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!
Has no one in California figured out that when the calf is deprived of mother's milk, starvation is inevitable?
It has taken 34 years, but it is coming about.
Feeding calves grain, or seaweed, or sunflower seeds isn't as smart as letting it consume its natural food.
Taxing wages, sales and buildings isn't as smart as collecting the lion's share -- calf's share, if you will -- of the land rent for public purposes.
Proposition 13 was designed to make sure that the cows' milk was kept for the Irvines, the big landowners, the commercial property owners, and the longtime homeowners, while providing a diminishing fifth of it to the calf and supplementing with grain, seaweed and sunflower seeds.
The calf's digestive system has blown up because it was deprived of its proper food, and "nourished" with stolen fake food.
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.
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.
A story is told of an Australian, who returned to England from the backwoods to set up his home in the old country.
He selected a suitable site and approached the owner for information about the purchase price. The owner demanded £ 1.000, which amazed the newcomer and caused him to ask, "Why so much?"
"Well," said the agent, "the site is bounded by two main roads, has main drainage, water, gas and electricity laid on, is near to the public park and is close to the railway. These are great benefits and I could easily get £ 1.000 for this half acre."
The Australian agreed and work began on his house. When it was nearing completion he found a stranger measuring it up and asked him what he was about.
The stranger replied that he was from the Valuation Department of the Borough Council.
The Australian said, "You may be, but that is my house. What are you doing here?"
The surveyor, a little surprised, explained that he was valuing the house for rates and explained what the rates were.
The Australian demanded to know what he had to pay the rates for.
"Why," said the surveyor, "for the main roads, the public park and the other amenities of the district.
Anyone who uses his eyes will observe how the expenditure of the authorities in making improvements is capitalized by the landowner who advertise these very improvements as reasons why they should be paid higher prizes for their land.
If this rent were taken by the public authority it would clearly pay for the public services.
Taxes on income, consumption etc. could then be abolished.
From Maclaren: Nature of Society
You might check out some additional versions of this story, told over about 120 years. Make it your own!
"ARE WE SOCIALISTS?" Thomas B. Preston, in the Arena, December, 1899
It is socialistic to make the revenues of the government a burden on industry. Revenues there must be, but they should not bear upon industry. In fact, the taxation of any product of labor is simply taking from the laborer part of his earnings. To such an extent we are socialists. Any other form of taxation than that on the value of land is essentially socialistic because any other tax is passed on from the seller to the consumer, and takes part of the latter's earnings without compensation, for use by the community. Any tax on earnings is socialistic, although it may not go so far as to take all a man earns. The substitution for our present system of a single tax amounting to the full rental value of land would sound the death-knell of socialism.
While we sin so deeply in our present bungling, socialistic way by forcing individuals to give up part of the proceeds of their labor, by fining a man who builds a house more than if he were maintaining a public nuisance, by tariffs which hinder trade with foreign countries, and add millions to private fortunes at the expense of the people, and by a thousand indirect taxes which make life harder for men without their being able easily to see the reason, on the other hand we foolishly leave to individuals those great agencies which are the outcome of social growth — the product of the inventive genius of a few men, if you like, but which after a time grow so powerful as to become the very arbiters of life and death. Prominent among such agencies are the railroad and the telegraph. They can crush communities out of existence and enrich the owners at the expense of their fellow men. They have already become the chief source of corruption in government. The ownership of these agencies by the community becomes a necessity for the continuance of social progress. Otherwise these monopolies can go on increasing and concentrating until a few persons are enabled, through them, to appropriate the wealth of a community. In so far as socialism demands the state ownership of agencies of this nature, it is proceeding in the right direction. There are many other agencies besides the railroad and the telegraph, such as the supply of water, gas, light, heat, telephones and means of transit and communication, in which the American idea of free competition is a fallacy. Here we are too individualistic. The right to make war and peace was long ago taken from individuals and vested in the community. So at a later stage was the carriage of letters. National quarantines, boards of health, public schools, are all examples of applied socialism in its legitimate sense. But why should we stop here? The existence of such great monopolies as the railroad and the telegraph is a standing menace to the life of the Republic. Let us munificently reward the inventors or appliances which shall add to the comfort and convenience of the community, but allow these agencies to be owned perpetually by individuals never!
We are socialistic where we should respect the rights of the individual, and we are individualistic when individualism is a crime against the Commonwealth. And so we go blundering on. When our stupid and oppressive system leads men to cry out against it, and riot and murder follow, we hang a few anarchists. When monopolists, grown bold through long years of immunity, attempt to rob a little more openly, by pools and combinations or by direct bribery, we create interstate commissions to watch them, or we send a few to prison, allowing others to escape to Canada; repressing a little here those who complain too loudly, where we should rather rectify their grievances, and lopping off a little there the enormous unearned profits, which we should abolish altogether. Meanwhile our two classes of tramps are increasing — those who travel around the world in flowing palaces, living upon the toil of others, without using their capital in any legitimate enterprise and those who go afoot, pilfering from cornfields and hen roosts — both classes an unjust burden on a hard working, long suffering community. We have arrived at a critical period of our history, where we must meet the demands of social progress, or our civilization will perish as surely as did the fallen empires of former ages. Already the mutterings of revolt are growing louder and louder, while upstart monopoly was never so insolent and imperious as it is today. Let us be warned in time, and, discarding all half measures, face the issue like men, and not go on trusting to luck, foolishly dreaming that somehow, at some time, existing wrongs will right themselves.
I am including this because I find it timely and timeless; because it provides a good simple mathematical look at the perversity of our current tax system, and because it illustrates my notion that when Leona Helmsley said "WE don't pay taxes; the little people pay taxes," she was not describing tax evasion but actual tax structures.
Henry George, Jr., was a U. S. Congressman. His most famous writing is "The Menace of Privilege."
WHO ARE THE CRIMINALS?
BY HENRY GEORGE , JR. Copyright, 1901, by The Abbey Press, 114 Fifth Avenue, New York
I. Who are the Criminals? 5 II. French Aristocracy of Privilege 6 III. New York Aristocracy of Privilege 10 IV. Robbery of Masses by Classes 12 V. Nature and Extent of Robberies 13 VI. How to Stop the Robberies 18 VII. The Criminals 23
I. WHO ARE THE CRIMINALS?
In considering the problem of how to check or control vice and crime in New York the question at once raised is: Who are the criminals? Who are they who cause these dreadful evils in the community? For unless we know exactly where the disease lies how can we attempt a remedy?
II. FRENCH ARISTOCRACY OF PRIVILEGE.
When the French Revolution broke loose the people followed the lead of men who seemed no better than a pack of devils, for they maimed, they brutally tortured and they slew. Women, whose only offense was that they were members of an arrogant and grinding aristocracy, were stripped naked, treated with every indignity and killed with every mark of ferocity. Old men and young children belonging to the upper classes were butchered, and persons of blameless life and humane intention were trampled under foot when they attempted to stay the carnival of blood.
Who will dare say that these revolutionary leaders, these butchers, were not criminals — criminals whose bloody hands must shine down through history? They were men turned to monsters; brutes with human intelligence, striving for new ways to torture and kill.
But whence came they? Not from without. They sprang up within. They represented the spirit of retaliation — of fiendish retaliation for the centuries of wrong done them and theirs. They were the progeny of poverty made by robbery. Their deeds were the deeds of monstrous criminals, but they themselves were the spawn of hideous injustice — an injustice that gave to the few riotous feasting and gorgeous raiment and to the many rags and black bread filled with maggots.
The aristocrats during centuries of power had appropriated the soil of France, and all other Frenchmen had to purchase the privilege of living in their native country. Not content with this, the upper classes had thrown upon the masses all those heavy taxes which it was the plain intent only the landowners should bear. They shifted upon the common people all the expenses of an extravagant, aristocratic government, and through ground rents sucked away all the people's remaining substance, save just enough to keep them alive and at work. Who were making the masses so poor and wretched was as plain as day. The masses themselves could see, and when they raised the sword against the aristocracy all hell seemed to break loose.
Who were the criminals? Why, of course they were criminals — horrible, revolting criminals — who did this guillotining, who committed these butcheries.
But who made these criminals? Clearly those who bore so heavily upon the people — the aristocrats, who kept the people in fearful poverty and ignorance which bred the spirit of bloodthirsty tigers.
The aristocracy, therefore, were the primary, the real criminals.
III. NEW YORK ARISTOCRACY OF PRIVILEGE.
I wish to proceed with greatest caution, with utmost conservatism. Yet candor compels me to ask: Have we not in our community an aristocracy of privilege — an aristocracy far more rich, far more powerful than was the aristocracy of old France? And have we not a corresponding poor class? Is it not true that half the population of Manhattan Island is living in what Ex-Mayor Hewitt rightly calls "those terrible tenements?"
That Prince of the Church, Bishop Potter, has proposed in the emergency that we have noonday prayer meetings. By all means, we all say. Let us bow ourselves before Almighty God and ask for relief from this social scourge. Yet what if, while we pray, we abate not the power of our aristocracy of privilege; what if we do nothing to mitigate the poverty of the million tenement dwellers?
The distinguished divine has also proposed a military police. If that were good, would not a local standing army be better? It would keep order, at least for a time. But would it cure the general poverty among the masses? Would it not rather act like a lid fastened down on a volcano — work well, until fire and molten stone and destruction belched forth? What then?
IV. ROBBERY OF MASSES BY CLASSES.
Assuming that we are sincerely trying to make civic conditions better, that we are seeking a cure (if there be a cure) for the general vice and crime in the community, should we not ask ourselves some plain questions? Is it not the truth that we have an aristocracy? Is it not the truth that we have a poor class? Is it not certain that the rich are growing richer and the poor poorer and more numerous?
I believe that there can be but one answer — yes.
Yet I can see no reason for this state of things unless it be that the classes are robbing the masses.
V. NATURE AND EXTENT OF ROBBERIES.
LET us consider how the classes may be robbing the masses into poverty.
It is said that when the first Dutchmen came sailing into New York Bay they bought Manhattan Island for $24. That was for the land alone, no houses or other improvements being here. Today the selling value of the bare land of this same Manhattan Island is at least $3,000,000,000. Those who possess the land of this island, now get what is equivalent to a ground rental of $150,000,000 a year, with this sum steadily swelling. The ground rental of Greater New York cannot be less than $225,000,000 yearly.
This vast sum is paid over to the landlord aristocracy — for what? For doing nothing. The people multiplied from a ship's crew to several millions in and about the island and behold! the vast value of land which in the beginning sold for but $24. The increment of value obviously has not been produced by individuals; it is entirely aside from and in addition to the value of improvements, which spring from human labor, which are produced by individuals. This increase in land value is a publicly-made value. It of right belongs to all the people. Do all the people get it? No, the few whom we recognize as the owners of this land claim that value and get it. The people at large in the community get nothing. Do not these landed aristocrats — of which the old French nobility were in many respects prototypes — rob the community? Do they not go far toward robbing a large part of the people into poverty?
Take another instance of robbery of the many by the few. Observe what we are doing about public franchises. A public franchise is a public right of way, a public highway. Modern civilization, with its intense centralization, its condensed population, and its interdependence of individuals, makes these highways of vital importance to the community. They are the arteries of the body-social, the channels of intercommunication and transportation, of heat, and water, and light, and power, and sewage. Were they suddenly destroyed, a large part of the population would die as quickly as a member of the human organism withers up and dies when the flow of blood is cut off from it.
Then if these public franchises, these public rights of way, these public highways, are so vital to the body-social, so necessary to the well-being of the people, what should be our policy toward them? What is our policy toward them? Why, in the case of water and sewage we treat them as public property, operating them publicly through public officials. But what do we do in respect to the other franchises? What do we do regarding street railroads, telephones and telegraphs, electric lighting and heating and gas, and steam supply? All these public franchises are treated as if they were private franchises. Upon all these public highways we allow private individuals to set the claim of ownership; to make charge upon the people; make charge upon the body-social for its blood, as it were. And a conservative estimate of the annual value of these public franchises in Greater New York at this time is $30,000,000.
Here, then, we have two forms of grand, constant, continuous robbery of the people — an aristocracy of privilege appropriating public ground rents and public franchise values, so that a few of the population are enabled to live in palaces while a million crowd into tenements.
VI. HOW TO STOP THE ROBBERIES.
Now the masses of the people of Greater New York lose annually by the appropriations of the landed and franchise aristocracy —
In ground rents
In franchise values
While they are compelled to pay in various taxes for the support of local government
Which makes in all
What shorter way is there to relieve poverty and to do social justice than to abolish the $98,000,000 of general taxes, which fall mainly upon industry or the fruits of industry and terribly hamper the masses of the people; and then what more simple than to appropriate for local governmental expenses that sum out of the $225,000,000 of publicly-made land values? Why not further lighten the load of the masses by taking over into public ownership and management all public municipal franchises, just as are water and sewage now; and then why not cut down their cost of service to the public that $30,000,000 which now represents purely franchise value in the charges of the private corporations that possess and manage them?
For a third step, why not make these municipal utilities free to the public, meeting the expense of their operation by another appropriation of the publicly-made land values?
And for a fourth step, why not appropriate for an old-age pension to every citizen, rich and poor alike, for public parks, for public lectures and concerts, or for any other or for all such purposes — all that still remains of the publicly-made land values?
What would be the result of such a policy? It would be that all the people in Greater New York would be relieved of the burden of $98,000,000 of various taxes; that the great charge of the many branches of the public franchise service on the people would be entirely wiped out and abolished; and that the whole of land values, that is, of ground rents, would be enjoyed by all the people equally, being appropriated for public uses.
Would this make any difference in the community? The welkin is made to ring by the most influential of the tax-payers when, under present conditions, the taxation authorities raise or lower the tax rate even 1%. What, then, would happen if all taxation were lifted from the fruits of toil, if public utilities were made free, and if land values were to benefit, not a class, but the whole people?
Such a tax would be just, because it would fall on this publicly-made value; it would be certain, because land cannot be hidden or lessened in amount; it would force all unused or inadequately used valuable land into its highest use, for no one could afford to hold such land vacant for a speculation, as very many do now.
Land in Greater New York would therefore be cheaper — how much cheaper may be judged by the fact that two-thirds of the land within the city limits, though extremely valuable, is not now used. This unused land would compete with the used land for users, so that land values in the community generally would fall. At the same time all building materials, being relieved of present taxation, would be far cheaper, making two of the chief elements for house building would be greatly less in cost, and consequently, larger, lighter, better dwelling accommodations in every way could and would be supplied to the masses of the people, and especially to the million now living in tenements.
What would help the poorest would be of direct and indirect benefit to all others in the community; and this would be but one of a large harvest of good results that the people would reap from such a policy.
The privileged classes, the aristocrats, would lose their privileges, but they would have no less rights than any and all other citizens of Greater New York.
VII. THE CRIMINALS.
That able and public-spirited citizen, Mr. President Baldwin, of the Long Island Railroad, and Chairman of the Chamber of Commerce Anti-Vice Committee of Fifteen, has said that this is not the time for "idealist scheme of reform." But we are trying to put down vice and crime in the community; and the question is: Who are the criminals?
Let us be frank with ourselves: Who are the criminals? Are they the housebreakers, the unfortunate women who walk the streets and the police officials who take blood-money? Or are they those who rob the masses of the people into poverty — deep, biting, degrading poverty?
Are not the aristocrats of privilege, knowingly or unknowingly, the criminals we should first consider in an examination of civic disease in New York?
How much is it worth to you to have the potholes and cracks in the roads in your town promptly filled in? Probably roughly what it costs you to have each of your cars fixed a couple of times a year.
So is it better for the local economy to (1) keep the tire retailers and alignment shops in business; or (2) to pay city employees or contractors to maintain the roads in a condition that minimizes damage to cars and tires?
Fans of small government might opt for the first choice. Fans of individuals having more money to spend on discretionary purchases or to invest toward their own futures might opt for the second one.
Some things ought to be done by the community, and financed by the community.
So how should we pay for this sort of public works?
Should we impose sales taxes on goods sold within the town providing services?
Should we impose a wage tax on workers within the town providing services?
Should we tax the buildings within the town?
Should we throw an extra tax on tobacco, alcohol, cell phone use, cable TV subscriptions, electricity use in the town?
Should we tax all the cars and trucks garaged within the city limits?
Should we tax the gasoline and diesel sold within the city limits?
Or should we finance this by taxing the land value within the town limits?
If you're new to this concept, all these may make equal sense to you. (Indeed, some people argue for "balance" in taxation, or for spreading taxes across many tax bases in order to "keep rates low." But I think there is one option that is far better than the others.
Who benefits when we make it less expensive to live within a particular community than it would otherwise be, as we do by improving road maintenance? Isn't it ultimately those who own land within the city limits -- the landlords (residential and commercial), the homeowners, the business community -- who benefit, both as individuals and as property owners, when people are more prone to drive in their community than in one which does not maintain its roads to the same standards? Even those who don't own cars benefit.
Some would say that this fails to collect from the tenants -- residential tenants, commercial tenants -- who also benefit, but I'd have to disagree with that argument. Their landlords can charge them more in the presence of such services than they could charge in the absence of that road maintenance. Should that benefit accrue to the landlords, or should it be passed through to the community whose spending created it?
I'll return to something a Tennessee business man wrote to his governor in 1873:
"Never tax anything That would be of value to your State, That could and would run away, or That could and would come to you."
The same is true of individual towns, too. Don't tax jobs, or workers, or buildings, or equipment, or products.
This is not a reason not to raise public revenue; rather, it is a reason to think carefully about what should be taxed -- and what should not be. Charge for that which the community's presence and activity creates, and the privilege of using that which nature or community provides in limited supply, e.g., water, electromagnetic spectrum, geosynchronous orbits, minerals, oil, natural gas; privileges like franchises for monopolies; landing rights at congested airports; on-street parking; etc.
Where I live, an Australian bank owns the city water system, a stockowner electric company has the power franchise, Cablevision has the cable franchise -- and a lot of money that could profitably be recycled locally gets sent out of town. (We do still own the sanitary sewer system.)
There was a time when these franchises were given to local entities, or held by the community. Then we permitted them to be privatized, and revenue that was once recycled locally now leaves. (Google "The City for the People" for more about this. It showed, among other things, that residents of cities where the utilities were publicly owned paid less for their utilities and workers in those utilities were better paid.)
The short article quoted below makes an interesting point. I'll preface it by quoting California Georgist Harry Pollard, who says that it would be better to collect land rent and throw it into the sea than not to collect it at all. This shows why. It comes from Tax Facts, 1926:
LAND SPECULATOR'S PARADISE
Arthur Brisbane has discovered that Ponca City, Oklahoma, a town of 15,000 population, is free from taxes. Through ownership of the power, light and water departments the city derives sufficient revenue to dispense with all taxes.
But is that an unmixed blessing? Police and fire protection, schools, etc., are so desirable that people will move to places where they may be had. Since no one can enjoy these government services without occupying land, the people will bid against each other till they force the price up to a point where it equals the value of the service. If the people know they will not have to pay taxes they can and will pay that much more for the land.
What a bonanza for the land speculator! He can add to his price what buyers save in taxes.
Economic rent, or land value, attaches to land whether or not the land is taxed. The amount of this land value depends upon the number and kind of people in the community, and must be paid in any event. Should the government take sufficient taxes out of this land value to pay expenses, two results will follow:
The user of land will pay more than he would if the owner kept it all, as in Ponca City.
The taking of this tax from the land owner will add to the cost of holding the land idle, and since it falls on all valuable idle land, it will make speculators more willing to make terms with land users.
When the city must pay a stockholder utility for the lights on the streets, who benefits? The taxpayers spend more than they would otherwise need to, and instead of getting electricity at the lowest price, pay a price that benefits the shareholders, few of whom live locally -- and if you've read the "stock ownership" pages linked at left, you know how concentrated stock ownership is, based on the Federal Reserve Board's Survey of Consumer Finances data. (A fine example of trickle-up economics.)
Local communities which own their own utilities would be more likely to care about using clean energy. They'd be creating secure local jobs, and good management would benefit the local community. Accountability.
This tidbit from a 1926 Single Tax monthly contains an important truth for our era. Today, it would be necessary to add "wages" to the list of things he ought not to be taxed on, since so many states and cities impose wage taxes on their residents. And in California and NYC, a large share of residents are renters. And equally important, it applies to how we tax businesses, many of which are tenants.
LEST WE FORGET
Nothing should be left undone to prevent waste and promote efficiency in government. Public officials should be closely watched to see that they render full service.
But when all is said and done in the way of securing the wisest outlay of tax money, it should not he forgotten that more harm and injustice can be done to the individual citizens in taking money from the wrong persons than in wasting it.
When a new pavement, water, light, or school is put in, it makes the neighborhood a more desirable place in which to live, and rents go up. It is well to have these public utilities constructed as cheaply as possible. But it is far more important that the tenant who pays for the use of the public service in higher rent shall not also be taxed a second time on his personal property, goods, or household furniture to pay for the same service.
Under our present system of taxation the wages of the worker are taken to run the city by the tax on the home being put in your rent. The increase in land-values that would run the city goes to the land speculator. Example and Proof:
Suppose the people build a twenty million dollar subway. The land increases twenty million dollars in value; the increase would pay for the subway, but it goes to the land-speculator and your wages are taken to pay for the subway by a tax on the home which is put in your rent.
-- from The Single Tax Review, March-April, 1909
And 100 years later, we're still financing subways from revenue sources other than Land Value Taxation. Slow learners, aren't we?
I stumbled across this document in a little book which runs to 24 pages, from 1887. Those with an interest in Alabama history, particularly as it relates to taxation, might find that it helps explain how the 1903 constitution came about -- whose interests it sought to protect. Consider it, too, in light of our current economic situation -- too few jobs, lots of income and wealth concentration; not enough credit available to afford housing or commercial sites. These problems can be solved, but not in the ways we've already tried.
The Case Plainly Stated By H. F. RING
PREFATORY NOTE -- This address originally was delivered to the United Labor Organization of Houston, Texas, in 1887. It appeared in full the next morning in the Houston Daily Post, and afterwards in The Standard, published at that time in New York by Henry George. Mr. George then issued it in tract form, giving it the name of "The Case Plainly Stated." Many editions of it have since been published from time to time in this country and in Europe and Australia, and it is generally regarded as one of the clearest brief statements extant of the philosophy of land value taxation as taught by Henry George in his famous "Progress and Poverty."
MR. CHAIRMAN:— The land question is simply a question as to how the use of the bounties of nature shall be best regulated and controlled. By bounties of nature I mean the coal beds, the mineral deposits, the land — all those natural elements which were not created by human industry, but which Nature has freely and abundantly provided for the use and enjoyment of all the children of men; and I propose to show how the right of capital and. labor to use these natural elements should be regulated by the government*, so as most to conduce to the happiness and well-being of mankind.
* The word "government" as used in this presentation of the Single Tax refers to the tax levying power as vested, not alone in the federal, but also and even primarily in the state, county, and municipal governments. It is probable that a complete application of the Single Tax will be reached through its gradual adoption at first in cities, counties and states, before it is substituted for tariff and internal revenue taxation.
I am a Single Taxer, and a discussion of the land question by me can be nothing more than a mere attempt to expound the teachings of that great master of the subject, Henry George.
George, at the outset, calls attention to the marvelous improvements in the arts and sciences, the discoveries, inventions, and labor-saving machines which, within the past 100 years, have so immensely increased the productive powers of the human race. Is it not a moderate estimate to assume that on an average the labor of one man today, with all these labor-saving inventions, will produce as much of the comforts and luxuries of life as the labors of four men would a hundred years ago? And does it not follow that the average workman of today creates, by each day's labor, four times as much wealth as the average workman did a hundred years ago? George teaches that if the workman of today, on an average, creates four times as much wealth as the workman of a hundred years ago, then the services of this workman of today are four times as valuable to society; then why should not his wages of right be four times as great? Why should he not be four times as independent? Why should it not be four times as easy for him to make a living and support his family in comfort and decency?
