It is better to pay a small amount of rent on your block of land than to pay a large amount in income tax and indirect taxation.
It is better to pay a small amount of rent on your block of land than to pay a large amount in income tax and indirect taxation.
DCJ doesn't say it explicitly, but in general, it is mostly people in and near the major coastal cities (mostly the blue congressional districts) which reap the benefits. But he -- rightly -- comes close to pointing out that the benefits flow not to buyers of such homes, but to the sellers.
Imagine you make $50,000 to $75,000. Statistically you would save $75 a month in federal income taxes if you bought a house, the congressional study shows. Now which option would you prefer?
• Pay $300,000 for your house, the median for Sacramento in late 2013, and save $900 annually on your federal income tax by deducting the mortgage interest?
• Pay $200,000 for your house, but without being able to deduct your mortgage interest?
Assuming you borrowed the entire purchase price at 4 percent interest the initial mortgage interest savings would be $4,000 per year. Not only would you have more than $250 more cash in your pocket each month, you would have a much smaller debt to pay off. Of course, if you own that home, this is not such a good deal, which is why Camp proposes to phase in his modest change over several years, a change that would only affect new mortgages of more than $500,000.
Which brings me to a larger point. Suppose that, instead of paying $300,000 for your home, of which $150,000 is for the site, and $150,000 is for the home itself, under the tax design this blog proposes, you would pay the seller the $150,000 for the depreciated home and then pay your community approximately 5% of the $150,000 selling price of the site each year -- and that would be INSTEAD of paying income or sales taxes, and there would be no tax on the value of the building.
The downside? None of us would be treating our home as an "investment" or a "savings account" or an ATM machine. Offset that with the many benefits, including the reduction or elimination of the land-based ~17 year boom-bust cycle we are currently stuck with.
(In Bermuda, as I understand it, when young couples buy a home, both work two jobs for a few years to pay off the mortgage, and then live mortgage-free thereafter.)
Posted on March 16, 2014 at 03:39 PM in boom-bust cycles, bubble, buildings depreciate, capital gains are land gains, cost of living, economic rent, financing services, FIRE sector, free land, home equity, income tax, land appreciates buildings depreciate, land share of real estate value, land value created by community, land value taxation, make land common property, Natural Public Revenue, one solution for many problems, paycheck to paycheck, savings rate, untaxing buildings, untaxing production | Permalink | Comments (0)
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This, the third and final instalment, appeared in The Standard, October 22, 1887:
THE DISTRIBUTION OF WEALTH.
Having reached the conclusion that indirect, or as the writer first
called it five years ago, "crooked" taxation is certain to produce
enormous inequality of wealth, that it is palpably and indisputably
unjust, and that it inevitably leads to that worst form of
inequality which involves the perpetual ownership of more than half
of the wealth of a country by less than the one-hundredth part of
its inhabitants, we are prepared to take up the next and final
question in our series.
What can be done to effect a more equal distribution of wealth, without diminishing its production?
Again let us waive the discussion of rent. Having purposely avoided all consideration of that tender subject, we will not take it up just now. Assuming that rent can rightfully be private property, and that the community is not to claim it, simply as rent — conceding all that the champions of private property in land claim — let us inquire what, nevertheless, remains to be done and ought to be done, in order to prevent the unjust use of government to the injury of the poor, and to check the artificial tendency toward the monopoly of wealth by a hundredth part of the population.
Posted on January 07, 2013 at 10:16 PM in canons of taxation, cost of living, direct taxation, estate taxes, government's role, income concentration, income tax, indirect taxation, land value taxation, money in elections, Occupy Wall Street's values, pay for what you take, poverty machine, poverty's cause, private property in land, savings rate, sufficiency of land rent, surplus, tax reform, Thomas G. Shearman, unburdening the economy, wealth distribution or concentration | Permalink | Comments (0)
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I would love to see a map showing what states the people who take the income tax deduction for home mortgage interest live. I think we'd find it was the so-called Blue states, where the value of land is higher, and wages are higher, and property taxes are higher.
Funny that we're willing to help subsidize the borrowing necessary for some people (buyers) to paying off other people (sellers) for value the sellers didn't create! And then we don't tax those so-called "capital" gains much at all! A few communities collect a few percent of each transaction, which isn't a great idea either, particularly when it is collected from the buyers, who likely borrow it!
Who gains? the FIRE sector. What else is new?
How naive are we? Don't ask!
Note: this has some statistics you might want to know, but it is primarily a post on public policy.
... many Americans are facing the likelihood of not having sufficient income in retirement unless they increase their savings, work longer, or significantly decrease their expenditures in retirement if they hope to make ends meet.
The Employee Benefits Research Institute recently published an analysis of 2010 Survey of Consumer Finances data. It demonstrates how few people have the traditional defined-benefit retirement plans, and the account balances people of various demographics have in their individually-directed retirement accounts.
Here are some statistics worth considering as we think about the effects of a system which permits a few of us to capture a large share of the nation's net worth and a large share of its income, and to unduly influence our elections with advertising which works to conceal and reinforce the structures of that system:
Enough said. Time to circle back to the study's conclusion:
... many Americans are facing the likelihood of not having sufficient income in retirement unless they increase their savings, work longer, or significantly decrease their expenditures in retirement if they hope to make ends meet.
What public policy reforms might one suggest based on these data points?
If you have other suggestions, I'd like to hear them.
But the reason for this blog is that I believe I have found the public policy reform which would accomplish these goals, in collecting the lion's share of the annual rental value of our land, and in collecting for the commons certain other kinds of natural public revenue which our current system permits to accrue to individuals and corporations. I didn't invent it. Henry George is the clearest exponent of it, but not the first or last. Is it perfect? No, but it is vastly superior to what we've got now, and I believe it is consistent with the ideals to which Americans pay the most honor.
Posted on October 27, 2012 at 03:05 PM in a wedge driven through society, common good, cost of living, cui bono?, economic justice, economic rent, ecosystem services, fixing the economy, Henry George, housing affordability, income concentration, income tax, Jefferson, land monopoly capitalism, land value created by community, land value taxation, make land common property, Natural Public Revenue, natural resource revenues, natural resources, Occupy Wall Street's values, one solution for many problems, poverty, poverty machine, poverty's cause, prosperity, public spending, trickle-down economics, unburdening the economy, wage taxes, wages, wealth distribution or concentration, wobegon | Permalink | Comments (0)
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A snippet of a thought: When some of us contribute by paying taxes -- be it into the Social Security system or the federal income tax, or state income tax, or state sales tax -- and others by contributing to our favorite charities, are these equally beneficial to the common good? (We don't give federal income tax deductions for one's contributions to Social Security, which constitute the majority of taxes for most of us. Well, maybe we do, sort of: the standard deduction could be construed as a sort of deduction for SS taxes. I've not played with the numbers.)
When some of us contribute by spending 2 years evangelizing overseas for our chosen religion, and others contribute by spending some years of our lives in military service, at risk to their lives and future well-being, are these equally beneficial to the common good?
And a semi-related thought: it seems likely that the richer candidate's contributions to his chosen charities were in the form of (awesomely) appreciated securities for which his basis was quite low. I've not heard much mention of that. He might have paid income taxes on $1 of "value" when he received it, and gotten a tax deduction on $10 or $100 -- or more -- when he donated it a few years later.
I don't mean this as a partisan thing; I'm not enthralled with either of our current major parties or their candidates, and regard one only as the lesser of two evils. (I think I would find one candidate's Supreme Court appointees more palatable than those of the other, and regard that as the key issue in the federal election.) I'll be voting for various 3rd party candidates for many of the positions on my ballot.
We'd be better off if we tapped into natural public revenue sources -- the rental value of land, the rental value of "location, location, location!", taxes on finite natural resources, such things as the supposedly "public" airwaves, geosynchronous orbits, airport landing rights, water rights -- the value of which today flows into the private pockets of various privileged folks, enriching them without requiring a return of service to the rest of society for that value.
Dewey Beach, Delaware, prides itself on not having a property tax. This forces it to rely on taxes which are far less just and less logical than a simple tax on land value would be -- including a licensing fee for anyone who works in Dewey Beach!
And if one lets one's license skip a year, and then needs it again, one must pay for the year one didn't have a customer there, as well as the years in which one does.
Why? Well, perhaps the explanation is partially related to the fact that one company owns an amazing amount of the land in Dewey Beach, and it is rented out on ground leases which are currently at a very low level -- say, $550 to $650 per year -- and whose end comes in about 11 to 14 years. Many of these lots sell for $600,000 or more, when one comes on the market; those in the ocean block perhaps significantly more. The County last assessed the land in the late 1960s. County taxes on the cottages (excluding the land), which typically sell for $200,000 or less because they are aging and must be removed at the end of the lease, run from $300 to $900 a year (and the county tax is mostly for the school district). In neighboring Rehoboth Beach, city taxes typically run about 1/4 of county taxes, though the relationship is not constant because one relies on a 1960s assessment, the other on a 1970s one!!
Dewey Beach collects something each year from property owners to restore the beaches, in case there is erosion that the federal government or state government won't pay to correct, but the beaches were renourished this past winter, at no expense to the property owners. According to an article from a week or two ago, the tax is $0.40 per $100 of assessed value. That article says, "A property in Dewey Beach with an assessed value of $200,000 would pay a total of $240 each year in taxes – $80 for beach replenishment and $160 for capital improvements." But it doesn't seem to realize that the only homes with assessed values of $200,000 are valued by their sellers at over $6 million! $80 is trivial to the owner of those $6 million oceanfront homes.
But to the typical worker in Dewey Beach, the $109 annual license to work within the borders is not so trivial.
Does it make sense to tax workers? Or is there a better tax base than productive activity? What taxes work best? Which taxes do the least damage?
Is working a privilege, or a right? I understand licensing doctors, nurses, lawyers and the like; I don't understand licensing singers, painters, waiters, and other workers.
Land value taxation is the way to go.
Posted on June 16, 2012 at 09:11 PM in absentee ownership, better cities, cui bono?, fruits of one's labors, income tax, land value taxation, leased land, location, location, location, payroll tax, privilege, property tax, reaping what others sow, toll-takers, untaxing production | Permalink | Comments (0)
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The remarkable thing about this story, to my eye, is that the size of the lot isn't even mentioned! It is worth $1 million land rent per year, and one might infer from the information provided that the lot is about 10,000 square feet, or less than 1/4 acre.
Capitalized at 5% (also known as "20 years' purchase") the lot would sell for about $20 million.
I assume that in addition to the land rent, the tenant pays the property tax on the land. So the entire $1 million annual land rent flows out of NYC, to the property's owner, in Marshall, Virginia.
What, pray tell, has the land owner done to earn that land rent?
Consider how many people's wage taxes and sales taxes could be lifted, and what that additional spending power could do for the local economy. Consider what would happen if there were no taxes to be paid on the apartments or on people's condo structures.
Or NYC can just keep letting the land rent leave the city, and even leave the country, continuing to flow into private pockets, just as if they'd rendered someone some service and earned it!
