Land Value Taxation will solve many of the 21st century's most serious social, economic and environmental problems, and promote justice, fairness and sustainability. We CAN have a world in which all can prosper.
Progress and Poverty, by Henry George Here are links to online editions of George's landmark book, Progress & Poverty, including audio and a number of abridgments -- the shortest is 30 words! I commend this book to your attention, if you are concerned about economic justice, poverty, sprawl, energy use, pollution, wages, housing affordability. Its observations will change how you approach all these problems. A mind-opening experience!
Henry George: Progress and Poverty: An inquiry into the cause of industrial depressions and of increase of want with increase of wealth ... The Remedy This is perhaps the most important book ever written on the subjects of poverty, political economy, how we might live together in a society dedicated to the ideals Americans claim to believe are self-evident. It will provide you new lenses through which to view many of our most serious problems and how we might go about solving them: poverty, sprawl, long commutes, despoilation of the environment, housing affordability, wealth concentration, income concentration, concentration of power, low wages, etc. Read it online, or in hardcopy.
Bob Drake's abridgement of Henry George's original: Progress and Poverty: Why There Are Recessions and Poverty Amid Plenty -- And What To Do About It! This is a very readable thought-by-thought updating of Henry George's longer book, written in the language of a newsweekly. A fine way to get to know Henry George's ideas. Available online at progressandpoverty.org and http://www.henrygeorge.org/pcontents.htm
Where Else Might You Look?
Wealth and Want The URL comes from the subtitle to Progress & Poverty -- and the goal is widely shared prosperity in the 21st century. How do we get there from here? A roadmap and a reference source.
Reforming the Property Tax for the Common Good I'm a tax reform activist who seeks to promote fairness and reduce poverty. Let's start with the enabling legislation and state requirements for the property tax. There are opportunities for great good!
This appeared in the Freeport News, and I thought it worth sharing:
Why is it so hard to understand the justice and benefits of capturing the community created value of land for the community?
Classical economists such as Adam Smith and Henry George, defined land as all free gifts of nature (urban land, harbors, etc.).
These get value because people, both local and foreign, want them for personal or commercial use.
So, no matter who 'owns' the gift of nature (land) there is a location value called economic rent which is exclusive of any production on or from that location.
When economic rent goes into private hands (i.e., beaches are given away to corporations, land values are uncollected) legitimate government revenue is lost and taxes like the proposed VAT are applied to the production process.
Not only is land speculation rewarded but building houses, trading goods and services, etc. are punished by taxes.
Naturally people try to avoid these taxes by smuggling and other forms of corruption.
When economic rent goes to honest government it encourages better use of locations as there is no tax penalty to build or work.
It reduces pollution and pays for infrastructure that helped create the economic rent in the first place.
Why is this so difficult to understand? Why is there so much ignorance of it and opposition to it?
Here are the opening paragraphs of a recent article about the complexities of Ground Lease contracts. I commend the entire article to your attention. It helps flesh out why and how the entire FIRE sector -- Finance, Insurance and Real Estate (as well as their attorneys) -- is receiving such a large share of the profits produced by the productive sectors of the economy. The owner of land, and the entities which lend on land, and insure the buildings and the revenue flow, all reap significant shares of what the tenants labor to create. Modern sharecropping. And the recipients of the ground rent get to parade as self-made men, people of awesome foresight and wisdom -- and even philanthropists (think Brooke Astor, the Fishers, and others in your own community) when they donate a small share back to a charity! As you read this, think both of Manhattan land and of land in your community's central business district, and along its major roads. (Location, location, location!)
If one wonders why (true) small business struggles, one might consider the complexity and expense of their ground leases, and contrast that with the Georgist alternative: that one's taxes would be simply the current rental value of the land, while the value of the building remains one's private property, not subject to taxation or going pouf! at the end of a ground lease.
The land lord is "supplying" something he didn't create. We ought to ease him out. Land value taxation is the obvious tool for reducing, and -- slowly or not -- eliminating, his "take" on those who do create. Think what it would mean if working people had that spending power, instead of the lords of the land.
All that land rent could be used to fund our community's needs, instead of lining the pockets of a few very "lucky" -- privileged -- duckies. (The analogies to chattel slavery are not a long stretch, once one starts to think about it. We should all own ourselves, and reap the fruits of our own labors.)
A lease is a lease is a lease – or so you may think. Yes, real property leases grant an estate in land to a tenant for a period of time. And yes, the tenant pays for that right of possession. But the action in a lease isn’t in the conveyance provisions; it’s in the contract provisions. Multiply out the rent and other annual monetary obligations by the length of the lease term (in years), and you’ll see that it might be (and often is) a big dollar contract. Even more important, unlike the vast majority of contracts whose obligations are satisfied in days or weeks, a lease contract goes unfulfilled for 50, 75, “99,” and even 500 years. That takes it beyond the life of the parties involved in its creation, and the future brings surprises. Neither Nostradamus nor Jules Verne got everything right.
Why a Ground Lease?
If a tenant has to build its own building (as is often the case), and has all of the burdens of ownership, why would it lease a property knowing that at the end of the lease term it has nothing left to show for its money and efforts? There are a number of common reasons, principal among them is that the owner won’t sell the land and the tenant has no alternative.
Real property often carries a long term unrealized gain, waiting to be taxed upon its sale.
Not every landowner is interested in making further active real property investments. This makes a like kind exchange unappealing.
Ground leasing the same land keeps ownership in the family. At the owner’s death, because of the current estate tax “stepped up basis” arrangement, the built in gain may never be taxed.
We worked through spring and winter,
through summer and through fall.
But the mortgage worked the hardest
and steadiest of them all;
It worked on nights and Sundays, it
worked each holiday;
It settled down among us and it never
Whatever we kept from it seemed almost as bad as theft;
It watched us every minute and it
ruled us right and left.
The rust and blight were with us
sometimes, and sometimes not;
scowling mortgage was forever on the spot.
The weevil and the cutworm they went
as well as came;
The mortgage stayed forever, eating
heartily all the same.
It nailed up every window, stood
guard at every door,
And happiness and sunshine, made
their home with us no more;
Till with falling crops and sickness
we got stalled upon the grade.
And there came a dark
day on us when the interest wasn't paid.
And there came a sharp foreclosure,
and I kind o' lost my hold.
And grew weary and discouraged and
the farm was cheaply sold.
The children left and scattered, when
they hardly yet were grown;
My wife she pined and perished, and I found myself alone.
What she died of was a mystery, and
the doctors never knew;
But I knew she died of mortgage — Just
as well as I wanted to.
If to trace a hidden sorrow were
within the doctors art.
They'd ha' found a mortgage lying on
that woman's broken heart.
Worm or beetle, drought
or tempest, on a farmer's land may fall.
But for a first-class
ruination, trust a mortgage 'gainst them all.
How much of a farmer's mortgage is for the value of the land itself, and how much for the present value of the improvements which previous owners have made, such as clearing, draining, fencing, irrigating, building structures, plus, perhaps, equipment purchased with the land and buildings?
For that matter, how much of a homeowner's mortgage is for the value of the land itself --including its access to community-provided services such as city water and sewer, fire hydrants, and the like -- and how much for the purchase price of the landscaping and structures on the property, built by any of the previous owners?
To what degree is the modern buyer including in his formal calculations or his underlying assumptions the notion that the land will increase in value during his tenure? (See Case & Schiller, 2003.)
It is not proposed to confiscate any value that has been created by human industry. This would be robbery. But when the community creates wealth it is entitled to it as much as the individual is to the wealth he creates.
-- from the first issue of The Standard, 1/8/1887.
Me voici, owner of some
four hundred well developed pines, a few thousand tons of granite
scattered in blocks at the roots of the pines, and a sprinkling of
earth. That's a town lot in Vancouver. You or your agent hold to it
till property rises, then sell out and buy more land further out of
town and repeat the process. I do not quite see how this sort of
thing helps the growth of a town, but the English Boy says that it
is the "essence of speculation," so it must be all right.
The use of a certain area of the earth's surface is a primary
condition of anything that man can do; it gives him room for his own
actions, with the enjoyment of the heat and the light, the air and
the rain which nature assigns to the area; and it determines
his distance from, and in a great measure his relations to, other
things and other persons. We shall find that it is this
property of "land" which, though as yet insufficient prominence has
been given to it, is the ultimate cause of the distinction which all
writers on economics are compelled to make between land and other
— PROF. ALFRED MARSHALL, of the
University of Cambridge,
Principles of Economics, Vol. I., Book 4,
Chap. 2, Sec. I.
StarWatch investigation: State paid twice what some I-69 land was worth
To secure path for I-69, INDOT offered $7M for property appraised at $3.34M Written by Ryan Sabalow and Tim Evans | 7:47 PM, Nov 10, 2012
BLOOMINGTON, Ind. -- In 2006, Barry Elkins paid $850,000 for about 200
acres in Monroe County owned by former Indiana University basketball
coach Bob Knight.
$4,250 per acre
Elkins told a local newspaper he had no plans to develop the land. He
said he also was quite aware state officials planned to acquire at least
some of the property for the new I-69 freeway project.
Nonetheless, Elkins told a reporter: "It's a heck of a piece of ground."
Turns out, it produced a heck of a profit, too.
In July, state highway officials paid Elkins $2.41 million for an
easement covering 140 of the 200 acres. That's almost four times the
$658,800 that state appraisers said the easement was worth.
$17,214 per acre for the 140 acres.
$658,800 is $4,705 per acre.
The $2.41 million represents a profit of $1.56 million since 2006, still
leaves the owner with 60 acres with no easement and 140 acres with an
easement. The $1.56 million profit in 6 years on an $850,000 investment
is 84%! Quite a return! For what effort?
What did society get in return?
According to I-69 cost estimates INDOT provided this summer, $162.6
million in state and federal funds were spent on right-of-way purchases
along the new stretch of freeway.
He said the property payments also haven't caused the project to go over
budget. He said the I-69 project is 25 percent under budget estimates.
Officials this summer pegged the cost of the Evansville-to-Bloomington
project at $1.5 billion.
The land Elkins bought from Knight wasn't the only Monroe County
property along I-69's path that he sold to the state for far more than
its fair market value. He and two co-owners also got $348,600 for a
27-acre property appraised at $194,625; and $795,956 for 58 acres
appraised at $278,295.