Will any one presume to assert that this is in fact the case? On the contrary, is it not just about as hard for the poor man to make a living today as it ever was? Does he not dread the loss of a position today just as much as he ever did? George asserts that labor-saving machinery really ought to lessen the burdens of labor, to make it easier for the laborer to live, and in fact, to lighten his toil. But alas, from some apparently mysterious cause, — a cause which many comfortably well-to-do people insist is one of the unfathomable mysteries of Divine Providence, — what George claims should rightly result from inventions does not result from them. And still we are all the time making new discoveries, and year by year increasing, by means of new inventions, the productive powers of working men; yet, with the increase of population, the lot of those who produce all this wealth seems to be becoming more precarious, less independent and more and more wretched.
Who denies that under the present social system, wages tend to fall irresistibly to the point at which the wage-workers can barely subsist? This is called the iron law of wages, and all the strikes conceivable can only temporarily, and but fitfully, arrest this steady tendency. For so long as unemployed men compete for employment against the employed, wages cannot permanently advance. The worker may create quadruple the wealth, but he is not permitted to retain any more of it as his share.
WHO GETS THE WEALTH?
Now, where does this wealth go — this wealth which we now produce so much more easily and in such vastly greater quantities than ever before? What becomes of it? Who gets it? Why is it that in this age of wealth-producing and labor-saving machinery, poverty as abject and hideous as ever before seen in the history of the world abounds and increases in our midst? What is the cause of the so-called iron law of wages? Henry George has discovered it. He has pointed it out, and he has shown us the remedy. He has demonstrated beyond a doubt or question that it does not result as a fatal necessity from the nature of things, but that it is a result of violation of natural law, of a refusal on the part of society to recognize the inalienable right of every citizen of access to the bounties of nature within the territory of his country on equal terms with every other citizen of that country.
Let me now give you a short lesson in the elements of this new political economy.
Three factors enter into the creation of every conceivable kind of wealth. By wealth we mean any material thing produced by human industry which gratifies human desires. These factors are land, labor and capital. Wealth in a civilized community is produced only by means of a union or partnership between land, labor and capital. Labor does the work, capital loans the tools, and land furnishes the natural elements on which, and out of which all material things resulting from human industry are created. In speaking of land in the new political economy we never include improvements or anything which is the result of human toil. We simply mean the opportunities which land and the elements within it afford for the employment of capital and labor — we mean the raw elements as they lie on or in the bosom of the eartli, untouched by the hand of man.
Now, as before remarked, the product of land, labor and capital is wealth, and after it is produced, it is divided among these factors entering into its composition. A certain portion of it, called rent, goes to land, either directly in the form of rent or in the form of interest on the selling price of the land or of the coal bed, or whatever it is; another portion of it, called profit or interest, goes to capital for the use of tools which capital has furnished, and the balance left, after land has been paid rent and capital has been paid interest or profits, goes to labor as wages for the work which labor has done, including the labor of superintendence.
MEANING OF RENT.
Now what does rent signify as used here? Rent is the price paid for the privilege of access to the raw material — for the mere privilege of getting hold of something not created by man, on which and out of which labor and capital can produce wealth. This rent may be paid periodically, or may be paid in a lump in the form of purchase money. In either case the result will be the same. Is it not clear that in the division of wealth after it has been produced by this partnership between land, labor and capital, the more land gets for rent the less there will be left for capital and labor? Is it not quite as plain as A B C that the more it costs capital and labor to get hold of these natural elements, the coal beds, the mines, the water fronts, the land — the gifts of nature which a kind providence has provided for the equal use and enjoyment of all — the less there will be for labor and capital to divide between them?
In the new political economy we must never confuse land with capital. One is never the synonym of the other. Land, as before stated, is simply the natural opportunity, exclusive of improvements or anything done to it by man. Capital is something that has been made by man, like a machine for instance, which is useful in the production of wealth. It is wealth used to produce more wealth.
LABOR AND CAPITAL PARTNERS.
But someone asks: Suppose the capitalist who is using the coal bed or using this natural opportunity, whatever it may be, is also owner of it. Where then does your partnership between land, labor and capital come in? We answer just the same as before. A sum equal to the interest on the market value of the coal bed (independent of the machinery, excavation work, etc.) is in such cases a factor of rent. The owner, in addition to profit or interest on his capital, as before defined, must also take from the wealth produced a sum equal, approximately, to interest on the market value of the coal land, otherwise he would sell out and quit. It is evident that the more money the owner is obliged to invest in purchasing the coal bed, for instance, the greater must be the sum which he takes out of the wealth produced to cover interest on that investment, and hence such interest money is simply rent paid for the use of a natural element, for the privilege of access to one of the bounties of nature. Therefore, is it not equally plain in this case that the more paid for this privilege of use, the less will remain out of which labor can get wages?
A few years ago we read in the newspapers of a great boom in the vicinity of Birmingham, Alabama. We were exultingly told that the lands containing coal beds and mineral deposits in northern Alabama had gone up in value from $75,000 to $50,000,000 in the space of six years. What does this signify? It means that when capital and labor shall attempt to utilize these coal beds and mineral deposits, when capital and labor shall unite together, the one to furnish the tools, the other the labor, with which to produce wealth out of this raw material, then will a set of landlords step forward and block the enterprise with a demand for $50,000,000 for the mere right of access to these free gifts of nature, or in lieu of it the payment of $3,000,000 a year as tribute money, that being the interest of $50,000,000 at six per cent.
There lie the coal beds and mineral deposits untouched by man, fresh from the hands of the Creator, intended by Him, if He is the just, benevolent Being whom we have been taught to worship, for the equal use and enjoyment of all His children, and yet our laws say that capital and labor must pay a few forestallers $3,000,000 a year for the privilege of applying the hand of industry to these elements.
And after this blackmail has been paid, how much will there be left for the wages of labor? The answer is, just as little as labor can ordinarily subsist upon. Why? Because this monopolization of the gifts of nature going on, not only in northern Alabama, but everywhere else, enables capital to drive a hard bargain with labor. For this reason, and this alone, they can't deal with each other on equal vantage grounds. Suppose labor objects and says to capital: "I'll not accept the pittance you offer." Capital replies: "All right, go elsewhere." And so labor starts out to get work for himself, and what does he find? Here he is, living in a country capable of raising food for ten times its present population, and he finds four-fifths of the land untilled or but partially cultivated. He finds four-fifths of the coal beds and mineral deposits unused. He finds vacant land and unused lots on every side. He goes to New York City even and he finds there within its corporate limits almost one-third the area of that city vacant, unoccupied, and unused, although there are miles and miles of tenement houses, in which men and women and innocent children are packed and crowded like maggots, as though there wasn't ample room in the city for the comfortable housing of every human being in it. He finds unused natural elements all around him wherever he goes, sufficient to give employment and support in abundance to tens of millions of happy families.
But now suppose labor attempts to make use of any of these unused natural opportunities? Suppose he concludes to go to work for himself upon a piece of vacant land in the suburbs of a city, for instance, where labor could be applied to the greatest advantage. What happens? An individual comes along and waves a title deed, and orders him off the premises. He finds that all these unused natural opportunities are owned by individuals and claimed as private property. He finds himself frustrated at every point. He finds that he can't go to work anywhere without paying blackmail to the owner of some natural element for the mere privilege of working and so he strikes back to northern Alabama and takes off his hat to Capital and bows very low and says: 'Please, sir, give me a bare living and I will be your slave."
And that is about all that he does get, and that is all he ever will get under the present system of land ownership, though you may strike and boycott and potter about graduated land taxes, graduated income taxes, and graduated nonsense until doomsday.
THE GREAT PARASITE.
With advancing population the greater becomes the demand for natural opportunities and the higher the prices which can be extorted for the privilege of using them. As population increases, the town lots, the coal beds, the mineral deposits, the water fronts, the land, go up in value, and so goes up also the amount of tribute money which labor must pay for access to them, for the privilege of employment. The more of the products of industry which go for the payment of this constantly increasing tribute, the less and less will grow the share allowed the laborer and the more dependent and the more wretched will his lot become.
Here in Houston today, suppose Enterprise has $50,000 to invest in the paper mill business, a sum barely sufficient to put up the building, buy the machinery and carry stock. He finds a beautiful site for his mill on the banks of the bayou. It is a vacant lot. The hand of man has never been applied to it, and it stands there now just as it stood when the Indian roamed over the site of this city. The owner of that block, however, thinks he can make Enterprise pay him $20,000 for the privilege of giving employment to labor on this natural opportunity — this piece of ground. That is the price, and if he can't get it today he will get it when the city grows a little larger. But Enterprise says to him: "I have only $50,000 capital, all of which I shall need in my business." The land owner answers it is not his lookout, and so Enterprise turns away checkened and baffled, and the mill is not built.
CAUSE OF DULL TIMES.
And so it is everywhere. Wherever we find a portion of the vacant surface of the earth which could be utilized by capital and labor, and which affords an opportunity for human toil and enterprise, there we find a human vampire with a paper title in his hand warning off labor; and that vampire must always be placated by the payment of blackmail before the wheels of industry can begin to turn.
Need we wonder that these wheels turn slowly, and that they are always getting out of gear; that we are always talking about dull times; that men are always out of employment and always hunting for work, regarding it as a favor even to be allowed to work; that we are all the time growing too much cotton, when millions of human beings have only one shirt to their names; that we are producing too much food, when half the population of the world is insufficiently fed; that carpenters are out of work, when half the people are not comfortably housed; shoemakers wanting work and millions needing shoes? How could it be otherwise, when labor is compelled to beg for work in the midst of limitless unused opportunities for work, on which opportunities, however, sit these human vampires, these dogs in the manger, waving labor back with their paper title deeds?
Now let us go back for a moment to that partnership between land, labor and capital. For illustration, suppose the wealth produced by the partnership to be created by the application of capital and labor to those coal beds and mineral deposits in northern Alabama, valued, as we have seen, at $50,000,000. In the division of wealth produced we have shown how, say six percent of this $50,000,000, or $3,000,000, must go to land as rent. Or, in other words, $3,000,000 a year must be paid to land owners directly as rent or interest on purchase money for the bare privilege of utilizing these gifts of nature. Now, in the division of wealth produced, why is labor entitled to any portion of it? Clearly because labor's industry has contributed to its creation. Why is capital entitled to any part of it? Because capital has furnished labor with tools with which to develop the mineral deposits. The capitalist who owns the tools can trace his title back to the creator of them, to some individual or set of individuals whose industry produced them and from whom he purchased or inherited them. The title, then, of both labor and capital to a portion of the wealth produced from these mineral deposits originates in human industry, and it is a sacred title. Now then, why should the land owner get any portion of this wealth, to produce which capital has supplied the tools and labor has done the work? This owner claims the right of making capital and labor pay him interest on $50,000,000, or $3,000,000 a year, for the mere privilege of access to this raw coal and raw ore. Ought we not to scrutinize most carefully his right to extort this immense tribute? And if he can show no natural and moral right to claim it, does not society countenance the robbery of labor in permitting him to do so? Where does his title originate?
We find that six or seven years ago he paid someone who claimed to own the land in which these mineral deposits are found $750,000 for the raw natural element for which he now demands $50,000,000. Was this additional value of $49,250,000 in six years produced by his industry? Was it produced by the industry of any previous owner of these natural elements? Did it cost $49,250,000 to discover these mineral deposits? We trace back his title a little further, and we find that perhaps a hundred years ago it originated in a grant to John Jones from the government — that is to say, the people who inhabited this country a hundred years ago and who constituted the government said: "We will divide the land and we will give John Jones this particular tract for his private property."
But did these people create that land and the coal and iron in it? Can it be shown that they had any better right to it from the Almighty Creator than the people of this generation have? Was the earth intended by the Heavenly Father for one generation to dispose of forever, or as an abiding place for all generations? Was Thomas Jefferson right or wrong when he wrote: "The earth belongs in usufruct to the living; the dead have no right or power over it?" By what authority could the people living here a hundred years ago, long since dead and gone, confer upon John Jones, also dead and gone, a right which would enable John Smith today, by tracing a paper chain of titles from him, to extort from capital and labor a tribute of $3,000,000 a year for the bare privilege of getting to that coal and iron and making it useful to mankind?
Who dares to blaspheme the name of the Almighty Ruler of the universe by saying that the coal and iron were not intended by Him for the equal use and the enjoyment of all His children — the humblest babe born today in a garret equally with a child of the proudest duke who ever lived?
MAN IS A LAND ANIMAL.
Is not man a land animal? Can he live without land? Can he any more rightfully be deprived of access to land than he can rightfully be deprived of life itself? Can he any more rightfully be compelled to yield up to a forestaller, a mere owner of land, a portion of the fruit of his industry for the privilege of getting hold of the raw material elements than he can rightfully be compelled as a slave to yield up to a master a portion of the fruits of his industry? To compel him to do so is as much a robbery of labor in one case as in the other. Why then is not the humblest babe that God sends into this world naturally and by inalienable right entitled to access to land on equal terms with all his fellow human beings?
ORIGIN OF PROPERTY RIGHT.
Mind, when we say access to land we do not include access to improvements on land, or access to anything produced by human industry, a title to which can be shown originating in human toil; we simply mean access upon equal terms to the free bounties of nature as they lie upon the kind bosom of mother earth, untouched and undisturbed by the hand of man. What I produce by my industry is mine. What I obtain by exchanging the products of my industry for the products of another's industry is mine. What my father or my grandfather produced by his industry was his, and if he has given it to me it is mine.
In all these cases human industry is the origin of property right, and property rights originating in human industry must be held sacred, else there would be no incentive to human effort. Do not the values produced by the individual belong to the individual producing them? Do not the values produced by the community belong to the community producing them? Is there anything wrong, immoral or communistic in this ideal? And yet this is the sum and substance of the Henry George philosophy.
Take the case of the vacant block on the bank of the bayou which Enterprise wanted for a paper mill and could not get. Fifty years ago it was worthless. Now labor must pay a tribute of over $20,000 to the so-called owner for the privilege of using it. Whose industry has put $20,000 of value on that piece of vacant ground? Not the industry of the present owner, nor the industry of any former owner, because no man has ever done a stroke of work upon it. That value of $20,000 has been placed upon the land by the common energy and enterprise of the entire community. Since the community has produced that land value why does it not belong to the community? Why has not the community the same rights to the value it creates as the individual has to the values which he individually creates?
How shall this derangement of the wheels of industry, this blackmail upon enterprise, this robbery of labor, this eager and fatal competition among laborers for employment, this slavish fear of the loss of a situation in the midst of abundant unused opportunities for employment — how shall this curse which our present land system has fastened upon the productive industry of the country, be removed? Simply by doing justice; by being honest; by recognizing in our laws one of the inalienable rights of man; by recognizing in every human being, in every generation, the present as well as the past, an inalienable right of access to the bounties of nature on equal terms with every other human being.
How shall this right of access on equal terms be secured? Simply by making every individual who claims a right to the exclusive possession of a tract of land pay in the form of a tax approximately what the use of that tract of land is worth, exclusive of all improvements on it or anything done to it by the hand of man, and by abolishing every other form of taxation. Take the rent of land for public use instead of taxes.
WILL SIMPLIFY GOVERNMENT.
Some one asks: "Will not this proposed change vastly increase the functions of government and immensely add to the number of government employees?" I reply no. On the contrary, at least two-thirds of the present army of revenue collectors and tax gatherers will be dispensed with, and the remaining one-third will collect this single tax on land values at one-third the expense now incurred in the collection of national, state, county, and municipal taxes.
Another inquirer asks: "Will not the new system offer abundant opportunities for corruption and partiality in fixing the amount of this tax annually to be paid for the exclusive use of a piece of land? And how do you propose the amount of the tax shall be determined?" It will be determined by the same law of demand and supply which now determines the amount of tax under the present system. The single tax will be fixed by the same machinery of an assessor and a board of equalization which fixes it now. For instance, under this system a piece of property on Main street rents for $5,000 a year. Interest at the prevailing rate on the building alone, added to the annual cost of insurance, repairs and caretaking, and a sum sufficient to provide a sinking fund for renewals amounted to, say $3,000 a year. The landlord is then collecting the difference between $3,000 and $5,000, or $3,000 for the use of this naked earth. That is to say, he is collecting $2,000 a year for the use of something never created by man, to which all are by natural right equally entitled, and which owes its rental value of $2,000 a year exclusively to the common enterprise and energy of the entire community.
This is the sum which, under Henry George's system, would be turned over to the government in the form of a tax for the common benefit of the community who collectively have made the use of this land worth $2,000 a year.
Here an interested friend anxiously inquires: "But if the landlord has to pay this tax of $2,000 a year for the use of the land, will he not take it out of the tenant by raising his rent to $7,000?" No, for the landlord's charges now all he can compel the tenant to pay. Suppose he tries to. Suppose he says to his tenant: "You must now pay me $7,000 a year." What happens? Just what happens every day now. If the tenant can do no better he pays the increase. But now, mark you, when the landlord goes to pay his tax what happens then? Why the board of equalization says to him, you have received $7,000 a year rent for the use of improvements worth only $3,000 a year. You are therefore collecting $4,000 a year instead of $2,000 for the use of the naked lot, and you will therefore pay the city or state $4,000 a year for the privilege of the exclusive use of the ground instead of $2,000 a year as heretofore. Now what has the landlord made by jumping up the rent? Nothing. What would be made by thus jumping up the rents under the present system? Everything. Under which system would landlords be more apt to force up rents?
DETERMINING THE TAX.
Another way by which the board of equalization under the George system would determine the amount of tax to be paid for the privilege of the exclusive possession of a tract of land, and which would also compel landlords to collect from their tenants and turn over to the government in the form of a tax the full value of the use of the land, would be from observation of the prices which real estate brought in the market. But note, at this point some smart fellow jumps up — and he is likely enough to be a newspaper editor — and vehemently protests, saying: "Why, sir, the taxation of ground values plan does not propose to allow any exclusive ownership of land. It demands that the government own it all and rent it out or divide it up into 60,000,000 or 70,000,000 little bits, or do something of that kind with it, and here you are talking about lands being bought and sold under the Henry George system. Why, man alive, you don't know what that system is!"
Now, Mr. Editor, or Mr. Who-ever-you-are, let me say to you that in your ignorance, or in your indifference to the sufferings of your fellowmen, or in your desire to pander to the greed of monopoly, or to the timidity of capital, you may say what you please; you may misrepresent as much as you please for the purpose of bringing odium and contempt upon the cause; you may call it what you please — state ownership, state landlordism, ownership in common, communism, nihilism, anarchism or anything else; but the fact, nevertheless, remains that, under the just and righteous land system which we are trying to explain, the land will continue to be bought and sold under the same form of paper deeds, precisely as it is bought and sold today. It will continue in precisely the same way to pass to devisees by will and to heirs by law of descent and distribution. The right of control, of exclusive possession and dominion over a piece of land and of the free and exclusive enjoyment of all improvements on it, will in no way be abridged or disturbed. When you buy a lot on Main street today worth $10,000 with a building on it worth $10,000 more, your deed recites a consideration of $20,000. Now when you buy this same property under the George system, the only difference in the whole transaction will be that your deed for it — assuming that the price accords with the market value prevailing at the time of your purchase — will recite a consideration of only $10,000, and $10,000 is all that you will then pay for the property. You will pay nothing for the land. After you have bought the property you will pay yearly in the form of a tax to the government, approximately the full market value of the (yearly) use of it — which will amount to the annual rental value of the land, and as the man from whom you purchased had to pay the government the same annual rental value, you will consequently pay nothing, or approximately nothing*, to him for the land itself when you purchase the property. You thus save an investment of $10,000 in dirt; instead of such investment you will pay for the common benefit of the community, including yourself, what the privilege of the exclusive use of that spot of earth is worth — nothing more, nothing less — and that is simply what you ought to pay. The $10,000, which, under the present system, you are compelled to bury in a bit of earth, you will have left you with which to increase your business; and if you do increase your business with it, and add another story to your building, no tax gatherer will come around and impose an additional fine upon you for doing something with your money which gives employment to labor.
* There will, no doubt, be instances where the desire of an individual to get and retain possession of a certain piece of property, will cause him tooffer a bonus over and above the market value of the improvements.
NO PROPERTY IN LAND.
Thus, under the single tax system, land would be sold and would change hands as it does now, but it would only bring in the market approximately the value of the improvements on it. If land in any locality should get to selling for considerably more than the value of the improvements on it, this would be a certain indication that the parties using the natural elements in that neighborhood were not paying for the benefit of all the people what the use of the same was worth, and so a board of equalization would put the tax up. As population increases the value of the use of land increases, and with it, under the George system, the revenue from this tax on land values will increase, and thus the entire people who collectively produce this increasing value will get the benefit of the values collectively produced by them. As it is now, the increase in the value of land, which amounts to several billions annually in the United States, four-fifths of which is increase in the value of city and town lots and mineral deposits, goes to a comparatively small number of individuals who do no more to produce these values than any other members of the community.
Another doubter puts this objection: Under the George system you would make the owner of a lot on Main street, with an improvement on it worth $10,000, pay as much tax as the owner of a similar lot adjoining, having a building on it worth $50,000. What justice is there in that?
Let us see. Take away the improvements and these two lots are of the same value — that is to say, the value of the use of both lots for ordinary business purposes is the same. Suppose it is $300 a year. Now, the man with the $50,000 improvement collects from his tenant ten percent on his $50,000, or $5,000. He also collects $300, the value of the use of the lot, making in all $5,300. The man with the $10,000 improvement also collects ten percent upon the valuation of his improvement from his tenant, of $1,000. He, too, collects $300 in addition for the use of the lot, making in all $1,300. Now after both have paid the government $300 apiece for the privilege of the exclusive use of these lots, each will have left ten percent upon the capital invested, and why should one be entitled to any greater percent upon the capital invested than the other?
The fact is, that under this system there will be no such thing as taxes. Taxation, as we now understand it, will be abolished. The revenue derived by the government from requiring all who use a natural opportunity to pay into the common treasury what the use of that opportunity is worth, if it is worth anything at all, will be more than sufficient to enable the government to dispense with every species of taxation. As it is now, when you pay your taxes, you are simply robbed of a portion of the fruits of your industry, for which you do not get, directly, any equivalent. Under the proposed system, when you pay your single tax on land values you will get directly a full equivalent for every dollar paid. You will get the privilege of the exclusive use of a tract of land for what that privilege is worth.
ACCESS TO UNUSED LAND.
If this system were adopted what would become of the vacant lots and lands, the unused coal beds and mineral deposits, the unoccupied water fronts and water privileges over which human vampires now stand guard, retarding enterprise and driving off labor? They would become absolutely free. No one could afford to hold them and pay taxes on them. The vampires would turn them loose. Land speculators and land sharks, instead of trying to grow rich by forestalling labor and capital and thus preying like devouring beasts on their fellowmen, would turn their talents to better account. Wherever labor could find an unused lot or coal bed or mineral deposit or unused tract of land, there labor could go to work and employ itself without being required to invest a dollar in the purchase of a right of access to the natural element, without being compelled to first make terms with a dog in the manger claiming it as private property and holding it for speculative purposes.
If that vacant natural opportunity were situated near a center of population, or were of a character to bestow peculiar money-making advantages upon the persons using it, this advantage would create a demand for it, and this demand would regulate in the manner already pointed out the amount which labor and capital would pay for the use of it, in the form of a tax for the common benefit of all. If that vacant opportunity, for instance, were a tract of land four or five miles from this city, it would have few advantages to make the use of it at present peculiarly valuable. Why? Because there is so much vacant land of the same character near it, the use of which is equally valuable, that no one would give a bonus, as it were, for the use of that particular tract. Labor would, therefore, at first get the use of that land for nothing. It would have no taxable value at all until all the other vacant land similarly situated was put into use. Under this most just and equitable system the taxable values of land would be confined almost exclusively to the cities and towns and the coal and mineral deposits. Where people congregate, there land has value. In New York City alone, capital and labor today pay to a few thousand land owners, in ground rent alone, exclusive of rent paid on improvements, for the bare privilege of living and doing business, tribute money amounting to hundreds of millions annually, a sum almost equal to the expense of carrying on the government of the United States. It is in these great centers of trade and commerce that land has its greatest value; it is here that land values are mostly found and from these centers nine-tenths of the revenue of the government from this tax on land values would be derived.