Land rent is natural public revenue, and we permit landlords to privatize it. Aren't we generous with our patrimony? (Leona told us the truth!)
The developer of a nine-story Karl Fischer rental apartment building planned for a corner site in the East Village signed a 99-year ground lease that requires payments each year of about $1 million.
The development company, YYY Third Avenue, signed the long-term lease for the vacant site at 74-84 Third Avenue, at 12th Street, April 27, 2011, however, a memorandum of the lease was not recorded in public records until last Wednesday, city property documents show.
A source citing city property records said the lease payment, which is not specifically recorded, could be inferred to be about $1 million per year. Prior to the document’s release, the annual lease cost was not known.
The prolific and controversial architect Fischer filed plans to build an 82,000-square-foot, nine-story residential building with 94 units, city Department of Buildings online records show. The permit has not been approved and is pending, DOB data indicate, and is to include nearly 9,511 square feet of retail, as well.
You might also be intrigued by the URL for the story ... I'm not sure what to make of it.
Posted on March 23, 2012 at 06:55 PM in all benefits go to landholder , better cities, capital gains are land gains, capitalization, cui bono?, economic rent, financing infrastructure, financing services, FIRE sector, fixing the economy, government's role, housing affordability, income tax, land rent, land value created by community, land value taxation, leased land, little people pay taxes, middle class, Natural Public Revenue, pay for what you take, payroll tax, popular ignorance of land economics, privatization, property tax, property tax is two taxes, public spending, reaping what others sow, special interests, time making wrongs into rights, toll-takers, unearned income, untaxing buildings, untaxing production, urban land value, wage taxes | Permalink | Comments (0)
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a bit out of sequence ...
35. He worked hard. He played by the rules. He bought up land before the interstate highway was announced, and his widow and orphans now have a very valuable land portfolio, for which others will pay a high purchase price or high lease prices for generations. Is it right to exact an estate tax of 50% or so on the true market value of that estate?
A. No! Widows and orphans must be protected! We wouldn't want them to have to depend on the social safety net.
B. No! The dollars he spent to buy that land decades ago were already subject to an income tax -- maybe two (federal and state) -- and the heirs are entitled to keep all the increase from the purchase price, even if that is a 20% increase, or a 200% increase, or a 2000% increase, over the purchase price.
C. No! The man had foresight, and we ought to honor, reward and encourage that!
D. No! The interstate highway could have been re-routed, and the man and his widow and children could have been left high and dry. They took a risk, and we ought to reward them for their brilliance!
E. An estate tax is a good way to capture this socially-created windfall once per generation. After all, he can't take it with him. Half for the heirs, half for the community that created the value. Seems fair, and keeps them out of the social safety net.
F. An estate tax is better than nothing, but it is a poor alternative to collecting some significant portion of the rental value of the land, month in and month out, whether that rental value be low (before the interstate highway's route is determined) or high (after it is announced and built, and the community grows up around that highway).
G. Your suggestions?
Posted on March 07, 2012 at 10:16 PM in absentee ownership, all benefits go to landholder , capital gains are land gains, cui bono?, economic rent, estate taxes, FIRE sector, fruits of one's labors, income tax, infrastructure, justice of the single tax, land appreciates buildings depreciate, land rent, land speculation, land value created by community, land value taxation, location, location, location, Natural Public Revenue, pork spending, private property in land, public spending, reaping what others sow, the land questions, unearned increment, widow's skirts, windfalls | Permalink | Comments (1)
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28. Private-sector insurance companies are raising their rates for waterfront or near-waterfront property, or refusing to renew policies in hurricane-prone areas. States are stepping in to provide insurance of last resort. How should this be financed?
A. It should be self-financing, with rates designed to cover 100% of the risks. This might drive down the selling prices of the properties, but that is appropriate given the increased risks involved.
B. Taxpayers all over the state should subsidize the insurance rates, from taxes on wages
C. Taxpayers all over the state should subsidize the insurance rates, from taxes on sales
D. Taxpayers all over the state should subsidize the insurance rates, from taxes on their land values
E. Inland taxpayers should be taxed to pay for the subsidies to coastal propertyowners
F. Hotel and rental-car taxes should be used to pay for the subsidies to coastal homeowners and commercial property owners
G. Collect taxes in proportion to pollution which is producing slower-moving storms, which will have the effect of incentivizing reductions in that pollution
H. Your suggestions?
Posted on February 28, 2012 at 09:26 AM in capital gains are land gains, environment, FIRE sector, greenhouse gases, income tax, location, location, location, pollution, privilege, sales taxes are wrong, socializing risk and privatizing profit, special interests, subsidies, wage taxes, wages, water, windfalls | Permalink | Comments (0)
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27. A new subway line costs $2 billion. Suppose that its construction increases the surrounding land values by $2 billion. (Assume 5 miles long, 10 stations, 0.5 mile radius, average lot size of 0.10 acre. How should the new subway line be financed?
A. Taxes on sales of groceries, clothing, etc. within those 1/2 mile radius areas
B. Taxes on sales of groceries, clothing, etc., all over the city the subway line connects to
C. Taxes on sales of services within those 1/2 mile radius areas
D. Taxes on sales of services of all kinds, all over the city the subway line connects to
E. Taxes on wages of those working in those 1/2 mile radius areas
F. Taxes on wages all over the city the subway line connects to
G. Taxes on wages of those living within the 1/2 mile radius areas
H. Taxes on capital gains and dividends of those living within the 1/2 mile radius areas
I. Taxes on capital gains and dividends of those with residence anywhere in the city
J. Taxes on all real estate within those 1/2 mile radius areas
K. Taxes on all real estate, all over the city the subway line connects to
L. Taxes on just the buildings within those 1/2 mile radius areas
M. Taxes on all the buildings, all over the city the subway line connects to
N. Taxes on the land value within those 1/2 mile radius areas
O. Taxes on the land value, all over the city the subway line connects to
P. Transfer taxes on either or both of buyers and sellers whenever a property within the 1/2 mile radius is sold
Q. Transfer taxes on either or both of buyers and sellers whenever a property anywhere within the city is sold
R. An inheritance tax when a house or commercial property is transferred from a decedent to a survivor.
S. Your suggestions?
Posted on February 27, 2012 at 09:26 AM in all benefits go to landholder , assessment, better cities, buildings depreciate, capital gains are land gains, cui bono?, direct taxation, economic rent, facilitating commerce, financing infrastructure, fixing the economy, free lunch, fruits of one's labors, government's role, income tax, infrastructure, land appreciates buildings depreciate, land speculation, land value created by community, land value taxation, little people pay taxes, location, location, location, Natural Public Revenue, payroll tax, popular ignorance of land economics, population growth, privatization, property tax, property tax is two taxes, Proposition 13, public ownership of utilities, reaping what others sow, sales taxes are wrong, socializing risk and privatizing profit, special interests, sufficiency of land rent, the land questions, unburdening the economy, unearned increment, untaxing buildings, untaxing production, urban land value, user fees, wage taxes, wealth distribution or concentration, windfalls | Permalink | Comments (0)
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The taxation of all property at a uniform rate is made necessary by the constitutions of about three-fourths of the States of the Union. The taxes on chattels, tools, implements, money, credits, etc., find their condemnation from the Single Taxer's point of view in those ethical considerations which differentiate private from public property. Where there arises a fund known as "land values," growing with the growth of the community and the need of public improvements, it is not only impolitic, it is a violation of the rights of property to tax individual earnings for public expenses.
The value of land is the day-to-day product of the presence and communal activity of the people. It is not a creation of the title-holder and should not be placed in the category of property. If population deserts a town or portions of a town, the value of land will fall; the land may become unsalable. When treated as private property the owner of land receives from day-to-day in ground rent a gift from the community; and justice requires that he should pay taxes to the community proportionate to that gift.
"Land value" or "ground rent" as the older economists termed it, is a tribute which economic law levies upon every occupant of land, however fleeting his stay, as the market price of all the advantages, natural and social, appertaining to that land, including necessarily his just share of the cost of government.
excerpt from The Single Tax Year Book (1917)
Posted on February 22, 2012 at 10:22 PM in all benefits go to landholder , better cities, capital gains are land gains, capitalization, civilization, commonwealth, corruption in government, corruption of economics, cui bono?, economic rent, financing education, financing health care, financing infrastructure, financing services, government's role, immigration, income tax, justice of the single tax, land appreciates buildings depreciate, land rent, land value created by community, land value taxation, landlordism, little people pay taxes, location, location, location, make land common property, Natural Public Revenue, popular ignorance of land economics, population, population growth, private property in land, privatization, privilege, property rights, property tax, property tax "relief", property tax is two taxes, property tax reform, reaping what others sow, rent, defined, socializing risk and privatizing profit, special interests, sufficiency of land rent, tax reform, toll-takers, trickle-down economics, unearned increment, urban land value, windfalls | Permalink | Comments (0)
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21. The creation of a new subway line raises the land values near each of the stations. Who should pay for the building of the subway line?
A. Riders of the new subway line
B. Riders of all subways in the system.
C. Riders of all mass transit in the metro area.
D. Drivers of cars and trucks, all over the metro area, via taxes on their fuel purchases (that is, in proportion to miles driven and the fuel efficiency of their vehicles)
E. Drivers of cars and trucks, all over the metro area, via an annual surcharge on their registration
F. Drivers of cars and trucks, all over the metro area, in proportion to the value of their cars, owned or leased
G. Drivers of cars and trucks, via tolls when they use bridges and tunnels, or HOV lanes, or certain highways
G. The taxpayers, via increased sales taxes on their purchases
H. The tourists and business travelers, via hotel occupancy taxes and taxes on rental cars.
I. Passengers in taxis, via a surcharge on their fares.
J. The homeowners, via taxes on their homes
K. Drivers, commercial and individual, via taxes on fuel purchased within the city
L. Employees all over the metro area, via a payroll tax
M. The tenants of commercial buildings in the heart of the central business district
N. All landholders, paying equally (a parcel tax)
O. All landholders, in proportion to the size of their lots
P. Landholders, in proportion to the value of the land they hold, without regard to the buildings or their contents. Those whose land values are raised by their proximity to the new line will see a proportional increase in their share of the tax burden; those far from the new line will not.
Q. Your suggestions?
Posted on February 21, 2012 at 04:35 AM in a Manhattan acre, absentee ownership, all benefits go to landholder , better cities, capital gains are land gains, congestion, corporations, cui bono?, direct taxation, economic rent, facilitating commerce, financing infrastructure, fruits of one's labors, income tax, indirect taxation, infrastructure, land appreciates buildings depreciate, land rent, land value created by community, land value taxation, landed gentry, landlordism, little people pay taxes, location, location, location, middle class, one solution for many problems, paying twice, popular ignorance of land economics, population growth, property tax, Proposition 13, public spending, reaping what others sow, sales taxes are wrong, socializing risk and privatizing profit, special interests, subsidies, tax reform, taxation, the land questions, transportation, triple net leases, unburdening the economy, unearned increment, untaxing buildings, untaxing production, urban land value, windfalls | Permalink | Comments (0)
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16. How should we pay for the war in Afghanistan?