As for the former Knight property, the state purchased the easement to
create an "environmental mitigation site" to make up for damage to
forests, wetlands, wildlife habitat and other natural resources caused
by the new freeway.
After the $2.41 million payday -- which was nearly three times the
amount Elkins paid Knight for the entire 200 acres -- Elkins still owns
the picturesque expanse of undeveloped pasture and woods about eight
miles southwest of Bloomington.
The easement forbids any development on 140 acres of the land but allows
Elkins to use it for "low-impact" recreational activities such as
hiking, photography and hunting.
And he doesn't have to pay property taxes.
One might reasonably ask what valuation Elkins was paying property taxes on before the transactions.
One might reasonably ask how much the labor costs on this project were -- what men and women got paid for their hours of labor put into building the highway, and then compare that to Mr. Elkins' and others' receipts as passive landholders!! Quite amazing that we treat the "rights" of landholders as more sacred than we make the rights of the community or of those who work.
One might reasonably wonder how soon the communities along the route of this new highway will revalue their land, and whether the communities will collect more from those whose land benefited from the presence of this highway (and less from those whose properties were in reality negatively impacted, should that be the case). In general, the aggregate benefits will far exceed the aggregate negative impacts, and would likely be enough to pay all the costs of the construction.
Mr. Elkins' free lunch did not come out of thin air. And likely, his heirs will continue to enjoy the benefit of it.
THIS is how wealth concentrates. This is why we are forced into taxing wages, and sales, and other things we have no business taxing!
The game’s true origins, however, go unmentioned in the official literature. Three decades before Darrow’s patent, in 1903, a Maryland actress named Lizzie Magie created a proto-Monopoly as a tool for teaching the philosophy of Henry George, a nineteenth-century writer who had popularized the notion that no single person could claim to “own” land. In his book Progress and Poverty (1879), George called private land ownership an “erroneous and destructive principle” and argued that land should be held in common, with members of society acting collectively as “the general landlord.”
Magie called her invention The Landlord’s Game, and when it was released in 1906 it looked remarkably similar to what we know today as Monopoly. It featured a continuous track along each side of a square board; the track was divided into blocks, each marked with the name of a property, its purchase price, and its rental value. The game was played with dice and scrip cash, and players moved pawns around the track. It had railroads and public utilities — the Soakum Lighting System, the Slambang Trolley — and a “luxury tax” of $75. It also had Chance cards with quotes attributed to Thomas Jefferson (“The earth belongs in usufruct to the living”), John Ruskin (“It begins to be asked on many sides how the possessors of the land became possessed of it”), and Andrew Carnegie (“The greatest astonishment of my life was the discovery that the man who does the work is not the man who gets rich”). The game’s most expensive properties to buy, and those most remunerative to own, were New York City’s Broadway, Fifth Avenue, and Wall Street. In place of Monopoly’s “Go!” was a box marked “Labor Upon Mother Earth Produces Wages.” The Landlord Game’s chief entertainment was the same as in Monopoly: competitors were to be saddled with debt and ultimately reduced to financial ruin, and only one person, the supermonopolist, would stand tall in the end. The players could, however, vote to do something not officially allowed in Monopoly: cooperate. Under this alternative rule set, they would pay land rent not to a property’s title holder but into a common pot—the rent effectively socialized so that, as Magie later wrote, “Prosperity is achieved.”
Readers of this blog know that Lizzie Magie had created her game and started to promote it by the Fall of 1902.
“Monopoly players around the kitchen table”—which is to say, most people—“think the game is all about accumulation,” he said. “You know, making a lot of money. But the real object is to bankrupt your opponents as quickly as possible. To have just enough so that everybody else has nothing.” In this view, Monopoly is not about unleashing creativity and innovation among many competing parties, nor is it about opening markets and expanding trade or creating wealth through hard work and enlightened self-interest, the virtues Adam Smith thought of as the invisible hands that would produce a dynamic and prosperous society. It’s about shutting down the marketplace. All the players have to do is sit on their land and wait for the suckers to roll the dice.
Smith described such monopolist rent-seekers, who in his day were typified by the landed gentry of England, as the great parasites in the capitalist order. They avoided productive labor, innovated nothing, created nothing—the land was already there—and made a great deal of money while bleeding those who had to pay rent. The initial phase of competition in Monopoly, the free-trade phase that happens to be the most exciting part of the game to watch, is really about ending free trade and nixing competition in order to replace it with rent-seeking.
This is a good article, and I commend it in its entirety to your attention. It also provides links to Tom Forsythe's new site, http://landlordsgame.info/, whose graphics show many early versions of the Landlord's Game, which I look forward to exploring. I learned for the first time that the game layout that I had thought was an early one, with a lake in the center, was actually a 1939 version, based on Lizzie Magie's design but published by Parker Brothers. (I ought to have figured that out sooner, since the board includes her married name!)
It is interesting that one of the earlier versions -- 1909 -- was based on Altoona's streets. In the past year, Altoona has shifted to taxing land and not taxing buildings to fund its municipal spending. (This was a gradual shift, accomplished over a number of years; they must have liked the effect!)
The accompanying map says, "Around Grand Central Terminal, towers could be up to twice the size now permitted. Development could also take place along the Park Avenue corridor, where towers could be more than 40% larger. Elsewhere in the district, towers could be 20% larger."
New York’s premier district, the 70-block area around Grand Central
Terminal, has lagged, Bloomberg officials say, hampered by zoning rules,
decades old, that have limited the height of buildings.
Mayor Michael R. Bloomberg wants
to overhaul these rules so that buildings in Midtown Manhattan can soar
as high as those elsewhere. New towers could eventually cast shadows
over landmarks across the area, including St. Patrick’s Cathedral and
the Waldorf-Astoria Hotel. They could rise above the 59-story MetLife
Building and even the 77-story Chrysler Building.
Mr. Bloomberg’s proposal reflects
his effort to put his stamp on the city well after his tenure ends in
December 2013. Moving swiftly, he wants the City Council to adopt the
new zoning, for what is being called Midtown East, by October 2013, with
the first permits for new buildings granted four years later.
administration says that without the changes, the neighborhood around
Grand Central will not retain its reputation as “the best business
address in the world” because 300 of its roughly 400 buildings are more
than 50 years old. These structures also lack the large column-free
spaces, tall ceilings and environmental features now sought by corporate
rezoning — from 39th Street to 57th Street on the East Side — would
make it easier to demolish aging buildings in order to make way for
state of-the-art towers.
it, “the top Class A tenants who have been attracted to the area in the
past would begin to look elsewhere for space,” the administration says
in its proposal.
plan has stirred criticism from some urban planners, community boards
and City Council members, who have contended that the mayor has acted
hastily. They said they were concerned about the impact of taller towers
in an already dense district where buildings, public spaces, streets,
sidewalks and subways have long remained unchanged.
Mr. Bloomberg has encouraged high-rise development in industrial neighborhoods, including the Far West Side of Manhattan,
the waterfront in Williamsburg, Brooklyn, and in Long Island City,
Queens. But with the proposal for Midtown, which is working its way
through environmental and public reviews, he is tackling the city’s
the development potential in this area will generate historic
opportunities for investment in New York City,” Deputy Mayor Robert K.
The initiative would, in some cases, allow developers to build towers twice the size now permitted in the Grand Central area. The
owner of the 19-story Roosevelt Hotel at Madison and 45th Street could
replace it with a 58-story tower under the proposed rules. Current
regulations permit no more than 30 floors.
When zoning changes increase the value of land, who should reap the benefit? The current landholder, or the community? What did the landholder do to earn that windfall? Do you think it comes out of thin air? Do you think it is paid him by other rich people?
Or do you recognize that it is part of the structure which enriches a few and impoverishes the many?
It is easy to fix this one. One just has to recognize the structure, and value the land correctly, and start collecting the lion's share of the land rent for the community. If it is more than NYC can put to use -- and it will be -- then apply the excess to reducing our federal taxes on productive effort. Use it to fund Social Security, or Medicare, or universal health insurance, or something else that will benefit the vast majority of us instead of an undeserving tiny privileged minority. Don't throw it in the ocean, and don't leave it in private pockets, be they American or not.
Collect the land rent. Repeat next year, and the next, and the next. Natural Public Revenue.
There has been a lot of political rhetoric lately centered around the "Job Creators," and what we can do to encourage them to create jobs (in America). Most of it seems to be centered around (1) creating some sort of "certainty" for them regarding what sorts of taxes they might be expected to pay if the jobs they deign to create are successful in increasing their profits; and (2) lifting the supposedly onerous regulations we put on them regarding product safety, environmental protection, and perhaps royalties on what they withdraw from the earth's supply of non-renewable natural resources and other services they receive from our common ecosystem.
I contend that those who frame it this way are leading us astray.
First, the jobs that the so-called Job Creators actually create occur when (a) they want more personal services -- haircuts, manicures, acupuncture, botox, dry cleaning, catering; (b) they want more goods -- dinners out, boats, cars, swimming pools, airplanes, motorcycles, jewelry, wardrobe, fancy foods, alcohol, tobacco, etc.; (c) when they decide to build or rebuild a home, and furnish it.
The real job creators are those whose demand for products and services create jobs. A few percent of us have sufficient current income -- or sufficient wealth to draw on -- that it is fair to say that virtually all of their needs and many of their wants are being met. But the vast majority of us have unmet needs and certainly more wants. And I think it is fair to say that while it is human nature to want something for nothing, and that all of us want to meet our needs and wants with the least possible effort, it is also true that virtually all of us are willing to work, to serve others with products and services, in return for wages, be they from a single employer or a collection of customers.
So what's the problem? Why can't this supply of labor get together with this demand for labor, to the general benefit of our entire society?
I can point to several problems.
First, much of the nation's capital is in the portfolios of a very small proportion of our society, and that process of concentration shows no signs of slowing down, much less reversing. (Not surprising, since we've done nothing to correct the structural causes which produce it!) Joe Stiglitz has said that the FIRE sector is harvesting something like 40% of the profits of the productive sectors of the economy. This cannot be permitted to continue if we seek to create prosperity for all.