FARMERS WOULD BE BENEFITED.
If the George plan were suddenly put in force today, not only would all farmers be relieved from direct and indirect taxation, not only would farmers participate in common with all others in the universal and uninterrupted prosperity which would result from removing the obstructions which needlessly hamper and clog enterprise, but probably three-fourths of the working farmers in this country would pay no land tax at all. Why? Because with so much vacant or but partially cultivated land as there is here today three-fourths of the farmers would have no taxable value at all; and all who are counting on the farmers of America being so foolish as not to see how they will be as much benefited by a just and righteous land system as any other class will certainly be disappointed.
EFFECT ON FARMS.
"Yes," says our farmer friend, "but you propose to confiscate the farmer's land." Let's see about that. You are a farmer owning say a hundred-acre farm, situated like a majority of farms, in a neighborhood where for every acre of land in cultivation there are two or more acres unimproved or but partially improved. Your farm is worth under the present system, say $2,000. A hundred acres of this unimproved land adjoining it of the same quality is held by some speculator at $500. Your tax on your hundred-acre farm is $10 a year, the speculator's tax on the hundred acres of land adjoining of equal value, exclusive of improvements, is $2.50 a year — one-fourth as much as yours. You give employment to labor on your land, and thereby add to the prosperity of the community. The speculator excludes labor from employment on his land, and thereby retards the prosperity of the community. Why should you be taxed any more for using your hundred-acre tract, and giving employment to labor on it, than the speculator is taxed for holding in idleness a tract of equal value and preventing labor from using it? Why should not the speculator pay at least as much tax for the privilege of excluding labor from his tract as you have to pay for the privilege of employing labor on yours? Have you hurt anyone by turning up the wild sod and building fences and houses and putting $1,500 worth of improvements on your land? If not, why should you be fined for it by having your taxes increased?
Where our plan is adopted you will have no taxes at all to pay until this vacant land around your farm is put into use. Until then no land value could attach to your farm, and the tax which, with increasing population, you would ultimately be required to pay, would seldom equal and rarely, if ever, exceed that which farmers now pay on the improvement valuation. Assuming that you spend say $600 a year on your family, then under the present system your taxes, direct and indirect, and the toll which the merchants take for collecting indirect taxes, amount to at least $100 a year. You may not know it, because an indirect tax always fools a fellow paying it. You will be relieved from all these taxes, but best of all, men who are now idle and who can't buy what you raise will all be at work, and not only that, but their wages will be high enough to pay good prices for what you raise. It is true that under the new system you could only sell your place for $1,500. Still, with this same $1,500 you could buy just as good a place from some one else. The purchasing power of your farm, when it comes to buying another farm, would not have been reduced. Do not your interests as producer or a laborer vastly exceed your interests as a land owner?
LANDLORDISM AND GOVERNMENT
Now, coming back to the elements of the new political economy, some one says: "What difference does it make to the workmen whether labor and capital pay this ground rent to the individual or to the government, since, according to your theory, it must be paid all the same?" In the first place, if it is paid to the individual none of it ever comes back to labor and capital unless value received is paid for it; so far as labor and capital are concerned, it might about as well be cast into the sea. But when it is paid to the government in the form of a tax on land values it does come back to labor and capital again in the form of relief from every species of taxation, direct and indirect.
Again, the amount that Enterprise would pay the government for the privilege of access to the natural elements would be less under the single tax than is now paid individuals for this privilege. Under the land value tax the prices could not be advanced by monopolization of these elements, as is being done now.
But best of all, and by far the most glorious result that will flow from the establishment of a just and righteous land system, is that it will enable the wealth creator to stand erect, presenting to capital an unterrified front.
Return for a moment to the coal beds of northern Alabama and imagine the Henry George system adopted. Labor now again objects to the terms offered by capital, and again capital tells him to go. And again labor goes forth hunting for work. But how different he finds the aspect of things. He finds the same unused natural elements, the same unused coal beds and mineral deposits, the vacant lots and lands, but he no longer finds a fellowman sitting upon every vacant opportunity for work and waving him off. They have vanished. They have gone to work themselves. He finds every unused opportunity for labor, wherever it may be, absolutely free. Not a dollar of capital need be invested in buying a natural opportunity, in paying for the privilege of work. When labor went forth hunting work before, he not only had to ask capital to pay for the tools, but also to pay, usually a greater sum, to some forestaller, in addition, as blackmail, for the privilege of access to a natural element.
This will all be changed. It won't take near as much capital to start enterprises as it did, or in other words, to give employment to labor. In fact, labor could then take even an axe and hoe and find plenty of vacant opportunities on which he could make a living without having to bury himself in a wilderness to do it. All this makes him feel independent and enables him to bargain with capital for employment on equal vantage grounds.
MONOPOLY IS PROFITABLE.
Some time since a large manufacturing firm in Massachusetts adopted the eight-hour system. After trying it a year they gave it up and went back to the ten-hour system. The general manager said they could only make five percent profit on their investments by requiring only eight hours' work, and that unless they could make a bigger percentage than that, they would not be bothered with the management of the business — they would put their money into town and city lots, because that species of property would certainly enhance in value as much as five percent annually, and that, too, without any trouble to the owner, and so it is everywhere. Now, is it not absurd to expect to reduce the rate of profits with which capital will be content below this steady percent of increase in the value of town and city lots, by any combination of labor, or by any legislation which falls short of restoring these land values to the people who collectively create them?
Suppose you have $10,000 today. The best and safest thing you can do with it is to invest it in town lots in or near some growing town. Ten years from today, unless the George theory becomes generally understood, the lots will be worth $20,000 and you will have drawn to yourself $10,000 worth of wealth for which you have given no equivalent. You will simply have robbed the labor of the country of $10,000. But now suppose ground values to be appropriated to the public use by taxation. What are you to do with your $10,000? You would not buy vacant lots now; there is no speculation in them. The tax which you would have to pay for the privilege of excluding capital and labor from the opportunities for employment which vacant lots afford, would be too heavy for you. In fact, you couldn't even loan on land alone, because land alone will have no selling value in the market. The result is, that unless you let your money lie idle and so lose interest on it, you will be compelled to invest it so as to give employment to labor. You must put it into buildings, into machinery, into manufactory stock, into farm implements, into some channel where it will be active and where it will afford employment to labor.
Not only must you do this with your capital, but every other capitalist must do the same with his capital. Capitalist thus must bid against capitalist, since capital can only increase by calling labor to its aid and giving it employment.
Under the present system the rich can grow richer without calling in the aid of labor, without giving employment to labor. They do so by buying space and monopolizing land.
Under the present system, as wealth accumulates, the wealthy seek to invest in land, to get control of natural elements, and get into a position from which to blackmail labor, thus becoming an obstacle in the way of the production of more wealth.
Under the better system, however, wealth could not thus be made to set up an obstacle to the creation of more wealth, or, in other words, to the employment of labor. It can then only obtain a profit by investing in lines of enterprise which give employment to labor.
Under which system will the demand for labor be greater? Under which will earnings be higher?
Them that's got shall get Them that's not shall lose So the Bible said* and it still is news Mama may have, Papa may have But God bless the child who's got his own, who's got his own
Yes, the strong gets more While the weak ones fade Empty pockets don't ever make the grade Mama may have, Papa may have But God bless the child who's got his own, who's got his own
*Likely a reference to Matthew 25:29, which can be translated as "For everyone who has will be given more, and he will have an abundance. Whoever does not have, even what he has will be taken from him."
Consider the possibility that the meaning behind Billie Holiday's lyrics and Matthew 25:29 is not prescriptive but descriptive: that those who own land will always receive land rent, while those who do not have it must pay those who do have it for access to it (to have a place to live and a place to work), and thus will always be poor, particularly if, in addition to paying someone for access to land, they must pay taxes on their labor and/or on their purchases, in order to support Caesar (who was not part of the community) or to pay for the provision of public goods (schools, roads, courts) for the community. Landlords in high-rent areas receive lots of rent; landlords in low-rent areas -- including small towns and agricultural land -- receive far less -- but it is still the landless who are paying them, for access to something whose value the landlords didn't create.
And then hear the words of Leona Helmsley: "WE don't pay taxes. The little people pay taxes." She knew whereof she spoke. Property taxes in the places she did business were rather low, but her customers and workers paid significant taxes on their purchases and wages. Deep down, she likely knew that she didn't make the sites of her buildings valuable: we all did.
A simple tweak of our taxation system can change it all: we can collect from landlords and other landholders some significant fraction of the annual rental value of their land, and use it to fund our public spending, instead of taxing sales, and buildings, and wages. Not only would it be just and reduce the concentration of wealth and income, but, as the 2008 OECD study showed, it would promote economic growth.
I find it much easier to accept the idea that the gospel verse is descriptive than to believe that a loving god would intend it to be prescriptive. You might explore wealthandwant.com for "The Crime of Poverty."
Some people think that land rents are not a significant percentage of GNP, or, when they hear "land reform," think only about agriculture, probably in the context of Third World latifundia.
If you believe that land rents don't matter in a modern economy, I have a wonderful get-rich-quick scheme for you! And I won't charge you a cent for my brilliant idea, so listen up!
I was looking at the real estate ads in the Washington Post (October 2, 2010, p. F1), and I observed that for just $271,000, you can buy a four bedroom, three bath contemporary chalet in Basye/Bryce Resort, Virginia, with screened porch and hot tub. It looks pretty nice, it has trees in the yard, and it was built in 2005. I'm not sure just where Bryce Resort is, so it must not be too close to DC, or I'd know more.
Other houses are more expensive. There's a three bedroom townhome (what used to be called a row house) in Alexandria, less than a mile from the Huntingdon Metro, for $579,000, more than twice as much, $308,000 more. Alexandria is on the Potomac, across from Washington DC.
What else can you buy? There's a three bedroom townhouse in Alexandria, for $642,800. There's also a white house, described as a 1920's classic, with the number of bedrooms unspecified, but a yard and landscaping of its own, for $1,250,000, nearly a million dollars more than the chalet in Bryce Resort. It looks attractive, but it's not a huge mansion. When I was a child, say in 1975, I think you could have bought a house like that in my home town for under $50,000, $60,000 at most.
So how do you get rich quickly? You buy houses in Bryce Resort, of course, and sell them in Alexandria at a $300,000 markup! Even after the costs of cutting up houses and moving them on flatbed trucks, you should come out way ahead. Buying and selling one house a year should give you a middleclass income, and if you work faster than that, you'll soon be set to retire rich.
Can anyone consider the obvious flaw in this scheme, and not realize that land prices matter? Land prices in Alexandria must be at least $300,000 for the land under a decent townhouse, more for the land portion of a home with a nice yard. Annual land rents must be about $10,000 or more for modest lots, several times that for bigger ones. This is not a trivial percentage of homeowners' incomes, or of GNP.
As a 19th century Georgist put it, instead of paying rent to a landlord and tax to the state, why not pay rent to the state and no taxes?
Every week when I scan the NYT's "What You Get" column, which showcases three homes currently on the market in various parts of the country, I wonder why the column doesn't provide the answers to the important questions?
How far is each home from a vital job market?
What share of the children in the local school district graduate from high school? attend 4-year colleges? graduate from college?
What sort of public goods and services and cultural amenities does the community offer?
Must those who live there have a car for every working adult?
I think Nicholas Rosen nailed it when he quoted a 19th century Georgist: instead of paying rent to a landlord and tax to the state, why not pay rent to the state and no taxes?
What a story! The developers of some subdivisions have slipped into their covenants a 1% resale "commission" which anyone who sells a property they developed must pay them ... not just once, but at every transaction for 99 years! How's that for a tax imposed by the private sector? Here are some excerpts from the article.
"But four months later, when a local television reporter was doing a story on housing taxes in their subdivision, the Dupaixs discovered that their sales contract included a “resale fee” that allows the developer to collect 1 percent of the sales price from the seller every time the property changes hands — for the next 99 years. ....
A growing number of developers and builders have been quietly slipping “resale fee” covenants into sales agreements of newly built homes in some subdivisions. In the Dupaix contract, the clause was in a separate 13-page document — called the declaration of covenants, conditions and restrictions — that wasn’t even included in the closing papers and did not require a signature.
The fee, sometimes called a capital recovery fee or private transfer fee, has been gaining popularity among companies that have been frantically searching for new ways to gain access to cash in the depressed housing market. ...
Freehold Capital Partners, a real estate financing firm founded by the Texas developer Joseph B. Alderman III, has been leading the charge. According to William White, Freehold’s chief operating officer, the firm has signed up more than 5,000 developers who are adding the covenant to developments worth hundreds of billions of dollars that will be built out over the next decade in 43 states.
Many developers see the resale fee as a creative way to get new financing. They are hoping to one day use the trickle of cash from these fees as collateral for a loan, or to get cash up front if pools of the fees are packaged into securities to be bought and sold on Wall Street. Freehold has begun shopping the idea of securitizing the resale fees, much as subprime loans were packaged and sold to investors.
Someone selling a home for $500,000, for example, would have to pay the original developer $5,000. If the home sold again two years later for $750,000, the second seller would have to pony up $7,500 to the developer, and so on. Even if a home declines in value, the seller still must pay the 1 percent fee. Freehold gets a cut of the resale fee; if the fees are securitized, it retains a percentage of the cash generated from the securitization.
Freehold’s principals and lawyers have been aggressive in sales pitches to developers, but have declined to give details on their clients, securitization efforts or the company itself. Freehold moved its corporate office from Round Rock, Tex., to New York this year as it stepped up efforts to securitize the resale fees.
Mr. White characterizes the resale fee as a win-win deal for the developer and the home buyer. The fees let developers spread out the cost of building the roads, utilities and other infrastructure across all homeowners in a subdivision, rather than just the initial buyers. As a result, he said, the developer can lower the initial price of a home to the first buyer.
For example, he says, a typical $250,000 home may be able to sell for about $5,000 less. “The fee is a fair and equitable way to spread development costs, and results in lower costs to the average consumer,” Mr. White says. ...
Jeff Moseley, founder of Badger Creek Development in Brunswick, Ga., says he signed up with Freehold after watching his business tank with the economy. “I can’t sleep at night,” he says, adding that he had laid off all 32 of his employees.
He is hoping Freehold’s resale fee program will breathe new life into his business. “I thought it was an intriguing and compelling story,” says Mr. Moseley, who owns two development projects, encompassing about 220 lots.
Under his deal with Freehold, he will get about two-thirds of the revenue from the securitized fees while Freehold and other parties will get one-third. ...
“The idea that someone who has no ownership stake or interest can continue to collect revenue off of a property that they may have built up to 99 years ago exploits an already complex transaction and doesn’t pass the smell test,” says Justin Ailes, director of government affairs at the land title association. The fee could hurt real estate values in the future if buyers are reluctant to purchase properties that have a 1 percent fee attached. ...
The Federal Housing Finance Agency is considering a proposal to prohibit the transfer fees on all mortgages financed by Fannie Mae, Freddie Mac and the Federal Home Loan Banks. And 17 states have either banned or placed conditions on the practice.
Some bankers say Freehold will have a tough time selling the idea to Wall Street. The uncertain economy and housing market have made it next to impossible to predict when and how often a home will sell, or where home prices are headed — information that is needed to estimate cash flows to value the securities.
And some worry that an all-out ban of resale fees by states or the federal government could make the securitized paper worthless.
Dave Ledford, a senior vice president at the National Association of Home Builders, says he’s not sure Freehold can deliver on its big promises. “It’s almost in the category of ‘too good to be true,’ ” Mr. Ledford says.
Mr. White dismisses the criticism as sour grapes. He contends that Realtors oppose the fee because homebuyers might pressure them to lower their commissions to offset it. “Apparently 6 percent to a Realtor is justified, yet 1 percent to pay for roads and utilities isn’t,” Mr. White says. He says he believes title companies are worried that they might face legal claims if they miss the fee during a search.
LVTfan here: 1% to pay in 2050 or 2090 for roads built in 2010? Right .... Tell us another one.
See also http://www.wealthandwant.com/docs/Gross_Rent.html Rent-seeking is alive and well -- and these folks are reaping what they didn't sow -- and won't sow. It doesn't come out of thin air. It will come out of the pockets of future owners and users of the property.
Shouldn't we-the-people -- the public sector -- get that benefit?
This seems a bit like the Baltimore land rent story: private parties getting to collect value today, in return for someone paying a bit less 50 or 100 years ago to buy a house.
And both situations ignore what those who have read Henry George know: that land rent ought to be used by the commons to finance our common spending, not privatized by any individual or corporate entity.
Little people pay the taxes ... and we're paying to the wrong parties. When private entities get to collect what we-the-people create, there's something badly wrong with the structure. It forces us to rely on sales taxes, wage taxes, building taxes, and other taxes which burden the economy and steal from those who produce in order to enrich those who speculate in land value.
Wise states will implement the legislation necessary to wipe out such structures.
The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.
Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.
As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.
It seems as if the suggestion is that we ought to let the housing market crash, and then hope that we will pick up again where we left off, and experience this boom-bust cycle again.
There doesn't seem to be much discussion of the factors that produce the boom-bust cycle, or of the notion that we can actually prevent the next boom-bust cycle through wise policy.
What policy? A tax shift. Shift taxes off wages (starting at the bottom); off sales (starting with essential items); off buildings of all kinds and equipment. What's left to tax?
That which we should have been taxing all along: the value of land. Henry George (b. Philadelphia, 1839; died NYC, 1897) introduced the idea in his 1879 book, Progress and Poverty, which remains 130 years later the best selling book ever on political economy. It sold over 6 million copies by 1900, and George, Thomas Edison and Mark Twain were perhaps the three best-known public figures of their day. George's "remedy" came to be known as the "Single Tax." It was a recipe for small government -- right-sized government, funded by the only legitimate revenue source: value created by nature and by the community. Land, to the classical economists -- Adam Smith, David Ricardo, John Stuart Mill, Henry George, etc. -- was distinctly different from capital. (The neoclassical economists -- and those who only know their sort of economics -- can't seem to see the difference, and conflate them, leading to all sorts of stupid -- and unnecessary -- messes!) Land includes not just the value of locations (on earth, in water, in space) but also electromagnetic spectrum, water rights, non-renewable natural resource values, pollution "rights," and lots of other like things. (Mason Gaffney provides some excellent lists.) Those locations include urban land, land made valuable by favorable climate, water supply, access to ports, to transportation systems, to desirable views, to vibrant cities with jobs, cultural amenities, educational opportunities; geosynchronous orbits; congestion charges; parking privileges, etc. Those of us who claim title to a piece of land ought to be required to compensate the community in proportion to the value of that land, for the right to exclude others from it. That compensation should be paid month in and month out, to the community.
Our current system is perverse. We must purchase the rights to the land from the previous holder at whatever price the market will bear, or what the seller's circumstances require him to accept. Rich landholders can hold out for higher asking prices; poorer ones may be forced to accept lower prices. Few of us enter the market with more than a few percent of the asking price in hand; we mortgage our future earnings in order to pay the seller's asking price.
In most coastal cities, that price is predominately for the location, not for the building itself. A May, 2006, Federal Reserve Board study found that land represented, on average, 51% of the value of single family housing in the top 46 metro markets in 2004; in the San Francisco metro, land represented 88.5% of the value, and in no metro in California did it represent less than 62%. Boston metro was around 75%, NYC metro was about 70% (I'm doing this from memory), Oklahoma City about 20%; Buffalo about 28%. Extrapolating from some of their tables, I found that the average value of a single-family structure across the 46 metros was about $112,000, with a range from perhaps $88,000 in the lowest metro to a high of perhaps $130,000 in the highest. The range of average land values across the 46 metros, though, was much wider, from perhaps $25,000 to $750,000!
Suppose we did let the housing market crash, and then shifted over to George's proposal, collecting our tax revenue first from land rent, and only after we'd collected the lion's share of the land rent, tapping other less desirable revenue sources such as wages, sales and buildings. What would happen?
The selling price of housing would drop to approximately the depreciated value of the structure in which one would live. A large new house would be more valuable than an older house of the same size. A large house would cost more than a smaller one. But one would not pay the seller for value that related to the location of the home.
One would pay, month in and month out, the rental value of the land on which the house sits. Fabulous locations would require high monthly payments; less fabulous ones would have lower monthly payments. Small lots would pay less than larger lots nearby. Owners of condos in a 20-story building would share the cost of the land rent for the site, perhaps in proportion to the quality of their location within the building (fabulous views would pay more than ordinary ones; larger footprints and/or more floors occupied would pay in proportion to their share of the total space).
That monthly payment would go to one's community, and would replace one's property tax, sales taxes, wage taxes. A portion of the payment would be forwarded to one's state, and at the state level, a portion would be forwarded to the federal government.
The selling price of housing would drop, requiring one to borrow far less. The difference would be quite pronounced in San Francisco, Boston, NYC, etc. One's monthly mortgage payment would be significantly lower.
Housing would no longer be an investment, in the sense that one expected to sell a property for more than one paid for it.
Housing would be more liquid; one could own a home, but have a reasonable expectation of being able to sell it if one wanted to move elsewhere.
The credit not used to purchase homes would be available for businesses. Businesses, too, would not be "investing" in land, but would have capital available to invest in equipment and to pay better wages to their employees.
Land which under our current system is both well-located and underused would either be redeveloped by its owners, or come onto the market so that someone else could put it to use. There would be no incentive to keep it underused, as there is today. The redevelopment process itself would create jobs in construction-related businesses, and the resulting buildings would either provide housing or commercial venues -- or both: whatever the market was asking for. And that housing would be at a wide range of points on the income spectrum and the ages-and-stages spectrum: young people starting out, families, retirees, singles, couples -- not just the luxury market. And those newly-created homes would be closer in to the jobs which would support them, rather than separated by long commutes and drive-till-you-qualify.
Land made valuable by public investment in infrastructure and services would provide a continuous revenue stream to the community, providing funding for next year's services, instead of funding for self-selected individuals' retirement.
So if one can't hope to get rich from the appreciation of the land under one's home, how is one to have security? How does one participate in the economy? By investing in businesses that serve customer desires. And when one's housing plus taxes are lower, one has more left over for that. When there is enough housing for all, one isn't paying so much of one's income for it. When no one expects to grow wealthy automatically, people can dream up the business which they will enjoy working in. And with so many businesses competing for workers, wages will tend to rise. With so many businesses competing for customers, services will improve, and specialization increase.
Back to the title of the article: "Grim Housing Choice: Help Today's Owners or Future Buyers?" Maybe economics doesn't HAVE to be the dismal science. Maybe our choices are not so grim after all. Maybe we can put ourselves on a firmer footing, without the boom-bust cycles we've been experiencing so regularly. (See Mason Gaffney's recent book, After the Crash: Designing a Depression-free Economy. And while you're on that site, you might read "The Great Crash of 2008" and "How to Thaw Credit Now and Forever.") Maybe we can leave our children a society in which all can prosper.
Not too much to ask for, is it?
Or shall we leave them a society in which 10% of us are receiving 48% of the income, and 10% of us possessing 71.5% of the net worth.
A friend sent me two prayers, both by John Archer, of Huddersfield, in the UK. I'm guessing they might be 100 years old.
The Prayer of the Landless.
O THOU, who didst decree all things, and who didst breathe upon us, giving us life, for what purpose didst Thou create us?
For we are aliens upon the soil which gave us birth, and we are trespassers in the land of our fathers.