A. Don't worry about that. Our children should pay for it, and their children if necessary, with interest accumulating. The economy will grow sufficiently that it will not unduly burden them.
B. We should pay for it via federal taxes on wages.
C. We should pay for it via a federal tax on sales (or consumption).
D. We should pay for it via a federal tax on land value; people and corporations (domestic or foreign) who own land in midtown Manhattan or downtown Los Angeles would pay a lot; those who own rural property would pay little or nothing. Tenants' rents -- residential, commercial, agricultural -- would cover their share, and be collected from landlords.
E. We should pay for it via royalties on non-renewable natural resources. (Whose natural resources? from U.S. soil? from Afghanistan soil? other?)
F. Your suggestions?
Posted on February 16, 2012 at 05:15 AM in financing war, income tax, inter-generational equity, land value taxation, location, location, location, natural resource revenues, natural resources, oil, pay for what you take, payroll tax, public spending, sales taxes are wrong, the disenchanted, the land questions | Permalink | Comments (0)
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Two great quotes:
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 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.
Posted on January 29, 2012 at 11:27 AM in capital gains are land gains, democracy, economic justice, fruits of one's labors, Henry George, incentive taxation, incentives, income tax, land different from capital, land value created by community, land value taxation, Natural Public Revenue, population, population growth, private property in land, property rights, public spending, time making wrongs into rights, unearned income | Permalink | Comments (0)
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A correspondent sent me a wonderful piece by Mark Twain on the income tax. It dates to 1870, and seems particularly timely with all the popular discussion of federal income taxes.
30 years later, there was a lot of discussion of the illogic of taxing personal property. But Twain has clearly nailed some of the problems with taxing income.
So what should we tax? The value of land, and of natural resources. See also Twain's "Archimedes"
The first notice that was taken of me when I "settled down," recently, was by a gentleman who said he was an assessor, and connected with the U. S. Internal Revenue Department. I said I had never heard of his branch of business before, but I was very glad to see him, all the same -- would he sit down? He sat down, I did not know anything particular to say, and yet I felt that people who have arrived at the dignity of keeping house must be conversational, must be easy and sociable in company. So in default of anything else to say, I asked him if he was opening his shop in our neighborhood.
He said he was. (I did not wish to appear ignorant, but I had hoped he would mention what he had for sale.)
I ventured to ask him "how was trade?" and he said "So-so."
I then said we would drop in, and if we liked his house as well as any other, we would give him our custom.
He said he thought we would like his establishment well enough to confine ourselves to it -- said he never saw anybody who would go off and hunt up another man in his line after trading with him once.
That sounded pretty complacent, but barring that natural expression of villainy which we all have, the man looked honest enough.
I do not know how it came about, exactly, but gradually we appeared to melt down and run together, conversationally speaking, and then everything went along as comfortably as clockwork.
We talked, and talked, and talked -- at least I did. And we laughed, and laughed, and laughed -- at least he did. But all the time I had my presence of mind about me -- I had my native shrewdness turned on, "full head," as the engineers say. I was determined to find out all about his business, in spite of his obscure answers -- and I was determined I would have it out of him without his suspecting what I was at. I meant to trap him with a deep, deep ruse. I would tell him all about my own business, and he would naturally so warm to me during this seduction burst of confidence, that he would forget himself and tell me all about his affairs before he suspected what I was about. I thought to myself, My son, you little know what an old fox you are dealing with. I said:
"Now you would never guess what I made lecturing, this winter and last spring?"
"No -- don't believe I could, to save me. Let me see -- let me see. About two thousand dollars maybe? But no -- no, sir, I know you couldn't have made that much. Say seventeen hundred maybe?"
"Ha-ha! I knew you couldn't. My lecturing receipts for last spring and this winter were fourteen thousand seven hundred and fifty dollars -- what do you think of that!"
"Why, it is amazing - perfectly amazing. I will make a note of it. And you say even this wasn't all?"
"All? Why, bless you, there was my income from the Buffalo Express for four months -- about -- about well, what should you say to about eight thousand dollars, for instance?"
"Say! Why, I should say I should like to see myself rolling in just such another ocean of affluence. Eight thousand! I'll make a note of it. Why, man! -- and on top of all this I am to understand that you had still more income?"
"Ha-ha-ha! Why, you're only in the suburbs of it, so to speak. There's my book, 'The Innocents Abroad' -- price $3.50 to $5.00, according to the binding. Listen to me. Look me in the eye. During the last four months and a half, saying nothing of sales before that, -- but just simply during the four months and a half ending March 15, 1870, we've sold ninety-five thousand copies of that book! Ninety-five thousand! Think of it. Average four dollars a copy, say. It's nearly four hundred thousand dollars, my son, I get half!"
"The suffering Moses! I'll set that down. Fourteen-seventy-five--eight-two hundred. Total, say - well, upon my word, the grand total is about two hundred and thirteen or fourteen thousand dollars. Is that possible?"
"Possible! If there's any mistake it's the other way. Two hundred and fourteen thousand, cash, is my income for this year if I know how to cipher."
Then the gentleman got up to go. It came over me most uncomfortably that maybe I had made my revelations for nothing, besides being flattered into stretching them considerably by the stranger's astonished exclamations. But no; at the last moment the gentleman handed me a large envelope and said it contained his advertisement; and that I would find out all about his business in it; and that he would be happy to have my custom -- would in fact be proud to have the custom of a man of such prodigious income; and that he used to think there were several wealthy men in Buffalo but when they came to trade with him he discovered that they barely had enough to live on; and that in truth it had been such a weary, weary age since he had seen a rich man face to face, and talked with him, and touched him with his hands, that he could hardly refrain from embracing me -- in fact, would esteem it a great favor if I would let him embrace me.
This so pleased me that I did not try to resist, but allowed this simplehearted stranger to throw his arms about me and weep a few tranquilizing tears down the back of my neck. Then he went away.
As soon as he was gone, I opened his advertisement. I studied it attentively for four minutes. I then called up the cook and said:
"Hold me while I faint. Let Maria turn the batter-cakes."
By and by, when I came to, I sent down to the rum mill on the corner and hired an artist by the week to sit up nights and curse that stranger, and give me a life occasionally in the day time when I came to a hard place.
Ah, what a miscreant he was! His "advertisement" was nothing in the world but a wicked tax-return -- a string of impertinent questions abut my private affairs occupying the best part of four foolscap pages of fine print -- questions, I may remark, gotten up with such marvellous ingenuity that the oldest man in the world couldn't understand what the most of them were driving at -- questions, too, that were calculated to make a man report about four times his actual income to keep from swearing to a lie. I looked for a loophole, but there did not appear to be any. Inquiry No. 1 covered my case, as generously and as amply as an umbrella could cover an ant hill:
"What were your profits, in 1869, from any trade, business, or vocation, wherever carried on?"
And that inquiry was backed up by thirteen others of an equally searching nature, the most modest of which required information as to whether I had committed any burglary, or highway robbery, or by any arson or other secret source of emolument, had acquired property which was not enumerated in my statement of income as set opposite to inquiry No. 1.
It was plain that that stranger had enabled me to make an ass of myself. It was very, very plain, and I went out and hired another artist. By working on my vanity the stranger had seduced me into declaring an income of $214,000. By law, $1,000 of this was exempt from income tax -- the only relief I could see, and it was only a drop in the ocean. At the legal five per cent, I must pay over to the Government the appalling sum of ten thousand six-hundred and fifty dollars, income tax.
(I may remark, in this place, that I did not do it.)
I am acquainted with a very opulent man, whose house is a palace, whose table is regal, whose outlays are enormous, yet a man who has no income, as I have often noticed, by the revenue returns; and to him I went for advice in my distress. He took my dreadful exhibition of receipts, he put on his glasses, he took his pen, and presto! -- I was a pauper! It was the neatest thing that ever was. He did it simply by deftly manipulating the bill of "DEDUCTIONS." He set down my "State, national, and municipal taxes" at so much; my "losses by shipwreck, fire, etc." at so much; my "loss on sales of real estate" -- on "live stock sold" - on "payments for rent of homestead" -- on "repairs, improvements, interest" -- on "previously taxed salary as an officer of the United States Army, Navy, Revenue Service, and other things. He got astonishing "deductions" out of each and every one of these matters -- each and every one of them. And when he was done he handed me the paper, and I saw at a glance that during the year 1869 my income, in the way of profit, had been one thousand two hundred and fifty dollars and forty cents.
"Now," said he, "the thousand dollars is exempt by law. What you want to do is to go and swear this document in and pay tax on the two hundred and fifty dollars."
(While he was making this speech his little boy Willie lifted a two-dollar greenback out of his vest pocket and vanished with it, and I would bet anything that if my stranger were to call on that little boy tomorrow he would make a false return of his income.)
"Do you," said I, "do you always work up the 'deductions' after this fashion in your own case, sir?"
"Well, I should say so! If it weren't for those eleven saving clauses under the head of 'Deductions,' I should be beggared every year to support this hateful and wicked, this extortionate and tyrannical Government."
This gentleman stands away up among the very best of the solid men of Buffalo -- the men of moral weight, of commercial integrity, of unimpeachable social spotlessness -- and so I bowed to his example. I went down to the revenue office, and under the accusing eyes of my old visitor I stood up and swore to lie after lie, fraud after fraud, villainy after villainy, till my immortal soul was coated inches and inches thick with perjury, and my self-respect was gone forever and ever.
But what of it? It is nothing more than thousands of the highest, and richest, and proudest, and most respected, honored and courted men in America do every year. And so I don't care. I am not ashamed. I shall simply, for the present, talk little and wear fire-proof gloves, lest I fall into certain habits irrevocably.
"One sure way to determine the social conscience of a government is to examine the way taxes are collected and how they are spent. And one sure way to determine the social conscience of an individual is to get his tax-reaction. Taxes, after all, are the dues we pay for the privileges of membership in an organized society."
-- Citation: Franklin D. Roosevelt: "Address at Worcester, Mass.," October 21, 1936.
Online by Gerhard Peters and John T. Woolley, The American Presidency Project. http://www.presidency.ucsb.edu/ws/?pid=15201
Here are some more extended quotes; the full speech will follow.
In 1776 the fight was for democracy in taxation. In 1936 that is still the fight. Mr. Justice Oliver Wendell Holmes once said: "Taxes are the price we pay for civilized society." One sure way to determine the social conscience of a Government is to examine the way taxes are collected and how they are spent. And one sure way to determine the social conscience of an individual is to get his tax-reaction.
Taxes, after all, are the dues that we pay for the privileges of membership in an organized society.
As society becomes more civilized, Government—national, State and local government—is called on to assume more obligations to its citizens. The privileges of membership in a civilized society have vastly increased in modern times. But I am afraid we have many who still do not recognize their advantages and want to avoid paying their dues.
It is only in the past two generations that most local communities have paved and lighted their streets, put in town sewers, provided town water supplies, organized fire departments, established high schools and public libraries, created parks and playgrounds—undertaken, in short, all kinds of necessary new activities which, perforce, had to be paid for out of local taxes. ...