Second, ownership of America's choicest sites -- mostly in the central business districts of our biggest cities, but also in some of the scenic coastal areas and the suburbs surrounding those cities -- is in the portfolios of a very small proportion of our society (as well as in portfolios of foreign landlords). This may not appear to some to be a problem, but I assert that it is -- and a big one. (The good news is that it is readily fixable.) An acre of Manhattan land can be worth $250 million or more, while an acre of good farm land might be worth $5,000 -- a difference of 50,000 times! That is, 50,000 acres of farmland might be worth the same amount as a single acre of Manhattan land!!) A single 25x100 residential building lot in Manhattan -- 0.058 acre -- can be worth $10 million ... that works out to $172 million per acre.
Third, we tax labor income -- wages -- to fund federal and state spending. We tax the first $105,000 or so of wages at 15% or so to fund Social Security and Medicare (that includes both the employee's and the employer's contribution, as economists agree is appropriate). After exempting some amount of income in proportion to family size ($15,200 for a family of 4) and some additional for a standard deduction ($11,900 for married filing jointly) or some combination of itemized deductions (which go mostly to high-end urban/suburban homeowners in northeastern states, with big mortgages and significant property taxes, and California owners, with big mortgages and more modest property taxes), the Federal Income Tax taxes the next dollar of wages at 10%, and the rate rises to 15%, 25% 28%, and, for a tiny but noisy minority of us (adjusted income over $217,450 after exemptions and deductions, for married filing jointly -- which Romney calls the middle class), to 33% and 35% on the marginal dollars (not on all of one's income). But 86% of us pay more in payroll taxes than we do in federal income taxes, when the employer's portion is taken into account. [source: http://www.cbo.gov/publication/43373, table 8.] It is worth noting that 15% [social insurance] plus 10%, the federal tax rate on the first dollar after deductions and exemptions, is 25%, but that for those whose household income is well above the $105,000 cut-cutoff, the 35% bracket is not all that much higher than what comes out of the pockets of the low-income worker.
So 25% to 35% of the portion of our wages beyond that allowance for some basic expenses, are being taken to fund federal spending, and in most states, more for state spending.
The federal spending, and much of the state spending, goes to projects whose effect is to increase local land values in specific places -- infrastructure, public goods of various kinds. Oddly, we fund it via taxes on wages! Wouldn't we be wiser to fund it via taxes which fall on those land values, which are so concentrated into a relative few pockets -- pockets which are currently not asked to contribute much, but receive so much from those who need to occupy those choice urban sites. I do not begrudge the owner of a luxury building the right to keep the portions of the rent he receives which can be attributed to (a) the qualities of the building itself and (b) the services he as landlord provides, but much of that rent is attributable to neither of those factors; rather, it is a function of .... (all together, now) Location, Location, Location, and value which is created by the community, not by that landlord!
Fourth, most of us of working age, and particularly our young people, are paying at least 30% of our income for housing, and many, many people are paying a far larger portion of their income. On top of that, many have student loans, car loans, and perhaps credit card debt, and live paycheck to paycheck. Many young people who bought a home during the 2002 to 2010 period are upside down on their mortgages, owing the lender more than they could sell the property for, and are thus effectively trapped in those homes until prices rise or someone does something to renegotiate their mortgage, or they win big in the Lottery. Thus they cannot move to meet their families' changing needs, or leave the area to accept a job in another part of the country.
So what does this have to do with Job Creation? Well, if those of us who don't live on the really choice bits of urban or coastal land were relieved of some portion of their tax burden, including the 15% that goes for social insurance, we'd have more to spend on satisfying our other needs and wants, and virtually all of that would create jobs. Here, in the U. S.
I can easily imagine a great proprietor of ground rents in the metropolis calling attention to the habitations of the poor, to the evils of overcrowding, and to the scandals which the inquiry reveals, while his own income is greatly increased by the causes which make house-rent dear in London, and decent lodging hardly obtainable by thousands of laborers.
Let it be observed that when land is taxed, no man is taxed; for the land produces, according to the law of the Creator, more than the value of the labor expended on it, and on this account men are willing to pay a rent for land.
— PATRICK EDWARD DOVE, Theory of Human Progression (1850), Chap. I., Sec. 2, p. 44
It is certain, however, that a large part of the improvement is due to the increasing value of advantageous sites, an unearned increase of value such as Mr. Mill speaks of, and therefore a kind of profit which the State may restrict with least harm.
— ROBERT GIFFEN, Essays in Finance, 1st Series (1871), Chap. X., p. 244.
The rise in value which the industry of others providentially gives to the land of the wise and good.
— W. D. HOWELLS, A Hazard of New Fortunes, Part IV., Chap. 3.
The ordinary progress of a society which increases in wealth is at all times to augment the incomes of landlords — to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer as it were in their sleep, without working, risking or economizing. What claims have they, on the general principles of social justice, to this accession of riches?
— JOHN STUART MILL, Principles of Political Economy, Book V., Chap. 2, Sec. 5
When I came across this article, 111 years old, I thought of the Ipswich, Massachusetts, trust established in 1650 by the gift of a fine 32-acre piece of land by a forward-thinking resident. His stated intention was that the land be kept by the town, forever, for the benefit of the public schools. Alas, it was poorly managed for a number of years, perhaps decades, and this appears to have been transformed, remarkably, into an excuse for the eager TENANTS to buy the land (and at less than half what I calculate it to be worth -- click on the "Little Neck Feoffees of Ipswich" link at left to see all my posts on the topic).
The tradition of school lands has served many communities very well. Part of Chicago was rented out to tenants and the revenues used to fund the city's schools.
But some fast-talkers appear to have convinced the powers-that-be in Ipswich, Mass., (including, remarkably, some judges and perhaps the state A.G.!) that "forever" is just temporary, and other investments are superior to the revenue from land and natural resources for funding public spending. (Not!) And the land will be there forever; a few decades of poor management is, in the long run, a triviality; the same would not be true of any of the substitute investments the Feoffees and their highly-compensated investment advisors will come up with.
(The first-quoted writer was the president of the Massachusetts Institute of Technology.)
The Lands Sub-Committee submitted the following report at the last annual meeting of the Progressive Liberal Association: --
General Francis Walker, in "First Lessons in Political Economy," says: -- "It certainly is true that any increase in the rental value or selling value of land is due, not to the exertions and sacrifices of the owners of the land, but to the exertions and sacrifices of the community. It certainly is true that economic rent tends to increase with the growth of wealth and population, and that thus a larger and larger share of the products of industry tends to pass into the hands of the owners of land, not because they have done more for society, but because society has greater need of that which they control."
On the same subject Thorold Rogers has expressed himself thus: -- Every permanent improvement, every railway and road, every bettering of the general condition of society, every facility given for production, every stimulus applied to consumption, raises rent. The land owner sleeps, but thrives."
The observant thinking man must admit that the above opinions are borne out by facts, but the importance to the community of the nationalisation of the land is unfortunately realised by comparatively few. If people would endeavour to understand its importance, there is little doubt that the majority would be forced to the conclusion that the private ownership of land is beyond question decidedly against the best interests of the State.
Cardinal Manning has said: -- "The land question means hunger, thirst, nakedness, notice to quit, labour spent in vain, the toil of years seized upon, the breaking up of homes, the misery, sicknesses, deaths of parents, children, wives, the despair and wildness which spring up in the hearts of the poor, when legal force, like a sharp harrow goes over the most sensitive and vital right of mankind. All this is contained in the land question." The opinion of the late Cardinal, expressed in such a forcible language, should at the very least induce people to study this question thoroughly. As a proof of its importance many object lessons are to be found -- as bearing upon it from a municipal point of view two may be mentioned. Doncaster in Yorkshire has no borough rate. Why? Because it is the owner of certain remunerative land; and Durban, in South Africa, for a rate of 1½d in the £ obtains the usual municipal services such as we possess in Christchurch, and in addition enjoys several others which we much desire to have. The difference is because in Durban its founders made reserve round the town which have not been alienated and have so increased in value that the rentals therefrom very nearly provide for all municipal requirements. The founders of Canterbury made a similar wise provision for Christchurch, but in an evil day the Provincial Council, when it took over the affairs of the Canterbury Association, sold the city's inheritance for a mess of pottage. It will doubtless be interesting to many to lean something of the history of the
CHRISTCHURCH TOWN RESERVES.
When constitutional government was established in Canterbury the Provincial Government took over the property of the Canterbury Association, including the town reserves of Christchurch and Hagley Park, the total area of these two being 897 acres, which, five years previoiusly, had been considered of the value of £2700. The Association had got into debt to the extent of nearly £29,000, which the Provincial Government paid with money raised on debentures, and proceeded to sell the reserves situated inside the belts. To prevent any misunderstanding as to the then estimated value of these town reserves, it is desirable to state that for the £29,000 mentioned the Association transferred to the Provincial Government all the property it possessed in Canterbury, which included other reserves than those in Christchurch, also plant, tools, survey maps and field books, which must have been value for a considerable portion of the sum named. By the deed poll of the Association these lands were to be held in trust for the purposes for which they were reserved, but a special Act of the Assembly was obtained to permit of their alienation. It has been truly said that the price of liberty is eternal vigilance. It is equally true with regard to reserves of land made for the benefit of the public; the people (every individual) should be ever on guard and watchful that no tampering with public reserves be allowed.
At the present day it is particularly interesting to consider what would now be the position of Christchurch if the reserves inside the belts had not been sold. What income would now be derivable therefrom?
Excluding twelve acres which were set apart by the Provincial Council as endowments for various religious bodies, the frontages of the reserves on the main streets of the city, as originally laid out in the extensions of these streets to the belts, amount to about 92,400 ft, after deducting 1¼ chains at each corner to avoid reckoning double frontages at corners. At 4s per foot frontage it would be £23,100. Bearing in mind that more than half the frontages have a depth of 5½ chains, it is estimated that if these lands were now let on building leases they would average a return of not less than 4s per foot, possibly more, and it is probably safe to say that the income therefrom would be £20,000 a year.
HOW WOULD CHRISTCHURCH BE AFFECTED.
The statement of accounts of the City Treasurer shows that for the year ending March 31, 1901, the rates assessed amounted to £28,526 --
General rate (omitting shillings and pence)
Special drainage rate
obtained by a total assessment of 2s 7½d in the pound, whereas, had the town reserves not been alienated, all the municipal services rendered would probably have been obtained for a modest rate of less than 9d. in the pound.
