Land Value Taxation will solve many of the 21st century's most serious social, economic and environmental problems, and promote justice, fairness and sustainability. We CAN have a world in which all can prosper.
Progress and Poverty, by Henry George Here are links to online editions of George's landmark book, Progress & Poverty, including audio and a number of abridgments -- the shortest is 30 words! I commend this book to your attention, if you are concerned about economic justice, poverty, sprawl, energy use, pollution, wages, housing affordability. Its observations will change how you approach all these problems. A mind-opening experience!
Henry George: Progress and Poverty: An inquiry into the cause of industrial depressions and of increase of want with increase of wealth ... The Remedy This is perhaps the most important book ever written on the subjects of poverty, political economy, how we might live together in a society dedicated to the ideals Americans claim to believe are self-evident. It will provide you new lenses through which to view many of our most serious problems and how we might go about solving them: poverty, sprawl, long commutes, despoilation of the environment, housing affordability, wealth concentration, income concentration, concentration of power, low wages, etc. Read it online, or in hardcopy.
Bob Drake's abridgement of Henry George's original: Progress and Poverty: Why There Are Recessions and Poverty Amid Plenty -- And What To Do About It! This is a very readable thought-by-thought updating of Henry George's longer book, written in the language of a newsweekly. A fine way to get to know Henry George's ideas. Available online at progressandpoverty.org and http://www.henrygeorge.org/pcontents.htm
Where Else Might You Look?
Wealth and Want The URL comes from the subtitle to Progress & Poverty -- and the goal is widely shared prosperity in the 21st century. How do we get there from here? A roadmap and a reference source.
Reforming the Property Tax for the Common Good I'm a tax reform activist who seeks to promote fairness and reduce poverty. Let's start with the enabling legislation and state requirements for the property tax. There are opportunities for great good!
Hoi oligoi. A new phrase for me, and one which made immediate sense. My Georgist grandparents sometimes referred to themselves as part of the hoi polloi, but at other times also used it to distinguish themselves, in a joking way, from the mass of people who didn't know George's ideas.
Has no one in California figured out that when the calf is deprived of mother's milk, starvation is inevitable?
It has taken 34 years, but it is coming about.
Feeding calves grain, or seaweed, or sunflower seeds isn't as smart as letting it consume its natural food.
Taxing wages, sales and buildings isn't as smart as collecting the lion's share -- calf's share, if you will -- of the land rent for public purposes.
Proposition 13 was designed to make sure that the cows' milk was kept for the Irvines, the big landowners, the commercial property owners, and the longtime homeowners, while providing a diminishing fifth of it to the calf and supplementing with grain, seaweed and sunflower seeds.
The calf's digestive system has blown up because it was deprived of its proper food, and "nourished" with stolen fake food.
Here's a piece from a 90 year old journal. There are acres in Manhattan whose value is far higher today -- and the landlords are still reaping what the working people and visitors to New York are sowing.
APPROPRIATING THE GIFTS OF NATURE By Walter Thomas Mills.
There are portions of New York City in which the land is valued at $40,000,000 an acre. That means $8000 each day from each acre for the landlord, and that entirely unearned by him, before there is a penny for any other purpose. Probably not less than two and one-half million dollars a day, or almost a billion dollars a year, must be earned by the people of New York City and turned over to landlords for permission to use the island, which is a gift of nature, and for the advantages that are protected and maintained by the industry and enterprise of all of the people.
In The Great Adventure, April, 1921
Think what NYC -- and America -- would be like if that "permission to use the island" money was treated as our logical public revenue source, instead of as individuals', corporations' and trusts' private revenue source.
Recall the wisdom of Leona Helmsley: "WE don't pay taxes. The little people pay taxes."
For ages sorcerers and magicians kept their secrets, their charms and enchantments to deceive the simple and unwary. At length most of such marvels are relegated to jugglers and sleight-of-hand performers, and we are amused to be deceived. We expect to see things come out of nothing; to see the unbroken eggs come out of the beaten scarf; the guinea pigs come out of the empty silk hat, the ducks come quacking out of the empty box; silver dollars come out of the boy’s ear or empty pocket. But there is yet one piece of magic in which many still believe. That is the magic of land values materializing from a vacant rubbish-covered lot or tract of land on which not a lick of work has been done.
Our modern sorcerers do the trick and roll up the hundreds of thousands of dollars out of nothing, and we look with gaping mouths, wondering where the big roll of bills came from. No question is asked. Something came out of nothing; that is all. Ah! if we could all learn the trick! No more work for anybody! Why should we work when we can produce money from nothing? Nobody investigates; we have the money on us, but sleep with untroubled mind, for no man can say “That is mine.” True, no man can say “That rake-off is mine”; but all the community could rise and say, “That rake-off is ours. We, all together, created the demand for the lands of the community by our presence and industry. Before we came, the values were not. If we should all go, they would disappear. Your money does not come from nothing, as some suppose. The whole community contributes to your roll. It should be ours to pay our taxes with. For lack of it we are ﬁned for our houses, furniture, machinery, crops, merchandise, etc.”
Oh, come off with your magic of getting something for nothing! Take your chances with the rest of us, who earn our money by work. We have been shown, and are on to your magic. We are going to vote for Amendment Number 20.” Thus will sorcery fade before reason. —Lona I. Robinson, in The Great Adventure, October 23, 1920
"A laborer turns a desert into a garden and then we increase his taxes. The speculator turns a garden into a desert and then we diminish his taxes. Verily we are a great people."
This quote is on a card for "The Landlord's Game" and I stumbled across my reminder to myself to look for its source. I found nothing definitive, but several mentions of the quote in newspapers from New Zealand from about 1894, and one from The Single Tax Review in 1914.
another excerpt from Dawson (1910 -- see an earlier post, below) -
IT is necessary now to consider more fully than hitherto the question, cannot society with right claim the increased value given to land by distinctly social causes? We have seen the various factors which tend to create what is generally known as "unearned increment." In one sense this term is very inaccurate. The increment is by no means unearned; what is meant, when the phrase is used, is that the landowner has not earned it. Society, however, has; and earned it honestly by heavy toil, by exertion of body and brain, by plodding industry, by bold enterprise, by culture and enlightenment, by progress in numbers, in wealth, and in morality. There is not a yard of land in the country — be it used for the growing of corn, the pasturing of cattle, or the habitations of men — whose value has not been enhanced by these social causes. It was the settlement of men with their various activities upon the land which originally gave it value, and the increase of population has been a constant and potent factor in value-growth since the primitive communities first established the institution of private property in the common soil. And yet, while society has for centuries been growing and labouring to increase the value of the land it required for its food, its industries, and its habitations, it has ever done so to its own detriment. While enriching the landlords it has impoverished itself.
This, indeed, is the greatest anomaly presented by the social increment problem. As a community develops and prospers, owing to its energy, enterprise, and enlightenment, it is all the time preparing a rod, armed with which the landlords will sooner or later turn upon it. A town's residents are punished for their industry and merited success by having to pay the landlords more and more money for the land they use. Did not tradesmen, by dint of perseverance and pluck, succeed and thrive, the demands made upon them would not increase; but simply because they reap in prosperity the reward of exertion, the landlords require growing tribute in the form of higher rents. And so it is in all departments of social life. In the eyes of the owners of the soil, human communities become, in fact, simply value-creators, rent-producers. The landlords reap where they have not sown, they gather where they have not strawed. Little of the value of that land which they lend and sell, at prices which are often so fabulous, has been created by them, yet they appropriate it all.
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.
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.
23. Fares on local public transportation may not be high enough to finance all the costs of providing the transportation. Does that mean that it is a poor investment, or are there other logical and just ways of funding it?
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.
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.
19. Storms continue to erode the resort beaches up and down our coasts. Who should pay for beach restoration every few years?
A. The federal government, from income tax revenues. (why?)
B. Taxes on pollution should be used to pay for this, on the basis that pollution produces the climatic conditions that make storms slower moving and more destructive.
C. State governments along the coasts.
D. Local governments, town by town, paid for by sales taxes.
E. County governments along the coasts.
F. Local governments, town by town, paid for by taxing wages.
G. Local governments, town by town, paid for by summer parking revenue, hotel bill taxes and taxes on rental properties' revenue;
H. Local governments, town by town, paid for by property taxes, taxing both buildings and land, in proportion to current market value
I. Local governments, town by town, paid for by land value taxation. Land values close to the beaches rise and fall with the sand, and properties further from the beaches are far less effected by the presence/absence of beach sand than those near the beaches.
J. Local governments, town by town, paid for by transfer taxes on sold properties, so as not to burden long-time owners who aren't selling.
This quote came across my inbox today, and I thought it worth sharing:
“We operate from the concept of ‘shalom,’” Forrister said when he reported on that meeting to The Huntsville Times. “’Shalom’ means more than the absence of war, it means the well-being of all. Ezekiel said to seek the ‘shalom’ of the city you’re in – and he was writing to people in exile in Babylon. We’re to seek the good of the whole community, of all of society.”
I came very slowly to the point of view that the nature of the ways we fund our common spending is at least as important as the spending side of the budget. That taxation can be destructive or constructive. That it can be used to create vital healthy communities or ones in which wealth and power concentrate into a few hands.
I grew up with the benefit of grandparents who understood this, and I still didn't "get it" until well after they were gone. Certainly my college education didn't provide me any glimpses of it, despite being concentrated in fields in and around it. I hope that others who are seekers after peace -- after Shalom -- will investigate what Henry George's "Remedy" -- land value taxation -- has to offer for their community and their country.
And here's the final paragraph from the email that the first quote came from:
Taking care of each other is simple kindness, not something sinister, said Forrister, who was trained as a Church of Christ minister.
“Thinking about looking out for the common good is not socialism,” Forrister said. “Capitalism has to be tempered by social policy that responds to human needs that capitalism won’t respond to.”
Our current form of capitalism is, among other things, land monopoly capitalism. Were we to remove the land monopoly aspect, through land value taxation, we would have a purer capitalism, one which I think would better serve the ideals we claim to hold dear.
In the files I've been digging through, from the late 50s to the early 80s, I found an early draft of a fine paper by Mason Gaffney about California's Proposition 13, for presentation at an August, 1978 conference. I dug around and found a published copy of that paper, and think it worth sharing here. Original title, "Tax Limitation: Proposition 13 and Its Alternatives"
First, a few of my favorite paragraphs, which I hope will whet your appetite for the whole paper. I won't attempt to provide the context (you can pick that up when you continue to the paper, below).
"There is a deferment option for the elderly, bearing only 7% interest (which is about the annual rate of inflation). In California, as also in Oregon and British Columbia, hardly anyone takes advantage of this deferment option. This fact, it seems to me, rather calls the bluff of those who so freely allege that the woods are full of widows with insoluble cash-flow problems, widows who are losing their houses to the sheriff and whose heirs presumptive, will not help keep the property, which they will eventually inherit."
We hear a lot these days about cutting the fat out of the public sector; but there is fat in the private sector too. I interpret "fat" to mean paying someone for doing nothing, or for doing nothing useful. Most economists agree that payments to people. for holding title to land is nonfunctional income, since the land was created by nature, secured by the nation's armed forces, improved by public spending, and enhanced by the progress of society. "Economic rent" is the economist's term, but in Jarvis-talk we may call it the fat of the land or "land-fat." It has also been called unearned increment, unjust enrichment, and other unflattering names. Howard Jarvis has said that the policeman or fireman who risks his life protecting the property of others has his "nose in the public trough." But it has seemed to generations of economists that the owner whose land rises in value because public spending builds an 8-lane freeway from, let us say, Anaheim to Riverside, and carries water from the Feather River to San Diego, is the first to have his nose in the trough. Nineteenth-century English economists who worked this out were more decorous. They said things like "landlords grow rich in their sleep" (John Stuart Mill), or the value of land is a "public value" (Alfred Marshall) because the public, not the owner, gives it value.
Some 43% of the value of taxable real estate in California is land value. When we lower the property tax we are untaxing not only buildings, but also land-fat.
The ownership of property is highly concentrated, much more so than the receipt of income. Economists in recent years are increasingly saying that the property tax is, after all, progressive because the base is so concentrated, and because so little of it can be shifted. But this message has not yet reached many traditional political action groups who continue to repeat the old refrains. Two remedies are in order.
One is to collect and publish data on the concentration of ownership of real estate. The facts are simply overwhelming and need only to be disseminated.
The second remedy is to note how strikingly little of the Proposition 13 dividend is being passed on to renters. This corroborates the belief of economists that the property tax rests mainly on the property owner where it originally falls, and not on the renter.
A high percentage of real property is owned from out of state and even out of the country. The percentage is much higher than we may think. It is not just Japanese banks and the Arabs in Beverly Hills. It is corporate-held property which comprises almost half the real estate tax base. If we assume that California's share of the stockholders equals California's share of the national population, then 90% of this property is absentee-owned; the percentage may be higher because many of these, after all, are multinational corporations with multinational ownership.
No one seems to have seized on the fact that half the taxable property in California is owned by people not voting in the state. Senator Russell Long has suggested the following principle of taxation: "Don't tax you, don't tax me, tax that man behind the tree." Property tax advocates have done well in the past and should do well again in the future when they make their slogan: "Don't tax you, don't tax me, tax that unregistered absentee. Don't tax your voters, they'll retaliate; tax those stiffs from out of state." Chauvinism and localism can be ugly and counterproductive, as we know; but here is one instance where they may be harnessed to help create a more healthy society. The purpose of democracy is to represent the electorate, not the absentee who stands between the resident and the resources of his homeland.
California's legislative analyst, William Hamm, estimates that over 50% of the value of taxable property in California is absentee-owned. This is such a bold, bare, and enormous fact it is hard to believe that Californians will long resist the urge to levy taxes on all this foreign wealth. They may be put off by the argument that they need to attract outside capital, but that carries no weight when considering the large percentage of this property which is land value.
Property income is generally more beneficial to the receiver than is the same income from wages or salaries, because the property owner does not have to work for it.
Property, particularly land, has been bought and sold for years on the understanding that it was encumbered with peculiar social obligations. These are, in effect, part of our social contract. They compensate those who have been left out. Black activists have laid great stress in recent years on the importance of getting a few people into medical and other professional schools. Does it not make more sense that the landless black people should have, through the property tax, the benefit of some equity in the nation's land from which their ancestors were excluded while others were cornering the supply?
A popular theme these last few years is that property owners should pay only for services to property, narrowly construed. Who, then, is to pay for welfare — the cripples? Who is to pay for schooling — the children? Who should sacrifice for the blacks — Allan Bakke? Who should finance our national defense — unpaid conscripts? The concept that one privileged group of takers can exempt itself from the giving obligations of life denies that we are a society at all.
Here is, perhaps, my favorite:
We can ask that a single standard be applied to owners troubled by higher taxes and to tenants troubled by higher rents. When widow A is in tax trouble, it is time to turn to hearts and flowers, forebode darkly, curse oppressive government, and demand tax relief. When widow B has trouble with escalating rents, that touches a different button. You have to be realistic about welfare bums who play on your sympathy so they can tie up valuable property. You have to pay the bank, after all. A man will grit his teeth and do what he must: garnishee her welfare check. If that is too little, give notice. Finally, you can call the sheriff and go to the beach until it's over. That's what we pay taxes for. Welfare is their problem.
Anyway, widow B is not being forced out of her own house, like widow A and so many like her. Jarvis said that taxes are forcing three million Californians from their homes this year. But in truth, while evictions of tenants are frequent, sheriff's sales of homes are rare. Those who do sell ("because of taxes," they say, as well as all their other circumstances) usually cash out handsomely, which is, after all, why their taxes had gone up.
Then there is the fruit tree anomaly. Under Proposition 13, a tree can only be assessed at its value when planted, with a 2% annual increment. The value of a seed thrown in the ground or even a sapling planted from nursery stock is so small compared with the mature tree that this is virtual exemption. This anomaly rather graphically illustrates how Proposition 13 automatically favors any appreciating property over depreciating property. The greatest gain here goes, of course, to appreciating land.
Finally, build no surpluses. Surpluses attract raiders and raiders are often organized landowners. "Property never sleeps," said the jurist Sir William Blackstone. "One eye is always open." Even though the surplus was built up by taxing income, Howard Jarvis made it seem the most righteous thing in the world that it should be distributed to property owners. He was geared up for this because his landlord patrons kept him constantly in the field.
Economists of many generations even before Adam Smith and continuing to the present — have preached on the advantages of land as a tax base. Let me enumerate a few of those.
A tax on land value is the only tax known to man which is both progressive and favorable to incentives. One can wax lyrical only about a tax that combines these two properties, because the conflict between progressivity and incentives has baffled tax practitioners for centuries, and still baffles them today.
A land tax is progressive because the ownership of the base is highly concentrated, much more so than income and even more so than the ownership of machines and improvements.
Also, the tax on land values cannot be shifted to the consumer. The tax stimulates effort and investment because it is a fixed charge based merely on the passage of time.
It does not rise when people work harder or invest money in improvements. Think about this. It is remarkable. With the land tax, there is no conflict but only harmony between progressivity in taxation and incentives to work and invest. In one stroke it solves one of the central divisive conflicts of all time.
The land tax does that because it cuts only the fat, not the muscle. It takes from the taxpayer only "economic rent," only the income he gets for doing nothing. If people could grasp this one overriding idea, then the whole sterile, counterproductive, endless impasse between conservatives who favor incentives and liberals who favor welfare would be resolved in a trice, and we could get on to higher things.
The final paragraphs speak directly to us in 2012. 34 years have passed since this was written.
Summing up, Walter Rybeck, an administrative assistant for Congressman Henry Reuss of Wisconsin, and head of the League for Urban Land Conservation, has sagely suggested that we distinguish two functions of business: wealth-creating and resource-holding. A good tax system will not make people pay for creating wealth but simply for holding resources. Most taxes wait on a "taxable event" — they shoot anything that moves, while sparing those who just sit still on their resources.
If we really want to revive the work ethic and put the United States back on its feet, we had better take steps to change the effect of taxes on incentives. Legislatures have got in the habit of acting as though persons with energy and talent, and with character for self-denial, should be punished, as if guilty of some crime against humanity. We cannot study the tax laws without inferring that Congress regards giving and receiving employment to be some kind of social evil, like liquor and tobacco, to be taxed and discouraged by all means not inconsistent with the rights of property. Little wonder the natives are getting restless. If we tax people for holding resources rather than creating wealth and serving each others' needs, we will be taking a giant step toward a good and healthy society.
If your appetite is whetted by these excerpts, you can read the entire article below:
It is frequently pointed out by Georgists that there are no really good rebuttals to land value taxation.
This excerpt from a 1971 letter to my grandfather from a colleague describes where the opposition comes from:
There may be be no "arguments that actually oppose LVT" as Bill says, but there are plenty of people who not only actually but actively oppose it. These are the people who are making hundreds of millions of dollars a year on the unearned increments land speculation gets as a result of land being so undertaxed that the landowner puts up only a trifling share of the enormous community investment needed to make his land reachable, livable and readily saleable. Of 7 million-odd New Yorkers I would guess that perhaps 70,000 people profit by today's misapplication of the property tax while 7 million lose by it, but the problem is that the 7 million have no idea of what they are losing while the 70,000 jolly well know that they have a good thing going for them and fight to keep it.
I've been trying for a year to get my friend, J___ C___, past president of the Realtors and Chairman of the Realtors Economic Research Committee to stop fighting LVT, but he keeps coming back to how his father bought some land near San Diego for $20 an acre before 1900 and sold it for $4,000 an acre around 1950 and his father could not have held it all that time if he had had to pay more than a nominal tax.
I don't think anyone should take the equity argument seriously. Just because the ownership of underused land has been subsidized for years does not entitle its owners to expect the subsidy to be continued forever, and likewise, for those who bought land in the expectation that the subsidy would be permanent. The equity objection to increasing the tax on land would apply almost equally to any other tax increase.
A week later, another letter includes this:
Just because landowners have had a wonderful subsidy racket going for them in the past should not give them any claim on having that subsidy continue ad infinitum. I do agree with Lowell that the transition to LVT would raise problems, and in any area with a high tax rat on property I can see that the transition would have to be staggered over a period of years, probably not less than five or more than ten, dpending on how big a tax rate was to be shifted off improvement values onto location values.
In the same file, a copy of a 1969 letter from the same person to Lowell (Harriss):
I don't see how tripling the tax on land could fail to force almost all owners of underused land to get busy and put it to better use. Conversely, I don't see how taking the equivalent of a 51% sales tax off improvements could fail to be a tremendous stimulant to improvements. If a 7% Federal tax credit on improvements was so effective, what would wiping out a 50% tax do!
"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.
I am including this because I find it timely and timeless; because it provides a good simple mathematical look at the perversity of our current tax system, and because it illustrates my notion that when Leona Helmsley said "WE don't pay taxes; the little people pay taxes," she was not describing tax evasion but actual tax structures.
Henry George, Jr., was a U. S. Congressman. His most famous writing is "The Menace of Privilege."
WHO ARE THE CRIMINALS?
BY HENRY GEORGE , JR. Copyright, 1901, by The Abbey Press, 114 Fifth Avenue, New York
I. Who are the Criminals? 5 II. French Aristocracy of Privilege 6 III. New York Aristocracy of Privilege 10 IV. Robbery of Masses by Classes 12 V. Nature and Extent of Robberies 13 VI. How to Stop the Robberies 18 VII. The Criminals 23
I. WHO ARE THE CRIMINALS?
In considering the problem of how to check or control vice and crime in New York the question at once raised is: Who are the criminals? Who are they who cause these dreadful evils in the community? For unless we know exactly where the disease lies how can we attempt a remedy?