Thou didst fashion us in nakedness, and didst bid us break the bread we eat in the sweat of our brows. But though we would fain comply with Thy command, we may not do so without the consent of others.
And the price of such consent is so exacting that our lives are made bitter by hard bondage.
We plough the fields and scatter the good seed o'er the land, but a mere pittance of the golden grain is our portion of the harvesting.
We spin and weave, but it is the bodies of others which are kept warm by the cloth our hands doth make.
We build ships and carry over the face of the deep the fruits of the labours of our brethren, and we return laden with the fruits of Thy beneficence and other men's labours in the lands we have visited, but others than ourselves and our brethren appropriate the fruits of our activities.
Down, down we go into the deeps of the mind, and through danger attended with discomfort we dig and hew the coal which shall give warmth and glow to the hearthstones of our homes; but divers rents, royalties and wayleaves impoverish the hire of our labour in order to enrich the exchequer of those who neither toil nor spin.
The rights of the birds of the air and of the beasts of the field to their place on this planet of Thy creation is acknowledged, but ours is challenged. We have not where to lay our heads, we have not where to place the soles of our feet -- without permission. And we may only secure such permission by the payment of annual tribute known as ground-rents.
Jesus, our elder Brother, who taught us to believe that Thou art equally the Father of us all; didst also command us to render to Thee the things which belong to Thee.
The earth, created Thou it! Hast Thou given the title deeds thereof to those who refuse to us the right of a standing and a resting place thereon, unless we pay rent to them annually?
If Thou hast bestowed on them the title deeds, wherein have we sinned against Thee, and wherein have they so pleased Thee, that they should be thus lifted above compliance with Thy decrees and ordinances, and we be so penalised that our children languish for lack, their mothers droop and die, thus causing many of us to curse the day we were born.
If these things be not of Thy ordering, so incline the hearts of all Thy people to the issues of justice, that they may be made to realise they but mock Thee with vain petitions when they pray, "Thy will be done on earth as it is in heaven," until they right this wrong which dishonours Thee and which enslaves and destroys Thy disinherited children. Amen.
It may not be immediately obvious to those who haven't thought about this before that the alternative is for every individual who possesses land to pay to the commonseach year the annual value of the land itself -- that size lot in that location. Each pays for what he uses, and thus keeps for himself no more than what he is actually using. This creates an economy in which valuable sites get used for valuable purposes, not held out of use as someone's nestegg for their children or grandchildren. No one grows wealthy off others' labor, and this flow of land rent gets used for common purposes rather than pouring into the portfolios of a select few.
Click on this link to see all the Landlord and Landless prayers I've got on a single page.
Don't miss this wonderful article about Elizabeth Warren, law professor at Harvard Law who first came to my attention when she and her daughter wrote a book called "The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke" (2003). I read some of her material at TPMCafe, and watched her appearance on Bill Moyers program, which gave me a sense of the human being behind some important writing and research. Later, she co-authored the study which connected a large share of personal bankruptcies with lack of effective health insurance.
And I share the enthusiasm of the readers' comments there.
If we define the "middle class" as the middle 60% of the income distribution, our "middle class" has
less than 26% of the aggregate net worth, and
about 36% of the pretax income.
If we define the "middle class" as the middle 50% of the net worth distribution, our middle class has
less than 14% of the aggregate net worth, and
less than 34% of the pretax income. [data source: 2007 Survey of Consumer Finances Chartbook]
Another recent article about Warren, includes this quote:
"She truly believes that markets can work, but she knows that
participants in the market have strong incentives to rig things in
their favor," says Adam Levitin, a former student of Warren's who
specializes in bankruptcy law at Georgetown University. "If participants have a sweet deal, they'll be upset at anyone who wants to level the playing field."
While Warren sees some of that level playing field clearly -- and definitely has a gift for communicating what she sees -- IMHO, she doesn't yet see most of the land-related aspect of it. She senses it, in the chapters of Two-Income Trap which deal with middle-income couples bidding up the price of housing in good school districts, but she doesn't see the half of it yet.
I hope that she might buy (or download -- see the next link) a copy of the modern abridgment of Henry George's landmark book on political economy, "Progress and Poverty" for some airplane reading. (Political economy is the science which deals with the natural laws
governing the production and distribution of wealth and services.) One can also read the book online or download MP3s.
Most people don't see the "sweet deal" which has produced the income and wealth distributions described above. But George explains it very clearly.
On Jan 21 2010 our High Court shocked Americans by ruling in Citizens United v. Federal Elections Commission that a corporation may contribute unlimited funds advertising its views for and against political candidates of its choice –- in practice, the choice of its CEO or Directors. The ideas behind this are that a corporation is a “legal person,” with all the rights (if not all the duties) of a human being; that as such it has a right of free speech; and that donating money is a form of speech. Already K&L Gates, a top Washington lobbying firm, is advising its clients how to funnel money through lobbying groups or “trade associations.” This culminates a long series of actions and reactions (decisions, legislative acts, and electoral results) that bit by bit have raised the power of corporations in American economic and public life. Herein I will take the fall of the corporate income tax as a simple metric of the power of corporations. Nothing about corporations is that simple, however, so I must also touch on other aspects of power.
This writer does not applaud either sunsetting the tax, or this step. I agree with Joseph Stiglitz that the corporate income tax is mainly a tax on economic rent. That means that a high tax rate does not destroy the tax base. Martin Feldstein, an economist who is as conservative as Stiglitz is liberal, also sees the corporate income tax as a tax on economic rent (JPE 85(2); April 1977, p. 357). It is not the ideal form of such a tax, but it beats any tax on work, or sales of the necessities of the poor, or value-added, or gross sales. Both Vickrey and Stiglitz rate high in the profession and garnered Nobels, so we cannot simply appeal to “authorities.” To prepare our minds, let us review some milestones in the history of corporations, especially in America.
This is not a paper on the theory of tax incidence. Such a paper is needed, but would take a heavy tome, most of it devoted to fine-spun and pretentious theories that appear in academic journals, and which fail to convince because the authors are weak on distinguishing land from capital. My own postulates here, in brief, are
1) that corporations own a large fraction of the wealth in the country; 2) much of that wealth is land; 3) taxes that do fall on capital are in part shifted to land; 4) pure land taxes would be better but are not the subject here; and 5) payroll taxes are worse and must bear most of the burdens that are shifted off corporations.
I'll skip over a lot of interesting and useful historical material -- which I commend to your attention -- and share the final section:
All along, though, an accumulation of small actions was helping corporations at the expense of labor. The Warren Court, 1953-69, did many notable deeds for the common man and woman, but it did not stop the decremental fall of the share of corporate income tax revenues in Federal finance. 1968 was the milestone year when the payroll tax quietly surpassed the corporate tax as the second biggest source of Federal Revenue. Just think: the corporate income tax of 1907 antedated the payroll tax of 1935 by 28 years, and it was another 33 years, 1935-68, before the payroll tax took in more money than the corporate tax did. That was a revolution indeed, but so quiet and gradual that most people never noticed. Nor was that the end of it: by 2008 the corporate tax raised just 11% of Federal revenues, compared with 38% for the payroll tax, nearly 4 times as much. That is a measure of the growing power of corporations in politics.
On top of that, personal income taxes on corporate dividends and capital gains have been singled out for preferentially low rates. In 2003 President Bush and his Congress lowered the tax rate on both dividends and capital gains to 15%, so that a smaller share of the personal income tax now comes from corporate shareholders. As late as in the Tax Reform Act of 1986, dividends were taxed like other “ordinary” income. So, briefly, were capital gains. President George H. W. Bush then devoted most of his presidency, and sacrificed a second term, to get a token cut in the capital gains rate. It was the thin end of a wedge, leading soon to the present cap of 15%. “Capital gains,” so-called by Congress, derive from many sources, but one of the biggest is sales of corporate stock.
And so things stood until January 21, 2010, when the High Court authorized corporate leaders to contribute unlimited amounts of their shareholders’ cash to political causes. This poses a challenge to our tabloid-and-TV-numbed generation. Will “ordinary” taxpayers rebel, as they did in the American Revolution, Emancipation, the Progressive Age of Reform, and the New Deal; or will corporate power wax unchecked until it replaces democracy altogether? Cyclical theory says we will have another anti-corporate reaction, but history also records tipping points in the decline of nations from which they do not recover for generations, if ever. This one may be a squeaker.
Here is a summary from that brief history of the problems with treating corporations as “legal persons.”
1. Corporations never die, never pay estate taxes, never divide their wealth among succeeding generations. In this they resemble medieval Churches that agglomerated over many years so much land they threatened the state itself -– resulting often in massive confiscations, as by Henry VIII.
2. Besides not dying, corporations merge with or otherwise acquire other corporations, progressing, if unchecked, from competition to cartel to oligopoly to monopoly.
3. A corporation is by nature a combination in restraint of trade -– that is, a union of many individuals with their wealth to act as a unit, dealing with customers, suppliers, and workers. It took Thorstein Veblen, a thinking man, to bring out this fact that should be so obvious. The courts, historically, have borne down on labor unions as illegal combinations while, as a matter of course, treating this combination of lands and capitals as an individual.
4. Corporations enjoy the legal privilege of limited liability.
5. The ownership of corporations is, or may be made, secret. Many stocks are recorded in “street names” -– a favorite being “Cede and Co.” Hugo Chavez is one such owner whose name has been revealed: others might be Al Qaeda, the Nazi Party, the heirs of Mao tse-Tung, La Cosa Nostra, or anyone. No citizenship is required for a corporation to sway American government more than almost any citizen.
6. No person is easily held responsible for corporate acts. The first duty of CEO’s is to the shareholders, so they say, to dodge guilt for any outrage against others. Most shareholders, in turn, have little idea what their CEO’s are doing.
7. The internal governance of most corporations is intensely undemocratic
8. The corporation cannot be jailed, and its officers seldom are, as they have great opportunities to pass the buck
9. The corporation has no spiritual counselor or confessor to prick its conscience.
10. Before January 21 the attitude, as expressed by Justices White and Rehnquist in the 1970s, has been that corporations are “creatures of the law,” not equal to natural persons in their civil rights. Suddenly to reverse this now is to upset many expectations that relied on the previous rule.
Finally, what can we do about the High Court’s marriage to corporate power? I first list what I consider ineffective remedies, and then those that can work, and work quickly.
1. Ineffective remedies
a. Justices may be impeached. This has succeeded only once, to my knowledge, in 1804, when a justice was obviously insane.
b. Within a State a Justice may be recalled, as Rose Bird was. There is no such provision for Federal judges.
c. A President can appoint anti-corporate judges as vacancies occur. This will happen at best over a long time-span, but it needs to happen fast because with their newfound pecuniary “free speech” corporations will soon control both Congress and the Executive even more than they do now.
d. Congress can tighten restrictions on foreign corporations contributing through American subsidiaries. This is better than nothing, but does not affect American-chartered corporations, whoever actually owns them.
e. Congress might ban political advertising by any non-citizen, including any group that includes a non-citizen. This would entail forcing corporations to identify their shareholders. This proposal may entail too many steps to be implemented quickly, if at all. As a layperson I would refer that point to learned counsel.
2. Effective remedies
a. The Executive and the Congress can play hardball by drafting new legislation to curb corporate contributions, and threatening covertly to raise the corporate income tax as a bargaining chip -– a big chip! This calls for a leader who sees the imminent danger, and is willing and able to act firmly and decisively, and communicate credible threats covertly without breaking any rules, a la FDR. Washingtonians are skilled and experienced in this sort of thing.
b. The Executive can introduce legislation modeled on the 1937 Reorganization of Judiciary Act. This act would have given the President power to appoint six new justices. It was a credible threat that worked by turning FDR’s 4-5 minority into a 5-4 majority, in spite of a great outcry against it. It is what we need today. It is radical, yes; but the Court’s ruling is radical, and calls for a remedy equally strong or stronger.
c. Could a simple act of Congress declare that a corporation is not a legal person? Perhaps so, perhaps no, we need learned counsel to tell the odds. However, a straight line is the shortest distance between two points, and this action would bring the issue quickly to a head.
In summary, we have seen that the United States was born in rebellion against corporations. The U. S. Supreme Court soon began restoring their power. When it overreached, strong executives and popular movements set it back: under Andrew Jackson, Abraham Lincoln, Teddy Roosevelt, and FDR. Today it has overreached again; it remains to see if a new movement or leader will arise to set it back again..
The only thing I can add to this is to provide the data on the concentration of wealth in America, specifically four items reported in the Survey of Consumer Finances:
BUS (privately held businesses, including "small business;"
NMMF (non-money market mutual funds) and
RETQLIQ (retirement assets such as IRAs and 401(k)s).
(The latter two categories could include bonds as well as equities.) I'll also report "all other, net of debt." (For most of us, that's cars and houses.) The data is from the 2007 SCF, and somewhat understates the concentration, since the holdings of the Fortune 400 are omitted from both numerator and denominator. Quick and dirty, add 1% to numerator and denominator.
All other, net of DEBT
percentage of aggregate NETWORTH (row percent)
Distribution of Holdings: (column percent; sums to 100.0%)
Top 1% of wealthholders
source: 2007 Survey of Consumer Finances
So what SHOULD we tax? Urban land value, and the value of natural resources are a fine start. That is value which ought to be socialized, treated as our COMMON property, not as the private treasure and asset of rich individuals; of family trusts of people living -- or people dead 10, 20, 30, 50, 100 or more years for the benefit of their heirs or pet causes; of corporations of any kind (no matter how much free speech they are now entitled to); of foreign landholders; of private "equity" funds; of real estate investment trusts; of pension funds (public or private sector); of foreign or domestic churches; of insurance companies; of universities or other "philanthropic" entities; or anyone else. [See, for example, the blog posts below on Stuyvesant Town, on the NYC Roosevelt Hotel, including links to earlier related stories.]
The way to make that real is to place significant taxes on the annual rental value of the bare land, and the value of those natural resources, and other things the classical economists would recognize as "land" even if they never heard a radio or cell phone, saw an airplane, thought of a satellite, or imagined that fresh air or clean water could be scarce.
Treat that value as the revenue source for our common spending. Lighten up on taxes on wages, on sales, on buildings, on equipment.
Taxing urban land value will not cause a single acre to move offshore, or a single land speculator to "invest" in another property; rather it will encourage the better use of sites in choice locations, creating jobs and housing and venues for carrying on business where it is most efficient to do so: in the center of town, not at the fringe.
Doing this would reduce the tremendous wealth concentration in America. The economic value of certain kinds of assets which currently line the pockets of rich individuals as business owners or as holders of corporate stock or as salaries, bonuses and golden parachutes to top management, would be pre-distributed back to the commons, recycled locally or nationally, for public purposes. Those owners would still have the use of the assets each year, AFTER they had paid society for what they were privatizing that year.
If you've gotten this far, you might want to read Bob Andelson's fine essay, "Henry George and the Reconstruction of Capitalism, linked from the front page of Wealth and Want, as an "essential document."
This is a well-researched piece about a Menlo Park, California, parent, concerned about program cuts in her child's school, who looked into consequences of Proposition 13, with emphasis on the proportion of funding coming from commercial property owners versus the owner-occupied residences.
Ms. Bestor's research of Menlo Park properties -- particularly of
parcels on one commercial strip and one residential street -- sheds
light on how the provisions of propositions 13 and 58 created the
lopsided tax-burden equation.
Looking at Menlo Park's main downtown street, she found that of the 56
commercial parcels on Santa Cruz Avenue, 23 are at the 1978 assessment
(plus 2 percent per year) level. Of those 23 parcels, only four are
owned by the same people who owned them in 1978. Eleven have passed to a
son or daughter, and in a number of cases are held in family trusts.
By contrast, of the 53 residential parcels in Ms. Bestor's
neighborhood, 13 are owned by the same people who held them in 1978, and
two are held by children of the 1978 owners, so are taxed at the 1978
level. The assessments of two other parcels were affected by other
The other 36 parcels (including Ms. Bestor's) have been reassessed
after changing hands, she says.
"My street is paying its way," Ms. Bestor says. "I think that Prop. 13
did what people hoped it would do (for homeowners). It allowed people to
stay in their homes and families to plan their financial futures."
What she doesn't say, of course, is that while her street might be "paying its way" -- I'm not quite sure what she means by it -- some of its residents are paying quite a bit more than their long-time-owning neighbors. 15 out of 53 are being highly subsidized by newer arrivals, and those who have bought most recently are doing the subsidizing. They are paying 1% of their purchase price annually, but due to some neighbors in similar homes getting 90% subsidies, they are not receiving in services as much as they would if their neighbors weren't receiving a 90% discount on their tax bills. Ms. Bestor is too polite to say it. It is not clear whether she is a subsidizer or a subsidizee within her neighborhood.
Her research, however, on the commercial sector, which she chooses to focus on, appears to me to be based on the right questions.
The article continues,
On the other hand, commercial property owners who are assessed at 1978
levels are not paying their way, she says. "Does it really make sense to
subsidize family trusts, major real estate corporations and developers,
who make smaller and smaller contributions (proportionally) to public
services each year?"
In her letter to Mr. Buffet, Ms. Bestor cites a downtown Menlo Park
example to underscore the inequity: "The Trader Joe's property -- the
'new' market in town contributes just $7,471 of general tax towards our
local services (for two-thirds of an acre of prime commercial property)
compared with Draeger's up the street at $66,585. It isn't Trader
Joe's, of course, that's paying the tax -- if they'd bought the property
when they moved in, that parcel would be contributing 500 percent-plus
"Trader Joe's leases it from a family trust, descendents of the 1978
owner ... with an address on a leafy street in Cape Cod. Since landlords
charge what the market will bear, it's fair to guess that the property
tax savings are accruing to those folks in Massachusetts while the
costs are borne by school kids and residents of Menlo Park."
Assuming that Draeger's and Trader Joe's are both on sites of comparable value, and that both are tenants, the annual costs to the tenants are probably comparable. The difference is that Draeger's pays more of it to Menlo Park, and Trader Joe's pays more of it to the landlord, bypassing the city.
Now here is the question: who has created the land value? The landlord? The tenant? Or the community? If the landowner and the landuser are the same entity, is the answer any different?
Let's think about what Prop 13 does to and for residential owner-occupants. Local conditions -- jobs, good schools, attractive views, recreational opportunities, high-quality health care -- attract newcomers to the community. If new housing is not being constructed -- houses where there was previously vacant or farmland, or multi-family homes where previously single-family homes stood, or smaller lots -- the price of existing homes is driven up. (Houses don't appreciate, but the land value rises.)
But Prop 13 reduces the supply of houses available by reducing the normal turnover. Where in most parts of the country, elderly people might decide that the house in which they raised their children no longer fits their needs, or is too large to heat/cool/clean/maintain/navigate in, particularly for a single adult, in California, they have several strong incentives to stay there nonetheless:
Their property taxes, if they've lived there for 30 years, are tiny, particularly for what some of the choicest (highest-appreciation) towns are offering in terms of amenities. This is known as a "free lunch." But it is only "free" to them. It does not come out of thin air; it comes at the expense of their neighbors.
Their children can inherit their highly-subsidized status, and receive all that the town offers for a tiny fraction of what ordinary folks would pay there, or what they would pay in a comparable neighborhood or town nearby. They will be able to put the grandchildren into some of the finest school districts and pay only the 1976-based property tax rate, a tiny fraction of what the new folks next door must pay.
Like everyone else, they hate to think of moving. Prop 13 provides them a good excuse to "think about it later" or not think about it ever.
At the same time, young families living in apartments or condos, which typically have two or perhaps three bedrooms, want more space. To get it, they must either compete with others who want to buy from the constrained supply of family-sized housing available, or locate further out -- putting a load on highways, using fuel, creating pollution, paying for 2 cars where one might have sufficed, reducing the time they can spend with their children, and possibly requiring the building of more houses on the fringe, requiring the extension of taxpayer-provided infrastructure (roads, water, sewer, drainage, roads, parks, etc.) and services (police, fire, ambulance, hospitals, libraries, public health, etc.) more schools (while the ones in the neighborhood they'd have preferred are not filled, because a lower percentage of the homes have school-aged children).
California has among the lowest homeownership rates in the US; the figure that sticks in my mind is 55% when the total US was 69%, which means that the homeownership rate for the rest of US must have been perhaps 72%.) That's pretty well known. But you might be interested to know that California's seniors actually have a higher homeownership rate than their counterparts in the remainder of the US. Prop 13 is clearly a major factor in that.
While I understand the pressures on Ms. Bestor not to speak of the Emperor's nudity, and applaud her research, as far as it goes, I think the entire Prop 13 system needs to be examined and dismantled.
She proposes capping the Prop 13 benefits to commercial property owners at 20 years. This would produce some interesting effects on revenue flows if all commercial properties get re-evaluated at the same time, and continue some awesome inequities if some get re-valued now and some 19 years from now.
Prop 13 – and then Prop 58 that made Prop 13 bases inheritable – has
created economic inequities that are evident from simple on-line
searches of the county assessor's database – and destroy any idea of a
level business playing field. A quick trip around my town illustrates
The nondescript little gas station on El Camino near my house pays
$30,148 a year in property tax for the privilege of selling me less
expensive gasoline than the two Shell stations ($14,214; $17,214), the
Union 76 ($15,920), and the Chevron ($20,388) down the street. Those
big-name stations have service bays to increase revenue and are on major
intersections. But the "new guy" in town (well, actually, there's been
a station there since 1978 -- but the new competitor in the market) is
the one who's paying $10,000 a year more for police, fire, road repair,
education, parks and courts.
Flipping the equation around, the Trader Joe's property -- the "new"
market in town -- contributes just $7,471 of general tax towards our
local services (for two-thirds of an acre of prime commercial property)
compared with Draeger's up the street at $66,585. It isn't Trader
Joe's, of course, that's paying the tax -- if they'd bought the property
when they moved in, that parcel would be contributing 500%+ more.
Trader Joe's leases it from a family trust, descendants of the 1978
owner ... with an address on a leafy street in Cape Cod. Since
landlords charge what the market will bear, it's fair to guess that the
property tax savings are accruing to those folks in Massachusetts --
while the costs are borne by school kids and residents of Menlo Park.
Of course, if the Cape Codders visited, they would probably look across
Curtis Street to the Walgreens (Unamas and Starbucks) building and point
out that that whole complex is only paying $8,709 in general property
tax ... without providing customer parking. In fact, the Walgreens
building pays 51% more for sewer service ($13,181) than it does towards
police, firefighters, courts, roads, and maintaining its free city
Do you wonder whether any commercial properties ARE contributing
meaningfully towards our local services? Well, the Chase takeover of
Washington Mutual appears to have triggered a reassessment of that
property (WaMu's earlier absorption of Home Savings had not). So that's
an additional $25,000 into the pot (up to $45,190). And a dry cleaner
we use, Menlo Art, is in a building that pays $30,346. The dry cleaner
only occupies 25% of the building, so their share is a mere $7,587 --
but compare that with the $944 paid by the much busier cleaner across
Santa Cruz Avenue. (Hoot'n'Toot sits on yet another property whose
sewer bill dwarfs their property tax contribution -- with an
out-of-state owner on the possibly-less-leafy Leisure World Drive in
Mesa, AZ.) I wish I could afford Tom Wing's jewelry ($21,687), but I do
have pizza at Amici's ($32,809) whenever possible. And Kepler's, our
doggedly independent bookstore, occupies about a sixth of a building
that pays $220,395.
Well, Mr. Buffett, I think you get the idea. People say that increasing
taxes will make prices go up but, frankly, that requires the generous
assumption that, in this totally unbalanced model, landlords aren't
charging what the market will bear.
To make sure, I tested this. I took identical loads of my husband's
laundry into each of the dry cleaners mentioned above (after a
particularly depressing talk by our school superintendent -- spending
per pupil is down this year over last, with only one new teacher hired
for over 120 new kids, and 14 teachers due to be laid off in May) -- and
found that cleaning three shirts, two khaki slacks and a cashmere
sweater cost me $37.00 at the popular ($944) cleaner, while I paid
$35.60 across the street ($7,587). Wherever the savings are going, it's
not to customers.
