Now our business plan is this: Don't upset anything; but don't tax anything that can run away or be hidden or discouraged by the tax. Whoever has any special privilege over others, let him pay the value of it to the rest, whether it is coal land or mines, or franchises or water power or oil fields. Tax the only thing there is left to tax — the bare earth; it lies out of doors; nobody made it, everybody knows what it is worth; even the farmer knows that his part is worth next to nothing compared to a city lot. Well! if that seems like good sense, a smart man would look to see what sort of men advocated his plan; he would find out in whose interest it is; he would read "Social Problems," and would fully inform himself about this Single Tax.
In my inbox this morning, a blast-from-the-past from Mason Gaffney, one of the most respected Georgists and a wonderful writer. Unlike many of us, he came to these ideas as a young person, having read Henry George while still in high school.
Mase's cover note: It was November 1942. I had just turned 19, and received Greetings from Uncle Sam. Funny how fast one catches on, with the evidence lying outdoors all around you; and funny how southern California today replicates Chicagoland in 1942. Funny, too, how economics profs had their ways of signaling you that looking into land speculation was, well, just not done in elite circles. How little progress we have made since then in understanding and coping with this phenomenon and its derivative ills.
Taking the Professor for a Ride The Freeman, November, 1942
The writer of this article, MASON GAFFNEY, is a young Chicago Georgist who recently matriculated at Harvard. Perusal of the piece suggests that Freshman Gaffney's chances of becoming teacher's pet in the economics class are decidedly slim.
UNRUFFLED, composed, like a patient father straightening out a wayward son, he said, "You see, my boy, this Henry George lived at a time when the country was growing rapidly, when land values were skyrocketing and great fortunes were being made from speculation. Not being a 'trained economist,' George attached disproportionate importance to this . . . er . . . er . . . land question. Land is, of course, of minor importance in 'economics,' and speculation, well, . . . of trifling significance."
I should like to take this man, my "economics" teacher at Harvard, for a ride from the North Shore area near Chicago straight west on Illinois 58. A well-built-up residential district, one-half to a mile deep, runs far north along the lake shore, to end abruptly in a wilderness of sidewalks, street signs, fire plugs and weeds -- but not buildings. Along the roads which gridiron this wasteland speed trucks and pleasure cars, burning gas, tired and time to bridge the miles which, to no purpose, stand between the metropolis and outlying communities.
"Yes," my boss told me as we were riding to work one day, "there was a time when we thought there would be a lot of building out here. Guess I've still got some Land Company bonds in the Wilmette Bank. The company gave the farmer one-third down and agreed to pay the rest when the land was sold. Lots of poor farmers have got the land back now, with stiff taxes to pay on the improvements. Improvements, hell! Those fire plugs don't even have water pipes attached to them."
Ten miles of this and we reach Des Plaines, an oasis called by the natives a "successful development." "Thirty-one minutes to the Loop," boasts the Northwestern R. R. "These Homesites Best Speculation in Chicago Land," exults the land promoter.
Five miles farther west, about fifteen miles from Lake Michigan, the land is at last completely given over to farms. The speculator fires a parting shot at us as we reach the junction with Arlington Heights Road. "The Idle Rich of Today Bought Acres Yesterday," reads his sign.
Yes, I would like to ride with this "economist" out here. He would have trouble then convincing me that speculation is of trifling significance. Probably he would say: "But the men who hold this land are men of great foresight, very valuable men. You can't refuse to reward foresight; it's a virtue. Of course a little planning might alleviate these dreadful conditions, but, tut, tut, my boy, do you want to destroy free enterprise?"
Reward foresight indeed! Foresight in itself deserves no economic reward. Hitler and Baby-face Nelson at times showed great foresight, yet their loot is by no means sanctified on that account. Only one kind of exertion deserves an economic reward, and that is exertion directed toward the gratification of human desires. Foresight, an attribute of labor, exerted in producing wealth, deserves a reward, and in the free market will bring a reward. But foresight no more justifies speculation in land than superior firepower justifies conquest.
Perhaps it is asking too much to expect a Harvard man to understand this, however. His salary, after all, is paid in part from the proceeds of the foresight of certain friends of the institution who bought up much of the land on which the slums and business districts of Cambridge now stand.
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!)
As I listen to the accounts of what was on the computers in the compound where Osama bin Ladin was living, including ideas for attacking American commuter railroads, my mind turns to why people in other countries might have such hatred for America.
Perhaps it has something to do with the fact that we are using, month in and month out, such a disproportionate share of the world's finite natural resources, and our corporations (and multinational corporations, too) are profiting hugely from withdrawing those resources from land around the world without adequately compensating the peoples of those countries -- not the current leaders but also the future generations of peoples -- for what is being taken out. In our name.
Then my mind turns to the distribution of those benefits in this country. Ads from the Petroleum Institute remind us that half of us own stock, and suggest that if we own stock, we benefit from letting that industry have its way. Well, sort of. But it is worth noting that stock ownership in publicly held companies is rather concentrated in the top 5% of our population [data source: 2007 Survey of Consumer Finances, Federal Reserve Board], who own 66.5% of the value. And just as important, the value of privately held companies is even more concentrated, with 88.1% residing in the top 5%. The latter category is actually larger than the former, in terms of household wealth. [Some might argue that pension funds hold stock for bottom 95%-ers -- but relatively few of us have defined benefit pensions any more, and we ought not to be swayed by that one!]
Why do they hate us, if they do? Because we are consuming 2 to 4 times our per capita share of the world's resources, and there are others who can't get their per capita share as a result. And maybe because some might have reason to suspect that the extremes of weather that many parts of the world seem to be experiencing are a result of our disproportionate pollution of the environment.
So how do we revise our incentives so that we structure things better?
To the best of my knowledge, the answers lie in the ideas commonly associated with Henry George. Explore this blog. Explore wealthandwant.com. Read George's books, "Progress and Poverty" and "Social Problems" (a collection of essays) online. Explore Mason Gaffney's website. See what you think. Is there a better way? Is there a way to better organize things to create a better, more peaceful, more just, more sustainable world, in which all of us can prosper, and none can reap what others sow?
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."
I stumbled across this document in a little book which runs to 24 pages, from 1887. Those with an interest in Alabama history, particularly as it relates to taxation, might find that it helps explain how the 1903 constitution came about -- whose interests it sought to protect. Consider it, too, in light of our current economic situation -- too few jobs, lots of income and wealth concentration; not enough credit available to afford housing or commercial sites. These problems can be solved, but not in the ways we've already tried.
The Case Plainly Stated By H. F. RING
PREFATORY NOTE -- This address originally was delivered to the United Labor Organization of Houston, Texas, in 1887. It appeared in full the next morning in the Houston Daily Post, and afterwards in The Standard, published at that time in New York by Henry George. Mr. George then issued it in tract form, giving it the name of "The Case Plainly Stated." Many editions of it have since been published from time to time in this country and in Europe and Australia, and it is generally regarded as one of the clearest brief statements extant of the philosophy of land value taxation as taught by Henry George in his famous "Progress and Poverty."
MR. CHAIRMAN:— The land question is simply a question as to how the use of the bounties of nature shall be best regulated and controlled. By bounties of nature I mean the coal beds, the mineral deposits, the land — all those natural elements which were not created by human industry, but which Nature has freely and abundantly provided for the use and enjoyment of all the children of men; and I propose to show how the right of capital and. labor to use these natural elements should be regulated by the government*, so as most to conduce to the happiness and well-being of mankind.
* The word "government" as used in this presentation of the Single Tax refers to the tax levying power as vested, not alone in the federal, but also and even primarily in the state, county, and municipal governments. It is probable that a complete application of the Single Tax will be reached through its gradual adoption at first in cities, counties and states, before it is substituted for tariff and internal revenue taxation.
I am a Single Taxer, and a discussion of the land question by me can be nothing more than a mere attempt to expound the teachings of that great master of the subject, Henry George.
George, at the outset, calls attention to the marvelous improvements in the arts and sciences, the discoveries, inventions, and labor-saving machines which, within the past 100 years, have so immensely increased the productive powers of the human race. Is it not a moderate estimate to assume that on an average the labor of one man today, with all these labor-saving inventions, will produce as much of the comforts and luxuries of life as the labors of four men would a hundred years ago? And does it not follow that the average workman of today creates, by each day's labor, four times as much wealth as the average workman did a hundred years ago? George teaches that if the workman of today, on an average, creates four times as much wealth as the workman of a hundred years ago, then the services of this workman of today are four times as valuable to society; then why should not his wages of right be four times as great? Why should he not be four times as independent? Why should it not be four times as easy for him to make a living and support his family in comfort and decency?
Will any one presume to assert that this is in fact the case? On the contrary, is it not just about as hard for the poor man to make a living today as it ever was? Does he not dread the loss of a position today just as much as he ever did? George asserts that labor-saving machinery really ought to lessen the burdens of labor, to make it easier for the laborer to live, and in fact, to lighten his toil. But alas, from some apparently mysterious cause, — a cause which many comfortably well-to-do people insist is one of the unfathomable mysteries of Divine Providence, — what George claims should rightly result from inventions does not result from them. And still we are all the time making new discoveries, and year by year increasing, by means of new inventions, the productive powers of working men; yet, with the increase of population, the lot of those who produce all this wealth seems to be becoming more precarious, less independent and more and more wretched.
Who denies that under the present social system, wages tend to fall irresistibly to the point at which the wage-workers can barely subsist? This is called the iron law of wages, and all the strikes conceivable can only temporarily, and but fitfully, arrest this steady tendency. For so long as unemployed men compete for employment against the employed, wages cannot permanently advance. The worker may create quadruple the wealth, but he is not permitted to retain any more of it as his share.
WHO GETS THE WEALTH?
Now, where does this wealth go — this wealth which we now produce so much more easily and in such vastly greater quantities than ever before? What becomes of it? Who gets it? Why is it that in this age of wealth-producing and labor-saving machinery, poverty as abject and hideous as ever before seen in the history of the world abounds and increases in our midst? What is the cause of the so-called iron law of wages? Henry George has discovered it. He has pointed it out, and he has shown us the remedy. He has demonstrated beyond a doubt or question that it does not result as a fatal necessity from the nature of things, but that it is a result of violation of natural law, of a refusal on the part of society to recognize the inalienable right of every citizen of access to the bounties of nature within the territory of his country on equal terms with every other citizen of that country.
Let me now give you a short lesson in the elements of this new political economy.
Three factors enter into the creation of every conceivable kind of wealth. By wealth we mean any material thing produced by human industry which gratifies human desires. These factors are land, labor and capital. Wealth in a civilized community is produced only by means of a union or partnership between land, labor and capital. Labor does the work, capital loans the tools, and land furnishes the natural elements on which, and out of which all material things resulting from human industry are created. In speaking of land in the new political economy we never include improvements or anything which is the result of human toil. We simply mean the opportunities which land and the elements within it afford for the employment of capital and labor — we mean the raw elements as they lie on or in the bosom of the eartli, untouched by the hand of man.
Now, as before remarked, the product of land, labor and capital is wealth, and after it is produced, it is divided among these factors entering into its composition. A certain portion of it, called rent, goes to land, either directly in the form of rent or in the form of interest on the selling price of the land or of the coal bed, or whatever it is; another portion of it, called profit or interest, goes to capital for the use of tools which capital has furnished, and the balance left, after land has been paid rent and capital has been paid interest or profits, goes to labor as wages for the work which labor has done, including the labor of superintendence.
MEANING OF RENT.
Now what does rent signify as used here? Rent is the price paid for the privilege of access to the raw material — for the mere privilege of getting hold of something not created by man, on which and out of which labor and capital can produce wealth. This rent may be paid periodically, or may be paid in a lump in the form of purchase money. In either case the result will be the same. Is it not clear that in the division of wealth after it has been produced by this partnership between land, labor and capital, the more land gets for rent the less there will be left for capital and labor? Is it not quite as plain as A B C that the more it costs capital and labor to get hold of these natural elements, the coal beds, the mines, the water fronts, the land — the gifts of nature which a kind providence has provided for the equal use and enjoyment of all — the less there will be for labor and capital to divide between them?
In the new political economy we must never confuse land with capital. One is never the synonym of the other. Land, as before stated, is simply the natural opportunity, exclusive of improvements or anything done to it by man. Capital is something that has been made by man, like a machine for instance, which is useful in the production of wealth. It is wealth used to produce more wealth.
LABOR AND CAPITAL PARTNERS.
But someone asks: Suppose the capitalist who is using the coal bed or using this natural opportunity, whatever it may be, is also owner of it. Where then does your partnership between land, labor and capital come in? We answer just the same as before. A sum equal to the interest on the market value of the coal bed (independent of the machinery, excavation work, etc.) is in such cases a factor of rent. The owner, in addition to profit or interest on his capital, as before defined, must also take from the wealth produced a sum equal, approximately, to interest on the market value of the coal land, otherwise he would sell out and quit. It is evident that the more money the owner is obliged to invest in purchasing the coal bed, for instance, the greater must be the sum which he takes out of the wealth produced to cover interest on that investment, and hence such interest money is simply rent paid for the use of a natural element, for the privilege of access to one of the bounties of nature. Therefore, is it not equally plain in this case that the more paid for this privilege of use, the less will remain out of which labor can get wages?
A few years ago we read in the newspapers of a great boom in the vicinity of Birmingham, Alabama. We were exultingly told that the lands containing coal beds and mineral deposits in northern Alabama had gone up in value from $75,000 to $50,000,000 in the space of six years. What does this signify? It means that when capital and labor shall attempt to utilize these coal beds and mineral deposits, when capital and labor shall unite together, the one to furnish the tools, the other the labor, with which to produce wealth out of this raw material, then will a set of landlords step forward and block the enterprise with a demand for $50,000,000 for the mere right of access to these free gifts of nature, or in lieu of it the payment of $3,000,000 a year as tribute money, that being the interest of $50,000,000 at six per cent.
There lie the coal beds and mineral deposits untouched by man, fresh from the hands of the Creator, intended by Him, if He is the just, benevolent Being whom we have been taught to worship, for the equal use and enjoyment of all His children, and yet our laws say that capital and labor must pay a few forestallers $3,000,000 a year for the privilege of applying the hand of industry to these elements.
And after this blackmail has been paid, how much will there be left for the wages of labor? The answer is, just as little as labor can ordinarily subsist upon. Why? Because this monopolization of the gifts of nature going on, not only in northern Alabama, but everywhere else, enables capital to drive a hard bargain with labor. For this reason, and this alone, they can't deal with each other on equal vantage grounds. Suppose labor objects and says to capital: "I'll not accept the pittance you offer." Capital replies: "All right, go elsewhere." And so labor starts out to get work for himself, and what does he find? Here he is, living in a country capable of raising food for ten times its present population, and he finds four-fifths of the land untilled or but partially cultivated. He finds four-fifths of the coal beds and mineral deposits unused. He finds vacant land and unused lots on every side. He goes to New York City even and he finds there within its corporate limits almost one-third the area of that city vacant, unoccupied, and unused, although there are miles and miles of tenement houses, in which men and women and innocent children are packed and crowded like maggots, as though there wasn't ample room in the city for the comfortable housing of every human being in it. He finds unused natural elements all around him wherever he goes, sufficient to give employment and support in abundance to tens of millions of happy families.
But now suppose labor attempts to make use of any of these unused natural opportunities? Suppose he concludes to go to work for himself upon a piece of vacant land in the suburbs of a city, for instance, where labor could be applied to the greatest advantage. What happens? An individual comes along and waves a title deed, and orders him off the premises. He finds that all these unused natural opportunities are owned by individuals and claimed as private property. He finds himself frustrated at every point. He finds that he can't go to work anywhere without paying blackmail to the owner of some natural element for the mere privilege of working and so he strikes back to northern Alabama and takes off his hat to Capital and bows very low and says: 'Please, sir, give me a bare living and I will be your slave."
And that is about all that he does get, and that is all he ever will get under the present system of land ownership, though you may strike and boycott and potter about graduated land taxes, graduated income taxes, and graduated nonsense until doomsday.
THE GREAT PARASITE.