II. FRENCH ARISTOCRACY OF PRIVILEGE.
When the French Revolution broke loose the people followed the lead of men who seemed no better than a pack of devils, for they maimed, they brutally tortured and they slew. Women, whose only offense was that they were members of an arrogant and grinding aristocracy, were stripped naked, treated with every indignity and killed with every mark of ferocity. Old men and young children belonging to the upper classes were butchered, and persons of blameless life and humane intention were trampled under foot when they attempted to stay the carnival of blood.
Who will dare say that these revolutionary leaders, these butchers, were not criminals — criminals whose bloody hands must shine down through history? They were men turned to monsters; brutes with human intelligence, striving for new ways to torture and kill.
But whence came they? Not from without. They sprang up within. They represented the spirit of retaliation — of fiendish retaliation for the centuries of wrong done them and theirs. They were the progeny of poverty made by robbery. Their deeds were the deeds of monstrous criminals, but they themselves were the spawn of hideous injustice — an injustice that gave to the few riotous feasting and gorgeous raiment and to the many rags and black bread filled with maggots.
The aristocrats during centuries of power had appropriated the soil of France, and all other Frenchmen had to purchase the privilege of living in their native country. Not content with this, the upper classes had thrown upon the masses all those heavy taxes which it was the plain intent only the landowners should bear. They shifted upon the common people all the expenses of an extravagant, aristocratic government, and through ground rents sucked away all the people's remaining substance, save just enough to keep them alive and at work. Who were making the masses so poor and wretched was as plain as day. The masses themselves could see, and when they raised the sword against the aristocracy all hell seemed to break loose.
Who were the criminals? Why, of course they were criminals — horrible, revolting criminals — who did this guillotining, who committed these butcheries.
But who made these criminals? Clearly those who bore so heavily upon the people — the aristocrats, who kept the people in fearful poverty and ignorance which bred the spirit of bloodthirsty tigers.
The aristocracy, therefore, were the primary, the real criminals.
III. NEW YORK ARISTOCRACY OF PRIVILEGE.
I wish to proceed with greatest caution, with utmost conservatism. Yet candor compels me to ask: Have we not in our community an aristocracy of privilege — an aristocracy far more rich, far more powerful than was the aristocracy of old France? And have we not a corresponding poor class? Is it not true that half the population of Manhattan Island is living in what Ex-Mayor Hewitt rightly calls "those terrible tenements?"
That Prince of the Church, Bishop Potter, has proposed in the emergency that we have noonday prayer meetings. By all means, we all say. Let us bow ourselves before Almighty God and ask for relief from this social scourge. Yet what if, while we pray, we abate not the power of our aristocracy of privilege; what if we do nothing to mitigate the poverty of the million tenement dwellers?
The distinguished divine has also proposed a military police. If that were good, would not a local standing army be better? It would keep order, at least for a time. But would it cure the general poverty among the masses? Would it not rather act like a lid fastened down on a volcano — work well, until fire and molten stone and destruction belched forth? What then?
IV. ROBBERY OF MASSES BY CLASSES.
Assuming that we are sincerely trying to make civic conditions better, that we are seeking a cure (if there be a cure) for the general vice and crime in the community, should we not ask ourselves some plain questions? Is it not the truth that we have an aristocracy? Is it not the truth that we have a poor class? Is it not certain that the rich are growing richer and the poor poorer and more numerous?
I believe that there can be but one answer — yes.
Yet I can see no reason for this state of things unless it be that the classes are robbing the masses.
V. NATURE AND EXTENT OF ROBBERIES.
LET us consider how the classes may be robbing the masses into poverty.
It is said that when the first Dutchmen came sailing into New York Bay they bought Manhattan Island for $24. That was for the land alone, no houses or other improvements being here. Today the selling value of the bare land of this same Manhattan Island is at least $3,000,000,000. Those who possess the land of this island, now get what is equivalent to a ground rental of $150,000,000 a year, with this sum steadily swelling. The ground rental of Greater New York cannot be less than $225,000,000 yearly.
This vast sum is paid over to the landlord aristocracy — for what? For doing nothing. The people multiplied from a ship's crew to several millions in and about the island and behold! the vast value of land which in the beginning sold for but $24. The increment of value obviously has not been produced by individuals; it is entirely aside from and in addition to the value of improvements, which spring from human labor, which are produced by individuals. This increase in land value is a publicly-made value. It of right belongs to all the people. Do all the people get it? No, the few whom we recognize as the owners of this land claim that value and get it. The people at large in the community get nothing. Do not these landed aristocrats — of which the old French nobility were in many respects prototypes — rob the community? Do they not go far toward robbing a large part of the people into poverty?
Take another instance of robbery of the many by the few. Observe what we are doing about public franchises. A public franchise is a public right of way, a public highway. Modern civilization, with its intense centralization, its condensed population, and its interdependence of individuals, makes these highways of vital importance to the community. They are the arteries of the body-social, the channels of intercommunication and transportation, of heat, and water, and light, and power, and sewage. Were they suddenly destroyed, a large part of the population would die as quickly as a member of the human organism withers up and dies when the flow of blood is cut off from it.
Then if these public franchises, these public rights of way, these public highways, are so vital to the body-social, so necessary to the well-being of the people, what should be our policy toward them? What is our policy toward them? Why, in the case of water and sewage we treat them as public property, operating them publicly through public officials. But what do we do in respect to the other franchises? What do we do regarding street railroads, telephones and telegraphs, electric lighting and heating and gas, and steam supply? All these public franchises are treated as if they were private franchises. Upon all these public highways we allow private individuals to set the claim of ownership; to make charge upon the people; make charge upon the body-social for its blood, as it were. And a conservative estimate of the annual value of these public franchises in Greater New York at this time is $30,000,000.
Here, then, we have two forms of grand, constant, continuous robbery of the people — an aristocracy of privilege appropriating public ground rents and public franchise values, so that a few of the population are enabled to live in palaces while a million crowd into tenements.
VI. HOW TO STOP THE ROBBERIES.
Now the masses of the people of Greater New York lose annually by the appropriations of the landed and franchise aristocracy —
In ground rents
In franchise values
While they are compelled to pay in various taxes for the support of local government
Which makes in all
What shorter way is there to relieve poverty and to do social justice than to abolish the $98,000,000 of general taxes, which fall mainly upon industry or the fruits of industry and terribly hamper the masses of the people; and then what more simple than to appropriate for local governmental expenses that sum out of the $225,000,000 of publicly-made land values? Why not further lighten the load of the masses by taking over into public ownership and management all public municipal franchises, just as are water and sewage now; and then why not cut down their cost of service to the public that $30,000,000 which now represents purely franchise value in the charges of the private corporations that possess and manage them?
For a third step, why not make these municipal utilities free to the public, meeting the expense of their operation by another appropriation of the publicly-made land values?
And for a fourth step, why not appropriate for an old-age pension to every citizen, rich and poor alike, for public parks, for public lectures and concerts, or for any other or for all such purposes — all that still remains of the publicly-made land values?
What would be the result of such a policy? It would be that all the people in Greater New York would be relieved of the burden of $98,000,000 of various taxes; that the great charge of the many branches of the public franchise service on the people would be entirely wiped out and abolished; and that the whole of land values, that is, of ground rents, would be enjoyed by all the people equally, being appropriated for public uses.
Would this make any difference in the community? The welkin is made to ring by the most influential of the tax-payers when, under present conditions, the taxation authorities raise or lower the tax rate even 1%. What, then, would happen if all taxation were lifted from the fruits of toil, if public utilities were made free, and if land values were to benefit, not a class, but the whole people?
Such a tax would be just, because it would fall on this publicly-made value; it would be certain, because land cannot be hidden or lessened in amount; it would force all unused or inadequately used valuable land into its highest use, for no one could afford to hold such land vacant for a speculation, as very many do now.
Land in Greater New York would therefore be cheaper — how much cheaper may be judged by the fact that two-thirds of the land within the city limits, though extremely valuable, is not now used. This unused land would compete with the used land for users, so that land values in the community generally would fall. At the same time all building materials, being relieved of present taxation, would be far cheaper, making two of the chief elements for house building would be greatly less in cost, and consequently, larger, lighter, better dwelling accommodations in every way could and would be supplied to the masses of the people, and especially to the million now living in tenements.
What would help the poorest would be of direct and indirect benefit to all others in the community; and this would be but one of a large harvest of good results that the people would reap from such a policy.
The privileged classes, the aristocrats, would lose their privileges, but they would have no less rights than any and all other citizens of Greater New York.
VII. THE CRIMINALS.
That able and public-spirited citizen, Mr. President Baldwin, of the Long Island Railroad, and Chairman of the Chamber of Commerce Anti-Vice Committee of Fifteen, has said that this is not the time for "idealist scheme of reform." But we are trying to put down vice and crime in the community; and the question is: Who are the criminals?
Let us be frank with ourselves: Who are the criminals? Are they the housebreakers, the unfortunate women who walk the streets and the police officials who take blood-money? Or are they those who rob the masses of the people into poverty — deep, biting, degrading poverty?
Are not the aristocrats of privilege, knowingly or unknowingly, the criminals we should first consider in an examination of civic disease in New York?
The tax plan being promoted by one of the presidential candidates, Herman Cain, seeks to impose a federal personal and corporate tax rate of 9% and a national sales tax of 9%. The word for "no" in German is "nein." Since the 9-9-9 plan would be neither equitable nor efficient, we can respond in German, "nein, nein, nein!"
The first "nein" is on the 9% business flat-rate income tax. This would impose a tax on gross income minus purchases from US firms, investment in capital goods, and exports. That would be much better for enterprise than the current top income tax rate of 35%. However, recognizing that any taxes on production has an excess burden, the best tax rate of all would be a flat zero.
The second "nein" is on a personal income tax rate of 9% on gross income minus charitable donations. The plan complicates this with special tax rates in "empowerment zones." Such enterprise zones often just shift business away from other areas, and then the land rent in the zone goes up to soak up the locational advantage, so the ultimate gainers are the landowners, especially those who are politically well connected and are able to buy up land in the zones prior to being established.
The poorest workers pay little or no income tax today, or even get cash under the "earned income tax credit". The flat-rate 9% tax would make the poor pay higher taxes. Again, a 9% tax is better for most taxpayers than the current tax rates that go up to 35%, and a flat tax that eliminates real estate deductions and exemptions is also better, but best of all would be a flat wage and profits tax of 0%.
The worst part of the 9-9-9 plan is the 9% national sales tax. While to some extent the effect of the sales tax would be offset by the reduction of income taxes, still, sales taxes get added to the cost of production to increase the price of goods. For companies that were making little profit, they would have paid little income tax, so the tax could end up raising their prices by more than the current tax system. If they employ low-wage labor, those workers would have been paying little or no income tax, and would now have to pay the higher nine-percent income tax, which would further increase costs to those enterprises. The 9-9-9 plan would dramatically increase income inequality at a time when inequality has already been rising rapidly.
The 9-9-9 plan is supposed to be revenue-neutral, but analysts have found that it would generate less revenue than the current system, so the 9-9-9 numbers would probably be raised to 10-10-10 or higher. Once a national sales tax or value added tax is in place, the tax rates could be raised, as they have been in Europe.
It has been pointed out that the tax plan being promoted by Herman Cain is the same as the tax structure in the 2003 video game "SimCity 4". This video game simulates a city, and the default tax rate is 9-9-9. According to some analysts, in this simulation game, the 9% tax rates were not enough to finance the desired public goods.
The favoring of one tax plan implies the rejection of the other systems. The advocacy of a national sales tax implies the rejection of alternatives such as a national land-value tax. So we can ask why a candidate is rejecting a tax on land value in favor of a tax on produced goods.
Herman Cain is correct in saying that the natural state of the economy is prosperity, and that freedom promotes prosperity. He is right in saying that government must get out of the way of production. He is right in saying that production drives the economy. But he does not go to the logical conclusion of the free-market argument: marginal tax rates of zero. To best promote employment, investment, and growth, place no tax on additional production, trade, or consumption.
A land-value tax would best let the economy rise to its natural rate of prosperity. LVT would be levied on the economic rent of all land. Taxing land value is equivalent to taxing its economic rent, also referred to as ground rent or geo-rent. LVT would be based on the most productive use of a plot of land, regardless of current use, and regardless of current rental payments. Thus if a plot of land were not being used as productively as possible, the tax would push landowners to make the best possible use of their lands, or else pay the same as those who do.
LVT would promote equity and greater equality of income and wealth, because it would equalize the benefits from land, and equalize the gains from economic progress as captured by higher rent.
The prices of goods, including wages and interest rates, provide information about their scarcity relative to the desire for those items. Taxes both on production and on goods twist, distort, and skew these numbers, so that the economy is operating on false signals. LVT does not change the market rent, and rather than acting as a tax, it acts to remove a subsidy. Land value gets subsidized as the public goods provided by government, but not paid for by landowners, pumps up rent and land value. If this rent is not collected for public revenue, then it is a gigantic subsidy to land ownership. Thus taxes on goods and on income from production and not on land value end up subsidizing land value and shifting wealth from the poor to the rich.
Thus if the 9-9-9 plan increases wealth, the gains would go to the rich at further expense to the poor. The worst part of the plan is its continuation of the massive subsidy to land value, and even if the plan generates more growth, the benefit will ultimately go to higher rent and land value, generating an even greater real estate boom to be followed by another big crash.
So let's say in German: Nein! Nein! Nein! Let's also say Zero, Zero, Zero! Zero tax on wages, zero tax on goods, zero subsidy to land value. The tax emperor appears to be dressed to the nines, but like in the story of the naked emperor, the cloth is imaginary. -- Fred Foldvary
Copyright 2010 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
.... this time because perhaps his targets are the well-situated, those in a position to contribute the funds which political campaigns need. Keep in mind that NYS's former governor, though previously an attorney general, is also the scion of a real estate fortune.
Urban real estate investors live off the fruit of the land, the fruits of the community's sowing, and we praise them as philanthropists when they toss us a few tulips in the median strips or parks.
And notice that the refusal continued even Harry Markopolis testified before a congressional committee about his repeated and data-filled attempts to bring Bernard Madoff's obvious Ponzi scheme to the attention of the SEC (January, 2009). Talk about tone-deafness on the part of those we pay to monitor things for us. As someone else recently wrote, small government or weak government? And government of, for and by WHICH people??
I hope some upstate legislators will push at this issue. Their constituents ought to expect it of them.
The writer is a Reuters columnist. The opinions expressed are his own.
By David Cay Johnston
(Reuters) - Each year New York State lets real estate investors evade at least $200 million of taxes. In peak years the figure likely rises to $700 million, if known tax cheating in another state is any indication. Some of the investors who cheat New York State also cheat New York City out of at least $40 million annually.
Back in the 1990s Jerry Curnutt figured out how to finger such cheats when he was the top partnership specialist at the Internal Revenue Service. Curnutt's computer sifted through tax returns until he learned how to separate thieves from honest taxpayers. The tax-evasion estimates of $200 million and $40 million are his.
Six New York state tax auditors took classes Curnutt taught in June 2000 and gave stellar evaluations. California's top tax auditor praised Curnutt's course as "effective, relevant and most importantly, appreciated and understood by our auditors."
Why has nothing been done for more than 11 years to make the cheats in New York pay what the law requires?
New York state and city are strapped for cash, slashing services for the poor, disabled and elderly. With penalties of up to 50 percent plus interest at penalty rates, the state is easily due more than $5 billion from years still open to collection, I calculate.
Every state has similar issues, but New York matters most as the epicenter of highly leveraged real estate investment pools.
Curnutt found that real estate investment partnerships with depreciated properties often misreport gains when they sell. That such cheating is widespread screams about tax law enforcement looking the other way when those at the top steal. In contrast, New York State has a well-deserved reputation for going after people whose mistakes cost the state as little as three dollars.
GO AWAY, THEY SAY
Yet in letter after letter since 2001, New York state tax officials told Curnutt to go away, smugly insisting there were no untaxed millions.
As head of audits for New York State, Thomas Heinz wrote Curnutt in 2003 that the state was "not interested in pursuing you or any other consultant on the matter" of systematic cheating by real estate partnership investors. Months later Heinz wrote a second letter that made it clear he had not understood what Curnutt was proposing, while reiterating that there were no untaxed millions to be found.
A year ago Curnutt again was told to go away because there was no money going untaxed.
And yet in Pennsylvania, Curnutt's research "resulted in the taxation of over $700 million in unreported income," the Pennsylvania Revenue Department wrote in a letter to tax administrators across the country in reference to a single instance.
"Without his assistance, our staff would have spent numerous hours getting to the crux of the issues, in that especially complex case," Pennsylvania tax authorities said.
Pennsylvania has relied on Curnutt since 2002, calculating that every dollar spent on his research and subsequent audits was worth $10 of tax.
So why are sightless sheriffs ignoring massive cheating by the most affluent among us?
The likely reason became clear nearly a decade ago when one Kentucky tax official told Curnutt that the governor's office did not want his services because it would uncover tax cheating by influential citizens, meaning campaign donors.
It is time for New York's three top state officials, all Democrats with higher ambitions, to do their duty, especially since the thieves are virtually certain to include some of their campaign contributors.
LAWMEN AND THEIR DUTY
Governor Andrew Cuomo, who harbors ambitions to be president, made his name as a state attorney general who appeared to get tough with Wall Street. Lieutenant Governor Bob Duffy rose from Rochester street cop to chief and would love to be governor. So would Attorney General Eric T. Schneiderman, elected in 2010 on a promise to be tough on white-collar crime.
Mayor Michael Bloomberg, an independent, has a similar duty to go after tax cheats even if these should turn out to include some of his friends.
New York law gives authorities leverage aplenty. The mere threat of public exposure through civil lawsuits would prompt many to write checks. For repeat offenders, the threat of indictment for tax evasion would produce checks even faster. Faced with the prospect of civil or criminal charges, many in positions of public trust would be ruined if their names got out.
The general partners -- those in charge in the partnerships Curnutt investigated -- took calculated steps to cheat and the most serious offenders should face indictment and, upon conviction, years of prison time. But many limited partners may have assumed their K-1 tax statements were reliable. Innocent victims owe taxes and interest, but not penalties. Those with multiple untaxed gains are not innocents.
As lawmen Cuomo, Duffy and Schneiderman all understand leverage. They have enough to lift billions into the state treasury where it belongs just by indicating in letters that failure to pay will result in disclosure of names. Will they?
Until Cuomo, Duffy, Schneiderman and Bloomberg enforce the law, their official inaction lends credence to billionaire Leona Helmsley's remark, quoted by her housekeeper, that "we don't pay taxes; only the little people pay taxes."
This column will keep you posted on whether these officials act or not. (Editing by Howard Goller)
I'm glad to see DCJ quoting Leona Helmsley -- but I don't think he yet fully "sees the cat" or realizes that Leona Helmsley's reference could just as accurately have been to tax STRUCTURES, not to tax evasion.
Buildings do not appreciate. Even with the best of care and occasional renovations, they depreciate, as technologies advance, efficiencies improve. What rises in value is land -- the location -- and it rises for reasons which have nothing to do with the individual or corporate landholder (resident or absentee), and everything to do with the community and with public investment in infrastructure and services. These owners are evading taxes which support that spending. In multiple ways, they are reaping what they do not -- cannot! -- sow. These companies are in it for the so-called "capital" gains, which aren't "capital" at all, but land gains.
Another example of the FIRE sector gobbling up the profits of the productive portions of our economy. Their "free lunch" is at the expense of the rest of us. And the phrase "rich people's useful idiots" comes to mind.
The goal is a fair field and no favor. But I don't think that's what this crowd is looking for.
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.
First, is there any undesirable tendency toward the concentration of wealth in the hands of a few?
Secondly, is the concentration of all taxes upon ground rent alone a real, just, and effective remedy?
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
* In Brooklyn, N. Y., in 1865, the tax returns showed one income of $600,000, 2 incomes of $200,000, 11 incomes of $100,000, 61 incomes of $50,000, 1,700 incomes averaging $7,000. See also the "Cyclopedia of Political Science," art. "Income Tax."
In Great Britain, in 1872, 3 landlords averaged each $1,100,000 rent, 14 averaged $675,000, and 83 averaged over $250,000. In 1884, the returns of business profits, only, showed 104 incomes averaging $450,000,1,192 of $85,000, 1,871 of $32,000, and 20,534 of $9,000.
This estimate is very far below the actual truth. Yet, even upon this basis, we are confronted with the startling result that 25,000 persons now possess more than half of the whole national wealth, real and personal, according to the highest estimate ($60,000,000,000) which any one has yet ventured to make of the aggregate amount. Nor is this conclusion at all improbable.
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
Mortgages on farms, 20 per cent
Other real estate
The total national wealth held as private property being $41,000,000,000, this estimate confirms the previous one, that a small minority of the people own two-thirds of the national wealth. Is Mr. George so very much mistaken, in view of these figures, when he asserts that the rich are growing richer and the poor relatively poorer?
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.
* The actual number of real families was much less. It was under 10,000,000 in 18S0, averaging 5 persons each.
Supposing them exempt from taxes, still it would be unreasonable to expect the mass of the laborers to support their groups of three on less than $300 a year. Their burden of taxation, then, has averaged 25% on this, or $75 a year. Contrast with this the case of men who enjoyed an income of $1,000,000, which a fortune of $15,000,000 would on an average easily have produced in simple interest during this period. Allow them $100,000 each, for a modest living; on which their tax would be $25,000 each. From what fund would these taxes be paid? Obviously, from what would have been saved, but for taxation, not from what was spent. This fund, in the case of the masses, would amount to $100 each; tax, $75. In the case of the great millionaires, $900,000; tax, $25,000. Tax on the property of the very rich, less than 3%. Tax on the property of the masses, more than 75%.