This is surely an object lesson which should be laid to heart by every inhabitant of the colony, as well as by the citizens of Christchurch, and should demonstrate how very desirable it is in the interests of the people as a community, that all land should be owned by the community, seeing that increased values of land are derived from the exertions and sacrifices of society. It will serve to show what enormous sums society thus pays to individuals to state that it is estimated that the value of land in London is increasing at the rate of 7½ millions annually; under the system of private ownership of land this large sum is accruing yearly in London alone to private individuals, and the public who must use the land, necessarily pay interest on that sum.
The Progressive Liberal Association earnestly commends these facts to the consideration of the people of New Zealand in the hope that they will insist upon a stoppage being put to the sale of Crown lands; and as regards the granting of leases in perpetuity, which, in parting with the possession for 999 years at a rental based on the present value, hands over to individuals the unearned increment for that unconscionably long period, it is hoped that a mandate will go forth from the electors of the colony insisting upon a periodical revaluation of the unimproved value. When these have been accomplished, there will be the question of the nationalisation of all the lands in the colony to be dealt with.
"That which was created for the use of all, the use of which is absolutely necessary for the existence of every individual, should be owned and controlled for the benefit of all. The private control of land is dead against the common welfare. Justice demands this, and what justice demands must sooner or later be conceded.
This quote is attributed to the Irish landlords, in an 1835 piece by Thomas Ainge Devyr entitled "Natural Rights: A Pamphlet for the People."
The statement bears thinking about: when private landlords collect high rents, they force their tenants to work quite hard -- keep in mind that they still have to pay taxes on various things in order to support local spending -- while the landlord has provided them NOTHING that he has made (and nothing he has bought from the fellow who made it, either).
But at the same time, it is worth considering what happens when the community collects reasonably high rents on the land, particularly urban land. When the community collects high rent, there are no vacant lots. There are relatively few underused lots. There is housing for all who want it. All this economic activity creates jobs -- for those who would design, those who would build, those who would maintain, those who would improve, those who would expand, those who would protect. All those workers' needs and spending create more jobs. Wages rise, as jobs chase workers.
So the phrase is not simply an 18th century rural one, but highly relevant in 21st century U.S. cities, towns and rural areas. When the community collects the land rent and recycles it to serve local needs -- schools, parks, well-maintained roads, public transportation systems, police, ambulance, fire protection, courts -- communities become good places to live. When we permit private landlords (be they individual or corporate, universities or trusts) to pocket those funds -- and perhaps "invest" the excess in acquiring more land on which to pocket the rent, those good things, if they happen at all, must be financed by high taxes on productive activity.
One is a virtuous circle; the other a vicious one. Which one is consistent with our ideals? If Life, Liberty and the Pursuit of Happiness are for ALL of us, then I think we have to opt for the virtuous circle.
Dewey Beach — The Town of Dewey Beach [Delaware] is marching to the beat of its own drum: Town officials have imposed a fee of $109 to all bands that play in town. No other town in the Cape Region imposes such a law. “This is just a matter of fairness,” said Mayor Diane Hanson. ... Hanson said if her cleaning lady has to buy a business license, it is fair to require bands to buy one as well.
Dewey Beach, Delaware, prides itself on not having a property tax. This forces it to rely on taxes which are far less just and less logical than a simple tax on land value would be -- including a licensing fee for anyone who works in Dewey Beach!
And if one lets one's license skip a year, and then needs it again, one must pay for the year one didn't have a customer there, as well as the years in which one does.
Why? Well, perhaps the explanation is partially related to the fact that one company owns an amazing amount of the land in Dewey Beach, and it is rented out on ground leases which are currently at a very low level -- say, $550 to $650 per year -- and whose end comes in about 11 to 14 years. Many of these lots sell for $600,000 or more, when one comes on the market; those in the ocean block perhaps significantly more. The County last assessed the land in the late 1960s. County taxes on the cottages (excluding the land), which typically sell for $200,000 or less because they are aging and must be removed at the end of the lease, run from $300 to $900 a year (and the county tax is mostly for the school district). In neighboring Rehoboth Beach, city taxes typically run about 1/4 of county taxes, though the relationship is not constant because one relies on a 1960s assessment, the other on a 1970s one!!
Dewey Beach collects something each year from property owners to restore the beaches, in case there is erosion that the federal government or state government won't pay to correct, but the beaches were renourished this past winter, at no expense to the property owners. According to an article from a week or two ago, the tax is $0.40 per $100 of assessed value. That article says, "A property in Dewey Beach with an assessed value of $200,000 would pay a total of $240 each year in taxes – $80 for beach replenishment and $160 for capital improvements." But it doesn't seem to realize that the only homes with assessed values of $200,000 are valued by their sellers at over $6 million! $80 is trivial to the owner of those $6 million oceanfront homes.
But to the typical worker in Dewey Beach, the $109 annual license to work within the borders is not so trivial.
Does it make sense to tax workers? Or is there a better tax base than productive activity? What taxes work best? Which taxes do the least damage?
Is working a privilege, or a right? I understand licensing doctors, nurses, lawyers and the like; I don't understand licensing singers, painters, waiters, and other workers.
It is well known that these materials and agencies, as fast as they become available, are in the main appropriated by individuals, through the agency or consent of the government, and are then held as private property. Such is the case with the soil and the minerals beneath it. The owners of this property charge as much for the use of it as if it were their own creation, and not that of nature.
— PROF. SIMON NEWCOMB, The Labor Question, North American Review, July, 1870, p. 151.
This is a paragraph from a book written about 100 years ago about Dr. Edward McGlynn, a much-loved Roman Catholic priest in Manhattan (St. Stephen's Church) who, with Henry George, was active in the Anti-Poverty Society in the last 15 years of the 19th century. It comes from a section listing "Thoughts of Dr. McGlynn."
It was told of a recently deceased Judge of the Supreme Court of the United States, a man who sat in the Senate of the United States, one of the most eminent men of his generation, how he, a poor lawyer, in a comparatively poor western town, had been able to accumulate some two or three millions of dollars worth of property. How? By "sagacity" in investing in lands at some distance from villages and towns, with foresight that in the course of a few years the growth of those communities, the industry, thrift, talent, virtue, patience of large communities would all keep adding to the value of his property, and in course of time cities, towns and villages would grow up on these lands, and he would be able to command an enormous price for land that cost him but a song. Now, while the law tolerated or even sanctioned what he was doing, he was guilty of an iniquity, of reaping where he had not sown, of exacting tribute where he had contributed nothing.
In the ocean-front Delaware town of Rehoboth Beach, seasonal parking fees provide a major revenue source:
In Rehoboth Beach, parking meters -- at $1.50 per hour -- are big business. They bring in $2.58 million for the city's $14.75 million operating budget.
Fines on expired meters add another $667,000, bringing the total to more than $3.2 million. More comes from parking permit fees, fines for parking without a permit and collections from a lot the city operates at the north end of the community. All told, parking is the largest single segment of the city budget.
Meters, some say, are one way the city can capture a revenue stream from the thousands of summer visitors who don't rent a cottage or stay in a hotel room, or who rent accommodations outside the city limits.
City Manager Gregory J. Ferrese said he believes meter and parking permits eliminate the need for beach fees, which are routinely charged in New Jersey resorts.
This is not to say that one can't use the beaches without paying for parking; Resort Transit brings people in by bus from the Coastal Highway, and the Jolly Trolley has been transporting tourists and others from nearby Dewey Beach for many decades.
But parking revenue is a great example of a user fee. One pays for what one takes, and if one doesn't need, one doesn't pay.
A few years ago, the price of parking varied according to location; more recently, they seem to have returned to a one-price-at-all-meters system, which puzzles me a bit. But after late September, the parking meters disappear until late spring, because there usually is plenty of parking to meet the demand.
I seem to recall reading that on-street parking is properly priced if about 15% of spots are available at any particular time. I suspect that that rule of thumb may not hold in RB in season, though I suspect that RB could charge more for ocean-block parking. (I suspect that nearly 100% of RB's parking spots will be occupied during most hours of peak season, at any reasonable price.)
Rehoboth is from the Hebrew for "space for all." One source says "City of Room" "Big City" "Broad Places, Streets" "Streets, Wide Spaces." Interestingly, when Rehoboth Beach was first laid out, by the Methodist diocese of Wilmington, as a camp meeting ground, the streets were designed to be wide and become wider as they approached the ocean, so all could have some view and access.
As a society, how do we create "space for all?" By structures and policies which encourage all of us to take only what we'll use. No land speculation, for example. (Rehoboth Beach fails on this count; its low property tax and use of 30+ year old assessments encourage people to hold onto empty land and unaltered cottages as a low-cost nest-egg; a new home far from the beach may pay far more in taxes than an older one close to it which sells for twice the price). And a 3% tax on transfers -- half to the city, half to the county -- discourages transactions.)
Some of RB's revenue comes from a 3% tax on rental income. I'm intrigued to know that parking brings in more than the tax on rentals.
Delaware, wisely, does not use a sales tax. Rehoboth Beach has 3 large outlet malls just beyond its borders, which attract shoppers from nearby Ocean City, Maryland, and even from southern New Jersey; the latter arrive by ferry for a day of tax-free shopping.
And of course the Federal government is generous with paying for beach replenishment, which helps keep the renters and beachgoers coming, at little or no cost to the property owners in RB.
In any case, parking fees are Natural Public Revenue
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."
A tax upon ground-rents would not raise the rent of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist and exacts the greatest rent which can be got for the use of the ground.
— ADAM SMITH, Wealth of Nations (1776), Book V., Chap. 2, Art. I.
40. Studies have confirmed the common wisdom that people who live in cities do more walking than those who live in suburban and rural areas, and tend to be in better shape. What economic policies might help promote the kind of density that will encourage the development of affordable housing -- for people all across the income spectrum -- near the centers of activity?
A. Land value taxation, which will cause urban landholders to put their underused land to better use, replacing vacant lots and obsolete buildings with taller modern buildings, approaching the highest and best use for that land.
B. Land value taxation, which will capture the increases in value that are the result of public investment in new transportation systems: subway stops, bus stops, etc., instead of leaving it to raise the selling price of sites served.