With advancing population the greater becomes the demand for natural opportunities and the higher the prices which can be extorted for the privilege of using them. As population increases, the town lots, the coal beds, the mineral deposits, the water fronts, the land, go up in value, and so goes up also the amount of tribute money which labor must pay for access to them, for the privilege of employment. The more of the products of industry which go for the payment of this constantly increasing tribute, the less and less will grow the share allowed the laborer and the more dependent and the more wretched will his lot become.
Here in Houston today, suppose Enterprise has $50,000 to invest in the paper mill business, a sum barely sufficient to put up the building, buy the machinery and carry stock. He finds a beautiful site for his mill on the banks of the bayou. It is a vacant lot. The hand of man has never been applied to it, and it stands there now just as it stood when the Indian roamed over the site of this city. The owner of that block, however, thinks he can make Enterprise pay him $20,000 for the privilege of giving employment to labor on this natural opportunity — this piece of ground. That is the price, and if he can't get it today he will get it when the city grows a little larger. But Enterprise says to him: "I have only $50,000 capital, all of which I shall need in my business." The land owner answers it is not his lookout, and so Enterprise turns away checkened and baffled, and the mill is not built.
CAUSE OF DULL TIMES.
And so it is everywhere. Wherever we find a portion of the vacant surface of the earth which could be utilized by capital and labor, and which affords an opportunity for human toil and enterprise, there we find a human vampire with a paper title in his hand warning off labor; and that vampire must always be placated by the payment of blackmail before the wheels of industry can begin to turn.
Need we wonder that these wheels turn slowly, and that they are always getting out of gear; that we are always talking about dull times; that men are always out of employment and always hunting for work, regarding it as a favor even to be allowed to work; that we are all the time growing too much cotton, when millions of human beings have only one shirt to their names; that we are producing too much food, when half the population of the world is insufficiently fed; that carpenters are out of work, when half the people are not comfortably housed; shoemakers wanting work and millions needing shoes? How could it be otherwise, when labor is compelled to beg for work in the midst of limitless unused opportunities for work, on which opportunities, however, sit these human vampires, these dogs in the manger, waving labor back with their paper title deeds?
Now let us go back for a moment to that partnership between land, labor and capital. For illustration, suppose the wealth produced by the partnership to be created by the application of capital and labor to those coal beds and mineral deposits in northern Alabama, valued, as we have seen, at $50,000,000. In the division of wealth produced we have shown how, say six percent of this $50,000,000, or $3,000,000, must go to land as rent. Or, in other words, $3,000,000 a year must be paid to land owners directly as rent or interest on purchase money for the bare privilege of utilizing these gifts of nature. Now, in the division of wealth produced, why is labor entitled to any portion of it? Clearly because labor's industry has contributed to its creation. Why is capital entitled to any part of it? Because capital has furnished labor with tools with which to develop the mineral deposits. The capitalist who owns the tools can trace his title back to the creator of them, to some individual or set of individuals whose industry produced them and from whom he purchased or inherited them. The title, then, of both labor and capital to a portion of the wealth produced from these mineral deposits originates in human industry, and it is a sacred title. Now then, why should the land owner get any portion of this wealth, to produce which capital has supplied the tools and labor has done the work? This owner claims the right of making capital and labor pay him interest on $50,000,000, or $3,000,000 a year, for the mere privilege of access to this raw coal and raw ore. Ought we not to scrutinize most carefully his right to extort this immense tribute? And if he can show no natural and moral right to claim it, does not society countenance the robbery of labor in permitting him to do so? Where does his title originate?
We find that six or seven years ago he paid someone who claimed to own the land in which these mineral deposits are found $750,000 for the raw natural element for which he now demands $50,000,000. Was this additional value of $49,250,000 in six years produced by his industry? Was it produced by the industry of any previous owner of these natural elements? Did it cost $49,250,000 to discover these mineral deposits? We trace back his title a little further, and we find that perhaps a hundred years ago it originated in a grant to John Jones from the government — that is to say, the people who inhabited this country a hundred years ago and who constituted the government said: "We will divide the land and we will give John Jones this particular tract for his private property."
But did these people create that land and the coal and iron in it? Can it be shown that they had any better right to it from the Almighty Creator than the people of this generation have? Was the earth intended by the Heavenly Father for one generation to dispose of forever, or as an abiding place for all generations? Was Thomas Jefferson right or wrong when he wrote: "The earth belongs in usufruct to the living; the dead have no right or power over it?" By what authority could the people living here a hundred years ago, long since dead and gone, confer upon John Jones, also dead and gone, a right which would enable John Smith today, by tracing a paper chain of titles from him, to extort from capital and labor a tribute of $3,000,000 a year for the bare privilege of getting to that coal and iron and making it useful to mankind?
Who dares to blaspheme the name of the Almighty Ruler of the universe by saying that the coal and iron were not intended by Him for the equal use and the enjoyment of all His children — the humblest babe born today in a garret equally with a child of the proudest duke who ever lived?
MAN IS A LAND ANIMAL.
Is not man a land animal? Can he live without land? Can he any more rightfully be deprived of access to land than he can rightfully be deprived of life itself? Can he any more rightfully be compelled to yield up to a forestaller, a mere owner of land, a portion of the fruit of his industry for the privilege of getting hold of the raw material elements than he can rightfully be compelled as a slave to yield up to a master a portion of the fruits of his industry? To compel him to do so is as much a robbery of labor in one case as in the other. Why then is not the humblest babe that God sends into this world naturally and by inalienable right entitled to access to land on equal terms with all his fellow human beings?
ORIGIN OF PROPERTY RIGHT.
Mind, when we say access to land we do not include access to improvements on land, or access to anything produced by human industry, a title to which can be shown originating in human toil; we simply mean access upon equal terms to the free bounties of nature as they lie upon the kind bosom of mother earth, untouched and undisturbed by the hand of man. What I produce by my industry is mine. What I obtain by exchanging the products of my industry for the products of another's industry is mine. What my father or my grandfather produced by his industry was his, and if he has given it to me it is mine.
In all these cases human industry is the origin of property right, and property rights originating in human industry must be held sacred, else there would be no incentive to human effort. Do not the values produced by the individual belong to the individual producing them? Do not the values produced by the community belong to the community producing them? Is there anything wrong, immoral or communistic in this ideal? And yet this is the sum and substance of the Henry George philosophy.
Take the case of the vacant block on the bank of the bayou which Enterprise wanted for a paper mill and could not get. Fifty years ago it was worthless. Now labor must pay a tribute of over $20,000 to the so-called owner for the privilege of using it. Whose industry has put $20,000 of value on that piece of vacant ground? Not the industry of the present owner, nor the industry of any former owner, because no man has ever done a stroke of work upon it. That value of $20,000 has been placed upon the land by the common energy and enterprise of the entire community. Since the community has produced that land value why does it not belong to the community? Why has not the community the same rights to the value it creates as the individual has to the values which he individually creates?
How shall this derangement of the wheels of industry, this blackmail upon enterprise, this robbery of labor, this eager and fatal competition among laborers for employment, this slavish fear of the loss of a situation in the midst of abundant unused opportunities for employment — how shall this curse which our present land system has fastened upon the productive industry of the country, be removed? Simply by doing justice; by being honest; by recognizing in our laws one of the inalienable rights of man; by recognizing in every human being, in every generation, the present as well as the past, an inalienable right of access to the bounties of nature on equal terms with every other human being.
How shall this right of access on equal terms be secured? Simply by making every individual who claims a right to the exclusive possession of a tract of land pay in the form of a tax approximately what the use of that tract of land is worth, exclusive of all improvements on it or anything done to it by the hand of man, and by abolishing every other form of taxation. Take the rent of land for public use instead of taxes.
WILL SIMPLIFY GOVERNMENT.
Some one asks: "Will not this proposed change vastly increase the functions of government and immensely add to the number of government employees?" I reply no. On the contrary, at least two-thirds of the present army of revenue collectors and tax gatherers will be dispensed with, and the remaining one-third will collect this single tax on land values at one-third the expense now incurred in the collection of national, state, county, and municipal taxes.
Another inquirer asks: "Will not the new system offer abundant opportunities for corruption and partiality in fixing the amount of this tax annually to be paid for the exclusive use of a piece of land? And how do you propose the amount of the tax shall be determined?" It will be determined by the same law of demand and supply which now determines the amount of tax under the present system. The single tax will be fixed by the same machinery of an assessor and a board of equalization which fixes it now. For instance, under this system a piece of property on Main street rents for $5,000 a year. Interest at the prevailing rate on the building alone, added to the annual cost of insurance, repairs and caretaking, and a sum sufficient to provide a sinking fund for renewals amounted to, say $3,000 a year. The landlord is then collecting the difference between $3,000 and $5,000, or $3,000 for the use of this naked earth. That is to say, he is collecting $2,000 a year for the use of something never created by man, to which all are by natural right equally entitled, and which owes its rental value of $2,000 a year exclusively to the common enterprise and energy of the entire community.
This is the sum which, under Henry George's system, would be turned over to the government in the form of a tax for the common benefit of the community who collectively have made the use of this land worth $2,000 a year.
Here an interested friend anxiously inquires: "But if the landlord has to pay this tax of $2,000 a year for the use of the land, will he not take it out of the tenant by raising his rent to $7,000?" No, for the landlord's charges now all he can compel the tenant to pay. Suppose he tries to. Suppose he says to his tenant: "You must now pay me $7,000 a year." What happens? Just what happens every day now. If the tenant can do no better he pays the increase. But now, mark you, when the landlord goes to pay his tax what happens then? Why the board of equalization says to him, you have received $7,000 a year rent for the use of improvements worth only $3,000 a year. You are therefore collecting $4,000 a year instead of $2,000 for the use of the naked lot, and you will therefore pay the city or state $4,000 a year for the privilege of the exclusive use of the ground instead of $2,000 a year as heretofore. Now what has the landlord made by jumping up the rent? Nothing. What would be made by thus jumping up the rents under the present system? Everything. Under which system would landlords be more apt to force up rents?
DETERMINING THE TAX.
Another way by which the board of equalization under the George system would determine the amount of tax to be paid for the privilege of the exclusive possession of a tract of land, and which would also compel landlords to collect from their tenants and turn over to the government in the form of a tax the full value of the use of the land, would be from observation of the prices which real estate brought in the market. But note, at this point some smart fellow jumps up — and he is likely enough to be a newspaper editor — and vehemently protests, saying: "Why, sir, the taxation of ground values plan does not propose to allow any exclusive ownership of land. It demands that the government own it all and rent it out or divide it up into 60,000,000 or 70,000,000 little bits, or do something of that kind with it, and here you are talking about lands being bought and sold under the Henry George system. Why, man alive, you don't know what that system is!"
Now, Mr. Editor, or Mr. Who-ever-you-are, let me say to you that in your ignorance, or in your indifference to the sufferings of your fellowmen, or in your desire to pander to the greed of monopoly, or to the timidity of capital, you may say what you please; you may misrepresent as much as you please for the purpose of bringing odium and contempt upon the cause; you may call it what you please — state ownership, state landlordism, ownership in common, communism, nihilism, anarchism or anything else; but the fact, nevertheless, remains that, under the just and righteous land system which we are trying to explain, the land will continue to be bought and sold under the same form of paper deeds, precisely as it is bought and sold today. It will continue in precisely the same way to pass to devisees by will and to heirs by law of descent and distribution. The right of control, of exclusive possession and dominion over a piece of land and of the free and exclusive enjoyment of all improvements on it, will in no way be abridged or disturbed. When you buy a lot on Main street today worth $10,000 with a building on it worth $10,000 more, your deed recites a consideration of $20,000. Now when you buy this same property under the George system, the only difference in the whole transaction will be that your deed for it — assuming that the price accords with the market value prevailing at the time of your purchase — will recite a consideration of only $10,000, and $10,000 is all that you will then pay for the property. You will pay nothing for the land. After you have bought the property you will pay yearly in the form of a tax to the government, approximately the full market value of the (yearly) use of it — which will amount to the annual rental value of the land, and as the man from whom you purchased had to pay the government the same annual rental value, you will consequently pay nothing, or approximately nothing*, to him for the land itself when you purchase the property. You thus save an investment of $10,000 in dirt; instead of such investment you will pay for the common benefit of the community, including yourself, what the privilege of the exclusive use of that spot of earth is worth — nothing more, nothing less — and that is simply what you ought to pay. The $10,000, which, under the present system, you are compelled to bury in a bit of earth, you will have left you with which to increase your business; and if you do increase your business with it, and add another story to your building, no tax gatherer will come around and impose an additional fine upon you for doing something with your money which gives employment to labor.
* There will, no doubt, be instances where the desire of an individual to get and retain possession of a certain piece of property, will cause him tooffer a bonus over and above the market value of the improvements.
NO PROPERTY IN LAND.
Thus, under the single tax system, land would be sold and would change hands as it does now, but it would only bring in the market approximately the value of the improvements on it. If land in any locality should get to selling for considerably more than the value of the improvements on it, this would be a certain indication that the parties using the natural elements in that neighborhood were not paying for the benefit of all the people what the use of the same was worth, and so a board of equalization would put the tax up. As population increases the value of the use of land increases, and with it, under the George system, the revenue from this tax on land values will increase, and thus the entire people who collectively produce this increasing value will get the benefit of the values collectively produced by them. As it is now, the increase in the value of land, which amounts to several billions annually in the United States, four-fifths of which is increase in the value of city and town lots and mineral deposits, goes to a comparatively small number of individuals who do no more to produce these values than any other members of the community.
Another doubter puts this objection: Under the George system you would make the owner of a lot on Main street, with an improvement on it worth $10,000, pay as much tax as the owner of a similar lot adjoining, having a building on it worth $50,000. What justice is there in that?
Let us see. Take away the improvements and these two lots are of the same value — that is to say, the value of the use of both lots for ordinary business purposes is the same. Suppose it is $300 a year. Now, the man with the $50,000 improvement collects from his tenant ten percent on his $50,000, or $5,000. He also collects $300, the value of the use of the lot, making in all $5,300. The man with the $10,000 improvement also collects ten percent upon the valuation of his improvement from his tenant, of $1,000. He, too, collects $300 in addition for the use of the lot, making in all $1,300. Now after both have paid the government $300 apiece for the privilege of the exclusive use of these lots, each will have left ten percent upon the capital invested, and why should one be entitled to any greater percent upon the capital invested than the other?
The fact is, that under this system there will be no such thing as taxes. Taxation, as we now understand it, will be abolished. The revenue derived by the government from requiring all who use a natural opportunity to pay into the common treasury what the use of that opportunity is worth, if it is worth anything at all, will be more than sufficient to enable the government to dispense with every species of taxation. As it is now, when you pay your taxes, you are simply robbed of a portion of the fruits of your industry, for which you do not get, directly, any equivalent. Under the proposed system, when you pay your single tax on land values you will get directly a full equivalent for every dollar paid. You will get the privilege of the exclusive use of a tract of land for what that privilege is worth.
ACCESS TO UNUSED LAND.
If this system were adopted what would become of the vacant lots and lands, the unused coal beds and mineral deposits, the unoccupied water fronts and water privileges over which human vampires now stand guard, retarding enterprise and driving off labor? They would become absolutely free. No one could afford to hold them and pay taxes on them. The vampires would turn them loose. Land speculators and land sharks, instead of trying to grow rich by forestalling labor and capital and thus preying like devouring beasts on their fellowmen, would turn their talents to better account. Wherever labor could find an unused lot or coal bed or mineral deposit or unused tract of land, there labor could go to work and employ itself without being required to invest a dollar in the purchase of a right of access to the natural element, without being compelled to first make terms with a dog in the manger claiming it as private property and holding it for speculative purposes.