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.
First, the total abolition of indirect taxation.
Secondly, the substitution of a single tax on ground rent, the only sufficient form of strictly direct taxation which has ever been invented.
Thirdly, the gradual increase of this direct tax, if necessary to that end, to an amount sufficient to absorb ground rents. This is all.
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.
He mistakes the rent of agricultural lands alone for the whole rent of the United Kingdom;
he mistakes the valuation of "houses" for that of structures alone, without the lots beneath them; and
he assumes that railways are not built upon land.
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
Manors, tithes, fines, etc.
Fishing and shooting rights
Markets and tolls
British Mixed Annual Land Values, 1884.
Houses and lots
Canals, water-works, mines, gas, iron, etc
One-half of these values as land
Total land values
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." *
*Prof. Harris quotes Mulhall, as proof that "land" in the United Kingdom is worth only £1,737,000,000, in a total of £8,720,000,000, or one-fifth of the whole. But Mulhall distinctly shows that this amount includes only agricultural land ("Dictionary of Statistics," 5); and he very properly recognizes houses and railways as real estate, stating (p. 280) that 62%, of British wealth consists of real estate. It is notorious that the mere land occupied by British railways was enormously costly, and is now worth far more than it cost. Land alone, on Mulhall's showing, forms one-third of British values, just as it does in America.
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.
How much is it worth to you to have the potholes and cracks in the roads in your town promptly filled in? Probably roughly what it costs you to have each of your cars fixed a couple of times a year.
So is it better for the local economy to (1) keep the tire retailers and alignment shops in business; or (2) to pay city employees or contractors to maintain the roads in a condition that minimizes damage to cars and tires?
Fans of small government might opt for the first choice. Fans of individuals having more money to spend on discretionary purchases or to invest toward their own futures might opt for the second one.
Some things ought to be done by the community, and financed by the community.
So how should we pay for this sort of public works?
Should we impose sales taxes on goods sold within the town providing services?
Should we impose a wage tax on workers within the town providing services?
Should we tax the buildings within the town?
Should we throw an extra tax on tobacco, alcohol, cell phone use, cable TV subscriptions, electricity use in the town?
Should we tax all the cars and trucks garaged within the city limits?
Should we tax the gasoline and diesel sold within the city limits?
Or should we finance this by taxing the land value within the town limits?
If you're new to this concept, all these may make equal sense to you. (Indeed, some people argue for "balance" in taxation, or for spreading taxes across many tax bases in order to "keep rates low." But I think there is one option that is far better than the others.
Who benefits when we make it less expensive to live within a particular community than it would otherwise be, as we do by improving road maintenance? Isn't it ultimately those who own land within the city limits -- the landlords (residential and commercial), the homeowners, the business community -- who benefit, both as individuals and as property owners, when people are more prone to drive in their community than in one which does not maintain its roads to the same standards? Even those who don't own cars benefit.
Some would say that this fails to collect from the tenants -- residential tenants, commercial tenants -- who also benefit, but I'd have to disagree with that argument. Their landlords can charge them more in the presence of such services than they could charge in the absence of that road maintenance. Should that benefit accrue to the landlords, or should it be passed through to the community whose spending created it?
I'll return to something a Tennessee business man wrote to his governor in 1873:
"Never tax anything That would be of value to your State, That could and would run away, or That could and would come to you."
The same is true of individual towns, too. Don't tax jobs, or workers, or buildings, or equipment, or products.
This is not a reason not to raise public revenue; rather, it is a reason to think carefully about what should be taxed -- and what should not be. Charge for that which the community's presence and activity creates, and the privilege of using that which nature or community provides in limited supply, e.g., water, electromagnetic spectrum, geosynchronous orbits, minerals, oil, natural gas; privileges like franchises for monopolies; landing rights at congested airports; on-street parking; etc.
THE 5 percent of Americans with the highest incomes now account for 37 percent of all consumer purchases, according to the latest research from Moody’s Analytics. That should come as no surprise. Our society has become more and more unequal. When so much income goes to the top, the middle class doesn’t have enough purchasing power to keep the economy going without sinking ever more deeply into debt — which, as we’ve seen, ends badly. An economy so dependent on the spending of a few is also prone to great booms and busts. The rich splurge and speculate when their savings are doing well. But when the values of their assets tumble, they pull back. That can lead to wild gyrations. Sound familiar?
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.
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.
Open it in another window, let it fill the screen, scrolling if necessary to see it in full -- and then continue reading here.
It comes from a 2006 article in The Atlantic Monthly entitled "The Height of Inequality," which lays out very well the extent of the income inequality we have in America, though it starts with an explanation done in 1971 by Dutch economist Jan Pen, describing the distribution of income in the British economy at that time. (I've put part of it into bullet format.) It begins,
In 1971, Jan Pen, a Dutch economist, published a celebrated treatise with a less-than-gripping title: Income Distribution. The book summoned a memorable image. This is how to think of the pattern of incomes in an economy, Pen said (he was writing about Britain, but bear with me). Suppose that every person in the economy walks by, as if in a parade. Imagine that the parade takes exactly an hour to pass, and that the marchers are arranged in order of income, with the lowest incomes at the front and the highest at the back. Also imagine that the heights of the people in the parade are proportional to what they make: those earning the average income will be of average height, those earning twice the average income will be twice the average height, and so on. We spectators, let us imagine, are also of average height.
Pen then described what the observers would see. Not a series of people of steadily increasing height—that’s far too bland a picture. The observers would see something much stranger. They would see, mostly, a parade of dwarves, and then some unbelievable giants at the very end.
As the parade begins, Pen explained, the marchers cannot be seen at all. They are walking upside down, with their heads underground—owners of loss-making businesses, most likely.
Very soon, upright marchers begin to pass by, but they are tiny. For five minutes or so, the observers are peering down at people just inches high—old people and youngsters, mainly; people without regular work, who make a little from odd jobs.
Ten minutes in, the full-time labor force has arrived: to begin with, mainly unskilled manual and clerical workers, burger flippers, shop assistants, and the like, standing about waist-high to the observers. And at this point things start to get dull, because there are so very many of these very small people. The minutes pass, and pass, and they keep on coming.
By about halfway through the parade, Pen wrote, the observers might expect to be looking people in the eye—people of average height ought to be in the middle. But no, the marchers are still quite small, these experienced tradespeople, skilled industrial workers, trained office staff, and so on—not yet five feet tall, many of them. On and on they come.
It takes about forty-five minutes—the parade is drawing to a close—before the marchers are as tall as the observers. Heights are visibly rising by this point, but even now not very fast.
In the final six minutes, however, when people with earnings in the top 10 percent begin to arrive, things get weird again. Heights begin to surge upward at a madly accelerating rate. Doctors, lawyers, and senior civil servants twenty feet tall speed by. Moments later, successful corporate executives, bankers, stockbrokers—peering down from fifty feet, 100 feet, 500 feet.
In the last few seconds you glimpse pop stars, movie stars, the most successful entrepreneurs. You can see only up to their knees (this is Britain: it’s cloudy). And if you blink, you’ll miss them altogether.
As Garrison Keillor ironically informs his listeners, not every child can be above average. But when it comes to incomes, the great majority can very easily be below average. A comparative handful of exceptionally well-paid people pulls the average up. As a matter of arithmetic, the median income—the income of the worker halfway up the income distribution—is bound to be less than average.
This is true in every economy, but in some more than others. Back when Pen wrote his book, incomes were already more skewed in America than in Britain. Over the past thirty-five years, and especially over the past ten, that top-end skewness has greatly increased. The weirdness of the last half minute of today’s American parade—even more so the weirdness of the last few seconds, and above all the weirdness of the last fraction of a second—is vastly greater than that of the vision, bizarre as it was, described by Pen.
The article goes on to point out that (1) at the time, the US giants were even taller than the British ones; (2) that in the intervening years, a highly disproportionate share of US income has gone to make the giants taller yet in proportion to the rest of us. It quotes a study suggesting that a large share of the top income earners were sports and media celebrities and top corporate executives. 13,000 people in the 99.99th percentile, with total earnings of $83 billion in 2001. (an average of $6.4 million, so some are much higher, many a lot lower.) In 2001, there were probably relatively few Hedge Fund managers pocketing billions each (and their incomes are likely not shown as wages, but rather as "capital" gains, taxed at less than all but our lowest wage earners must pay in federal income taxes, and not subject to Social Security or Medicare taxes.
Most of us, as the article points out, have a big problem with sports or media celebrities receiving large incomes, considering it a "perfecting of the labor market." But how is it that corporate executives get to harvest so much? We know about hand-picked board compensation committees which reward their pickers with high incomes, whether or not performance has been strong. But do we think about just how it is that there is so much for them to work with? Do we know why so little goes to the rest of the parade in wages? We're so used to the situation that we no longer examine it. Even your family's college economics major probably has never been exposed to a serious examination of the question. Air to the bird, water to the fish -- just the environment we live in, not even interesting enough to study, until it no longer supports life.
Professor Stiglitz told a packed UQ Centre that Australia's economic stimulus package was the best designed in the world.
AND he said natural resources - coal, iron ore - should be properly valued at market just like the electromagnetic spectrum.
The government auctions the spectrum to the highest bidders who want to operate mobile phone networks, cable companies, television and radio stations.
Basically, a country - like Australia - will end up poor if doesn't get the best price for its assets - and natural assets are not renewable, once they are gone they are gone. If the proceeds from the sale of these assets are not invested in infrastructure to support and grow other sectors the economy (manufacturing and value-adding, goods creation) then a country and it's people will not prosper - HELLO! HELLO! Drowning not waving.
"It should be subtracted from Gross Domestic Product (GDP)," he said. "You are selling off assets at a very low price if you don't have adequate taxes on mining - you are being cheated," he said to audience applause.
He thinks resources should be auctioned off to the highest bidder - the free market at work. Of course, the mining industry will make all kinds of threats.
To everyone's amusement he joked about how mining companies bamboozled, threatened and bribed governments of developing, fragile nations.
"I assume that's not the case in Australia," he mused.
To prosper, a country needs to set up a stabilization fund (from a mining tax, if not a resources auction) for nation building.
This is what he calls an investment fund for building infrastructure and to grow value-adding industries, maintain education, job creation.
Not only that but the sell-off of natural resources should appear on a country's accounts as a kind of depreciation of assets - otherwise the accounts are not accurate. ...
He made these comments at the end of the oration after he explained the difference between the financial sector and the economy - the economy is not the financial sector.
The financial sector (the banks and regulators) are the culprits behind the global financial crisis which has crippled the global economy. Apparently, moneylenders have been skimming 40 percent of the profits from companies that actually make and produce things. His big point was that this is not really the role of the financial sector. The financial sector's job is to support economic growth, not cripple it.
"Finance is a means to an end," he said. "The lack of balance between the financial sector and the economic sector was actually the real problem in this economic crisis (NOT the real estate bubble)."
So how do we create more competition for the services of workers? How do we create more opportunity for all to employ themselves if they don't like their chances with other employers? To find out, explore this blog, explore the ideas associated with the name of 19th century economist and philosopher Henry George.
Political economy is the science which deals with the natural laws governing the production and distribution of valuable goods and services. I'll also reference Adam Smith's definition:
Political economy considered as a branch of the science of a statesman or legislator proposes two distinct objects, first, to supply a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public service. It proposes to enrich both the people and the sovereign.
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.
This tidbit from a 1926 Single Tax monthly contains an important truth for our era. Today, it would be necessary to add "wages" to the list of things he ought not to be taxed on, since so many states and cities impose wage taxes on their residents. And in California and NYC, a large share of residents are renters. And equally important, it applies to how we tax businesses, many of which are tenants.
LEST WE FORGET
Nothing should be left undone to prevent waste and promote efficiency in government. Public officials should be closely watched to see that they render full service.
But when all is said and done in the way of securing the wisest outlay of tax money, it should not he forgotten that more harm and injustice can be done to the individual citizens in taking money from the wrong persons than in wasting it.
When a new pavement, water, light, or school is put in, it makes the neighborhood a more desirable place in which to live, and rents go up. It is well to have these public utilities constructed as cheaply as possible. But it is far more important that the tenant who pays for the use of the public service in higher rent shall not also be taxed a second time on his personal property, goods, or household furniture to pay for the same service.
Under our present system of taxation the wages of the worker are taken to run the city by the tax on the home being put in your rent. The increase in land-values that would run the city goes to the land speculator. Example and Proof:
Suppose the people build a twenty million dollar subway. The land increases twenty million dollars in value; the increase would pay for the subway, but it goes to the land-speculator and your wages are taken to pay for the subway by a tax on the home which is put in your rent.
-- from The Single Tax Review, March-April, 1909
And 100 years later, we're still financing subways from revenue sources other than Land Value Taxation. Slow learners, aren't we?
I commend the whole article to your attention (it runs 3 pages). But I'll focus on a few paragraphs which particularly intrigue me. DCJ begins,
Will President Obama cave on yet another of his campaign promises, this time by giving in to Republican demands to extend all of the temporary Bush tax cuts? The president signaled this on his Asia trip when he said his principal concern was retaining the middle-income tax rates.
Republican congressional leaders have said they will let all of the Bush tax cuts expire unless the president bows to their demand that the top 3 percent of Americans be included in any tax cut extension.
Obama should call their bluff.
I don’t think the Republicans are so stupid that they would let all the Bush tax cuts expire if they cannot continue tax cuts for billionaires and the affluent on all of their income. But let’s assume that the Republican leaders on Capitol Hill are that dumb, or so beholden to the antitax billionaires funding their campaigns, that they would force universal tax increases.
The Republicans cannot pass any legislation the Democrats choose to block. Further, the Republicans have no chance of overriding a veto, which requires a two-thirds vote of those present in both houses. The Republicans control the House, but they have only as much power to enact laws as Obama and Senate Democrats give them.
More important than any political gain, however, is what calling the GOP bluff could do to get our nation back on the path to prosperity and to stop policies that are pushing us into economic disaster, thanks in huge part to the Bush administration’s combination of revenue-losing tax cuts, wars, and wild spending.
By calling the Republicans’ bluff, Obama can get us talking about taxes and the future of America, instead of protecting what the richest among us already have.
The president could speak about Wall Street handing out record bonuses this year — an estimated $144 billion to a relative handful of people, many of whom get richer by destroying wealth, including assets of state and local government pension funds whose losses we have to make up for with more taxes.
Those bonuses, by the way, are about 2.4 times expected Wall Street profits.
How about a presidential lecture on entitlements focused on Lloyd Blankfein, whose firm’s bad bets taxpayers paid off at 100 cents on the dollar? The Goldman Sachs boss whines about making only $9 million last year because of his ‘‘sacrifice’’ and plans an extra-big payday this December to make up for last year.
The president could change the terms of our economic debate by talking about how much the vast majority props up many of those at the very top, starting with Blankfein. He could tell people about the trillion dollars a year of tax favors for corporations and the rich, as documented by the Shelf Project. (For the article, see Tax Notes, July 5, 2010, p. 101, Doc 2010-13081, or 2010 TNT 129-4.) Obama should explain how soak-the-middle-class and sink-the-poor policies damage economic growth.
Obama could also talk about how America has stopped being number one in many other categories because of tax policies that are hollowing out our nation’s economy and destroying the commonwealth on which private wealth building relies.
I am an admirer of DCJ, appreciate his two books, and look forward to his third -- but I don't think he yet sees the half of it! (And need I say that none of our current parties do either?)
Skipping ahead again:
Calling the GOP’s bluff would let the president raise the issue of whether we want to cut Social Security and Medicare benefits so Peterson and his peers can have even more. Is Peterson’s use of a multimillion-dollar helicopter just to avoid the summer traffic between Manhattan and his Hamptons mansion enough? Or should we all pay more so he can buy a new helicopter?
The president could explain that the tax system helps Peterson’s billions float on a sea of tax credits, tax breaks, and tax deferrals. Obama could read to people from 1950s newspaper stories about old ladies eating cat food. The president could stop in at food banks where families who worked hard and played by the rules were crushed by the machinations of Wall Streeters.
He could talk about how a single working person making the median wage of just over $26,000 paid nearly a third larger share of her income in federal taxes than the top 400 taxpayers, who each made almost $1 million a day in 2007.
And Obama could tell taxpayers about all those people with billion-dollar annual incomes who legally pay no current income taxes, while the rest of us get dinged before we get paid. Let me play speechwriter for Obama on this one:
The Republicans took away your tax savings, every penny of it, but first they made sure that hedge fund managers will not have to pay any taxes this year unless they choose to.
Hedge fund managers make billions of dollars each year, but they get to delay paying their taxes for years or even decades — and then pay taxes at less than half the rate that other highly paid people must pay.
Do these hedge fund managers build factories?
Do they create software or new technologies?
Do they create the jobs America needs?
No! They are speculators, speculating with borrowed money.
The Republicans want to cut your Medicare and cut your Social Security.
Now if that’s what you want, then I urge you to support the Republicans. But if you think the highest-paid workers in the history of the world — people who can and often do make a billion dollars in a year — should pay taxes, pay their taxes in full, and pay them now, then you need to show your support for my policies.
If you want your tax cuts back, you need to stand with me. You need to petition, to demonstrate, to call and write to your representative and senators, telling them this kind of favoritism has got to stop and stop right now.
I'm glad to see that DCJ is calling attention to this particular form of speculation -- skimming the cream off the economy without producing anything.
... moneylenders have been skimming 40 percent of the profits from companies that actually make and produce things. His big point was that this is not really the role of the financial sector. The financial sector's job is to support economic growth, not cripple it.
"Finance is a means to an end," he said. "The lack of balance between the financial sector and the economic sector was actually the real problem in this economic crisis (NOT the real estate bubble)."
I've not heard of Stiglitz saying this where the American media might catch on, but appreciate his willingness to state it elsewhere.
How do we encourage the sorts of business activity which create jobs, create housing which is welcoming and affordable for people at all points on the income and wealth spectra? By getting our incentives right, and by straightening out what we tax, what we don't, and the rates at which we tax each.
A 2007 OECD study compared some of the commonly-used tax bases for their effects on economic growth, and concludes that the personal income tax is an inferior tax. What does it endorse? Interestingly, the conventional property tax! Those who read this blog regularly know that the conventional property tax is an unfortunate marriage of two taxes with very different effects -- one quite desirable, and the other largely negative in its effects.
Elsewhere, I came across this table:
Distributional Effects of Allowing All Expiring Tax Provisions to Expire, 2011
Increase in Federal Taxes
Millions of Dollars
Less than $10,000
$10,000 - $20,000
$20,000 - $30,000
$30,000 - $40,000
$40,000 - $50,000
$50,000 - $75,000
$75,000 - $100,000
$100,000 - $200,000
$200,000 - $500,000
$500,000 - $1 million
$1 million and over
Total, all taxpayers
Source: Joint Committee on Taxation (July 30, 2010
If I am reading the table correctly, it says that while the folks in the $1 million plus income category would experience an 11.0% increase in their federal taxes, those in the $10,000 to $20,000 range would see a 19.9% increase, and those in the $20,000 to $30,000 range would have a 20.8% increase in their federal taxes. Admittedly, these are small numbers -- I assume that they exclude social security and medicare payroll taxes, which are much higher than federal income taxes for perhaps 75% of us. But does it make sense to increase income taxes on those whose incomes are sufficiently low that they likely spend virtually 100% of what comes in by twice as much as the income taxes on those who have plenty of discretionary income?
We need better taxes. Search this page for the OECD study, or search for "canons of taxation" on the wealthandwant.com website. Smart taxes are smart. Dumb taxes are dumb.
I stumbled across this document in a little book which runs to 24 pages, from 1887. Those with an interest in Alabama history, particularly as it relates to taxation, might find that it helps explain how the 1903 constitution came about -- whose interests it sought to protect. Consider it, too, in light of our current economic situation -- too few jobs, lots of income and wealth concentration; not enough credit available to afford housing or commercial sites. These problems can be solved, but not in the ways we've already tried.
The Case Plainly Stated By H. F. RING
PREFATORY NOTE -- This address originally was delivered to the United Labor Organization of Houston, Texas, in 1887. It appeared in full the next morning in the Houston Daily Post, and afterwards in The Standard, published at that time in New York by Henry George. Mr. George then issued it in tract form, giving it the name of "The Case Plainly Stated." Many editions of it have since been published from time to time in this country and in Europe and Australia, and it is generally regarded as one of the clearest brief statements extant of the philosophy of land value taxation as taught by Henry George in his famous "Progress and Poverty."
MR. CHAIRMAN:— The land question is simply a question as to how the use of the bounties of nature shall be best regulated and controlled. By bounties of nature I mean the coal beds, the mineral deposits, the land — all those natural elements which were not created by human industry, but which Nature has freely and abundantly provided for the use and enjoyment of all the children of men; and I propose to show how the right of capital and. labor to use these natural elements should be regulated by the government*, so as most to conduce to the happiness and well-being of mankind.
* The word "government" as used in this presentation of the Single Tax refers to the tax levying power as vested, not alone in the federal, but also and even primarily in the state, county, and municipal governments. It is probable that a complete application of the Single Tax will be reached through its gradual adoption at first in cities, counties and states, before it is substituted for tariff and internal revenue taxation.
I am a Single Taxer, and a discussion of the land question by me can be nothing more than a mere attempt to expound the teachings of that great master of the subject, Henry George.