And then there's the threat that Business Will Leave if commercial
property taxes go up. Having spent twenty years in the corporate world
before becoming a mom, forgive my skepticism. I sat in on many meetings
at Apple Computer Inc. in the early 80's and 3Com Corp. in the early
90's discussing siting new sales and manufacturing operations. Property
tax was never, to my best recollection, mentioned. Consolidated tax
levels, yes, but in the broad context of the overall cost and relative
ease of doing business. What attracted us? Locations with a level
playing field (not one that discriminated against the new entrant); a
highly skilled (educated) workforce; good road-, rail- and
air-transportation; fair and efficient courts and public services;
reliable infrastructure; and a community environment that made employees
want to live there.
OK, out of fear of throwing the baby out with the bathwater, we are now
drowning him in it.
The original article, near the end, includes this:
So what is to be done? Ms. Bestor suggests capping Proposition 13
benefits for commercial property owners at 20 years. "Every 20 years,
non-residential property is reassessed at market value, then gets to
enjoy another 20 years of tax relief," she writes.
She also suggests a system whereby properties can be reassessed
gradually so as not to overburden assessors' offices, and a process for
Ms. Bestor also is attempting to launch local fundraising efforts that
would focus on commercial property owners who benefit from lower tax
levels. "I have the feeling these people are ready to be asked," she
"They need strong schools and a vibrant residential community just as
much as anyone else does."
Assessing land properly is not all that difficult, and if California would simply stop taxing the buildings, doing high-quality annual assessments of land value would not unduly burden the assessors' offices.
But I think that final point is correct: even absentee landlords benefit from strong schools and a vibrant residential community.
About the possibility of selling PIA-owned Roosevelt Hotel in New York to pay for past losses, he said it is not the appropriate time to sell a billion-dollar property when real estate market is still recovering in US.
“Besides, what is the point in selling a business which earns PIA $7-8 million annually?”
So the Roosevelt Hotel, which occupies an acre near Grand Central Terminal in NYC, has a net income of $7 million or $8 million per year.
This suggests some questions one might ponder:
1. Should an acre in NYC worth a billion dollars be earning a mere $8 million? Seems to me that this is a rather low return -- at $1 billion valuation, that's 0.8% per year.
2. If this property is worth $1 billion, the land rent, at 5% -- "20 years' purchase" -- is $50 million per year. How much does the Roosevelt Hotel pay the City of New York in property taxes each year?
3. How much do the guests at the Roosevelt Hotel pay NYC and NYS in hotel occupancy taxes per year?
4. How much do the employees at the Roosevelt Hotel pay NYC in wage taxes per year? Wouldn't it be better to collect this amount via taxes on land value?
5. How much do the employees at the Roosevelt Hotel pay NYC in sales taxes and property taxes per year? Wouldn't it be better to collect this amount via taxes on land value?
6. When Pakistan International Airlines decides to sell this "taxpayer," for $1 billion, and that $1 billion, created not by PIA or the people of Pakistan, or the hotel management or the hotel employees, leaves this country, will that be a good thing, or something which should have been avoided?
7. Shouldn't the beneficiaries of NYC's land value be NYC, NYS and the American people, instead of a private entity of any kind -- be it PIA, an American REIT, an NYC-based corporation, a family-owned real estate dynasty, one or more American pension funds (corporate or public), a British church, a middle eastern sovereign fund, a mutual fund, or any other private entity?
That site is valuable not because of anything its current owner is doing or is not doing. It is valuable because of the presence of millions of residents in the surrounding area, and of millions more who visit NYC on business and as tourists in the course of a year. It is valuable because we-the-people have invested and will continue to invest in infrastructure and services which protect and serve these sites. Why on earth does a private entity get to pocket what we create?
It doesn't come out of thin air.
For more background on this story, see some previous posts here:
Last Saturday, 2/6, the mid-Atlantic region received an amount of snow that exceeded what it normally gets in an entire winter. By Sunday afternoon, major highways had a single lane well-plowed and a second one barely passable. We had delayed our planned trip from Connecticut (where we're used to snow and our towns budget for snow removal) to southern Delaware (where snow is much less common) from Friday. We arrived to find our destination had about 15" of snow and plowdrifts blocking the driveway. We were grateful to have a very short driveway. Having read a few local blogs, we'd packed 2 snow shovels, an ice hacker (MUTT = multi-use tough tool), some salt and a long pole for getting snow off trees, as well as boots and parkas. Some young men cruising the neighborhood looking for work had one snow shovel, and they borrowed one of ours and moved enough snow to get our cars off the street. We knew from the local blogs that shovels had sold out well before the snow started. Had we thought more deeply, we'd have bought 5 or 10 at our CT grocery store to offer to neighbors. I also wished we'd brought a Wovel with us; it would have had a great workout.
The next day, I went to see if anyone was in need of some shoveling help. One neighbor's car was sitting on top of compacted snow, and the MUTT turned out to be just what we needed to break up that hardened snow. The MUTT was also very helpful when I needed to hack through the plowdrifts, which had hardened. Without it, I would have been much less productive; my shoulders would hurt more, and I would have gotten less done.
While there are many pickup trucks and tradesmen's SUV's in the area, almost none have snow plows here; snow of a quantity that would require it is so infrequent as to make it uneconomical. Within a couple of days, though, some "bobcats" started to appear; I don't know how far away they came from.
A second storm arrived Wednesday, bringing more snow. We'd mostly cleared our driveway after the first storm, and getting the second cleaned out was easier. State and local snow plow drivers were very kind and avoided socking us with a plow drift, once we'd opened our driveway the first time.
I titled this post "land, labor and capital." Why? Well, here are some of the thoughts that occupied me while I shoveled and hacked.
the young men who came looking for work on Sunday could not earn a living unless they had some land to work on -- in this case, ours.
their single snow shovel -- capital -- made them far more productive than they would have been with no tools at all. But their lack of a second shovel made them far less productive than they could otherwise be. Even if they'd had funds to buy a second shovel, shovels were simply not available.
having the right (specialized) tools for the job -- the MUTT, or a truck-mounted plow -- plus the skills to use them well makes a big difference in how much one can do with 10 minutes or 2 hours of labor.
I listened to a radio program coming out of nearby Washington, DC, which was largely shut down by the nearly unprecedented snows (there was no mail delivery from Saturday to Thursday; the federal government was pretty much shut down), and there was some discussion about whether towns and cities ought to spend taxpayer funds keeping inventory of plows to handle snows much heavier than what typically occurred, or whether perhaps there should be incentives for private individuals to own and maintain truck-mountable snow plows. Did it make sense to tax everyone, say, $50 more per year to pay for better snow-management equipment if it would save $100 worth of productivity per person?
I no longer remember what I heard on the radio, and what parts of this were my own musings. But it did pass through my mind that such things as snow removal ought to be financed not through taxes on people's wages or interest income, or on their purchases, but rather should be paid for by taxes on land value. People are willing to pay more to live where better services are provided, where more consistent utilities are provided.
Taxing the poor people of Washington, D.C., many of whom are tenants, $50 each, and taxing the wealthy homeowners in Georgetown $50 each is not nearly as fair as taxing people in proportion to the value of the land they own. Georgetown homeowners ought to be paying a lot more each than the owners of subdivided brownstones in less expensive neighborhoods. And the tenants of those subdivided brownstones are paying significant rents to their landlords; their share of the costs of providing local services should come out of the payments their landlords receive, which are a function largely of their location in Washington, D.C., not luxurious landlord-provided amenities within those homes.
The tenants are already paying 30% or more of their income for housing, which seems to me to be a form of sharecropping; their landlords share in their labor. For that matter, those of us who are paying mortgages are sharing our wages with a mortgage lender, who in turn paid off the seller of the property we're bought. It is highly unlikely that more than half of the purchase price was for the improvements to the land (unless it is a brand new house in a fringy area); most of the purchase price -- and the mortgage payment -- are payments for land value. And the seller didn't create that value, so it seems perverse and odd to me that he is the one who reaps what the community has sown. Our structure permits him to privatize this public investment.
The remedy, of course, is rather simple: shift our taxes OFF labor, OFF sales, OFF buildings ... and ONTO land value. Many supposedly intractable problems will start to evaporate when we do that. And we can do it very gradually if we choose, or expeditiously if we see fit.
"Unaffordable housing" The term still keeps cropping up. Which part of
a house is not affordable? The roof? The bricks? The drains? The
roofing tiles? The plumbing system? The amount builders have to be paid
to put it all together?
Go into any builders' merchant and check the prices. They are all very
affordable. It costs, at most, £100k to build a decent house. Which is
very affordable when spread over 40 years - £50 a week. So what is
going on to make houses unaffordable? I have asked this question many
times over the past 30 years. Usually, the response is a yawn, so the
resulting problems, are in a sense a richly deserved reward.
Too many have stood aside, not watched what is going on in the world
and failed to try and make sense of it. Hence the talk about
"unaffordable house prices" Anyone who uses the phrase "unaffordable
house prices" without further explanation is guilty of extreme mental
laziness. Which is most of us, and now we are living with the
consequences of our neglect.
This of course includes the Nationwide Building Society, which would do
everyone a good turn if they scrapped their so-called House Price Index
and replaced it with a housing land price index.
As I've noted in an earlier post, Lowell Harriss died a few weeks ago. I've been reading some things he wrote during his long and productive career.
The first is a piece he wrote in 1978, a few months after Proposition 13, California's taxpayer initiative which lowered property taxes and "protected" property owners from paying for services through property taxes, was passed. It is entitled "Property Taxation After the California Vote."
He starts with this: What approach to property taxation would
be most in our interest and that of our children?
He provides some history of the property tax, in general and then specifically in California.
Keep in mind that, in California more than in most of the country,
assessments on homes rather promptly reflect market conditions -- in an
environment in which house and land prices have been rising rapidly.
Often, however, local officials did not use the increases in tax base
to finance offsetting reductions in tax rates. Homeowners faced rising
tax bills; cash income, especially for retired persons, did not always
go up correspondingly.
California's colleges and universities were, however, among the best in the US, and surely some significant portion of the public spending was to provide the very services which caused California's property values to rise.
Lowell went on to say,
The full results of Proposition 13 will not appear at once. Only time
will reveal whether new jobs develop now as property owners use the
addition to their disposable income; whether extensive declines will
occur in state-local employment; and how much more erosion of local
authority will result from expansion of state payments to replace
revenues lost by the sweeping changes in real estate taxes.
Present owners of property have voted themselves capital gain
"windfalls." The reduction in property taxes will tend to raise real
estate prices. Today's owners, in voting essentially permanent
reductions in annual property taxes, have enlarged the stream of net benefits
(income) to be capitalized in valuing real estate. This one-time
capital gain in effect absorbs much of the future benefit from the tax
cut. In this respect, the specific results of Proposition 13 are
difficult to judge because assessments (but not the tax rate) will rise
after a sale. Future buyers will pay a higher price -- higher by
enough, in general, to offset the tax benefit. "No election will ever
be lost by votes in the future," runs the
conventional wisdom. And certainly California voters did not have
future property owners (or voters) in mind when they rallied to the
support of Proposition 13.
Lowering the tax reduces the cash required to hold on to underdeveloped
land. "Speculative underutilization" becomes less expensive. Waiting
for population growth and inflation to boost prices will cost less. The
current offerings of land will decline -- and thereby prices will be
raised -- because owners face lower cash pressure to sell or develop.
Income tax considerations, of course, complicate individual decisions
and require some caution in generalization, but the net effect on land
use will be some -- or much -- distortion away from the direction of
Will the California economy get a boost from Proposition 13? Of course
it will. Other things being the same, tax something, and there will be
less of it (land being an exception). The 50- to 60-percent cut in
taxes on man-made capital will alter favorably the "arithmetic" of
construction projects in California. How much so is difficult to say.
This cost reduction will interact with many other factors, including
the forces tending to raise land prices. The change in prospective net
returns at the margin may be more modest than impressive. But one
conclusion is clear: More capital will flow where tax reduction improves the prospects for investment.
The once widely accepted criticism that property taxes are regressive
does not survive modern economic analysis. In fact, a persuasive
argument in favor of property taxation for local services can be made on grounds of
equity. Especially important, it seems to me, is the fact that in
effect this tax enables localities to capture some of the fruits of
forces raising prices of land, including public outlays on streets, schools, sewers, and other facilities.
Finally, and probably of greatest potential, there is a real
opportunity in the wake of Proposition 13 for restructuring
fundamentally the way we tax property. We can reduce burdens on
man-made capital and make up the revenue from higher taxes on site
values, a procedure which seems to me eminently desirable on several
grounds. This possibility should be part of the broader public
discussion of the role of property taxation stimulated by the vote in
One change may be politically tempting -- to reduce burdens on
residential property while maintaining or even raising burdens on
business and public utility property. Such moves would not only add to
concealment of costs of government in the form of hidden burdens on
consumers and investors. In addition, the productive portions of the
economy would suffer. Building better communities will not come from
boosting taxes on business.
Americans should be "up in arms" -- or at least doing something -- about
restricting and effectively controlling the growth of government.
"Revolt" seems to me too strong a term; it also seems misleading,
implying as it
does that a single, dramatic action will do the job. Patient, informed,
continuing efforts are required. Among them will be the reform of
property taxation to develop its potential as a high-quality revenue
Greater fairness in sharing the costs of local
government constitutes a prime -- but not the only -- reason for
shifting much of the tax from improvements to land. This country will
be around for a long time. So also, I hope, will meaningful local
government. Effective freedom requires financial independence,
including ability and responsibility for raising revenue.
One of the biggest legacies we leave our children
will be the tax system. We want to make it as good as possible. Equity
is one (again, not the only) element of "goodness" of a tax system.
He proposes a shift to a structure where the millage rate on land is about 4 times that on buildings. He talks about transition issues, and issues of equity during and after the transition:
Two markedly different sets of equity issues command
attention. The one of dominant concern ought to be the situation in
which we (and our children) would carry on our affairs after generally
full adjustment as contrasted with conditions then if present practices
were to continue. The long run in which "we" are not all dead! The
other concern involves the transition. The shift itself would produce
results distinguishable from those to prevail after the economy had
settled down to the new system.
Writing of long-term equity issues -- remember that this was 1970 when you consider the dollar figures --
Community Use of
Values Created by Social Development and Local Government Spending
Over the longer run, landowners would get less of
the increment in the values of location. The general public would get
more in the form of a larger flow of the rising yields of the worth of
location (land) to finance local services. On this score, the equity
results commend themselves very strongly indeed. Socially created
values would go for governmental, rather than for private uses -- and
locally. The absorption of the increments for local, rather for state
or national, governmental use would channel these funds on a benefit
The localities doing most to make themselves
attractive would have most of this revenue source. In major cities
$10,000 to $15,000 (now often considerably more) of governmental outlay
is frequently needed for each new dwelling unit -- schools, streets,
fire and police, sanitation and health, park and prison, facilities.
Under present arrangements much benefit from such outlays in developing
areas accrues to the owner of locations being "ripened" for more
lucrative use; his payment in taxes (and special assessments) toward
the cost will generally be only a modest portion of the total.
He describes this as a "burdensomeless" tax:
As for the future, the tax on values of location
above their present levels would be almost burdensomeless, except as
owners of land and their heirs get less of the "unearned increment" of
rising values over the decades. Much of the element of true economic
surplus would be used for public purposes. For those parcels of land
whose values drop, the annual tax would also decline. Then, because tax
rates on land would be higher than today, local government would share
more fully in the loss of worth. For landowners the proposal would not
be a one-way affair which assumes that land always rises in price.
No other revenue source seems to me to compare so
favorably on this score of fairness. Future users of land would be
no worse off for the much heavier tax they would pay on the value of
location. The purchase price of land would be correspondingly less. Of
the total flow of yield of location value, interest (explicit or
implicit) would be smaller, taxes higher. Who would be less well off?
The landowners and their heirs who would have gotten the (unearned)
More of the rise in land value which results from
(1) governmental investment in community facilities and (2) the general
rise in demand due to the growth of population and income would go to
pay for the costs of local government. Such a tax on a pure economic
surplus seems to me about as fair as any imaginable source of funds for
financing community services. The National (Douglas) Commission on
Urban Problems estimated that in the 10 years to 1966, and despite
rising interest and tax rates, land prices rose by over $5,000 per
American family -- $250,000 million. Even a modest fraction
of this amount if used for local government would have permitted quite
a reduction of burden on buildings. The estimated rise in land prices
was over four times the total growth of state-local debt and was
greater than all of the property tax paid in the 10-year period.
Land as area is fixed in quantity. Tax it heavily,
and it will not move to some other place, or decide to take a vacation,
or leave the inventory of productive resources by going out of
existence. Tax land lightly, and the favorable tax situation will not
create more space in the community.
Our ethos apparently ties economic justice -- equity
-- to rewards based on "accomplishment." This principle does not lead
to justification of large rewards because of the ownership of land.
Differences, big ones, in payments for human services or for the use of
capital can rest on what the recipients have done. But for the owners
of urban locations such justification can rarely be found; when there
have been private inputs for community development, to the extent
feasible administratively, they belong on the tax rolls as improvements
rather than as land.
And just before he concludes, he writes,
What an owner can get in the form of land price
increases in and around cities has made rich men out of owners of
farmland, vegetable plots, and waste areas. More than one owner of a
few acres of potato land on Long Island or farms on the outskirts of
many a city in the United States, of a small plot of rice land near
Tokyo or Bangkok or Taipei, has reaped handsome gains because of the
pressure of population. In America, North and South, in Europe and
Australia and Africa, private enrichment has come to the passive owner
of land who has done little or nothing to enlarge its worth as part of
the city whose growth has brought his good fortune. In fact he may have
paid no more than an infinitesimal fraction of the taxes which have
financed the streets and other governmental facilities that have helped
to elevate the value of his land.
Next, I moved on to a longer piece, from the same time, and containing some of the same material. I ended up feeling that it is perhaps the best piece I've read in a long time on Land Value Taxation. It is titled "Property Tax Reform: More Progress, Less Poverty" and it is a lecture he delivered at DePauw University in 1970. I commend it to your attention.
Finally, I note a book from the TRED -- Committee on Taxation, Resources and Economic Development -- series (#6) entitled Government Spending & Land Values: Public Money & Private Gain edited by C. Lowell Harriss (1973). Each book in this series came out of a 2- or 3-day conference, held at the University of Wisconsin-Milwaukee. Lowell organized this conference, and wrote the book's introduction. Here's the dust jacket material:
Billions of tax dollars are spent
annually on government subsidy programs which are designed to help
certain groups, areas, and industries, and contribute to the general
welfare. Despite the good intentions of legislators, however,
analysts point to evidence that the programs are not only burdensome
for the taxpayer but often fail to do their intended jobs. Critics
find that major benefits go not to those whom the programs are
designed to help, but to others who can "capitalize" on them.
One major feature of the subsidy benefit pattern -- unintended but
predictable -- is the capitalization of land values. The value of
land will increase when the benefits, chiefly money income, are
enhanced by government subsidization. When the land is sold, the
benefit of a subsidy which seems likely to continue will be captured
by the seller. Thereafter, tax funds that continue to subsidize a
program will not fully benefit those for whom they were presumably
intended, but the seller will have made a capital gain.
A classic example can be drawn from the experience of
federal farm programs. Taxpayers and consumers have been spending
billions annual to aid some farmers. In practice, of course, these
programs have often -- and intentionally -- reduced farm output and
raised consumer prices. The consumer-taxpayer is thus dealt a double
blow, in effect subsidizing an increase in his own food prices. Yet
the operating farmer, burdened with a higher land price, fails to get
the full benefits of the programs established for his welfare.
In farm programs, as in some other subsidy programs, the expected
annual benefits are capitalized into higher land prices. Then, after
land prices have gone up to reflect these benefits, the annual
payments to farm operators in effect support the higher land prices.
In effect, the seller of land realizes the benefits of government
subsidy into perpetuity. A somewhat similar pattern is to be expected
in other public spending programs, including those concerned with
urban renewal, where benefits are localized. The pattern shows that
farm programs do not raise wages of low-paid farm labor, that urban
projects do not rid cities of slums, and that the taxpayer-consumer
bears the burden of both.
This volume explores, and at least attempts to define, the extent
to which land values tend to capture the benefits of subsidies and
other government spending through capitalization. It includes papers
by proponents as well as critics. The contributors, who include some
of the nation's leading economists, discuss the nature and effects of
farm and housing programs, commodity price supports, transportation
outlays, land preservation projects, water resource development, and
urban renewal programs. Their work will be of more than routine
interest to economists, political scientists, lawyers, political
officeholders and government officials, planners, and all others who
seek to unravel the complex fabric of multi-billion-dollar government
Lowell made contributions in many parts of economics; I am probably familiar with only a small portion of his work, but I am grateful for it.
One of my google alerts, for the words "wealth distribution," took me to a blog post about the tragedy which has occurred in Haiti, which referred to America being different because it had a large middle class. Since I'd recently posted on this blog some new data about the distribution of wealth, I took a look at that data with the "middle class" in mind.
Here's the data on the distribution of Net Worth, copied from the post below:
Do we define as "middle class" the people who hold the middle third of our wealth? That's the 9% of us who hold 37.2% of our wealth. Those below that cutoff must be "lower middle class" or "poor."
Do we define as "middle class" the people between the 50th and 80th percentiles of the wealth distribution? That 30% has a mere 12.4% of our wealth. The 50% below them only have 2.5% of the net worth.
Do we define as "middle class" the people between the 50th and 90th percentiles? They hold 25.7% of the wealth.
If America's strength is its broad middle class, they certainly aren't reaping much of a reward. The Chartbook for the Survey of Consumer Finances, page 42, shows this:
Median Value of Net Worth for Families
with Holdings, 1989, 1998 and 2007, by Income Quantile
in thousands of 2007 dollars:
From the following chart in the Chartbook, Mean Value of Net Worth for Families With Holdings, I calculate the following shares of Net Worth:
Share of Holdings, 1989, 1998 and 2007
-- by Income Quantile
+ 1.12 percentage points
- 2.23 percentage points
- 3.36 percentage points
- 1.16 percentage points
- 1.04 percentage points
+ 6.67 percentage points
By this standard, who is our middle class?
The 20% of us between the 40th and 60th percentiles, who have 7.54% of the net worth?
The 60% of us between the 20th and 80th percentiles, who have 25.86% of the net worth?
The 70% of us between the 20th and 90th percentiles, who have 36.78% of the net worth?
The 50% of us between the 40th and 90th percentiles, who have 31.94% of the net worth?
The top 10% of us, sorted by income, have 59.45% of the net worth -- $6 out of every $10 of net worth in America!!
What does this suggest to you about how we might tax ourselves?
What does this suggest to you about who we might ask to support the aid to Haiti after its tragedy?
What does this suggest to you about the notion that the strength of America is its large healthy middle class?
What does this suggest to you about the notion that our taxes ought to be based on income?
Does it put Leona Helmsley's comment -- "WE don't pay taxes. The little people pay taxes." -- in a different light?
A caution about the data: This post shows two different distributions of net worth: according to net worth in the first part, and according to income in the second part. Don't confuse them -- it is easy to do. But all the data is based ultimately on the Federal Reserve Board's Survey of Consumer Finances, and I've never heard anyone claim that the SCF overstates the concentration of wealth. If you need help differentiating, post a question, and I'll try to help.
I came across an interesting table in a November, 2007, Federal Reserve Board Study entitled "First-Time Home Buyers and Residential Investment Volatility" by Jonas Fisher and Martin Gervais, and another version from "Why Has Homeownership Fallen Among the Young?" (FRB, March, 2009), by the same authors.