New obligations to their citizens have also been assumed by the several States and by the Federal Government, obligations unknown a century and a half ago, but made necessary by new inventions and by a constantly growing social conscience.
The easiest way to summarize the reason for this extension of Government functions, local, State and national, is to use the words of Abraham Lincoln: "The legitimate object of Government is to do for the people what needs to be done but which they cannot by individual effort do at all, or do so well, for themselves."
Taxes are the price we all pay collectively to get those things done.
To divide fairly among the people the obligation to pay for these benefits has been a major part of our struggle to maintain democracy in America. ...
(Readers new to this website might be surprised that Georgists will take issue with "ability to pay," as the phrase is commonly used, as a good criterion on which to judge taxation, and those same readers may have a visceral negative reaction. If you're among that group, you might take a look at this page.)
Here is my principle: Taxes shall be levied according to ability to pay. That is the only American principle.
Before this great war against the depression we fought the World War; and it cost us twenty-five billion dollars in three years to win it. We borrowed to fight that war. Then, as now, a Democratic Administration provided sufficient taxes to pay off the entire war debt within ten or fifteen years.
Those taxes had been levied according to ability to pay. But the succeeding Republican Administration did not believe in that principle. There was a reason. They had political debts to those who sat at their elbows. To pay those political debts, they reduced the taxes of their friends in the higher brackets and left the national debt to be paid by later generations. Because they evaded their obligation, because they regarded the political debt as more important than the national debt, the depression in 1929 started with a sixteen-billion-dollar handicap on us and our children. ...
For the average American we have reduced the individual income tax. Any family head who earns an income of less than $26,000 a year pays a smaller income tax in 1936 than he paid for 1932. That means that less than one percent of the heads of American families pay more than they did; and more than 99 percent pay less than they did, for more than 99 percent earn less than $26,000 per year. If you want the answer to this talk about high taxes under this Administration—there it is. Taxes are higher for those who can afford to pay high taxes. They are lower for those who can afford to pay less. That is getting back again to the American principle—taxation according to ability to pay.
You would think, to hear some people talk, that those good people who live at the top of our economic pyramid are being taxed into rags and tatters. What is the fact? The fact is that they are much farther away from the poorhouse than they were in 1932. You and I know that as a matter of personal observation.
A number of my friends who belong in these very high upper brackets have suggested to me, more in sorrow than in anger, that if I am reelected they will have to move to some other Nation because of high taxes here. I shall miss them very much but if they go they will soon come back. For a year or two of paying taxes in almost any other country in the world will make them yearn once more for the good old taxes of the U.S.A.
One more word on recent history. I inherited from the previous Administration a tax structure which not only imposed an unfair income tax burden on the low-income groups of this country, but also imposed an unfair burden upon the average American by a long list of taxes on purchases and consumption- hidden taxes.
In 1933 when we came into office, fifty-eight cents out of every dollar of Federal revenue came from hidden taxes. Leaving out of account the liquor tax—for liquor was illegal in 1933—we have reduced these indirect taxes to thirty-eight cents out of every dollar.
It is worth including the whole speech here.
Posted on January 20, 2012 at 10:13 AM in civilization, debt, financing education, financing infrastructure, financing services, government's role, income concentration, income tax, indirect taxation, infrastructure, Occupy Wall Street's values, special interests, tax history, tax reform, taxation, wealth distribution or concentration | Permalink | Comments (0)
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David Cay Johnston: Is It Is Time To Drop Income Taxes?.
I think DCJ is asking the right question here, at least as a top-line, and raising some important points in support of answering it.
Adam Smith called these the Canons of Taxation. I urge you to read more about these ideas, including, particularly, Louis Post's expansions of these ideas, in the footnotes associated with this passage:
The best tax by which public revenues can be raised is evidently that which will closest conform to the following conditions:
At that same link, you'll see how Henry George expressed it, in a letter to Pope Leo XIII:
DCJ goes on to raise some other good questions:
I hope that DCJ, perhaps the best journalist on this beat, will explore further, to see what other tax bases might be used.
The writings of Mason Gaffney, from the 1950s to the present, provide a wide variety of logical and just tax bases. They've remained largely hidden, for reasons that relate to how delighted the special interests have been with their privileges. DCJ could help bring these to popular attention.
Walter Rybeck's book, Re-Solving the Economic Puzzle, also provides some good approaches to this.
It would also be useful if our government would start measuring the value of these privileges. But I suspect that the powers that be will see to it that this doesn't happen.
THE progressive reformer and eminent jurist Louis D. Brandeis once said, “We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.”
The authors go on to mention that they're both 1%-ers (presumably 1%-ers by income, not by wealth, though they use terms interchangeably in a way that seems very odd for people with any training in economics. Further, I am surprised they are as innumerate as their "solution" would suggest.
Their proposal is that each year the IRS would do some calculations based on "the average 1%er:"
Here’s how the tax would work. Once a year, the Internal Revenue Service would calculate the Brandeis ratio of the previous year. If the average 1-percenter made more than 36 times the income of the median American household, then the I.R.S. would create a new tax bracket for the highest 1 percent of income and calculate a marginal income tax rate for that bracket sufficient to reduce the after-tax Brandeis ratio to 36.
This new tax, if triggered, would apply only to income in excess of the poorest 1-percenter — currently about $330,000 per year. Our Brandeis tax is conservative in that it doesn’t attempt to reverse the gains of the wealthy in the last 30 years. It is not a “claw back” tax. It merely assures that things don’t get worse.
What this doesn't account for is the wide range of incomes within the top 1%. Should the folks in the bottom half of the top 1% be penalized indiscriminately for what the folks in the top half are "earning?" Why? Whose activity are we attempting to penalize? When a Bill Gates, or big deal football player,* or a so-called "small businessman" selling his company to a roll-up receives a huge windfall, should the $250,000 per year doctor be taxed? Why should the latter be in the same bracket with the windfall folks? And the fellow selling his company gets taxed at the 15% "capital" gains rate, well below what working people get hit with.
*Why is the football player on this list? Well, in part because I see that I am paying $100 per year to the NFL via my cable TV bill. I am thus taxed to provide him his windfall. My tax doesn't go through any government entity, but is in my cable bill.
I don't think Justice Brandeis would think Ayres and Edlin have proposed a good solution to the problem. They're nibbling at the leaves, not hacking at the root.
The article sent me off to read some of Brandeis's work, including "Other People's Money, and How the Bankers Use It," (published as a series of 10 articles in Harpers Weekly in 1913 and as a book in 1914). Here is the table of contents for the book:
I Our Financial Oligarchy 1
II How the Combiners Combine 28
III Interlocking Directorates 51
IV Serve One Master Only! 69
V What Publicity Can Do 92
VI Where the Banker is Superfluous 109
VII Big Men and Little Business 135
VIII A Curse of Bigness 162
IX The Failure of Banker-management 189
X The Inefficiency of the Oligarchs 201
The letters to the editor published today don't speak to the issue either. For instance,
Ian Ayres and Aaron S. Edlin write, “It would be bad for our democracy if 1 percenters started making 40 or 50 times as much as the median American.”
Are Bill and Melinda Gates a great threat to democracy? Jeff Bezos? Oprah Winfrey? Mayor Michael R. Bloomberg? I fail to see how those who have amassed great fortunes in America threaten American democracy.
They do not plot coups or finance fascist militias. They do, however, give lots of money to wonderful charitable and educational organizations.
He's chosen some people who have built up monopolies, and have helped to drive other businesses into the ground, and in at least one case, used a great fortune to influence elections; and it might be worth mentioning what people like the Koch Brothers have done, and others will do, now that "corporations are people" and have free speech rights. Bloomberg managed to derail the term limits laws in his city.
Wouldn't we be better off examining privilege, and eliminating it, than indiscriminately taxing productive activity? Forcing the internalization of externalities. Playing around with income tax brackets doesn't fix the problem, and it deflects us from going to the source of the problem.
Shouldn't our incentives be set up to encourage our best and brightest to devote themselves to serving others instead of enriching themselves at the expense of others?
Posted on December 26, 2011 at 09:08 AM in best and brightest, capital gains are land gains, common good, externalities, income concentration, income tax, land value created by community, monopoly -- not the game, Occupy Wall Street's values, pay for what you take, privilege, socializing risk and privatizing profit, trickle-down economics, unearned increment, untaxing production, wealth distribution or concentration | Permalink | Comments (0)
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"ARE WE SOCIALISTS?"
Thomas B. Preston, in the Arena, December, 1899
It is socialistic to make the revenues of the government a burden on industry. Revenues there must be, but they should not bear upon industry. In fact, the taxation of any product of labor is simply taking from the laborer part of his earnings. To such an extent we are socialists. Any other form of taxation than that on the value of land is essentially socialistic because any other tax is passed on from the seller to the consumer, and takes part of the latter's earnings without compensation, for use by the community. Any tax on earnings is socialistic, although it may not go so far as to take all a man earns. The substitution for our present system of a single tax amounting to the full rental value of land would sound the death-knell of socialism.
While we sin so deeply in our present bungling, socialistic way by forcing individuals to give up part of the proceeds of their labor, by fining a man who builds a house more than if he were maintaining a public nuisance, by tariffs which hinder trade with foreign countries, and add millions to private fortunes at the expense of the people, and by a thousand indirect taxes which make life harder for men without their being able easily to see the reason, on the other hand we foolishly leave to individuals those great agencies which are the outcome of social growth — the product of the inventive genius of a few men, if you like, but which after a time grow so powerful as to become the very arbiters of life and death. Prominent among such agencies are the railroad and the telegraph. They can crush communities out of existence and enrich the owners at the expense of their fellow men. They have already become the chief source of corruption in government. The ownership of these agencies by the community becomes a necessity for the continuance of social progress. Otherwise these monopolies can go on increasing and concentrating until a few persons are enabled, through them, to appropriate the wealth of a community. In so far as socialism demands the state ownership of agencies of this nature, it is proceeding in the right direction. There are many other agencies besides the railroad and the telegraph, such as the supply of water, gas, light, heat, telephones and means of transit and communication, in which the American idea of free competition is a fallacy. Here we are too individualistic. The right to make war and peace was long ago taken from individuals and vested in the community. So at a later stage was the carriage of letters. National quarantines, boards of health, public schools, are all examples of applied socialism in its legitimate sense. But why should we stop here? The existence of such great monopolies as the railroad and the telegraph is a standing menace to the life of the Republic. Let us munificently reward the inventors or appliances which shall add to the comfort and convenience of the community, but allow these agencies to be owned perpetually by individuals never!