George, at the outset, calls attention to the marvelous improvements in the arts and sciences, the discoveries, inventions, and labor-saving machines which, within the past 100 years, have so immensely increased the productive powers of the human race. Is it not a moderate estimate to assume that on an average the labor of one man today, with all these labor-saving inventions, will produce as much of the comforts and luxuries of life as the labors of four men would a hundred years ago? And does it not follow that the average workman of today creates, by each day's labor, four times as much wealth as the average workman did a hundred years ago? George teaches that if the workman of today, on an average, creates four times as much wealth as the workman of a hundred years ago, then the services of this workman of today are four times as valuable to society; then why should not his wages of right be four times as great? Why should he not be four times as independent? Why should it not be four times as easy for him to make a living and support his family in comfort and decency?
Will any one presume to assert that this is in fact the case? On the contrary, is it not just about as hard for the poor man to make a living today as it ever was? Does he not dread the loss of a position today just as much as he ever did? George asserts that labor-saving machinery really ought to lessen the burdens of labor, to make it easier for the laborer to live, and in fact, to lighten his toil. But alas, from some apparently mysterious cause, — a cause which many comfortably well-to-do people insist is one of the unfathomable mysteries of Divine Providence, — what George claims should rightly result from inventions does not result from them. And still we are all the time making new discoveries, and year by year increasing, by means of new inventions, the productive powers of working men; yet, with the increase of population, the lot of those who produce all this wealth seems to be becoming more precarious, less independent and more and more wretched.
Who denies that under the present social system, wages tend to fall irresistibly to the point at which the wage-workers can barely subsist? This is called the iron law of wages, and all the strikes conceivable can only temporarily, and but fitfully, arrest this steady tendency. For so long as unemployed men compete for employment against the employed, wages cannot permanently advance. The worker may create quadruple the wealth, but he is not permitted to retain any more of it as his share.
WHO GETS THE WEALTH?
Now, where does this wealth go — this wealth which we now produce so much more easily and in such vastly greater quantities than ever before? What becomes of it? Who gets it? Why is it that in this age of wealth-producing and labor-saving machinery, poverty as abject and hideous as ever before seen in the history of the world abounds and increases in our midst? What is the cause of the so-called iron law of wages? Henry George has discovered it. He has pointed it out, and he has shown us the remedy. He has demonstrated beyond a doubt or question that it does not result as a fatal necessity from the nature of things, but that it is a result of violation of natural law, of a refusal on the part of society to recognize the inalienable right of every citizen of access to the bounties of nature within the territory of his country on equal terms with every other citizen of that country.
Let me now give you a short lesson in the elements of this new political economy.
Three factors enter into the creation of every conceivable kind of wealth. By wealth we mean any material thing produced by human industry which gratifies human desires. These factors are land, labor and capital. Wealth in a civilized community is produced only by means of a union or partnership between land, labor and capital. Labor does the work, capital loans the tools, and land furnishes the natural elements on which, and out of which all material things resulting from human industry are created. In speaking of land in the new political economy we never include improvements or anything which is the result of human toil. We simply mean the opportunities which land and the elements within it afford for the employment of capital and labor — we mean the raw elements as they lie on or in the bosom of the eartli, untouched by the hand of man.
Now, as before remarked, the product of land, labor and capital is wealth, and after it is produced, it is divided among these factors entering into its composition. A certain portion of it, called rent, goes to land, either directly in the form of rent or in the form of interest on the selling price of the land or of the coal bed, or whatever it is; another portion of it, called profit or interest, goes to capital for the use of tools which capital has furnished, and the balance left, after land has been paid rent and capital has been paid interest or profits, goes to labor as wages for the work which labor has done, including the labor of superintendence.
MEANING OF RENT.
Now what does rent signify as used here? Rent is the price paid for the privilege of access to the raw material — for the mere privilege of getting hold of something not created by man, on which and out of which labor and capital can produce wealth. This rent may be paid periodically, or may be paid in a lump in the form of purchase money. In either case the result will be the same. Is it not clear that in the division of wealth after it has been produced by this partnership between land, labor and capital, the more land gets for rent the less there will be left for capital and labor? Is it not quite as plain as A B C that the more it costs capital and labor to get hold of these natural elements, the coal beds, the mines, the water fronts, the land — the gifts of nature which a kind providence has provided for the equal use and enjoyment of all — the less there will be for labor and capital to divide between them?
In the new political economy we must never confuse land with capital. One is never the synonym of the other. Land, as before stated, is simply the natural opportunity, exclusive of improvements or anything done to it by man. Capital is something that has been made by man, like a machine for instance, which is useful in the production of wealth. It is wealth used to produce more wealth.
LABOR AND CAPITAL PARTNERS.
But someone asks: Suppose the capitalist who is using the coal bed or using this natural opportunity, whatever it may be, is also owner of it. Where then does your partnership between land, labor and capital come in? We answer just the same as before. A sum equal to the interest on the market value of the coal bed (independent of the machinery, excavation work, etc.) is in such cases a factor of rent. The owner, in addition to profit or interest on his capital, as before defined, must also take from the wealth produced a sum equal, approximately, to interest on the market value of the coal land, otherwise he would sell out and quit. It is evident that the more money the owner is obliged to invest in purchasing the coal bed, for instance, the greater must be the sum which he takes out of the wealth produced to cover interest on that investment, and hence such interest money is simply rent paid for the use of a natural element, for the privilege of access to one of the bounties of nature. Therefore, is it not equally plain in this case that the more paid for this privilege of use, the less will remain out of which labor can get wages?
A few years ago we read in the newspapers of a great boom in the vicinity of Birmingham, Alabama. We were exultingly told that the lands containing coal beds and mineral deposits in northern Alabama had gone up in value from $75,000 to $50,000,000 in the space of six years. What does this signify? It means that when capital and labor shall attempt to utilize these coal beds and mineral deposits, when capital and labor shall unite together, the one to furnish the tools, the other the labor, with which to produce wealth out of this raw material, then will a set of landlords step forward and block the enterprise with a demand for $50,000,000 for the mere right of access to these free gifts of nature, or in lieu of it the payment of $3,000,000 a year as tribute money, that being the interest of $50,000,000 at six per cent.
There lie the coal beds and mineral deposits untouched by man, fresh from the hands of the Creator, intended by Him, if He is the just, benevolent Being whom we have been taught to worship, for the equal use and enjoyment of all His children, and yet our laws say that capital and labor must pay a few forestallers $3,000,000 a year for the privilege of applying the hand of industry to these elements.
And after this blackmail has been paid, how much will there be left for the wages of labor? The answer is, just as little as labor can ordinarily subsist upon. Why? Because this monopolization of the gifts of nature going on, not only in northern Alabama, but everywhere else, enables capital to drive a hard bargain with labor. For this reason, and this alone, they can't deal with each other on equal vantage grounds. Suppose labor objects and says to capital: "I'll not accept the pittance you offer." Capital replies: "All right, go elsewhere." And so labor starts out to get work for himself, and what does he find? Here he is, living in a country capable of raising food for ten times its present population, and he finds four-fifths of the land untilled or but partially cultivated. He finds four-fifths of the coal beds and mineral deposits unused. He finds vacant land and unused lots on every side. He goes to New York City even and he finds there within its corporate limits almost one-third the area of that city vacant, unoccupied, and unused, although there are miles and miles of tenement houses, in which men and women and innocent children are packed and crowded like maggots, as though there wasn't ample room in the city for the comfortable housing of every human being in it. He finds unused natural elements all around him wherever he goes, sufficient to give employment and support in abundance to tens of millions of happy families.
But now suppose labor attempts to make use of any of these unused natural opportunities? Suppose he concludes to go to work for himself upon a piece of vacant land in the suburbs of a city, for instance, where labor could be applied to the greatest advantage. What happens? An individual comes along and waves a title deed, and orders him off the premises. He finds that all these unused natural opportunities are owned by individuals and claimed as private property. He finds himself frustrated at every point. He finds that he can't go to work anywhere without paying blackmail to the owner of some natural element for the mere privilege of working and so he strikes back to northern Alabama and takes off his hat to Capital and bows very low and says: 'Please, sir, give me a bare living and I will be your slave."
And that is about all that he does get, and that is all he ever will get under the present system of land ownership, though you may strike and boycott and potter about graduated land taxes, graduated income taxes, and graduated nonsense until doomsday.
THE GREAT PARASITE.
With advancing population the greater becomes the demand for natural opportunities and the higher the prices which can be extorted for the privilege of using them. As population increases, the town lots, the coal beds, the mineral deposits, the water fronts, the land, go up in value, and so goes up also the amount of tribute money which labor must pay for access to them, for the privilege of employment. The more of the products of industry which go for the payment of this constantly increasing tribute, the less and less will grow the share allowed the laborer and the more dependent and the more wretched will his lot become.
Here in Houston today, suppose Enterprise has $50,000 to invest in the paper mill business, a sum barely sufficient to put up the building, buy the machinery and carry stock. He finds a beautiful site for his mill on the banks of the bayou. It is a vacant lot. The hand of man has never been applied to it, and it stands there now just as it stood when the Indian roamed over the site of this city. The owner of that block, however, thinks he can make Enterprise pay him $20,000 for the privilege of giving employment to labor on this natural opportunity — this piece of ground. That is the price, and if he can't get it today he will get it when the city grows a little larger. But Enterprise says to him: "I have only $50,000 capital, all of which I shall need in my business." The land owner answers it is not his lookout, and so Enterprise turns away checkened and baffled, and the mill is not built.
CAUSE OF DULL TIMES.
And so it is everywhere. Wherever we find a portion of the vacant surface of the earth which could be utilized by capital and labor, and which affords an opportunity for human toil and enterprise, there we find a human vampire with a paper title in his hand warning off labor; and that vampire must always be placated by the payment of blackmail before the wheels of industry can begin to turn.
Need we wonder that these wheels turn slowly, and that they are always getting out of gear; that we are always talking about dull times; that men are always out of employment and always hunting for work, regarding it as a favor even to be allowed to work; that we are all the time growing too much cotton, when millions of human beings have only one shirt to their names; that we are producing too much food, when half the population of the world is insufficiently fed; that carpenters are out of work, when half the people are not comfortably housed; shoemakers wanting work and millions needing shoes? How could it be otherwise, when labor is compelled to beg for work in the midst of limitless unused opportunities for work, on which opportunities, however, sit these human vampires, these dogs in the manger, waving labor back with their paper title deeds?
Now let us go back for a moment to that partnership between land, labor and capital. For illustration, suppose the wealth produced by the partnership to be created by the application of capital and labor to those coal beds and mineral deposits in northern Alabama, valued, as we have seen, at $50,000,000. In the division of wealth produced we have shown how, say six percent of this $50,000,000, or $3,000,000, must go to land as rent. Or, in other words, $3,000,000 a year must be paid to land owners directly as rent or interest on purchase money for the bare privilege of utilizing these gifts of nature. Now, in the division of wealth produced, why is labor entitled to any portion of it? Clearly because labor's industry has contributed to its creation. Why is capital entitled to any part of it? Because capital has furnished labor with tools with which to develop the mineral deposits. The capitalist who owns the tools can trace his title back to the creator of them, to some individual or set of individuals whose industry produced them and from whom he purchased or inherited them. The title, then, of both labor and capital to a portion of the wealth produced from these mineral deposits originates in human industry, and it is a sacred title. Now then, why should the land owner get any portion of this wealth, to produce which capital has supplied the tools and labor has done the work? This owner claims the right of making capital and labor pay him interest on $50,000,000, or $3,000,000 a year, for the mere privilege of access to this raw coal and raw ore. Ought we not to scrutinize most carefully his right to extort this immense tribute? And if he can show no natural and moral right to claim it, does not society countenance the robbery of labor in permitting him to do so? Where does his title originate?
We find that six or seven years ago he paid someone who claimed to own the land in which these mineral deposits are found $750,000 for the raw natural element for which he now demands $50,000,000. Was this additional value of $49,250,000 in six years produced by his industry? Was it produced by the industry of any previous owner of these natural elements? Did it cost $49,250,000 to discover these mineral deposits? We trace back his title a little further, and we find that perhaps a hundred years ago it originated in a grant to John Jones from the government — that is to say, the people who inhabited this country a hundred years ago and who constituted the government said: "We will divide the land and we will give John Jones this particular tract for his private property."
But did these people create that land and the coal and iron in it? Can it be shown that they had any better right to it from the Almighty Creator than the people of this generation have? Was the earth intended by the Heavenly Father for one generation to dispose of forever, or as an abiding place for all generations? Was Thomas Jefferson right or wrong when he wrote: "The earth belongs in usufruct to the living; the dead have no right or power over it?" By what authority could the people living here a hundred years ago, long since dead and gone, confer upon John Jones, also dead and gone, a right which would enable John Smith today, by tracing a paper chain of titles from him, to extort from capital and labor a tribute of $3,000,000 a year for the bare privilege of getting to that coal and iron and making it useful to mankind?
Who dares to blaspheme the name of the Almighty Ruler of the universe by saying that the coal and iron were not intended by Him for the equal use and the enjoyment of all His children — the humblest babe born today in a garret equally with a child of the proudest duke who ever lived?
MAN IS A LAND ANIMAL.
Is not man a land animal? Can he live without land? Can he any more rightfully be deprived of access to land than he can rightfully be deprived of life itself? Can he any more rightfully be compelled to yield up to a forestaller, a mere owner of land, a portion of the fruit of his industry for the privilege of getting hold of the raw material elements than he can rightfully be compelled as a slave to yield up to a master a portion of the fruits of his industry? To compel him to do so is as much a robbery of labor in one case as in the other. Why then is not the humblest babe that God sends into this world naturally and by inalienable right entitled to access to land on equal terms with all his fellow human beings?
ORIGIN OF PROPERTY RIGHT.
Mind, when we say access to land we do not include access to improvements on land, or access to anything produced by human industry, a title to which can be shown originating in human toil; we simply mean access upon equal terms to the free bounties of nature as they lie upon the kind bosom of mother earth, untouched and undisturbed by the hand of man. What I produce by my industry is mine. What I obtain by exchanging the products of my industry for the products of another's industry is mine. What my father or my grandfather produced by his industry was his, and if he has given it to me it is mine.
In all these cases human industry is the origin of property right, and property rights originating in human industry must be held sacred, else there would be no incentive to human effort. Do not the values produced by the individual belong to the individual producing them? Do not the values produced by the community belong to the community producing them? Is there anything wrong, immoral or communistic in this ideal? And yet this is the sum and substance of the Henry George philosophy.
Take the case of the vacant block on the bank of the bayou which Enterprise wanted for a paper mill and could not get. Fifty years ago it was worthless. Now labor must pay a tribute of over $20,000 to the so-called owner for the privilege of using it. Whose industry has put $20,000 of value on that piece of vacant ground? Not the industry of the present owner, nor the industry of any former owner, because no man has ever done a stroke of work upon it. That value of $20,000 has been placed upon the land by the common energy and enterprise of the entire community. Since the community has produced that land value why does it not belong to the community? Why has not the community the same rights to the value it creates as the individual has to the values which he individually creates?
How shall this derangement of the wheels of industry, this blackmail upon enterprise, this robbery of labor, this eager and fatal competition among laborers for employment, this slavish fear of the loss of a situation in the midst of abundant unused opportunities for employment — how shall this curse which our present land system has fastened upon the productive industry of the country, be removed? Simply by doing justice; by being honest; by recognizing in our laws one of the inalienable rights of man; by recognizing in every human being, in every generation, the present as well as the past, an inalienable right of access to the bounties of nature on equal terms with every other human being.
How shall this right of access on equal terms be secured? Simply by making every individual who claims a right to the exclusive possession of a tract of land pay in the form of a tax approximately what the use of that tract of land is worth, exclusive of all improvements on it or anything done to it by the hand of man, and by abolishing every other form of taxation. Take the rent of land for public use instead of taxes.
WILL SIMPLIFY GOVERNMENT.
Some one asks: "Will not this proposed change vastly increase the functions of government and immensely add to the number of government employees?" I reply no. On the contrary, at least two-thirds of the present army of revenue collectors and tax gatherers will be dispensed with, and the remaining one-third will collect this single tax on land values at one-third the expense now incurred in the collection of national, state, county, and municipal taxes.
Another inquirer asks: "Will not the new system offer abundant opportunities for corruption and partiality in fixing the amount of this tax annually to be paid for the exclusive use of a piece of land? And how do you propose the amount of the tax shall be determined?" It will be determined by the same law of demand and supply which now determines the amount of tax under the present system. The single tax will be fixed by the same machinery of an assessor and a board of equalization which fixes it now. For instance, under this system a piece of property on Main street rents for $5,000 a year. Interest at the prevailing rate on the building alone, added to the annual cost of insurance, repairs and caretaking, and a sum sufficient to provide a sinking fund for renewals amounted to, say $3,000 a year. The landlord is then collecting the difference between $3,000 and $5,000, or $3,000 for the use of this naked earth. That is to say, he is collecting $2,000 a year for the use of something never created by man, to which all are by natural right equally entitled, and which owes its rental value of $2,000 a year exclusively to the common enterprise and energy of the entire community.
This is the sum which, under Henry George's system, would be turned over to the government in the form of a tax for the common benefit of the community who collectively have made the use of this land worth $2,000 a year.
Here an interested friend anxiously inquires: "But if the landlord has to pay this tax of $2,000 a year for the use of the land, will he not take it out of the tenant by raising his rent to $7,000?" No, for the landlord's charges now all he can compel the tenant to pay. Suppose he tries to. Suppose he says to his tenant: "You must now pay me $7,000 a year." What happens? Just what happens every day now. If the tenant can do no better he pays the increase. But now, mark you, when the landlord goes to pay his tax what happens then? Why the board of equalization says to him, you have received $7,000 a year rent for the use of improvements worth only $3,000 a year. You are therefore collecting $4,000 a year instead of $2,000 for the use of the naked lot, and you will therefore pay the city or state $4,000 a year for the privilege of the exclusive use of the ground instead of $2,000 a year as heretofore. Now what has the landlord made by jumping up the rent? Nothing. What would be made by thus jumping up the rents under the present system? Everything. Under which system would landlords be more apt to force up rents?
DETERMINING THE TAX.
Another way by which the board of equalization under the George system would determine the amount of tax to be paid for the privilege of the exclusive possession of a tract of land, and which would also compel landlords to collect from their tenants and turn over to the government in the form of a tax the full value of the use of the land, would be from observation of the prices which real estate brought in the market. But note, at this point some smart fellow jumps up — and he is likely enough to be a newspaper editor — and vehemently protests, saying: "Why, sir, the taxation of ground values plan does not propose to allow any exclusive ownership of land. It demands that the government own it all and rent it out or divide it up into 60,000,000 or 70,000,000 little bits, or do something of that kind with it, and here you are talking about lands being bought and sold under the Henry George system. Why, man alive, you don't know what that system is!"
Now, Mr. Editor, or Mr. Who-ever-you-are, let me say to you that in your ignorance, or in your indifference to the sufferings of your fellowmen, or in your desire to pander to the greed of monopoly, or to the timidity of capital, you may say what you please; you may misrepresent as much as you please for the purpose of bringing odium and contempt upon the cause; you may call it what you please — state ownership, state landlordism, ownership in common, communism, nihilism, anarchism or anything else; but the fact, nevertheless, remains that, under the just and righteous land system which we are trying to explain, the land will continue to be bought and sold under the same form of paper deeds, precisely as it is bought and sold today. It will continue in precisely the same way to pass to devisees by will and to heirs by law of descent and distribution. The right of control, of exclusive possession and dominion over a piece of land and of the free and exclusive enjoyment of all improvements on it, will in no way be abridged or disturbed. When you buy a lot on Main street today worth $10,000 with a building on it worth $10,000 more, your deed recites a consideration of $20,000. Now when you buy this same property under the George system, the only difference in the whole transaction will be that your deed for it — assuming that the price accords with the market value prevailing at the time of your purchase — will recite a consideration of only $10,000, and $10,000 is all that you will then pay for the property. You will pay nothing for the land. After you have bought the property you will pay yearly in the form of a tax to the government, approximately the full market value of the (yearly) use of it — which will amount to the annual rental value of the land, and as the man from whom you purchased had to pay the government the same annual rental value, you will consequently pay nothing, or approximately nothing*, to him for the land itself when you purchase the property. You thus save an investment of $10,000 in dirt; instead of such investment you will pay for the common benefit of the community, including yourself, what the privilege of the exclusive use of that spot of earth is worth — nothing more, nothing less — and that is simply what you ought to pay. The $10,000, which, under the present system, you are compelled to bury in a bit of earth, you will have left you with which to increase your business; and if you do increase your business with it, and add another story to your building, no tax gatherer will come around and impose an additional fine upon you for doing something with your money which gives employment to labor.
* There will, no doubt, be instances where the desire of an individual to get and retain possession of a certain piece of property, will cause him tooffer a bonus over and above the market value of the improvements.
NO PROPERTY IN LAND.
Thus, under the single tax system, land would be sold and would change hands as it does now, but it would only bring in the market approximately the value of the improvements on it. If land in any locality should get to selling for considerably more than the value of the improvements on it, this would be a certain indication that the parties using the natural elements in that neighborhood were not paying for the benefit of all the people what the use of the same was worth, and so a board of equalization would put the tax up. As population increases the value of the use of land increases, and with it, under the George system, the revenue from this tax on land values will increase, and thus the entire people who collectively produce this increasing value will get the benefit of the values collectively produced by them. As it is now, the increase in the value of land, which amounts to several billions annually in the United States, four-fifths of which is increase in the value of city and town lots and mineral deposits, goes to a comparatively small number of individuals who do no more to produce these values than any other members of the community.