While median income (in real dollars) has fallen, the ratio of median house price to median income has nearly doubled, down payments at the median are down by over 1/3, and, perhaps most important, the proportion of after-tax income going to mortgage payments has nearly doubled, to 40%. Consider also that in 1976, most mortgages were fixed rate instruments, while by 2005, a very high percentage were adjustable rate mortgages, whose interest rate could rise by 2% at the end of the first year, raising that proportion higher in the second year.
And then, of course, in addition to paying 40% of after-tax income to the mortgage lender, our young people must also pay taxes: payroll taxes, wage taxes, sales taxes, taxes on their house and the land on which it sits. Those who have read this blog for a while will know that placing the largest share of our tax burden onto land value would have many desirable effects, including reducing the selling price of land to a nominal amount. Instead of borrowing from a mortgage lender a large sum to pay the seller for land value the seller didn't create, we'd pay land rent to our community, which would keep some of it for local purposes, and pass some up to the state and the federal government -- revenue which would replace some or all of the state sales and income taxes, and the federal income taxes.
And that 40% is mostly interest, not principle payment. Depending on the interest rate, in the first year of a mortgage, one pays 70% (at 4%), 78% (at 5%), 83% (at 6%), 88% (at 7%) 91% (at 8%) of one's mortgage payment as interest, and only 30% to 9% to pay down principle. The fact that, for some, mortgage interest isn't taxed, should be little consolation. (Why "for some"? Because for many families, the standard deduction is a better deal than itemizing deductions. Most homebuyers don't realize that, and assume they'll benefit as homeowners.)
Yet another FRB study, from May, 2006, showed that in the top 46 metro areas, on average, land value represented 51% of the value of single-family residential property. In San Francisco metro, the figure was about 88%; in NYC and Boston metros, it was well over 70%. Oklahoma City was the lowest, in the 20's range.
Homesellers reap gains they didn't sow. Mortgage lenders get to pocket large shares of young people's wages. There has to be a better way. Longtime readers will know what it is: shift our taxes onto land value, and off productive activity.
Table 2: Characteristics of First Time House Buyers
Median Real Income
Median Price/Median Income
Mean Monthly Payment/After-Tax Income
Notes: The table entries are from various issues of The Guarantor,
1978-1998, the 2005 National Association of Realtors Profile of Home
Buyers and Sellers, and 2005 American Housing Survey. The Real median
income is based on the CPI. Mean Monthly Payment/After-Tax Income
before 2005 is from The The Guarantor. In 2005 we made an assumption
about the average tax rate, .25, to calculate this variable.
From "Why Has Homeownership Fallen Among the Young?"
Table 3: Characteristics of First-Time House Buyers
Median Price/Median Income
Mean Monthly Payment/After-Tax Income
Source: Various issues of The Guarantor, 1978-1999.
The democracy in Pakistan is fledgling at best. There are powerful
vested interests such as the landed aristocracy. A vast majority of the
members of the Assemblies are landed gentry; they do not pass any
legislation that hurts big landlords, nor do they allow any taxes on
themselves. Then there is the military; the government survives at the
mercy of the army chief.
What is so special about the landed gentry? Here's what Henry George said:
It is a well-provisioned ship, this on which we sail through space. If
the bread and beef above decks seem to grow scarce, we but open a hatch
and there is a new supply, of which before we never dreamed. And
very great command over the services of others comes to those who as the
hatches are opened are permitted to say, "This is mine!"
What largely keeps men from realizing the robbery involved in
private property in land is that in the most striking cases the robbery
of individuals, but of the community. For, as I have before explained,
it is impossible for rent in the economic sense — that value which
attaches to land by reason of social growth and improvement — to
go to the user. It can go only to the owner or to the community. Thus
those who pay enormous rents for the use of land in such centers as London
or New York are not individually injured. Individually they get a return
for what they pay, and must feel that they have no better right to the
use of such peculiarly advantageous localities without paying for it
than have thousands of others. And so, not thinking or not caring for
the interests of the community, they make no objection to the system.
It recently came to light in New York that a man having no title whatever
had been for years collecting rents on a piece of land that the growth
of the city had made very valuable. Those who paid these rents had never
stopped to ask whether he had any right to them. They felt that they
had no right to land that so many others would like to have, without
paying for it, and did not think of, or did not care for, the rights
of all. .
Nothing particularly special about Pakistan in this regard. But perhaps it might lead us to think about America's most landed gentry, and the windfall we grant them, at the expense of the commons and the ordinary working person.
A May, 2009, paper by Michael LaCour-Little, Eric Rosenblatt and
Vincent Yao entitled "Follow the Money: A Close Look at Recent Southern
California Foreclosures" provides some interesting data about
single-family residential real estate in one part of the US.
Briefly, the paper looks at loans in five southern California counties
which went into foreclosure in November in 2006, 2007 and 2008.
It traces the collateral and loans from purchase to foreclosure, and
provides some useful findings. Here's their abstract:
Abstract The conventional wisdom is that households unfortunate enough to
have purchased at the top of the market during the recent housing
bubble are those most at risk of default due to recent price declines,
upward re-sets of adjustable rate mortgage instruments, the economic
downturn, and other factors. Here we use public record data to study
three cohorts of Southern California borrowers facing foreclosure in
2006, 2007, and 2008. We estimate property values as of the date of the
scheduled foreclosure sale with the automated valuation model of a
major financial institution and then track sales prices for those
properties that actually sold, either at auction or later as REO. We
find that borrowers did not, in general, buy at the top of the market
and virtually all had taken large amounts of equity out of the property
through refinancing and/or junior lien borrowing. Given sales prices of collateral
thus far, aggregate losses to lenders will reach almost $1.0 billion
dollars compared to almost $2.0 billion dollars of equity previously
extracted by property owners.
They do for mortgage foreclosures what Elizabeth Warren (et al)'s, study did for understanding the role which uninsured medical expenses play in personal bankruptcy filings. California may be a more extreme case, for reasons which relate to the perverse incentives involved in the 1978 Proposition 13 property tax limitations. But my interest is not the same as what the authors were driving after.
I took their data and created a small spreadsheet to look at the data from a different point of view.
Their sample is composed of 4,258 properties which went into foreclosure in Novembers of 2006, 2007 and 2008. On average, the properties in each of the three cohorts had been purchased in 2002, and for an average price of $356,200. By November 2006, the properties which went into foreclosure that month had an average value of $519,000 (as calculated by a commercial proprietary Automatic Valuation Model). I made the assumption that the properties which were foreclosed on in November 2007 and November 2008 had the same AVM valuations in November 2006.
My calculations proceed as follows: I compare the average 2002 purchase price of $356,200 (a weighted average of the three cohorts) with the 2006 AVM valuation of $519,000, which provides a 4-year appreciation of $162,800 per property. Assuming that each homeowner's annual property taxes started at 1.25% of their 2002 purchase price, and rose by the Prop 13 maximum of 2% per year, they each paid, on average, $19,578 in property taxes over 4 years.
Houses don't appreciate. They depreciate at about 1.5% per year. They're never worth more than what it would take to reproduce them. Taking 65% as an estimate of the share of the value of single family homes in southern California which can be attributed to land (1998 was 64.9% and 2004 was 78.7% in Los Angeles, according to Davis & Palumbo, May, 2006), 65% of the 2002 purchase price of $356,200 is $231,535. Let's assume that the house doesn't depreciate at all, to account for owner-made improvements. Land value, then, rose from $231,535 on average in 2002 to $394,300 by 2006.
So what produced that rise in land prices?
Some of it has to be attributed to the increase in population during that period of time -- due to fertility, improved public health, immigration from other countries and other states. New relationships and broken relationships both contribute to the demand for housing. Since the quantity of land is fixed, land prices tend to rise with population.
Some of it has to be attributed to relaxed lending standards, which permitted more people to borrow more money
Some of it has to be attributed to changes in interest rates, which permitted more borrowing for the same monthly payment.
Some of it has to be attributed to Proposition 13, which limited property taxes to 1.0% (in practice, roughly 1.25%) of the original purchase price, with an annual increase capped at 2%. The annual rental value of land is generally 5% of the purchase value, so the 3.75% to 4% difference gets capitalized into the selling price of the land.
But let's think, too, of why people were willing to pay more to live in these five counties. It was due to the schools, to jobs, to the roads, the sewers, the water system, the police and other emergency services, buses and trains, airports, the courts, jails and prisons, the universities, the hospitals and libraries, and public health and a myriad of other publicly provided goods. The homeowners as homeowners paid only about $20,000 in taxes, and received, if the AVM is correct and they sold in 2006, $162,800 in appreciation on their land.
The study shows that those who were in the 2006 foreclosure cohort had total average housing-related debt by November, 2006, of $469,000, up from the original loans of about $334,400. So they'd taken out an average of $134,600 by borrowing against their home equity.
Did the services which contributed to raising that land value by over $160,000 over 4 years really only cost $20,000 per property? No. Sales taxes, and wage taxes and other taxes also financed those services. And they were paid not just by landholders -- the roughly half of southern California residents who own their own homes -- but also by the other half, who rent their homes from others.
So homeowners reaped a huge windfall, and those who were not homeowners ended up financing it. And as we attempted to increase the homeownership rate by a few percent by relaxed lending standards, they got to pay another time.
Most people think there is no viable alternative. They're so used to the current structure -- and in California, Proposition 13 is sometimes referred to as the "Third Rail" of California politics" (touch it, and you die!) that few stop to consider that our taxes are at the root of our most serious problems.
So what's the alternative? Sanity would be for all those public goods whose effect is to support and increase property values to be financed by a tax on land value. Justice -- ditto. Efficiency -- ditto.
California is floundering because it can't fund its spending. And yet these 4,258 households stood to collect from buyers, if they sold in 2006 after buying in 2002, an aggregate windfall of $693 million: I've aggregated the data for these November foreclosures and here's the story.
Aggregate purchase price, approx 2002:
Aggregate down payment:
Aggregate value in 2006:
Aggregate appreciation 2002 to 2006:
Aggregate 4-year appreciation as percent of down payment
Aggregate real estate taxes paid
(@1.25% of purchase price, rising by 2% annually)
Aggregate appreciation as percent of property taxes paid
Folks who think they and people like them stand to reap a gain of $700 million on an investment of $264 million in 4 years, while paying just $78 million in property taxes may not consider it to be in their best interests to shift taxes off wages, off buildings, off sales.
Had Proposition 13 not been in place, and property owners paid just 1.25% of their properties' market value each year, aggregate property tax would have been $97,500,000, or about 25% more (assuming straight-line increase from 2002 purchase to 2006 average value of $519,000). Still a tiny fraction of the appreciation.
The study's sample was only the November foreclosures. To approximate the figures for all the foreclosed properties in the five counties in those 3 years, one might multiply by 12. And recall that foreclosures are still a tiny fraction of all single-family residential properties in these five counties, and that these are relatively newly purchased properties. Think of how much could be collected in the form of a tax on land value if everyone, no matter what year they bought their property, paid at the same millage rate on their true market value, instead of some paying on values based in the 1970s.
We-the-people created that appreciation. Should homeowners and other landholders get to keep it as if they created it? Does the answer to that question hinge on whether the homeownership rate is 30%, or 50%, or 65%, or 75% in that particular place, or in our country as a whole? Or is the homeownership statistic irrelevant to the justice or logic of this privatization? (Remember that residential real estate is frequently NOT the biggest piece of this: the urban real estate owned by corporations, REITs, foreign investors including airlines and sovereign funds, pension funds, philanthropies, 150-year trusts, private equity funds and other private entities, appreciates far faster. (Remember Leona Helmsley's description: we don't pay taxes; the little people pay taxes.)
On the other hand, when one takes into account the fact that the run-up in prices this situation has led to a situation in which all these people have been foreclosed on, a large and rising proportion of mortgages are "under water" and observers are saying that the "bust" portion of this boom-bust cycle is going to leave something like 50% of mortgage holders "under water" by 2011, perhaps one might reach the conclusion that even if one is not convinced of the justice of revising our system, one might choose it strictly on the basis of avoiding boom-bust cycles being wise.
The Self-Sufficiency Standard is a consistent methodology for demonstrating the barebones cost to live independently at an "all needs met, but no frills" budget level, by county. It assumes rental housing suited to the size and configuration of the family (though opposite-sex children may share a bedroom); an average paid-off car for each adult; childcare suitable to the ages of the children so that all adults can work; health care, including employer-provided insurance; 100% homemade meals at the USDA Low-Cost Food Plan level (about $2 per person per meal); miscellaneous costs at 10% of the subtotal of the preceding categories; taxes, less EITC, CCTC and CTC.
Here's how it stacks up, for the least and most expensive counties in West Virginia:
Lowest-Cost County in WV
Highest-Cost County in WV
Adult and an infant
Adult and a preschooler
Adult, an infant and a preschooler
Adult, schoolage and a teenager
Fayette & others
Adult, infant, preschooler and schoolage
Two adults, infant and a preschooler
Two adults, preschooler and schoolage
A few observations from this data. I'm putting aside the differences among counties, just looking at the least and most expensive counties in a state most of us realize is among the least expensive in the US.
Adding an infant to a single adult costs about $8,000 (after about $3,000 in tax credits), -- and this methodology makes no particular accounting for costs like a crib, or car seat or stroller or diapers; it accounts for childcare and food and housing and healthcare for that infant, plus 10% more for "all other". The Federal Poverty Guideline calculation allows less than $4,000, and that child brings no wages.
Two adults, and infant and a preschooler can live for roughly $10,000 more than than a single adult with the same two children, and it costs $17,000 to $20,000 for a single adult to get by alone. So while two can't live as cheaply as one, there are economies -- and divorce creates great financial hardships (as well as the reverse being true). Again, the FPG calculation allows less than $4,000 for the additional person in the household, but the second adult can generally earn more than that amount. The combined FPG for the single parent with 2 children and the single adult comes to $29,140, while the family of four is considered to be in poverty with an income below $22,050.
This Self-Sufficiency Standard Study didn't show what percentage of West Virginia's households live below the SSS level, but when I've done the calculation for Connecticut, Colorado and California, I've found that roughly 40% of the children live in families with insufficient income to meet their most modestly defined needs.
How can a society dedicated to the proposition that we're all created equal accept that?
In the new issue of the Atlantic, there is this very wise pair of paragraphs.
"END ALL TAXES - EXCEPT ONE" by Reihan Salam, Fellow at the New American Foundation
"The property tax may be the most loathsome tax in America. During the
1970s, a number of activists - angry that their tax burdens were rising
as their neighborhoods became more desirable - pushed to abolish it
altogether. President Nixon proposed significantly reducing state
property taxes by implementing a federal consumption tax that would
fund public education across the country. But when this proved a lost
cause, the masses sought instead to strictly limit annual property tax
increases through a series of ballot initiatives. The result hasn't
been pretty. Chronic revenue shortfalls have crippled local governments
ever since, leading to heavier reliance on punishing state income and
sales taxes. What if the problem isn't the property tax at all but rather, well, all
other taxes? In 1879, Henry George, a brilliant if slightly crankish
autodidact, published Progress and Poverty,
a scathing polemic that blamed all economic ills on the private
ownership of land. A staunch believer in laissez-faire economics,
George found it perverse that we tax productive activities like work
and innovative investment while letting landowners grow rich simply
because they scooped up property at the right time. In that spirit,
George called for a "Single Tax" on the unimproved value of land.
There's a certain compelling logic to the Single Tax that stands the
test of time. When you tax income, aren't you punishing people for
working hard? But when you tax an asset like land, you're simply
encouraging the most valuable use of that land. In the years since
George faded from the scene, a number of economists, from Milton
Friedman to Paul Romer have found virtue in the Single Tax, not least
because it creates the right incentives for government. Simply put, the
better you govern, the more valuable the property. The more valuable
the property, the more revenue you raise."
Bravo! From Reihan Salam's pen to the eyes and ears of all who are trying to figure out how to get us out of our current tax and revenue mess.
And if you're curious about what others have said about land value taxation, google "quotable notables" and "quotable nobels"
P.S. This is part of the cover story, entitled "The Ideas Issue: How to Fix the World"
An LTE in the San Bernardino Sun challenged the notion, promoted by the (real estate operator) governor, that California is overtaxed, with the following research:
We're not overtaxed
Posted: 06/06/2009 05:10:29 PM PDT
recently spent some time on the Internet investigating the governor's
claims that Californians are the most highly taxed state, or nearly so.
I found as follows:
California's property taxes under Proposition 13 are ranked in
an Arizona study as 34th for residential property taxes and 41st for
industrial property taxes under California's split-roll system.
California's state and local sales taxes per capita are ranked 15th per $1,000 of personal income in a Wisconsin study.
Our taxing of utilities ranks 12th per $1,000 of personal income in a Wisconsin study.
California's personal income tax ranks seventh greatest among the states at $3.22 per $100.00 of personal income per capita.
state corporate income tax has a flat rate of 8.8 percent and is ranked
sixth, but many corporations pay no taxes due to legal loopholes.
Cigarette taxes of 87 cents per pack are ranked 30th among the states, less than the U.S. median of $1 per pack.
Excise taxes on liquor ($3.30 per gallon) are ranked 19th among the states, less than the U.S. median of $3.75 per gallon.
taxes on beer (20 cents per gallon) are ranked 43rd among the states,
considerably less than the U.S. median of 69 cents per gallon.
The real estate transfer tax of $1.10 per $1,000 valuation is ranked 29th among the states.
Gasoline tax of 35.3 cents per gallon is ranked third among the states, most of which has been diverted to the state's general fund for years, last raised in 1994.
recent increase of the state's vehicle license fee ("car tax") from .65
percent of the car's value to 1.15 percent raises the tax from 20th
rank to about seventh, it appears, based on a Wisconsin study.
I concluded that Californians aren't overtaxed and that the governor's story is misleading.
is evidence of the same old misleading and partisan tricks that cause
us to be divided instead of illustrating a productive way for
California to solve its problems.
President, Hemet Unified School District Governing Board
Director, Region 18,
California School Board Association
I posted this comment:
Not over taxed, just relying on the wrong ones. Dense cities need infrastructure built and maintained, and are logical places for many other kinds of community investment -- in services such as education, emergency services, public health, etc. This costs money, but it also results in higher land values.
But Prop 13 prohibited the logical taxation of land value. To the extent that Prop 13 reduced taxation of houses and commercial buildings and other individually-funded improvements to land, it was a good thing. But that good is vastly overshadowed by its prevention of the use of the most logical and just tax yet devised: the tax on land value.
Land value rises for reasons which have nothing to do with the activity or inactivity of the individual landholder, and everything to do with the health and vitality and investment of the community. Every infrastructure project serves to increase land value. Good schools increase land value. Good jobs increase land value. Prop 13 permits the landholder to privatize all but a tiny fraction of that public investment, and forces the community into taxing, often heavily, things which ought not to be taxed at all.
Tax land value heavily. Not one acre will leave town. Not one building lot will wither and die under the burden. Not one square foot less will be "produced" -- the land is already there. What WILL happen is that the well-located acres which are languishing underused will be put to better use. This creates JOBS and businesses vying for your patronage and businesses vying for your labor, which drives wages upward -- the reverse of what we see now, where workers are competing for jobs, driving wages downward.
And lifting taxes off wages and off sales and even off corporate profits will have a whole other set of effects -- none of which are undesirable -- for the economy.
It isn't the amount of the total tax burden which is the problem. Rather, the load is badly placed. Rather than being put on the back of the horse, evenly loaded, it is put around his mouth and hung from his tail. No wonder he is struggling under the load.
San Bernardino sticks in my mind because of a 2006 Federal Reserve Board Study which showed, for 46 major metro areas in the US, the percentage of the value of the single-family housing stock which was accounted for by land value. For the aggregate of the 46 metros, the figure was 51% in 2004. San Francisco was 88%, and, of all the other cities in California listed, San Bernardino was the lowest at 62%. I'm guessing that they may not have experienced the horrendous run-up in housing prices that most of the rest of the state experienced, due in large part to Prop 13. But they're still stuck with the miserable tax structure that Prop 13 forces them into.
And think of the impact on all the towns that have courted car dealerships for the sales tax revenue, now that the auto manufacturers are shutting down dealerships.
One of my standing Google Alerts brought me this item. It is a paper, just published, showing how wages in Oregon compare to a barebones cost of living for families of various configurations. It uses the Self-Sufficiency Standard methodology, which I respect.
Its first table shows the Federal Poverty Guideline for various configurations of family, and then, for each Oregon County, the median household income and the Self-Sufficiency Standard (SSS) necessary for each family configuration. That is, the amount a family needs to meet its own most simply defined needs -- housing at the HUD Fair Market Rent; home-cooked food at the USDA Low-Cost Food Plan level (about $2 per person per meal); health care; transportation (a paid-off car for each adult); childcare suitable to the ages of the children, plus an allowance of 10% more for all other expenses, plus the taxes which would be due locally to net out to that income. Table 1 shows how widely the median incomes and costs of living vary across Oregon.
In Baker County:
a single adult can live frugally but adequately on $15,927
an adult with an infant and a preschooler needs $29,255
two adults with an infant and a preschooler need $37,530
the median household income is $38,524
In Washington County, a similar lifestyle costs more:
a single adult can live frugally but adequately on $22,646
an adult with an infant and a preschooler needs $58,915
two adults with an infant and a preschooler need $67,074
The three homes listed today are very different from each other:
a 4 bedroom house in Shelburne Falls, MA, on 2 acres (built 1860);
a 1 bedroom apartment in San Francisco (1921/1950); and
a 4 bedroom house on 7 acres in Richmond, KY (unstated).
Interestingly, the taxes on each are fairly similar: $4,853, $5,208 and $4,650.
What does one get for one's money? It varies. In the two small towns, a significant portion of the purchase price is likely to be for the structure, even with the large sites involved. In San Francisco, the bulk of one's purchase money is not for the structure, which is both small and modest, but for the location -- the proximity to jobs, to transportation, to all the amenities -- both publicly and privately provided -- of city life.
a 4 bedroom house in Shelburne Falls, MA, on 2 acres -- 2,741 square feet
a 1 bedroom apartment in San Francisco -- 641 square feet
a 4 bedroom house on 7 acres in Richmond, KY -- 3,233 square feet.
Quick and dirty, these homes are each probably worth $100 per square foot. The remainder of the value is locational value.
a 4 bedroom house in Shelburne Falls, MA, on 2 acres -- 2,741 square feet -> $274,000 house and $181,000 land (60/40)
a 1 bedroom apartment in San Francisco -- 641 square feet -> $64,000 house and $385,000 land (14/86)
a 4 bedroom house on 7 acres in Richmond, KY -- 3,233 square feet. -> $323,000 house and $142,000 land (69/31)
In the small towns, one is paying the seller mostly for value he (or a previous owner) created. In cities, one is paying the seller mostly for value he didn't create.
In each situation, property taxes are, more or less, 1% of the asking price. Assuming that the buyers put down 20% of the $465,000 ($93,000) and finance the remaining 80% ($372,000) with a mortgage at 6% for 30 years, they'll be paying $27,000 per year on the mortgage and $5,000 to their community in the first year. 85% of their carrying cost goes to the lender, 15% to the community.
Viewed another way, if we looked at this as if all the purchase money was borrowed, about 87% of the carrying cost goes to the lender and 13% to the community. And of that 87%, only 17% is principle; 83% is interest. That interest all leaves town. It isn't available for meeting the needs of the community, or of the borrower's family. It doesn't get recycled locally.
And, on top of that, the buyer continues to pay taxes on both the land and the building, and on their purchases and on their wages and most of their other income.
Can you picture how it would be if, instead of paying taxes based on one's wages and purchases and the house one occupies, one's taxes were primarily a function of the value of the land one occupied?
The buyer of the Shelburne Falls property would be paying on the basis of his $181,000 worth of land
the buyer of the SF property would be paying based on his $385,000 of land; and
the buyer of the Richmond property would be paying based on his $142,000 worth of land.