If that vacant natural opportunity were situated near a center of population, or were of a character to bestow peculiar money-making advantages upon the persons using it, this advantage would create a demand for it, and this demand would regulate in the manner already pointed out the amount which labor and capital would pay for the use of it, in the form of a tax for the common benefit of all. If that vacant opportunity, for instance, were a tract of land four or five miles from this city, it would have few advantages to make the use of it at present peculiarly valuable. Why? Because there is so much vacant land of the same character near it, the use of which is equally valuable, that no one would give a bonus, as it were, for the use of that particular tract. Labor would, therefore, at first get the use of that land for nothing. It would have no taxable value at all until all the other vacant land similarly situated was put into use. Under this most just and equitable system the taxable values of land would be confined almost exclusively to the cities and towns and the coal and mineral deposits. Where people congregate, there land has value. In New York City alone, capital and labor today pay to a few thousand land owners, in ground rent alone, exclusive of rent paid on improvements, for the bare privilege of living and doing business, tribute money amounting to hundreds of millions annually, a sum almost equal to the expense of carrying on the government of the United States. It is in these great centers of trade and commerce that land has its greatest value; it is here that land values are mostly found and from these centers nine-tenths of the revenue of the government from this tax on land values would be derived.
FARMERS WOULD BE BENEFITED.
If the George plan were suddenly put in force today, not only would all farmers be relieved from direct and indirect taxation, not only would farmers participate in common with all others in the universal and uninterrupted prosperity which would result from removing the obstructions which needlessly hamper and clog enterprise, but probably three-fourths of the working farmers in this country would pay no land tax at all. Why? Because with so much vacant or but partially cultivated land as there is here today three-fourths of the farmers would have no taxable value at all; and all who are counting on the farmers of America being so foolish as not to see how they will be as much benefited by a just and righteous land system as any other class will certainly be disappointed.
EFFECT ON FARMS.
"Yes," says our farmer friend, "but you propose to confiscate the farmer's land." Let's see about that. You are a farmer owning say a hundred-acre farm, situated like a majority of farms, in a neighborhood where for every acre of land in cultivation there are two or more acres unimproved or but partially improved. Your farm is worth under the present system, say $2,000. A hundred acres of this unimproved land adjoining it of the same quality is held by some speculator at $500. Your tax on your hundred-acre farm is $10 a year, the speculator's tax on the hundred acres of land adjoining of equal value, exclusive of improvements, is $2.50 a year — one-fourth as much as yours. You give employment to labor on your land, and thereby add to the prosperity of the community. The speculator excludes labor from employment on his land, and thereby retards the prosperity of the community. Why should you be taxed any more for using your hundred-acre tract, and giving employment to labor on it, than the speculator is taxed for holding in idleness a tract of equal value and preventing labor from using it? Why should not the speculator pay at least as much tax for the privilege of excluding labor from his tract as you have to pay for the privilege of employing labor on yours? Have you hurt anyone by turning up the wild sod and building fences and houses and putting $1,500 worth of improvements on your land? If not, why should you be fined for it by having your taxes increased?
Where our plan is adopted you will have no taxes at all to pay until this vacant land around your farm is put into use. Until then no land value could attach to your farm, and the tax which, with increasing population, you would ultimately be required to pay, would seldom equal and rarely, if ever, exceed that which farmers now pay on the improvement valuation. Assuming that you spend say $600 a year on your family, then under the present system your taxes, direct and indirect, and the toll which the merchants take for collecting indirect taxes, amount to at least $100 a year. You may not know it, because an indirect tax always fools a fellow paying it. You will be relieved from all these taxes, but best of all, men who are now idle and who can't buy what you raise will all be at work, and not only that, but their wages will be high enough to pay good prices for what you raise. It is true that under the new system you could only sell your place for $1,500. Still, with this same $1,500 you could buy just as good a place from some one else. The purchasing power of your farm, when it comes to buying another farm, would not have been reduced. Do not your interests as producer or a laborer vastly exceed your interests as a land owner?
LANDLORDISM AND GOVERNMENT
Now, coming back to the elements of the new political economy, some one says: "What difference does it make to the workmen whether labor and capital pay this ground rent to the individual or to the government, since, according to your theory, it must be paid all the same?" In the first place, if it is paid to the individual none of it ever comes back to labor and capital unless value received is paid for it; so far as labor and capital are concerned, it might about as well be cast into the sea. But when it is paid to the government in the form of a tax on land values it does come back to labor and capital again in the form of relief from every species of taxation, direct and indirect.
Again, the amount that Enterprise would pay the government for the privilege of access to the natural elements would be less under the single tax than is now paid individuals for this privilege. Under the land value tax the prices could not be advanced by monopolization of these elements, as is being done now.
But best of all, and by far the most glorious result that will flow from the establishment of a just and righteous land system, is that it will enable the wealth creator to stand erect, presenting to capital an unterrified front.
Return for a moment to the coal beds of northern Alabama and imagine the Henry George system adopted. Labor now again objects to the terms offered by capital, and again capital tells him to go. And again labor goes forth hunting for work. But how different he finds the aspect of things. He finds the same unused natural elements, the same unused coal beds and mineral deposits, the vacant lots and lands, but he no longer finds a fellowman sitting upon every vacant opportunity for work and waving him off. They have vanished. They have gone to work themselves. He finds every unused opportunity for labor, wherever it may be, absolutely free. Not a dollar of capital need be invested in buying a natural opportunity, in paying for the privilege of work. When labor went forth hunting work before, he not only had to ask capital to pay for the tools, but also to pay, usually a greater sum, to some forestaller, in addition, as blackmail, for the privilege of access to a natural element.
This will all be changed. It won't take near as much capital to start enterprises as it did, or in other words, to give employment to labor. In fact, labor could then take even an axe and hoe and find plenty of vacant opportunities on which he could make a living without having to bury himself in a wilderness to do it. All this makes him feel independent and enables him to bargain with capital for employment on equal vantage grounds.
MONOPOLY IS PROFITABLE.
Some time since a large manufacturing firm in Massachusetts adopted the eight-hour system. After trying it a year they gave it up and went back to the ten-hour system. The general manager said they could only make five percent profit on their investments by requiring only eight hours' work, and that unless they could make a bigger percentage than that, they would not be bothered with the management of the business — they would put their money into town and city lots, because that species of property would certainly enhance in value as much as five percent annually, and that, too, without any trouble to the owner, and so it is everywhere. Now, is it not absurd to expect to reduce the rate of profits with which capital will be content below this steady percent of increase in the value of town and city lots, by any combination of labor, or by any legislation which falls short of restoring these land values to the people who collectively create them?
Suppose you have $10,000 today. The best and safest thing you can do with it is to invest it in town lots in or near some growing town. Ten years from today, unless the George theory becomes generally understood, the lots will be worth $20,000 and you will have drawn to yourself $10,000 worth of wealth for which you have given no equivalent. You will simply have robbed the labor of the country of $10,000. But now suppose ground values to be appropriated to the public use by taxation. What are you to do with your $10,000? You would not buy vacant lots now; there is no speculation in them. The tax which you would have to pay for the privilege of excluding capital and labor from the opportunities for employment which vacant lots afford, would be too heavy for you. In fact, you couldn't even loan on land alone, because land alone will have no selling value in the market. The result is, that unless you let your money lie idle and so lose interest on it, you will be compelled to invest it so as to give employment to labor. You must put it into buildings, into machinery, into manufactory stock, into farm implements, into some channel where it will be active and where it will afford employment to labor.
Not only must you do this with your capital, but every other capitalist must do the same with his capital. Capitalist thus must bid against capitalist, since capital can only increase by calling labor to its aid and giving it employment.
Under the present system the rich can grow richer without calling in the aid of labor, without giving employment to labor. They do so by buying space and monopolizing land.
Under the present system, as wealth accumulates, the wealthy seek to invest in land, to get control of natural elements, and get into a position from which to blackmail labor, thus becoming an obstacle in the way of the production of more wealth.
Under the better system, however, wealth could not thus be made to set up an obstacle to the creation of more wealth, or, in other words, to the employment of labor. It can then only obtain a profit by investing in lines of enterprise which give employment to labor.
Under which system will the demand for labor be greater? Under which will earnings be higher?
Last weekend, Ben Stein apparently presented a piece on CBS News, entitled "Raising My Taxes is a Punishment: If Raising Taxes Won't Help Economy, Why Am I Being Punished." Stein, the son of two Chicago-educated economists, writes,
I am a fairly upper income taxpayer. Not anything even remotely close to sports stars or movie stars or financial big boys. But I am above the level Mr. Obama says makes me rich. So, in the midst of a severe recession, I am to have my taxes raised dramatically.
I am not quite sure what my sin is.
I worked for almost every dollar I have, except for a small percentage my parents left me by virtue of hard work and Spartan living, and most of that was taken by the federal estate tax. I have a hell of a lot less than I did before the stock market and real estate market crashes. I didn't get a bailout or any part of a stimulus program, except for traffic jams as the roads in Beverly Hills got worked on for the 10th time in the last 10 years (or so it seems).
I pay my income taxes, and after them and the commissions I pay my agent, I am left with about 35 cents for every dollar I earn.
I own some real estate in California and Idaho and the District of Columbia. Naturally, I pay property tax, supposedly mostly to educate local children. Not far from me, the city of Los Angeles just spent about $600 million to build the most lavish school in America for about 4,000 children. That's my money. Naturally, I had no say in it. My wife and I have no children in public schools and only did for about eighteen months long ago. I still pay my school tax ever year.
I am not asking for any tears. I live a great life, have a fabulous wife, a great son and daughter-in-law, four wonderful, furry dogs and six cats, all adopted. I have more than enough to eat.
But what I don't get is this: There is no known economic theory under which raising my taxes in the midst of a severe recession will help the economy recover. It isn't part of any well known monetarist or Keynesian theory. So if it does no good to raise our taxes, I assume we are being punished.
But for what? I don't own slaves. I employ a lot of people full- and part-time and they are all happy with their pay. When charity calls, I almost always write out a check. I don't have a yacht or ponies or a plane. My wife doesn't wear a tiara. I don't gamble.
What did I do wrong? I know I have often lost my temper with my wife and the cats, but that's not a crime, yet. I tried to be successful, which is what I thought I was supposed to do. When did it turn out that was a crime to be punished? Maybe when the economy recovers, raising my taxes makes sense, but for now, it's just punishment, and I can't figure out what for.
OK, the late, great — and I mean that — Herbert Stein died in 1999. At that time the first $650,000 of an estate was tax-free — $1.3 million for a couple, provided it did what CBO calls “minimally competent estate planning” — with a 55% tax on the amount above that.
So either Ben Stein inherited several million dollars — which, although this may be news to him, is not the experience of most Americans — or he’s just making stuff up.
He did indeed leave some money. By the standards we read about in the Wall Street Journal or Sports Illustrated, it was not worthy of much ink. In any event, because of the class-warfare-based death tax, the amount that will be left is vastly less than what he had saved. As an economist, my father was famous for defending taxes as a necessary evil. But even he was staggered, not long before his death, when he considered the taxes on his savings that would go to the Internal Revenue Service.
The nest egg is going to be taxed at a federal rate of about 55 percent, after an initial exemption and then a transition amount taxed at around 40 percent (and all that after paying estate expenses). When I think about it, I want to cry.
Later, referring to his father's writings,
Some of them will go to the Nixon Library, and some will be on bookshelves in the (very small and modest) house my wife and I own in Malibu, a place he found beguiling because he had always wanted to live by the ocean and write.
Something flashed into my mind — something that my late father used to say, quoting loosely from the economist Henry C. Simons, a founder of the Chicago School of economics: that it is "unlovely" to see the extremes of wealth and nonwealth that are evident in contemporary America.
We may be able to live with it. Some of us may even be able to prosper amid it. But it's not pretty. The rich should simply not be that much richer than everyone else — especially those whose lives protect them from terrorism.
and later in that same piece,
The real problem is the difference between the rich — including rich oil people, of whom there are not many, but there are enough — and the poor. It is up to the government to redress this extraordinary difference in incomes of the rich and the nonrich, even at the margins.
What Congress can do, and should do, is address the stunning underpayment of military men and women and the staggering budget deficits that will be a burden on our posterity for decades, by raising the taxes on the rich. It's fine that there are rich people. It's even fine that there are superrich people.
But if they are superrich, they derive special benefits from life in the United States that the nonrich don't. For one thing, they can make the money in a safe environment, which is not true for the rich in many countries. It is just common decency that they should pay much higher income taxes than they do. Taxes for the rich are lower than they have been since at least World War II — that is to say, in 60 years.
This makes no sense in a world at war, in a nation with so many unmet social needs, in a nation with so many people without health care, in a nation running immense and endless deficits.
America is becoming a nation of many rich people. I recently read that there were close to 10 million millionaire households. I read that there were hundreds of thousands who made more than $1 million a year. Good for them.
But it's unlovely for them to pay as little tax as they now pay. The real problem in this country is only temporarily about oil. That will right itself, or we'll get used to it and adjust.
The real problem is saving a nation that is beset by terrorism, and we cannot do that unless we feel that we are all in the same boat, pulling at the oars together. That includes the rich.
Whatever rationale there may have been in 2001 for lowering their taxes is long gone. It's time for them — us, because it includes me — to pay their (our) share.
It's not about oil. It's about fairness.
Let's go back to his recent comment, "I worked for almost every dollar I have, except for a small percentage my parents left me by virtue of hard work and Spartan living, and most of that was taken by the federal estate tax. ... I own some real estate in California and Idaho and the District of Columbia." and his 1999 comment, "some will be on bookshelves in the (very small and modest) house my wife and I own in Malibu," on which (2010) " ... naturally, I pay property tax, supposedly mostly to educate local children." And if, perhaps, he used those inherited dollars to buy some of his real estate, which has appreciated mightily in the intervening years, his "I worked for almost every dollar I have" is a bit disingenuous (buut consistent with Edward Wolff's findings, which imply that the amount inherited is often a small piece of large fortunes -- ignoring, of course, the contribution that a fully-paid for education in private primary, secondary, college and graduate schools might make, or any inter vivos gifts such as help with a downpayment on a home in the early working years, might make to an eventual fortune -- or sense of entitledment.
I don't know whether Idaho has a lot of children to educate, but California and Washington, D.C., certainly do. And property taxes are generally used to provide the public goods and services which help maintain and increase property value. California property values have risen significantly since he acquired his property; I assume that he attributes that appreciation to his hard work. But an economist who thinks deeply would recognize that he can take no credit for it. Even a small and modest home in that location is worth an amount far beyond what 95% of Americans could afford.
I am reminded of Warren Buffett's 2004 pre-Schwarznegger election interview in the WSJ and his post-election LTE, referring to properties in Malibu Laguna , in which Buffett he pointed out (a) how low those property taxes are; (b) how fast Malibu property appreciated, and (c) how unrelated to the market value of Malibu homes the property taxes of long-time owners are.
"The first Laguna Beach house is a property that I bought in the early 1970s. It has a current market value of about $4 million and, because of the limitations embodied in Proposition 13, carried taxes of only $2,264 in 2003 vs. $2,241 in 2002.
The second house, located just in back of the first, is one that I purchased in the mid-1990s. It has a market value of about $2 million and, simply because I bought it later than the first, carried taxes of $12,002 in 2003 vs. $11,877 in 2002."
and Buffett later continues, "My sympathies are clearly with the "non-billionaire" family purchasing a $300,000 house in Chico today that faces real estate taxes materially higher than those borne by this non-resident billionaire on his $4 million house in Laguna. This family, because of Proposition 13, has been selected to subsidize me."
Back to Stein's "My Father's Estate" (1999):
He never once in my lifetime's recall said that any man or woman deserved special respect for riches -- in fact, like Adam Smith, he believed that the pleadings of the rich merited special suspicion.
If you'd like to read more about how Ben Stein sees wealth concentration, explore this piece in which he explains away any problems with corporations taking advantage. I read it in January (and commented), and heard him deliver it again in April.
I came across a pamphlet published in 1949 by a foundation on whose board I sit, and while there are some things that I might emphasize differently 70 years later, I thought it worth sharing. It speaks to a category I've just added to the "cloud" at left: Natural Public Revenue.
Today we see some additional privileges which corporations (and individuals) are taking advantage of -- the privilege of polluting the world's finite supply of air and water beyond its carrying capacity and ability to heal itself; the privilege of claiming as their own the supply of various other natural resources: e.g., oil, natural gas, lithium, copper. The privatization by corporations of what ought to be revenue sources for common spending should not go unremarked. And trivializing monopoly, as I think the author does, seems odd in light of what we've seen in the intervening years.