We are socialistic where we should respect the rights of the individual, and we are individualistic when individualism is a crime against the Commonwealth. And so we go blundering on. When our stupid and oppressive system leads men to cry out against it, and riot and murder follow, we hang a few anarchists. When monopolists, grown bold through long years of immunity, attempt to rob a little more openly, by pools and combinations or by direct bribery, we create interstate commissions to watch them, or we send a few to prison, allowing others to escape to Canada; repressing a little here those who complain too loudly, where we should rather rectify their grievances, and lopping off a little there the enormous unearned profits, which we should abolish altogether. Meanwhile our two classes of tramps are increasing — those who travel around the world in flowing palaces, living upon the toil of others, without using their capital in any legitimate enterprise and those who go afoot, pilfering from cornfields and hen roosts — both classes an unjust burden on a hard working, long suffering community. We have arrived at a critical period of our history, where we must meet the demands of social progress, or our civilization will perish as surely as did the fallen empires of former ages. Already the mutterings of revolt are growing louder and louder, while upstart monopoly was never so insolent and imperious as it is today. Let us be warned in time, and, discarding all half measures, face the issue like men, and not go on trusting to luck, foolishly dreaming that somehow, at some time, existing wrongs will right themselves.
Posted on November 21, 2011 at 03:01 PM in a wedge driven through society, all benefits go to landholder , common good, corruption in government, cost of living, cui bono?, direct taxation, financing infrastructure, financing services, fixing the economy, franchises, government's role, income tax, indirect taxation, individualism, land value created by community, little people pay taxes, make land common property, monopoly -- not the game, municipal ownership of utilities, paying twice, public ownership of utilities, socialize, socializing risk and privatizing profit, tax reform, unburdening the economy, untaxing production, wage taxes | Permalink | Comments (0)
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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.
I have a family member who, when Herman Cain says "9-9-9," plays a sound bite of another voice shouting "nein! nein! nein!"
Georgists have a better proposal for how we ought to fund our common spending.
This probably raises several questions in your mind:
Our commonwealth includes the value of land -- not the improvements made by the present or previous owner, but the value of the site itself, which is created by the gifts of nature; by the investment of the local, state and national communities in public goods and services (including most "pork"); by the presence of the community and its economic activity. While good farmland may be worth $5,000 or $10,000 per acre, depending on climate and proximity to markets, suburban residential lots might be $35,000 to $1,000,000 -- or far more! -- per acre, and an acre in midtown Manhattan can be worth $250,000,000 or more. The landholder doesn't create that locational value.
Our commonwealth includes the value of ecosystem services. It includes the value of electromagnetic spectrum (the airwaves which most people would agree rightly belong to the American people, not to corporations). It includes the value of water, particularly fresh water for drinking and water for irrigating crops and for corporate use. It includes the value of government-granted privileges. It includes the value of geosynchronous orbits -- those parking spots in space for satellites whose owners and customers would not want to see crashing into each other. It includes the value of landing rights at busy congested constrained airports, such as LaGuardia or JFK, particularly at their rush hours. It includes the value of scarce on-street parking in congested cities. It includes the value of nonrenewable natural resources extracted from below the earth and the oceans, for 200 miles beyond our land borders. It includes a whole range of other similar things.
As you look at that paragraph, compare it to the 0-0-0-0 list above, and notice that it collects upfront certain values, and leaves the rest to those who produce. It is direct taxation rather than indirect, and one could reasonably argue that it isn't even really taxation; rather it is more in the nature of a user-fee.
It is Natural Public Revenue.
Once one has sat with this idea for a while, it seems quite unnatural to permit the value to continue to accrue to private individuals, or to corporations publicly or privately owned, or to entities other than the community as a whole!
Recall how concentrated wealth is in the US: The 2007 SCF [the Federal Reserve Board's Survey of Consumer Finances] reported that aggregate net worth is "distributed" as follows:
- Top 1% of us have 33.8%
- Next 4% of us 26.6% [cumulative: 60.4%]
- Next 5% of us 11.1% [cumulative: 71.5%]
- Next 40% of us 26.0% [cumulative 97.5%]
- Bottom 50% of us 2.5%
Recall also that the Forbes 400 families are specifically and intentionally omitted from the SCF, and that Forbes estimates that they represent 2.5% of aggregate net worth. So add that 2.5% to the numerator and denominator. And note, as Michael Moore did, that it is very similar to the value of the Net Worth of the bottom 50% of us.
And it seems quite unnatural to tax wages, and sales, and corporate profits, and buildings at all before we've fully collected Natural Public Revenue.
Will Natural Public Revenue be sufficient to meet all the needs of all levels of government?
Quite possibly not, at least today when we are so reliant on a social safety net because current conditions have kept a significant share of our people from providing well for themselves. But I regard it as altogether possible that within a generation or two, it could be quite sufficient, in part because it would have the effect of redistributing some of the wealth which today is pouring into the pockets of a relative few of us.
How much of corporate profits are coming from (quite legal) privatization of the value of natural resources, the value of being able to get away with polluting air, water and soil, and the value of other privileges which corporations -- public and private -- are used to enjoying? One of the interesting findings in the SCF is that the value of privately held businesses [BUS] actually exceeds the value of publicly held ones [EQUITY] in household wealth -- and the value of both is highly concentrated:
[value, billions, 2007] $13,694.3 $14,893.7
Consider, too, how much more of this value the Forbes 400 have! These two categories represent 21.2% and 23.1% of aggregate net worth held by the rest of us -- a total of 44.3%. Most of the 2.5% is likely in these two categories. I'll leave the math to you.
Posted on October 15, 2011 at 06:37 PM in a Manhattan acre, broadcast spectrum, commons, direct taxation, economic rent, ecosystem services, FairTax, financing education, financing infrastructure, financing services, fixing the economy, income concentration, income tax, indirect taxation, infrastructure, land value created by community, land value taxation, location, location, location, make land common property, natural resource revenues, natural resources, Occupy Wall Street's values, oil, one solution for many problems, parking, population, population growth, pork spending, poverty machine, poverty's cause, privatization, privilege, public spending, sales taxes are wrong, SCF data, single tax, socializing risk and privatizing profit, sufficiency of land rent, Survey of Consumer Finances data, urban land value, wealth distribution or concentration | Permalink | Comments (0)
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In September, 1889, Thomas Shearman, co-founder of the NYC law firm Shearman & Sterling, published an article in The Forum, entitled "Henry George's Mistakes." This was ten years after the publication of Henry George's "Progress and Poverty," which was, by that time well known to most Americans and many in other parts of the world; by 1900, P&P had sold something like 6 million copies and been serialized in many periodicals. As the first paragraph shows, George's ideas were controversial, particularly with the vested interests who were more than happy with the current structure, and were in a position to spend to influence public opinion.
Shearman is responding to those who thought that George's Remedy (the subtitle to P&P is "An inquiry into the cause of industrial depressions and of increase of want with increase of wealth ... The Remedy") was unrealistic, and in particular, to an 1887 article in The Forum.
Shearman shows why indirect taxes raise prices and the cost of living, particularly for the poor. Recall Leona Helmsley's statement about taxes: "We don't pay taxes. The little people pay taxes." I don't think she was talking about tax evasion; she was talking about tax structures.
I've taken the formatting liberty of presenting some lists contined in paragraphs as bullet points.
HENRY GEORGE'S MISTAKES.
Since the mistakes of Moses were so triumphantly demolished by Col. Ingersoll, his example has been followed by numerous writers, who, possibly because they concluded that the Mosaic field has been sufficiently occupied, have devoted themselves to an equally triumphant demonstration of the mistakes of Henry George. Space could not be afforded for even an abstract of these brilliant productions. Crushed by the Duke of Argyll, refuted by Mr. Mallock, extinguished by Mayor Hewitt, undermined by Mr. Edward Atkinson, exploded by Prof. Harris, excommunicated by archbishops, consigned to eternal damnation by countless doctors of divinity, put outside the pale of the Constitution by numberless legal pundits, waved out of existence by a million Podsnaps, and finally annihilated by Mr. George Gunton, still Henry George's theories seem to have a miraculous faculty of rising from the dead. For it is certain that his general doctrines are more widely believed in today than ever before; while the one practical measure which he advocates for present and immediate enactment is accepted by a vast number of intelligent men on both sides of the Atlantic. It is, therefore, still worth while to look into this terrible delusion, and to inquire seriously what are these fatal mistakes which, being so often slain, nevertheless live.
Mr. George has devoted a large portion of his famous book, "Progress and Poverty," to the assertion and illustration of his belief that, all over the civilized world, the rich are growing richer and the poor relatively poorer. He undertakes to trace the cause of this assumed evil to the private ownership of land and the steady increase of economic rent. He insists, with admitted eloquence and earnestness, that private ownership of land must be abolished; but he proposes one remedy and only one, the concentration of all taxes upon ground rent alone. He urges that these taxes should be increased to such an amount as will absorb ground rent. This, in view of statements made by all Mr. George's opponents, would seem to be really only a matter of detail, concerning which any one might be at liberty to entertain, as Mr. Disraeli used to say, a "pious opinion." For they all, with one voice, maintain that ground rent would never be sufficient to meet the existing taxes; and so this question, if any of Mr. George's critics are correct, could never arise.
To a practical mind there are only two important questions involved in this controversy.
Let us inquire whether there is any excessive concentration of wealth going on in the United States of America. Leaving mere clamor and unsupported assertions out of consideration, on either side, let us look into facts. As lately as 1847, there was but one man in this country who was reputed to be worth more than $5,000,000; and though some estimated his wealth at $20,000,000, there is no good reason for believing it to have been so great. The wealth of his lineal descendants is estimated at $250,000,000, or over $50,000,000 each. In 1867, in the New York constitutional convention, one of the most prominent delegates stated that he could name 30 men, residing in that State, whose wealth averaged $15,000,000 each. The St. Louis "Globe" recently published a list of 72 persons who were worth, collectively, the whole amount of our national debt, averaging $18,000,000 each. The wealthiest railroad manager in America, in 1865, was worth $40,000,000, but not more. His heir died recently, leaving an estate of nearly $200,000,000; and there are several gentlemen now living who are worth over $100,000,000 each. Within a short period, a number of quiet, unobtrusive men, of no national fame, have died in Pennsylvania, leaving estates of over $20,000,000 each. Twenty living persons, in the oil business, are reputed to be as rich. Forty persons could be easily named, none of them worth less than $20,000,000, and averaging $40,000,000 each. At the lowest reasonable estimate, there must now be more than 250 persons in this country whose wealth averages over $20,000,000 for each. But let us call the number only 200. Income-tax returns in Great Britain and in the United States show that, in general, the number of incomes, when arranged in large classes, multiplies by from three to five-fold for every reduction in the amount of one-half.* For extreme caution, however, we estimate the increase in the number of incomes at a very much lower rate than this. At this reduced rate, the amount of wealth in the hands of persons worth over $500,000 each in the United States would be about as follows:
|200 persons at||$20,000,000||$4,000,000,000|
Let us test the question in another way. Eastern savings banks show an average deposit of $365. This sum represents the extreme savings of the average thrifty workingman of the East. But even estimating that 20,000,000 workers of 1889, earning an average of less than $400 each, of whom 5,000,000 are women and children, have saved, on the average, $600, still, their aggregate savings would not amount to $12,000,000,000, or $1,100 for each average family. Let us suppose that the 1,000,000 workers of superior class, earning an average of $1,000 each, have saved $3,000 — a monstrous exaggeration. This would make their total possessions $3,000,000,000. The result would be to show that 21,000,000 persons had saved up in the whole course of their lives $15,000,000,000, leaving $45,000,000,000 in the possession of not more than 400,000 persons.