Why is that tiny plot in San Francisco worth so much more?
1. taxpayer-provided Infrastructure and services: transportation, water, sewage, streetcleaning, emergency, public health, etc. 2. high paying jobs in a vibrant economy, including very specialized jobs 3. proximity to community, culture, etc.
Were we to based our taxes on land value, the seller of the tiny San Francisco apartment would receive, say, $64,000 for his structure. And the buyer would not be taxed on that value by his community. Rather, he would be taxed on the value of the land he bought, paying, say, 5% of that value in the form of a tax on his land value: 5% of $385,000 is $19,250 per year. His mortgage payment on the $64,000 purchase would be $4,650 per year. And he wouldn't owe any other taxes.
Wouldn't that be a more just system? He pays San Francisco and California for the right to occupy that choice site. They recycle those funds locally to provide the services and infrastructure which make that site worth ~$20,000 per year, and send some on to the federal government.
This leaves the mortgage lender out of the loop. The homebuyer doesn't need to borrow $450,000; he only needs to borrow $64,000. The other funds are available for more productive purposes: financing businesses. Creating jobs. Maybe financing cars or other purchases.
"Thou shalt not steal." That means, of course, that we ourselves must
not steal. But does it not also mean that we must not suffer anybody
else to steal if we can help it? "Thou shalt not steal." Does it not
also mean, "Thou shalt not suffer thyself or anybody else to be stolen from?"
If it does, then we, all
of us, rich and poor alike, are responsible for this social crime that
produces poverty. Not merely the men who monopolize land — they are not
to blame above any one else, but we who permit them to monopolize land
are also parties to the theft. The Christianity that ignores this
social responsibility has really forgotten the teachings of Christ.
Where He in the gospels speaks of the judgment, the question which is
put to men is never, "Did you praise me?" "Did you pray to me?" "Did
you believe this or did you believe that?" It is only this: "What did
you do to relieve distress ; to abolish poverty ?" To those who are
condemned, the judge is represented as saying: "I was ahungered and ye
gave me not meat, I was athirst and ye gave me not drink, I was sick
and in prison and ye visited me not." Then they say, "Lord, Lord, when
did we fail to do these things to you?" The answer is, "Inasmuch as ye
failed to do it to the least of these, so also did you fail to do it
unto me; depart into the place prepared for the devil and his angels."
On the other hand, what is said to the blessed is, "I was ahungered and
ye gave me meat, I was thirsty and ye gave me drink,'I was naked and ye
clothed me, I was sick and in prison and ye visited me." And when they
say, "Lord, Lord, when did we do these things to thee ?" the answer is,
"Inasmuch as ye have done it unto the least of these ye have done it
Here is the essential spirit of Christianity. The essence of its
teaching is not, "Provide for your own body and save your own soul!"
but, "Do what you can to make this a better world for all!" It was a
protest against the doctrine of "each for himself and devil take the
hindermost I" It was the proclamation of a common fatherhood of God and
a common brotherhood of men. This was why the rich and the powerful,
the high priests and the rulers, persecuted Christianity with fire and
sword. It was not what in so many of our churches to-day is called
religion that pagan Rome sought to tear out — it was what in too many of
the churches of to-day is called "socialism and communism," the
doctrine of the equality of human rights!
Now imagine when we men and women of today go before that awful bar
that there we should behold the spirits of those who in our time under
this accursed social system were driven into crime, of those who were
starved in body and mind, of those little children that in this city of
New York are being sent out of the world by thousands when they have
scarcely entered it — because they did not get food enough, nor air
enough, nor light enough, because they are crowded together in these
tenement districts under conditions in which all diseases rage and
destroy. Supposing we are confronted with those souls, what will it
avail us to say that we individually were not responsible for their
earthly conditions? What, in the spirit of the parable of Matthew,
would be the reply from the judgment seat? Would it not be, "I provided
for them all. The earth that I made was broad enough to give them room.
The materials that are placed in it were abundant enough for all their
needs. Did you or did you not lift up your voice against the wrong that
robbed them of their fair share in what I provided for all?"
"Thou shalt not steal!" It is theft, it is robbery that is producing
poverty and disease and vice and crime among us. It is by virtue of
laws that we uphold; and he who does not raise his voice against that
crime, he is an accessory. The standard has now been raised, the cross
of the new crusade at last is lifted. Some of us, aye, many of us, have
sworn in our hearts that we will never rest so long as we have life and
strength until we expose and abolish that wrong. We have declared war
upon it. Those who are not with us, let us count them against us. For
us there will be no faltering, no compromise, no turning back until the
There is no need for poverty in this world, and in our civilization.
There is a provision made by the laws of the Creator which would secure
to the helpless all that they require, which would give enough and more
than enough for all social purposes. These little children that are
dying in our crowded districts for want of room and fresh air, they are
the disinherited heirs of a great estate.
Did you ever consider the full meaning of the significant fact that as
progress goes on, as population increases and civilization develops,
the one thing that ever increases in value is land ? Speculators all
over the country appreciate that. Wherever there is a chance for
population coming; wherever railroads meet or a great city seems
destined to grow; wherever some new evidence of the bounty of the
Creator is discovered, in a rich coal or iron mine, or an oil well, or
a gas deposit, there the speculator jumps in, land rises in value and a
great boom takes place, and men find themselves enormously rich without
ever having done a single thing to produce wealth.
Now, it is by virtue of a natural law that land steadily increases in
value, that population adds to it, that invention adds to it; that the
discovery of every fresh evidence of the Creator's goodness in the
stores that He has implanted in the earth for our use adds to the value
of land, not to the value of anything else. This natural fact is by
virtue of a natural law — a law that is as much a law of the Creator as
the law of gravitation. What is the intent of this law ? Is there not
in it a provision for social needs ? That land values grow greater and
greater as the community grows and common needs increase, is there not
a manifest provision for social needs — a fund belonging to society
as a whole, with which we may take care of the widow and the orphan and
those who fall by the wayside — with which we may provide for public
education, meet public expenses, and do all the things that an
advancing civilization makes more and more necessary for society to do
on behalf of its members?
Today the value of the land in New York City is over a hundred millions
annually. Who has created that value? Is it because a few landowners
are here that that land is worth a hundred millions a year? Is it not
because the whole population of New York is here? Is it not because
this great city is the center of exchanges for a large portion of the
continent? Does not every child that is born, everyone that comes to
settle in New York, does he not add to the value of this land? Ought he
not, therefore, to get some portion of the benefit? And is he not
wronged when, instead of being used for that purpose, certain favored
individuals are allowed to appropriate it?
We might take this vast fund for common needs, we might with it make a
city here such as the world has never seen before — a city spacious,
clean, wholesome, beautiful —a city that should be full of parks; a
city without tenement houses; a city that should own its own means of
communication, railways that should carry people thirty or forty miles
from the city hall in a half hour, and that could be run free, just as
are the elevators in our large buildings; a city with great museums,
and public libraries, and gymnasiums, and public halls, paid for out of
this common fund, and not from the donations of rich citizens. We could
out of this vast fund provide as a matter of right for the widow and
the orphan, and assure to every citizen of this great city that if he
happened to die his wife and his children should not come to want,
should not be degraded with charity, but as a matter of right, as
citizens of a rich community, as coheirs to a vast estate, should have
enough to live on. And we could do all this, not merely without
imposing any tax upon production; not merely without interfering
with the just rights of property, but while at the same time securing
far better than they are now the rights of property and abolishing the
taxes that now weigh on production. We have but to throw off our taxes
upon things of human production; to cease to fine a man that puts up a
house or makes anything that adds to the wealth of the community; to
cease collecting taxes from people who bring goods from abroad or make
goods at home, and put all our taxes upon the value of land — to collect
that enormous revenue due to the growth of the community for the
benefit of the community that produced it.
LVTfan here. That was an excerpt from one of my favorite speeches, by Henry George (entitled "Thou Shalt Not Steal.")
Now consider the newest evidence from the Federal Reserve Board's 2007 Survey of Consumer Finances, as reported in a too little noted paper issued a few months ago entitled "Ponds and Streams: Wealth and Income
in the U.S., 1989 to 2007"
1% of our households hold over 1/3 of America's wealth.
10% of our households possess over 70% of America's wealth.
The other 90% get to split the remaining 28.5%
The bottom 50% of us have only 2.5% of that net worth.
Ranked by income:
1% of our households receive 21.4% of the income
10% of our households receive 47.2% of the income
The other 90% of our households get to split 52.8% of the income
The bottom 50% of our households have only 14.6% of that income.
Coheirs to a vast estate. Hmmm. In America?
out of this vast fund provide as a matter of right for the widow and
the orphan, and assure to every citizen of this great city that if he
happened to die his wife and his children should not come to want,
should not be degraded with charity, but as a matter of right, as
citizens of a rich community, as coheirs to a vast estate, should have
enough to live on. And we could do all this, not merely without
imposing any tax upon production; not merely without interfering
with the just rights of property, but while at the same time securing
far better than they are now the rights of property and abolishing the
taxes that now weigh on production.
Thou shalt not steal, yes. But also "Thou shalt not suffer thyself or anybody else to be stolen from."
The first step is to understand the nature of the theft that is structural, legal, even respected and treated as reflective of personal or corporate virtue. Shine a light on it. A Mount-Rushmore-at-night illumination.
2007 SCF, abolishing poverty, ending poverty, income concentration, land, land speculation, land value taxation, Ponds and Streams, poverty, poverty's cause, privatization, progress, progress and poverty, progress without poverty, wealth concentration, wealth distribution
That was the name of a bi-monthly magazine published from 1926 to 1940, successor to The Single Tax Review. I want to share its premise with you. It turns out that it was expressed a bit differently from one issue to the next. These come from the 1940 volumes.
WHAT LAND AND FREEDOM STANDS FOR
Taking the full rent of land for public purposes insures the fullest
and best use of all land. In cities this would mean more homes and more
places to do business and therefore lower rents. In rural communities
it would mean the freedom of the farmer from land mortgages and would
guarantee him full possession of his entire product at a small land
rental to the government without the payment of any taxes. It would
prevent the holding of mines idle for the purpose of monopoly and would
immensely increase the production and therefore greatly lower the price
of mine products.
Land can be used only by the employment of labor. Putting land to its
fullest and best use would create an unlimited demand for labor. With
an unlimited demand for labor, the job would seek the man, not the man
seek the job, and labor would receive its full share of the product.
The freeing from taxation of all buildings, machinery, implements and
improvements on land, all industry, thrift and enterprise, all wages,
salaries, incomes and every product of labor and intellect, will
encourage men to build and to produce, will reward them for their
efforts to improve the land, to produce wealth and to render the
services that the people need, instead of penalizing them for these
efforts as taxation does now.
It will put an end to legalized robbery by the government which now
pries into men's private affairs and exacts fines and penalties in the
shape of tolls and taxes on every evidence of man's industry and
All labor and industry depend basically on land, and only in the
measure that land is attainable can labor and industry be prosperous.
The taking of the full Rent of Land for public purposes would put and
keep all land forever in use to the fullest extent of the people's
needs, and so would insure real and permanent prosperity for all.
Pretty short and sweet, isn't it? It might look out of date in this computer age -- though I would argue that it is not, even and especially in our most dense and developed cities -- but if you don't see its importance in the developed world, can you see that for the other 80%, including many places where American lives are at stake and our dollars being spent, it has huge relevance?
And as a means of ending poverty for the billions who do not get to reap the harvest of their own labor, it is of prime importance.
From the March/April issue:
WHAT LAND AND FREEDOM STANDS FOR
That the earth is the birthright of all Mankind and that all have an equal and unalienable right to its use.
That man's need for the land is expressed by the Rent of Land; that
this Rent results from the presence and activities of the people; that
it arises as the result of Natural Law, and that it therefore should be
taken to defray public expenses.
That as a result of permitting land owners to take for private purposes
the Rent of Land it becomes necessary to impose the burdens of taxation
on the products of labor and industry, which are the rightful property
of individuals, and to which the government has no moral right.
That the diversion of the Rent of Land into private pockets and away
from public use is a violation of Natural Law, and that the evils
arising out of our unjust economic system are the penalties that follow
such violation, as effect follows cause.
We therefore demand:
That the full Rent of Land be collected by the government in place of
all direct and indirect taxes, and that buildings, machinery,
implements and improvements on land, all industry, thrift and
enterprise, all wages, salaries and incomes, and every product of labor
and intellect be entirely exempt from taxation.
Taking the full Rent of Land for public purposes would insure the
fullest and best use of all land. Putting land to its fullest and best
use would create an unlimited demand for labor. Thus the job would seek
the man, not the man the job, and labor would receive its full share of
The freeing from taxation of every product of labor would encourage men
to build and to produce. It would put an end to legalized robbery by
The public collection of the Rent of Land, by putting and keeping all
land forever in use to the full extent of the people's needs, would
insure real and permanent prosperity for all.
California is looking for stimulus money from the Federal taxpayer, or, perhaps more precisely, from the federal taxpayers' children.
Yet for the past 30 years, California law, created under 1978's Proposition 13" has PROHIBITED the taxation of land value at a rate higher than 1% of assessed value, and, in addition, limits the annual increase in assessed value to 2%, even when and where market values rise by 10% or 20% or more, until the property is resold, which results in both a very low and a very uneven taxation of land value.
This forces California into using taxes which both burden the poor and damage their economy: sales taxes, wage taxes.
It also strangles any effort to collect back for the commons that which our common spending creates. 4 shares for the landholder, 1 share for the community ... or , if you've owned your California property for 10 or 20 years, 9 shares for the landholder and 1 share for the community.
Meanwhile, California has one of the lowest homeownership rates in the entire US. For 1Q 2009, the US homeownership rate was 67.3% (down from a peak of 69.1% four years earlier); California's was 56.8%, down from 59.9% 1Q2005. So nearly half of Californians are paying rent, and paying it to landlords who pass only a tiny fraction of it on to the community in the form of taxes -- leaving the tenants to pay sales and wage taxes. Perverse, cruel, dumb, privilege-maintaining.
The classical economists observed hundreds of years ago that all benefits go to the landlord. Landlords grow rich in their sleep. Land rises in value for reasons which have nothing to do with the activity or inactivity of the individual landholder, and everything to do with the presence of the community, the public spending of the community on infrastructure and services. California's voters -- knowingly or unknowingly, but most likely the latter -- said that that was just fine with them, and the young people and the renters be damned!
Please don't come asking the rest of us to tax our wages to fund your "stimulus" when you won't tax your own landholders more than 1% -- and many of them a tiny fraction of 1% -- to meet your own state's needs.
If your current governor, who benefits mightily from Proposition 13, won't lead you in the right direction, elect someone who will.
That's the finding of a study published this week by PathWays. (Story here.) It uses the methodology of the Self-Sufficiency Standard Studies, which calculate, for various configurations of families, a localized cost of living, by county, one state at a time. The 2008 Self-Sufficiency Standard Study for PA is available online at http://pathwayspa.org/Self_Sufficiency_Standard.pdf, and I commend it to your attention.
Initially, this was done for families of working age, and to date, studies have been done in about 35 states. More recently, a similar study was done to determine the cost of living in retirement in various places in Pennsylvania; that study is Elder Economic Security Standard. It looks a several different living situations: in a rented home, in a home whose mortgage has been paid off, for a single elderly person and a married couple.
The new study, entitled Overlooked and Undercounted, calculates how many people live in families whose incomes are below the SSS level; that is, where there is not enough to meet all the most simply defined needs: safe housing; childcare for young children while all parents work; homemade food at the USDA Low-Cost Food Plan level, transportation, health care, plus an allowance of 10% of the subtotal of those first 5 categories for "all other" spending, plus a calculation of the taxes that would need to be paid to NET that level of income after the local combination of taxes due from a renter would be paid. That is the Self Sufficiency Standard. It is quite a bit higher than the Federal Poverty Guideline in most large cities; and even in America's lowest-cost-of-living counties, is somewhat above the FPG (which, for 2009, is $18,310 for a family of three and $22,050 for a family of four. ("Self-Sufficiency" means not depending on subsidies or help from relatives with childcare.)
The most striking table to me is Table 7, on page 15, and it is striking both for what it says, and for the calculation they failed to provide. Table 8 provides useful detail.
As noted in the headline, 21% of PA's working-age families live below the SSS for their family configuration in their county.
Among families with no children, only 15% live below their SSS.
Among families with children (who represent 41% of families), 29% live below their local SSS.
Among families with 1 child, 21% live below their SSS
Among families with 2 children, 26%
Among families with 3 children, 43%
Among families with 4 or more children, 71% live below their local SSS.
Among families whose youngest child is less than 6 years old, 40% live below the SSS
Among families whose youngest child is 6 to 17, 21% live below the SSS.
So among families without children, only 1 in 6 lack sufficient income to meet their most simply defined needs. (In America!!) That proportion doubles to nearly 3 in 10 among families with a child.
What they failed to calculate was what percentage of PA's children live below the SSS. I made one assumption: that among families with 4 or more children, the average number of children was 4.5. I have no way of testing its validity. But if you accept that assumption, here's what we find:
918,273 children in PA live below the SSS in their county for their particular configuration of family
That's 35.3% of Pennsylvania's 2,603,590 children.
Table 8 breaks out similar data by whether the household is headed by a married couple, a male or a female householder with no spouse present. Working the same methodology (assuming 4.5 children per household where the table says "4 or more"), I find
a total of 925,914 children living below local SSS.
50.5% of them are in two-parent households.
When you see a child in PA who comes from a family of 4 or more children, chances are that they live below the SSS. When you see a child in PA who comes from a family headed by a female householder, no spouse present, changes are that they live below the SSS. When you see a child in PA, the chances are over 1 in 3 that he lives in a family whose income is below the SSS.
Now here's the question: which of these statistics will you remember most? Followed closely by "what do we need to change?"
If your answer is "fewer single mothers" or "fewer single parents" or "fewer divorces" or even "more availability of birth control" then evidently you are willing to accept that, among married-couple households with 2 children, our wage structure is acceptable when 17% of those families lack sufficient income to meet their most simply defined needs.
GO TO THE ROOT OF THE PROBLEM. Discover the problem and eradicate it. I'm persuaded that the problem is structural, not a failing of the individuals involved. We need to look at why wages are not sufficient to support a family.
Oh, and if you think this is just Pennsylvania, think again. The figures are similar for Colorado (34.5%) and for Connecticut (38%). And in California, more than 48& of the children live in families with insufficient income. (I'm willing to bet that much of this is a function of awesomely high rents in the populated portions of California. And ultimately, that can be traced in significant part to distortions produced by Proposition 13.)
Spending more on schools is not going to fix this. WE MUST GO TO THE ROOT of it. Read Henry George's Progress and Poverty, and you will come away knowing what most people 120 years ago knew well. (That would be progress!) And then act on it. Act locally, act at the state level, act at the federal level to implement HG's simple and just reform.
I'm playing catch-up, after having been occupied with other work for the past month or so, and came across some articles from UK publications listing the sources of wealth for the 2000 or so most wealthy people in the UK.
See a few entries down, where Michael Kinsley laid it out this way in the Washington Post:
Perusing the Forbes 400
list of America's richest people, it's striking how few of them made
the list by building the proverbial better mousetrap. The most
common route to gargantuan wealth, like the route to smaller piles,
remains inheritance. The ability to pass money along to your kids may
motivate many a successful executive or investor to work harder, but it
can't possibly motivate those kids to inherit harder in order to pass
it along once again.
Dozens of Forbes 400 fortunes derive from the rising value of land or other natural resources. These businesses are fundamentally different from mousetrap building. Land does not need to become "better" to increase in value, and that value increase doesn't produce more land.
Yet other fortunes depend directly on the government. The large
fortunes based on health care and pharmaceuticals would not exist if
not for Medicare and Medicaid. The government hands out large fortunes
even more directly in forms as varied as
drilling, mining and mineral rights;
minority small-business loans; and
other special treatment.
We must conserve the earth -- yes. But we must also share its bounty with all, not permit the privatization of that bounty. Henry George put it this way:
We sail through space as if on a well-provisioned ship. If
food above deck seems to grow scarce, we simply open a hatch -- and
there is a new supply. And a very great command over others comes to
those who, as the hatches are opened, are permitted to say: "This is
It is a well-provisioned ship, this on which we sail through space. If
the bread and beef above decks seem to grow scarce, we but open a hatch
and there is a new supply, of which before we never dreamed. And
very great command over the services of others comes to those who as the
hatches are opened are permitted to say, "This is mine!"
In case it isn't obvious, I'm not opposed to fortunes which come from creating better mousetraps! I'm quite in favor of them. But we need to distinguish between what monopoly privilege creates, and what hard work creates, and LVT does that.
The schedule for the annual gathering of Georgists (that is, people who are persuaded that the economist and social philosopher Henry George (b. 1839, Philadelphia; d.1897, NYC), author of "Progress & Poverty" and a book of essays entitled "Social Problems," among others, pretty much had it right) is now online. It is in downtown Cleveland in early August.
Looking over the schedule, I see a lot of familiar names -- people I've come to know since I attended my first CGO meeting in 2001 -- and some people I've not yet met face to face but know online. I'm happy that we have few sessions running side by side, because virtually all of the programs are of interest to me.
My last visit to Cleveland was with 600 delightful women, and included a great and noisy party at the Rock 'n' Roll Hall of Fame. (I just had the pleasure of being on the host committee for the same group's 2009 Annual Meeting!) At that time, I didn't know the significance of the larger-than-life statue nearby of Cleveland mayor Tom L. Johnson. The book he holds in his hand is P&P.
If you would like to see an end to poverty, come join us.
If sprawl and its concomitants concern you, come join us; we know how to slow it and reverse it and channel it into reusing the land already well served by taxpayer-provided infrastructure.
If long commutes -- and the fuel, pollution, spending and time loss involved -- worry you, come join us.
If you would like to see a more stable economy, without the booms and busts which cause such widespread pain and ruin, we have answers.
If you would like to see healthier cities and a more vibrant economy, come listen to what some of these people have to offer.
If unaffordable housing troubles you, come talk to us.
If the extreme concentrations of income and wealth -- particularly of natural resource wealth -- trouble you, we know how to correct it gently and justly.
If you hate the income tax and recognize that sales and consumption taxes damage the economy, but still believe that there are some things government can do better than the private sector, we know how to finance that spending justly.
We come from all over the political spectrum, and share little except a major commitment to creating a better and more sustainable world and society and economy for all. (That's a lot actually!) It is a joy to spend a few days with people so passionate about social and economic justice and with a clear vision of how to get there.
If you're curious about Henry George, you might start where I started, with four of his speeches. I found these as pamphlets in the files of my late grandparents when I took possession of their library and file cabinets and some sentimental treasures. My first pass was for genealogical information. Shortly after that, I started reading a speech entitled "Thou Shalt Not Steal," and it clicked. My paternal grandparents (three of them, actually: my own grandparents, and my step-grandmother, whose first husband was a dear family friend, too, in the 1940s and 50s) were all Georgists. For every landmark occasion in my young life, their gifts included a lovingly inscribed copy of Progress & Poverty (just in case I'd misplaced the previous ones!) But I'd not done more than thumb through it. When I first did get around to reading it, I was in my late 40s; my grandparents were quicker studies, and devoted the second half of their lives to promoting these ideas. My first read of P&P was a slow slog; a friend shocked me when she said she found it a page-turner, a mystery whose solution she was anxious to get to. Now I admit I read it for, and with, pleasure.