Earned Income: Public and Private by Joseph S. Thompson President, Pacific Electric Manufacturing Corp.
THE FATES of America and Europe are inextricably one. A depression here could ruin us and would ruin Europe. We dread a depression; yet we have done nothing salient or radical to prevent it. The Soviet Politburo eagerly predicts and awaits it.
The basic reason why there are depressions and why prosperity is not normal, general, and constant is that we do not distinguish between TRIBUTE TO PRIVILEGE and RECOMPENSE TO SERVICE, and are indifferent to their diametrically opposite effects.
The fault is not in our political system, the freest and best yet devised. It is not in our industrial system which, based on service, saved the world from German domination and will continue to serve us well unless stifled by "Planned Economy," as planned economy has stifled industry elsewhere.
But when we study our taxation system we find a cancerous growth, developed in the last few years, that threatens to destroy all that makes America great, fostering privilege and hampering industry and service. We take for granted the principles underlying our present taxation system; yet adherence to those principles means national disaster.
The full breadth and importance of Chief Justice Marshall's statement that "The power to tax is the power to destroy" seems never to have been wholly grasped or emphatically enough expressed. Taxation destroys good things as well as bad. The power to tax is the power to control a destructive force and, when used, becomes equivalent to a fine. A fine represses, and a tax represses. Simple reasoning develops the fact that a tax is automatically and undeniably a fine. It is an arbitrary seizure of private earnings or acquirements, based on arbitrary opinion, and the fact that the money is used for public purposes does not justify its imposition.
But since money is required for public purposes, how else is it to be provided? The answer is simple: through earned public income.
We are all familiar with earned private income, earned through labor, service, or investment, but few have inquired as to whether there might be a true, just earned public income -- an income that we all, as the public, create and earn jointly as a common wealth just as the individual creates and earns his income as private wealth -- an income that can be measured by fact and not by opinion, forming the basis for, and fixing the limit of, responsible public budgeting -- A PUBLIC INCOME PUBLICLY EARNED AND TO PUBLICLY COLLECTED.
Those who have inquired have been answered by the Physiocrats, by Thomas Carlyle, by Patrick Dove, by Herbert Spencer, by John Stuart Mill, and, in full and complete analysis, by Henry George in his great book, Progress and Poverty. These men have shown that the public income is closely measured by, and reflected in, and therefore should logically, justly, and intelligently be, the rental value of the land.
The rental value of the land, which is the amount that individuals will pay for its exclusive use, if collected or "taxed" by the public, would provide and define the rightful earned income of the public, to which the budget should conform.
Land costs nothing in human effort or creativeness and gets its value only from the presence of people; so, land rental value might better be called location value; and since location value means land in a desirable place among people, land value and location value are really people value. The landlord's title to the land is a legally created privilege. It represents no contribution on his part but gives him an unearned tribute (and it is unearned even though it was bought with money that was earned). Solely by their presence the people create this value, and it is theirs. The people should collect it and nothing else. Arbitrary assessment might have to be resorted to in time of emergency, but, as it is now understood and imposed, taxation should be reserved as a regulative or repressive curb on acts counter to the public interest.
It sounds like quibbling to speak of abolishing taxes while advocating the public collection of land rent; and, since the assessor would define and impose it, and the tax collector would collect it, it does look like a tax on land. But it is not a tax on land. It is payment for the privilege of an advantageous location among people.
It is easy to "capitalize" such an amount. Figure the capital that would earn interest equal to the rent offered. The value of the land is thus set by the rent. Assess it at that value, tax it at the current interest rate, and the public would then collect the value it creates. Taxes would no longer raise the cost of living.
The public collection of land rental simply means a charge by the public for a choice location in the midst of the public. The parking meter is a perfect example of this principle. If you want to use a desirable part of a public street, you pay the current value into a public fund. The parking meter principle should apply to all land. The simple mechanism to correct our revenue system would use present methods, equipment, and personnel, arriving by the test of the market at the desirability of all parcels and periodically adjusting appraisal and taxation to absorb the rent offered by the occupants. There is nothing of arbitrary opinion in this, nor would the rent be created by enactment. It would be a straight business matter, and little change would be needed in our laws.
Our failure to discern the difference between PRIVILEGE and SERVICE is stupid enough in its direct impact on our revenue policy, but it also creates a by-product, land speculation, which terribly hinders our progress and security. There is nothing spectacular about the land speculator. Quietly and conservatively he comes into possession of the title deed to a location, an area, for the purpose of (1) using it, (2) charging someone else for its use, or (3) selling his title at an increased price. If he uses it, he retains a public revenue. If he charges others for its use, he collects a public revenue. IN NEITHER CASE IS HIS MONEY USEFULLY INVESTED, and in both he hopes that the third purpose will be served. He hopes that more people will need the land, increasing its rental value.
When he buys it for the third purpose, straight speculation, to sell it later at a higher price, he becomes an obstructionist. He serves no good purpose. He does nothing useful. He is a legalized holdup man. He makes building, living, and working more expensive.
He could say to himself and to the community, "Someone will need this location in the near future; the growing population will make it more and more desirable; so, since the people will not collect what they create here, I will. I will get in this someone's way and prevent him from using this place until he pays me to get out of his way. I will not have to perform any service for him; the people will do that. He will not even get 'value received' from me because as soon as he begins to use the place, the people will fine him with 'taxes' for improving it. They fine anyone who builds a home or brings a business or service to their community. But they will not fine me; they are already letting me usurp a part of their wealth. I levy a tribute on progress. I capitalize other men's energies. The more they fine those who produce or render service, the more unearned value I gain." This is the unconscious soliloquy of the land speculator.
You may question this sweeping and positive singling out of land rents. What about Corporations? Monopolies? Bonds and Stocks? Capital?
Corporations are formed to perform service or to exploit through privilege, or frequently, to combine the two. To the extent that they perform service, they should retain their earnings, however great. To the extent that they exploit through privilege, they should not be supported by the law.
Monopolies, other than land, are simply opportunities for someone to get a little more than he deserves for what he gives, until competition or buyer resistance checks him.
Bonds and stocks are simply evidence of ownership in corporations that may be good and useful or evil and leechlike. Remove privilege, and they will adjust with the change.
Capital is a tool, and the man who creates it should retain what he earns from its use. The difference which sharply and cleanly separates land rental from payment for the use of buildings, tools, stocks in trade -- in short, from capital -- is that land costs nothing in human effort. Everything else is humanly produced. Money invested in the privilege of exacting tribute in the form of land rent is not capital. It is not usefully invested. "Capital is wealth used to create more wealth."
Resentment against big corporations is purely habit or label thinking. Most corporations spend fabulous sums in research seeking new products, processes, and economies, and you buy from them, not because you have to, but because you want their product. You can buy something else or do without. But you DO HAVE to have a little space on earth. That is a monopoly you cannot escape.
It would seem to be beyond dispute that the threat of depression would be remotely distant if the imbalance of our stupid taxation and the stifling barrier to our progress, land speculation, were both removed by recognition of this simple fact: THE RENTAL WHICH USERS WILL PAY FOR LAND IS THE TRUE EARNED PUBLIC INCOME. IT IS A VALUE CREATED BY THE PUBLIC. TAXATION OF INDUSTRY AND THE HOME IS UNJUST, ARBITRARY, AND DESTRUCTIVE. IT SEIZES PRIVATE PROPERTY.
When we learn this and adopt it for ourselves, we will be fitted to lead the world to prosperous peace.
Verlyn Klinkenborg wrote a nice short piece about a factory farm in Clarion, Iowa. "The factory — no point calling it a farm — called Wright County Egg, is the source of 380 million of the more than 500 million recalled eggs."
When I was back a couple of years ago, I noted the most evident change, a significant population of Mexican workers. I hoped that they were able to love Clarion as much as I did. It’s unlikely, because I also saw where they worked.
When I was young, I thought I grasped the immensity of the Iowa landscape. The immensity of the soybean and corn fields has only grown because so many smaller farms have vanished as a result of government farm policy, which rewards economic concentration. As I turned off Highway 3 east of town, I saw that there was a newer immensity, the egg factories — an endless row of faceless buildings, as bland as a compound of colossal storage units but with the air of a prison.
It wasn’t simply that the operation is out of scale with the Iowa landscape. It is out of scale with any landscape, except perhaps the industrial districts of Los Angeles County. What shocked me most was the thought that this is where the logic of industrial farming gets us. Instead of people on the land, committed to the welfare of the agricultural enterprise and the resources that make it possible, there was this horror — a place where millions of chickens are crowded in tiny cages and hundreds of laborers work in dire conditions.
It takes only a little investigation to learn how bad things have been inside those buildings. The list of offenses for which the DeCosters and their farms have been fined in Iowa and Maine only begins with hiring children and illegal immigrants.
In 2000, Jack DeCoster, the operations’ founder, was named a “habitual violator” of Iowa’s environmental laws. His egg factories have been cited by OSHA for deplorable working conditions. In 2003, Mr. DeCoster paid more than $1.5 million to settle an employment discrimination suit charging that 11 women working in the Clarion plants had been subject to sexual harassment, including rape and threats of retaliation. There have been nearly 1,500 illnesses as a result of the salmonella outbreak. Every one of the billions of eggs produced this way has been tainted.
I am led to wonder whether this is the sort of "family farm" which those who campaigned to get rid of the estate tax sought to protect.
Let's think about what incentives we need to shift in order to return to a situation in which more people can earn a decent living off the land without mistreating creatures, polluting the earth, exploiting workers or endangering their customers. Or we can continue with the wealth-concentrating machine we've permitted.
What do we value? Whose voices will get our legislators' attention?
"I believe in the division of labor. You send us to Congress; we pass laws under which you make money ... and out of your profits, you further contribute to our campaign funds to send us back again to pass more laws to enable you to make more money."
-- Senator Boies Penrose (R-Pa.), 1896, citing the relationship between his politics and big business.
Despite this nation’s rise as a technology titan with some of the best engineering minds in the world, its full economic potential is stifled by potholed roads, collapsing bridges, rickety railroads and a power grid so unreliable that many modern office buildings run their own diesel generators to make sure the lights and computers stay on.
It is not for want of money. The Indian government aims to spend $500 billion on infrastructure by 2012 and twice that amount in the following five years.
The problem is a dearth of engineers — or at least of civil engineers with the skill and expertise to make sure those ambitious projects are done on time and to specification.
Civil engineering was once an elite occupation in India, not only during the British colonial era of carving roads and laying train tracks, but long after independence as part of the civil service. These days, though, India’s best and brightest know there is more money and prestige in writing software for foreign customers than in building roads for their nation.
Our best and brightest ...
Think about it. $500 billion in spending on infrastructure between now and 2012. Those projects are likely to create $1 trillion to $6 trillion in increased land value!
Another $1 trillion in investment in infrastructure between 2013 and 2017. That will create $2 trillion to $12 trillion in increased land value.
So here's the question. How should India finance that $1.5 trillion in investment?
Should they tax the wages of their workers?
Should they tax the purchases of their workers?
Or should they collect some portion of that increase in land value year in and year out?
What might America learn by considering what India's options are?
This is an excellent article which I encourage you to read. I want to share the response which a friend posted to a global listserv we're both on.
Before I do that, though, I think it is worth considering that the much reported downturn in the market for new housing, as opposed to resale, might relate to a flight to quality. New subdivisions are on the fringes. Often they are beyond the fringe, surrounded by farmland -- sometimes described as checkerboard development. (I've even seen townhouses surrounded by farmland!)
If you have a choice between a new home in a distant subdivision and a resale home in an established location, served by established transportation systems, schools, jobs, shopping, cultural amenities, etc., which will you choose? Maybe the explanation of why new houses are not selling is that buyers now have a wider choice of homes they can afford, and are choosing the better locationsover the newly constructed houses on or beyond the distant edge of the community.
If I'm correct, it bodes well for smaller builders who are doing infill and redevelopment of existing neighborhoods. Wise policy can promote infill, while unwise policies lead to sprawl. I suspect the sprawl-folks have a lot more lobbying money than the infill-oriented ones, so can only appeal to good sense.
Here's Ed's response to the sprawl article, which I found to be well reasoned and well stated:
"A colleague of mine forwarded the link of this article to me for
comment, as my professional work in the United States has been in
community revitalization and the development of quality affordable
What I came to understand midway in my career was that land markets are made dysfunctional
by law that favors the landed over those who develop and utilize
locations. There are many issues causing sprawling development
patterns, but one of the most consistent is the struggle to gain
control over land that allows for profitable development. And, of
course, developers are not concerned with the infrastructure costs of
bringing roadways; water, sewer and other utilities, hospitals,
libraries, schools, and other public goods and services to
newly-created subdivisions. These costs are passed on to property
owners, working people and businesses.
There is only one measure that will redirect development inward,
leaving more distant land available for agriculture, recreation and
habitat for other species. This is for government to fully collect the
annual rental value of every location within its geographical
boundaries, while exempting improvement made thereon from the
tax/revenue base. What this change in policy will do is easy to see.
First, profit from speculating in the hoarding of land will disappear.
Thus, investors will acquire control over land only when profitable
development is possible.
Second, existing owners of land parcels will not be able to continue to
ignore land they hold because the cost of doing so will (particularly
if the and parcels are centrally-located) make this costly. They will
either develop land based on highest, best use or sell the land to
someone who will.
Third, the cost of property assessment will fall dramatically once property improvements are removed from the tax base.
Fourth, removing speculation and hoarding of land will bring down the
price (but not the annual rental value) of land parcels. This will make
it far less costly for public agencies to acquire land for needed
public buildings and (if still required given household incomes) to
construct decent, affordable housing units for the housing-deprived.
In summary, what will curtail sprawl is public policy that encourages
the renovation of existing structures and in-fill construction of new
buildings where infrastructure already exists, while at the same time
requiring land owners to compensate the community for the value that
comes to locations because of public goods and services."
"For decades, poverty reduction and development programs have failed to
confront the different forms of power and the structural violence that
hold more than two-thirds of the world in dire straits. Our chosen economic
model has created a global situation in which today less than 25% of the
world's population uses more than 80% of the planet's resources while
creating 70% of its pollution."
So how do we reduce our demand for non-renewable natural resources? (I don't see much long-term upside in increasing the supply of energy by using more of our soil -- or water or fuel -- to provide biofuel, though it may be a boon in dealing with the supply problem short-term.)
The right question, I submit, is how we do we adjust our incentives to produce a reduction in demand for oil, coal, natural gas, so as to leave a decent quantity of each for all the future generations and for the people of other nations. (And, not so incidently, to reduce the pollution we produce which now shows signs of exceeding the ecosystem's ability to carry it.)
What is it that we do now that we can do differently?
Well, we can adopt measures that encourage people to
live closer to their work
use public transportation more
use cars less
live in modern homes constructed with energy-conserving technologies and design
We can adopt measures which make it affordable to live closer to their work -- if they choose that. I'm not talking about subsidies, incidently. More precisely, I'm not talking about adding subsidies.
Some will say, as George H. W. Bush did in 1992 at the Earth Summit, that "The American way of life is not negotiable."
Dick Cheney is quoted (May, 2001) as saying that "Conservation may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy." As irritating as I found most of his pronouncements to be, I can see a germ of truth in this one.
I have friends who seek to reduce their water usage in order to save the environment. They save the water in which they wash vegetables, and measure their use by the cupful. It seems to me that while their efforts are admirable, in the absence of changes to the incentives which permit some people or other entities to continue to use water heedlessly to water lawns and rinse driveways, their efforts are pointless and maybe even counterproductive. (Problem? What problem? Why do we large users need to change our ways?) WE HAVE TO CORRECT THE INCENTIVES!
It seems to me that a carbon tax is a step in the right direction. Establish it, announce it, implement it on some predictable schedule. Industry will adjust. Individuals will adjust. And make sure that carbon tax applies to energy used in global commerce and travel, as well as domestically.