Another doubter puts this objection: Under the George system you would make the owner of a lot on Main street, with an improvement on it worth $10,000, pay as much tax as the owner of a similar lot adjoining, having a building on it worth $50,000. What justice is there in that?
Let us see. Take away the improvements and these two lots are of the same value — that is to say, the value of the use of both lots for ordinary business purposes is the same. Suppose it is $300 a year. Now, the man with the $50,000 improvement collects from his tenant ten percent on his $50,000, or $5,000. He also collects $300, the value of the use of the lot, making in all $5,300. The man with the $10,000 improvement also collects ten percent upon the valuation of his improvement from his tenant, of $1,000. He, too, collects $300 in addition for the use of the lot, making in all $1,300. Now after both have paid the government $300 apiece for the privilege of the exclusive use of these lots, each will have left ten percent upon the capital invested, and why should one be entitled to any greater percent upon the capital invested than the other?
The fact is, that under this system there will be no such thing as taxes. Taxation, as we now understand it, will be abolished. The revenue derived by the government from requiring all who use a natural opportunity to pay into the common treasury what the use of that opportunity is worth, if it is worth anything at all, will be more than sufficient to enable the government to dispense with every species of taxation. As it is now, when you pay your taxes, you are simply robbed of a portion of the fruits of your industry, for which you do not get, directly, any equivalent. Under the proposed system, when you pay your single tax on land values you will get directly a full equivalent for every dollar paid. You will get the privilege of the exclusive use of a tract of land for what that privilege is worth.
ACCESS TO UNUSED LAND.
If this system were adopted what would become of the vacant lots and lands, the unused coal beds and mineral deposits, the unoccupied water fronts and water privileges over which human vampires now stand guard, retarding enterprise and driving off labor? They would become absolutely free. No one could afford to hold them and pay taxes on them. The vampires would turn them loose. Land speculators and land sharks, instead of trying to grow rich by forestalling labor and capital and thus preying like devouring beasts on their fellowmen, would turn their talents to better account. Wherever labor could find an unused lot or coal bed or mineral deposit or unused tract of land, there labor could go to work and employ itself without being required to invest a dollar in the purchase of a right of access to the natural element, without being compelled to first make terms with a dog in the manger claiming it as private property and holding it for speculative purposes.
If that vacant natural opportunity were situated near a center of population, or were of a character to bestow peculiar money-making advantages upon the persons using it, this advantage would create a demand for it, and this demand would regulate in the manner already pointed out the amount which labor and capital would pay for the use of it, in the form of a tax for the common benefit of all. If that vacant opportunity, for instance, were a tract of land four or five miles from this city, it would have few advantages to make the use of it at present peculiarly valuable. Why? Because there is so much vacant land of the same character near it, the use of which is equally valuable, that no one would give a bonus, as it were, for the use of that particular tract. Labor would, therefore, at first get the use of that land for nothing. It would have no taxable value at all until all the other vacant land similarly situated was put into use. Under this most just and equitable system the taxable values of land would be confined almost exclusively to the cities and towns and the coal and mineral deposits. Where people congregate, there land has value. In New York City alone, capital and labor today pay to a few thousand land owners, in ground rent alone, exclusive of rent paid on improvements, for the bare privilege of living and doing business, tribute money amounting to hundreds of millions annually, a sum almost equal to the expense of carrying on the government of the United States. It is in these great centers of trade and commerce that land has its greatest value; it is here that land values are mostly found and from these centers nine-tenths of the revenue of the government from this tax on land values would be derived.
FARMERS WOULD BE BENEFITED.
If the George plan were suddenly put in force today, not only would all farmers be relieved from direct and indirect taxation, not only would farmers participate in common with all others in the universal and uninterrupted prosperity which would result from removing the obstructions which needlessly hamper and clog enterprise, but probably three-fourths of the working farmers in this country would pay no land tax at all. Why? Because with so much vacant or but partially cultivated land as there is here today three-fourths of the farmers would have no taxable value at all; and all who are counting on the farmers of America being so foolish as not to see how they will be as much benefited by a just and righteous land system as any other class will certainly be disappointed.
EFFECT ON FARMS.
"Yes," says our farmer friend, "but you propose to confiscate the farmer's land." Let's see about that. You are a farmer owning say a hundred-acre farm, situated like a majority of farms, in a neighborhood where for every acre of land in cultivation there are two or more acres unimproved or but partially improved. Your farm is worth under the present system, say $2,000. A hundred acres of this unimproved land adjoining it of the same quality is held by some speculator at $500. Your tax on your hundred-acre farm is $10 a year, the speculator's tax on the hundred acres of land adjoining of equal value, exclusive of improvements, is $2.50 a year — one-fourth as much as yours. You give employment to labor on your land, and thereby add to the prosperity of the community. The speculator excludes labor from employment on his land, and thereby retards the prosperity of the community. Why should you be taxed any more for using your hundred-acre tract, and giving employment to labor on it, than the speculator is taxed for holding in idleness a tract of equal value and preventing labor from using it? Why should not the speculator pay at least as much tax for the privilege of excluding labor from his tract as you have to pay for the privilege of employing labor on yours? Have you hurt anyone by turning up the wild sod and building fences and houses and putting $1,500 worth of improvements on your land? If not, why should you be fined for it by having your taxes increased?
Where our plan is adopted you will have no taxes at all to pay until this vacant land around your farm is put into use. Until then no land value could attach to your farm, and the tax which, with increasing population, you would ultimately be required to pay, would seldom equal and rarely, if ever, exceed that which farmers now pay on the improvement valuation. Assuming that you spend say $600 a year on your family, then under the present system your taxes, direct and indirect, and the toll which the merchants take for collecting indirect taxes, amount to at least $100 a year. You may not know it, because an indirect tax always fools a fellow paying it. You will be relieved from all these taxes, but best of all, men who are now idle and who can't buy what you raise will all be at work, and not only that, but their wages will be high enough to pay good prices for what you raise. It is true that under the new system you could only sell your place for $1,500. Still, with this same $1,500 you could buy just as good a place from some one else. The purchasing power of your farm, when it comes to buying another farm, would not have been reduced. Do not your interests as producer or a laborer vastly exceed your interests as a land owner?
LANDLORDISM AND GOVERNMENT
Now, coming back to the elements of the new political economy, some one says: "What difference does it make to the workmen whether labor and capital pay this ground rent to the individual or to the government, since, according to your theory, it must be paid all the same?" In the first place, if it is paid to the individual none of it ever comes back to labor and capital unless value received is paid for it; so far as labor and capital are concerned, it might about as well be cast into the sea. But when it is paid to the government in the form of a tax on land values it does come back to labor and capital again in the form of relief from every species of taxation, direct and indirect.
Again, the amount that Enterprise would pay the government for the privilege of access to the natural elements would be less under the single tax than is now paid individuals for this privilege. Under the land value tax the prices could not be advanced by monopolization of these elements, as is being done now.
But best of all, and by far the most glorious result that will flow from the establishment of a just and righteous land system, is that it will enable the wealth creator to stand erect, presenting to capital an unterrified front.
Return for a moment to the coal beds of northern Alabama and imagine the Henry George system adopted. Labor now again objects to the terms offered by capital, and again capital tells him to go. And again labor goes forth hunting for work. But how different he finds the aspect of things. He finds the same unused natural elements, the same unused coal beds and mineral deposits, the vacant lots and lands, but he no longer finds a fellowman sitting upon every vacant opportunity for work and waving him off. They have vanished. They have gone to work themselves. He finds every unused opportunity for labor, wherever it may be, absolutely free. Not a dollar of capital need be invested in buying a natural opportunity, in paying for the privilege of work. When labor went forth hunting work before, he not only had to ask capital to pay for the tools, but also to pay, usually a greater sum, to some forestaller, in addition, as blackmail, for the privilege of access to a natural element.
This will all be changed. It won't take near as much capital to start enterprises as it did, or in other words, to give employment to labor. In fact, labor could then take even an axe and hoe and find plenty of vacant opportunities on which he could make a living without having to bury himself in a wilderness to do it. All this makes him feel independent and enables him to bargain with capital for employment on equal vantage grounds.
MONOPOLY IS PROFITABLE.
Some time since a large manufacturing firm in Massachusetts adopted the eight-hour system. After trying it a year they gave it up and went back to the ten-hour system. The general manager said they could only make five percent profit on their investments by requiring only eight hours' work, and that unless they could make a bigger percentage than that, they would not be bothered with the management of the business — they would put their money into town and city lots, because that species of property would certainly enhance in value as much as five percent annually, and that, too, without any trouble to the owner, and so it is everywhere. Now, is it not absurd to expect to reduce the rate of profits with which capital will be content below this steady percent of increase in the value of town and city lots, by any combination of labor, or by any legislation which falls short of restoring these land values to the people who collectively create them?
Suppose you have $10,000 today. The best and safest thing you can do with it is to invest it in town lots in or near some growing town. Ten years from today, unless the George theory becomes generally understood, the lots will be worth $20,000 and you will have drawn to yourself $10,000 worth of wealth for which you have given no equivalent. You will simply have robbed the labor of the country of $10,000. But now suppose ground values to be appropriated to the public use by taxation. What are you to do with your $10,000? You would not buy vacant lots now; there is no speculation in them. The tax which you would have to pay for the privilege of excluding capital and labor from the opportunities for employment which vacant lots afford, would be too heavy for you. In fact, you couldn't even loan on land alone, because land alone will have no selling value in the market. The result is, that unless you let your money lie idle and so lose interest on it, you will be compelled to invest it so as to give employment to labor. You must put it into buildings, into machinery, into manufactory stock, into farm implements, into some channel where it will be active and where it will afford employment to labor.
Not only must you do this with your capital, but every other capitalist must do the same with his capital. Capitalist thus must bid against capitalist, since capital can only increase by calling labor to its aid and giving it employment.
Under the present system the rich can grow richer without calling in the aid of labor, without giving employment to labor. They do so by buying space and monopolizing land.
Under the present system, as wealth accumulates, the wealthy seek to invest in land, to get control of natural elements, and get into a position from which to blackmail labor, thus becoming an obstacle in the way of the production of more wealth.
Under the better system, however, wealth could not thus be made to set up an obstacle to the creation of more wealth, or, in other words, to the employment of labor. It can then only obtain a profit by investing in lines of enterprise which give employment to labor.
Under which system will the demand for labor be greater? Under which will earnings be higher?
Them that's got shall get Them that's not shall lose So the Bible said* and it still is news Mama may have, Papa may have But God bless the child who's got his own, who's got his own
Yes, the strong gets more While the weak ones fade Empty pockets don't ever make the grade Mama may have, Papa may have But God bless the child who's got his own, who's got his own
*Likely a reference to Matthew 25:29, which can be translated as "For everyone who has will be given more, and he will have an abundance. Whoever does not have, even what he has will be taken from him."
Consider the possibility that the meaning behind Billie Holiday's lyrics and Matthew 25:29 is not prescriptive but descriptive: that those who own land will always receive land rent, while those who do not have it must pay those who do have it for access to it (to have a place to live and a place to work), and thus will always be poor, particularly if, in addition to paying someone for access to land, they must pay taxes on their labor and/or on their purchases, in order to support Caesar (who was not part of the community) or to pay for the provision of public goods (schools, roads, courts) for the community. Landlords in high-rent areas receive lots of rent; landlords in low-rent areas -- including small towns and agricultural land -- receive far less -- but it is still the landless who are paying them, for access to something whose value the landlords didn't create.
And then hear the words of Leona Helmsley: "WE don't pay taxes. The little people pay taxes." She knew whereof she spoke. Property taxes in the places she did business were rather low, but her customers and workers paid significant taxes on their purchases and wages. Deep down, she likely knew that she didn't make the sites of her buildings valuable: we all did.
A simple tweak of our taxation system can change it all: we can collect from landlords and other landholders some significant fraction of the annual rental value of their land, and use it to fund our public spending, instead of taxing sales, and buildings, and wages. Not only would it be just and reduce the concentration of wealth and income, but, as the 2008 OECD study showed, it would promote economic growth.
I find it much easier to accept the idea that the gospel verse is descriptive than to believe that a loving god would intend it to be prescriptive. You might explore wealthandwant.com for "The Crime of Poverty."
The Social Security Administration released some interesting information a few weeks ago (and corrected it after David Cay Johnston called attention to some anomalies in the data, which turned out to have resulted from false W-2's from two individuals; what's reported below is the corrected data) on 2009 wages.
First, here is a summarized table of the 150.9 million individual wage earners in 2009.
75% of wage earners earned $50,000 or under; 25% earned less than $10,000
Nearly 94% of wage earners earned less than $100,000. (Is this how you pictured it?)
The 6.3% of us who earned over $100,000 received over 30% of the wages.
In total, 32% of wage earners deferred any wages; the deferrals equaled just 3.56% of aggregate wages.
Net Compensation Interval
Number of Wage Earners
Percent of Total Wage Earners
Cumulative Percent Wage Earners
Percent of Aggregate Wages
Cumulative Percent Aggregate Wages
$0 to $10,000
$10,000 to $30,000
$30,000 to $50,000
$50,000 to $100,000
$100,000 to $500,000
memo: contributions to deferred compensation plans
These data do not include funds received by hedge fund managers which most of us would consider wages, but which get treated as capital gains, and taxed at a much lower rate than do all but the lowest wages. It would be interesting and useful to see those data arranged next to these.
One might use these data to consider whether there should be a separate bracket for higher incomes. Keep in mind that these are individual wages, net only of 401(k) type deferrals of income, not adjusted gross income at the taxpayer/household level.
The next table examines the amount of wage income which is represented by the portion of wages over $100,000, just below the current level at which one stops paying social security withholding.
Net Compensation Interval
Number of Wage Earners
Percent of Total Wage Earners
Cumulative Percent Wage Earners
Aggregate Wages over $100,000
Percent of Aggregate Wages
Cumulative Percent Aggregate Wages
$100,000 to $500,000
14.10/85.90 = 16.4%
So how does all this relate to this blog's focus on Land Value Taxation?
The focus is on smart, just, efficient taxation -- and on ending the privileges which enrich some people and impoverish the vast majority of us.
Many of the ways that people "earn" large salaries are in large part the result of our permitting privileges: the privatization of the value of natural resources; the privatization of the value of urban land; and structures which permit some sectors of the economy to skim off value created by all of us. (Did anyone yell FIRE?)
We have to hold the feet of our elected representatives to the fire: make it worth their while NOT TO obey the requests of their huge campaign contributors and TO listen to the rest of us and reconfigure the structures which funnel wealth and income into the pockets of the currently-and-traditionally-privileged folks.
Are you ready?
I think there were some signs in this recent midterm election that voters in several states were not bowled over by the well-constructed advertising and heavy media buys of some very rich candidates for office, and I find that encouraging. Connecticut's Foley and McMahon, California's Fiorino and Whitman, and a number of entities enabled by the Citizens United ruling by the Supreme Court spent large amounts of money, with very uneven results.
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. FederalElections 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.
I thought a couple of the observations in this column quite useful, both from Fallows and from others he chooses to quote. It comes off the brouhaha that started a few weeks ago when a University of Chicago Law School professor put in his blog a whine about how even with his and his (MD) wife's joint income of $400,000 or so, he had little disposable income. The response to his blog post was strong enough that he has removed the post, but it remains, at least for a while, available via google's cache. (Fallows and Brad DeLong both link to it.)
I particularly liked this one:
(1) >>If no one else says this, or no one says it more succinctly, could you please incorporate into the discussion the implicit idea that extends across pretty much all of the posts? It basically goes like this: "once professional success is achieved, life isn't supposed to be hard or uncertain anymore". It's there in the original post and it's there in the backdoor-trickle-down economics of the east-coast lawyer. Somewhere along the last 50 years our "meritocracy" started to incorporate the idea that once you achieved a certain amount in life, you wouldn't have to try anymore.
This idea is, from my point of view (as a 30-something professional who anticipates that retirement will become an antiquated concept by the time I reach such an age) grandfather to the current state of affairs in which high school and college students expect grades to symbolize the extent of their effort rather than the quality of their work. As Clint Eastwood said snarled in "Unforgiven": "deserve's got nothing to do with it". How about we agree on this: if you need to ask yourself if you are rich (or better yet mount some kind of argument about how you aren't rich), then you probably are in fact rich.<<
and this -- emphasis mine:
(2) >>I wonder if part of the issue stems from the fact that there seems to be an implicit promise that attending one of these top schools will inevitably make you rich. I went to Stanford, and from the very beginning we were reminded of all the luminaries who also hold Stanford degrees (or at least attended classes). Larry Page came and gave a speech during freshman orientation, and Phil Knight and Jerry Yang both donated buildings while I was there. Part of the selling point of these universities is the idea that all of these great, successful, rich people went to this school, and it impacted them so profoundly that they have donated millions of dollars for its improvement. Even if you are making $250,000 or $500,000, it really doesn't seem like all that much when compared to what the people who are getting their names on the buildings make. Presumably working at a university makes this even more evident.
And in the end, you still have the same degree as these people who are actually rich. Who's to say you won't someday get there yourself? Why would you want to punish your future self with higher taxes?<<
and this, which speaks to payroll taxes for ordinary people vs an increase in the top bracket for the highly-compensated (though it doesn't quite note that since the UChi professor's wife is also well-paid, they are paying a bit more in payroll taxes):
(3) >>I wanted to weigh in on your latest, the two defenders who cited the costs of private education. I'd just like to note that these $250,000 + level professionals are getting a substantial break on their social security taxes. Every dollar of my sub-$100,000 salary is taxed at 6.2% paid by me, over and above state and federal income taxes, and 6.2% paid by my employer. In contrast, the majority of these poor, pitiable professionals' salaries are exempt from the tax. The ceiling this year is $106,800, so the rest of their salary is free and clear of this 6.2% coming out of their paycheck. To boot, the proposal is to raise their taxes on the amount exceeding $250,000, so taxwise, they have it easy, compared to the rest of us.
4% of the amount exceeding 2 times $106,800 is a lot less than 6.2% of the first $106,800 or $213,600, until one reaches rather high levels.
Those who have spent much time browsing this blog will know that I'm not enthusiastic about taxes on wages. They're a poor, blunt instrument for collecting what we ought to be collecting before we start taxing wages. But to the extent that we do utilize taxes on wages, those taxes ought to be highly progressive, and ought not to be levied on the first dollars of wages.
I have a sense that a large percentage of Americans have high hopes -- and even high expectations -- of eventually, somehow, becoming very wealthy, and are willing to accept special privileges for high-income people, and/or wealthy people, because they'd like such rules to apply to them in the (in reality highly unlikely) chance that they might be so awesomely lucky.
Those accepted at our highly selective colleges have confirmation of their specialness, and are thus likely, as the second comment above, to think it in their likely best interests to protect privilege for the wealthy.
And no wonder those who profess economics or political science at such colleges and universities are unlikely to include favorably in their courses the ideas of heterodox economists or philosophers who seek merely to create a level playing field. THAT is not what their students seek! They seek to get a good bead on the angle of the slant, and how best to exploit it. And of course, so do their parents, and the agencies that lend those students the funds to attend.
You might appreciate "The Corruption of Economics" to understand this further. But recognize that most instruct-ors and profess-ors of economics don't even know what they're omitting from their teaching. How could they? It was in their texts and maybe even their reading lists, but their attention was directed in other directions. How many generations of such teaching does it take to extinguish an idea from the vast majority of universities? If it doesn't support the interests of the major donors, and something has to be omitted, what would you omit?
Most Americans Wish U.S. was Like Sweden Friday, September 24, 2010
Americans really want to live like they’re in Sweden, even if they don’t realize it.
Researchers from Harvard and Duke Universities surveyed a group of Americans on the subject of income inequality and found people’s preferred model of wealth distribution was that of the Swedes — after being given the choice of sticking with what the United States has to offer these days.
When shown the wealth distribution of the U.S. and Sweden’s (without labels), 92% of respondents chose the Swedish one.
The research also revealed that Americans “vastly underestimated the actual level of wealth inequality in the United States,” believing that the wealthiest 20% of the population currently controls about 59% of the wealth, when the actual number is closer to 84%.
When asked how much of the country’s wealth the richest 20% should hold, respondents said no more than 32%. -- Noel Brinkerhoff
Don't miss the three graphics in this short -- 13 page -- PDF. [2 are available here]
Here's the abstract:
Disagreements about the optimal level of wealth inequality underlie policy debates ranging from taxation to welfare. We attempt to insert the desires of “regular” Americans into these debates, by asking a nationally representative online panel to estimate the current distribution of wealth in the United States and to “build a better America” by constructing distributions with their ideal level of inequality.
First, respondents dramatically underestimated the current level of wealth inequality.
Second, respondents constructed ideal wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution.
Most important from a policy perspective, we observed a surprising level of consensus: All demographic groups – even those not usually associated with wealth redistribution such as Republicans and the wealthy – desired a more equal distribution of wealth than the status quo.
Addendum: I'm borrowing shamelessly from James Fallows' post. Notice that the first bar shows the actual distribution of wealth; the following ones show the respondents' estimates and description of their ideal distributions.
"The chart below conveys the central point: people think the distribution of wealth is more equal than it actually is; and they think it should be much more equal than their already unrealistically-equal notion of its current state. Eg: the top 20% of the US wealth distribution actually controls nearly 85% of total wealth; people think the top 20% controls under 60%; and they think it should control just over 30%
Similarly: people feel that the bottom 20% of the economic pyramid "should" have about 10% of the total pie; they think it actually has about 3% or 4%; in fact, its share appears to be too small to show up on the chart.