Look again. Excluding churches, public buildings, etc., from the items of wealth enumerated in the census estimate for 1880, it is reduced to $41,000,000,000. Railroads, telegraphs, shipping, mines, quarries, canals, merchandise, and specie count for $13,500,000,000. These certainly do not belong to $400 workingmen. $5,000,000,000 is charged to household furniture, paintings, and jewelry. Two-thirds of this would be an extreme allowance for the 9,700,000 families of the poorer class; but let us allow them more, and estimate the furniture of the 300,000 richer families at only $5,000 each. Farms stand for $10,000,000,000, of which more than one-fourth were owned by landlords and leased to tenants, while one-fifth were so large as to imply wealthy owners; and mortgages were certainly outstanding for more than one-fifth of the rest. Business and residential real estate, water-power, etc., were estimated at about the same value. Of this, at least three-fourths was owned by the wealthy class, either absolutely or by mortgages. On this basis we arrive at the following estimate of the possessions, in 1880, of not more than 300,000 persons:
Railroads, shipping, mines, merchandise, specie, etc.
|Farms, 45 per cent||4,500,000,000|
|Mortgages on farms, 20 per cent||1,000,000,000|
|Other real estate||7,500,000,000|
A sufficient cause for the immense and growing chasm between the rich and the poor of this country is to be found in indirect taxation. The population of the United States has increased in 25 years from 35,000,000 to 60,000,000. Let us call the average 45,000,000. The average annual taxes for the same period have been about $175,000,000 on imports, $136,000,000 on domestic productions, $14,000,000 on incomes, $25,000,000 miscellaneous, and $300,000,000 State and local taxes, mostly on houses and improvements and personal property. Duties on imports have entailed an average increase of prices on domestic goods to the amount of fully thrice the duties, say $525,000,000. Excise duties, by promoting monopolies, have largely increased prices, as in the well-known case of matches, where a duty of one cent caused an increase in price of' two cents. Let us, however, call this increase only one-fifth of the excise, or $27,000,000. But upon these taxes there are three profits, made by the importers or manufacturers, the jobbers, and the retailers, amounting to not less than 20% in all, or $172,600,000. Two-thirds of the State and local taxes are paid by middlemen, who of course add a profit; but this may be put as low as 5%, or about $10,000,000. The grand total now comes to $1,384,000,000 per annum, as the average annual burden borne by the people for 25 years past. Of this all was indirect taxation, except something over $100,000,000; leaving the average annual burden imposed by indirect taxation at $1,280,000,000.
This burden was distributed as equally as possible by natural laws, in proportion to the expenditure of each income-receiver in the support of his family. As each worker supported, on the average, three persons, including himself, the people may be divided into 15,000,000 families, or rather groups of three.* On the basis of the careful estimate of Mr. Atkinson, 14,000,000 of these must have been supported upon incomes of less than $400 (in my judgment less than $350), 700,000 on less than $1,000, and the other 300,000 on larger incomes. The average annual earnings of the nation during 25 years cannot have exceeded $7,500,000,000. Allowing 15% as savings, destruction, and cost of replacement, and adding to this the tax burdens, which must be paid out of savings, there would remain, as the sum expended in the support of the people, an average of less than $5,100,000,000 per annum. On this the burden of indirect taxation has averaged 25%. We are now prepared to calculate the effect.
What would be the result, at the end of a year, on these two classes? Assume only 200 such very wealthy men; yet their savings would be, under such taxation, $175,000,000. Assume only 600 more, with incomes of $500,000 each, spending $50,000, and taxed therefore $12,500; their net savings would be $437,500 each, or $262,500,000 in all. Thus 800 rich men would save $437,500,000. The savings of the 14,000,000 laborers could not exceed $25 each, or $350,000,000. But, if taxes could be dispensed with, the savings of the millions of poor men would have reached $1,400,000,000, while those of the 800 rich would not have exceeded $450,000,000.
Here is a mathematical demonstration that the mere fact of indirect taxation is sufficient to strip the poor of three-fourths of their natural savings, and to concentrate a majority of the wealth of the community in the hands of an infinitesimally small part of its number.
What, then, is the remedy proposed by the wild fanatic whose blunders we are considering? It is threefold.
The third branch of this proposition is the only one which has brought the penalties of everlasting damnation upon Mr. George's head, from the hand of Dr. Van Dyke. But Prof. Harris and Mr. Atkinson are sure that they have saved his soul, at the expense of his arithmetic, by demonstrating that rent is a very insignificant item, which would not suffice to meet the present necessary taxes. Assuming, for the moment, that Mr. George's arithmetical critics have delivered his soul from Sheol, let us try to rescue his body from the lunatic asylum.
Every form of tax upon personal property or improvements upon land, whether in the form of a tariff, an excise, a license, or a so-called "direct tax" upon their value, is, in the inherent nature of things, an indirect tax. It is and always must be shifted from the original tax-payer to the final consumer. In many individual cases the original tax-payer is unable thus to shift the tax; but in that event he is crippled in business, and, if the difficulty is permanent, he is ruined and driven out of business, to give place to a shrewder man, who makes the customer pay the tax in the end, with a bigger profit than would have contented the weaker man.
There are no direct taxes worth discussing, except the income tax, the succession tax, and the tax on land, valued without reference to its improvements. The income tax opens the door to innumerable frauds, and puts a premium upon perjury and corruption. If adopted in this country as the sole method of taxation, it will open the way to such plunder of the honest rich as will make them sigh for Henry George and his tax on rent. Poor folk and rascals will escape from all taxation whatever. The succession tax will fall exclusively upon the rich. If made high enough to support the cost of all government, it will fail, because it will be evaded. There remains only the tax on land values, or the natural rent of land, irrespective of improvements.
This tax is absolutely direct. It cannot be evaded. It cannot be shifted by the original tax-payer. That is an axiom of economic science. If it were not so, there would not be a particle of the clamor which is raised against it. The thunders of the pulpit would have slept forever, if the land-owner could make poor folk pay his land tax, with a little profit. The adoption of this tax would therefore put an end to all the unnatural impoverishment of the poor and enrichment of the rich, which take place under the present system. It would amount to a total abolition of taxation, as to that vast majority of the poor who own no land. Whereas now they pay both rent and taxes, then they would pay rent alone. This simple fact is a complete answer to the inquiry: "How are the masses to get the benefit of taxing rent?" As to such of the poor as own land, they would be relieved from the taxes which they now pay on personal property and improvements, that is, from more tax than would be added to their land tax. For we need reckon none among the poor who own more than $3,000 worth of land clear, that being more than the average value of improved farms; and those who own less than $6,000 worth of improved real estate are now paying more taxes indirectly than they could ever be required to pay under the single-tax system.
Let us briefly consider "Henry George's Mistake about Land," as set forth by Prof. W. T. Harris, in the Forum for July, 1887. That "mistake" lies in his assumption that ground rent would be sufficient to defray all the expenses of government, national, State, and local. Prof. Harris, finding that the official assessment of real estate in this country, in 1880, was about $13,000,000,000, and estimating that this was two-thirds of the market value, and the value of the land alone about one-half of the whole, or somewhat less than $10,000,000,000, calculates the ground rent at 4% on this sum, or $400,000,000 per annum; which of course is wholly insufficient to meet the taxes of $700,000,000 levied in 1880. He then refers to Great Britain and Ireland, where, he says, land forms only one-fifth of the total wealth, with an annual rental of £65,442,000. As British taxes altogether amount to about £118,500,000, it is clear that, if this estimate is correct, the single tax would not suffice to meet British taxes.
Taking first the case of the United States, the census report of 1880 shows conclusively that assessments are worthless, as a means of estimating real values. They vary from 10% to 70% of the true value of real estate; and no average can be estimated from them. The census of 1880, upon which Prof. Harris relies to show the proportion of land to the aggregate wealth, and which he must not therefore desert for local assessment tables, contains items of real estate, including all privileges over land, aggregating over $28,000,000,000. Adopting the rule of division between land and improvements propounded by him, the lowest estimate of pure land values for 1880 would be between $15,000,000,000 and $16,000,000,000. There is no estimate whatever of wild lands belonging to private individuals, unconnected with farms, the value of which could hardly have been less than $2,000,000,000; but of this we will take no notice. The rental of 4% for 1880, upon which Prof. Harris bases his calculation, is utterly absurd. Strictly first-class mortgages could not be placed at less than 5% in the city of New York in 1880; and such mortgages averaged, the country over, nearer 7% than 6%. It is impossible that the ownership of land, which is no better than a second mortgage, should not, on the average, produce a rate of interest higher than a first mortgage. The lowest rate of interest to be allowed on the value of land would therefore be 6.5%. But to this must be added the amount of taxation which actually fell upon land values in 1880. This could not have been less than 0.5%. Such taxes, being paid by landlords and not by tenants, necessarily depreciate the market value of the land; and this amount should be either added to the rent, or deducted from the amount expected to fall upon lands in consequence of the adoption of the single tax, since this falls upon it already.
It follows that the ground rent of the United States, in 1880, was considerably over $1,000,000,000. The taxes for that year were about $700,000,000. But of this, $100,000,000 was levied only for the purpose of piling up a surplus. The necessary taxation was only $600,000,000; and the land-owners of the United States would have been able to pay all taxes and yet retain a very large surplus. The value of land in the United States is now not less than $20,000,000,000; but the rate of interest is lower, and ground rent has not increased in equal proportion to nominal values.
Turning to Great Britain, the mistakes of Prof. Harris can be readily shown to be vastly greater than any mistakes of Henry George. His fundamental errors are three.
The following are the official figures for 1884, taken from the 28th British Inland Revenue Report; to which we append a very low estimate of the proportion of mixed land values which should be charged to ground rents alone:
||British Pure Annual Land Values, 1884.|
|Lands, returned as such||£65,442,000|
|Manors, tithes, fines, etc.||853,000|
|Fishing and shooting rights||572,000|
|Markets and tolls||607,000|
|British Mixed Annual Land Values, 1884.|
|Houses and lots||
|Canals, water-works, mines, gas, iron, etc||22,381,000|
|One-half of these values as land||£91,241,000|
|Total land values||£158,715,000|
Now the whole net amount of British taxes is £118,500,000. But of this, over £27,500,000 is already assessed upon pure land values. The adoption of the single tax would therefore increase the burden upon land only by £91,000,000. The net rental value of land being over £158,000,000, it follows that the land-owners of Great Britain and Ireland could pay all national and local taxes, and still retain for their own benefit the comfortable margin of £67,000,000. Prof. Harris will do well to study his statistics carefully before he again undertakes to exhibit "the mistakes of Henry George." *
Mr. Gunton, in the Forum for March, 1887, had preceded Prof. Harris in the same field and with about equal accuracy. He calls the entire rental value of real estate in the United Kingdom, including, of course, improvements, £131,468,000. The correct official figure (including £43,000,000 taxes, paid by occupiers) was, in 1884, almost exactly £293,000,000; and the real value is far greater. Instead of being only 11% of the gross produce, as claimed by Mr. Gunton, it is fully 25%. It is not worth while to follow either Mr. Gunton's figures or arguments any further.