But the single reform which I think will make the biggest difference is a tax shift. If we were to shift our taxes off buildings, and onto land value, here's what we could expect to happen:
Urban land which now sits vacant or underused would be put to something approaching its highest and best use. That might be more housing, or more commercial venues, or some combination thereof.
Developers of well-located land would be competing with each other to provide what the market wants, be it housing or more grocery stores or more shops, or more office space. Landlords competing for tenants would lower their asking rents and tune their offerings to meet the demand, at all levels on the income spectrum, not just the high end.
The density this redevelopment would create would provide the platform for better public transportation -- more frequent buses, more subways, more commuter options.
People who would prefer to live closer to their work or to the cultural or other amenities which larger cities can offer would be able to find housing they can afford. Those who want to live in the suburbs on the 1-acre lot with the picket fence would have less competition for such homes, and be able to afford to buy one closer to the center of things for less of their income or a shorter mortgage.
I attend a liberal suburban church where every week the Prayers of the People include this statement: "The world now has the means to end extreme poverty. We pray that we have the will."
We need to act locally -- through basic tax reform -- to shift the incentives which currently nudge us toward using cars more, polluting more, living in older houses which consume more energy and create more pollution -- and rewarding land speculators more than we encourage the sorts of entrepreneurs who create jobs.
IT is ALL INTER-RELATED. But relatively few of us see the connectedness yet.
THE US and European economies are heading into a long period of weak growth and corrosive unemployment - and imposing a high price on carbon is the best way to resolve the funk, a visiting Nobel prize-winning economist says.
Joseph Stiglitz, a professor at New York's Columbia University, said the spending cuts and budget restraints increasingly being imposed by western governments were likely to prolong the economic stagnation triggered by the financial crisis.
In a speech titled Road to Ruin, Professor Stiglitz used an address at the Australian National University in Canberra last night to warn that the US government as well as many European governments were pursuing misguided policies in an attempt to rein in their debt.
And while Professor Stiglitz was pessimistic about the prospects for the global economy, he said that strong policies to curb carbon emissions could also help restore growth.
''The one basis for a global recovery, I think, is a high carbon price,'' he said. If governments imposed a tough price on carbon, businesses would have greater certainty to invest in new technology, which would drive growth.
Professor Stiglitz said that Australians had not felt the impact of the economic crisis.
''Here in Australia the only major contribution to the financial crisis was the anagram GFC,'' he said.
We're taxing the wrong things. We expend a lot of energy talking about
income tax brackets, ignoring the extent to which US income is
concentrated among a relative few of us.
We'd be wiser if we
started paying attention to how income has become so concentrated:
through granting of privileges such as the privilege of pocketing most
of the value of natural resources; the privilege of collecting what is
mostly land rent not building rent, both month by month or in the form
of "capital" gains upon sale of urban land; the privilege of using the
electromagnetic spectrum without paying one's community for the
privatization of this scarce resource; geosynchronous orbits; landing
rights at Laguardia and other congested and constrained airports; water
rights; rights to pollute.
If you're not familiar with the
statistics on how concentrated the benefits of such privileges are, read
the Survey of Consumer Finances data on Equity (publicly held stocks)
and "BUS" (the value of privately held companies) at LVTFAN. A few
percent of us own awesome percentages of these privileged assets and
reap what the rest of society sows through its labor and presence.
And our economics education neglected to mention this detail. (Should we be surprised?)
Life on a tilted playing field -- and we're so used to it that we don't even realize the tilt.
wealthy can be stimulated to do the things which create jobs and drive
wages upward for ordinary workers -- but it isn't through fiddling with
income taxes. We may need to fiddle with them in order to reduce the effects of our terrific income concentration and our need for revenue for legitimate common purposes, but it isn't the answer to stimulating the economy.
Inadequate taxes on mining means the people of Australia are being cheated and the economy is getting poorer, a Nobel Prize-winning economist told a crowd of 1400 people at The University of Queensland last night.
Professor Joseph Stiglitz shared his thoughts on the proposed mining tax in response to a question from an audience member during the seventh UQ Centenary oration.
“Natural resources lead to an appreciation of the currency and that leads to an imbalanced economy because it's hard for any other sector to do well, competing with imports or exporting,” Professor Stiglitz said.
“You're selling off your assets and in many cases you're selling them off at a very low price.
“If you are taking resources out of the country and you are not reinvesting those resources in one way or another – a stablisation fund, human capital, infrastructure – then your economy is getting poorer, not richer, and a good accounting framework can show that,” he says.
“When you're taking out natural resources from an economy you ought to have a subtraction from GDP - a firm that held a resource and was selling it off would take off depreciation and that would show up in its books as depreciation.”
Professor Stiglitz told a packed UQ Centre that Australia's economic stimulus package was the best designed in the world.
AND he said natural resources - coal, iron ore - should be properly valued at market just like the electromagnetic spectrum.
The government auctions the spectrum to the highest bidders who want to operate mobile phone networks, cable companies, television and radio stations.
Basically, a country - like Australia - will end up poor if doesn't get the best price for its assets - and natural assets are not renewable, once they are gone they are gone. If the proceeds from the sale of these assets are not invested in infrastructure to support and grow other sectors the economy (manufacturing and value-adding, goods creation) then a country and it's people will not prosper - HELLO! HELLO! Drowning not waving.
"It should be subtracted from Gross Domestic Product (GDP)," he said. "You are selling off assets at a very low price if you don't have adequate taxes on mining - you are being cheated," he said to audience applause.
He thinks resources should be auctioned off to the highest bidder - the free market at work. Of course, the mining industry will make all kinds of threats.
To everyone's amusement he joked about how mining companies bamboozled, threatened and bribed governments of developing, fragile nations.
"I assume that's not the case in Australia," he mused.
To prosper, a country needs to set up a stabilization fund (from a mining tax, if not a resources auction) for nation building.
This is what he calls an investment fund for building infrastructure and to grow value-adding industries, maintain education, job creation.
Not only that but the sell-off of natural resources should appear on a country's accounts as a kind of depreciation of assets - otherwise the accounts are not accurate. ...
He made these comments at the end of the oration after he explained the difference between the financial sector and the economy - the economy is not the financial sector.
The financial sector (the banks and regulators) are the culprits behind the global financial crisis which has crippled the global economy. Apparently, 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)."
The second account concludes with:
And as for Climate Change and the price of carbon and waiting for the rest of the world before we do anything?
Economies are not restructuring because there is no carbon price. The western world worries about the growing and changing consumption patterns of China and India.
Professor Stiglitz doesn't believe the West should begrudge them at all.
It's not consumption that's evil - it's profligacy. WASTE! Now, I wonder who wastes more the West or countries raising people out of poverty?
India and China will follow the wasteful ways of the West if the world fails to set a carbon price and force everyone to consume less to save the planet - the planet will force us to change in the end (*he says).
"If we had agreed to have a price on carbon at Copenhagen that would have been the answer," he said. "It would have provided an increase in global aggregate demand (global economic spending) as firms all over the world needed to retrofit (their business to meet pollution standards)."
So why is the US not hearing this advice? There is a lot here that speaks to issues which Americans would be wise to attend to. Alaska pays for a large portion of its costs by taxing its natural resources, and also provides an annual income to every permanent resident, of any age, from the proceeds of investing oil revenue into a broadly diversified portfolio, through the Alaska Permanent Fund. We have sacrificed many American lives in Iraq, but not produced a situation in which Iraq's oil revenue gets used either to finance infrastructure and government-provided services OR to provide an income to every citizen.
Re-read these excerpts with Iraq in mind, and then thinking of Afghanistan, and then of America.
On one of the NYT blogs in the "New Old Age" series, someone ("been there" in Boston) posted a very wise comment I thought worth passing along. The original post was entitled "No Place Like Home."
Think about it with respect to public policy such as California's Proposition 13.
I've added a bit of formatting to make it easier to read.
I understand the current sentiment for "growing old in place", but I
really believe we need to rethink the idea of spending limited resources
trying to keep elderly people living in the homes they raised their
families in. This feel-good concept actually has several drawbacks in a
variety of areas. As larger numbers of baby boomers move into retirement
these issues will only get worse.
First, with one or two elders living
in a three or four bedroom home, young growing families have too few
move-up houses available to them so they build new houses in the exurban
ring which 30 years down the road will exacerbate the real estate pull
back as the boomer generation passes and the baby bust can't replace
Second, as this article points out, access to services
and health care is terribly expensive and inefficient when those needing
a high level of health care are in single family homes.
stress of owning a home that an elder cannot adequately repair or
maintain becomes a constant low level of stress in their lives.
all too often, the elderly are stuck in a financial situation where the
ongoing costs of their primary home are wrecking their budget. Reverse
mortgages with their high fees and lousy financial terms are a terrible
solution. We need to develop a wider array of 55+ housing solutions at a
wider selection of price points and housing styles in the communities
where elders live so they can maintain the relationships that nurture
them while providing housing situations that allow them access to all
the services they will need.
I couldn't have said it better! Policies which significantly favor older homeowners over their younger fellow community members (e.g., California's Proposition 13 or Florida's Save Our Homes) drive up housing prices, monthly housing expenses, commuting expenses, pollution, sprawl, commuting time, profits for mortgage lenders. They lead to the premature need for adding infrastructure, destroying farmland, spending public money to enrich private entity landholders.
If our incentives instead encouraged the prompt and ongoing redevelopment of choice sites, well-served by taxpayer-funded infrastructure and services, there would be affordable, appealing housing for people of all ages and stages, all places on the income spectrum. It wouldn't be single-family houses downtown; it might be midrises or highrises, close to all the amenities which make downtown areas good places to live: medical care, restaurants, entertainment, libraries, emergency services, etc.
We just need to rationalize -- make rational! -- our system of incentives and privileges. We ought to align our incentives with where we want to go, and with what eliminates privilege for some which are funded by burdens on others. (Some of our privileges are so things we're so used to that we don't see that they burden and victimize others. Private collection of land rent and natural resource value is in that category.)
On the one side are those who believe in democratic capitalism — ranging from the United States to Denmark to Japan. People in this camp generally believe that businesses are there to create wealth and raise living standards while governments are there to regulate when necessary and enforce a level playing field. Both government officials like President Obama and the private sector workers like the BP executives fall neatly into this camp.
On the other side are those that reject democratic capitalism, believing it leads to chaos, bubbles, exploitations and crashes. Instead, they embrace state capitalism. People in this camp run Russia, China, Saudi Arabia, Iran, Venezuela and many other countries.
Many scholars have begun to analyze state capitalism. One of the clearest and most comprehensive treatments is “The End of the Free Market” by Ian Bremmer.
Bremmer points out that under state capitalism, authoritarian governments use markets “to create wealth that can be directed as political officials see fit.” The ultimate motive, he continues, “is not economic (maximizing growth) but political (maximizing the state’s power and the leadership’s chances of survival).” Under state capitalism, market enterprises exist to earn money to finance the ruling class.
The contrast is clearest in the energy sector. In the democratic capitalist world we have oil companies, like Exxon Mobil, BP and Royal Dutch Shell, that make money for shareholders.
In the state capitalist world there are government-run enterprises like Gazprom, Petrobras, Saudi Aramco, Petronas, Petróleos de Venezuela, China National Petroleum Corporation and the National Iranian Oil Company. These companies create wealth for the political cliques, and they, in turn, have the power of the state behind them.
It might be worth looking at these assertions in light of how wealth is distributed ... concentrated might be a better description ... in America. The 2007 Survey of Consumer Finances, from the Federal Reserve Board, reports the following distribution of "Equity," which includes individual stocks and equity mutual funds, whether held in retirement or non-retirement accounts:
Bottom 50% 1.5% Next 40% 19.6% Next 5% 12.4% Next 4% 30.5% Top 1% 36.0%
The SCF also reports the distribution of holdings of "BUS" -- the value of privately-held businesses:
Bottom 50% 0.4%
Next 40% 6.0%
Next 5% 5.5%
Next 4% 25.5%
Top 1% 62.7%
The two categories are of roughly equal size: Equity $13.7 trillion and BUS $14.9 trillion. So one might reasonably estimate that the top 1% have roughly 50% of the aggregate value of these two categories, and the next 4% have about 28% -- leaving 22% for the bottom 95% of us.
If state capitalism puts, say, 80% of business in the hands of the top 5%, is it that much worse than what we've got? In some ways, yes -- but the question is worth pondering.
Brooks closes with this:
We in the democratic world have no right to be sanguine. State
capitalism taps into deep nationalist passions and offers psychic
security for people who detest the hurly-burly of modern capitalism. So I
hope that as they squabble, Obama and BP keep at least one eye on the
We need healthy private energy companies. We also need to gradually move
away from oil and gas — the products that have financed the rise of
aggressive state capitalism.
More than "needing healthy private energy companies" we need to start collecting for the commons more of the value of the natural resources they draw from our common supply -- not to mention forcing them to privatize the environmental risks associated with drilling. Remember what Henry George said about a well provisioned ship? He who controls the hatches controls his fellow human beings.
And of course, we need to be undertaking the shift of incentives which will redirect sprawl into the underused sites in our cities. Land value taxation -- untaxing buildings, and uptaxing land value -- will produce the urban density which will lead to walkable cities and populations which will support effective public transportation systems. It will provide technologically modern housing affordable to people at all levels of the income spectrum, close to their work -- for those who want that. The reduced pressure on the suburban markets will lower prices there, too, for those who want that. That urban redevelopment will also create more commercial venues in the centrally located places where specialized businesses thrive. And of course all that building activity creates jobs, and those new technologies will produce buildings which use less energy and produce less pollution. And because untaxing buildings removes the penalties associated with things like solar power, all the incentives will be pointing in the same direction.
When there is a benefit to be gained by people congregating in one area rather than spreading themselves out evenly over the entire area of a country such as America, who is entitled to that benefit?
Two people working together produce more than the sum of what they produce separately. How should that surplus be divided?
Should it be divided equally among the workers? Should it be divided in proportion to the contributions of the labor of each worker? Should it all go to the more able of the two workers? Should it go to the fellow who owns the land on which they work? Should it go to those who lent someone money to buy the land? Should it be spent on things which make life more pleasant or work easier where they work?
How does wealth concentrate? Let us count the ways ... Tell us again about the wonders of trickle-down economics, folks. The trickle flows the other way: to the shareholders of our natural resources companies and the FIRE sector -- Finance, Insurance and Real Estate. This article from the Washington Post gives some useful data. $1 per gallon, going into the pockets of the oil companies and the too-big-to-fail speculating banks, and particularly their top "hired help," who are highly compensated whether or not their shareholders also make out well.
The Goldman Sachs scandal has done the unthinkable: It's made it possible that legislation reining in Wall Street's casino may actually be enacted.
The odds against real reform are still steep. Wall Street remains the most deep-pocketed lobby in the land. And the problem isn't just Republican opposition. "A lot of our members up here just want a bill passed," says one Democratic legislator. "They don't think that people are watching that closely. But this matters immensely to people. This is a which-side-are-you-on moment."
The clearest way for senators to demonstrate that they're not on Wall Street's side would be to support the bill that Arkansas Democrat Blanche Lincoln plans to bring before the Senate Agriculture Committee on Thursday. Going well beyond the bill that the House passed and the legislation that came out of Connecticut Democrat Chris Dodd's Senate Banking Committee, Lincoln's bill aims squarely at the big banks' most highly leveraged, profitable and risky-to-the-rest-of-us business: their trade in derivatives. (The Ag committee has jurisdiction because derivatives historically were used to trade commodities.)
Lincoln's legislation would require the firms that buy and sell derivatives -- 95 percent of such deals in the United States, according to the Comptroller of the Currency, are done by Goldman, Morgan Stanley, J.P. Morgan Chase, Bank of America and Citibank -- to do their trading openly on exchanges and to post some actual money behind their trades. Today, the market is unregulated. But if Lincoln's legislation passes, no longer would deals with the potential to threaten the nation's economic stability be invisible to regulatory agencies; no longer would businesses seeking to buy derivatives have to accept banks' terms with no ability to shop around or even ascertain the going price for such contracts. No longer would trades with foreign entities be exempt from regulation. And no longer would banks that our government backs up with deposit insurance and access to the Federal Reserve's discounted interest rates be able to put taxpayers on the hook for their speculative bets: They could either continue as derivative-trading casinos or as governmentally insured banks, but not both. In fact, Lincoln's bill goes a good deal of the way toward meeting Paul Volcker's proposal to remove banks' proprietary trading from the umbrella of federal protection.