C. Land value taxation, which produces the kind of density that makes public transportation systems feasible.
D. Land value taxation, which will allow people who would like to live closer to their work to afford housing there
E. LVT, which will bring down the selling price of land -- without reducing its value at all -- to make it appealing to developers who can put it to use
F. LVT, which will allow people to afford housing with smaller and shorter mortgages to live where they want to live.
As our time honored political maxims become hackneyed they are very apt to pass into what Grover Cleveland would call innocuous desuetude. We subscribe to the sentiment that "eternal vigilance is the price of liberty" and yet little is done to counteract those aggressive forces which nullify that freedom which we profess to prize so highly. Even the prayer, "Thy Kingdom Come," is repeated as a mere wish that something good would happen rather than with a determination to bring about those righteous conditions which make for a heaven on earth. Possibly the most neglected of all of our national ideals is our professed adherence to that most democratic of all maxims, "Equal rights for all and special privileges for none." For at the present time our country is honeycombed with special privilege that has become so entirely entrenched as to be regarded on all sides as vested right. Special privilege is condoned by force of its familiarity. Like vice it is endured, then pitied, then embraced.
There lived in a Colorado city years ago a housewife who made convenient use of coal cars on the side track across the street from her dwelling with which to replenish her stock of fuel. This she did without any qualm of conscience but as a special privilege which, by the sanctifying touch of time had grown into a vested right. This woman doubtless was punctilious in the ordinary obligations of life and would have hotly resented any statement to the effect that she was stealing coal. She was guided by that all too common kind of honesty which is based upon expediency rather than principle. Not on any account would she have withheld what was due from her to a neighbor who would have suffered by her delinquency, but the advantage to her of getting this coal was so great and the loss to some impersonal owner of same, mine, railroad, or smelter, was relatively so negligible that the argument was all in favor of her acting in her own interest without question. No personal equation was involved and if at first there had been any hesitation on her part of this practice, that was long ago a thing of the past. But the railroad company put a watchman on guard and her supply of fuel was thereby stopped. She then turned to the local charity organization with request for a continuation of the supply which had thus been rudely taken from her and the very righteous indignation with which she told her story was ample proof of entire absence of comprehension on her part that she had been stealing.
This incident, which is a true story, illustrates very nicely the evolution and the nature of that special privilege which eventually becomes a vested right. And if the searchlight of analysis is turned upon our social system we may be surprised to find the presence of special privilege in unexpected places and of a volume that is, in the aggregate, enormous.
As a basis for this inquiry it may be well to state the fundamental truth that property may be secured in three ways only; first, by labor; second, by gift; and third, by theft. If this test is repeatedly kept in mind, the task will become easier. One of the commonest forms of special privilege is that which is provided under ninety-nine year leases on valuable business property sites. These leases convey to the owner of the land a stipulated income after the tenant has paid all taxes and expenses. In the parlance of political economy this revenue consists of what John Stuart Mill defined as unearned increment, a value which is produced by no individual but which is purely the result of population reflected upon desirable locations. For this revenue to be turned over to individuals as is now the unquestioned custom in all of our large cities and to an amount of billions of dollars annually is a procedure which is precisely in the same class as the stealing of coal from the railroad car by the Colorado housewife.
A much larger source of public revenue which is diverted to individuals is that of the rent of valuable property in excess of a fair interest return upon the intrinsic value of improvements on the property. This applies to practically all property located at the center of our large cities and involves enormous revenues. There is a mixture here of legitimate return on capital invested with the unearned increment which belongs absolutely to society but the case is not less clear on that account.
Another prolific source of public revenue which is diverted to individuals is that which comes from the lucky possession of oil wells. This possession frequently gives incomes of thousands of dollars daily to those who have no more claim on such revenue than is involved in the possession of the land upon which the wells were developed. The wealth that has by this means been given to certain sections of the country and certain groups of people has run into the billions of dollars. The Osage tribe of Indians in Oklahoma are said to have been made the richest people in the world due to this special privilege. Such beneficiaries are no more justly entitled to the revenue which they receive than was the Colorado woman justified in stealing coal from the railroad car. It will be said that the oil industry involves a great deal of capital and that many dry wells are paid for before a single producing well is developed. This is true and therefore makes the proposition somewhat more complicated but does not alter the conclusion.
Another source of revenue which diverts public funds into private hands is speculation in land. Purchase of inside property sure to increase in value is the one investment that has been invariably recommended by shrewd financiers. This speculation is far greater than has been generally realized. More than one-half the area of New York City consists in vacant lots which are held out of use for speculative purposes, and the same is true of all our larger cities. Incidentally, this speculation has the effect of enhancing the selling price of desirable land to artificially high figures. When land which is purchased with a hope of subsequent rise in value, the investor practically lays a trap by which he may secure values that rightfully belong to the community. And this process makes an artificial scarcity of land with consequent artificially high cost to those who must use it. This process of securing a profit, of getting something for nothing, is persistently the same in character as that by which the Colorado housewife secured her supply of coal. Here again objection may be interposed to the effect that land frequently has to be sold for less than it cost. This is an objection that was raised by no less an economist than Francis A. Walker, the foremost critic of Henry George during his lifetime. General Walker exclaimed, "Mr. George has much to say about unearned increment: He says nothing, however, about unrequited decrement." Mr. George's rejoinder to this was an expression on his part of his inability to discuss the problem with one who spoke of unrequited decrement in something which originally had no value. In other words, so far as society is concerned its interest is only in the rental value which is produced from year to year and which rises or fall accordingly as population grows or wanes. The important fact is that this increment, whether large or small, belongs to the community which produced it.
The most spectacular form of special privilege which we have to deal with today is that provided by the protective tariff. This protection enables the America manufacturer to secure an artificially high price for his product. The common argument in support of the protective system is that the American standard of living must be maintained by this artificial means, but this argument falls to the ground, if at the same time, we permit any improvement in labor-saving machinery which naturally has far greater effect upon the labor market than is produced by the competition of merchandise imported from abroad. The enormity of special privilege due to the tariff is perhaps more conspicuous in the State of Pennsylvania than elsewhere, a single family in Pittsburgh, the direct beneficiaries of the tariff on aluminum, being reputed to be worth in excess of $2 billion. There will be found that, with a few rare exceptions, the great fortunes of America are based upon special privilege of one kind or another.
Although there are many minor sources of special privilege which are embedded in our political and social institutions, those above enumerated are the principal ones.
The special privileges provided by legislative action at Washington are in a different class from those which have become a regular part of our system of taxation but are none the less to be condemned. The most flagrant of these in recent times was the appropriation by Congress and approved by President Hoover, of $500,000,000 of tax payers' money for the specific purpose of stabilizing or artificially enhancing the price of wheat, cotton, and other farm products. It was presumed by the makers of this law that it would have the effect of giving artificial advantage to the farming class, which would offset in a measure the special privileges which had been given so generously to Eastern interests by means of the protective tariff. The plea for this farm legislation was repeatedly based upon that consideration. It so happened that even the immense waste of money involved by the farm marketing act was negligible as an influence in the world wide markets and that it did not affect in any considerable degree the law of supply and demand upon the prices of the agricultural products which were supposed to be favored. But the very fact that this legislation was put through with little opposition furnished a very good illustration of the fact that special privilege legislation is regarded as perfectly legitimate. And this has been further illustrated in monstrous degree by the New Deal legislation under President Roosevelt.
There is everywhere consciousness of a mysterious force which is responsible for easily acquired fortunes on one hand together with an increase of unemployment and consequent lower incomes on the other hand. Each succeeding census report makes more appalling this undemocratic and unjust condition in our social fabric.
If prosperity is to be secure, there must be an end to special privilege of every kind, and a system of taxation inaugurated in place thereof which shall be based upon justice to all. Henry George has demonstrated how this should be done.
35. He worked hard. He played by the rules. He bought up land before the interstate highway was announced, and his widow and orphans now have a very valuable land portfolio, for which others will pay a high purchase price or high lease prices for generations. Is it right to exact an estate tax of 50% or so on the true market value of that estate?
A. No! Widows and orphans must be protected! We wouldn't want them to have to depend on the social safety net.
B. No! The dollars he spent to buy that land decades ago were already subject to an income tax -- maybe two (federal and state) -- and the heirs are entitled to keep all the increase from the purchase price, even if that is a 20% increase, or a 200% increase, or a 2000% increase, over the purchase price.
C. No! The man had foresight, and we ought to honor, reward and encourage that!
D. No! The interstate highway could have been re-routed, and the man and his widow and children could have been left high and dry. They took a risk, and we ought to reward them for their brilliance!
E. An estate tax is a good way to capture this socially-created windfall once per generation. After all, he can't take it with him. Half for the heirs, half for the community that created the value. Seems fair, and keeps them out of the social safety net.
F. An estate tax is better than nothing, but it is a poor alternative to collecting some significant portion of the rental value of the land, month in and month out, whether that rental value be low (before the interstate highway's route is determined) or high (after it is announced and built, and the community grows up around that highway).
36. He worked hard. He played by the rules. He bought up land before the interstate highway was announced, and his widow and orphans now have a very valuable land portfolio, for which others will pay a high purchase price or high -- and rising -- lease prices, for generations. Is it right to change our tax code to tax -- heavily -- year in and year out, the economic value of that land?
29. The states need money. Should they sell their toll roads to private companies?
A. Sure! That would provide a nice pot of money that would help with this year's budget and next year's, and after that, we can leave the problem to a future group of legislators and a new governor!
B. Sure! The private sector will take better care of them and turn a profit to boot!
C. No. The taxpayers paid for those roads to be built, and have a right to more control over them than would exist after privatization.
D. No. The taxpayers own that land, a unique right of way, and selling it off forever is irresponsible and wrong!
E. No. Our society -- any society -- is highly dependent on our infrastructure, and control over it must remain in the public sector.
F. No. Those highways are built on land that was bought or taken from individual property owners for the public good. To turn them over to the private sector, for profit, would be wrong.
G. No. Those highways will increase in value over the coming decades and centuries, and should not become anyone's private property, at any price. Both their economic value and the control over them belongs in the common sector.
H. No. Even if it looks as if it might make sense for our generation, what of future generations? Should we permit the privatization of a common asset they will likely be dependent on?
I. No. Future taxpayers will build more highways intersecting with these current tollroads, and increase their value; were these to be privatized, it would be the private corporation who would reap the benefit of that future public investment.