After the jump, another chart showing how these misperceptions break down among income groups. The de-middle-classing of America is a familiar story, but since it will be seen as one of the huge trends of this stage of history it deserves even more attention than it gets.
_____ Another chart, showing estimates of what that wealth distribution is, and what it should be, among people in three income groups (under $50,000, $50,000 to $100,000, and above $100,000.) Main variation: the more money people make, the larger the share they think should go to the top 20%.
Last weekend, Ben Stein apparently presented a piece on CBS News, entitled "Raising My Taxes is a Punishment: If Raising Taxes Won't Help Economy, Why Am I Being Punished." Stein, the son of two Chicago-educated economists, writes,
I am a fairly upper income taxpayer. Not anything even remotely close to sports stars or movie stars or financial big boys. But I am above the level Mr. Obama says makes me rich. So, in the midst of a severe recession, I am to have my taxes raised dramatically.
I am not quite sure what my sin is.
I worked for almost every dollar I have, except for a small percentage my parents left me by virtue of hard work and Spartan living, and most of that was taken by the federal estate tax. I have a hell of a lot less than I did before the stock market and real estate market crashes. I didn't get a bailout or any part of a stimulus program, except for traffic jams as the roads in Beverly Hills got worked on for the 10th time in the last 10 years (or so it seems).
I pay my income taxes, and after them and the commissions I pay my agent, I am left with about 35 cents for every dollar I earn.
I own some real estate in California and Idaho and the District of Columbia. Naturally, I pay property tax, supposedly mostly to educate local children. Not far from me, the city of Los Angeles just spent about $600 million to build the most lavish school in America for about 4,000 children. That's my money. Naturally, I had no say in it. My wife and I have no children in public schools and only did for about eighteen months long ago. I still pay my school tax ever year.
I am not asking for any tears. I live a great life, have a fabulous wife, a great son and daughter-in-law, four wonderful, furry dogs and six cats, all adopted. I have more than enough to eat.
But what I don't get is this: There is no known economic theory under which raising my taxes in the midst of a severe recession will help the economy recover. It isn't part of any well known monetarist or Keynesian theory. So if it does no good to raise our taxes, I assume we are being punished.
But for what? I don't own slaves. I employ a lot of people full- and part-time and they are all happy with their pay. When charity calls, I almost always write out a check. I don't have a yacht or ponies or a plane. My wife doesn't wear a tiara. I don't gamble.
What did I do wrong? I know I have often lost my temper with my wife and the cats, but that's not a crime, yet. I tried to be successful, which is what I thought I was supposed to do. When did it turn out that was a crime to be punished? Maybe when the economy recovers, raising my taxes makes sense, but for now, it's just punishment, and I can't figure out what for.
OK, the late, great — and I mean that — Herbert Stein died in 1999. At that time the first $650,000 of an estate was tax-free — $1.3 million for a couple, provided it did what CBO calls “minimally competent estate planning” — with a 55% tax on the amount above that.
So either Ben Stein inherited several million dollars — which, although this may be news to him, is not the experience of most Americans — or he’s just making stuff up.
He did indeed leave some money. By the standards we read about in the Wall Street Journal or Sports Illustrated, it was not worthy of much ink. In any event, because of the class-warfare-based death tax, the amount that will be left is vastly less than what he had saved. As an economist, my father was famous for defending taxes as a necessary evil. But even he was staggered, not long before his death, when he considered the taxes on his savings that would go to the Internal Revenue Service.
The nest egg is going to be taxed at a federal rate of about 55 percent, after an initial exemption and then a transition amount taxed at around 40 percent (and all that after paying estate expenses). When I think about it, I want to cry.
Later, referring to his father's writings,
Some of them will go to the Nixon Library, and some will be on bookshelves in the (very small and modest) house my wife and I own in Malibu, a place he found beguiling because he had always wanted to live by the ocean and write.
Something flashed into my mind — something that my late father used to say, quoting loosely from the economist Henry C. Simons, a founder of the Chicago School of economics: that it is "unlovely" to see the extremes of wealth and nonwealth that are evident in contemporary America.
We may be able to live with it. Some of us may even be able to prosper amid it. But it's not pretty. The rich should simply not be that much richer than everyone else — especially those whose lives protect them from terrorism.
and later in that same piece,
The real problem is the difference between the rich — including rich oil people, of whom there are not many, but there are enough — and the poor. It is up to the government to redress this extraordinary difference in incomes of the rich and the nonrich, even at the margins.
What Congress can do, and should do, is address the stunning underpayment of military men and women and the staggering budget deficits that will be a burden on our posterity for decades, by raising the taxes on the rich. It's fine that there are rich people. It's even fine that there are superrich people.
But if they are superrich, they derive special benefits from life in the United States that the nonrich don't. For one thing, they can make the money in a safe environment, which is not true for the rich in many countries. It is just common decency that they should pay much higher income taxes than they do. Taxes for the rich are lower than they have been since at least World War II — that is to say, in 60 years.
This makes no sense in a world at war, in a nation with so many unmet social needs, in a nation with so many people without health care, in a nation running immense and endless deficits.
America is becoming a nation of many rich people. I recently read that there were close to 10 million millionaire households. I read that there were hundreds of thousands who made more than $1 million a year. Good for them.
But it's unlovely for them to pay as little tax as they now pay. The real problem in this country is only temporarily about oil. That will right itself, or we'll get used to it and adjust.
The real problem is saving a nation that is beset by terrorism, and we cannot do that unless we feel that we are all in the same boat, pulling at the oars together. That includes the rich.
Whatever rationale there may have been in 2001 for lowering their taxes is long gone. It's time for them — us, because it includes me — to pay their (our) share.
It's not about oil. It's about fairness.
Let's go back to his recent comment, "I worked for almost every dollar I have, except for a small percentage my parents left me by virtue of hard work and Spartan living, and most of that was taken by the federal estate tax. ... I own some real estate in California and Idaho and the District of Columbia." and his 1999 comment, "some will be on bookshelves in the (very small and modest) house my wife and I own in Malibu," on which (2010) " ... naturally, I pay property tax, supposedly mostly to educate local children." And if, perhaps, he used those inherited dollars to buy some of his real estate, which has appreciated mightily in the intervening years, his "I worked for almost every dollar I have" is a bit disingenuous (buut consistent with Edward Wolff's findings, which imply that the amount inherited is often a small piece of large fortunes -- ignoring, of course, the contribution that a fully-paid for education in private primary, secondary, college and graduate schools might make, or any inter vivos gifts such as help with a downpayment on a home in the early working years, might make to an eventual fortune -- or sense of entitledment.
I don't know whether Idaho has a lot of children to educate, but California and Washington, D.C., certainly do. And property taxes are generally used to provide the public goods and services which help maintain and increase property value. California property values have risen significantly since he acquired his property; I assume that he attributes that appreciation to his hard work. But an economist who thinks deeply would recognize that he can take no credit for it. Even a small and modest home in that location is worth an amount far beyond what 95% of Americans could afford.
I am reminded of Warren Buffett's 2004 pre-Schwarznegger election interview in the WSJ and his post-election LTE, referring to properties in Malibu Laguna , in which Buffett he pointed out (a) how low those property taxes are; (b) how fast Malibu property appreciated, and (c) how unrelated to the market value of Malibu homes the property taxes of long-time owners are.
"The first Laguna Beach house is a property that I bought in the early 1970s. It has a current market value of about $4 million and, because of the limitations embodied in Proposition 13, carried taxes of only $2,264 in 2003 vs. $2,241 in 2002.
The second house, located just in back of the first, is one that I purchased in the mid-1990s. It has a market value of about $2 million and, simply because I bought it later than the first, carried taxes of $12,002 in 2003 vs. $11,877 in 2002."
and Buffett later continues, "My sympathies are clearly with the "non-billionaire" family purchasing a $300,000 house in Chico today that faces real estate taxes materially higher than those borne by this non-resident billionaire on his $4 million house in Laguna. This family, because of Proposition 13, has been selected to subsidize me."
Back to Stein's "My Father's Estate" (1999):
He never once in my lifetime's recall said that any man or woman deserved special respect for riches -- in fact, like Adam Smith, he believed that the pleadings of the rich merited special suspicion.
If you'd like to read more about how Ben Stein sees wealth concentration, explore this piece in which he explains away any problems with corporations taking advantage. I read it in January (and commented), and heard him deliver it again in April.
WASHINGTON – President Obama on Monday is to call for as much as $50 billion in government spending to start up a long-term public works plan emphasizing transportation projects – roads, rail and airport runways – over the next six years.
Okay. Sounds good. This is what some people have called Pork, when the money has been invested in other people's congressional districts.
Good infrastructure projects are very worthwhile, and, properly conceived, well designed and well executed, will serve the public for decades, perhaps many generations. Look at what the CCC accomplished during the Depression. Look at the Interstate Highway system. Look at the service that commuter rail and, in some places, intercity rail offers.
But local government has failed to follow through. Federal investment in infrastructure is the "1" of the "1-2 punch," but if local, county or state governments fail to respond appropriately, much of the benefit is lost.
Every worthwhile infrastructure project creates (or in the case of necessary maintenance, maintains) far more land value than the cost of the project. Consider:
the George Washington Bridge across the Hudson created how much land value in northern New Jersey?
the Golden Gate Bridge created how much land value in Marin County, California?
the Tappan Zee Bridge across the Hudson created how much land value in Rockland and Westchester Counties?
the Northway created how much land value north of Albany, New York?
the Verrazano Narrows Bridge created how much land value on Staten Island?
Who benefited? The landholders! Federal dollars were poured into these projects, and individual landholders reaped the windfall we created. Their communities and counties and states could have taken two simple steps to recycle that value -- and still can!:
Assess the land value every few years. (Assessing land value is not expensive or difficult to do well, if one sets out to do it. Unfortunately, many assessments are focused on buildings, or on the property as a whole, and only later assign a land value, which may bear little relation to market values.)
Collect some significant portion of the value which results from federal, state, county and local investment in infrastructure and services. Don't tax the buildings. Don't tax sales. Don't tax wages. Just the land value.
And if the local, county and state governments don't see fit to collect that value for local, county or state purposes, the federal government ought to be able to step in and collect it. After all, WE created it. It doesn't belong in private pockets. And if we collected it, we could reduce or eliminate the dumb taxes which burden our economy.
Which is the whole point of stimulating the economy, isn't it?
Unless, of course, we're doing it for the benefit of the 10% of us who receive about 48% of the income, or the slightly different 10% of us who own 71.5% of the net worth, in which case this is a very poor idea. Remember what Leona Helmsley told us: "WE don't pay taxes. The little people pay taxes."
Shall we create more unearned income for them? Or shall we create incentives for localities and states to recycle that value, with the option of collecting it for federal purposes if they choose not to?
Doing some housecleaning, I came across the May, 2006, issue of Harper's Magazine, whose cover story was entitled "The Road to Serfdom: An Illustrated Guide to the Coming Real Estate Collapse." On the promotional half-cover, the headline said "THE HOUSE TRAP: How the MORTGAGE BUBBLE Will Bankrupt Americans -- in 20 East Steps."
I looked online, and found a copy of the article in PDF format here, which permits me to throw away my hardcopy.
Never before have so many Americans gone so deeply into debt so willingly. Housing prices have swollen to the point that we’ve taken to calling a mortgage — by far the largest debt most of us will ever incur — an “investment.” Sure, the thinking goes, $100,000 borrowed today will cost more than $200,000 to pay back over the next thirty years, but land, which they are not making any more of, will appreciate even faster. In the odd logic of the real estate bubble, debt has come to equal wealth.
And not only wealth but freedom — an even stranger paradox. After all, debt throughout most of history has been little more than a slight variation on slavery. Debtors were medieval peons or Indians bonded to Spanish plantations or the sharecropping children of slaves in the postbellum South. Few Americans today would volunteer for such an arrangement, and therefore would-be lords and barons have been forced to develop more sophisticated enticements.
The solution they found is brilliant, and although it is complex, it can be reduced to a single word — rent. Not the rent that apartment dwellers pay the landlord but economic rent, which is the profit one earns simply by owning something. Economic rent can take the form of licensing fees for the radio spectrum, interest on a savings account, dividends from a stock, or the capital gain from selling a home or vacant lot. The distinguishing characteristic of economic rent is that earning it requires no effort whatsoever. Indeed, the regular rent tenants pay landlords becomes economic rent only after subtracting whatever amount the landlord actually spent to keep the place standing.
Most members of the rentier class are very rich. One might like to join that class. And so our paradox (seemingly) is resolved. With the real estate boom, the great mass of Americans can take on colossal debt today and realize colossal capital gains — and the concomitant rentier life of leisure — tomorrow.
If you have the wherewithal to fill out a mortgage application, then you need never work again. What could be more inviting — or, for that matter, more egalitarian?
That’s the pitch, anyway. The reality is that, although home ownership may be a wise choice for many people, this particular real estate bubble has been carefully engineered to lure home buyers into circumstances detrimental to their own best interests. The bait is easy money. The trap is a modern equivalent to peonage, a lifetime spent working to pay off debt on an asset of rapidly dwindling value.
Most everyone involved in the real estate bubble thus far has made at least a few dollars. But that is about to change. The bubble will burst, and when it does, the people who thought they would be living the easy life of a landlord will soon find that what they really signed up for was the hard servitude of debt serfdom.
From there, Hudson proceeds to list the 20 steps, each illustrated with a graphic. I encourage you to look up the original; the graphics are generally quite helpful to making the point -- but the text is valuable here.
We're taxing the wrong things. We expend a lot of energy talking about
income tax brackets, ignoring the extent to which US income is
concentrated among a relative few of us.
We'd be wiser if we
started paying attention to how income has become so concentrated:
through granting of privileges such as the privilege of pocketing most
of the value of natural resources; the privilege of collecting what is
mostly land rent not building rent, both month by month or in the form
of "capital" gains upon sale of urban land; the privilege of using the
electromagnetic spectrum without paying one's community for the
privatization of this scarce resource; geosynchronous orbits; landing
rights at Laguardia and other congested and constrained airports; water
rights; rights to pollute.
If you're not familiar with the
statistics on how concentrated the benefits of such privileges are, read
the Survey of Consumer Finances data on Equity (publicly held stocks)
and "BUS" (the value of privately held companies) at LVTFAN. A few
percent of us own awesome percentages of these privileged assets and
reap what the rest of society sows through its labor and presence.
And our economics education neglected to mention this detail. (Should we be surprised?)
Life on a tilted playing field -- and we're so used to it that we don't even realize the tilt.
wealthy can be stimulated to do the things which create jobs and drive
wages upward for ordinary workers -- but it isn't through fiddling with
income taxes. We may need to fiddle with them in order to reduce the effects of our terrific income concentration and our need for revenue for legitimate common purposes, but it isn't the answer to stimulating the economy.
One of my standing Google Alerts brought me to someone's blog post about income concentration in the US, which took me back to my spreadsheets on the subject. My spreadsheets start with Piketty & Saez's annual spreadsheet, and then add in some calculations. Many people who report on their data seem to me to miss the most important columns. What many people report is this breakout:
The data is powerful. Looking at income including capital gains and fractiles defined using that income definition (their Table A3), we find the following income shares for 2007:
Top .01%: 6.04%
Top .1% 12.28%
Top .5% 19.31%
Top 1% 23.50%
Top 5% 38.67%
Top 10% 49.74%
and by inference, bottom 90% 50.26%.
But where it gets interesting is to break out the fractiles individually, and then to look at trends. Here are a few selected years from the P&S tables, which start in 1913:
Income Concentration, selected years 1913-2007
Source: Piketty and Saez 2007 spreadsheet, Table A3 (includes
capital gains in both income and fractile definitions) and LVTfan calculations
One way to read this is that of the 17.11% of income which the bottom 90% lost between 1970 and 2007, nearly 30% went to the 1-in-10,000 fellow, 26% went to the 9-in-10,000, 21% went to the 40-in-10,000, and the remaining 24% went to the 950-in-10,000. I'm willing to guess (or concede, if you will) that half or more of those 50-in-10,000 in 2007 were not in the top 50-in-10,000 37 years earlier (and that many in the 1970 top 50-in-10,000 were no longer alive in 2007).
Henry George wrote about a wedge driven through society. That was 130 years ago.
So what's your guess for 2008?
Do you think the bottom 90% of us will have more than 50% of the income, or drop below 50%?
Do you think the share of the 90th to 95th percentile will rise or fall?
The data is due out shortly. I'll report it when I see it.
The Tax Foundation recently published a study which apparently seeks to comfort those of us who are concerned about the concentration of income in the US -- what they call "the rising gap between the rich and poor." It suggests that "snapshots of income inequality" should be considered in light of "the mobility of people up and down the income ladder."
The first graph is from Piketty and Saez, and shows the percentage of income going to the top 1% of income recipients. It shows the 1980 share as 10% and the 2007 share approaching 23.5%. The text mentions that the share of income received by the top 10% has risen from 34.6% in 1980 to 49.7% in 2007, also sourced to P&S.
The paper then goes on to show, from IRS data, the extent to which people moved from one income quintile to another between 1999 and 2007:
Table 1 More than 50 Percent of Taxpayers Moved Out of the Bottom Quintile Between 1999 and 2007
2007 Income Quintile/Percentile
Note: Computations by author from the 1999-2007 SOI Individual Tax Panel.
They cite the good news that only 43% of those in the bottom income quintile in 1999 remained in that quintile in 2007. A similar percentage of those who were in the top 1% in 1999 were again in the top 1% in 2007. Less than 10% of the 1999 Top 1%'ers had fallen out of the top quintile 8 years later. It was far more likely that a top-quintile taxpayer would remain in the top quintile -- 62% -- than anyone else remain where they were.
(Might I be forgiven for wishing that the study showed what percentage of income over the 9 years went to the people in each quantile in 1999, and then again for each quantile in 2007? One might come away with a different understanding.)
The remaining tables/figures show, for three different measures of income, how many taxpayers were "millionaires" for 1, 2, 3, 4, 5, 6, 7, 8 or all 9 years. (The appendix shows that the top 1% began at $339,600 in 1999, and $549,200 in 2007.)
Working with Gross Income, 675,000 tax payers had income over $1,000,000 during at least one year between 1999 and 2007. Of those, half were in that category for just one year, and only 6% -- 38,000 taxpayers -- were in the $1,000,000+ category for all 9 years. This is apparently intended to demonstrate that many more of us have one fabulous year than have consistent reported income at that level, and that this must mean that there is opportunity for all.
Narrowing the definition of income to exclude capital gains, a similar table shows that 431,000 taxpayers fell into the $1,000,000+ category at least once, of whom 175,000 were only once. So 36% of those who were "income millionaires" by the Gross Income definition were not "IM's" when capital gains were excluded.
Excluding (instead) "Business Income," the ever-an-income-millionaire universe drops to 555,000 taxpayers, and 55% of them were one-year-only income millionaires.
It would be interesting to see the aggregate income during the 9 years for each group. The author clearly has the data.
Appendix B Persistence/Transience of Millionaires:
Data Underlying Figures 2, 3 and 4
Number of Years a Millionaire
Gross Income Excluding Capital Gains
Gross Income Excluding Business Income
Source: Computations by author from the 1999-2007 SOI Individual Tax Panel.
I suppose their conclusion is that since so many more people have one year of $1,000,000+ income than have 9 years of it, we ought not to worry about the actual distribution of income, which, as I've previously reported, is as follows:
Top income decile:
47.19% of the
Second income decile:
13.77% of the
60.96% of the
highest income quintile:
18.18% of the
Middle income quintile:
of the before-tax income
highest income quintile:
6.72% of the
2.92% of the
[Source: SCF Chartbook, page 7 and my calculations]
Moving from the bottom quintile to the fourth highest quintile may be considered mobility by the Tax Foundation. But when the top quintile receives 61% of the income, and 62% of those who were in the top quintile in 1999 are again in it in 2007, even a lot of mobility doesn't get one very far, in terms of economic security or return on one's labor.
Look at it this way:
67.6% of those in the lowest quintile in 1999 are still in the bottom 40% in 2007
Of those in the second quintile in 1999, 66.9% are still in the bottom 40% in 2007. More have moved down a quintile than have moved up a quintile (and almost as many have moved down as have moved up in total: 32.2% down, 33.1% up).
Of those in the middle quintile in 1999, more have fallen into the bottom 40% than have moved into the top 40% in 2009
Of those in the fourth quintile in 1999, only 56% are in the top 40% in
2007. More have moved down a quintile than have moved up a quintile
(25.7% vs 18.3%).
Of those in the top quintile in 1999, 85.8% are in the top 40% in 2007
Of those in the top 10% in 1999, only 23% are in the bottom 80% in 2007
Of those in the top 5% in 1999, only 15% are in the bottom 80% in 2007
Of those in the top 1% in 1999, only 10% are in the bottom 80% in 2007.
This is structural. We have permitted the creation and maintenance of income- and wealth-funneling machines.
You can read more about the nature of the machine, and how to harness it to make things better, in Henry George's books, including Progress and Poverty, and Social Problems (the latter is a book of essays, and the link will take you to some material which will help you choose one of interest). Certain things in society rightly belong to all of us, and our failure to treat them accordingly is at the root of our income- and wealth concentration problems (and many others, including sprawl, joblessness, boom-bust cycles, pollution -- and I think most of us would be happy to see that there is a solution to any one of these, much less something that will lead to a solution of all of them).