I regret that the space allotted for this article will not allow an examination of Mr. Edward Atkinson's calculations on the same general point. His statistics are far more accurate than those of Messrs. Harris and Gunton. Accepting all his statistics as absolutely accurate, I have shown in another place, by his own figures, that two-thirds of the ground rents of Boston would provide for all local, State, and national taxes on Boston.
The single tax, therefore, would be a real, effective, and adequate remedy for the present unjust intervention of the state in favor of the rich and against the poor.
There still remains the question: "Is the remedy just?" Many of Mr. George's critics (notably Mr. Gunton) are debarred from raising this question, since they assert the absolute right of the state to deal with all property as may be deemed expedient. But the majority of them are better represented by Dr. Van Dyke, who thinks the proposition of Mr. George "thoroughly unrighteous." So far as we can make out, this is because the state has in the past allowed private individuals to appropriate land and its rent to their own use, and is therefore estopped from taking away that rent by taxation. But land has always been taxed. In most of our large cities it is now theoretically taxed at least 2% on its value; often 3%. Why should a tax of 2% or 3% be just and righteous, but a tax of 4%, 5%, or 6% incur penalties of everlasting damnation? Is it because land is especially singled out for taxation? Then is there not at least equal wickedness on the part of Congress, which for half a century singled out the business of importation as the only subject of taxation, and still taxes it ten times as heavily as anything else? Does the wickedness consist in taxing land up to its full value? Then is it not equally wicked to tax the poor man's window glass 100% upon its value? Does the wickedness consist in imposing a tax for the purpose of accomplishing some ulterior result? How about our whole tariff legislation, which is avowedly maintained for an ulterior purpose? Is it wicked to tax private property out of existence? How about the tax on bank notes, which was levied for the express purpose of destroying State banks? How about the tax on oleomargarine? Is it wicked to tax property out of existence, without giving compensation? Why do not those who urge this plea petition Congress for compensation for those whose wealth has been destroyed and whose occupation has been taken away by taxes avowedly levied for that purpose? Not one of these critics has ever suggested such a petition; not one of them would sign such a petition; and not one of the many thousands who have suffered from such tax laws ever thought of presenting such a petition.
Judged by any standard which has ever been applied to public affairs, even by clergymen, the proposition of a single tax on land values is perfectly reasonable, moral, and honorable. As to the amount of such a tax, that is a question to be decided by a wise expediency. There is not the slightest moral obligation on the part of the state to make the tax small, or to leave any margin to land-owners, so long as no more is taken than is needed for the honest use of the state.
It is not necessary to follow any further the proposition of Mr. George to increase taxation up to a point which would practically absorb all ground rent. Every one of the critics who has discussed the point at all, has committed himself to the theory that no such artificial increase of taxation would be necessary to absorb rent. Moreover, it is not a practical question at present, and will not be for a very long time to come, if ever. Taxation rises quite fast enough, without artificial efforts to increase it. In 40 years, in Ohio, population increased 100%, assessed wealth 1,000%, and taxation 1,360%. It is sufficient for the present to show that the actual remedy proposed by Henry George for the evils of our present social condition, the only practical measure which he asks to have adopted today, is a real remedy, an adequate remedy, and a just remedy. The criticisms of his adversaries have been directed to mere side issues, to his minor arguments, to his intellectual processes, to his illustrations, to anything except the real pith of the matter in hand. Not one of them has really wrestled with the problem; not one of them (except Mr. Atkinson) has been even approximately correct in his statistics; not one of them has failed to commit mistakes in his reasoning and his calculations far more serious than any which can be fastened upon Henry George.
Thomas G. Shearman.
Posted on October 06, 2011 at 04:20 PM in a wedge driven through society, cost of living, cui bono?, direct taxation, economic rent, ending poverty, Henry George, income concentration, income tax, indirect taxation, justice of the single tax, land rent, land share of real estate value, land value taxation, little people pay taxes, natural resource revenues, private property in land, privatization, rich people's useful idiots, savings rate, single tax, sufficiency of land rent, taxation, Thomas G. Shearman, wealth distribution or concentration | Permalink | Comments (0)
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That's the first paragraph of a recent op-ed by economist Robert Reich of UC-Berkeley.
I think this article is important, but that it misses a larger, longer-acting dynamic: the extent to which our most wealthy, with an awesome amount of "patient money" need to find places to "park" that money, and end up buying land and natural resources.
Mason Gaffney has written about this. I commend his site to your attention: http://www.masongaffney.org/
When we need land, particularly well-located land, we end up paying them for access. When we need natural resources, we pay them for that, too.
It isn't that such access shouldn't be paid for -- it should -- rather, why on earth should private individuals or entities be the recipients of that income, rather than it flowing to the commons to finance the goods and services that make our society a good place to live, without taxing work or purchases.
Posted on September 18, 2011 at 07:08 PM in a wedge driven through society, absentee ownership, all benefits go to landholder , capital gains are land gains, income concentration, income tax, land different from capital, little people pay taxes, make land common property, Natural Public Revenue, natural resources, privatization, privilege, socializing risk and privatizing profit, unearned income, wage taxes, wealth distribution or concentration | Permalink | Comments (0)
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I'd not realized how long it had been since I'd posted; there are a few pieces sitting in the drafts folder which I hope to polish a bit soon.
I'm tempted to do my annual rant on the ridiculousness of the federal and state income tax -- that we ought to require every one of our elected representatives, federal and state (plus the mayors and city councils of any municipality with a local income tax), to fill out and file their tax forms themselves, preferably sitting at their official desks, in front of CSPAN's cameras. Calculators and laptops permitted, extra desk space for their files of receipts, bills, 1099s, W2's, check registers. Spouses, siblings and inlaws are permitted on the floor to help, even if they are CPA's, but they can only use software retailing for less than $1000 per license. No, make that $250 per license, federal and state combined. The CSPAN (or state equivalent) camera would pan the room, and the Washington Journal hosts would preside, and even take calls, with the lines assigned by party affiliation.
Many constitutents would gladly trade one of their representative's periodic week-in-the-home-district to be able to watch this. And perhaps the following week, their elected representatives might be more open to proposals for genuine tax reform, getting ourselves out of this stupid income tax box we've permitted ourselves to be caged in for nearly 100 years.
And of course the aggravation of what it takes to fill out one's tax forms, even for the simplest of financial lives, is not the primary reason why the income tax is the wrong tax. But if you've been reading this blog much, you already know that.
This comes from Tax Facts, January, 1927:
Governor A. Harry Moore, of New Jersey, in his first inaugural address to the 1927 Legislature, after discussing several methods of financing new highway construction, said: "Lastly, I might suggest to you the wisdom of assessing some part of the cost of the road system upon the land specially benefitted thereby, as is the practice in municipal improvements. A striking illustration of what might be regarded as an evil of having the State at large pay for major improvements and the land peculiarly benefitted by the improvements escape, except in so far as it shares its proportion of the State's expense, is in the increase of land values in Bergen county, which came as a result of the projected Hudson River Bridge."
Notice that this was said before the George Washington Bridge had become a reality: the increase in land values began well before construction began.
Governor Christie could learn from Governor Moore's wise observation in 1927, as New Jersey considers the benefits to be derived from building an additional tunnel under the Hudson River.
And those who are upset about pork spending don't seem to notice that much of that federal spending has the effect of increasing land value in the localities where it is done, and that smart states, counties and towns would collect some significant share of that increase in land value, month in and month out, from those benefited by that federal investment.
Posted on February 10, 2011 at 05:20 PM in all benefits go to landholder , capital gains are land gains, cui bono?, financing infrastructure, free lunch, income tax, infrastructure, land appreciates buildings depreciate, land speculation, land value taxation, little people pay taxes, Natural Public Revenue, popular ignorance of land economics, pork spending, privatization, property tax reform, public spending, reaping what others sow, tax reform, transportation | Permalink | Comments (0)
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129tn0933.pdf (application/pdf Object). (courtesy of Paul Caron's taxprof.typepad.com blog)
I commend the whole article to your attention (it runs 3 pages). But I'll focus on a few paragraphs which particularly intrigue me. DCJ begins,
I am an admirer of DCJ, appreciate his two books, and look forward to his third -- but I don't think he yet sees the half of it! (And need I say that none of our current parties do either?)
Skipping ahead again:
I'm glad to see that DCJ is calling attention to this particular form of speculation -- skimming the cream off the economy without producing anything.
Recall that Joseph Stiglitz made remarks to this effect, speaking in July at the University of Queensland in Australia:
"Finance is a means to an end," he said. "The lack of balance between the financial sector and the economic sector was actually the real problem in this economic crisis (NOT the real estate bubble)."
I've not heard of Stiglitz saying this where the American media might catch on, but appreciate his willingness to state it elsewhere.
How do we encourage the sorts of business activity which create jobs, create housing which is welcoming and affordable for people at all points on the income and wealth spectra? By getting our incentives right, and by straightening out what we tax, what we don't, and the rates at which we tax each.
A 2007 OECD study compared some of the commonly-used tax bases for their effects on economic growth, and concludes that the personal income tax is an inferior tax. What does it endorse? Interestingly, the conventional property tax! Those who read this blog regularly know that the conventional property tax is an unfortunate marriage of two taxes with very different effects -- one quite desirable, and the other largely negative in its effects.
Elsewhere, I came across this table:
|Distributional Effects of Allowing All Expiring Tax Provisions
to Expire, 2011
|Increase in Federal Taxes|
|Income Category||Millions of Dollars||Percent|
|Less than $10,000||117||1.0|
|$10,000 - $20,000||3,721||19.9|
|$20,000 - $30,000||11,654||20.8|
|$30,000 - $40,000||12,869||14.1|
|$40,000 - $50,000||11,238||10.6|
|$50,000 - $75,000||26,705||9.2|
|$75,000 - $100,000||28,517||9.8|
|$100,000 - $200,000||62,309||10.6|
|$200,000 - $500,000||26,871||8.7|
|$500,000 - $1 million||10,620||8.3|
|$1 million and over||32,708||11.0|
|Total, all taxpayers||227,330||10.4|
Source: Joint Committee on Taxation (July 30, 2010
If I am reading the table correctly, it says that while the folks in the $1 million plus income category would experience an 11.0% increase in their federal taxes, those in the $10,000 to $20,000 range would see a 19.9% increase, and those in the $20,000 to $30,000 range would have a 20.8% increase in their federal taxes. Admittedly, these are small numbers -- I assume that they exclude social security and medicare payroll taxes, which are much higher than federal income taxes for perhaps 75% of us. But does it make sense to increase income taxes on those whose incomes are sufficiently low that they likely spend virtually 100% of what comes in by twice as much as the income taxes on those who have plenty of discretionary income?
We need better taxes. Search this page for the OECD study, or search for "canons of taxation" on the wealthandwant.com website. Smart taxes are smart. Dumb taxes are dumb.