On Tuesday, leaders of industries that actually need to lock in prices on real commodities -- in particular, oil -- went to the Senate to endorse Lincoln's bill. "In 2008," said James May, president of the Air Transport Association of America, "we burned the same amount of fuel we burned in 2003, but we paid $42 billion more." The difference, he said, was the result of the vast increase in oil speculation carried on through derivatives. Over the past half-decade, for instance, the largest holder of home heating oil often has not been an energy company but, rather, Morgan Stanley.Such speculation, estimated Sean Cota of the Petroleum Marketers Association of America, has increased the cost of gas at the pump by about a dollar a gallon.
"We need predictability in prices," Cota said Tuesday. "The banks want volatility. . . . Old-fashioned bonds built Hoover Dam, but they were paid off over many years. The banks are only interested in trades that pay off in the next 30 seconds. . . . They have no concern for the future of the larger economy."
Just another wealth-concentrating machine. A $1 per gallon "tax" going to line the pockets of our smart and privileged, out of the pockets of ordinary working people. And, by the way, any of those smart folks who die this year will be able to leave their estates to their heirs untouched by even "death taxes."
There is no such thing as a free lunch. Their windfall comes out of the pockets of the rest of us, not out of thin air.
Aren't markets wonderful? I am reminded of the statement about neoclassical economists being rich peoples' useful idiots.
This article describes some of the tax approaches that governments, mostly overseas, are turning to in order to plug holes in their budgets.
It is amazing that none seem to have thought about going back to basics, and drawing a larger share of the needed revenue from the one tax base that can be tapped without distorting the economy, without driving productive activity elsewhere, without taking from producers that which they produce.
It seems to me that a municipality, or state, or federal government should tap the annual value of the land within its borders before it starts to tax the wages or purchases of its people. If the municipality fails to collect that rental value, then the state ought to be able to do it; if the state fails to collect it, then the federal government ought to collect it.
And should the municipalities wise up and collect the lion's share of the land rent within their borders, the state and federal governments have other like tax bases they ought to be tapping: the value of water rights, of the airwaves, of geosynchronous orbits, of airport landing rights at busy airports, pollution, non-renewable natural resources such as oil, natural gas, lithium, etc. [The classical economists called all these things "land," as opposed to capital or labor, the other two inputs to production.]
They don't need to get creative. They need to go back to basics: tax that which nature provides; tax that which the community creates -- not what individuals and corporations create.
One of my standing google alerts brought me to a page where this question was posed. I jumped in to answer it, and thought I'd share my answer here:
Answer #1: It is determined by what we tax and what we don't; what we
permit to be privatized, and what we socialize. When we permit the
privatization of natural resources and the economic value of land, by
collecting only small royalties and low taxes on land value, we permit
individuals and corporate shareholders to privatize value which all of
us create. Corporate stock ownership is quite concentrated, even
though lots of people own a little each.
When we place taxes on buildings, and the sales of goods and sometimes
services, we tax that which individuals and corporations create. Many
would argue that this is unfair, and most economists would agree that
we discourage production, innovation and job creation.
When we place taxes on wages, we socialize a part of that which
individuals create. At the very highest income levels, where a
significant portion of "wages" might actually be natural resource
values, or urban land rent, or other kinds of privilege, we are --
somewhat clumsily -- collecting via an income tax that which ought to
have been collected via taxes on land values and natural resource
values. But it is a clumsy tool.
When we tax the very largest estates (we currently tax the estates of
fewer than 1% of the people who die each year), we are collecting, once
per generation, a percentage of the appreciation of land and natural
resources (which hasn't been taxed yet) -- which is better than never
collecting it at all but far inferior to collecting it annually -- but
we are also collecting some things which are genuinely the fruits of
someone's labor or brilliance.
Huge fortunes may be built on good ideas, but frequently they are built
on urban land values, on natural resources (Jed Clampett) -- or on
privilege or monopoly of some kind. "Capital" doesn't appreciate. As
every homeowner knows, buildings depreciate, even with good
maintenance. As every car owner knows, cars and other machinery
depreciate, even with good maintenance. What appreciates is what is
scarce or in finite supply: choice urban lots and nonrenewable natural
resources that meet a consumer need. When we permit some of us to say
"THIS IS MINE!" we determine wealth distribution. The rest of us pay
the privileged folks for that upon which we rely to live. What a
deal! Every young person must either pay rent or buy a piece of land
on which to live, and much of our housing payment is for the location,
not the structure; and on top of that we must pay interest. (Guess who
benefits? Shareholders of lenders.)
You might be interested in the fact that the board game Monopoly is
based on a game which was developed in the early 1900s to teach these
ideas. It was called The Landlord's Game, and it came with two sets of
rules. One set was called the Prosperity rules, and it made for a
rather dull game: no big winners, no abject losers. Not an exciting
game, but a model for sustainable living, in which all could prosper.
Needless to say, the board game Monopoly is based on the other set of
Should life be based on Monopoly rules, or Prosperity rules?
Answer #2: If your question was "how do we measure the distribution of
wealth" then perhaps the best answer is via the Federal Reserve Board's
triennial Survey of Consumer Finances, last conducted in 2007. They
survey households in great detail, and then report how wealth in total
and of various kinds, and debt, are distributed. However, since their
sample omits the Fortune 400, they under-report the concentration of
for a bit about wealth concentration, and look on that same page for
more about the Survey of Consumer Finances (SCF).
My brother (an alum) called this one to my attention. My husband and I are alumni, too, and some years ago, when it came time to look at colleges, our son refused to seriously consider Union because he had seen Schenectady on various visits to campus over the years, and simply couldn't imagine living there for four years. He made a great choice for a college, but I've often mulled over what the article is discussing: that the problems of Schenectady, like much of upstate New York, make it an unhappy place, one where many people would not choose to live, given other options. Its economy is hurting -- and for reasons that can be easily corrected.
Union always had a well-regarded economics department, and being as close to the state capital at Albany, some students did internships in various legislature offices.
So why on earth haven't Union's Economics and Political Science departments applied their sciences -- and talents -- to the problems of Schenectady, and proposed solutions?
Part of the answer might be that for several generations, neither of these sciences have put much thought into the problem that underlies Schenectady's troubles. It hasn't been fashionable to talk about, and many haven't even had the vocabulary. Most of today's economics professors learned their economics at the feet of neoclassical economists. They have a lot to fit into a trimester, and they're not likely to teach that which their own instructors chose to omit. But they're missing something important and relevant. The classical economists had a lot to tell us which points to the root of some of today's most serious problems.
Or perhaps those seeking a better future for Schenectady might turn to the History department, or to American Studies. Students of the last half of the 19th century might be able to tell them about an American philosopher and economist named Henry George (b. 1839, Philadelphia; d. 1897, NYC), who was the best known (due in part to his bestselling book on political economy, Progress and Poverty, which was familiar to anyone who read at all during the last 20 years of that century; it sold about 6 million copies and was widely serialized and translated) of a long continuum of people who called attention to the importance of land and natural resources in our economy, and to the distortions that result when we permit the privatization of their economic value -- or about the movement which followed in the early years of the 20th century. George proposed a simple and just remedy, and I'll bet that not 10 of this year's Union graduates have even heard of it. (That doesn't set Union apart from many other highly regarded colleges, but it is clearly a shame: that these students have spent 3 or 4 years in Schenectady, and not gotten close to some answers about why there is such poverty and underdevelopment in the state of New York, from which many of Union's students come. They come from much richer parts, in general.)
The small cities of upstate New York, like many other places in America, are suffering from the use of the wrong taxes. Schenectady is perhaps an extreme example. When we tax both land value and buildings at the same millage rate, we discourage the sort of development which we claim to want. The answer, of course, is to reduce or even eliminate the tax which falls on buildings, and increase the millage rate on land value.
Union's economics and political science departments owe it to their hometown to take on this topic. First, the faculty must educate themselves. And then they must involve their students, particularly those who come from New York State. They can become a force for good, a force for reform of some miserable policies, and for a shift to superior ones.
They may find themselves coming up against the "real estate interests" -- including alumni, perhaps -- who think that this might not be in their own best interests (and therefore discourage the exploration). (Governor Spitzer, the son of a real estate magnate, would not have been enthusiastic about this, for instance. He convened a panel to try to offer "Property Tax Relief" as an answer to some question -- but it was probably not primarily for homeowners. Remember Leona's wisdom about taxes.) Will Union's best and brightest be able to push through the interested parties' incentives, or will they be derailed by pressure not to study this matter? They have tenure, many of them, and most live in or close to Schenectady.
The political scientists might start with a couple of Google books, such as "Natural Taxation" (by one of the founding partners of Shearman & Sterling) or "The ABC of Taxation." They're available via Google books, and will soon be online in other forms. (Stay tuned here for updates.)
And all might appreciate the writings of Bill Batt, an Albany-based thinker on a lot of important issues which could be of great help to Schenectady.
And if any of them think this might simply be a quaint agrarian idea, I encourage them to read this page, and consider which of these issues don't affect Schenectady or their own futures.
People as diverse as Henry Ford, Theodore Roosevelt, Aldous Huxley, Clarence Darrow, Bernard Shaw, and Leo Tolstoy have embraced these ideas, as have a wide range of wise people from earlier centuries, and contemporaries as diverse as Bill Buckley and Michael Kinsley. They are a fine example of thinking globally and acting locally, and represent a "third way."
Will Union College act -- and in the process, teach its students some important truths -- or simply nibble at the leaves of Schenectady's problems? Go to the root!
Post Script: Union's faculty, and others who care about Schenectady, have an opportunity to get to know these ideas this summer. There will be a conference in Albany, July 12-16, of the umbrella group for North American Georgists. Some of the sessions will be of great interest to those who care about Schenectady, but I mention it here primarily because it will be an opportunity to interact with people who know George's ideas well and are persuaded that they can make an important difference in the world. (This post didn't start out to be a promotion for the conference, but I was glad to find that the conference schedule is now available online. It ends: "The Law of Rent never changes, but our schedule
may - without notice.")
2/23: I added a postscript to this one ... scroll down!
David Cay Johnston, first known to many of us as the tax reporter for
the NYT, and more recently the author of Perfectly Legal and Free
Lunch, and as a columnist for tax.com, last week brought to popular
attention a story which the IRS posted to its website without the
normal fanfare which announces a new piece of information there. Even
more interesting is the fact that it represents a return to the IRS
reporting data which was customarily furnished during the Clinton years
and suppressed by the Bush administration, who brought us substantial
tax cuts for the highest-income Americans -- and for the highest-value
(top 1%) decedents. As Andrew Leonard put it in Salon,
This is America, right? We've come to expect shocking statistics on income inequality. They're practically our birth right.
But then came the kicker:
The annual top 400 report was first
made public by the Clinton administration, but the George W. Bush
administration shut down access to the report. Its release was resumed
a year ago when President Obama took office.
Because you know, if you are going to reward the richest Americans with
tax cuts, it's best if you keep the rest of us in the dark as to just
how much money they're making, and how little they are paying Uncle Sam.
The new information relates to the top 400 income taxpayers. The data
published brings forward the series data, previously published for 1992
to 2000 (See http://www.irs.gov/pub/irs-soi/00in400h.pdf, published in 2003) to 2007.
Here are some of the highlights of the 2007 data:
The adjusted gross income threshold for being among the top 400 taxpayers rose from $24.4 million in 1992 to $138.8 million in 2007. In constant dollars, that was approximately a quadrupling in 15 years.
The average AGI among the 400 taxpayers rose from $46.8 million (192% of the cutoff) in 1992 to $344.8 million in 2007 (248% of the cutoff).
In 1992, the total AGI of the 400 represented 0.52% of the total
AGI for all taxpayers. In 2007, the 400 represented 1.59% of the total
AGI. In those years, total taxpayers increased from113.6 million to 143.0 million. The 400 represented .00035% of the households in 1992, and .00028% in 2007.
Over the same period, the average AGI for the remaining taxpayers increased from $31,781 to $59,798.
Salaries and Wages represented 26.22% of the Top 400's AGI in 1992; by 2007, that had decreased to 6.53% -- an average of $29.4 million per taxpayer, for the 306 who reported such income. 306 is the lowest figure since 1992.
All 400 reported Taxable Interest income. On average, they reported
$27.1 million. In total, their taxable interest exceeded their
salaries and wages. In total, their taxable interest was 4.04% of
total US taxpayer interest.
All 400 reported Dividend income, and their average was $24.5 million. Their dividends were 4.14% of total US taxpayer dividends.
The vast majority of their reported taxable income was in "Net
capital Gains less Loss in AGI": an average of $228.6 million each.
Their capital gains equaled 66.29% of their AGI, and 10.07% of total US
taxpayer capital gains.
Virtually all of their capital gains -- $226.4 million on average --were subject to preferential rates; this means they were "long-term" holdings, and were taxed at 15%. [And of course none was subject to FICA, on which the vast majority of those who labor pay 14% (more precisely, (7.65*2)/107.65, or 14.2%).]
49 reported net business income, averaging $3.2 million. More, 84,
reported net business losses, averaging $2.6 million -- they
represented 3.06% of the US aggregate.
202 reported Partnership and S Corporation net income, averaging $83.0 million. 185 reported Partnership and S Corporation net losses, averaging $25.2 million -- 3.52% of the US aggregate.
Their itemized deductions averaged $49.4 million, 1.46% of the US
aggregate; the average itemized deductions limitation was $5.4 million
-- they represented 5.4% of the US aggregate.
On average, they claimed "taxes paid" deductions of $13.9 million, and "interest paid" deductions of $9.9 million. Their "taxes paid" deductions represented 1.17% of aggregate deductions for taxes paid.
Almost all claimed contributions deductions, averaging $28.5 million -- 5.73% of the US aggregate. (Interesting that this is roughly equal to salaries and wages, or to dividend income, or to taxable interest income!)
Their Taxable Income grew from an average of $42.2 million to $296.2 million. In constant dollars, it increased 376%. In 1992, their taxable income represented 0.70% of the aggregate; by 2007, theirs was 1.95% of the total.
Their federal income taxes averaged $57.3 million; in total, the 400 represented
2.05% of the total paid, up from 1.04% in 2007. [Compare the former
percentage to their 1.59% share of AGI, and their 1.95% share of
Taxable Income.] Their average federal tax rate was 16.62% in 2007, down from 26.38% in 1992.
If we add the amount they claimed as a deduction for taxes paid to their federal income tax, their taxes represented 20.57% of their AGI in 2007, down from 32.12% in 1992. Their other taxes paid dropped from 5.74% of AGI in 1992 to 3.95% in 2007.
These 400 taxpayers paid a total of $28.4 billion in taxes,
federal and other, in 2007, on AGI of $137.9 billion and taxable income
of $74.7 billion.
In 2007, they paid $28.4 billion in taxes, federal and other.
Had their tax rate in 2007 equaled their tax rate in 1992, they would
have paid $44.3 billion in taxes, federal and other, or about $110.7
million on average, instead of $70.9 million.
Johnston's Tax.com article also points out:
The top 400 reports understate actual top incomes because of deferral
rules. For example, managers of offshore hedge funds who deferred their
gains may not be counted in the top 400 reports, which are based on the
figure on the last line of the front page of Form 1040.
At least three hedge fund managers made $3 billion in 2007. It is not known how much, if any, of their income they deferred.
Only 7 of the top 400 have shown up in the report every year, the IRS
data showed. Of the 6,400 returns covered by the 16 years of the
report, the IRS said that 2,515, or almost 40 percent, appeared one
The previous report (before the Bush administration suppressed
publication), said that less than 25% of the then 3600 returns appeared
more than once between 1992 and 2000.
A very useful table in DCJ's column shows that the income of the bottom
90% of taxpayers has increased by a mere 13% (in constant dollars) over
the 16 years.