Income mobility in a society where so few of us control so much is a salable proposition only to the gullible. If every one of us could spend 3 months of our lives in the top 0.25% of income recipients, then maybe our top-20%-gets-61%, top-1%-gets-23% might be consistent with our ideals of equal liberty. Maybe, kinda sorta.
Tax Foundation, look into the wisdom of Henry George. Unless, of course, your funders' interests are not the interests of ordinary Americans.
A standing google alert on the "Roosevelt Hotel" in NYC brought me this article on another way for the foreign owner of this excellent acre in Manhattan to make money without selling the site. It suggests that this method might be quite profitable for a number of individuals in that country's government.
The back story, as I've gleaned it, is contained in some earlier posts to this blog.
The article slightly mis-states the situation. It is not the Roosevelt Hotel which is worth $300 to $400 million; rather, it is the ground under the hotel, which is a well-located full-block, roughly an acre, in midtown Manhattan. Estimates of its value a few years ago, as a tear-down, ranged from $400 million to $1.2 billion. When the real estate market went soft, it was clear that waiting a few years for it to revive would be quite profitable.
This article, though, suggests that a lot of individual politicians stand to make individual profits through a different strategy.
Remember what Leona Helmsley told us: "WE don't pay taxes. The little people pay taxes." The little people's taxes provide the services which make this acre worth $400 million.
A friend passed along this excellent piece, from the City Club of New York just over 100 years ago. It is long, but highly instructive, and quite relevant in the 21st century.
Do you want to know the mechanisms by which we concentrate wealth into the portfolios of a narrow slice of our population? Read this. Read Fred Harrison's Wheels of Fortune. Watch Fred's brief video, Ricardo's Law: The Great Tax Clawback Scam:
And consider a town or city you know. Is your experience any different?
Why on earth would we finance infrastructure any other way? Well, California's Proposition 13 is designed to make sure California can't. No wonder the state is in such trouble.
Remember what Leona Helmsley told us: "WE don't pay taxes. The little people pay taxes." She wasn't talking about tax evasion; she was describing tax structure. THIS is how wealth concentrates.
The reference to Spuyten Duyvil is to the point where today the Henry
Hudson Bridge, on the parkway of the same name, crosses from upper
Manhattan into Riverdale, in The Bronx. (It refers to devilish currents
in the rivers, which menace unsuspecting rowers.)
Building of Rapid Transit Lines In New York City By Assessment Upon Property Benefited
A Memorandum Addressed to the Board of Estimate and Apportionment
And The Public Service Commission of New York City.
The City Club of New York
55 West 44th Street
October 2, 1908
The Board of Estimate and Apportionment and the Public Service Commission:
The City Club respectfully submits for your consideration the results of inquiries made through its Transit Bureau with relation to the feasibility of meeting the cost of future subway extensions by means of assessments on the property benefited.
The city urgently needs more rapid transit roads. Private capital seems disinclined, at present at least, to finance the work of building. The city's borrowing power is utterly inadequate to cover the need, and will be until relief may be secured through the slow process of constitutional amendment. If the necessary lines are to be built, it seems self-evident that other methods must be considered.
The Club's investigations show that in the outlying districts reached by the present subway, and to some degree the nearer sections, the value of the property served has increased to an extraordinary degree. This added value would have paid for the cost of the work several times over. While the city as a whole has benefited greatly, the scale of local benefit is naturally much greater. In our judgment, it would not only be helpful as a solution of the problem, but far more equitable to charge a proportion of the cost of constructing a rapid transit line to the property most benefited by such construction.
The argument is elaborated, and the exact results of the Club's investigation given, in the accompanying memorandum. We trust that this may have your examination, and that if the plan commends itself to your judgment, the future policy of the city may be shaped accordingly.
Very respectfully yours,
Homer Folks, Chairman, Transit Committee.
Henry C. Wright, Bureau Director.
BUILDING OF RAPID TRANSIT LINES IN NEW YORK CITY
BY ASSESSMENT UPON PROPERTY BENEFITED
For many years the city has deemed it just to assess upon abutting property the cost of opening streets and building sewers. The theory of such a tax upon property is that it receives almost the exclusive benefit from the construction of a street or sewer adjacent to it. The question naturally arises, does not a transit line, by the benefit that it confers, fall in the same class as new streets and sewers? If a street railroad or rapid transit line be extended into an undeveloped territory, is it not built primarily for the purpose of furnishing transit facilities to future residents in that section? People will buy this property primarily because it has good transit facilities and the value placed upon it is largely based upon its accessibility. This being true and universally admitted, why should not the property thus enhanced in value by the extension to it of a transit line pay for the construction of such line, to the extent that the increased value warrants it, instead of receiving such increased value as a present from the city. This principle, in a modified and unofficial form, is operated in Berlin. The assessment is not collected by the city, but the street car company when extending a line to outlying territory requires the owners of the property benefited to guarantee to the company a certain return upon the cost of such extension.
Pennsylvania is a diverse state. Its major cities and their suburbs tend to have higher costs of living, and its smaller cities and rural counties are much less expensive. But even the least expensive counties have bare-bones cost of living far about the Federal Poverty Guideline.
Here are the Federal Poverty Guidelines for 2009, which were extended into at least mid-2010:
The barebones cost of living in the least expensive counties is over 150% of the FPG for a single adult; and nearly twice the FPG for adults with children.
A similar lifestyle would cost far more in Pittsburgh (about 250%, with children) and Philadelphia (about 300%, with children. In suburban Pittsburgh, the figure is slightly higher than in the city itself. In Lancaster County, the costs are similar to suburban Pittsburgh's.
And in the suburban counties of Philadelphia, that still-bare-bones lifestyle costs more yet: 325% to 350% of the Federal Poverty Guideline.
Few people live in the rural counties, where costs are low. (So are wages and opportunities!)
Most people live in the urban and suburban counties, where costs are higher. (And if they tried to live in the rural counties and work in the urban ones, their high transportation costs would eat up much of the difference.)
High population density goes with high median income; low population density goes with low median income.
All these places need janitors, and nurses' aides, and fast-food workers, and retail clerks, and many other jobs which pay wages which are insufficient for an adult to live independently on, much less support a family on. (And most places have zoning regulations which prohibit more than a few unrelated adults from living in a single housing unit, which would be a way to reduce the cost of living.) Encouraging individuals to seek more education to move beyond these jobs is fine, but it doesn't mean that those jobs won't be needed in a hypothetical more-educated future. Do we really expect that they will be filled by people who will be content with dormitory living, and not having children, or supporting an elderly relative, or that young people will fill these jobs briefly and then move into higher-paying jobs when they marry and have children? Really?
Trickle-down economics doesn't speak to how all these people can afford to live. The SSS is not a middle-class lifestyle, at least not the way most of us think of "middle class." It is the just-getting-by-without-depending-on-help (though it does take into account EITC, CCTC and CTC; the EITC is only relevant in a few rural counties -- see the tables starting at page 42). We need to understand why wages are so low, and why our wealth and income are so concentrated. And we need to understand the structures that create this situation, in order to correct them.
Median Family Income
Persons per Square Mile
Federal Poverty Guideline
source: Census Quick Facts site, except for Allegheny County: Pittsburgh city data
That figure has been in the news and opinion columns a great deal in the past couple of weeks. It is the percentage of Americans who pay nothing in federal income taxes (as distinct from federal withholding for social insurance).
Some of the articles and related comments have focused on the concept that everyone should be paying something, so that they "have some skin in the game" so that there is an incentive not to vote for spending that others will have to pay for. Some have approached the 47% as "freeloaders."
It is funny that in our largest state, where, for 30+ years, Proposition 13 has put a ceiling on property taxes, so that landholders, who are the primary beneficiary of the effects of state and local spending (and federal funding of state and local projects) can expect their tenants to contribute mightily to the projects they vote for -- and no one has made an impression by pointing this out.
And none of the articles I've seen about the 47% figure -- which went viral after an article by Bob Williams in the WaPo -- have spent much time exploring the policy decisions behind this.
I am reminded that according to our official Federal Poverty Guideline, about 13% of us live "in poverty." And that even the Census Bureau, which collects and reports the data on who lives below the Federal Poverty Threshold (a retrospective figure which relates closely to the FPG) willingly recognizes that the Federal Poverty threshold and guideline are merely a statistical yardstick, with no particular logical relationship to the cost of living anywhere in America.
I am reminded that for the states for which a Self-Sufficiency Standard Study has been published (about 35 in all), the bare-bones cost of living for a young working family typically runs from 180% of the Federal Poverty Guideline -- in the least expensive counties (where very few people live) to perhaps 210% in the major cities of our smaller states to 300% or 400% in the major cities in our larger states.
Should the incomes -- mostly wages -- of our working people whose incomes are insufficient or barely sufficient to meet their own and their families' most modestly defined needs, be taxed?
I am reminded of the Overlooked and Undercounted studies, which typically follow a Self-Sufficiency Standard Study, and seek to quantify the number and percentage of working-age families whose incomes are insufficient to cover their bare-bones cost of living. Significant percentages of these families are at these income levels. 30% to 35% sticks in my mind -- and a larger percentage of America's children.
I am reminded that a large percentage of today's seniors are hugely reliant on their income from Social Security, and that the level of Social Security income is established upon retirement and thereafter only rises to keep up with the CPI-U; our oldest retirees are receiving Social Security incomes which are a function of their wages 30 years ago -- roughly as logical as California property taxes for long-time owners being based on the selling price of California housing 30 years ago!
I am reminded that many people get to deduct their mortgage interest and real estate taxes from their taxable income (they're typically in the coastal states; in the heartland states, the standard deduction often turns out to be higher, since taxes and interest payments tend to be lower ... which may correlate to the percentage of children who attend 4 year colleges).
And I am reminded that state and local taxes fall more heavily on low-income people than they do on high income people. (See "Who Pays? A Distributional Analysis of the Tax Systems in All 50 States", particularly the "Averages for All States" table on page 124 of 130), which shows that, on average, the bottom quintile of us pay 10.9% of our income in state and taxes, while the fourth quintile pays 8.5% and the top 1% pays just 5.2%, on average.
I am reminded of our concentration of income:
10% of us receive 47.19% of the before-tax income
20% of us receive 60.96% of the before-tax income
40% of us receive 79.14% of the before-tax income
60% of us receive 90.37% of the before-tax income [see middle-class agenda, on the next page of this blog]
So the bottom 40% of us receive less than 10% of the before-tax income. And those who think they don't pay enough in taxes would like them to pay more into the system than they already do? The problem is one of low wages, unemployment and underemployment. The best solution to these problems I've come across lies in the ideas of Henry George. The law of wages is something like the law of gravity: we operate in ignorance at our own risk.
How does wealth concentrate? Let us count the ways ... Tell us again about the wonders of trickle-down economics, folks. The trickle flows the other way: to the shareholders of our natural resources companies and the FIRE sector -- Finance, Insurance and Real Estate. This article from the Washington Post gives some useful data. $1 per gallon, going into the pockets of the oil companies and the too-big-to-fail speculating banks, and particularly their top "hired help," who are highly compensated whether or not their shareholders also make out well.
The Goldman Sachs scandal has done the unthinkable: It's made it possible that legislation reining in Wall Street's casino may actually be enacted.
The odds against real reform are still steep. Wall Street remains the most deep-pocketed lobby in the land. And the problem isn't just Republican opposition. "A lot of our members up here just want a bill passed," says one Democratic legislator. "They don't think that people are watching that closely. But this matters immensely to people. This is a which-side-are-you-on moment."
The clearest way for senators to demonstrate that they're not on Wall Street's side would be to support the bill that Arkansas Democrat Blanche Lincoln plans to bring before the Senate Agriculture Committee on Thursday. Going well beyond the bill that the House passed and the legislation that came out of Connecticut Democrat Chris Dodd's Senate Banking Committee, Lincoln's bill aims squarely at the big banks' most highly leveraged, profitable and risky-to-the-rest-of-us business: their trade in derivatives. (The Ag committee has jurisdiction because derivatives historically were used to trade commodities.)
Lincoln's legislation would require the firms that buy and sell derivatives -- 95 percent of such deals in the United States, according to the Comptroller of the Currency, are done by Goldman, Morgan Stanley, J.P. Morgan Chase, Bank of America and Citibank -- to do their trading openly on exchanges and to post some actual money behind their trades. Today, the market is unregulated. But if Lincoln's legislation passes, no longer would deals with the potential to threaten the nation's economic stability be invisible to regulatory agencies; no longer would businesses seeking to buy derivatives have to accept banks' terms with no ability to shop around or even ascertain the going price for such contracts. No longer would trades with foreign entities be exempt from regulation. And no longer would banks that our government backs up with deposit insurance and access to the Federal Reserve's discounted interest rates be able to put taxpayers on the hook for their speculative bets: They could either continue as derivative-trading casinos or as governmentally insured banks, but not both. In fact, Lincoln's bill goes a good deal of the way toward meeting Paul Volcker's proposal to remove banks' proprietary trading from the umbrella of federal protection.
On Tuesday, leaders of industries that actually need to lock in prices on real commodities -- in particular, oil -- went to the Senate to endorse Lincoln's bill. "In 2008," said James May, president of the Air Transport Association of America, "we burned the same amount of fuel we burned in 2003, but we paid $42 billion more." The difference, he said, was the result of the vast increase in oil speculation carried on through derivatives. Over the past half-decade, for instance, the largest holder of home heating oil often has not been an energy company but, rather, Morgan Stanley.Such speculation, estimated Sean Cota of the Petroleum Marketers Association of America, has increased the cost of gas at the pump by about a dollar a gallon.
"We need predictability in prices," Cota said Tuesday. "The banks want volatility. . . . Old-fashioned bonds built Hoover Dam, but they were paid off over many years. The banks are only interested in trades that pay off in the next 30 seconds. . . . They have no concern for the future of the larger economy."
Just another wealth-concentrating machine. A $1 per gallon "tax" going to line the pockets of our smart and privileged, out of the pockets of ordinary working people. And, by the way, any of those smart folks who die this year will be able to leave their estates to their heirs untouched by even "death taxes."
There is no such thing as a free lunch. Their windfall comes out of the pockets of the rest of us, not out of thin air.
Aren't markets wonderful? I am reminded of the statement about neoclassical economists being rich peoples' useful idiots.
This is one of a number of sites which describes the history of the board game Monopoly. It doesn't get it quite right, but is directionally correct. I'll share my corrections here:
"Goal" is actually "Gaol" -- what we know as Jail.
The "Prosperity" rules were not similar to the rules of the Monopoly game as we know it. Rather, they were similar to the original rules, which produced a VERY dull game. No big winners, no losers. Just a sustainable situation in which all could prosper. Not much fun on a Sunday afternoon, but a good model for real life. The OTHER rules are similar to the Monopoly game we know today.
The point of "The Landlord's Game" -- Lizzie Magie's original 1903 game -- was to teach the ideas of Henry George (1839-1897), and show by a simulation why they produced a just, logical, sustainable economy and community, in which all could live as equals. George saw that the economic rent -- the annual rental value of the land within a community's borders -- ought to be collected by the community and used to fund goods and services which would benefit the community, while that which individuals and corporations create should be the private property of those individuals and corporations. The game demonstrated how things would work under this scenario. (Think about SimCity as a teaching tool.)
This website is missing the richest part of the story!
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.
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.
This is not a paper on the theory of tax incidence. Such a paper is needed, but would take a heavy tome, most of it devoted to fine-spun and pretentious theories that appear in academic journals, and which fail to convince because the authors are weak on distinguishing land from capital. My own postulates here, in brief, are
1) that corporations own a large fraction of the wealth in the country; 2) much of that wealth is land; 3) taxes that do fall on capital are in part shifted to land; 4) pure land taxes would be better but are not the subject here; and 5) payroll taxes are worse and must bear most of the burdens that are shifted off corporations.
I'll skip over a lot of interesting and useful historical material -- which I commend to your attention -- and share the final section:
All along, though, an accumulation of small actions was helping corporations at the expense of labor. The Warren Court, 1953-69, did many notable deeds for the common man and woman, but it did not stop the decremental fall of the share of corporate income tax revenues in Federal finance. 1968 was the milestone year when the payroll tax quietly surpassed the corporate tax as the second biggest source of Federal Revenue. Just think: the corporate income tax of 1907 antedated the payroll tax of 1935 by 28 years, and it was another 33 years, 1935-68, before the payroll tax took in more money than the corporate tax did. That was a revolution indeed, but so quiet and gradual that most people never noticed. Nor was that the end of it: by 2008 the corporate tax raised just 11% of Federal revenues, compared with 38% for the payroll tax, nearly 4 times as much. That is a measure of the growing power of corporations in politics.
On top of that, personal income taxes on corporate dividends and capital gains have been singled out for preferentially low rates. In 2003 President Bush and his Congress lowered the tax rate on both dividends and capital gains to 15%, so that a smaller share of the personal income tax now comes from corporate shareholders. As late as in the Tax Reform Act of 1986, dividends were taxed like other “ordinary” income. So, briefly, were capital gains. President George H. W. Bush then devoted most of his presidency, and sacrificed a second term, to get a token cut in the capital gains rate. It was the thin end of a wedge, leading soon to the present cap of 15%. “Capital gains,” so-called by Congress, derive from many sources, but one of the biggest is sales of corporate stock.
And so things stood until January 21, 2010, when the High Court authorized corporate leaders to contribute unlimited amounts of their shareholders’ cash to political causes. This poses a challenge to our tabloid-and-TV-numbed generation. Will “ordinary” taxpayers rebel, as they did in the American Revolution, Emancipation, the Progressive Age of Reform, and the New Deal; or will corporate power wax unchecked until it replaces democracy altogether? Cyclical theory says we will have another anti-corporate reaction, but history also records tipping points in the decline of nations from which they do not recover for generations, if ever. This one may be a squeaker.
Here is a summary from that brief history of the problems with treating corporations as “legal persons.”
1. Corporations never die, never pay estate taxes, never divide their wealth among succeeding generations. In this they resemble medieval Churches that agglomerated over many years so much land they threatened the state itself -– resulting often in massive confiscations, as by Henry VIII.
2. Besides not dying, corporations merge with or otherwise acquire other corporations, progressing, if unchecked, from competition to cartel to oligopoly to monopoly.
3. A corporation is by nature a combination in restraint of trade -– that is, a union of many individuals with their wealth to act as a unit, dealing with customers, suppliers, and workers. It took Thorstein Veblen, a thinking man, to bring out this fact that should be so obvious. The courts, historically, have borne down on labor unions as illegal combinations while, as a matter of course, treating this combination of lands and capitals as an individual.
4. Corporations enjoy the legal privilege of limited liability.
5. The ownership of corporations is, or may be made, secret. Many stocks are recorded in “street names” -– a favorite being “Cede and Co.” Hugo Chavez is one such owner whose name has been revealed: others might be Al Qaeda, the Nazi Party, the heirs of Mao tse-Tung, La Cosa Nostra, or anyone. No citizenship is required for a corporation to sway American government more than almost any citizen.
6. No person is easily held responsible for corporate acts. The first duty of CEO’s is to the shareholders, so they say, to dodge guilt for any outrage against others. Most shareholders, in turn, have little idea what their CEO’s are doing.
7. The internal governance of most corporations is intensely undemocratic
8. The corporation cannot be jailed, and its officers seldom are, as they have great opportunities to pass the buck
9. The corporation has no spiritual counselor or confessor to prick its conscience.
10. Before January 21 the attitude, as expressed by Justices White and Rehnquist in the 1970s, has been that corporations are “creatures of the law,” not equal to natural persons in their civil rights. Suddenly to reverse this now is to upset many expectations that relied on the previous rule.
Finally, what can we do about the High Court’s marriage to corporate power? I first list what I consider ineffective remedies, and then those that can work, and work quickly.
1. Ineffective remedies
a. Justices may be impeached. This has succeeded only once, to my knowledge, in 1804, when a justice was obviously insane.
b. Within a State a Justice may be recalled, as Rose Bird was. There is no such provision for Federal judges.
c. A President can appoint anti-corporate judges as vacancies occur. This will happen at best over a long time-span, but it needs to happen fast because with their newfound pecuniary “free speech” corporations will soon control both Congress and the Executive even more than they do now.
d. Congress can tighten restrictions on foreign corporations contributing through American subsidiaries. This is better than nothing, but does not affect American-chartered corporations, whoever actually owns them.
e. Congress might ban political advertising by any non-citizen, including any group that includes a non-citizen. This would entail forcing corporations to identify their shareholders. This proposal may entail too many steps to be implemented quickly, if at all. As a layperson I would refer that point to learned counsel.
2. Effective remedies
a. The Executive and the Congress can play hardball by drafting new legislation to curb corporate contributions, and threatening covertly to raise the corporate income tax as a bargaining chip -– a big chip! This calls for a leader who sees the imminent danger, and is willing and able to act firmly and decisively, and communicate credible threats covertly without breaking any rules, a la FDR. Washingtonians are skilled and experienced in this sort of thing.
b. The Executive can introduce legislation modeled on the 1937 Reorganization of Judiciary Act. This act would have given the President power to appoint six new justices. It was a credible threat that worked by turning FDR’s 4-5 minority into a 5-4 majority, in spite of a great outcry against it. It is what we need today. It is radical, yes; but the Court’s ruling is radical, and calls for a remedy equally strong or stronger.
c. Could a simple act of Congress declare that a corporation is not a legal person? Perhaps so, perhaps no, we need learned counsel to tell the odds. However, a straight line is the shortest distance between two points, and this action would bring the issue quickly to a head.