28. Private-sector insurance companies are raising their rates for waterfront or near-waterfront property, or refusing to renew policies in hurricane-prone areas. States are stepping in to provide insurance of last resort. How should this be financed?
A. It should be self-financing, with rates designed to cover 100% of the risks. This might drive down the selling prices of the properties, but that is appropriate given the increased risks involved.
B. Taxpayers all over the state should subsidize the insurance rates, from taxes on wages
C. Taxpayers all over the state should subsidize the insurance rates, from taxes on sales
D. Taxpayers all over the state should subsidize the insurance rates, from taxes on their land values
E. Inland taxpayers should be taxed to pay for the subsidies to coastal propertyowners
F. Hotel and rental-car taxes should be used to pay for the subsidies to coastal homeowners and commercial property owners
G. Collect taxes in proportion to pollution which is producing slower-moving storms, which will have the effect of incentivizing reductions in that pollution
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.
This is from Joseph Dana Miller, the editor of the Single Tax Year Book (1917), and it is a concise statement which might help make clear why I think this such an important reform in the 21st century.
Men have a right to land because they cannot live without it and because no man made it. It is a free gift of nature, like air, like sunshine. Men ought not to be compelled to pay other men for its use. It is, if you please, a natural right, because arising out of the nature of man, or if you do not like the term, an equal right, equal in that it should be shared alike. This is no new discovery, for it is lamely and imperfectly recognized by primitive man (in the rude forms of early land communism) and lamely and imperfectly by all civilized communities (in laws of "eminent domain", and similar powers exercised by the State over land). It is recognized by such widely differing minds as Gregory the Great and Thomas Paine (the religious and the rationalistic), Blackstone and Carlyle (the legal and the imaginative). All points of view include more or less dimly this conception of the peculiar nature of land as the inheritance of the human race, and not a proper subject for barter and sale.
This is the philosophy, the principle. The end to be sought is the establishment of the principle -- equal right to land in practice. We cannot divide the land -- that is impossible. We do not need to nationalize it that is, to take it over and rent it out, since this would entail needless difficulty. We could do this, but there is a better method.
The principle, which no man can successfully refute or deny even to himself, having been stated, we come now to the method, the Single Tax, the taking of the annual rent of land -- what it is worth each year for use -- by governmental agency, and the payment out of this fund for those functions which are supported and carried on in common -- maintenance of highways, police and fire protection, public lighting, schools, etc. Now if the value of land were like other values this would not be a good method for the end in view. That is, if a man could take a plot of land as he takes a piece of wood, and fashioning it for use as a commodity give it a value by his labor, there would be no special reason for taxing it at a higher rate than other things, or singling it out from other taxable objects. But land, without the effort of the individual, grows in value with the community's growth, and by what the community does in the way of public improvements. This value of land is a value of community advantage, and the price asked for a piece of land by the owner is the price of community advantage. This advantage may be an excess of production over other and poorer land determined by natural fertility (farm land) or nearness to market or more populous avenues for shopping, or proximity to financial mart, shipping or railroad point (business centers), or because of superior fashionable attractiveness, (residential centers). But all these advantages are social, community-made, not a product of labor, and in the price asked for its sale or use, a manifestation of community-made value. Now in a sense the value of everything may be ascribed to the presence of a community, with an important difference. Land differs in this, that neither in itself nor in its value is it the product of labor, for labor cannot produce more land in answer to demand, but can produce more houses and food and clothing, whence it arises that these things cost less where population is great or increasing, and land is the only thing that costs more.
To tax this land at its true value is to equalize all people-made advantages (which in their manifestation as value attach only to land), and thus secure to every man that equal right to land which has been contended for at the outset of this definition.
From this reform flow many incidental benefits -- greater simplicity of government, greater certainty and economy in taxation, and increased revenues.
But its greatest benefit will be in the abolition of involuntary poverty and the rise of a new civilization. It is not fair to the reader of a definition to urge this larger conclusion, the knowledge of which can come only from a fuller investigation and the dawning upon his apprehension of the light of the new vision. But this conclusion follows as certainly as do the various steps of reasoning which we have endeavored to keep before the reader in this purely elementary definition.
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.
20. What is the best way to insure that affordable housing -- for people of all ages and stages, all income levels -- is available, both for ownership and for rental, both near the center of activities and, if needed after the desire for housing near the center of activities is satisfied, on the fringes?
B. Community Land Trusts
C. Affordable Housing Regulations that require that for every 10 new condos built, 1 must be affordable to people earning less than the local median household income
D. Rent control
G. Habitat for Humanity
H. Relaxed mortgage lending rules and more private mortgage insurance
I. Land value taxation, to encourage the redevelopment of underused sites near the center of things
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.
I came across this rather good letter to the editor, from 1938. (Trinity Church Corporation, a major landlord in downtown Manhattan, was the subject of a NYT article this past week, as well as the subject of a major series in the NYT in December, 1894):
1938-09-03 Letters to The Times
Collecting Ground Rent Single-Tax System Regarded as No Detriment to Building
TO THE EDITOR OF THE NEW YORK TIMES:
Fabian Franklin, in his letter to THE TIMES discussing the demolition of John D. Rockefeller's Harlem tenements in order to save taxes, writes:
"That objection is simply that virtual abolition of land ownership, which the single-tax plan is designed to effect, would make the building of houses in a city an extra-hazardous business, because, under the single-tax regime, in the great majority of cases the investment would result in a disastrous loss to the owner of the building. I was neither blaming nor praising Mr. Rockefeller for the demolition of Harlem tenements."
What is the so-called single-tax system? It is the collection by the government, through the taxing officials, of the entire economic or ground rent of land and the repeal of all taxes on buildings and other products of labor and capital. That ground rent is estimated to be 9% of the capital value of the land. New York City is now collecting one-third of this ground rent. The market value of the lots is the remaining two-thirds, capitalized. Dr. Franklin's thesis is that if the entire ground rent is collected no one would erect buildings, because "in the great majority of cases the investment would result in a disastrous loss to the owner of the building."
Some of the finest buildings in New York City are erected on leased land and the lessee pays the ground rent 100% besides a tax on the building. There are hundreds of buildings erected by lessees of lots owned by Trinity Church, Astor estate, Rhinelander estate, Sailors Snug Harbor and others. The lessees must pay all the taxes, both on land and building, amounting to 3% of the assessed value of both, and to the landlord 6% of the market value of the land.
Thus the entire ground rent is paid by the lessee, but only one-third to the government representing the people who made that value by their presence and activities, the remaining two-thirds to the landlord. Notwithstanding that they are thus obliged to pay 100% of the economic rent, bankers and business men erect buildings costing millions. Under the Henry George plan they would have to pay less, for the taxes on these costly structures will have been repealed.
Perhaps if Mr. Rockefeller had not been obliged to pay taxes on the buildings he might not have pulled them down; or, if he had, would have erected better buildings in their place in order to get a return on his investment in buildings. The ones who will benefit most from the adoption of the Georgian philosophy are the owners of humble homes. The average small homeowner's house is assessed for at least twice the assessed value of the lot. If the house is relieved from taxation and the lot taxed the entire ground rent, his tax will be less than it is now. The difference will be made up from vacant lots and lots that are worth more than the improvements.
After all, the building of houses is like any other business. The builder takes the risk of lessened demand because of changes in fashion, obsolescence, competition. It is estimated that 95% of new businesses ultimately fail. With the adoption, however, of the philosophy of Henry George, commonly called the single tax, failures in the housing and other businesses will be much fewer. This is because neither houses nor goods nor anything else will be taxed. The collection of the entire ground rent will not lessen the area of the surface of the earth one inch. On the contrary, it will open to occupation and use land that is now held for speculation purposes.
The taxation of any product of labor and capital will add the amount of the tax to the price, lessen demand and thus curtail production. The result is unemployment and misery.
Frederic Cyrus Leubuscher Essex Fells, N. J., Aug. 31, 1938
A. Don't worry about that. Our children should pay for it, and their children if necessary, with interest accumulating. The economy will grow sufficiently that it will not unduly burden them.
B. We should pay for it via federal taxes on wages.
C. We should pay for it via a federal tax on sales (or consumption).
D. We should pay for it via a federal tax on land value; people and corporations (domestic or foreign) who own land in midtown Manhattan or downtown Los Angeles would pay a lot; those who own rural property would pay little or nothing. Tenants' rents -- residential, commercial, agricultural -- would cover their share, and be collected from landlords.
E. We should pay for it via royalties on non-renewable natural resources. (Whose natural resources? from U.S. soil? from Afghanistan soil? other?)
13. Electric utilities have long been regarded as "widows' and orphans'" stocks. Safe, if not high income. A few years ago, they were deregulated. A recent study has shown that retail electricity prices have increased faster in states that adopted competitive pricing than in those where rates continue to be set by government agencies. We all need reliable electricity. Should we permit the licenses to generate and distribute electricity to be an opportunity to make a windfall profit? (Or should we encourage municipal ownership of vital utilities?)
A. Sure! People and businesses are quite free to move from states without regulation to states with regulation if they choose. They may not mind paying 20% more for their electricity, if other conditions are good. And didn't the utilities earn it?
B. Sure. If local regulatory agencies decide that local best interests conflict with the interests of the corporate shareholders, they can re-regulate. After all, the corporations don't vote.
C. No. Electricity is important and we ought to do what we can to keep the price down so that poor people can afford electricity and still have funds for other costs of living.
D. No. Electricity is vital to the economy, and we ought to do what we can to keep it affordable to ordinary people, and not a source of corporate windfalls.
E. No. Natural monopolies ought to be publicly owned, the prices kept low, and any excess revenue accrue to the public treasury, not to the benefit of private investors.
11. Foreign corporations and governments are seeking to buy some of our ports from the American corporations that own them. Large shares of the goods we consume come through these ports, and the ports set the price that the shippers pay for access to the ports. The possibility of weapons, invasive species, etc., entering the US through these ports is frightening. Ports are unique locations, on sheltered waterfronts, served by elaborate rail and highway systems. Is foreign ownership acceptable?
A. Sure! No problem! The costs to shippers are the same whether the owners are American or foreign!
B. Sure! No problem! These corporations have long term contracts with the local Port Authorities, and the PAs are smart bargainers who make sure that they collect the economic value of these unique sites from whoever has the contracts or owns the ports, for the entire term of the contract.