How much of this income do you think they spent on consumer goods?
What do you think they did that helped stimulate our economy?
How many people do you think they employed, and what sort of wages did they pay?
What do you think this year's portion of each fortune will be worth upon the death of the recipient?
What do you think they invested their windfalls in? I'm guessing that a lot of it went into land -- urban land -- and non-renewable natural resources of one kind or another -- that which Will Rogers and others have pointed out is not being made anymore.
What industries do you think these fortunes are coming from? How have these people benefited from the boom-bust cycle which has victimized millions of Americans? What privileges have we-the-people granted them to reap what we-the-people sow? To what degree have they benefited from privatizing the commons -- things which rightly belong to all of us? What sort of contribution do you think these companies have made to pollution, to personal bankruptcies, to concentrating America's wealth in the pockets of a relative few? How many jobs have they moved offshore? Are they being paid in shares or stock options that burden their employer's shareholders? What sort of wages have they paid their employees at various levels on the pyramid? What sort of influence will they have over our next elections -- Senators, Congressmen, Governors, President, etc., -- and over future decisions to go to war in various resource-rich parts of the world? They can certainly afford to spend to influence public opinion in ways which benefit their interests, and to guarantee that they won't be taxed heavily, even if workers, who end up with little, are.
The article lists a number of people who will likely be in the 2008 second tier -- not the top 400, but clearly well into the top half percent, based on their selling Goldman Sachs stock; the article isn't clear about what their basis might have been in the stock -- but one sold shares worth $17.6 million plus $55.7 million (he may not be an American). Another, who ran the merchant banking business, sold $29 million worth. The article suggests that most of these sellers still have considerable amounts of Goldman Sachs stock; Lloyd Blankfein's 3.3 million shares are now worth more than $500 million. Should he sell, he'd be well onto the Top 400; the 2007 threshold was $139 million.
I'm guessing that many on the top 400 list in any particular year are people who have sold a privately held business to a large corporation. They've paid 15% on the capital gains, and will likely rail against paying an estate tax on the other 85%.
This is an exciting website which shows promise of digging California out of the hole into which it has dug itself.
The only downside I see for the rest of us is that it will make all the taxes which California residents pay deductible on their federal tax returns, and therefore, perhaps, reduce the tax revenue the federal government receives from this huge state, at least in the short run.
But the upside is exciting: California could be the first state to eliminate the dumb taxes which weigh on any economy: sales taxes and the portion of the wage tax which falls on the first $150,000 of personal income.
It is interesting to see who wanted to participate in the increase in land value in New York City through investing in the housing deal which attempted to convert middle-class housing into something more upscale:
Many of the other companies, banks, countries and pension funds —
including the government of Singapore, the Church of England, the
Manhattan real estate concern SL Green, and Fortress Investment Groups
— that invested billions of dollars in the 2006 deal stand to lose
their entire stake.
“At the time, it looked like a sound investment,” said Clark McKinley,
a spokesman for Calpers, the giant California public employees’ pension
fund, which bought a $500 million stake in the property. “When the
market tanked, we got caught.”
Calpers, he added, has written off its investment. So has Calsters, a
California pension fund that invested $100 million, as has a Florida
pension fund that put $250 million into the deal. ...
The Government of Singapore Investment Corporation, which made a $575
million secondary loan, and invested as much as $200 million in equity,
stands to lose all of that.
It isn't as if the buyers in this deal were going to build new buildings, or add new housing capacity to NYC on this huge (80 acre) piece of land. They hoped to make minor improvements in very well-located older mid-rise buildings, and collect much higher rent from new up-market tenants than they could collect from the existing middle-class tenants they planned to force out.
NYC's failure to collect any significant share of the rental value of the land in the form of a tax on land value contributed to the perceived opportunities for Singapore, the Church of England, California and Florida public employees and others to reap the benefit from the economic activity of the NY area and the investments made by NY's taxpayers (whose sales are taxed and whose wages are taxed, even if they only work in NYC) and subsidies given by the federal government (e.g., transportation systems). (Do you see any irony in it being the California and Florida pension funds which sought to collect a windfall on NYC rent, when those two states have provisions which suppress property taxes and thereby create windfalls for their landholders? I refer to Proposition 13 and "Save Our Homes.")
If NYC wised up, and placed more of its tax burden on its land value, there wouldn't have been the hope for ongoing windfalls for private investors.
There would, likely, also be a lot more housing available to meet the needs of middle class and other folks, because taxing land value nudges the owners of underused land to reconsider, and put their land to better use. No parking lots where a high-rise could be. No urban gardens where a mid-rise could be. No rubble-strewn lots where townhouses could be. No "taxpayers" where a building that meets current needs could be.
Remember Leona Helmsley's famous statement? "WE don't pay taxes. The little people pay taxes." She wasn't describing tax evasion; she was describing how we structure ourselves.
If NYC placed more of its taxation on land value, the big real estate operators WOULD be paying their share of the costs of providing the services which make NYC NYC, and there wouldn't be windfalls for CALPERS, Singapore or the Church of England, or the next generation of Leona Helmsleys. There wouldn't be land speculation. There would be a more stable and vital economy, in which all of us could prosper.
But obviously, the powers-that-be prefer the status quo -- the system which has funneled 71.8% of America's net worth into the portfolios of 10% of us, leaving 13.5% for the middle class -- the second 10% of us -- and best wishes! to the other 80%.
And, given last week's Supreme Court decision on corporations being entitled to free speech, that 71.8% is going to drown out those who see things differently.
I finally got the time to sit down and read through some of the obituaries and tributes to Lowell Harriss, who died in late December (just after Paul Samuelson). His name was one I grew up with; he was a younger and much respected colleague of my late Georgist grandfather, and participated in the Committee on Taxation, Resources and Economic Development in the 1970s, and, likely, beyond.
The tribute I'm reading right now is interesting in light of data I've reported here recently, and in light of yesterday's Supreme Court decision on corporate free speech. The data I report has only been gathered in its current form since the 1980s, and I have no idea what the earlier data sources on the subject might have been.
The tribute comes from Ben Stein, who young people know from "Win Ben Stein's Money," and a film or two, and those who watch the nightly news sponsored by the pharmaceutical companies may recognize from Visine commercials. He is the son of two economists, and writes for Fortune Magazine. He was a student of Lowell's at Columbia University in the mid 1960s. He wrote, in tribute to Lowell,
But when Professor Harriss started
talking about how corporations manage their affairs, he said, "Now
assume that the stockholders of the corporation, the owners and
beneficiaries of the corporation, are all widows and orphans."
This was an eye-opener indeed. And it made total sense. Of course,
except in the rarest of cases in those days, then, and even now, the
biggest companies are owned by legions of pension funds, mutual funds,
(now, also ETFs and index funds). They
are not owned by the Rockefellers or the Astors, as Professor Harriss
used to say. They are owned by our parents and by us. The corporations
are the people every bit as much as the workers are the people.
This insight, seemingly rarely taught in today's universities, has
enabled me to ask -- for example -- why we as a nation would be angry
at the oil companies, when we as a nation and as families own the oil
companies, when the oil companies employ our fellow Americans at a
decent wage, and when the oil companies pay us Americans as savers and
retirees oil company dividends. Why
would we hate any company without understanding that -- generally
speaking, definitely not always -- its managers are simply trying to do
the best for the widows and orphans and retirees who own the company?
The companies are not a cancer on the society: they are the society.
Let's look closely at that second paragraph in light of the Survey of Consumer Finances data (2007, the newest available).
The SCF doesn't report pension fund assets.* Others do -- see Ed Wolff's work. But it is widely understood that a small and diminishing portion of the workforce today has a defined benefit pension -- that which we think of as a pension. Some of today's workers still have some pension assets, either from a current employer who is no longer contributing to the pension fund, or from a previous employer.
The SCF reports several relevant categories, all mutually exclusive, and then an aggregate called "EQUITY." The individual categories which might include stock or mutual funds are STOCKS; the category NMMF -- non-money-market mutual funds -- which represents holdings of mutual funds (which includes bonds as well as equities) outside of retirement assets; and RETQLIQ represents total holdings of such retirement assets as IRAs, 401(k) accounts, and other similar individually controlled retirement funds, which likely includes stocks, bonds and mutual funds. The SCF also reports an aggregate called EQUITY. Here are the ownership rates, and the distribution of holdings for 2007:
Table 1: Ownership Rates
Table 2: Share of
So while it might have been true that the young people sitting in Lowell's classes were likely to be beneficiaries of the corporations as shareholders, I think it is safe to say that the larger society was not, unless the distribution of stock holdings has concentrated even more precipitously than I suspect it has between 1964 and today. The widows and orphans were far more likely to be in the bottom half of the wealth distribution, which, as of 2007 shared 1.5% of the EQUITY value.
Today, it is clear that many corporations are not being managed even for the long-term benefit of their shareholders. It is the top tier of employees whose interests are being served.
But perhaps one other piece of data ought to be considered: the distribution of the owners of holdings. This is the sort of figure which corporate advertising refers to when they talk about stock ownership being broad. The "Total" line matches the first distribution; the others add to that total.
Table 3: Distribution of
Holders of Assets (2007)
Do you feel better now? The top 1% folks represent less than 2% of those who own EQUITY! What's the big deal? Look how many more of EQUITY owners are from the bottom 50%! Isn't America wonderful? Does Ben Stein's memory of Lowell's classroom statement sound right now?
One more table. This one looks at the relative holdings across the holders in each wealth quantile. It divides the dollar holdings for each group by the percentage in Table 3. Data is comparable both across columns and up and down each column.
Table 4: Average Dollar
Holdings per 1% of Households Who Hold
Notice what percentage of us are "below average." Compare each figure to the average in its column.
Let me throw in one other set of figures: The Table 4 data for BUS -- equity in privately held companies. Average: 1,069. Bottom 50%: 24 Next 40%: 137; Next 5%: 443; Next 4%: 1,507; Top 1%: 10,960. (That's what the Astors and Rockefellers of today own. And much of it is land value and the value of other natural resources, value which we permit them to privatize.) We call much of it "small business" and permit the owners to style themselves as self-made successes.
To return to Ben Stein's questions:
This insight, seemingly rarely taught in today's universities, has
enabled me to ask -- for example -- why we as a nation would be angry
at the oil companies, when we as a nation and as families own the oil
companies, when the oil companies employ our fellow Americans at a
decent wage, and when the oil companies pay us Americans as savers and
retirees oil company dividends. Why
would we hate any company without understanding that -- generally
speaking, definitely not always -- its managers are simply trying to do
the best for the widows and orphans and retirees who own the company?
The companies are not a cancer on the society: they are the society.
The nonrenewable natural resources belong to the people, not exclusively to those who extract them from the soil, or their shareholders, even if 100% of us were shareholders in name. Until our system collects the royalties on those natural resources from those who we currently permit to privatize our COMMON asset, Stein is just plain wrong. Fortune Magazine's subscribers may appreciate his assertions, but the rest of us ought to be very very skeptical.
* Postscript, 1/30/2010:
I came across some data about stock ownership which showed where pension funds fit in the picture, at least in the 1990s. See Pension Fund Capitalism, by G. William Domhoff, at http://sociology.ucsc.edu/whorulesamerica/power/pension_fund_capitalism.html, Table 1, which shows that Corporate Pension Funds held 18% of Corporate Stock, and Public Pension Funds held 8% in 1994, compared to Households, which held 48% and Mutual Funds which held 12%. He sources the data to Margaret M. Blair, Ownership and Control, 1995)
I was a rising senior in high school when Woodstock took place. A fellow waitress in the local deli in which I worked -- Max for Snacks, in King of Prussia, PA -- took off for Woodstock, and the rest of us dreamed of doing so.
We thought we could change the world. Many had a vision of a society in which all could prosper, all could succeed. We sang, we danced, we applauded, we protested. Gradually we worked our way up. We educated ourselves, we bought homes, we had children -- not always in that order -- and we became part of the establishment. We bent the establishment, a bit, perhaps, to our advantage.
But we didn't correct the problems, and arguably, we let them grow worse. We watched as the benefits of public investment -- local, muncipal, county, state, federal -- accrued not to all of us but to those who own our land and claim title to our natural resources. We permitted corporations and individuals to lay claim to our common resources, we who grew up hearing about Jed Clampett being somehow entitled to the oil revenue, to the exclusion of the rest of us.
We're so used to the way this aspect of the world was handed to us that few of us think to question it. And yet the privatization of the economic value of urban land and the privilege of collecting the revenue on non-renewable natural resources on which all of us are dependent together produce some of our most serious social, economic, environmental, poverty and justice problems. Most wars are fought over these two things.
And until we come to recognize this, all we can do is put bandaids on those problems -- locally, nationally and globally.
These two things are what someone wisely referred to as "Natural Public Revenue" sources. Yet we largely ignore them, and use taxes which set up perverse incentives -- and wonder why we can't seem to solve any of our biggest problems.
A few lifts from an interesting paper. It speaks only to oil usage related to cars, putting aside heating oil and other uses of oil.
What it misses is the fact that our incentives are aligned to create sprawl, and that until we realign them, we aren't going to get smart growth. Readers of this blog know that the first realignment -- necessary, if not sufficient -- is a reform of the conventional property tax, shifting taxation off buildings and onto land value, followed by a shifting of more of the tax burden off sales and wages and onto land value. When we tax land value heavily, only good things happen --
from the point of view of the environment,
from the point of view of efficiency,
from the point of view of the economy,
from the point of view of encouraging smart growth,
from the point of view of job creation and affordable housing,
from the point of view of dense cities and walkable cities and effective public transit which people want to use and are willing and able to rely on, day in and day out.
The NRDC is not going to achieve its goals without the tool of land value taxation. "Targets" and "funding" are all well and good, but they don't counteract the current disincentives that our system of taxation creates. I'd be happy to provide the NRDC folks with material which will help them understand the needed change.
Good public transit systems can be fully funded by the increased land value they create.
From their paper:
America’s dependence on oil is problematic in several ways, including the following:
The United States has less than 2 percent of the world’s oil supplies but is responsible for about one-quarter of the world’s oil consumption.2 We import almost two-thirds of our crude oil supply from foreign countries, and more and more of the world’s future supply will come from regions that are either politically unstable or unfriendly to U.S. interests.3
Our unstable supply of oil threatens our national economy, particularly since about 96 percent of our transportation system relies on oil.4
Oil consumption is a leading contributor to the greenhouse gas (GHG) emissions that cause global warming. In the United States, the oil-based transportation system is responsible for roughly one-third of our global warming pollution
Smart growth and public transit. States can reduce oil dependence by integrating land use and transportation policies and designing them to reduce vehicle-miles traveled and promote alternatives to driving. Nineteen states, including Hawaii, Georgia, Tennessee, and Maine, have adopted smart growth measures intended to curb sprawl and reduce the associated traffic and vehicle-miles traveled. Fourteen states have created an agency or other mechanism to develop and coordinate land use policies. Six states have set targets for reducing vehicle-miles traveled. In addition, some states — led this year by New York, New Jersey, and Washington — have prioritized the funding of public transit through the allocation of state funds and/or by transferring portions of their federal highway dollars.
Nineteen states have growth management acts. Among the most comprehensive ways of promoting smart growth is growth management legislation, such as Washington’s Growth Management Act (GMA). This GMA affects 29 counties (95 percent of Washington’s population) and requires, among other things, policies covering sprawl reduction, affordable housing, open space and recreation, environmental protection, natural resource industries, permit processing, concentrated urban growth, regional transportation, historic lands and buildings, and public facilities and services.13 Despite Florida Governor Crist’s weakening of his state’s growth management laws this year, growth management legislation was still one of the areas of greatest improvement from last year, when only 12 states had such laws.
Only six states have set targets for reducing vehicle-miles traveled. For instance, the state of Washington amended its GMA to make it even more effective at lowering oil consumption, calling for reductions in per capita vehicle-miles traveled (VMT) of 18 percent by 2020, 30 percent by 2025, and 50 percent by 2050.14
Fourteen states have an agency or other mechanism to coordinate development. Many states have recognized that several different state entities influence development, sometimes in potentially contradictory ways, and have created mechanisms to coordinate public investment that supports development. In 2003, Massachusetts established a powerful Executive Office of Commonwealth Development.15 Such coordination is a vital first step toward smart development, enabling a state to take into account the wide range of relevant influences. We encourage states to use coordinating mechanisms to promote smart growth.