Posted on November 25, 2010 at 09:06 PM in a wedge driven through society, common good, corruption of economics, economic justice, FIRE sector, fixing the economy, free lunch, income concentration, income tax, land speculation, little people pay taxes, middle class, political economy, poverty machine, poverty's cause, reaping what others sow, trickle-down economics, unburdening the economy, wealth distribution or concentration | Permalink | Comments (0)
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The Social Security Administration released some interesting information a few weeks ago (and corrected it after David Cay Johnston called attention to some anomalies in the data, which turned out to have resulted from false W-2's from two individuals; what's reported below is the corrected data) on 2009 wages.
First, here is a summarized table of the 150.9 million individual wage earners in 2009.
|Net Compensation Interval
Number of Wage Earners
Percent of Total Wage Earners
Cumulative Percent Wage Earners
Percent of Aggregate Wages
Cumulative Percent Aggregate Wages
|$0 to $10,000
|$10,000 to $30,000
|$30,000 to $50,000
|$50,000 to $100,000
|$100,000 to $500,000
|memo: contributions to deferred compensation plans||48,534,389||32.16%
These data do not include funds received by hedge fund managers which most of us would consider wages, but which get treated as capital gains, and taxed at a much lower rate than do all but the lowest wages. It would be interesting and useful to see those data arranged next to these.
One might use these data to consider whether there should be a separate bracket for higher incomes. Keep in mind that these are individual wages, net only of 401(k) type deferrals of income, not adjusted gross income at the taxpayer/household level.
The next table examines the amount of wage income which is represented by the portion of wages over $100,000, just below the current level at which one stops paying social security withholding.
|Net Compensation Interval
||Number of Wage Earners
||Percent of Total Wage Earners
||Cumulative Percent Wage Earners
||Aggregate Wages over $100,000
||Percent of Aggregate Wages
||Cumulative Percent Aggregate Wages
|$100,000 to $500,000
|14.10/85.90 = 16.4%
So how does all this relate to this blog's focus on Land Value Taxation?
The focus is on smart, just, efficient taxation -- and on ending the privileges which enrich some people and impoverish the vast majority of us.
Many of the ways that people "earn" large salaries are in large part the result of our permitting privileges: the privatization of the value of natural resources; the privatization of the value of urban land; and structures which permit some sectors of the economy to skim off value created by all of us. (Did anyone yell FIRE?)
We have to hold the feet of our elected representatives to the fire: make it worth their while NOT TO obey the requests of their huge campaign contributors and TO listen to the rest of us and reconfigure the structures which funnel wealth and income into the pockets of the currently-and-traditionally-privileged folks.
Are you ready?
I think there were some signs in this recent midterm election that voters in several states were not bowled over by the well-constructed advertising and heavy media buys of some very rich candidates for office, and I find that encouraging. Connecticut's Foley and McMahon, California's Fiorino and Whitman, and a number of entities enabled by the Citizens United ruling by the Supreme Court spent large amounts of money, with very uneven results.
Posted on November 10, 2010 at 11:05 AM in a wedge driven through society, common good, cui bono?, ending poverty, FIRE sector, income concentration, income tax, land speculation, land value taxation, landed gentry, little people pay taxes, natural resource revenues, natural resources, paycheck to paycheck, payroll tax, privatization, privilege, reaping what others sow, rich people's useful idiots, Social Security, socializing risk and privatizing profit, tax reform, taxation, urban land value, wages, wealth distribution or concentration, wealthandwant | Permalink | Comments (0)
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Do tax structures affect aggregate economic growth? Empirical evidence from a panel of OECD countries
This paper examines the relationship between tax structures and economic growth by entering indicators of the tax structure into a set of panel growth regressions for 21 OECD countries, in which both the accumulation of physical and human capital are taken into account.
The results of the analysis suggest that income taxes are generally associated with lower economic growth than taxes on consumption and property. More precisely, the findings allow the establishment of a ranking of tax instruments with respect to their relationship to economic growth. Property taxes, and particularly recurrent taxes on immovable property, seem to be the most growth-friendly, followed by consumption taxes and then by personal income taxes. Corporate income taxes appear to have the most negative effect on GDP per capita.
These findings suggest that a revenue-neutral growth-oriented tax reform would be to shift part of the revenue base towards recurrent property and consumption taxes and away from income taxes, especially corporate taxes. There is also evidence of a negative relationship between the progressivity of personal income taxes and growth.
All of the results are robust to a number of different specifications, including controlling for other determinants of economic growth and instrumenting tax indicators.
The full study, 28 pages, is at http://www.oecd.org/officialdocuments/displaydocumentpdf?cote=eco/wkp%282008%2951&doclanguage=en
Readers of this blog will know that I favor shifting to a tax on land value, and eliminating the portion of the conventional property tax which falls on buildings and other improvements to land. But I'm fascinated that their analysis shows that even taxing buildings and other improvements to land, along with land value, is superior to taxing consumption or personal income or corporate income, in terms of the effects on economic growth.
So I'll leave you with this question: if we know that income taxes and consumption taxes discourage growth more than the conventional property tax does, in whose interest is it that we not rely heavily on the property tax? Cui bono?
Go to the root of the problem. Recognize who benefits from the status quo. They like the current system just fine, and will fund heavily efforts to conserve it.
And when California (Proposition 13 forces reliance on wage and sales taxes to "protect" property owners) and other states, including soon Indiana, start complaining about a lack of economic growth, and when New York State's new Governor Cuomo starts talking about "property tax relief," understand that this is code for "we'll take care of our friends who own the choice urban sites, the ordinary man be damned!" This is called conservatism. Like Aleve, it works for them. Does "landed gentry" still resonate?
Notice that this study has been around for two years now. How many times have you heard about it? (It was news to me.) Even the "FairTax" (23%+ consumption tax) folks haven't mentioned it, as far as I know.
Posted on November 07, 2010 at 04:15 PM in a wedge driven through society, classical economists, common good, conservatism, cui bono?, economic rent, FairTax, financing education, financing infrastructure, financing services, fixing the economy, government's role, incentive taxation, income tax, landed gentry, monopoly -- not the game, Natural Public Revenue, NYS Property Tax Reform, payroll tax, property tax, property tax is two taxes, property tax reform, Proposition 13, prosperity, rich people's useful idiots, sales taxes are wrong, unearned income, unemployment and underemployment, wage taxes, wealth distribution or concentration, widow's skirts | Permalink | Comments (0)
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Every week when I scan the NYT's "What You Get" column, which showcases three homes currently on the market in various parts of the country, I wonder why the column doesn't provide the answers to the important questions?
I think Nicholas Rosen nailed it when he quoted a 19th century Georgist: instead of paying rent to a landlord and tax to the state, why not pay rent to the state and no taxes?
Posted on November 07, 2010 at 08:06 AM in better cities, buildings depreciate, capital gains are land gains, cost of living, cui bono?, economic rent, financing education, financing infrastructure, financing services, Henry George, home equity, income tax, land appreciates buildings depreciate, land share of real estate value, land value taxation, location, location, location, Natural Public Revenue, oil, paying twice, popular ignorance of land economics, sufficiency of land rent, teach your children well, unburdening the economy, urban land value | Permalink | Comments (0)
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Every election year, 1/3 of the seats in the U.S. Senate are up for election. This year as you vote, consider the content and goals of the television commercials you've been subjected to, from all sorts of directions (beyond the candidates themselves), and remember that a significant portion of the commercials have been enabled by the recent Citizens United decision issued by a Supreme Court dominated by "conservative" justices. (I commend the article at that link to your attention. In fact, I'll copy the essay, Corporations, Democracy, and the U. S. Supreme Court, by Mason Gaffney, in below the fold.)
Consider that it is the senators we elect who vote on the Supreme Court nominees presented by the president we elect, and think about who it is that YOU want voting on the next nominee. Justices can serve for many decades, far beyond the time the average senator is in office.
The person you elect to the Senate will serve for 6 years -- 2 in Obama's first term, and 4 in the term of whomever the American people elect in 2012, aided in their decision-making by the well-crafted and well-funded advertising made possible by the Citizens United decision -- and will likely be voting to fill at least one Supreme Court seat.
Whose interests should they -- the Senators and the Supreme Court nominees -- have at heart?
Do we want people who will seek to promote the concentration of wealth, income, privilege and power -- more and more, to fewer and fewer -- or to promote the interests and prosperity of ordinary Americans? Be sure you know; your options may not be wonderful, but at least your criteria should be thought out.
I commend this to your attention --
Corporations, Democracy, and the U. S. Supreme Court
Mason Gaffney, February 24, 2010
On Jan 21 2010 our High Court shocked Americans by ruling in Citizens United v. Federal Elections Commission that a corporation may contribute unlimited funds advertising its views for and against political candidates of its choice – in practice, the choice of its CEO or Directors. The ideas behind this are that a corporation is a “legal person”, with all the rights (if not all the duties) of a human being; that as such it has a right of free speech; and that donating money is a form of speech. Already K&L Gates, a top Washington lobbying firm, is advising its clients how to funnel money through lobbying groups or “trade associations”. This culminates a long series of actions and reactions (decisions, legislative acts, and electoral results) that bit by bit have raised the power of corporations in American economic and public life. Herein I will take the fall of the corporate income tax as a simple metric of the power of corporations. Nothing about corporations is that simple, however, so I must also touch on other aspects of power.
Some critics react apocalyptically, calling Citizens United a death blow to democracy; some cynically, calling this merely making de jure what is already de facto; some legalistically, saying the Court ruled more broadly than justified by the case brought before it. Supporters, naturally, take this contentedly as righting an injustice of long standing. Some economists would applaud this as a step toward sunsetting the corporate income tax, by electing more candidates beholden to corporate money. Many of them – not all – have been seeking this end for years in their learned journals and op-eds. Even the late Wm Vickrey, otherwise an egalitarian, gave high priority to this change.
This writer does not applaud either sunsetting the tax, or this step. I agree with Joseph Stiglitz that the corporate income tax is mainly a tax on economic rent. That means that a high tax rate does not destroy the tax base. Martin Feldstein, an economist who is as conservative as Stiglitz is liberal, also sees the corporate income tax as a tax on economic rent (JPE 85(2); April 1977, p. 357). It is not the ideal form of such a tax, but it beats any tax on work, or sales of the necessities of the poor, or value-added, or gross sales. Both Vickrey and Stiglitz rate high in the profession and garnered Nobels, so we cannot simply appeal to “authorities”. To prepare our minds, let us review some milestones in the history of corporations, especially in America.
Posted on October 15, 2010 at 12:39 PM in a wedge driven through society, capital gains are land gains, common good, corruption of economics, cui bono?, democracy, estate taxes, free lunch, Henry George, income concentration, income tax, land appreciates buildings depreciate, little people pay taxes, middle class, monopoly -- not the game, payroll tax, poverty machine, privatization, privilege, property rights, prosperity, reaping what others sow, rich people's useful idiots, socializing risk and privatizing profit, Stiglitz, stock ownership, tax history, unearned income, wealth distribution or concentration | Permalink | Comments (0)
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