C. It is acceptable for foreign corporations to "own" the ports, but they must pay into the US treasury the economic value of the site. They must not be permitted to privatize what is rightly common property.
D. It is not acceptable for foreign corporations to own the ports, but okay for US companies to privatize that value.
E. We ought to be collecting the annual rental value of the site itself, month in and month out, as our common treasure. It shouldn't be privatized by anyone.
We all know the old saw -- the three most important things about choosing real estate are ... location, location and location! We're so used to hearing it that we don't stop to think about its larger implications -- and particularly its implications for public revenue.
Those who are thinking about buying a home as an investment may hear a related piece of advice: buy the worst house in the best neighborhood. You can't change the neighborhood, much (the infrastructure and schools which serve it are relatively fixed, in the short-term at least), but you can improve or replace that old house, at your leisure, or sell the land to someone who will, at a profit.
This article, from a California residential real estate agent, summarizes "location cubed":
Location, Location, Location is an adage you will hear over and over.
It's like the real estate agents' mantra: location, location, location. You've certainly heard the phrase enough and may wonder what possesses agents to say it three times. Or you might think it pertains to three different types of locations -- perhaps an excellent location, a mediocre location and a lousy location.
I'll put your mind at ease. It means identical homes can increase or decrease in value due to location. It's repeated three times for emphasis, and so you will remember the phrase. It's the number one rule in real estate, and it's often the most overlooked rule.
The Epitome of Location, Location, Location
You can buy the right home in the wrong location. You can change the structure, remodel it or alter the home's layout but, ordinarily, you cannot move it. It's attached to the land. The best locations are those in prime spots such as:
Within Top-Rated School Districts Home buyers with children are concerned about their children's education and often will pay more for a home that is located in a highly desirable school district.
Close to Outdoor Recreation and Nature Homes abutting the ocean, rivers, lakes or parks will hold their value because of the location, providing they are not in the path of a possible natural hazard. People want to be near water or visually appealing settings.
Homes with a View Some homes sell quickly and for top dollar because they provide sweeping panoramic views of the city at night, but even a small glimpse of the ocean out one window is enough to substantiate a good location. Other sought-after views include mountains, greenbelts or golf courses.
Near Entertainment and Shopping In many cities, you will find homes that are located within walking distance of movie theaters, restaurants and boutiques are more expensive than those located further outside of town. Many people would rather not drive if they can walk to nightlife.
In Conforming Areas People tend to gravitate toward others who share similar values and their homes reflect it. Home buyers mostly prefer to be surrounded by similar types of properties in age and construction, where people just like them reside.
In Economically Stable Neighborhoods Neighborhoods that stood the test of time and weathered economic downfalls are more likely to attract buyers who want to maintain value in their homes. These are people who expect pride of ownership to be evident.
Near Public Transportation, Health Care and Jobs Most people do not want to endure long commutes to work, the doctor's office nor the airport. They prefer to be located close to emergency services and conveniences, so naturally homes in locations that shorten travel time are more desirable.
In the Center of the Block. I prefer corner locations, but most home buyers want to be in the middle of the block. I suppose they feel less vulnerable with neighbors around them, but they definitely enjoy less traffic.
It's almost easier to talk about what constitutes a bad location than to discuss good locations. That's because the qualities that make a good location desirable can vary, depending on whether you're looking in the city, the country or the mountains. Bad locations, by their general nature, are easier to pinpoint:
Next to Commercial / Industrial Unless you live downtown, commercial buildings on your block will diminish value. Part of the reason is because home owners cannot control those who loiter in front of their home. Homes next to gas stations or shopping centers are undesirable because of the noise factor, and nobody really wants to listen to truck engines idling at night or during early morning hours.
Near Railroad Tracks, Freeways or Under Flight Paths When I take the El through Chicago, I often wonder how city dwellers with homes right on the railroad line put up with the rumbling and racket. I've also owned a home under a flight path and moved within a year. The noise was so loud I couldn't hear a caller on the phone, much less sleep in on the weekends.
In Crime Ridden Neighborhoods People want to feel safe. If your neighbor covers the windows with sheets instead of regular window coverings, and you hear cars coming and going at midnight, you might be living next door to a drug house, especially if the flashing lights of police cars are readily visible at any given time.
Economically Depressed Areas If your neighbors show zero pride of ownership in maintaining their homes, evidenced by lack of maintenance, poor landscaping or you spot discarded mattresses, junk car parts or old appliances lying in the yards, you might want to think twice about moving into such an area. On the other hand, some areas like this are on the edge of development and going through rehabilitation. But you're taking your chances.
Close to Hazards Name me one person who wants to live next door to a nuclear power plant, and I'll show you a mutant moron. Few home buyers want a transformer in their yard, either. If the neighborhood was built on a landfill or was recently swampland, nix it. Always order a natural hazard report when buying a home.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.
"Identical homes can increase or decrease in value due to location." While construction costs vary remarkably little from city to city (explore the geographical variance chart at saylor.com, on which, if memory serves, costs range from 74% to 106% of the Los Angeles metro costs on which the rest of their costs are based), while the price of a building lot can vary from $20,000 to $1,000,000 or more, depending on its location. (And the $20,000 one is probably a good deal larger than the $1,000,000 one, and with fewer constraints imposed by the local community.) A well-maintained 30-year-old 4BR, 2.5bath builder's colonial of, say, 2500 square feet can sell for $125,000 to $1,300,000 or more depending on the local land values.
Harvard Law School professor Elizabeth Warren, some years ago, co-authored a wise book entitled "The Two-Income Trap: Why Middle Class Mothers and Fathers Are Going Broke." She recognized that a part of it related to chasing houses in school districts where they felt their children could receive a solid education. I don't think she saw the larger implications of this truth.
2. Some of our busiest airports do not have sufficient runways, landing slots at preferred times, gates, tarmac, etc., to meet demand. Flights end up circling and arriving late, producing cascading delays for passengers across the country. Many airports are constrained by surrounding communities not to expand their acreage. It takes time to build a new airport further from the city, and is expensive to add the transportation infrastructure to serve it. How should scarce resources at existing busy airports be allocated?
a. The airlines who currently own a gate ought to be able to sell it off to the highest bidder, or rent it for whatever they can charge their competitor.
b. Landing rights ought to be sold once and for all to the highest bidder. When they no longer want them, or can no longer use them profitably, those rights should be theirs to auction off at whatever price they can get, even if it is double or triple -- or more -- what they initially paid.
c. Leases for landing rights at peak hours should be auctioned off, with a term of a few years, and the revenue should first support airport costs and air-traffic control expenses. Should there be an excess, it should not be returned to the leaseholders: it belongs to the community at large and should go into general revenue.
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!
Perhaps you saw "60 Minutes" last Sunday (11/13). Just in case you didn't, here are some excerpts from the transcript. I commend the whole thing to your attention. It begins:
The next national election is now less than a year away and congressmen and senators are expending much of their time and their energy raising the millions of dollars in campaign funds they'll need just to hold onto a job that pays $174,000 a year.
Few of them are doing it for the salary and all of them will say they are doing it to serve the public. But there are other benefits: Power, prestige, and the opportunity to become a Washington insider with access to information and connections that no one else has, in an environment of privilege where rules that govern the rest of the country, don't always apply to them. ...
Most former congressmen and senators manage to leave Washington - if they ever leave Washington - with more money in their pockets than they had when they arrived, and as you are about to see, the biggest challenge is often avoiding temptation.
Peter Schweizer: This is a venture opportunity. This is an opportunity to leverage your position in public service and use that position to enrich yourself, your friends, and your family.
Schweizer says he wanted to know why some congressmen and senators managed to accumulate significant wealth beyond their salaries, and proved particularly adept at buying and selling stocks.
Schweizer: There are all sorts of forms of honest grafts that congressmen engage in that allow them to become very, very wealthy. So it's not illegal, but I think it's highly unethical, I think it's highly offensive, and wrong.
Steve Kroft: What do you mean honest graft?
Schweizer: For example insider trading on the stock market. If you are a member of Congress, those laws are deemed not to apply.
Kroft: So congressman get a pass on insider trading?
Schweizer: They do. The fact is, if you sit on a healthcare committee and you know that Medicare, for example, is-- is considering not reimbursing for a certain drug that's market moving information. And if you can trade stock on-- off of that information and do so legally, that's a great profit making opportunity. And that sort of behavior goes on.
Kroft: Why does Congress get a pass on this?
Schweizer: It's really the way the rules have been defined. And the people who make the rules are the political class in Washington. And they've conveniently written them in such a way that they don't apply to themselves.
The buying and selling of stock by corporate insiders who have access to non-public information that could affect the stock price can be a criminal offense, just ask hedge fund manager Raj Rajaratnam who recently got 11 years in prison for doing it. But, congressional lawmakers have no corporate responsibilities and have long been considered exempt from insider trading laws, even though they have daily access to non-public information and plenty of opportunities to trade on it.
Schweizer: We know that during the health care debate people were trading health care stocks. We know that during the financial crisis of 2008 they were getting out of the market before the rest of America really knew what was going on.
While Congressman Bachus was publicly trying to keep the economy from cratering, he was privately betting that it would, buying option funds that would go up in value if the market went down. He would make a variety of trades and profited at a time when most Americans were losing their shirts.
Peter Schweizer thinks the timing is suspicious, and believes congressional leaders should have their stock funds in blind trusts.
Schweizer: Whether it's uh-- $15,000 or $150,000, the principle in my mind is that it's simply wrong and it shouldn't take place.
But there is a long history of self-dealing in Washington. And it doesn't always involve stock trades.
Congressmen and senators also seem to have a special knack for land and real estate deals. When Illinois Congressman Dennis Hastert became speaker of the House in 1999, he was worth a few hundred thousand dollars. He left the job eight years later a multi-millionaire.
Jan Strasma: The road that Hastert wants to build will go through these farm fields right here.
In 2005, Speaker Hastert got a $207 million federal earmark to build the Prairie Parkway through these cornfields near his home. What Jan Strasma and his neighbors didn't know was that Hastert had also bought some land adjacent to where the highway is supposed to go.
Strasma: And five months after this earmark went through he sold that land and made a bundle of money.
Kroft: How much?
Strasma: Two million dollars.
Kroft: What do you think of it?