Some states have prioritized the funding of public transit. Public transit systems, such as bus, commuter rail, subway, and light rail programs, are important components in state efforts to promote smart growth and reduce oil dependence. By creating or expanding reliable and accessible public transit programs, states can reduce the number of single-passenger cars on the road, consequently lowering average VMT. And strong public transit provides a critical transportation alternative as gas prices rise. A case in point: Americans drove 1.4 billion fewer highway miles in April 2008 than in April 2007 because of soaring fuel prices; many took trains or buses instead, leading to a surge in transit ridership.16 In 2008, public transportation saw its highest level of ridership in 52 years.17
States have the ability to “flex” certain federal funds that ordinarily would be spent on highway projects and use them to pay for public transit programs. States that choose not to transfer federal funds to transit programs are not necessarily neglecting transit funding, however, as they may be spending more state dollars on transit. The best way to understand state transit prioritization is to compare the amount of total state spending (including flexed federal funds) on mass transit with the total spent on highway programs, as shown in the far right column of Table 3. By this measure, the top five states prioritizing public transit spending are New York, New Jersey, Washington, Massachusetts, and Utah.
Now it came to pass that in the land of US, men did build most like
unto the Tower of Babel — 20 stories high — and called it an office
building. This they separated into parts, and let the offices out for
hire at so much per, according to location desirability or size.
One man who thus did hire an office spent many shekels on beautiful
furniture and extra fittings for his place, and made it a credit to the
building, of which the owners were justly proud.
Another man, having an equally desirable office, at the same rent only put in a few old chairs and a desk.
Then along came another man with money to invest in "futures." Finding
a third office unoccupied, as good as the other two, he saw the owners,
informed them he wished to buy or rent it, so as to make a profit from
some one who would hereafter need it. He would not put anything into
it, but would allow neighbors to throw such rubbish as they wished in;
and of course, would not expect to pay as much rent as the man who did
lots of business in his office.
But the cold-hearted corporation could not see it, saying that offices
were rented according to their desirability, regardless of the use made
of them, the business done, a man's inheritance, his ability to pay, or
the equipment he put in. But if any rebate or lower rent was to be
given, it should justly go to the man making improvements which were a
credit to the institution, and not to the man acting the dog in the
manger, holding opportunities in a disgraceful condition. They did not
fine or charge rent to a man on the improvements he put in.
And they further said unto the investment man: "You should go unto the
City or National government, and get lands which is their office
building. They encourage the industry of weeds, tin-cans and garbage —
holding natural opportunities out of use — by less taxes. And annually
fine a man by more taxes for improvements HE makes."
Moral: For common sense in taxation see what modern corporations do,
and don't look to fossilized governments that are wedded to ancient
In the new issue of the Atlantic, there is this very wise pair of paragraphs.
"END ALL TAXES - EXCEPT ONE" by Reihan Salam, Fellow at the New American Foundation
"The property tax may be the most loathsome tax in America. During the
1970s, a number of activists - angry that their tax burdens were rising
as their neighborhoods became more desirable - pushed to abolish it
altogether. President Nixon proposed significantly reducing state
property taxes by implementing a federal consumption tax that would
fund public education across the country. But when this proved a lost
cause, the masses sought instead to strictly limit annual property tax
increases through a series of ballot initiatives. The result hasn't
been pretty. Chronic revenue shortfalls have crippled local governments
ever since, leading to heavier reliance on punishing state income and
sales taxes. What if the problem isn't the property tax at all but rather, well, all
other taxes? In 1879, Henry George, a brilliant if slightly crankish
autodidact, published Progress and Poverty,
a scathing polemic that blamed all economic ills on the private
ownership of land. A staunch believer in laissez-faire economics,
George found it perverse that we tax productive activities like work
and innovative investment while letting landowners grow rich simply
because they scooped up property at the right time. In that spirit,
George called for a "Single Tax" on the unimproved value of land.
There's a certain compelling logic to the Single Tax that stands the
test of time. When you tax income, aren't you punishing people for
working hard? But when you tax an asset like land, you're simply
encouraging the most valuable use of that land. In the years since
George faded from the scene, a number of economists, from Milton
Friedman to Paul Romer have found virtue in the Single Tax, not least
because it creates the right incentives for government. Simply put, the
better you govern, the more valuable the property. The more valuable
the property, the more revenue you raise."
Bravo! From Reihan Salam's pen to the eyes and ears of all who are trying to figure out how to get us out of our current tax and revenue mess.
And if you're curious about what others have said about land value taxation, google "quotable notables" and "quotable nobels"
P.S. This is part of the cover story, entitled "The Ideas Issue: How to Fix the World"
An LTE in the San Bernardino Sun challenged the notion, promoted by the (real estate operator) governor, that California is overtaxed, with the following research:
We're not overtaxed
Posted: 06/06/2009 05:10:29 PM PDT
recently spent some time on the Internet investigating the governor's
claims that Californians are the most highly taxed state, or nearly so.
I found as follows:
California's property taxes under Proposition 13 are ranked in
an Arizona study as 34th for residential property taxes and 41st for
industrial property taxes under California's split-roll system.
California's state and local sales taxes per capita are ranked 15th per $1,000 of personal income in a Wisconsin study.
Our taxing of utilities ranks 12th per $1,000 of personal income in a Wisconsin study.
California's personal income tax ranks seventh greatest among the states at $3.22 per $100.00 of personal income per capita.
state corporate income tax has a flat rate of 8.8 percent and is ranked
sixth, but many corporations pay no taxes due to legal loopholes.
Cigarette taxes of 87 cents per pack are ranked 30th among the states, less than the U.S. median of $1 per pack.
Excise taxes on liquor ($3.30 per gallon) are ranked 19th among the states, less than the U.S. median of $3.75 per gallon.
taxes on beer (20 cents per gallon) are ranked 43rd among the states,
considerably less than the U.S. median of 69 cents per gallon.
The real estate transfer tax of $1.10 per $1,000 valuation is ranked 29th among the states.
Gasoline tax of 35.3 cents per gallon is ranked third among the states, most of which has been diverted to the state's general fund for years, last raised in 1994.
recent increase of the state's vehicle license fee ("car tax") from .65
percent of the car's value to 1.15 percent raises the tax from 20th
rank to about seventh, it appears, based on a Wisconsin study.
I concluded that Californians aren't overtaxed and that the governor's story is misleading.
is evidence of the same old misleading and partisan tricks that cause
us to be divided instead of illustrating a productive way for
California to solve its problems.
President, Hemet Unified School District Governing Board
Director, Region 18,
California School Board Association
I posted this comment:
Not over taxed, just relying on the wrong ones. Dense cities need infrastructure built and maintained, and are logical places for many other kinds of community investment -- in services such as education, emergency services, public health, etc. This costs money, but it also results in higher land values.
But Prop 13 prohibited the logical taxation of land value. To the extent that Prop 13 reduced taxation of houses and commercial buildings and other individually-funded improvements to land, it was a good thing. But that good is vastly overshadowed by its prevention of the use of the most logical and just tax yet devised: the tax on land value.
Land value rises for reasons which have nothing to do with the activity or inactivity of the individual landholder, and everything to do with the health and vitality and investment of the community. Every infrastructure project serves to increase land value. Good schools increase land value. Good jobs increase land value. Prop 13 permits the landholder to privatize all but a tiny fraction of that public investment, and forces the community into taxing, often heavily, things which ought not to be taxed at all.
Tax land value heavily. Not one acre will leave town. Not one building lot will wither and die under the burden. Not one square foot less will be "produced" -- the land is already there. What WILL happen is that the well-located acres which are languishing underused will be put to better use. This creates JOBS and businesses vying for your patronage and businesses vying for your labor, which drives wages upward -- the reverse of what we see now, where workers are competing for jobs, driving wages downward.
And lifting taxes off wages and off sales and even off corporate profits will have a whole other set of effects -- none of which are undesirable -- for the economy.
It isn't the amount of the total tax burden which is the problem. Rather, the load is badly placed. Rather than being put on the back of the horse, evenly loaded, it is put around his mouth and hung from his tail. No wonder he is struggling under the load.
San Bernardino sticks in my mind because of a 2006 Federal Reserve Board Study which showed, for 46 major metro areas in the US, the percentage of the value of the single-family housing stock which was accounted for by land value. For the aggregate of the 46 metros, the figure was 51% in 2004. San Francisco was 88%, and, of all the other cities in California listed, San Bernardino was the lowest at 62%. I'm guessing that they may not have experienced the horrendous run-up in housing prices that most of the rest of the state experienced, due in large part to Prop 13. But they're still stuck with the miserable tax structure that Prop 13 forces them into.
And think of the impact on all the towns that have courted car dealerships for the sales tax revenue, now that the auto manufacturers are shutting down dealerships.
The three homes listed today are very different from each other:
a 4 bedroom house in Shelburne Falls, MA, on 2 acres (built 1860);
a 1 bedroom apartment in San Francisco (1921/1950); and
a 4 bedroom house on 7 acres in Richmond, KY (unstated).
Interestingly, the taxes on each are fairly similar: $4,853, $5,208 and $4,650.
What does one get for one's money? It varies. In the two small towns, a significant portion of the purchase price is likely to be for the structure, even with the large sites involved. In San Francisco, the bulk of one's purchase money is not for the structure, which is both small and modest, but for the location -- the proximity to jobs, to transportation, to all the amenities -- both publicly and privately provided -- of city life.
a 4 bedroom house in Shelburne Falls, MA, on 2 acres -- 2,741 square feet
a 1 bedroom apartment in San Francisco -- 641 square feet
a 4 bedroom house on 7 acres in Richmond, KY -- 3,233 square feet.
Quick and dirty, these homes are each probably worth $100 per square foot. The remainder of the value is locational value.
a 4 bedroom house in Shelburne Falls, MA, on 2 acres -- 2,741 square feet -> $274,000 house and $181,000 land (60/40)
a 1 bedroom apartment in San Francisco -- 641 square feet -> $64,000 house and $385,000 land (14/86)
a 4 bedroom house on 7 acres in Richmond, KY -- 3,233 square feet. -> $323,000 house and $142,000 land (69/31)
In the small towns, one is paying the seller mostly for value he (or a previous owner) created. In cities, one is paying the seller mostly for value he didn't create.
In each situation, property taxes are, more or less, 1% of the asking price. Assuming that the buyers put down 20% of the $465,000 ($93,000) and finance the remaining 80% ($372,000) with a mortgage at 6% for 30 years, they'll be paying $27,000 per year on the mortgage and $5,000 to their community in the first year. 85% of their carrying cost goes to the lender, 15% to the community.
Viewed another way, if we looked at this as if all the purchase money was borrowed, about 87% of the carrying cost goes to the lender and 13% to the community. And of that 87%, only 17% is principle; 83% is interest. That interest all leaves town. It isn't available for meeting the needs of the community, or of the borrower's family. It doesn't get recycled locally.
And, on top of that, the buyer continues to pay taxes on both the land and the building, and on their purchases and on their wages and most of their other income.
Can you picture how it would be if, instead of paying taxes based on one's wages and purchases and the house one occupies, one's taxes were primarily a function of the value of the land one occupied?
The buyer of the Shelburne Falls property would be paying on the basis of his $181,000 worth of land
the buyer of the SF property would be paying based on his $385,000 of land; and
the buyer of the Richmond property would be paying based on his $142,000 worth of land.
Why is that tiny plot in San Francisco worth so much more?
1. taxpayer-provided Infrastructure and services: transportation, water, sewage, streetcleaning, emergency, public health, etc. 2. high paying jobs in a vibrant economy, including very specialized jobs 3. proximity to community, culture, etc.
Were we to based our taxes on land value, the seller of the tiny San Francisco apartment would receive, say, $64,000 for his structure. And the buyer would not be taxed on that value by his community. Rather, he would be taxed on the value of the land he bought, paying, say, 5% of that value in the form of a tax on his land value: 5% of $385,000 is $19,250 per year. His mortgage payment on the $64,000 purchase would be $4,650 per year. And he wouldn't owe any other taxes.
Wouldn't that be a more just system? He pays San Francisco and California for the right to occupy that choice site. They recycle those funds locally to provide the services and infrastructure which make that site worth ~$20,000 per year, and send some on to the federal government.
This leaves the mortgage lender out of the loop. The homebuyer doesn't need to borrow $450,000; he only needs to borrow $64,000. The other funds are available for more productive purposes: financing businesses. Creating jobs. Maybe financing cars or other purchases.
That was the name of a bi-monthly magazine published from 1926 to 1940, successor to The Single Tax Review. I want to share its premise with you. It turns out that it was expressed a bit differently from one issue to the next. These come from the 1940 volumes.
WHAT LAND AND FREEDOM STANDS FOR
Taking the full rent of land for public purposes insures the fullest
and best use of all land. In cities this would mean more homes and more
places to do business and therefore lower rents. In rural communities
it would mean the freedom of the farmer from land mortgages and would
guarantee him full possession of his entire product at a small land
rental to the government without the payment of any taxes. It would
prevent the holding of mines idle for the purpose of monopoly and would
immensely increase the production and therefore greatly lower the price
of mine products.
Land can be used only by the employment of labor. Putting land to its
fullest and best use would create an unlimited demand for labor. With
an unlimited demand for labor, the job would seek the man, not the man
seek the job, and labor would receive its full share of the product.
The freeing from taxation of all buildings, machinery, implements and
improvements on land, all industry, thrift and enterprise, all wages,
salaries, incomes and every product of labor and intellect, will
encourage men to build and to produce, will reward them for their
efforts to improve the land, to produce wealth and to render the
services that the people need, instead of penalizing them for these
efforts as taxation does now.
It will put an end to legalized robbery by the government which now
pries into men's private affairs and exacts fines and penalties in the
shape of tolls and taxes on every evidence of man's industry and
All labor and industry depend basically on land, and only in the
measure that land is attainable can labor and industry be prosperous.
The taking of the full Rent of Land for public purposes would put and
keep all land forever in use to the fullest extent of the people's
needs, and so would insure real and permanent prosperity for all.
Pretty short and sweet, isn't it? It might look out of date in this computer age -- though I would argue that it is not, even and especially in our most dense and developed cities -- but if you don't see its importance in the developed world, can you see that for the other 80%, including many places where American lives are at stake and our dollars being spent, it has huge relevance?
And as a means of ending poverty for the billions who do not get to reap the harvest of their own labor, it is of prime importance.
From the March/April issue:
WHAT LAND AND FREEDOM STANDS FOR
That the earth is the birthright of all Mankind and that all have an equal and unalienable right to its use.
That man's need for the land is expressed by the Rent of Land; that
this Rent results from the presence and activities of the people; that
it arises as the result of Natural Law, and that it therefore should be
taken to defray public expenses.
That as a result of permitting land owners to take for private purposes
the Rent of Land it becomes necessary to impose the burdens of taxation
on the products of labor and industry, which are the rightful property
of individuals, and to which the government has no moral right.
That the diversion of the Rent of Land into private pockets and away
from public use is a violation of Natural Law, and that the evils
arising out of our unjust economic system are the penalties that follow
such violation, as effect follows cause.
We therefore demand:
That the full Rent of Land be collected by the government in place of
all direct and indirect taxes, and that buildings, machinery,
implements and improvements on land, all industry, thrift and
enterprise, all wages, salaries and incomes, and every product of labor
and intellect be entirely exempt from taxation.
Taking the full Rent of Land for public purposes would insure the
fullest and best use of all land. Putting land to its fullest and best
use would create an unlimited demand for labor. Thus the job would seek
the man, not the man the job, and labor would receive its full share of
The freeing from taxation of every product of labor would encourage men
to build and to produce. It would put an end to legalized robbery by
The public collection of the Rent of Land, by putting and keeping all
land forever in use to the full extent of the people's needs, would
insure real and permanent prosperity for all.