In summary, we have seen that the United States was born in rebellion against corporations. The U. S. Supreme Court soon began restoring their power. When it overreached, strong executives and popular movements set it back: under Andrew Jackson, Abraham Lincoln, Teddy Roosevelt, and FDR. Today it has overreached again; it remains to see if a new movement or leader will arise to set it back again..
The only thing I can add to this is to provide the data on the concentration of wealth in America, specifically four items reported in the Survey of Consumer Finances:
BUS (privately held businesses, including "small business;"
NMMF (non-money market mutual funds) and
RETQLIQ (retirement assets such as IRAs and 401(k)s).
(The latter two categories could include bonds as well as equities.) I'll also report "all other, net of debt." (For most of us, that's cars and houses.) The data is from the 2007 SCF, and somewhat understates the concentration, since the holdings of the Fortune 400 are omitted from both numerator and denominator. Quick and dirty, add 1% to numerator and denominator.
All other, net of DEBT
percentage of aggregate NETWORTH (row percent)
Distribution of Holdings: (column percent; sums to 100.0%)
Top 1% of wealthholders
source: 2007 Survey of Consumer Finances
So what SHOULD we tax? Urban land value, and the value of natural resources are a fine start. That is value which ought to be socialized, treated as our COMMON property, not as the private treasure and asset of rich individuals; of family trusts of people living -- or people dead 10, 20, 30, 50, 100 or more years for the benefit of their heirs or pet causes; of corporations of any kind (no matter how much free speech they are now entitled to); of foreign landholders; of private "equity" funds; of real estate investment trusts; of pension funds (public or private sector); of foreign or domestic churches; of insurance companies; of universities or other "philanthropic" entities; or anyone else. [See, for example, the blog posts below on Stuyvesant Town, on the NYC Roosevelt Hotel, including links to earlier related stories.]
The way to make that real is to place significant taxes on the annual rental value of the bare land, and the value of those natural resources, and other things the classical economists would recognize as "land" even if they never heard a radio or cell phone, saw an airplane, thought of a satellite, or imagined that fresh air or clean water could be scarce.
Treat that value as the revenue source for our common spending. Lighten up on taxes on wages, on sales, on buildings, on equipment.
Taxing urban land value will not cause a single acre to move offshore, or a single land speculator to "invest" in another property; rather it will encourage the better use of sites in choice locations, creating jobs and housing and venues for carrying on business where it is most efficient to do so: in the center of town, not at the fringe.
Doing this would reduce the tremendous wealth concentration in America. The economic value of certain kinds of assets which currently line the pockets of rich individuals as business owners or as holders of corporate stock or as salaries, bonuses and golden parachutes to top management, would be pre-distributed back to the commons, recycled locally or nationally, for public purposes. Those owners would still have the use of the assets each year, AFTER they had paid society for what they were privatizing that year.
If you've gotten this far, you might want to read Bob Andelson's fine essay, "Henry George and the Reconstruction of Capitalism, linked from the front page of Wealth and Want, as an "essential document."
I don't know quite when it occurred, but I am intrigued to see that the sale of a piece of land is no longer described in dollars per acre, or dollars per square foot of land, but rather in dollars per square foot of permitted development. This item is about a lot at the corner of 56th and Lex in midtown Manhattan. The lot size isn't even mentioned.
The article mentions that it includes seven vacant small buildings! Imagine! Vacant buildings in midtown Manhattan! Not even so-called "taxpayers."
The Turkey-based Kiska Development has bought the development site at the northwest corner of 56th Street and Lexington Avenue for $33.9 million, or $386 a square foot.
The lot can accommodate 88,000 square feet of development, and while the expectations are that the space will hold a hotel, its flexible zoning means it could host offices, retail or residential.
Kiska, which is led by Kagan Gursel, created the Marmara-Manhattan extended stay hotel on East 94th Street, which was converted from a condominium. Gursel runs Marmara out of Istanbul.
The site encompasses seven vacant small buildings and runs from 678, 680, 682 and 684 Lexington Avenue around the corner to 131, 122 and 135 East 56th Street.
What sort of incentives do we have in place if this many buildings can sit vacant? The assessor must be valuing them at some token value, rather than at their genuine land value. The existing buildings may be worth nothing -- but the land clearly has value. Setting things up so that owners can afford to let that land sit unused is dumb! A property worth $33.9 million, as a teardown, should be paying something approaching 5% of that amount in land taxes per year. That would be $1.7 million in taxes. If we only collect 4%, and leave the other 1% as a bonus for the landholder, that would still be $1.36 million -- far better than collecting that same amount in sales taxes or wage taxes.
NYC may have its reasons for not collecting the rental value of its land. Maybe it has plenty of revenue already to meet all its needs. But the federal government and even NYS could use that revenue, and ought to be collecting it if NYC chooses not to.
I wonder what the sellers would tell us they did to earn their $33.9 million. When did they buy these sites, and how much did they pay? How much have they earned in rents on them since then? And what did they do to produce the increase in value in the intervening time? (How many people have they housed? How many jobs have been made within those walls within their ownership?)
Some people work very hard to earn a living (at $50,000 a year, $33.9 million represents 678 years of work). Others leverage a small down payment and a few years of mortgage payments, and walk away with a significant gain, taxed as a "capital" gain, at a lower rate than the wages of those who work for a living.
This article describes some of the tax approaches that governments, mostly overseas, are turning to in order to plug holes in their budgets.
It is amazing that none seem to have thought about going back to basics, and drawing a larger share of the needed revenue from the one tax base that can be tapped without distorting the economy, without driving productive activity elsewhere, without taking from producers that which they produce.
It seems to me that a municipality, or state, or federal government should tap the annual value of the land within its borders before it starts to tax the wages or purchases of its people. If the municipality fails to collect that rental value, then the state ought to be able to do it; if the state fails to collect it, then the federal government ought to collect it.
And should the municipalities wise up and collect the lion's share of the land rent within their borders, the state and federal governments have other like tax bases they ought to be tapping: the value of water rights, of the airwaves, of geosynchronous orbits, of airport landing rights at busy airports, pollution, non-renewable natural resources such as oil, natural gas, lithium, etc. [The classical economists called all these things "land," as opposed to capital or labor, the other two inputs to production.]
They don't need to get creative. They need to go back to basics: tax that which nature provides; tax that which the community creates -- not what individuals and corporations create.
This is a well-researched piece about a Menlo Park, California, parent, concerned about program cuts in her child's school, who looked into consequences of Proposition 13, with emphasis on the proportion of funding coming from commercial property owners versus the owner-occupied residences.
Ms. Bestor's research of Menlo Park properties -- particularly of
parcels on one commercial strip and one residential street -- sheds
light on how the provisions of propositions 13 and 58 created the
lopsided tax-burden equation.
Looking at Menlo Park's main downtown street, she found that of the 56
commercial parcels on Santa Cruz Avenue, 23 are at the 1978 assessment
(plus 2 percent per year) level. Of those 23 parcels, only four are
owned by the same people who owned them in 1978. Eleven have passed to a
son or daughter, and in a number of cases are held in family trusts.
By contrast, of the 53 residential parcels in Ms. Bestor's
neighborhood, 13 are owned by the same people who held them in 1978, and
two are held by children of the 1978 owners, so are taxed at the 1978
level. The assessments of two other parcels were affected by other
The other 36 parcels (including Ms. Bestor's) have been reassessed
after changing hands, she says.
"My street is paying its way," Ms. Bestor says. "I think that Prop. 13
did what people hoped it would do (for homeowners). It allowed people to
stay in their homes and families to plan their financial futures."
What she doesn't say, of course, is that while her street might be "paying its way" -- I'm not quite sure what she means by it -- some of its residents are paying quite a bit more than their long-time-owning neighbors. 15 out of 53 are being highly subsidized by newer arrivals, and those who have bought most recently are doing the subsidizing. They are paying 1% of their purchase price annually, but due to some neighbors in similar homes getting 90% subsidies, they are not receiving in services as much as they would if their neighbors weren't receiving a 90% discount on their tax bills. Ms. Bestor is too polite to say it. It is not clear whether she is a subsidizer or a subsidizee within her neighborhood.
Her research, however, on the commercial sector, which she chooses to focus on, appears to me to be based on the right questions.
The article continues,
On the other hand, commercial property owners who are assessed at 1978
levels are not paying their way, she says. "Does it really make sense to
subsidize family trusts, major real estate corporations and developers,
who make smaller and smaller contributions (proportionally) to public
services each year?"
In her letter to Mr. Buffet, Ms. Bestor cites a downtown Menlo Park
example to underscore the inequity: "The Trader Joe's property -- the
'new' market in town contributes just $7,471 of general tax towards our
local services (for two-thirds of an acre of prime commercial property)
compared with Draeger's up the street at $66,585. It isn't Trader
Joe's, of course, that's paying the tax -- if they'd bought the property
when they moved in, that parcel would be contributing 500 percent-plus
"Trader Joe's leases it from a family trust, descendents of the 1978
owner ... with an address on a leafy street in Cape Cod. Since landlords
charge what the market will bear, it's fair to guess that the property
tax savings are accruing to those folks in Massachusetts while the
costs are borne by school kids and residents of Menlo Park."
Assuming that Draeger's and Trader Joe's are both on sites of comparable value, and that both are tenants, the annual costs to the tenants are probably comparable. The difference is that Draeger's pays more of it to Menlo Park, and Trader Joe's pays more of it to the landlord, bypassing the city.
Now here is the question: who has created the land value? The landlord? The tenant? Or the community? If the landowner and the landuser are the same entity, is the answer any different?
Let's think about what Prop 13 does to and for residential owner-occupants. Local conditions -- jobs, good schools, attractive views, recreational opportunities, high-quality health care -- attract newcomers to the community. If new housing is not being constructed -- houses where there was previously vacant or farmland, or multi-family homes where previously single-family homes stood, or smaller lots -- the price of existing homes is driven up. (Houses don't appreciate, but the land value rises.)
But Prop 13 reduces the supply of houses available by reducing the normal turnover. Where in most parts of the country, elderly people might decide that the house in which they raised their children no longer fits their needs, or is too large to heat/cool/clean/maintain/navigate in, particularly for a single adult, in California, they have several strong incentives to stay there nonetheless:
Their property taxes, if they've lived there for 30 years, are tiny, particularly for what some of the choicest (highest-appreciation) towns are offering in terms of amenities. This is known as a "free lunch." But it is only "free" to them. It does not come out of thin air; it comes at the expense of their neighbors.
Their children can inherit their highly-subsidized status, and receive all that the town offers for a tiny fraction of what ordinary folks would pay there, or what they would pay in a comparable neighborhood or town nearby. They will be able to put the grandchildren into some of the finest school districts and pay only the 1976-based property tax rate, a tiny fraction of what the new folks next door must pay.
Like everyone else, they hate to think of moving. Prop 13 provides them a good excuse to "think about it later" or not think about it ever.
At the same time, young families living in apartments or condos, which typically have two or perhaps three bedrooms, want more space. To get it, they must either compete with others who want to buy from the constrained supply of family-sized housing available, or locate further out -- putting a load on highways, using fuel, creating pollution, paying for 2 cars where one might have sufficed, reducing the time they can spend with their children, and possibly requiring the building of more houses on the fringe, requiring the extension of taxpayer-provided infrastructure (roads, water, sewer, drainage, roads, parks, etc.) and services (police, fire, ambulance, hospitals, libraries, public health, etc.) more schools (while the ones in the neighborhood they'd have preferred are not filled, because a lower percentage of the homes have school-aged children).
California has among the lowest homeownership rates in the US; the figure that sticks in my mind is 55% when the total US was 69%, which means that the homeownership rate for the rest of US must have been perhaps 72%.) That's pretty well known. But you might be interested to know that California's seniors actually have a higher homeownership rate than their counterparts in the remainder of the US. Prop 13 is clearly a major factor in that.
While I understand the pressures on Ms. Bestor not to speak of the Emperor's nudity, and applaud her research, as far as it goes, I think the entire Prop 13 system needs to be examined and dismantled.
She proposes capping the Prop 13 benefits to commercial property owners at 20 years. This would produce some interesting effects on revenue flows if all commercial properties get re-evaluated at the same time, and continue some awesome inequities if some get re-valued now and some 19 years from now.
Prop 13 – and then Prop 58 that made Prop 13 bases inheritable – has
created economic inequities that are evident from simple on-line
searches of the county assessor's database – and destroy any idea of a
level business playing field. A quick trip around my town illustrates
The nondescript little gas station on El Camino near my house pays
$30,148 a year in property tax for the privilege of selling me less
expensive gasoline than the two Shell stations ($14,214; $17,214), the
Union 76 ($15,920), and the Chevron ($20,388) down the street. Those
big-name stations have service bays to increase revenue and are on major
intersections. But the "new guy" in town (well, actually, there's been
a station there since 1978 -- but the new competitor in the market) is
the one who's paying $10,000 a year more for police, fire, road repair,
education, parks and courts.
Flipping the equation around, the Trader Joe's property -- the "new"
market in town -- contributes just $7,471 of general tax towards our
local services (for two-thirds of an acre of prime commercial property)
compared with Draeger's up the street at $66,585. It isn't Trader
Joe's, of course, that's paying the tax -- if they'd bought the property
when they moved in, that parcel would be contributing 500%+ more.
Trader Joe's leases it from a family trust, descendants of the 1978
owner ... with an address on a leafy street in Cape Cod. Since
landlords charge what the market will bear, it's fair to guess that the
property tax savings are accruing to those folks in Massachusetts --
while the costs are borne by school kids and residents of Menlo Park.
Of course, if the Cape Codders visited, they would probably look across
Curtis Street to the Walgreens (Unamas and Starbucks) building and point
out that that whole complex is only paying $8,709 in general property
tax ... without providing customer parking. In fact, the Walgreens
building pays 51% more for sewer service ($13,181) than it does towards
police, firefighters, courts, roads, and maintaining its free city
Do you wonder whether any commercial properties ARE contributing
meaningfully towards our local services? Well, the Chase takeover of
Washington Mutual appears to have triggered a reassessment of that
property (WaMu's earlier absorption of Home Savings had not). So that's
an additional $25,000 into the pot (up to $45,190). And a dry cleaner
we use, Menlo Art, is in a building that pays $30,346. The dry cleaner
only occupies 25% of the building, so their share is a mere $7,587 --
but compare that with the $944 paid by the much busier cleaner across
Santa Cruz Avenue. (Hoot'n'Toot sits on yet another property whose
sewer bill dwarfs their property tax contribution -- with an
out-of-state owner on the possibly-less-leafy Leisure World Drive in
Mesa, AZ.) I wish I could afford Tom Wing's jewelry ($21,687), but I do
have pizza at Amici's ($32,809) whenever possible. And Kepler's, our
doggedly independent bookstore, occupies about a sixth of a building
that pays $220,395.
Well, Mr. Buffett, I think you get the idea. People say that increasing
taxes will make prices go up but, frankly, that requires the generous
assumption that, in this totally unbalanced model, landlords aren't
charging what the market will bear.
To make sure, I tested this. I took identical loads of my husband's
laundry into each of the dry cleaners mentioned above (after a
particularly depressing talk by our school superintendent -- spending
per pupil is down this year over last, with only one new teacher hired
for over 120 new kids, and 14 teachers due to be laid off in May) -- and
found that cleaning three shirts, two khaki slacks and a cashmere
sweater cost me $37.00 at the popular ($944) cleaner, while I paid
$35.60 across the street ($7,587). Wherever the savings are going, it's
not to customers.
And then there's the threat that Business Will Leave if commercial
property taxes go up. Having spent twenty years in the corporate world
before becoming a mom, forgive my skepticism. I sat in on many meetings
at Apple Computer Inc. in the early 80's and 3Com Corp. in the early
90's discussing siting new sales and manufacturing operations. Property
tax was never, to my best recollection, mentioned. Consolidated tax
levels, yes, but in the broad context of the overall cost and relative
ease of doing business. What attracted us? Locations with a level
playing field (not one that discriminated against the new entrant); a
highly skilled (educated) workforce; good road-, rail- and
air-transportation; fair and efficient courts and public services;
reliable infrastructure; and a community environment that made employees
want to live there.
OK, out of fear of throwing the baby out with the bathwater, we are now
drowning him in it.
The original article, near the end, includes this:
So what is to be done? Ms. Bestor suggests capping Proposition 13
benefits for commercial property owners at 20 years. "Every 20 years,
non-residential property is reassessed at market value, then gets to
enjoy another 20 years of tax relief," she writes.
She also suggests a system whereby properties can be reassessed
gradually so as not to overburden assessors' offices, and a process for
Ms. Bestor also is attempting to launch local fundraising efforts that
would focus on commercial property owners who benefit from lower tax
levels. "I have the feeling these people are ready to be asked," she
"They need strong schools and a vibrant residential community just as
much as anyone else does."
Assessing land properly is not all that difficult, and if California would simply stop taxing the buildings, doing high-quality annual assessments of land value would not unduly burden the assessors' offices.
But I think that final point is correct: even absentee landlords benefit from strong schools and a vibrant residential community.
My brother (an alum) called this one to my attention. My husband and I are alumni, too, and some years ago, when it came time to look at colleges, our son refused to seriously consider Union because he had seen Schenectady on various visits to campus over the years, and simply couldn't imagine living there for four years. He made a great choice for a college, but I've often mulled over what the article is discussing: that the problems of Schenectady, like much of upstate New York, make it an unhappy place, one where many people would not choose to live, given other options. Its economy is hurting -- and for reasons that can be easily corrected.
Union always had a well-regarded economics department, and being as close to the state capital at Albany, some students did internships in various legislature offices.
So why on earth haven't Union's Economics and Political Science departments applied their sciences -- and talents -- to the problems of Schenectady, and proposed solutions?
Part of the answer might be that for several generations, neither of these sciences have put much thought into the problem that underlies Schenectady's troubles. It hasn't been fashionable to talk about, and many haven't even had the vocabulary. Most of today's economics professors learned their economics at the feet of neoclassical economists. They have a lot to fit into a trimester, and they're not likely to teach that which their own instructors chose to omit. But they're missing something important and relevant. The classical economists had a lot to tell us which points to the root of some of today's most serious problems.
Or perhaps those seeking a better future for Schenectady might turn to the History department, or to American Studies. Students of the last half of the 19th century might be able to tell them about an American philosopher and economist named Henry George (b. 1839, Philadelphia; d. 1897, NYC), who was the best known (due in part to his bestselling book on political economy, Progress and Poverty, which was familiar to anyone who read at all during the last 20 years of that century; it sold about 6 million copies and was widely serialized and translated) of a long continuum of people who called attention to the importance of land and natural resources in our economy, and to the distortions that result when we permit the privatization of their economic value -- or about the movement which followed in the early years of the 20th century. George proposed a simple and just remedy, and I'll bet that not 10 of this year's Union graduates have even heard of it. (That doesn't set Union apart from many other highly regarded colleges, but it is clearly a shame: that these students have spent 3 or 4 years in Schenectady, and not gotten close to some answers about why there is such poverty and underdevelopment in the state of New York, from which many of Union's students come. They come from much richer parts, in general.)
The small cities of upstate New York, like many other places in America, are suffering from the use of the wrong taxes. Schenectady is perhaps an extreme example. When we tax both land value and buildings at the same millage rate, we discourage the sort of development which we claim to want. The answer, of course, is to reduce or even eliminate the tax which falls on buildings, and increase the millage rate on land value.
Union's economics and political science departments owe it to their hometown to take on this topic. First, the faculty must educate themselves. And then they must involve their students, particularly those who come from New York State. They can become a force for good, a force for reform of some miserable policies, and for a shift to superior ones.
They may find themselves coming up against the "real estate interests" -- including alumni, perhaps -- who think that this might not be in their own best interests (and therefore discourage the exploration). (Governor Spitzer, the son of a real estate magnate, would not have been enthusiastic about this, for instance. He convened a panel to try to offer "Property Tax Relief" as an answer to some question -- but it was probably not primarily for homeowners. Remember Leona's wisdom about taxes.) Will Union's best and brightest be able to push through the interested parties' incentives, or will they be derailed by pressure not to study this matter? They have tenure, many of them, and most live in or close to Schenectady.
The political scientists might start with a couple of Google books, such as "Natural Taxation" (by one of the founding partners of Shearman & Sterling) or "The ABC of Taxation." They're available via Google books, and will soon be online in other forms. (Stay tuned here for updates.)
And all might appreciate the writings of Bill Batt, an Albany-based thinker on a lot of important issues which could be of great help to Schenectady.
And if any of them think this might simply be a quaint agrarian idea, I encourage them to read this page, and consider which of these issues don't affect Schenectady or their own futures.
People as diverse as Henry Ford, Theodore Roosevelt, Aldous Huxley, Clarence Darrow, Bernard Shaw, and Leo Tolstoy have embraced these ideas, as have a wide range of wise people from earlier centuries, and contemporaries as diverse as Bill Buckley and Michael Kinsley. They are a fine example of thinking globally and acting locally, and represent a "third way."
Will Union College act -- and in the process, teach its students some important truths -- or simply nibble at the leaves of Schenectady's problems? Go to the root!
Post Script: Union's faculty, and others who care about Schenectady, have an opportunity to get to know these ideas this summer. There will be a conference in Albany, July 12-16, of the umbrella group for North American Georgists. Some of the sessions will be of great interest to those who care about Schenectady, but I mention it here primarily because it will be an opportunity to interact with people who know George's ideas well and are persuaded that they can make an important difference in the world. (This post didn't start out to be a promotion for the conference, but I was glad to find that the conference schedule is now available online. It ends: "The Law of Rent never changes, but our schedule
may - without notice.")