Strasma: It stinks.
We stopped by the former speaker's farm, to ask him about the land deal, but he was off in Washington where he now works as a lobbyist. His office told us that property values in the area began to appreciate even before the earmark and that the Hastert land was several miles from the nearest exit.
But the same good fortune befell former New Hampshire Senator Judd Gregg, who helped steer nearly $70 million dollars in government funds towards redeveloping this defunct Air Force base, which he and his brother both had a commercial interest in. Gregg has said that he violated no congressional rules.
It's but one more example of good things happening to powerful members of Congress. Another is the access to initial public stock offerings, the opportunity to buy a new stock at insider prices just as it goes on the market. They can be incredibly lucrative and hard to get.
Schweizer: If you were a senator, Steve, and I gave you $10,000 cash, one or both of us is probably gonna go to jail. But if I'm a corporate executive and you're a senator, and I give you IPO shares in stock and over the course of one day that stock nets you $100,000, that's completely legal.
And former House Speaker Nancy Pelosi and her husband have participated in at least eight IPOs. One of those came in 2008, from Visa, just as a troublesome piece of legislation that would have hurt credit card companies, began making its way through the House. Undisturbed by a potential conflict of interest the Pelosis purchased 5,000 shares of Visa at the initial price of $44 dollars. Two days later it was trading at $64. The credit card legislation never made it to the floor of the House.
Brian Baird is a former congressman from Washington state who served six terms in the house before retiring last year. He spent half of those 12 years trying to get his colleagues to prohibit insider trading in Congress and establish some rules governing conflicts of interest.
Baird: One line in a bill in Congress can be worth millions and millions of dollars. There was one night, we had a late, late night caucus and you could kind of tell how a vote was going to go the next day. I literally walked home and I thought, 'Man, if you-- if you went online and made-- some significant trades, you could make a lot of money on this.' You-- you could just see it. You could see the potential here.
So in 2004, Baird and Congresswoman Louise Slaughter introduced the Stock Act which would make it illegal for members of Congress to trade stocks on non-public information and require them to report their stock trades every 90 days instead of once a year.
Kroft: How far did you get with this?
Baird: We didn't get anywhere. Just flat died. Went nowhere.
Kroft: How many cosponsors did you get?
Baird: I think we got six.
Baird: When you have a bill like this that makes so much sense and you can't get the co-sponsorships, you can't get the leadership to move it, it gets tremendously frustrating. Set aside that it's the right thing to do, it's good politics. People want their Congress to function well. It still baffles me.
But what baffles Baird even more is that the situation has gotten worse. In the past few years a whole new totally unregulated, $100 million dollar industry has grown up in Washington called political intelligence. It employs former congressmen and former staffers to scour the halls of the Capitol gathering valuable non-public information then selling it to hedge funds and traders on Wall Street who can trade on it.
Baird: Now if you're a political intel guy. And you get that information. Long before it's public. Long before somebody wakes up the next morning and reads or watches the television or whatever, you've got it. And you can make real-- real-time trades before anybody else.
Baird says its taken what would be a criminal enterprise anyplace else in the country and turned it into a profitable business model.
Baird: The town is all about people saying-- what do you know that I don't know. This is the currency of Washington, D.C. And it's that kind of informational currency that translates into real currency. Maybe it's over drinks maybe somebody picks up a phone. And says you know just to let you know it's in the bill. Trades happen. Can't trace 'em. If you can trace 'em, it's not illegal. It's a pretty great system. You feel like an idiot to not take advantage of it.
The newest issue of Progress, an Australian Georgist publication, is online here. The motto is "Sharing the Earth So All May Prosper."
There is a lot of good material, and I'll share some of the things that caught my eye.
An article about a film entitled "Real Estate 4 Ransom" which I commend to your attention, wherever you live. (I'll keep you posted on the film itself.)
“Economist James Galbraith has noted that only 12 out of 15,000 economists in the US noticed the US$8 trillion dollar housing bubble” (page 6)
We propose a change in the tax mix so that future infrastructure pays for itself by expanding the tax base without increasing the tax burden. (page 9)
Infrastructure adds enormous value to land in prime locations according to proximity and serviceability. Land Value Capture (LVC) is a simple technique to recycle the publicly funded windfall gains that accrue to land owners. Importantly, these windfalls are captured over the life-cycle of the infrastructure, such that one generation is not hit with the total infrastructure costs (ie as per the current preference for Developer charges). (page 10)
Windfall gains from infrastructure add up to several times the cost of the infrastructure to surrounding properties. We propose that a sufficient contribution from this windfall be recycled back to the government so that other infrastructure projects can be funded without substantially burdening one generation over another. At present land speculators baulk at paying barely 10% of the land bounty (windfall gain) back to the community via government’s Land Tax, Council Rates, Stamp Duties and Capital Gains. (Page 11)
“Henry George did more than draw ‘the deadly parallel of riches and misery.’ He recast the science of political economy by working out the natural laws of the distribution of wealth. He destroyed the current academic theory of wages and capital. He amplified and extended Ricardo's law of rent. He dug to the root of the wealth distribution.” (John Dewey, quoted on page 22)
If you could choose the sort of society that you were to be born into, would you choose one in which the distribution of wealth is guaranteed to be equal? (page 28 -- and don't miss the illustration cartoon on "trickle-down economics"!!)
The world faces a series of worsening crises, climate instability, rising energy costs, economic apartheid, and erosion of democratic institutions. What is required is not a set of technical instruments that try to resolve these, one at a time. We need a new social philosophy that addresses all these crises simultaneously. (page 38)
All 17th century authors took it for granted that God had given the earth to all people in common, not just to those who had claimed title to a part of it. Starting with that premise, the difficulty lay in justifying private ownership of nature. They saw that private property in land or ocean or other gifts of nature was an obvious usurpation of the rights of the rest of humanity. Private ownership was deemed a necessary evil to achieve more productive use of nature, but it was clearly an evil, never an institution that was good in itself. (page 39)
The idea of charging a fee for the use of nature and sharing the revenue equally might seem like a proposal that would not be threatening to powerful interests, but it is. The wealthy at present take a disproportionate share of the common stock of resources, both renewable and non-renewable, and they aim to keep it that way. (page 40)
“Ironically, what comes closest to being sacred in modern societies are individual rights, private property, and personal freedom.” (page 41)
“It seems that most people are concerned only with the future of their own children, not with the next generation as a whole.” (page 43)
A lot of good material -- and I've barely mentioned the graphics!
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?
I have a family member who, when Herman Cain says "9-9-9," plays a sound bite of another voice shouting "nein! nein! nein!"
Georgists have a better proposal for how we ought to fund our common spending.
0% tax on wages
0% tax on sales
0% tax on corporate profits
0% tax on buildings and equipment
100% recovery of our commonwealth
This probably raises several questions in your mind:
what is "recovery of our commonwealth"?
how will it affect me?
Our commonwealth includes the value of land -- not the improvements made by the present or previous owner, but the value of the site itself, which is created by the gifts of nature; by the investment of the local, state and national communities in public goods and services (including most "pork"); by the presence of the community and its economic activity. While good farmland may be worth $5,000 or $10,000 per acre, depending on climate and proximity to markets, suburban residential lots might be $35,000 to $1,000,000 -- or far more! -- per acre, and an acre in midtown Manhattan can be worth $250,000,000 or more. The landholder doesn't create that locational value.
Our commonwealth includes the value of ecosystem services. It includes the value of electromagnetic spectrum (the airwaves which most people would agree rightly belong to the American people, not to corporations). It includes the value of water, particularly fresh water for drinking and water for irrigating crops and for corporate use. It includes the value of government-granted privileges. It includes the value of geosynchronous orbits -- those parking spots in space for satellites whose owners and customers would not want to see crashing into each other. It includes the value of landing rights at busy congested constrained airports, such as LaGuardia or JFK, particularly at their rush hours. It includes the value of scarce on-street parking in congested cities. It includes the value of nonrenewable natural resources extracted from below the earth and the oceans, for 200 miles beyond our land borders. It includes a whole range of other similar things.
As you look at that paragraph, compare it to the 0-0-0-0 list above, and notice that it collects upfront certain values, and leaves the rest to those who produce. It is direct taxation rather than indirect, and one could reasonably argue that it isn't even really taxation; rather it is more in the nature of a user-fee.
It is Natural Public Revenue.
Once one has sat with this idea for a while, it seems quite unnatural to permit the value to continue to accrue to private individuals, or to corporations publicly or privately owned, or to entities other than the community as a whole!
Recall how concentrated wealth is in the US: The 2007 SCF [the Federal Reserve Board's Survey of Consumer Finances] reported that aggregate net worth is "distributed" as follows:
Top 1% of us have 33.8%
Next 4% of us 26.6% [cumulative: 60.4%]
Next 5% of us 11.1% [cumulative: 71.5%]
Next 40% of us 26.0% [cumulative 97.5%]
Bottom 50% of us 2.5%
Recall also that the Forbes 400 families are specifically and intentionally omitted from the SCF, and that Forbes estimates that they represent 2.5% of aggregate net worth. So add that 2.5% to the numerator and denominator. And note, as Michael Moore did, that it is very similar to the value of the Net Worth of the bottom 50% of us.
And it seems quite unnatural to tax wages, and sales, and corporate profits, and buildings at all before we've fully collected Natural Public Revenue.
Will Natural Public Revenue be sufficient to meet all the needs of all levels of government?
Quite possibly not, at least today when we are so reliant on a social safety net because current conditions have kept a significant share of our people from providing well for themselves. But I regard it as altogether possible that within a generation or two, it could be quite sufficient, in part because it would have the effect of redistributing some of the wealth which today is pouring into the pockets of a relative few of us.
How much of corporate profits are coming from (quite legal) privatization of the value of natural resources, the value of being able to get away with polluting air, water and soil, and the value of other privileges which corporations -- public and private -- are used to enjoying? One of the interesting findings in the SCF is that the value of privately held businesses [BUS] actually exceeds the value of publicly held ones [EQUITY] in household wealth -- and the value of both is highly concentrated:
Consider, too, how much more of this value the Forbes 400 have! These two categories represent 21.2% and 23.1% of aggregate net worth held by the rest of us -- a total of 44.3%. Most of the 2.5% is likely in these two categories. I'll leave the math to you.
.... 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.