Another piece you might read is my grandfather's "An Introduction to Henry George" or my grandmother's more humorous article, "My Introduction to Henry George;" she went on to write delightful short stories for Ladies Home Journal, Colliers, the Saturday Evening Post and many other magazines in the 40s. Things have come full circle -- I'm on the board of two Georgist foundations, including the one my grandfather worked for and with for over 30 years, the Robert Schalkenbach Foundation. And following in the example of my late stepgrandmother, who tried to write an activist letter every day, I try to post comments on either my blog or other blogs or articles online every day. I mostly succeed, though in the past month or two, I've fallen short. And I've created a website to make Henry George's ideas accessible to people coming from a wide range of interests and points of view: http://www.wealthandwant.com/
The galleys that carried Caesar to Britain, the accoutrements of
his legionaries, the baggage that they carried, the arms that they
bore, the buildings that they erected; the scythed chariots of the
ancient Britons, the horses that drew them, their wicker boats and
wattled houses–where are they now? But the land for which Roman
and Briton fought, there it is still. That British soil is yet as
fresh and as new as it was in the days of the Romans. Generation
after generation has lived on it since, and generation after
generation will live on it yet. Now, here is a very great difference.
The right to possess and to pass on the ownership of things that in
their nature decay and soon cease to be is a very different thing
from the right to possess and to pass on the ownership of that which
does not decay, but from which each successive generation must
To show how this difference between land and such other species of
property as are properly styled wealth bears upon the argument for
the vested rights of landholders, let me illustrate again.
Captain Kidd was a pirate. He made a
business of sailing the seas, capturing merchantmen, making their
crews walk the plank, and appropriating their cargoes. In this way he
accumulated much wealth, which he is thought to have buried. But let
us suppose, for the sake of the illustration, that he did not bury
his wealth, but left it to his legal heirs, and they to their heirs
and so on, until at the present day this wealth or a part of it has
come to a great-great-grandson of Captain Kidd. Now, let us suppose
that some one – say a great-great-grandson of one of the
shipmasters whom Captain Kidd plundered, makes complaint, and says:
"This man's great-great-grandfather plundered my
great-great-grandfather of certain things or certain sums, which have
been transmitted to him, whereas but for this wrongful act they would
have been transmitted to me; therefore, I demand that he be made to
restore them." What would society answer?
Society, speaking by its proper tribunals, and in accordance with
principles recognized among all civilized nations, would say: "We
cannot entertain such a demand. It may be true that Mr. Kidd's
great-great-grandfather robbed your great-great-grandfather, and that
as the result of this wrong he has got things that otherwise might
have come to you. But we cannot inquire into occurrences that
happened so long ago. Each generation has enough to do to attend to
its own affairs. If we go to righting the wrongs and reopening the
controversies of our great-great-grandfathers, there will be endless
disputes and pretexts for dispute. What you say may be true, but
somewhere we must draw the line, and have an end to strife. Though
this man's great-great-grandfather may have robbed your
great-great-grandfather, he has not robbed you. He came into
possession of these things peacefully, and has held them peacefully,
and we must take this peaceful possession, when it has been continued
for a certain time, as absolute evidence of just title; for, were we
not to do that, there would be no end to dispute and no secure
possession of anything."
Now, it is this common-sense principle that is expressed in the
statute of limitations – in the doctrine of vested rights. This is
the reason why it is held – and as to most things held
justly – that peaceable possession for a certain time cures
defects of title.
But let us pursue the illustration a little further:
Georgists -- people who have read one or more of Henry George's books*, and are persuaded of the logic and truth of his findings and diagnosis -- have, for over 100 years, had an answer to share with the rest of us about how to make our economy more just, more honest, more vibrant and more stable; make equal opportunity real; protect the environment from despoilment; reduce the excessive concentrations of wealth and income without destroying incentives which encourage productivity.
* e.g., Progress and Poverty; Social Problems; Protection or Free Trade?; The Science of Political Economy; The Land Question,
etc. Henry George (b. 1839, Philadelphia; d. 1897, NYC) was among the
most prominent and widely read Americans of the late 19th century, and
no one has successfully refuted his observations or his prescriptions;
yet few of us, even economics majors, are exposed to his ideas in
the course of even a highly regarded college or university education.
More of us who know his ideas have found them through our own research,
or through a course at a Henry George School (e.g., NYC, Philadelphia,
Chicago, etc.) or online (henrygeorge.org)
Georgists know some things that other people don't seem to know. It is common sense. It is logical, not all that complex.
Paul Harvey's "thing" was to tell us about "the other part of the story." Well, Georgists know a lot about the rest of the story. We know that federal spending on infrastructure is only half the story of stimulating the economy (and even know that it is not necessary!)
If all we "do" is the federal end of stimulus, we aren't going to get anywhere. We may even make some things worse -- unintentionally, of course, but worse nonetheless -- for a significant percentage of us.
Armed with Henry George's observations, we would know how to fix this economy and create a better one. We can reduce the need for consumer credit, freeing up more funds for productive investment by industry. We can undo the machine which creates poverty and simultaneously enriches a particular class of us.
If you spend some time reading this blog, you might come away thinking that I believe that land value taxation is a cure-all, a panacea. (See the "topic cloud" in the left sidebar.) But that isn't the case.
However, I have come around to the point of view that many of our most serious social, environmental, economic and justice problems are not going to be solved -- cannot be solved! -- without the enactment of land value taxation.
That sounds extreme, particularly to those who have never heard of LVT or who have read little about it.
So many of our most serious problems ultimately find their root in the privatization of the natural creation -- that which the classical economists called land, including things that the classical economists would have known nothing about, but would immediately recognize: electromagnetic spectrum, geosynchronous orbits, landing rights at LaGuardia (particularly at rush hour), etc..
Let me be more specific. It isn't the privatization of land, or oil resources, or minerals, or geosynchronous orbits, or water rights themselves that is the problem. Secure title is necessary and important. Rather, the problem is that the economic value of these common resources is currently treated as private treasure rather than as our common asset. But we need revenue for public purposes, so we then tax sales and wages and interest. But those who need land pay others for it (unless they inherited the rights to it) either in the form of rent or in the form of a lump sum, and then are burdened with the sorts of taxes which depress the economy and steal from them that which they produced (in addition to the significant costs of servicing the debt related to that lump sum payment).
Land, in all its forms, is not of human creation. We can't create more of it in response to an increase in demand. In particular, we can't create more land downtown, where it is served by awesomely important infrastructure that took decades and millions or billions to build. We can't create more water, or more frequencies on FM or AM radio. Yet we permit the privatization of the economic value of these and other like vital and fabulously valuable common assets.
Were we to shift our taxes off productive effort, off sales, off buildings, and onto all these things called "land value," we would be on our way to solving many of our environmental problems, our social problems, our economic problems, urban sprawl and its concommitants, and many of our justice problems. We'd have a more efficient economy, a more vibrant one, without the excess burden (deadweight loss) our current system creates. We'd have opportunity, jobs, a growing pie, and lose the boom-bust cycle which plagues us.
Spending federal dollars is not the only way to stimulate the economy, though it may be a relatively speedy one. But I think we ought to be considering other ways, too.
The catchphrase "Think Globally, Act Locally" comes to mind. There are things which states and local areas can do to help unburden the economy. If someone thinks it isn't time yet to take those steps, I'd like to know how they will know when the time has come.
We heard calls recently for the federal government to provide the funding for state sales tax "holidays" -- a week here, a week there -- to remove the weight of sales taxes from the consumer. Well, maybe the states, and the cities and towns which impose sales taxes, ought to consider shifting away from a sales tax. Alabama and Mississippi impose a sales tax even on groceries. Sales taxes in Chicago are 10.25%! No wonder people want a vacation from them. But wouldn't we simply be smarter to shift away from dumb taxes like the sales tax, rather than shifting consumer spending into a shorter window, causing buyers to finance their purchases and pay interest to the credit card companies?
In the same vein, perhaps states and cities which are concerned about the health of their local economy ought to look at each of the things they tax, and decide whether those taxes help or hurt the economy.
As you read this, think about what contributions each landlord mentioned -- or any other you know -- has made to
society, in his role as landlord, during his ownership of his building and land, be it 3 years, or 30, or even 300 years. Think about how we have
our incentives set up.
a few lifts to provide the flavor:
That area is now one of the city’s liveliest late-night strips, which
made it particularly painful for Ms. Gillis to receive an eviction
notice last month because she owed $13,556.26 in back real estate
taxes. But in a sudden change of heart, her landlord recently offered
to let Ms. Gillis stay for two more years, and even proposed paying
part of her future real estate taxes — which retail tenants normally
Just a year ago, the owners of New York’s most coveted retail and
restaurant spaces held almost unassailable power to dictate the terms
of their leases. But the recession is changing that equation, as
rapidly rising vacancy rates and bankruptcies are making it hard to
find new tenants.
And so some small businesses are finding a silver lining in the
recessionary clouds: they suddenly have leverage with their landlords.
Six months ago, for instance, the landlord of the Holland Bar in Hell’s
Kitchen terminated the lease because he was confident of finding a
higher-paying tenant or developing luxury condos. But when he found no
takers, he offered the space back to the bar, at a 20 percent increase
in rent. The Holland reopened last week. ...
That does not mean that all of the city’s landlords, whether in upscale
Manhattan districts or shopping strips in Brooklyn and Queens, are
cutting their tenants a break; many shops are still facing sharply
rising rents as leases come due.
Indeed, many landlords find themselves in a bind because they paid
stiff prices for property in recent years and need to cover hefty
mortgage payments. On average, Manhattan landlords paid $3,348 per
square foot for retail properties in 2008, compared with $538 per
square foot in 2004, according to the brokerage Cushman & Wakefield.
I've been exploring the IRS Statistics of Income data for 2006 which permits one to download spreadsheets of data and do one's own calculations on the data. I've stumbled across some data that tickles my Georgist curiosity. The tables break returns out by AGI (not the greatest option in the world -- a lot of income disappears before that point) but the observations are still of interest.
Table 2.1 looks at only returns that itemize deductions, 49.2 million returns out of the total 138.4 million filed (35.5%), which are reported on Table 1.2. I'll use the column numbers provided in the spreadsheet, since I've added dozens more. Column 75 shows the total Home Mortgage Interest deducted as $443 billion, and Column 66 shows the Real Estate Tax deducted as $156 billion -- 35% the amount paid in interest. 39.8 million returns deducted interest; 42.6 million returns deducted Real Estate Taxes.
I'm intrigued that people don't seem to mind paying large amounts of interest to a mortgage lender, for the privilege of paying off the previous owner of their home, but balk at paying roughly 1/3 as much to the community which provides the services which make that home and community a good place to live!
Further, the federal taxpayers who itemize deducted $265 billion in sales tax and state/local income taxes. So they deducted a total of $421 billion in taxes, and interest of $443 billion.
A 2006 Federal Reserve Board study found that for the top 46 metro markets, land value represented 51% of the value of single family homes in 2004. Applying that percentage to the mortgage interest amount deducted, we could say that $222 billion of mortgage interest was deducted that went to paying the interest on land the taxpayer purchased from someone else, and the other $222 billion went for paying for the house on that land.
If we accept that state and local government costs $421 billion, wouldn't we rather be paying $222 billion in interest to finance the purchase of the houses we live in, plus $421 billion in taxes on land value, and not pay either principle to the seller or interest to the lender for the land value?
This was from my drafts file, late September ... so parts of it are a bit dated ... but I thought it worth putting online nonetheless.
With all the upheaval on "Wall Street," there has been a lot of talk about looking out for "Main Street." But let's look closely at what we mean by Main Street.
It conjures up images of older towns, populated by small shops and larger ones, walkable towns. Merchants who know their customers, who live locally and employ local people. Doctors, dentists, lawyers, accountants, all self-employed and serving and knowing their community. Perhaps of dollars being circulated locally. Perhaps of a community with little poverty, with opportunity for all; a place where children who grow up there both want to stay and can afford to live . I think of a sign I saw over the summer suggesting that shopping locally kept one's dollars recirculating locally.
Well, Main Street tends to be a bit more complex than that. Often the reality is that Main Street is composed of two different classes: the landlord class and the tenant class. Businesses whose business is landlording do very well. Businesses which own their own building and the land under it do very well. Those who are tenants to others are in a constant struggle, a constant race, a constant balancing act.
A couple of articles caught my eye today. First, a university which owns choice land on the Upper West Side of Manhattan:
Fordham Seeks to Build on Manhattan Campus For more than a decade, Fordham
University officials have been trying to figure out how to address
overcrowding at their Manhattan campus and fill the coffers of their
relatively small endowment. They thought the answers to both could be
found in one of their most valuable assets: their Manhattan real estate.
So for four years, Fordham officials have been trying to win support from community groups and city officials for plans to turn
their four-building site into a far denser 12-building campus in the
same space between Amsterdam and Columbus Avenues and 60th and 62nd
Streets. Fordham uses the site for various graduate programs and has a larger campus in the Bronx.
The completed campus next to Lincoln Center would have three million square feet of classrooms, libraries and dormitories.
It would also include two lots that Fordham would sell to luxury
apartment developers, using the profits to bolster the endowment. ...
Neighbors, zoning experts and community board members who spoke at the
hearing expressed concerns that the buildings would be too tall and
dense for the neighborhood. Howard Goldman, a land-use lawyer
representing a residents’ group, Fordham Neighbors United, said that at three million square feet,
the campus would be larger than the Time Warner Center nearby (2.2
million square feet) or the Empire State Building (2.8 million square
Deirdre A. Carson, a lawyer representing Fordham, said the towers would not be as overbearing as critics contend. Some of the towers would be would be 650 feet high, she acknowledged, but they would be spread out over a larger area. She added that the Time Warner site was half the size of the proposed Fordham campus and that the Empire State site was one-third as large. ...
Mr. Goldfischer said that more than
1,100 residents were removed from the neighborhood to build Fordham,
which he said complemented Moses’ original plan, as did Lincoln Center,
nearby. (Lincoln Center has not commented on the proposal.)
“That land was for public trust,” he
said over applause from the crowd. “It’s immoral, illegal and unethical
to do something like that.”
Ms. Carson acknowledged that terms of
the 1958 purchase included a requirement that the property be used for
educational purposes but said the obligation expired in 2006.
and a foreign airline which owns a VERY choice block in midtown Manhattan is realizing that they have a major cash cow which can bear them an awesome amount of milk, forever:
The President advised the government
to also consider developing the Roosevelt hotel property in New York
owned by the PIA as a source of permanent income without actually
selling the property and retaining PIA’s ownership of it.
He said that the government may
revisit the earlier decision to place the Roosevelt hotel under the
Privatization Commission so as to examine the possibility of developing
the property for regular income.
How choice? The NY Post estimated the selling value of this one-acre whole-block property at $400 million to $1.2 billion as a teardown last summer. That's $20 million to $60 million per year in land rent. See these previous LVTfan entries to this blog.
And then there was a 3rd article, whose mechanics I don't begin to understand, but which I suspect are similar ... and a bit hedge-fundish: The New York Times, which in 2007 built a new building between 40th and 41st Street on the west side, is now negotiating a transaction which, by definition, must benefit both sides... I'm led to wonder how much it will cost taxpayers if both sides benefit:
Times Co. Is in Talks to Sell Part of Building
The New York Times Company is in advanced negotiations to sell a
substantial portion of its 52-story headquarters building on Eighth
Avenue in Midtown Manhattan to W. P. Carey & Company, an investment
and management firm that specializes in so-called sale-leaseback
transactions, the newspaper company confirmed on Thursday.
Under the deal, the Times
Company would sell the 19 floors it currently uses in the building but
not the 6 floors it leases to other tenants. The Times Company would
continue to occupy and manage its floors and would have the right to
buy back the space at a predetermined price when a 10-year lease
expires. Designed by the architect Renzo Piano, the building stretches from 40th to 41st Street. It was completed in 2007.
A spokeswoman for the Times Company, Catherine J. Mathis, declined to
say how much W. P. Carey would pay for the space, what it would cost to
repurchase it or what the rent would be. The Times Company previously
said that it was pursuing a sale-leaseback arrangement for up to $225
million and would use the proceeds to repay some of the company’s
“Because we are in continuing discussions, we cannot comment on the
status of the sale-leaseback,” Ms. Mathis said Thursday. Guy B.
Lawrence, a spokesman for W. P. Carey, declined comment on the
The Times Company owns 58 percent of the 1.5-million-square-foot tower. The developer Forest City Ratner owns the rest of the building. Forest City’s portion will not be included in the sale.
In a sale-leaseback
transaction, the seller maintains control over its space and the
responsibility for paying taxes, maintenance and utility costs. W. P. Carey’s investors would be guaranteed a specific return for the life of the lease.
The question, of course, for all three stories, is WHO IS ENTITLED TO THE LAND RENT? Land rent is the annual value of an undeveloped piece of land. It is created by the community, by public spending, by our presence .... and we permit -- even honor* -- its privatization by whoever owns the land. We take it for granted. They take it for granted.
* We call those who acquire choice land and collect land rent from us "self-made men." We tax labor heavily, and sales, but we tax landlords but lightly, through local taxes, through federal income taxes, or through estate taxes with loopholes. We are so nice, so generous! ... and we wonder why things are SNAFUed. (The good news, though, is that we aren't dealing with FUBAR. This CAN be remedied simply, elegantly and justly. LAND VALUE TAXATION) Leona Helmsley described the situation this way: "We don't pay taxes, only the little people pay taxes." And Fred Harrison lays it out on YouTube.
This is stupid on our part. (How's that for understatement?)
There's a nice article in Saturday's Washington Post about Fairhope, Alabama, a town founded just over 100 years ago to put into action the ideas of Henry George. It sits on Mobile Bay.
Founded in 1894 as a utopian community based on the fair-tax theories
of economist Henry George, the town has long been a magnet for
intellectuals, Southern or otherwise; Sherwood Anderson, Upton Sinclair
and Clarence Darrow all spent time there. Even today, long since
subsumed into the greater Mobile metropolitan area, it remains a
popular place for writers, painters and craftspeople to set up shop.
Arden, Delaware, just outside Wilmington, does something similar, and it, too, is a lovely place to live.
The rest of Alabama might learn from Fairhope's fine example. (There are places in Alabama where sales taxes are as high as 10% ... not quite as bad as Chicago's, but awful nonetheless.) In most of Alabama, property taxes are quite low (see Susan Pace Hamill's work), and that underlies the state's problems. In Fairhope, the Single Tax
Corporation, which owns a significant chunk of the land, doesn't tax
the buildings, but charges each property owner in proportion to the
value of the land each occupies.
I know of a woman — I have never had the pleasure of
making her acquaintance, because she lives in a lunatic asylum, which does
happen to be on my visiting list. This woman has been mentally
incompetent from birth. She is well taken care of, because her father
left her when he died the income of a large farm on the outskirts of a
city. The city has since grown and the land is now worth, at
conservative estimate, about twenty million dollars. It is covered with
office buildings, and the greater part of the income, which cannot be
spent by the woman, is piling up at compound interest. The woman enjoys
good health, so she may be worth a hundred million dollars before she
I choose this case because it is one about which there can be no
disputing; this woman has never been able to do anything to earn that
twenty million dollars. And if a visitor from Mars should come down to
study the situation, which would he think was most insane, the
unfortunate woman, or the society which compels thousands of people to
wear themselves to death in order to pay her the income of twenty
The fact that this woman is insane makes it easy to see that she is not
entitled to the "unearned increment" of the land she owns. But how
about all the other people who have bought up and are holding for
speculation the most desirable land? The value of this land increases,
not because of anything these owners do — not because of any useful
service they render to the community — but purely because the community
as a whole is crowding into that neighborhood and must have use of the
The speculator who bought this land thinks that he deserves the
increase, because he guessed the fact that the city was going to grow
that way. But it seems clear enough that his skill in guessing which
way the community was going to grow, however useful that skill may be
to himself, is not in any way useful to the community. The man may have
planted trees, or built roads, and put in sidewalks and sewers; all
that is useful work, and for that he should be paid. But should he be
paid for guessing what the rest of us were going to need?
Clarence Darrow wrote at least two excellent things I'd like to share:
How to Abolish Unfair Taxation which ends with "The "single tax" is so simple, so fundamental, and so easy to carry
into effect that I have no doubt it will be about the last reform the
world will ever get. People in this world are not often logical; in
fact, there is never any considerable number of them that are logical.
I am pretty sure the people will never get started in the right
direction; they will go a long way around."
The Land Belongs to the People which includes this: "This earth is a little raft moving in the endless sea of space, and the
mass of its human inhabitants are hanging on as best they can. It is as
if some raft filled with shipwrecked sailors should be floating on the
ocean, and a few of the strongest and most powerful would take all the
raft they could get and leave the most of the people, especially the
ones who did the work, hanging to the edges by their eyebrows. These
men who have taken possession of this raft, this little planet in this
endless space, are not even content with taking all there is and
leaving the rest barely enough to hold onto, but they think so much of
themselves and their brief day that while they live they must make
rules and laws and regulations that parcel out the earth for thousands
of years after they are dead and, gone, so that their descendants and
others of their kind may do in the tenth generation exactly what they
are doing today — keeping the earth and all the good things of the
earth and compelling the great mass of mankind to toil for them."
"Now the theory of Henry George and of those who really believe in the
common ownership of land is that the public should take not alone
taxation from the land, but the public should take to itself the whole
value of the land that has been created by the public — should take it
all. It should be a part of the public wealth, should be used for
public improvements, for pensions, and belong to the people who create
the wealth — which is a strange doctrine in these strange times. It
can be done simply and easily; it can be done by taxation. All the
wealth created by the public could be taken back by the public and then
poverty would disappear, most of it at least. The method is so simple,
and so legal even — sometimes a thing is legal if it is simple — that
it is the easiest substantial reform for men to accomplish, and when it
is done this great problem of poverty, the problem of the ages, will be
almost solved. We may need go farther."
Susan Pace Hamill, one of my heroes, has published a new paper in the Hofstra Law Review, and while I share her concern for the poor and for economic justice, and I respect her scholarship, I think she's missing the most important questions!
Here's the abstract; the emphasis is mine:
State and local tax policy is one of
the most important areas of public policy affecting the lives of the
most powerless and vulnerable segments of the population – children
from low income families. Focusing on the funding of primary and
secondary education, especially in high poverty school districts, and
the scheme for allocating the tax burden, this article empirically
proves that all fifty states have unjust state and local tax policy,
with thirty-one states inflicting an extreme level of injustice on poor
children and their families. This
article argues that the people in most states, as well as their
political leaders, are compelled to reform state and local tax policy
because they claim to practice Christianity or Judaism, and, in
addition to being unjust under secular-based ethical models, their
state and local tax policy also violates the moral principles of
Judeo-Christian ethics. This article also argues that the moral
context of a faith-based appeal offers the best chance to inspire
people to support tax policy,
requiring greater levels of sacrifice from wealthier Americans,
a group that must be part of the reform effort in order to change the
state and local tax picture from a vast sea of injustice to a tool of
justice protecting our most vulnerable and powerless citizens.
I would counter that our tax policies should not require "greater levels of sacrifice" from anyone. But Professor Hamill, like 99% of the rest of the people who think about public finance and economic justice, seem to be stuck in a box, and it is the wrong box!
As I read this regular column, I generally have several thoughts:
The size of the lot is relevant, whether the home is on a city postage stamp, or a country estate.
For multi-story multi-family buildings, I'd like to know the number of stories and the footprint of the unit.
The age of the building is useful to know; many are quite old and, likely, quite inefficient, even obsolete
Right below the Property Tax information, I'd like to see the percentage of the school district's high school graduates who go to 4 year colleges, and the drop out rate from 9th grade to 12th. (This matters even if the target audience is 2nd home New Yorkers whose children won't attend those schools.) Generally, there seems to be a strong correlation between high property taxes and quality of local education.
What the typical reader probably doesn't think about is that for most of these properties, it is the location which is valuable, not the house itself. The writeups sometimes describe the locational amenities: transportation infrastructure and services, views, parks, jobs. All these things are definitely worth paying for; the question, of course, is who we should be paying, and how. Should we pay the previous owner, who didn't create any of those things -- or should we pay the community, which did? Should we pay the community in the form of taxes on our labor, or in the form of taxes on the value of the land we occupy?